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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
(MARK ONE)

{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

FOR THE FISCAL YEAR ENDED MARCH 31, 1998.1999.

{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM
_________________________________ TO
_______________.

COMMISSION FILE NUMBER: 0-21272

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

SINGAPORE 0-23354 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION) IDENTIFICATION NO.)

------------------------

514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

------------------------

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

Indicate by check mark if disclosures 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.

The aggregate value of voting stock held by non-affiliates of the Registrant was
approximately $39.625 as of May 29, 1998,$2,737 million, based upon the closing price of the Registrant's
Common Stock reported for such date on the Nasdaq National Market. Shares of
Common Stock held by each executive officer and director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. The determination of affiliate status is
not necessarily a conclusive determination for other purposes. As of May 29, 1998,June 15,
1999, the Registrant had 20,394,95648,122,058 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated into Part III of this report by
reference to the Proxy Statement for the Registrant's 1998 annual general
meeting of shareholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this Form 10-K.

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FLEXTRONICS INTERNATIONAL LIMITED
19981999 FORM 10-K
TABLE OF CONTENTS

Part I

Item 1. Business .............................................................4
Item 2. FacilitiesFacilities...........................................................17
Item 3. Legal ProceedingsProceedings....................................................19
Item 4. Submission of Matters to a Vote of Security HoldersHolders..................19

Part II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder MattersMatters.........................................20
Item 6. Selected Financial DataData..............................................21
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of OperationsOperations...................................23
Item 8. Financial Statements and Supplementary DataData..........................38
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial DisclosureDisclosure....................................67

Part III

Item 10. Directors and Executive Officers of the RegistrantRegistrant...................67
Item 11. Executive CompensationCompensation...............................................69
Item 12. Security Ownership of Certain Beneficial Owners and ManagementManagement.......69
Item 13. Certain Relationships and Related Transactions

PARTTransactions.......................69

Part IV

Item 14. Exhibits and Financial Statement SchedulesSchedules...........................70

PART I

Except for historical information contained herein, the matters discussed
in this annual report Form 10-K are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. The words "expects,"
"anticipates," "believes," "intends," "plans" and similar expressions identify
forward-looking statements, which speak only as of the date hereof. These
forward-looking statements are subject to certain risks and uncertainties,
including, without limitation, those discussed in "Item 1-Business--Risk
Factors," that could cause future results to differ materially from historical
results or those anticipated.

Item 1. BUSINESS

Flextronics International Limited ("Flextronics" or the "Company")Ltd. is a leading provider of advanced
electronics manufacturing services to original equipment manufacturers ("OEMs"OEM"")
in the telecommunications, networking, computer, consumer electronics and
medical device industries. Flextronics offersWe provide a fullwide range of integrated services, includingfrom
initial product design to volume production and fulfillment. Our manufacturing
services range from printed circuit board ("PCB") fabrication and assembly materials procurement, inventory management, final systemto complete
product assembly and test, packaging and distribution. The components, subassemblies and finished
products manufactured by Flextronics incorporatetest. We believe that we have developed particular
strengths in advanced interconnect, miniaturization and packaging technologies,technologies.
In addition, we provide advanced engineering services, including product design,
PCB layout, quick-turn prototyping and test development. Throughout the
production process, we offer logistics services, such as surface mount ("SMT"),
multi-chip modules ("MCM"), chip-on-board ("COB"), ball grid array ("BGA")materials procurement,
inventory management, packaging and miniaturized gold-plated PCB technologies. The Company's strategy isdistribution.

Through a combination of internal growth and acquisitions, we have become
the fourth largest provider of electronics manufacturing services with revenues
of $1.8 billion in fiscal 1999. We believe that our size, global presence and
expertise enable us to use its
globalwin large outsourced manufacturing capabilities and advanced technological expertise to
provide its customers withprograms from leading
multinational OEMs. We offer a complete and flexible manufacturing solution highly responsivethat
provides accelerated time-to-market and flexible service, accelerated time to market andtime-to-volume production, as well as
reduced production costs. The Company targetsBy working closely with customers throughout the
design, manufacturing and distribution process, and by offering highly
responsive services, we believe that we can become an integral part of their
operations.

Our customers include industry leaders such as Alcatel, Bay Networks,
Cisco, Compaq, Ericsson, Hewlett-Packard, Microsoft, Nokia, Philips, Sony and
3Com. In addition, we recently entered into relationships with a number of new
customers, including Kodak, Intel, Qualcomm, Lucent and Rockwell. Due to our
focus on high growth technology sectors, our prospects are influenced by certain
major trends, such as the buildout of the communications and Internet
infrastructure, the proliferation of wireless devices and other trends in
electronics technologies. In addition, our growth is driven by the accelerating
pace at which leading OEMs in growing vertical markets with which it
believes it can establish long-term relationships, and serves its customers onare adopting outsourcing as a global basis from its strategically locatedcore business strategy.

We have established an extensive network of manufacturing facilities in North America, South
America,the
world's major electronics markets - Asia, Westernthe Americas and Europe - to serve the
increased outsourcing needs of both multinational and Central Europe. The Company'sregional OEMs. We
strategically locate facilities near our customers' end markets and have located
fully integrated, high volume manufacturing facilities in low cost regions
worldwide. We have established industrial parks in China, Hungary and Mexico and
are planning an industrial park in Brazil. These self-contained facilities
provide a total manufacturing and fulfillment solution from a single site by

locating manufacturing and distribution operations and suppliers together. This
integrated approach to production and distribution benefits our customers include Advanced Fibre Communications, BayNetworks, Braun/ThermoScan, Cisco
Systems, Ericsson, Lifescan (a Johnson & Johnson company), Microsoft, Philips
Electronicsby
reducing logistical barriers and 3Com/US Robotics.costs, improving supply-chain management,
increasing flexibility, lowering transportation costs and reducing turnaround
times.

Since March 31, 1997, we have increased overall capacity by approximately
2.1 million square feet through internal growth and acquisitions. As a result,
we have grown to approximately 3.5 million square feet of capacity on four
continents.

Industry Overview

Many OEMs in the electronicelectronics industry are increasingly utilizing
electronics manufacturing service providers in their business and manufacturing
strategies, and are seeking to outsource a broad range of manufacturing and
related engineering services. Outsourcing allows OEMs to take advantage of the
manufacturing expertise and capital investments of electronics manufacturing
service providers, thereby enabling OEMs to concentrate on their core
competencies.competencies, such as product development, marketing and sales. OEMs utilize
electronics manufacturing service providers for many
reasons including the following:

Reduce Production Costs. Theto enhance their competitive
environment for OEMs requires that they
achieve a low-cost manufacturing solution,position by:

o reducing production costs;

o accelerating time-to-market and that they quickly reduce
production costs for new products. Due to their established manufacturing
expertise, production scale and infrastructure, electronics manufacturing
service providers can frequently provide OEMs with higher levels of
responsiveness, increased flexibility and reduced overall production costs than
in-house manufacturing operations.

Accelerate Time to Market. Rapid technological advances and shorter product life
cycles require OEMs to reduce the time required to bring a product to market in
order to remain competitive. By providing engineering services, established
infrastructure andtime-to-volume production;

o accessing advanced manufacturing expertise, electronics manufacturing
service providers can help OEMs shorten their product introduction cycles.

Access Advanced Manufacturing and Design Capabilities. As electronic products
have become smaller and more technologically advanced, manufacturing processes
have become more automated and complex, making it increasingly difficult for
OEMs to maintain the design and manufacturing expertise necessary to remain
competitive. Electronics manufacturing service providers can enable OEMs to gain
access to advanced manufacturing facilities, packaging technologies and design expertise.

Focus Resources. Because the electronics industry is experiencing increased
competitioncapabilities;

o reducing capital investment requirements and technological change, many OEMs are focusing their resources on
activities and technologies where they add the greatest value. Electronics
manufacturing service providers offer comprehensive services that allow OEMs to
focus on their core competencies.

Reduce Investment. As electronic products have become more technologically
advanced, internal manufacturing has required significantly increased investment
for working capital, capital equipment, labor, systems and infrastructure.
Electronics manufacturing service providers can enable OEMs to gain access to
advanced, high volume manufacturing capabilities without making the capital
investments required for internal production.

Improve Inventory Management and Purchasing Power. OEMs are faced with
increasing challenges in planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life cycles, large
investments in electronic components, component price fluctuations and the need
to achieve economies of scale in materials procurement. Electronics
manufacturing service providersfixed overhead costs;

o improving inventory management expertise and volume
procurement capabilities can reduce OEM productionpurchasing power; and

inventory costs, helping
them respondo accessing worldwide manufacturing capabilities.

As a result of these factors, industry sources estimate that the overall
market for electronic manufacturing services has grown at an average annual rate
of 25% from 1988 to competitive pressures and increase their return on assets.

Access Worldwide Manufacturing Capabilities. OEMs are increasing their
international activities1997, reaching an estimated $73 billion in an effort to lower costs and access foreign markets.
Electronics manufacturing service providers with worldwide capabilities are able
to offer such OEMs a variety of options on manufacturing locations to better
address their objectives regarding costs, shipment location, frequency of
interaction with manufacturing specialists and local content requirements of
end-market countries. In addition, OEMs in Europe and other international
markets are increasingly recognizing the benefits of outsourcing.1997.

Strategy

The Company'sOur objective is to enhance itsour position as a top tier provider of advanced
electronics manufacturing and design services to OEMs worldwide. The
Company'sservices. Our strategy to meet this objective includes
the following key elements:

Leverage Global Presence. The Company hasServe Major Markets From Strategic, Low Cost Regions. We have established
aan extensive network of manufacturing presencefacilities in the world's major
electronics markets --- Asia, the Americas and Europe -- in
order- to serve the increasingincreased
outsourcing needs of both multinational and regional OEMsOEMs. We strategically
locate facilities near our customers' end markets and have located fully
integrated, high volume manufacturing facilities in low cost regions worldwide.
By operating in low cost areas, we are able to realize savings in lower labor,
overhead, tax and transportation costs, which we can pass on to our customers.

Capitalize on Industrial Park Strategy. We have established large,
strategically located industrial parks in China, Hungary and Mexico, designed
for high volume production, and are planning a new industrial park in Brazil.
These self-contained facilities provide the global, large scale capabilities requireda total manufacturing and fulfillment
solution from a single site by larger OEMs. In the past
eighteen months, the Company substantially expanded itslocating manufacturing and distribution
operations and suppliers together. This integrated approach to production and
distribution benefits our customers by reducing logistical barriers and costs,
improving supply-chain management, increasing flexibility, lowering
transportation costs and reducing turnaround times.

Establish Close Relationships with Customers. We believe we can become an
integral part of our customers' operations by expanding its integrated campus in Doumen, China, constructingworking closely with them
throughout the design, manufacturing and distribution process, and by offering
flexible, highly responsive services. We believe we develop strong customer
relationships through a new

manufacturing campus in Guadalajara, Mexico, adding facilities in San Jose,
California, acquiring facilities in Karlskrona, Sweden from Ericsson (the
"Karlskrona Facilties")management approach which fosters rapid decision-making
and acquiring Neutronics Electronics Holding AG
("Neutronics"),a customer service orientation that responds quickly to frequently changing
customer design specifications and production requirements. In many cases, we
closely integrate our information systems with manufacturing operations in Austriathose of our customers. This
customer-focused approach allows us to accelerate our customers' time-to-market
and Hungary. The
Company planstime-to-volume production and helps them to further increase the scale and the scope of the services
offered in each site and believes that this will allow itrespond quickly to better address the
needs of leading OEMs.

Provide achange.

Deliver Complete Manufacturing Solution. The Company believes thatWe believe OEMs are increasingly
requiring a wider range of advanced services from electronicsengineering and manufacturing services providers.in
order to reduce their costs and accelerate their time to market. Building on itsour
integrated engineering and manufacturing capabilities, the Company provides its customers withwe provide services
ranging from
initial product design and development and prototype productiontest to final product assembly and distribution to
OEMs'the OEM's customers. The Company believes
that thisIn addition, our global network of industrial parks,
manufacturing and technology centers, regional manufacturing facilities and
product introduction centers provides greater control over quality, deliverycustomers with a scalable, flexible
solution to support their needs as their products move from design and cost,initial
introduction to high volume production and enables
the Company to offer its customers a complete cost-effective solution.

Providedistribution.

Leverage Advanced Technological Capabilities. Through its continuing investmentOur strengths in advanced
miniaturization, packaging and interconnect technologies (such as COB, BGA and
miniature gold-finished PCB capabilities), as well as its investment inenable us to offer
customers advanced design, and engineering capabilities, the Company is able to offer its customers
a variety of advanced designtechnology and manufacturing solutions. In particular,solutions for their
leading-edge products. Our product introduction centers are located in North
America and Europe and provide a high level of engineering expertise to the
Company believes that its abilitycustomer. Our technological capabilities help our customers to meet growing market demand for miniaturized
electronic products will be critical to its ongoing success, and has developed
and acquired a number of innovative technologies to address this demand.

Accelerate Customers' Time to Market. The Company's engineering services group
provides integratedshrink product
design and prototyping services to help customers
accelerate their time to market for new products. By participating insize, improve product design and prototype development, the Company often reduces the costs of
manufacturing the product. In addition, by designing products to improve
manufacturability and by participating in the transition to volume production,
the Company believes that its engineering services group can significantly
accelerate the time to volume production. By working closely with its suppliers
and customers throughout the design and manufacturing process, the Company
believes that it can enhance responsiveness and flexibility, increase
manufacturing efficiencyperformance and reduce total cycle times.

Increase Efficiency Through Logistics. The Company is streamlining and
simplifying production logistics at its large, strategically located facilities
to decrease the costs associated with the handling and managing of materials.
The Company has incorporated suppliers of certain components in its facilities
in China, Hungary, and Mexico to further reduce material and transportation
costs. The Company has established warehousing capabilities from which it can
ship products into customers' distribution channels.

Target Leading OEMs in Growing Vertical Markets. The Company has focused its
marketing efforts on fast growing industry sectors that are increasingly
outsourcing manufacturing operations, such as the telecommunication, networking,
computer, consumer electronics and medical device industries. The Company seeks
to maintain a balance of customers among these industries, establishing
long-term relationships with leading OEMs to become an integral part of their
operations.

There can be no assurance that the Company'sour strategy, even if successfully
implemented, will reduce the risks associated with the Company's business. See
"Risk"- Risk Factors."

Customers

The Company's customers consist of a select group of OEMs in the
telecommunications, networking, computer, consumer electronics and medical
device industries. Within these industries, the Company's strategy is to seek
long-term relationships with leading companies that seek to outsource
significant production volumes of complex products. The Company has increasingly
focused on sales to larger companies and to customers in the telecommunications,
networking and consumer industries. In fiscal 19971998 and fiscal 1998,1999, the
Company's five largest customers accounted for approximately 49%57% and 57%62%,
respectively, of net sales. The loss of one or more major customers would have a
material adverse effect on the Company, its results of operations, prospects or
debt service ability. See "- Risk"Risk Factors --Customer-- Customer Concentration; Dependence

on Electronics Industry" and "-- Variability of Customer Requirements and
Operating Results."

The following table lists in alphabetical order certain of the Company's largest
customers in the twelve months ended March 31, 1998fiscal 1999 and the products for which the Company provides
manufacturing services.

CUSTOMER END PRODUCTS
- --------------------------------------------------------------------------------- -----------------------------------
3Com/US Robotics........................... Pilot electronic organizers
Advanced Fibre Communications.........Communications.............. Local line loop carriers
Bay Networks....... ..................Alcatel ................................... Business telecommunications systems
Cisco ..................................... Data communications products
Braun/ThermoScan...................... Temperature monitoring systems
Cisco Systems......................... Data communications products
Compaq/Microcom....................... Modems
Ericsson..............................Ericsson................................... Business telecommunications systemssystem
Hewlett Packard ........................... Printers
Lifescan (a Johnson & Johnson company)..... Portable glucose monitoring system
Microsoft.............................Microsoft.................................. Computer peripheral devices Philips Electronics...................and
internet access devices
Nortel Networks............................ Data communications products
Philips.................................... Consumer electronics products
3Com/US Robotics...................... Pilot electronic organizers

In addition, the Company recently began manufacturing products for a number
of new customers, including Alcatel (business telecommunications systems)Intel (mother boards), Aspect (business telecommunications systems)Kodak (reusable cameras),
Nokia (consumer electronicsLucent (data communications products), Qualcomm (cellular phones) and WebTV/Microsoft (consumer internet devices)Rockwell
(modems). None of these customers represent more than 10% of the Company's net
sales in fiscal 1998.

In connection with the acquisition 1999.

The Company's largest customers during fiscal 1999 were Philips, Ericsson,
and Cisco accounting for approximately 18%, 16% and 13%of the Karlskrona Facilities, the
Company, certain of its subsidiaries and Ericsson entered into a multi-year
purchase agreement (the "Karlskrona Purchase Agreement"). Sales to Ericssonconsolidated net
sales, respectively. No other customer accounted for approximately 26%more than 10% of
the Company'sconsolidated net sales in fiscal 1998, and
the Company believes that sales to Ericsson will account for a significant
portion of its net sales in fiscal 1999. See " -- Recent Acquisitions" and " -
Risk Factors -- Risks of Karlskrona Purchase Agreement."

Sales and Marketing

The Company achieves worldwide sales coverage through a direct sales force,
which focuses on generating new accounts, and through program managers, who are
responsible for managing relationships with existing customers and making
follow-on sales. The Company's Asian sales offices are located in Singapore and
Hong Kong. In North America, the Company maintains sales offices in California,
Florida and Massachusetts. The Company's Asian sales offices are
located in Singapore and Hong Kong. In Europe, the Company maintains sales offices in
England, France, Germany, the Netherlands and Sweden. In addition to its sales
force, the Company's executive staff plays an integral role in the Company's
marketing efforts.

SERVICES

The Company providesServices

Flextronics offers a broad range of advanced engineering, manufacturingintegrated services, providing
customers with a total solution to take a product from initial design through
volume production, test and distribution services to OEM customers. These services are provided on a
turnkey basisinto post-sales service and to a lesser extent, on a consignment basis,support.

Engineering Services. Our product introduction centers coordinate and
include
product design, PCB fabrication and assembly, materials procurement, inventory
management, final system assembly and test, packaging and distribution. The
components, subassemblies and complete products manufactured by the Company for
its OEM customers incorporate advanced interconnect, miniaturization and
packaging technologies, such as SMT, COB and BGA technologies. A substantial
portion of the Company's net sales (a majority in fiscal 1998) are derived from
the manufacture and assembly of complete products that are substantially ready
for distribution by the OEM to its customers. The Company also designs and
manufactures miniature gold-finished PCBs that OEMs then incorporate into their
products.

Engineering Services

The engineering services group coordinates and integrates the Company'sintegrate our worldwide design, prototype, test development and other
engineering capabilities. Through its
"productthese product introduction centers", the Company providescenters, we provide
a broad range of engineering services and, in some casescertain locations, dedicated
production lines for prototype. This focused, integrated approach provides the Company's customers
with advanced service and support and leverages the Company's technological
capabilities. As a result, the engineeringprototypes. These services group enables the Company to
strengthen its relationshipour relationships
with manufacturing customers as well as toand attract new customers who requirerequiring advanced
designengineering services.

The engineering services group actively assists7

To assist customers with initial product design, in order to reduce the time from design to prototype, improve
product manufacturability and reduce product costs. The Company provides a full
range of electrical, thermal and mechanical design services, includingwe provide CAE and CAD-based
design, services, manufacturing engineering services,for manufacturability, circuit board layout and test
development. The engineering services groupWe also coordinatescoordinate industrial design and tooling for product
manufacturing. After product design, the Company provides prototype assemblies for fast turnaround.we provide quick-turn prototyping. During
the
prototypethis process, Company engineers work with customer engineers to enhance
production efficiency and improve product design. The engineering services group
then assistswe assist with the transition to high volume production. By
participating in product design and prototype development, the Companywe can reduce
manufacturing costs and accelerate the time to high volume production.

Materials Procurement and ManagementManagement. Materials procurement and management
consists of the planning, purchasing, expediting and warehousing of the components
and materials used in the
manufacturing process. The Company'smaterials. Our inventory management expertise and volume procurement
capabilities contribute to cost reductions and reduce total cycle time. The Company generally orders components after it has a firm purchase order
or letter of authorization from a customer. However, in the case of long
lead-time items, the Company will occasionally order components in advance of
orders, based on customer forecasts, to ensure adequate and timely supply.
Although the Company works with customers and third-party suppliers to reduce
the impact of component shortages, such shortages may occur from time to time
and may have a material adverse effect on the Company. See "- Risk Factors --
Limited Availability of Components." The campusesOur
industrial parks in China, Hungary and Mexico are designed to provideinclude providers of many of the
custom components used by the Company
on-site,

in order to reducethat we use, thus reducing material and transportation costs,
simplifysimplifying logistics and facilitatefacilitating inventory management.

Assembly and Manufacturing

The Company'sManufacturing. Our assembly and manufacturing operations
include PCB assembly, and, increasingly, the manufactureassembly of subsystems and complete products. Its PCB
assembly activities primarily consist of the placement and attachment of
electronic and mechanical components on printed circuit boards using both SMT
and traditional pin-through-hole ("PTH") technology. The Company also assembles
subsystems and systems incorporatingthat incorporate PCBs
and complex electromechanical components,components. A substantial portion of our net sales
is derived from the manufacture and increasingly, manufactures and packages final products for
shipment directly to the customer or its distribution channels. The Companyassembly of complete products. Flextronics
employs just-in-time, ship-to-stock and ship-to-line programs, continuous flow
manufacturing, demand flow processes and statistical process control. The
Company has expanded the number of production lines for finished product
assembly, burn-in and test to meet growing demand and increased customer
requirements. In addition, the Company has invested in FICO, a producer of
injection molded plastic for Asia electronics companies with facilities in
Shenzhen, China.

As OEMs
seek to provide greater functionality in smaller products, they increasingly
require advancedmore sophisticated manufacturing technologies and processes. MostOur
investment in advanced manufacturing equipment and our experience and expertise
in innovative miniaturization, packaging and interconnect technologies (such as
chip scale packaging, chip-on-board, ball grid array and thermal vias) enable us
to offer a variety of the Company's PCB assembly involves the use of SMT, which is the leading
electronics assembly technique for more sophisticated products. SMT is a
computer-automated process which permits attachment of components directly on
both sides of a PCB. As a result, it allows higher integration of electronic
components, offering smaller size, lower cost and higher reliability than
traditionaladvanced manufacturing processes. By allowing increasingly complex circuits
to be packaged with the components placed in closer proximity to each other, SMT
greatly enhances circuit processing speed, and therefore board and system
performance. The Company also provides traditional PTH electronics assembly
using PCBs and leaded components for lower cost products.

With its acquisitions of Neutronics and DTM Products, Inc. ("DTM"), the
Company gained significant plastic injection molding capabilities.solutions. In addition, the Company has a 40% investment in FICO Investment Holding Ltd.("FICO"), which
produces injection molded plastics for Asian companies. Neutronics offers a wide
range of custom-manufactured plastic components for various sectors of the
electronics industry, including consumer, computer, telecommunications, medical
and industrial. The Company's plastic component manufacturing operations in
Hungary utilize highly automated injection molding processes.

The electronic products market is directly dependent on the plastic
components market for the packaging of an electronic product. The design of
plastic components for a new electronic product, and the associated sourcing of
plastic molds, normally involves a substantial lead time. As a result, plastic
suppliers with technical capabilities, such as Neutronics and DTM, are able to
provide additional services to electronic product manufacturers, such as the
development of plastic components and electronics assembly and development, to
improve the production process and reduce the finished product's time to market.

The Company's 1996 acquisition of Astron Group Limited ("Astron"),provided
it with significant capabilities to fabricatewe
manufacture miniature gold-finished PCBs for
specialized applications such as cellular phones, optoelectronics, LCDs, pagers
and automotive electronics. These advanced laminate substrates can significantly
improve a product's performance, while reducing its sizedevelop and cost. The Company's

miniature, gold-finished PCBs are fabricated in the Company's facility in China.

The Company is also increasingly utilizing advanced interconnect and
packaging technologies such as chip on board and ball grid array technology. COB
technology represents a configuration in which a bare, unpackaged semiconductor
is attached directly onto a PCB, wire bonded and then encapsulated with a
polymeric material. COB technology facilitates miniaturized, low-profile
assemblies, and can result in lower component costs and reduced time to market.
The Company has significant experience in utilizing COB technology to
manufacture a wide range of products. BGA technology is an emerging technology
for packaging semiconductors that can provide higher interconnect density and
improved assembly yields and reliability by assembling surface-mount packages to
the circuit board through an array of solder balls, rather than pin leads. The
Company has recently begun utilizing BGA technology to manufacture products for
OEMs.

Test

After assembly, the Company offersproduce
injection-molded plastic components.

Test. We offer computer-aided testing of assembled PCBs, subsystems and
systems, which contributes significantly to the Company'sour ability to deliver high-quality
products on a consistent basis. WorkingWe work with itsour customers the Company developsto develop
product-specific test strategies. The Company'sOur test capabilities include management
defect analysis, in-circuit tests and functional tests. In-circuit tests verify that all components have been properly
insertedWe either custom design
test equipment and that the electrical circuits are complete. Functional tests
determine if the boardsoftware ourselves or system assembly is performing to customer
specifications. The Company either designsuse test equipment and procures test fixtures and
develops its own test software
or utilizes its customers' existing test fixtures
and test software.provided by our customers. In addition, the Companywe also providesprovide environmental stress
tests of the board or system assembly.

Distribution

The Company offers itsassemblies.

Distribution. We offer our customers flexible, just-in-time delivery
programs allowing product shipments to be closely coordinated with customers'
inventory requirements. Increasingly, the Company is warehousing products for customers
and shipping thosewe ship products directly into theircustomers'
distribution channels. The
Company believeschannels or directly to the end-user. We believe that this service
can provide our customers with a more comprehensive solution and enable them to
be more responsive to market demands.

COMPETITIONCompetition

8
OEMs with excess manufacturing capacity, and many existing participants,
including the Company, have significantly increased their manufacturing capacity
by expanding their facilities and adding new facilities. In the event of a
decrease in overall demand for electronics manufacturing services, this
increased capacity could result in substantial pricing pressures which could
adversely affect the Company's operating results. Certain of the Company's
competitors, including Solectron, CorporationSCI Systems and SCI Systems,Celestica, have substantially
greater manufacturing,

10
financial, research and development and marketing
resources than the Company. As competitors increase the scale of their
operations, they may increase their ability to realize economies of scale, to
reduce their prices and to more effectively meet the needs of large OEMs. The
Company believes that the principal competitive factors in the segments of the
electronics manufacturing services industry in which it operates are cost,
technological capabilities, responsiveness and flexibility, delivery cycles,
location of facilities, product quality and range of services available. Failure
to satisfy any of the foregoing requirements could materially adversely affect
the Company's competitive position, its results of operations, prospects or debt
service ability.

EMPLOYEESEmployees

As of March 31, 1998,1999, the Company employed approximately 13,300 persons,
including 3,600 employees in Austria and Hungary who were added with the
Neutronics acquisition and approximately 1,200 employees who were added with the
Company's March 31, 1998 acquisitions of Conexao Informatica Ltda.("Conexao")
and Altatron Inc. and Marathon Business Park LLC (collectively "Altatron"). Most
of the Company's non-management employees outside of the United States are
represented by labor unions.18,147 persons.
The Company has never experienced a work stoppage or strike. Thestrike and the Company
believes that its employee relations are good.

The Company's success depends to a large extent upon the continued services
of key managerial and technical employees. The loss of such personnel could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. To date, the Company has not experienced significant
difficulties in attracting or retaining such personnel. Although the Company is
not aware that any of its key personnel currently intend to terminate their
employment, their future services cannot be assured. See "- Risk Factors -- Dependence onof Key PersonnelPersonnel."

Recent Acquisitions

In June 1999, Flextronics entered into an agreement to acquire Kyrel EMS
Oyj, a provider of electronics manufacturing services with two facilities in
Finland and Skilled Employees."

RECENT ACQUISITIONSone in Luneville, France. Kyrel employs approximately 900 people and
its 1998 revenues were $230 million. Flextronics expects to issue approximately
1.9 million shares in the acquisition. Government approval is required in
Finland and the transaction is expected to close in the second quarter of fiscal
2000. The acquisition of Kyrel Ems Oyj will be accounted for as a
pooling-of-interests.

In May 1999, Flextronics purchased the manufacturing facilities and related
assets of ABB Automation Products in Vasteras, Sweden for approximately $25.9
million. This facility provides printed circuit board assemblies and other
electronic equipment. Flextronics has also offered employment to 575 ABB
personnel who were previously employed by ABB Automation Products. In connection
with the acquisition of certain fixed assets, the Company has also entered into
a manufacturing service agreement with ABB Automation Products.

In April 1999, Flextronics entered into an agreement to purchase the
manufacturing facilities and related assets of Ericsson's Visby, Sweden
operations. Ericsson's Visby facility manufactures mobile systems
infrastructure, primarily radio base stations. Under the terms of the agreement,
Flextronics will acquire the facility, including equipment and materials. In
connection with the acquisition of assets, the Company has also entered into a
manufacturing service agreement with Ericsson. The asset transfer is expected to
close during the second quarter of fiscal 2000.

On March 31, 19981, 1999, Astron, a subsidiary of the Company, acquired Conexao, a Brazil-based electronicsthe
manufacturing services provider, in exchange for a totalfacilities and related assets of 421,593 Ordinary
Shares, of which 118,305 Ordinary Shares are to be issued upon resolution of
certain general and specific contingencies.

On March 31, 1998, the Company also acquired Altatron Inc., an electronics
manufacturer service provider headquartered in Fremont, California, with
facilities in Fremont, California; Richardson, Texas; and Hamilton, Scotland in
exchange for 788,650 Ordinary Shares, of which 157,730 Ordinary Shares are to be
issued upon resolution of certain general and specific contingencies.

On December 1, 1997, the Company acquired DTM Advanced Component Labs HK Ltd.
("ACL"), a Colorado-based producer
of injection molded plasticsHong Kong based advanced technology printed

circuit board manufacturer for North American OEMs, in exchange for 252,469
Ordinary Shares, and Energipilot AB, a Swedish company principally engaged in
providing cables and engineering services for Northern European OEMs, in
exchange for 229,990 Ordinary Shares.

On October 30, 1997, the Company acquired 92% of the outstanding ordinary
shares of Neutronics, an Austrian electronics manufacturing service provider
with operations in Austria and Hungary, for 2,806,000 Ordinary Shares of the
Company. Neutronics' net sales in fiscal 1998 was approximately $210.2 million.
Neutronics' customers include Philips Electronics, Nokia and other OEMs in the
consumer electronics, business electronics, computer telecommunications, primary
care, medical appliances and automotive electronics industries. Approximately

64% of Neutronic's net sales for the fiscal year 1998 were derived from sales to
Philips Electronics.

Neutronics conducts its operations through four manufacturing facilities,
one in Austria and three in Hungary. These facilities, which total 718,000
square feet and have a total of approximately 3,600 employees are engaged
primarily in PCB assembly, as well as injection molded plastics. Neutronics also
provides engineering services at its Althofen, Austria facility.$15.0 million cash. The Company believes that Neutronics' manufacturing sitesthe
acquisition of ACL will enhance Astron's advanced packaging substrate technology
to meet growing market demands for small handheld telecommunication and personal
computing devices and plans to consolidate the operations of both Astron and
ACL.

On March 1, 1999, the Company increased its ownership of FICO Investment
Holding Ltd. ("FICO") to 90% by acquiring an additional 50% of its equity
interests for (i)$7.2 million cash, (ii)127,850 Ordinary Shares issued at
closing valued at $4.8 million (iii)$3.0 million in Hungary (at Tab, Sarvar and
Zalaegerszag) benefit from2% promissory notes due $1.0
million each in year 2000 through year 2002. FICO is a relatively low cost of labor compared to Western
Europe and the United States. There can be no assurance that real wages in
Hungary will not rise to a level comparable to Western Europe or the United
States.

Neutronics commenced operations in July 1994 as a joint venture between a
subsidiary of Philips Electronics and Sandaplast B.V. ("Sandaplast"), a Dutch
company corporation based in Malaysia. Neutronics initially acquired Philips'
existing facility in Althofen, Austria, and subsequently established the three
Hungarian facilities, modernized the Austrian facility and added plasticplastics injection
molding capabilities. Accordingly, Neutronics has a limited operating
history. At the time of the acquisition, Neutronics was owned by Philips,
Malaysian businessman Hui Shing Leong and Neutronics' management. Neutronics'
management retained ownership of eight percent of the shares of Neutronics and
Mr. Hui has joined the Company's Board of Directors.

On March 27, 1997, the Company acquired from Ericsson the Karlskrona
Facilitiescompany located in Karlskrona, Sweden and related inventory, equipment and
other assets for approximately $82.4 million in cash. The Company, certain of
its subsidiaries and Ericsson also entered into the Karlskrona Purchase
Agreement, under which the Company will manufacture and Ericsson will purchase,
for a three-year period, certain products used in Ericsson's business
communications systems. See "-Risk Factors -- Risks of Karlskrona Purchase
Agreement".China.

The ability of the Company to obtain the benefits of its recent
acquisitions are subject to a number of risks and uncertainties, including the
Company's ability to successfully integrate the acquired operations and its
ability to maintain, and increase, sales to customers of the acquired companies.
See "-Risk Factors --- Risk of Acquisitions" and "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."

RISK FACTORS

ManagementRisks of Expansion of Operations

We have grown rapidly in recent periods, and Consolidation

The Company is currently experiencing a period of rapid expansion both
through internalthis growth and acquisitions, with net sales increasing from $131.3
million in fiscal 1994 to $1.1 billion in fiscal 1998. There can be no assurance
that the Company's historicalmay not continue.
Internal growth will continue or that the Company will
successfully manage the integration of acquired operations. Expansion has
caused,require us to develop new customer relationships and is expected to continue to cause, strain on the Company's
infrastructure, including its managerial, technical, financialexpand
existing ones, improve our operational and other
resources. To manageinformation systems and further
growth, the Company must continue to enhance
financial controls and hire additional engineering and sales personnel. The
Company's ability to manage any future growth effectively will require it to
attract, train, motivate and manage new employees successfully, to integrate new
employees into its overall operations and to continue to improve its operational
systems. The Company may experience certain inefficiencies as it integrates new
operations and manages geographically dispersed operations. There can be no
assurance that the Company will be able to manage its expansion effectively, and
a failure to do so could have a material adverse effect on the Company. In
addition, the Company would be adversely affected if its new facilities do not
achieve growth sufficient to offset increased expenditures associated with
expansion.

Expansion through acquisitions and internal growth has contributed to the
Company's incurring significant accounting charges and experiencing volatility
in its operating results. There can be no assurance that the Company will not
continue to experience volatility in its operating results or incur write-offs
in connection with its expansion efforts. See "Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations."

The Company plansexpand our manufacturing capacity.

We plan to further expand itsour manufacturing capacity by expanding itsour
facilities and by adding new equipment. The Company expects substantial new
capital expendituresSuch expansion involves significant
risks. For example:

o we may not be able to attract and operating lease commitments in connection with this
expansion. The Company plans to utilize operating leases, net cash from
operations, existing cash balancesretain the management personnel and
borrowings under its credit facilityskilled employees necessary to support this expansion. No assurance can be given as to the availability of such
net cash fromexpanded operations;

o we may not efficiently and effectively integrate new operations, or borrowings, or as to the availability or terms of
any operating leases. The Companyexpand
existing ones and manage geographically dispersed operations;

o we may incur cost overruns;

o we may encounter unforeseen difficulties, costs
or delays in developing, constructing and equipping the new manufacturing
facilities, and there can be no assurance as to when it will complete
construction. The development and construction of the new facilities are subject
to significant risks and uncertainties, including cost estimation errors and
overruns, construction delays, weather problems, equipment delays or shortages, labor
shortages and disputes and production start-up problems and other factors. As
many of such factors are beyond the Company's control, the Company cannot
predict the length of any such delays, whichthat could be substantial and could
result in substantial cost overruns. Such delays would
adversely affect the
Company's salesour growth and the Company'sour ability to timely meet customers' delivery
schedules. Furthermore, the Company's developmentschedules; and

construction of the new
facilities will result ino we may not be able to obtain funds for this expansion, and we may not be
able to obtain loans or operating leases with attractive terms.

In addition, we expect to incur new fixed and operating expenses associated
with our expansion efforts, including substantial increases in depreciation
expense and rental expense, that will increase the Company'sour cost of sales. If revenue levelsour
revenues do not increase sufficiently to offset these new expenses, the Company'sour operating
results couldwould be materially adversely affected. 13Our expansion, both through acquisitions
and internal growth, has contributed to our incurring significant accounting
charges and

experiencing volatility in our operating results. We may continue to experience
volatility in operating results in connection with future expansion efforts.

Risks of Acquisitions

Acquisitions have represented a significant portion of the Company's growth
strategy.strategy, and the Company intends to continue to pursue attractive acquisitions
opportunities. Our acquisitions during the last two fiscal years represented a
significant expansion of our operations. Acquisitions involve a number of risks
including theand challenges, including:

o diversion of management's attention,attention; o the integration and assimilation of the operations and
personnel of theneed to integrate acquired
companies, and theoperations;

o potential loss of key employees and customers of the acquired companies. The Company may not have had anycompanies;

o lack of experience with technologies, processes and markets involved withoperating in the acquired business and
accordingly may lack the management and marketing experience that will be
necessary to successfully operate and integrate the business. The successful
operation of an acquired business will require communication and cooperation in
product development and marketing among senior executives and key technical
personnel. There can be no assurance that the integrationgeographic market of the acquired
businesses will be successfulbusiness; and

will not resulto an increase in disruption in one or more
sectors of the Company's business. In addition, there can be no assurance that
the Company will realize any of the other anticipated benefits of the
acquisition. Furthermore, additional acquisitions would require investment of
financial resources,our expenses and may require debt or equity financing. No assurance can
be given that the Company will consummate any acquisitions in the future, that
any past or future acquisition by the Company will not materially adversely
affect the Company, or that any such acquisition will enhance the Company's
business.

The acquisitions in the last eighteen months represent a significant
expansion of the Company's operations and entail a number of risks. Theworking capital requirements.

To integrate acquired operations, are now being integrated into the Company's ongoing manufacturing
operations. This requires optimizing production lines, implementing newwe must implement our management
information systems implementing the Company'sand operating systems and assimilatingassimilate and managing existing personnel.manage the
personnel of the acquired operations. The difficulties of this integration may
be further complicated by geographic distances. In addition,The integration of acquired
businesses may not be successful and could result in disruption to other parts
of our business.

Any of these acquisitions have increased and will continueother factors could adversely affect our ability to
increase the Company's
expenses and working capital requirements, and place burdens on the Company's
management resources. In the event the Company is unsuccessful in integrating
these operations, the Company would be materially adversely affected. In
addition, prior to the acquisitions of the Karlskrona Facilities, Neutronics and
Conexao, the Company had no experience operating in Sweden, Central Europe or
Brazil, and there can be no assurance that the Company will achieve acceptableanticipated levels of profitability at the acquired operations or realize
other anticipated benefits of an acquisition. Furthermore, any future
acquisitions may require additional debt or equity financing, which could
increase our leverage or be dilutive to our existing shareholders. No assurance
can be given that we will consummate any acquisitions in the acquisitions
will not adversely affect its gross margins.future.

Variability of Customer Requirements and Operating Results

Electronics manufacturing service providers must provide increasingly rapid
product turnaround and respond to ever-shorter lead times. The Companyfor their customers. We generally doesdo not obtain firm,
long-term purchase commitments from itsour customers, and over the past few years
haswe have experienced reduced lead-times in customer orders. Customers may cancel
their orders, change production quantities or delay production for a number of
reasons. Cancellations, reductions or delays by a significant customer or by a
group of customers would adversely affect our results of operations. In addition
to the variable nature of our operating results due to the short-term nature of
our customers' commitments, other factors may contribute to significant
fluctuations in our results of operations. These factors include:

o the timing of customer contracts can be canceledorders;

o the volume of these orders relative to our capacity;

o market acceptance of customers' new products;

o changes in demand for customers' products and product obsolescence;

o the timing of our expenditures in anticipation of future orders;

o our effectiveness in managing manufacturing processes;

o changes in the cost and availability of labor and components;

o changes in our product mix;

o changes in economic conditions;

o local factors and events that may affect our production volume levels can be changed or
delayed(such as
local holidays); and

such cancellations and delays could affecto seasonality in customers' product requirements.

One of our significant end-markets is the abilityconsumer electronics market. This
market exhibits particular strength towards the end of the Company to forecast purchase commitments accurately. The Company must
continuallyyear in connection
with the holiday season. As a result, we have experienced relative strength in
our revenues in the third fiscal quarter.

We make other significant decisions, for which it is responsible, including the levels of business that itwe
will seek and accept, production schedules, component procurement commitments,
personnel needs and other resource requirements, based on our estimates of
customer requirements. The short-term nature of our customers' commitments and
the possibility of rapid changes in demand for their products reduces our
ability to estimate accurately future customer requirements that are
subject to significant change. A variety of conditions, both specific to the
individual customer and generally affecting the industry, may cause customers to
cancel, reduce or delay orders. Cancellations, reductions or delays by a
significant customer or by a group of customers would adversely affect the
Company.requirements. On occasion,
customers may require rapid increases in production, which can stress the Company'sour
resources and reduce margins. Although the Company has

14
we have increased itsour manufacturing
capacity and plan further increases, there can be no assurance that the Companywe will have
sufficient capacity at any given time to meet itsour customers' demands
if such demands exceed anticipated levels.demands. In
addition, to the variability resulting from the short-term naturebecause many of its
customers' commitments, other factors have contributed,our costs and may contributeoperating expenses are relatively fixed,
a reduction in the future, to significant periodiccustomer demand can adversely affect our gross margins and
quarterly fluctuations in the Company's
results of operations. These factors include, among other things: timing of
orders; volume of orders relative to the Company's capacity; customers'
announcements, introductions and market acceptance of new products or new
generations of products; evolution in the life cycles of customers' products;
timing of expenditures in anticipation of future orders; effectiveness in
managing manufacturing processes; changes in cost and availability of labor and
components; product mix; and changes or anticipated changes in economic
conditions. In addition, the Company's net sales may fluctuate throughout the
year as a result of local factors and events that may affect production volumes
and seasonality in products requirements by certain customers.operating income.

Customer Concentration; Dependence on Electronics Industry

A small numberOur five largest customers accounted for approximately 62% of customers are responsible for a significant portion of
the Company's net sales. Approximately 26% and 13% of the Company'sconsolidated
net sales in fiscal 1998 was derived from sales to Ericsson1999 and Philips Electronics
respectively, and sales to the Company's top five57% in fiscal 1998. Our largest customers during
fiscal 1998
accounted1999 were Philips, Ericsson and Cisco accounting for approximately 57%18%,
16% and 13% of totalconsolidated net sales, comparedrespectively. Sales to 46% during fiscal
1997. The Company anticipates thatour five largest
customers had represented a small numbermajority of customers will continue to
account for a large portion of itsour net sales as it focuses on strengthening and
broadening relationships with leading OEMs. See "-- Customers" and "-- Recent
Acquisitions."in recent periods. The
compositionidentity of the group comprising the Company's largestour principal customers has varied from year to year, and there can be no assurance that the Company'sour
principal customers willmay not continue to purchase products and services from the
Companyus at current
levels, if at all. Significant reductions in sales to any of these customers, or
the loss of one or more major customers, would have a material and adverse effect on us. We
can not assure the Company. The timely replacement of expired, canceled, delayed, or reduced contracts
with new business cannot be assured.business. See "-- Variability"--Variability of Customer Requirements and Operating
Results"

The factorsResults."

Factors affecting the electronics industry in general could have a material
adverse effect on the Company'sour customers and, as a result on us. Such factors include:

o the Company as well. The markets in which the Company'sinability of our customers compete are
characterized byto adapt to rapidly changing technology and
evolving industry standards, and
continuous improvements in products and services. These conditions frequently
resultwhich results in short product life cycles. The Company's success will dependcycles;

o the inability of our customers to a
significant extent on the success achieved by its customers in developingdevelop and marketingmarket their products, some
of which are new and untested. If technologies or
standards supported by customers' products become obsolete or
fail to gain widespread commercial acceptance, the Company'sour business may be
materially and adversely affected. The market segments served by the Company are also subject
to economic cycles and haveaffected; and;

recessionary periods in the past experienced, and are likely in the
future to experience, recessionary periods. A recessionary period affecting the
industry segments served by the Company could have a material adverse effect on
the Company. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."

The Company extends credit terms to customers after performing credit
evaluations, which continue throughout a customer's contract period. Credit
losses have occurred in the past, and no assurances can be given that credit
losses, which could be material, will not occur in the future. The Company's
concentration of customers increases the risk that any credit loss would have a
material adverse effect on the Company. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Competition

The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and electronics
manufacturing service providers, and current and prospective customers also
evaluate the Company's capabilities against the merits of internal production.
In addition, in recent years the electronics manufacturing services industry has
attracted a significant number of new entrants, including large OEMs with excess
manufacturing capacity, and many existing participants, including the Company,
have substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for electronics manufacturing services, this increased capacity could
result in substantial pricing pressures, which could adversely affect the
Company's operating results. Certain of the Company's competitors, including
Solectron Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
The Company believes that the principal competitive factors in the segments of
the electronics manufacturing services industry in which it operates are cost,
technological capabilities, responsiveness and flexibility, delivery cycles,
location of facilities, product quality and range of services available. Failure
to satisfy any of the foregoing requirements could materially adversely affect
the Company. See "Item 1 - Business -- Competition."

Significant Leverage

The Company's total indebtedness and capital lease obligations on March 31,
1998 were $242.5 million compared to $165.9 million at March 31, 1997. In
addition, on March 31, 1998, the Company and its subsidiaries had approximately
$100.5 million available for additional borrowings under its credit facilities.
The Company's level of indebtedness presents risks to investors, including the
possibility that the Company may be unable to generate cash sufficient to pay
the principal of and interest on the indebtedness when due. Additionally, the
Company's level of indebtedness could have a material adverse effect on the
Company's future operating performance, including, but not limited to, the
following: (i) a significant portion of the Company's cash flow from operations
will be dedicated to debt service payments, thereby reducing the funds available
to the Company for other purposes; (ii) the Company's leverage may place the
Company at a competitive disadvantage; (iii) the Company's operating flexibility
is limited by covenants that, among other things, limit its ability to incur
additional indebtedness, grant liens, make capital expenditures and enter into
sale and leaseback transactions; and (iv) the Company's degree of leverage may
make it more vulnerable to economic downturns, may limit its ability to pursue
other business opportunities and may reduce its flexibility in responding to
changing business and economic conditions. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Risks of Karlskrona Purchase Agreement

The Karlskrona Purchase Agreement contains cost reduction targets and price
limitations and imposes on the Company certain manufacturing quality
requirements. There can be no assurance that the Company can achieve acceptable
levels of profitability under the Purchase Agreement or reduce costs and prices
to Ericsson over time as contemplated by the Purchase Agreement. In addition,
the Purchase Agreement requires that the Company maintain a ratio of equity to
the sum of total liabilities and equity of at least 25%, and a current ratio of
at least 120%. Further, the Purchase Agreement prohibits the Company from
selling or relocating the equipment acquired in the transaction without
Ericsson's consent. A material breach by the Company of any of the terms of the
Purchase Agreement could allow Ericsson to repurchase the assets conveyed to the
Company at the Company's book value or to obtain other relief, including the
cancellation of outstanding purchase orders or termination of the Purchase
Agreement. Ericsson also has certain rights to be consulted on the management of
the Karlskrona Facilities and to approve the use of the Karlskrona Facilities
for Ericsson's competitors or for other customers where such use might adversely
affect Ericsson's access to production capacity at the facilities. In addition,
without Ericsson's consent, the Company may not enter into any transactions that
could adversely affect its ability to continue to supply products and services
to Ericsson under the Purchase Agreement or its ability to reduce costs and
prices to Ericsson. As a result of these rights, Ericsson may, under certain
circumstances, retain a significant degree of control over the Karlskrona
Facilities and their management. See "Recent Acquisitions."

Replacement of Management Information Systems; Year 2000 Compliance

The Company is in the process of replacing its management information
system with a new enterprise management information system that is designed to
provide enhanced functionality and to be Year 2000 compliant. The new enterprise
management system will significantly affect many aspects of the Company's
business, including its manufacturing, sales and marketing, and accounting
functions. In addition, the successful implementation of this system will be
important to facilitate future growth. The Company currently anticipates that
the complete installation of its new enterprise management information system
will take at least eighteen months, and implementation of the new system could
cause significant disruption in operations. If the Company is not successful in
implementing its new system or if the Company experiences difficulties in such
implementation, the Company could experience problems with the delivery of its
products or an adverse impact on its ability to access timely and accurate
financial and operating information.

The Company has been advised that its new enterprise management information
system is Year 2000 compliant. However, there can be no assurance that the new
enterprise management information system will be Year 2000 compliant or that the
new system will be implemented by January 1, 2000, and any failure to be Year
2000 compliant or to effectively implement the new enterprise management system
by Year 2000 could have a material adverse effect on the Company. There can be
no assurance that the Company's customers and suppliers have, or will have,
management information systems that are Year 2000 compliant.our customers' markets.

Risk of Increased Taxes

The Company hasWe have structured itsour operations in a manner designed to maximize income
in countries where tax incentives have been extended to encourage foreign
investment or where income tax rates are low. IfOur taxes could increase if these
tax incentives are not 17
renewed upon expiration, if theor tax rates applicable to the Companyus
are rescinded or changed, or if tax authorities successfully challenge the manner in
which profits are recognized among the Company's subsidiaries, the Company's
taxes would increase.increased. Substantially all of the products manufactured by the
Company'sour Asian
subsidiaries are sold to customers based in other jurisdictions
in North America and Europe. While the Company believesWe believe
that profits from itsour Asian operations are not sufficiently connected to
such other jurisdictions in North America or Europe to give rise to income taxation by such other jurisdictions, there can be no
assurance thatthere.
However, tax authorities in such other jurisdictions will notin North America and Europe could
challenge the Company's position or, if such challenge is made, that the Company wouldmanner in which profits are allocated among our subsidiaries, and
we may not prevail in any such dispute.challenge. If the Company'sour Asian profits became subject to
income taxes in such other jurisdictions, the Company'sour worldwide effective tax rate would increasecould
increase.

Significant Leverage

Our level of indebtedness presents risks to investors, including:

o the possibility that we may be unable to generate cash sufficient to pay
the principal of and its resultsinterest on the indebtedness when due;

o making us more vulnerable to economic downturns;

o limiting our ability to pursue new business opportunities; and

o reducing our flexibility in responding to changing business and economic
conditions.

Risks of operationsCompetition

The electronics manufacturing services industry is extremely competitive
and cash flow would be
adversely affected. The expansion byincludes hundreds of companies, several of which have achieved substantial
market share. Current and prospective customers also evaluate our capabilities
against the Companymerits of its operationsinternal production. Certain of our competitors, including
Solectron and SCI Systems, have substantially greater market shares than us, and
substantially greater manufacturing, financial, research and development and
marketing resources. In recent years, many participants in the Americas and countriesindustry,
including us, have substantially expanded their manufacturing capacity. If
overall demand for electronics manufacturing services

should decrease, this increased capacity could result in Western Europe that have higher tax rates is expected
to increase its worldwide effective tax rate. See "Item 7 Management's
Discussion and Analysis of Financial Condition and Result of Operations --
Provision for Income Taxes."substantial pricing
pressures, which could adversely affect our operating results.

Risks of International Operations

The Company'sgeographical distances between Asia, the Americas and Europe create a
number of logistical and communications challenges. Our manufacturing operations
are located in a number of countries, including Austria, Brazil, China, Hungary,
Malaysia, Mexico, Sweden, the United Kingdom and the United States. Because of the location of manufacturing
facilities inAs a number of countries, the Company isresult,
we are affected by economic and political conditions in those countries,
includingincluding:

o fluctuations in the value of currency, duties, possible employee turnover,currencies; o changes in labor unrest, lack of developed
infrastructure,conditions;

o longer payment cycles,cycles;

o greater difficulty in collecting accounts receivable, thereceivable;

o burdens and costs of compliance with a variety of foreign lawslaws;

o political and economic instability;

o increases in certain partsduties and taxation;

o imposition of the world, political instability. Changes in policies
by the local governments resulting in, among other things, increased duties,
higher taxation,restrictions on currency conversion limitations, restrictions onor the transfer of funds,funds;

o limitations on imports or exports, or theexports;

o expropriation of private enterprises could also have a material adverse effect on the Company. The
Company could also be adversely affected ifenterprises; and

o reversal of the current policies (including favorable tax and lending
policies) encouraging foreign investment or foreign trade by itsour host
countries were to be reversed.
In addition, thecountries.

The attractiveness of the Company'sour services to itsour U.S. customers iscan be affected by
changes in U.S. trade policies, such as "most favored nation" status and trade
preferences for certain Asian nations. For example, trade preferences extended
by the United States to Malaysia in recent years were not renewed in 1997. The CompanyIn
addition, some countries in which we operate, such as Brazil, Mexico and
Malaysia, have experienced periods of slow or negative growth, high inflation,
significant currency devaluations and limited availability of foreign exchange.
Furthermore, in countries such as Mexico and China, governmental authorities
exercise significant influence over many aspects of the economy, and their
actions could alsohave a significant effect on Flextronics. Finally, we could be
adversely affected by the inadequate development
or maintenance of infrastructure, or the unavailabilityincluding lack of adequate
power and water supplies, transportation, raw materials and parts in the countries
in which it operates.we operate.

Risks Relating to China. Under its current leadership, the Chinese
government has been pursuing economic reform policies, including the encouragement of
foreign trade and investment and greater economic decentralization. No assurancepolicies. There can be given, however,no assurance
that the Chinese government will continue to pursue such policies, or that such
policies will be successful if pursued, or that such
policies will not be significantly altered from time to time. Despite progress
in developing its legal system,pursued. In addition, China does not have a
comprehensive and highly developed system of laws, particularly with respect to foreign investment
activities and foreign trade. Enforcementenforcement of existing and future laws and
contracts is uncertain, and implementation and interpretation thereof may be
inconsistent. As the Chinese legal system develops, the promulgation of new

laws, changes to existing laws and the preemption of local regulations by
national laws may adversely affect foreign investors.

In addition, China currently enjoys Most Favored Nation ("MFN") status
granted by the United States, pursuant to which the United States imposes the
lowest applicable tariffs on Chinese exports to the United States.uncertain. The United States annually reconsiders the

14
renewal of MFNmost favored nation trading status forof China. No
assurance can be given that China's MFN status will be renewed in future years. China's loss of MFNmost
favored nation status could adversely affect the Companyus by increasing the cost to the U.S.
customers of products manufactured by the Companyus in China.

Risks Relatingrelating to Mexico. The Mexican government exercises significant
influence over many aspects of the Mexican economy and its actionsaction could have a
significant effect on private sector entities in general and the Company in
particular. In addition, during the 1980s, Mexico experienced periods of slow or
negative growth, high inflation, significant devaluation of the peso and limited
availability of foreign exchange.

Risks Relating to Hungary. Hungary has undergone significant political and
economic change in recent years. Political, economic, social and other
developments, and changes in Hungary may in the futurelaws could have a material and adverse effect on
the
Company's business. In particular, changes in laws or regulations (or in the
interpretation of existing laws or regulations), whether caused by change in the
Hungarian government or otherwise, could materially adversely affect the
Company's operations andour business. Annual inflation and interest rates in Hungary have historically
been much higher than those in Western Europe. Exchange rate policies have not
always allowed for the free conversion of currencies at the market rate. Corporate contract, property, insolvency, competition and securities and
other lawsLaws
and regulations in Hungary have been, and continue to be, substantially revised
during its transition to a market economy. Therefore, the
interpretation and procedural safeguards of the new legal and regulatory system
are in the process of being developed and defined and existingAs a result, laws and regulations may
be applied inconsistently. Also in some circumstances, it may not be possible to
obtain the legal remedies provided for under those laws and regulations in a
reasonably timely manner, if at all.

Risks relatingRelating to Brazil. During the past several years, the Brazilian
economy has been affected by significant intervention by the Brazilian
government. The Brazilian government has changed monetary, credit, tariff and
other policies to influence the course of Brazil's economy. The Brazilian
government's actions to control inflation and effect other policies have often
involved wage, and price controls,and exchange controls as well as other measures such as
freezing bank accounts and imposing capital controls.

The stated policyRisks of the present
government is to reduce gradually governmental control of the economy. Currency Fluctuations Historically,and Hedging Operations

With the Company transacted its business predominantlyrecent acquisitions of operations in U.S.
dollarsSweden, Austria and most of its revenues were collected in U.S. dollars,Brazil, a
significant portion of our business is conducted in the Company'sSwedish kronor, European
Euro and Brazilian real. In addition, some of our costs, such as payroll and
rent, and indirect operation costs, wereare denominated in other currencies such as the Singapore dollar, the Hong Kong
dollar, the Malaysian ringgit, the Hungarian forint, the Mexican peso, and the
Malaysian ringgit. As a result, fluctuations in foreign currency
exchange rates have not created significant exchange losses toBritish pound, as well as the Company. Withkronor, the acquisitions of Karlskrona, Neutronicseuro and Conexao, a significant portion of
the Company's business is now also conducted in

the Swedish kronor, Austrian Schilling, Hungarian forint and Brazilian real. In recent years,
the Hungarian forint, Brazilian real and Mexican peso have depreciated, principally by way of devaluation.experienced
significant devaluations, and in January 1999 the Brazilian real experienced
further significant devaluations. Changes in the relation ofexchange rates between these and
other currencies toand the U.S. dollar will affect the Company'sour cost of goods
soldsales and operating
margins and could result in exchange losses. Themargins. We cannot predict the impact of future exchange rate fluctuations on the Company's results of operations cannot
be accurately predicted.

The Company has not actively engaged in substantial exchange rate hedging
activities. The Company's European operations have limited involvement in the
normal course of business with derivativefluctuations. We
use financial instruments, with off-balance
sheet risks as a means of hedgingprimarily forward purchase contracts, to hedge
certain fixed Japanese yen, European Euro, U.S. dollar, and other foreign
currency exposures in relation tocommitments arising from trade accounts payable and fixed purchase
obligations. Because the Companywe hedge only hedges fixed obligations, the Company doeswe do not expect that
these hedging activities will have a material effect on itsour results of
operations or cash flows. However, our hedging activities may be unsuccessful,
and we may change or reduce our hedging activities in the future.

Dependence of Key Personnel

Our success depends to a larger extent upon the continued services of our
key executives and skilled personnel. Generally our employees are not bound by

employment or non-competition agreements, and there can be no assurance that the
Companywe
will engage in any hedging activities in the future or that any of its
hedging activities will be successful.

Dependence on Key Personnel and Skilled Employees

The Company's success depends to a large extent upon the continued services
of key executives and skilled personnel. Generally, the Company's employees are
not bound by employment or non-competition agreements. The Company has entered
into service agreements with certain officers, including Ronny Nilsson and Tsui
Sung Lam, some of which contain non-competition provisions and provides its
officers and key employees with stock options that are structured to incent such
employees to remain with the Company. However, there can be no assurance as to
the ability of the Company to retain itsour officers and key employees. TheWe could be materially and adversely
affected by the loss of such personnel could have a material adverse effect on the Company, its results
of operations, prospects or debt service ability. The Company's business also
depends upon its ability to continue to recruit, train and retain skilled and
semi-skilled employees, particularly administrative, engineering and sales
personnel.

There is intense competition for skilled and semi-skilled employees,
particularly in the San Jose, California market, and the Company's failure to
recruit, train and retain such employees could adversely affect the Company, its
results of operations, prospects or debt service ability.

Limited AvaliabilityAvailability of Components

A substantial majority of the Company'sour net sales are derived from turnkey
manufacturing in which the Company iswe are responsible for procuring materials, which
typically results in the Companyour bearing the risk of component price increases. At
various times, there have been shortages of certain electronics components,
including DRAMs, memory modules, logic devices, ASICs, laminates, specialized
capacitors and integrated circuits in bare-die form.electronic components.
Component shortages could result in manufacturing and shipping delays or higher
prices, which could have a material adverse effect on the Company.

Rapid Technological Change

The markets in which the Company's customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. These conditions frequently result in
short product life cycles. The Company's success will depend to a significant
extent on the success achieved by its customers in developing and marketing
their products, some of which are new and untested. If technologies or standards

supported by customers' products become obsolete or fail to gain widespread
commercial acceptance, the Company may be materially adversely affected.us.

Environmental Compliance Risks

The Company isWe are subject to a variety of environmental regulations relating to the
use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process.chemicals. Although the Company believeswe believe
that itsour facilities are currently in material compliance with applicable
environmental laws, there can be no assurances that violations will not occur.
In the event ofThe costs and penalties that could result from a violation of environmental laws
the Company could be held liable for damagesmaterially and for the
costs of remedial actions and could also be subject to revocation of its
effluent discharge permits. Any such revocations could require the Company to
cease or limit production at one or more of its facilities, which could have a
material adverse effect on the Company's operations. Environmental laws could
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have a
material adverse effect on the Company.adversely affect us.

Volatility of Market Price of Ordinary Shares

The stock market in recent years hashave experienced significant price and
volume fluctuations that have affected the market prices of technology
companies
and thatcompanies. Such fluctuations have often been unrelated to or disproportionately
impacted by the operating performance of such companies. There can be no assurance that theThe market for the
Ordinary Shares will notmay be subject to similar fluctuations. Factors such as
fluctuations in theour operating results, of the Company, announcements of technological
innovations or events affecting other companies in the electronics industry,
currency fluctuations and general market conditions may have a significant
effect on the market pricesprice of the Company's securities,
including the Ordinary Shares.

2116

Item 2. FACILITIES

The Company hasOur facilities consist of a global network of industrial parks,
manufacturing and technology centers, providing a total of over 3.5 million
square feet of capacity. Our industrial parks, each incorporating approximately
300,000 square feet of facilities, are designed for fully integrated, high
volume manufacturing. These industrial parks offer manufacturing and
distribution operations and suppliers that are located together at one site in
low cost areas close to major electronics markets. Manufacturing and technology
centers are facilities that have both medium and high volume manufacturing and
product introduction centers and, as a result, are where we focus on launching
customers' new products and transitioning them to volume production. Each center
features advanced technological competency. Regional manufacturing facilities
locatedrange from approximately 50,000 to 165,000 square feet and provide medium and
high volume production in Austria, Brazil, China,
Hungary, Malaysia, Mexico, Singapore, Sweden, the United Kingdom and the United
States. In addition, the Company provideslocations close to strategic markets. Product
introduction centers provide a broad range of advanced engineering services at its facilities
in Austria, Italy, Singapore, Sweden, California and
Massachusetts.prototype and low volume production capabilities. All of the
Company'sour manufacturing
facilities are registered to the quality requirements of the International
Organization for Standardization (ISO 9002) or are in the process of final
certification.

Certain information about the Company's manufacturing and engineering
facilities as of March 31, 19981999 is set forth below:

YEAR TYPE OF APPROXIMATE OWNED/
LOCATION COMMENCED(1) FACILITY(2) SQUARE FEET LEASED(2)LEASED(3) SERVICES
- -------------------------------------- ------------ ----------- ----------- --------- ---------------------------------------
Manufacturing Facilities
Althofen, Austria(3)Austria (4)..... 1997 M,P 153,000 Owned Full system manufacturing; PCB
assembly; design, prototype and
engineering services.
Sarvar, Hungary (4)....... 1997 I 298,000 Leased(5) Full system manufacturing; PCB
assembly; plastic injection
molding.
Tab, Hungary (4).......... 1997 153,000R 150,000 Owned Full system manufacturing; PCB
assembly.
Zalaegerszeg, Hungary (4). 1997 I 205,000 Owned Full system manufacturing; PCB
assembly.
Sao Paulo, Brazil (4)(6)..... 1998 23,076R 18,849 Leased Complex, high value-added PCB
assembly.
Sao Paulo, Brazil (4)(6)..... 1998 41,930R 39,431 Leased Full system manufacturing; PCB
assembly.
Sao Paulo, Brazil (4)(6)..... 1998 44,994R 18,953 Leased Full system manufacturing; PCB
assembly.
Sao Paulo, Brazil (6)..... 1998 R 18,480 Leased Repair center.
Shenzhen, China...............China.......... 1995 90,000R 254,390 Leased High volume PCB assembly.
Shenzhen, China (7)...... 1995 R 71,558 Leased Plastic injection molding.
Shenzhen, China (7)...... 1998 R 92,786 Owned Plastic injection molding.
Hong Kong, China(5)...........China (8)...... 1996 45,000M 37,883 Leased Fabrication of high density
PCBsPCB.
Doumen, China(6)..............China (8)......... 1996 330,000(6) Owned(5)I 199,491(9) Owned(9) Fabrication of high density,
miniaturized PCBs, high volume
PCB assembly.
Sarvar, Hungary(3)............ 1997 298,000 Owned(7) Full system manufacturing; PCB
assembly; plastic injection
molding.
Tab, Hungary(3)............... 1997 170,000 Owned Full system manufacturing; PCB
assembly.
Zalaegerszeg, Hungary(3)...... 1997 97,000 Owned Full system manufacturing; PCB
assembly.Hong Kong, China (10)..... 1999 M 73,738 Leased Fabrication of high density
PCB.
Johore, Malaysia..............Malaysia.......... 1991 80,000R 90,000 Owned Full system manufacturing; PCB
assembly.
Guadalajara, Mexico...........Mexico....... 1997 101,000R 219,701 Owned High volume PCB assembly.
Singapore(8).................. 1982 47,000 Leased Complex, high value-addedGuadalajara, Mexico....... 1998 I 77,396 Owned Warehousing.
Guadalajara, Mexico....... 1998 I 87,864 Owned Plastic injection molding.
Guadalajara, Mexico....... 1999 I 51,732 Owned High volume PCB assembly.
Karlskrona, Sweden............Sweden........ 1997 330,000 Owned(9)M,P 419,640 Owned(11) Assembly and test of complex
PCBs and systems.systems and design and
prototype services.
Karlskrona, Sweden........ 1998 M 25,286 Leased Tooling and distribution
services.
Stockholm, Sweden(10)..........Sweden......... 1997 70,000M 73,244 Leased Installation services and
and assembly of cables.
Stockholm, Sweden......... 1998 P 21,950 Leased Design and prototype services.
Katrineholm, Sweden....... 1998 M 33,248 Leased Assembly of cables and cable
assemblies.full
system assembly.

Hamilton, Scotland (11)........(12)... 1998 50,000R,P 46,000 Leased Complex, high value-added PCB
assembly and engineering services.
Fremont, California (12).. 1998 M 48,000 Leased Complex, high value-added PCB
assembly.
Tonypandy, Wales(12).......... 1995 50,000 Owned Full system manufacturing;
medium complexity PCB assembly.
Fremont, California (11).......(12).. 1998 48,000 Leased
Fremont, California (11)....... 1998M 83,480 Owned Complex, high value-added PCB
assembly.
Fremont, California (11).......(12).. 1998 M 41,968 Owned Complex, high value-added PCB
assembly.
San Jose, California..........California...... 1994 M 65,000 Leased Full system manufacturing; PCB
assembly.
San Jose, California..........California...... 1996 32,500M 33,000 Leased Complex, high value-added PCB
assembly.
San Jose, California..........California...... 1997 M 73,000 Owned Complex, high value-added PCB
assembly.
San Jose, California...... 1999 M 40,000 Owned Complex, high value-added PCB
assembly.
San Jose, California...... 1998 M 22,000 Leased PCBA and full system assembly.
San Jose, California...... 1998 M 24,000 Leased PCBA and full system assembly.
San Jose, California...... 1998 M 64,000 Leased Warehousing.
San Jose, California...... 1996 P 72,000 Leased Engineering services and
corporate functions.
Niwot, Colorado(13)...........Colorado (13)...... 1997 40,000M,P 37,055 Leased Plastic injection molding.molding and
engineering services.
Richardson, Texas.............Texas......... 1995 47,271R,P 47,000 Leased Test, development, procurement,
and warehousing.
Engineering Facilities
Althofen, Austria............. 1997 --(14) Owned Design, prototypewarehousing and engineering
services.
Monza, Italy.................. Engineering services.
Singapore..................... 1982 --(15) -- Design and prototype services.
Karlskrona, Sweden............ 1997 --(16) -- Design and prototype services.
Westford, Massachusetts.......Massachusetts... 1987 9,112P 36,200 Leased Design and prototype services.
Moorpark, California (11)...... 1998 54,052 Leased Engineering services.
San Jose, California.......... 1996 71,000 LeasedMonza, Italy (4).......... 1997 P --(14) -- Engineering services and
corporate functions.services.

(1) Refers to year acquired, leased or constructed by the CompanyFlextronics or its
predecessor.

(2) "I" designates Industrial parks.

"M" designates Manufacturing and technology centers.

"R" designates Regional manufacturing facilities.

"P" designates Product introduction centers.

(3) The leases for the Company'sour leased facilities expire between the years 19981999 and
2012.

(3)2051.

(4) Acquired by the Company in fiscal 1998 in connection with the Neutronics acquisition.

(4) Acquired by the Company in fiscal 1998 in connection with the Conexao
acquisition

(5) Acquired by the Company in fiscal 1996 in connection with the Astron
acquisition.

(6) Excludes approximately 370,000 square feet used for dormitories,
infrastructure and other functions. The Company has land use rights for
this facility through 2020.

(7) The CompanyFlextronics currently owns the land and certain of the buildings located in
the Sarvar Industrial Park and leases other buildings at this location.

(6) Acquired in fiscal 1998 in connection with the Conexao acquisition.

(7) Acquired in fiscal 1999 in connection with the FICO acquisition.

(8) Acquired in fiscal 1996 in connection with the Astron acquisition.

(9) Excludes approximately 446,163 square feet used for dormitories,
infrastructure and other functions. The Company downsized manufacturing operations athas land use rights for
this facility through 2042.

(10) Acquired in fiscal 1997.

(9)1999 in connection with the ACL acquistion.

(11) Ericsson has retained certain rights with respect to the Company's use and
disposition of the Karlskrona Facilities.

See "Item 1 - Business - Risk
Factors -- Risks of Karlskrona Purchase Agreement."

(10)(12) Acquired by the Company in fiscal 1998 in connection with the Energipilot
acquisition.

(11) Acquired by the Company in fiscal 1998 in connection with the Altatron acquisition.

(12) Acquired by the Company in fiscal 1996 in connection with the A&A
acquisition. The Company is in the process of consolidating its U.K.
operations in Scotland and plans to terminate operations at this facility.

(13) Acquired by the Company in fiscal 1998 in connection with the DTM acquisition.

18
(14) Located within the 153,000 square foot manufacturingA subsidiary has 55% ownership in this facility in Althofen.

(15) Located within the 47,000 square foot manufacturing facility in Singapore.

(16) Located within the 330,000 square foot manufacturing facilities in
Karlskrona.

In North America, the Company leased a new 71,000 square foot facility in
June 1997, from which the Company offers a wide range of engineering services,
including product design and prototype development, and in July 1997 the Company
completed construction of a new 73,000 square foot facility, dedicated to high
volume PCB assembly. These new facilities are located adjacent to the Company's
other San Jose operations. Also in July 1997, the Company completed construction
of a 101,000 square foot manufacturing facility on a 32-acre campus site in
Guadalajara.

In Asia, the Company has expanded its Doumen facilities by developing an
additional 240,000 square feet of facilities for fabrication of miniaturized
gold-finished PCB fabrication and for PCB and full system assembly. The Company
completed this expansion and commenced production in June 1997. The Doumen
campus, located on a 15-acre site, now includes approximately 330,000 square

feet of manufacturing facilities as well as approximately 370,000 square feet of
facilities used for dormitories, infrastructure and other functions.Monza, Italy.

The campus facilities in China, Hungary, and Mexico are designed to be
integrated facilities that can produce certain components used by the Company,
manufacture complete products for customers, warehouse the products and
distribute them directly to customer's distribution channels. The Company
believes that by offering all of those capabilities at the same site, it can
reduce material and transportation costs, simplify logistics and communications,
and improve inventory management, providingmanagement. This enables Flextronics to provide customers
with a more complete, cost-effective manufacturing solution.

The Company plansSince March 31, 1997, we have increased overall capacity by approximately
2.1 million square feet through internal growth and acquisitions. As a result,
we have grown to approximately 3.5 million square feet of capacity on four
continents. We plan to further expand theseour facilities and add new equipment.
There can be no assurance that the Company will not encounter unforeseen
difficulties, costs or delays in expanding its facilities. See "Item 1 -
Business
- - Risk Factors -- Management- Risks of Expansion and Consolidation.of Operations."

Item 3. LEGAL PROCEEDINGS

Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.

241999.

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

PRICE RANGE OF ORDINARY SHARES

The Company's Ordinary Shares are traded on the Nasdaq National Market
under the symbol "FLEXF""FLEX". The following table shows the high and low closing
sale prices of the Company's Ordinary Shares since the beginning of the
Company's 19971998 fiscal year.year (giving effect to our December 1999 two-for-one stock
split).

HIGH LOW
----- -----
Fiscal 1997
First Quarter.......................................... $39 $25
Second Quarter......................................... $28 1/4 $17
Third Quarter.......................................... $37 1/4 $21
Fourth Quarter......................................... $29 3/4 $19 5/8------ -------
Fiscal 1998
First Quarter.......................................... $27 $17Quarter.................................... $13 1/2 $ 8 3/4
Second Quarter......................................... $47Quarter................................... $23 13/16 $13 3/16
Third Quarter.................................... $24 1/16 $16 1/4
Fourth Quarter................................... $23 15/16 $14 7/8
$26Fiscal 1999
First Quarter.................................... $25 9/16 $18 3/8
Third Quarter.......................................... $4916
Second Quarter................................... $23 1/2 $29$11 5/16
Third Quarter.................................... $42 13/16 $14 9/16
Fourth Quarter......................................... $47 7/Quarter................................... $51 $33 1/8

$29 3/4

On May 29, 1998,June 15, 1999, there was 40748,122,058 holders orof record and the closing
sale price of the Ordinary Shares was $39.625$56.875 per share.

DIVIDENDS

Since inception, the Company has not declared or paid any cash dividends on
its Ordinary Shares, and the Credit Facility prohibits the payment of cash
dividends without the lenders' prior consent. The terms of the Company's senior
subordinated notes also restrict the Company's ability to pay cash dividends.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
the Credit Facility." The Company anticipates that all earnings in the
foreseeable future will be retained to finance the continuing development of its
business.

TAXATION

This summary of Singapore and U.S. tax considerations is based on current
law and is provided for general information. The discussion does not purport to
deal with all aspects of taxation that may be relevant to particular
shareholders in light of their investment or tax circumstances, or to certain
types of shareholders (including insurance companies, tax-exempt organizations,
regulated investment companies, financial institutions or broker-dealers, and
shareholders that are not U.S. Shareholders (as defined below)) subject to
special treatment under the U.S. federal income tax laws. Such shareholders
should consult their own tax advisors regarding the particular tax consequences
to such shareholders of any investment in the Ordinary Shares.

INCOME TAXATION UNDER SINGAPORE LAW

Under current provisions of the Income Tax Act, Chapter 134 of Singapore,
corporate profits are taxed at a rate equal to 26%. Under Singapore's taxation
system, the tax paid by a company is deemed paid by its shareholders. Thus, the

shareholders receive dividends net of the tax paid by the Company. Dividends
received by either a resident or a nonresident of Singapore are not subject to
withholding tax. Shareholders are taxed on the gross amount of dividends (i.e.,
the cash amount of the dividend plus the amount of corporate tax paid by the
Company). The tax paid by the Company will be available to shareholders as a tax
credit to offset the Singapore income tax liability on their overall income
(including the gross amount of dividends). No tax treaty currently exists
between the Republic of Singapore and the U.S.

Under current Singapore tax law there is no tax on capital gains, and,
thus, any profits from the disposal of shares are not taxable in Singapore
unless the vendor is regarded as carrying on a trade in shares in Singapore (in
which case, the disposal profits would be taxable as trade profits rather than
capital gains).

There is no stamp duty payable in respect of the holding and disposition of
shares. No duty is payable on the acquisition of new shares. Where existing
shares are acquired in Singapore, stamp duty is payable on the instrument of
transfer of the shares at the rate of S$2 for every S$1,000 of the market value
of the shares. The stamp duty is borne by the purchaser unless there is an
agreement to the contrary. Where the instrument of transfer is executed outside
of Singapore, stamp duty must be paid if the instrument of transfer is received
in Singapore. Under Article 22 (iii) of the Articles of Association of the
Company, its directors are authorized to refuse to register a transfer unless
the instrument of transfer has been duly stamped.

INCOME TAXATION UNDER UNITED STATES LAW

Individual shareholders that are U.S. citizens or resident aliens (as
defined in Section 7701(b) of the Internal Revenue Code of 1986 (the "Code")),
corporations or partnerships or other entities created or organized under the
laws of the United States, or any political subdivision thereof, an estate the
income of which is subject is subject to U.S. federal income taxation regardless
of its source or a trust which is subject to the supervision of a court within
the United States and the control of section 7701(b)(30) of the Code("U.S.
Shareholders") will, upon the sale or exchange of a share, recognize gain or
loss for U.S. income tax purposes in an amount equal to the difference between
the amount realized and the U.S. Shareholder's tax basis in such a share. If
paid in currency other than U.S. dollars, certain currency translation rules
will apply to determine the U.S. dollar amount realized. Such gain or loss will
be capital gain or loss if the share was a capital asset in the hands of the
U.S. Shareholder and will be short-term capital gain or loss if the share has
been held for not more than one year, mid-term capital gain or loss if the share
has been held for more than one year but not more than eighteen months and,
long-term capital gain or loss if the share has been held for more than eighteen
months. If a U.S. Shareholder receives any currency other than U.S. dollars on
the sale of a share, such U.S. Shareholder may recognize ordinary income or loss
as a result of currency fluctuations between the date of such sale and the date
such sale proceeds are converted into U.S. dollars.

U.S. Shareholders will be required to report as income for U.S. income tax
purposes the amount of any dividend received from the Company to the extent paid
out of the current or accumulated earnings and profits of the Company, as
determined under current U.S. income tax principles. If over 50% of the
Company's stock (by vote or value) were owned by U.S. Shareholders who
individually held 10% or more of the Company's voting stock, such U.S.
Shareholders potentially would be required to include in income a portion or all
of their pro rata share of the Company's and its non-U.S. subsidiaries' earnings
and profits. Certain attribution rules apply in this regard. If 50% or more of

the Company's assets during a taxable year produced or were held for the
production of passive income, as defined in section 1297(b) of the Code (e.g.,
certain forms of dividends, interest and royalties), or 75% or more of the
Company's gross income for a taxable year was passive income, adverse U.S. tax
consequences could result to U.S. shareholders of the Company. As of March 31,
1998, the Company was not aware of any U.S. Shareholder who individually held
10% or more of its voting stock. See "Principal Shareholders."

Shareholders that are not U.S. Shareholders ("non-U.S. shareholders") will
not be required to report for U.S. federal income tax purposes the amount of any
dividend received from the Company. Non-U.S. shareholders, upon the sale or
exchange of a share, would not be required to recognize gain or loss for U.S.
federal income tax purposes.

ESTATE TAXATION

In the case of an individual who is not domiciled in Singapore, a Singapore
estate tax is imposed on the value of all movable and immovable properties
situated in Singapore. The shares of the Company are considered to be situated
in Singapore. Thus, an individual shareholder who is not domiciled in Singapore
at the time of his or her death will be subject to Singapore estate tax on the
value of any such shares held by the individual upon the individual's death.
Such a shareholder will be required to pay Singapore estate tax to the extent
that the value of the shares (or in aggregate with any other assets subject to
Singapore estate tax) exceeds S$600,000. Any such excess will be taxed at a rate
equal to 5% on the first S$12,000,000 of the individual's Singapore chargeable
assets and thereafter at a rate equal to 10%. An individual shareholder who is a
U.S. citizen or resident (for U.S. estate tax purposes) also will have the value
of the shares included in the individual's gross estate for U.S. estate tax
purposes. An individual shareholder generally will be entitled to a tax credit
against the shareholder's U.S. estate tax to the extent the individual
shareholder actually pays Singapore estate tax on the value of the shares;
however, such tax credit is generally limited to the percentage of the U.S.
estate tax attributable to the inclusion of the value of the shares included in
the shareholder's gross estate for U.S. estate tax purposes, adjusted further by
a pro rata apportionment of available exemptions. Individuals who are domiciled
in Singapore should consult their own tax advisors regarding the Singapore
estate tax consequences of their investment.

2720

Item 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the fiscal years
ended March 31, 1994, 1995, 1996, 1997, 1998 and 1998. In the opinion of management,
all adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation have been made.1999. These historical results are
not necessarily indicative of the results to be expected in the future. The
following table is qualified by reference to and should be read in conjunction
with the consolidated financial statements, related notes thereto and other
financial data included elsewhere herein.

FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
1994(IN THOUSANDS, except per share amounts)
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------

Net sales .................................. $ 131,345................................... $ 292,149 $ 572,045 $ 640,007 $ 1,113,071 $ 1,807,628
Cost of sales .............................. 117,392............................... 265,426 517,732 575,142 1,004,170 1,652,891
----------- ----------- ----------- ----------- -----------
Gross margin ............................... 13,953................................ 26,723 54,313 64,865 108,901 154,737
Selling, general and administrative ........ 8,667......... 15,771 28,138 36,277 53,695 68,121
Goodwill and intangible amortization ....... 419........ 762 1,296 2,648 3,659 3,622
Provision for excess facilities ............ 830............. -- 1,254(1) 5,868(2) 8,869(3) 3,361(4)
Acquired in-process research and development 202 91 29,000(1) -- -- 2,000(4)
----------- ----------- ----------- ----------- -----------
Income (loss) from operations .............. 3,835............... 10,099 (5,375) 20,072 42,678 77,633
Merger-related expenses .................... --..................... (816) -- -- (7,415)(3) --
Other expense, net ......................... (1,446).......................... (1,814) (4,924) (6,425) (13,092) (18,333)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes .......... 2,389........... 7,469 (10,299) 13,647 22,171 59,300
Provision for income taxes ................. 654.................. 1,588 3,847 2,027 2,258 Extraordinary gain ......................... 416 -- -- -- --7,770
----------- ----------- ----------- ----------- -----------
Net income (loss) .......................... $ 2,151........................... $ 5,881 $ (14,146) $ 11,620 $ 19,913 $ 51,530
=========== =========== =========== =========== ===========
Diluted net income (loss) per share ................. $ 0.280.20 $ 0.40(0.46) $ (0.92)0.34 $ 0.670.52 $ 1.041.12
=========== =========== =========== =========== ===========
Weighted average Ordinary Shares and
equivalents outstanding -- diluted ....... 7,730 14,882 15,436 17,328 19,097........ 29,764 30,872 34,656 38,194 46,163

FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
1994(IN THOUSANDS)
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------

Balance Sheet Data:
Working capital ............................ 30,669 36,737 25,527 (30,245) 124,536Total current assets ........................ $ 128,681 $ 182,296 $ 254,396 $ 439,534 $ 654,032
Property and equipment, net ................. $ 47,258 $ 91,792 $ 149,015 $ 255,573 $ 367,507
Goodwill and other non-current assets ....... $ 9,247 $ 35,179 $ 42,881 $ 49,016 $ 72,840
Total assets ............................... 103,129................................ $ 185,186 $ 309,267 $ 446,292 $ 744,123 $ 1,094,379
Total current liabilities ................... $ 91,945 $ 156,769 $ 284,641 $ 314,998 $ 412,887
Long-term debt and capital lease obligationsleases, excluding
current portion ........................... $ 18,278 $ 31,894 $ 29,128 $ 189,678 $ 197,179
Other non-current liabilities ............... $ 6,530 $ 35,033 $ 33,178 $ 24,638 $ 18,062
Total liabilities ........................... $ 116,753 $ 223,696 $ 346,947 $ 529,314 $ 628,128
Total Shareholders' equity .................. $ 68,433 $ 85,571 $ 99,345 $ 214,809 $ 466,251
Total liabilities and shareholders' equity .. $ 185,186 $ 309,267 $ 446,292 $ 744,123 $ 1,094,379
Working capital ............................. $ 36,737 $ 25,527 $ (30,245) $ 124,536 $ 241,145
Long-term debt and capital leases,
including current portion ................ 4,755portion.................. $ 23,055 $ 75,566 $ 165,916 $ 242,474 Shareholders' equity ....................... 46,703 68,433 85,571 99,345 214,809$ 261,072

Cash Flows Data:
Depreciation and amortization ............... $ 7,183 $ 13,864 $ 18,140 $ 30,948 $ 50,407
Cash flow from operations ................... $ (5,243) $ 2,418 $ 54,369 $ 38,286 $ 65,379
Capital expenditures ........................ $ 21,848 $ 23,520 $ 37,503 $ 98,617 $ 147,865

(1) In fiscal 1996, the Company wrote off $29.0 million of in-process research
and development associated with the acquisition of Astron and also recorded
charges totaling $1.3 million for costs associated with the closing of one
of the Company's Malaysian plants and its Shekou, China operations.

(2) In fiscal 1997, the Company incurred plant closing expenses aggregating to
$5.9 million in connection with closing its manufacturing facility in
Texas, downsizing manufacturing operations in Singapore, the write-off of
excess equipment and severance obligations at the nCHIP semiconductor
fabrication operations.

28
(3) In fiscal 1998, the Company incurred plant closing expenses aggregating to
$8.9 million in connection with closing its manufacturing facility in
Wales, UK. The Company also incurred $7.4 million of merger-related costs
as a result of the acquisitions of Neutronics, DTM, Energipilot, Altatron
and Conexao in fiscal 1998.

29(4) In fiscal 1999, the Company incurred plant closing expenses aggregating to
$3.4 million in connection with consolidating its manufacturing facilities
in Hong Kong after the acquisition of ACL and restructuring some of its
U.S. manufacturing facilities. The Company also wrote off $2.0 million of
in-process research and development associated with the acquisition of ACL.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

In recent years, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, through both
acquisitions and internal growth. See "Item 1 - Business - Risk Factors - --Management-- Risks
of Expansion and Consolidation,of Operations," "Item 1 - Business - Risk Factors - -- Risks of
Acquisitions" and Note 11 of Notes to Consolidated Financial Statements.

In June 1999, Flextronics entered into an agreement to acquire Kyrel EMS
Oyj, a provider of electronics manufacturing services with two facilities in
Finland and one in Luneville, France. Kyrel employs approximately 900 people and
its 1998 revenues were $230 million. Flextronics expects to issue approximately
1.9 million shares in the acquisition. Government approval is required in
Finland and the transaction is expected to close in the second quarter of fiscal
2000. The acquisition of Kyrel EMS Oyj will be accounted for as a
pooling-of-interests.

On March 1, 1999, the Company acquired the manufacturing facility and
related assets of Advanced Component Labs HK Ltd. ("ACL"), a Hong Kong based
advanced technology printed circuit board manufacturer for $15.0 million cash.
The transaction has been accounted for under the purchase method. As a result,
the purchase price was allocated to the assets based on their estimated fair
market values at the date of acquisition. As of the date of acquisition, $7.8
million of the purchase price was allocated to goodwill and which is amortized
over 10 years and $2.0 million of the purchase price was allocated to in-process
research and development related to development projects which had not reached
technological feasibility and had no probable alternative future uses;
accordingly, the Company expensed the $2.0 million on the date of acquisition as
a charge to operations. ACL's in-process research and development projects were
initiated to address the rapid technological change associated with the
miniaturized printed circuit board market. The incomplete projects include
developing technology for a low cost Ball Grid Array package, developing thermal
vias, and developing new methods that enable the use of extremely thin 1.5 mil
technology. The Company believes the efforts to complete the acquired in-process
research and development projects will consist of internally staffed engineering
costs over the next fiscal year. These costs are estimated to be approximately
$1.1 million to complete the research and development. There can be no assurance
that the Company will succeed in making commercially viable products from the
ACL research and development projects.

On March 1, 1999, the Company increased its ownership of FICO to 90% by
acquiring an additional 50% of its equity interests for (i)$7.2 million cash,
(ii)127,850 Ordinary Shares issued at closing valued at $4.8 million (iii)$3.0
million in 2% promissory notes due $1.0 million each in year 2000 through year
2002. This transaction has been accounted for under the purchase method and
accordingly, the results of operations for FICO have been included in the
accompanying consolidated statements of operations since March 1, 1999. The
acquisition of this additional 50% interest resulted in additional goodwill and
intangible assets of $8.5 million and $420,000 which were being amortized over 8
and 3 years, respectively.

On March 31, 1998, the Company acquired Conexao, a Brazil-based electronics
manufacturing service provider, in exchange for a total of 421,593843,186 Ordinary
Shares, of which 118,305236,610 Ordinary Shares arewere to be issued upon resolution of
certain general and specific contingencies. The contingencies were resolved and
the 236,610 Ordinary Shares were issued on March 1999. On March 31, 1998, the
Company also acquired Altatron, an electronics manufacturer service provider
headquartered in Fremont, California, with facilities in Fremont, California;
Richardson, Texas; and Hamilton, Scotland in exchange for 788,6501,577,300 Ordinary
Shares, of which 157,730315,460 Ordinary Shares are to be issued upon resolution of
certain general and specific contingencies. Altatron has approximately 800 employees with facilities in
various parts in U.S.The contingencies were resolved and
in Hamilton, Scotland. Conexao is one of the oldest
and largest electronics manufacturers in Brazil with approximately 400 employees
and manufacturing facilities totaling 110,000 square feet.315,460 Ordinary Shares were issued subsequent to fiscal 1999. The
acquisitions of Conexao and Altatron have been accounted for as a
pooling-of-interests. The Company did not restate its prior period financial
statements with respect to these acquisitions because they did not have a
material impact on its consolidated results of operations. Accordingly, the
balance sheets of Conexao and Altatron as of March 31, 1998 were included in the
Company's consolidated balance sheet as of March 31, 1998 and the results of
operations for Conexao and Altatron will beare included in the Company's results of
operations beginning in the first quarter of fiscal 1999.

On December 1, 1997 the Company acquired DTM Products, Inc., a
Colorado-based producer of injection molded plastics for North American OEMs, in
exchange for 252,469504,938 Ordinary Shares, and acquired Energipilot AB, a Swedish
company principally engaged in providing cables and engineering services for
Northern European OEMs, in exchange for 229,990459,980 Ordinary Shares. The
acquisitions of DTM and Energipilot have been accounted for as a
pooling-of-interests. The Company did not restate its prior period financial
statements with respect to these acquisitions because they did not have a
material impact on its consolidated results. Accordingly, the results of
operations for DTM and Energipilot beginning in December 1, 1997 are included in
the Company's consolidated statement of operations.

On October 30, 1997, the Company acquired 92% of the outstanding shares of
Neutronics, an Austrian electronics manufacturing service provider with
operations in Austria and Hungary for 2,806,0005,612,000 Ordinary Shares of the Company.
The acquisition was accounted for as a pooling-of-interests and accordingly, the
Company has restated its prior period financial statements to give effect to
this acquisition.

On March 27, 1997, the Company acquired the facilities in Karlskrona,
FacilitiesSweden from Ericsson for approximately $82.4 million. The acquisition was
financed by borrowings from banks, which the Company repaid in October 1997 with
the net proceeds from the Company's debt and equity offerings. The transaction
has been accounted for under the purchase method. As a result, the purchase
price was allocated to the assets based on their estimated fair market values at
the date of acquisition.

3024

On December 20, 1996, the Company acquired 40% of FICO for $5.2 million. Of
this, the Company paid $3.0 million in December 1996 and paid the $2.2 million
balance in the third quarter of fiscal 1998.

On November 25, 1996, the Company acquired Fine Line for an aggregate of
223,321 Ordinary Shares in a transaction accounted for as pooling of interests.
The Company's prior financial statements were not restated because the financial
results of Fine Line did not have a material impact on the consolidated results.

In February 1996, the Company acquired Astron Group Limited ("Astron") in
exchange for (i) $13.4 million in cash, (ii) $15.0 million in 8% promissory
notes ($10.0 million of which was paid in February 1997 and $5.0 million of
which was paid in February 1998), (iii) 238,684 Ordinary Shares issued at
closing and (iv) Ordinary Shares with a value of $10.0 million to be issued on
June 30, 1998. The Company also paid an earn-out of an additional $6.25 million
in cash in April 1997, based on the pre-tax profit of Astron for the calendar
year ended December 31, 1996. In addition, the Company agreed to pay a $14.0
million consulting fee in June 1998 to an entity affiliated with Stephen Rees, a
former shareholder and the Chairman of Astron, pursuant to a services agreement
among the Company, one of its subsidiaries and the affiliate of Mr. Rees (the
"Services Agreement"). Of the $14.0 million, $5.0 million must be paid in cash.
The remainder may be paid in either cash or Ordinary Shares at the option of the
Company, and the Company intends to pay such amount in Ordinary Shares. Mr. Rees
currently also serves as a director and executive officer of the Company.

The Company incurred merger-related expenses of $7.4 million in fiscal 1998
associated with the acquisitions of Neutronics, DTM, Energipilot, Altatron and
Conexao, including $4.0 million associated with the Neutronics, DTM, and
EnergiPilot acquisitions and the cancellation of Neutronics' planned initial
public offering.

The ability of the Company to obtain the benefits of these acquisitions is
subject to a number of risks and uncertainties, including the Company's ability
to successfully integrate the acquired operations and its ability to maintain,
and increase, sales to customers of the acquired companies. There can be no
assurance that any acquisitions will not materially affect the Company. See
"Item 1 - Business - Risk Factors --- Risks of Acquisitions."

In fiscal 1999, the Company wrote off $2.0 million of in-process research
and development associated with the acquisition of ACL. The Company also
incurred $3.4 million associated with the consolidation of excess facilities in
Hong Kong and United States. At the completion of the Hong Kong consolidation
process, all the Hong Kong facilities will occupy 60,000 square feet of
manufacturing space with approximately 300 employees. The provision for excess
facilities of $3.4 million in fiscal 1999 is comprised of $2.2 million relating
to the costs for consolidating the Company's four manufacturing and
administrative facilities in Hong Kong and $1.2 million relating to the
consolidation of certain U.S. facilities.

The Company incurred costs of $8.9 million in fiscal 1998 associated with
the consolidation of excess facilities in the United Kingdom. The recent
acquisition of Altatron's Scotland facility resulted in duplicative facilities
in Wales and Scotland. The provision for the closure of the Wales facility
includes the write-off of $3.8 million in goodwill, $1.6 million in severance
payments and pension scheme, $2.4 million in factory disposal related expenses,
and $1.1 million in government grant reimbursements and legal fees.

In addition to acquisitions, the Company has also substantially increased
overall capacity by expanding operations in North America, Asia and Europe. In
June 1997, the Company leased a new 71,000 square foot facility in North America
from which the Company offers a wide range of engineering services, and in July
1997 the Company completed construction of a new 73,000 square foot facility
dedicated to high volume PCB assembly. These new facilities are located adjacent
to the Company's other San Jose operations. Also in July 1997, the Company
completed construction of a 101,000 square foot manufacturing facility on a
32-acre campus site in Guadalajara, Mexico. In Asia, the Company has expanded
its Doumen facilities by developing an additional 224,000 square feet for
miniaturized gold-finished PCB fabrication and for PCB and full system assembly.
The Company has commenced production at the new and expanded facilities.

31
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.

FISCAL YEAR ENDED
MARCH 31,
--------------------------
1996 1997 1998 1999
------ ------ ------
Net sales ........................................ 100.0 100.0 100.0
Cost of sales .................................... 90.5 89.9 90.2 91.4
------ ------ ------
Gross margin ..................................... 9.5 10.1 9.8 8.6
Selling, general and administrative .............. 4.9 5.7 4.8 3.8
Goodwill and intangible amortization ............. 0.2 0.4 0.3 0.2
Provision for excess facilities .................. 0.2 0.9 0.8 0.2
Acquired in-process research and development ..... 5.1 -- -- 0.1
------ ------ ------
Income(loss)Income from operations ..................... (0.9)........................... 3.1 3.9 4.3
Merger-related expenses .......................... -- (0.7) --
(0.7)
OtherInterest and other expense, net ............................... (0.9).................. (1.0) (1.2) (1.0)
------ ------ ------
Income (loss) before income taxes ................ (1.8)....................... 2.1 2.0 3.3
Provision for income taxes ....................... 0.7 0.3 0.2 0.4
------ ------ ------
Net income (loss) ................................ (2.5)....................................... 1.8 1.8 2.9
====== ====== ======

Net Sales

Substantially all of the Company's net sales have been derived from the
manufacture and assembly of products for OEM customers.

Net sales for fiscal 1999 increased 62.4% to $1.8 billion from $1.1 billion
in fiscal 1998. The increase in sales for fiscal 1999 was primarily due to
increase in sales to certain existing customers, including Philips, Ericsson and
Cisco.

The Company's largest customers during fiscal 1999 were Philips, Ericsson
and Cisco accounting for approximately 18%, 16% and 13% of consolidated net
sales, respectively. No other customer accounted for more than 10% of
consolidated net sales in fiscal 1999. See "Item 1 - Business - Risk Factors --
Customer Concentration; Dependence on Electronics Industry".

Net sales for fiscal 1998 increased 73.9% to $1.1 billion from $640.0
million in fiscal 1997. The increase in sales for fiscal 1998 was primarily due
to (i) sales to Ericsson following the March 27, 1997 acquisition of the
Karlskrona Facilities, (ii) an increase in sales to certain existing customers,
including Advanced Fibre Communications, Cisco, Systems, Microsoft and Braun/Thermoscan
and (iii) sales to certain new customers including Bay Networks and Auspex.Auspex
Systems. This increase was partially offset by reduced sales to certain
customers, including Minebea, Visioneer, 3Com/US Robotics and Global Village.
See "Item 1 - Business - Risk Factors -- Customer--Customer Concentration; Dependence on
Electronics Industry" and "Item
1 - Business - Risk Factors -- Risks of Karlskrona Purchase Agreement."

The Company's largest customers during fiscal 1998 were Ericsson and
Philips Electronics, accounting for approximately 26% and 13% of consolidated
net sales, respectively. No other customer accounted for more than 10% of
consolidated net sales in fiscal 1998. See "Item 1 - Business - Risk Factors --
Customer Concentration; Dependence on Electronics Industry" and "Item 1
- -Business - Risk Factors -- Risks of Karlskrona Purchase Agreement".

Net sales in fiscal 1997 increased 11.9% to $640.0 million from $572.0
million in fiscal 1996. This increase was primarily due to higher sales to
existing customers, including US Robotics, Microsoft, Phillips Electronics,
Advanced Fibre Communications and Braun/Thermoscan, sales to new customers such
as Cisco and Auspex, and the inclusion of Astron's sales following its
acquisition in February 1996. This increase was partially offset by reduced
sales to certain existing customers, including Visioneer, Apple Computer,
Houston Tracker Systems, Logitech, Voice Powered Technology and Fast Multimedia.
The Company believes that the reduction in sales to these customers was due in
part to reductions in these customers' sales to end-users. See "Item 1 -
Business - Risk Factors -- Rapid Technological Change."

Gross Profit

Gross profit varies from period to period and is affected by, among other
things, product mix, component costs, product life cycles, unit volumes,
startup, expansion and consolidation of manufacturing facilities, pricing,
competition and new product introductions. Gross profit margin decreased to 8.6%
for fiscal 1999 from 9.8% in fiscal 1998. The decrease in gross margin was
primarily due to the increases in higher volume projects, which typically have a
lower gross profit and startup expenses associated with new projects.

Gross profit margin decreased to 9.8% for fiscal 1998 from 10.1% in fiscal
1997. The gross profit margin in fiscal 1998 was adversely affected by changes
in customer and product mix and costs associated with the startup of new
facilities in Doumen, China and Guadalajara, Mexico. Prices paid to the Company
by its significant customers can vary significantly based on the customer's
order level, with per unit prices typically declining as volumes increase. These
changes in price and volume can materially affect the Company's gross profit
margin. See "Item 1 - Business-Risk
Factors -- Management of Consolidation and Expansion."

Gross margin increased to 10.1% in fiscal 1997 compared to 9.5% in fiscal
1996. The increase was mainly attributable to (i) the inclusion of Astron's
printed circuit board business, which has historically had a relatively higher
gross profit margin than the Company, (ii) the concentration of more sales in
the Company's facility in China which has a lower manufacturing cost than the
Company's facilities in other locations and (iii) increased sales, resulting in
increased labor and overhead absorption. This benefit was partially offset by
the underutilization of manufacturing operations at the Company's Richardson,
Texas facility and the closure of the Company's nCHIP fabrication facility, and
the related inventory write-offs. See "Item 1 - Business - Risk Factors --
Management- Risks of Expansion and Consolidation."

Cost of
sales included research and development costs of approximately
$1,153,000, $913,000 and $153,000 in fiscal 1998, 1997 and 1996, respectively.
These costs are associated with research and development expenditures in the
Company's Astron facility in Doumen, China.Operations."

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for fiscal 1999
increased to $68.1 million from $53.7 million in fiscal 1998 but decreased as a
percentage of net sales to 3.8% in fiscal 1999 from 4.8% in fiscal 1998. The
dollar increase in SG&A was mainly due to (i) investment in infrastructure such
as personnel and other related corporate and administrative expenses and
information systems to support the expansion of the Company's business and (ii)
the addition of new sales personnel in the Asia, Europe and the United States.
The Company anticipates its SG&A expenses will continue to increase in dollars

in the future. However, to the extent that net sales continue to grow faster
than SG&A expenses, those expenses would continue to decline as a percentage of
net sales.

SG&A for fiscal 1998 increased to $53.7 million from $36.3 million in
fiscal 1997 but decreased as a percentage of net sales to 4.8% in fiscal 1998
from 5.7% in fiscal 1997. The dollar increase in SG&A was mainly due to (i) the addition
of new sales personnel in the United States and Europe; (ii) the inclusion of
the operations of the Karlskrona Facilities and (iii) investment in
infrastructure such as personnel and other related corporate and administrative
expenses and information systems to support the expansion of the Company's
business.

The
Company anticipates its SG&A expenses will continue to increase in dollars in
the future. However, to the extent that net sales continue to grow faster than
SG&A expenses, SG&A expenses would continue to decline as a percentage of net
sales.

SG&A expenses in fiscal 1997 increased to $36.3 million from $28.1 million
in fiscal 1996 and increased as percentage of net sales to 5.7% in fiscal 1997
from 4.9% in fiscal 1996. The increase was mainly due to: (i) the inclusion of
Astron's selling and general administrative expenses for all of fiscal 1997;
(ii) increased consulting fees; and (iii) increased sales and marketing
expenses. The increased consulting fees resulted from financial consulting
services provided by two banks for a total of $719,000 in fiscal 1997. The
Company also recorded $362,000 in March 1997 for compensation for management
services paid to a new executive officer who was formerly a key employee of

Ericsson in Sweden and who joined the Company upon the acquisition of the
Karlskrona Facilities.

Goodwill and Intangible Assets Amortization

Goodwill and intangible assets are amortized on a straight linestraight-line basis over
the estimated life of the benefits received, which ranges from three to
twenty-five years. Goodwill and intangible assets amortization in fiscal 1999
decreased slightly to $3.6 million from $3.7 million in fiscal 1998. In March
1999, the Company acquired an additional 50% equity interest in FICO increasing
its ownership of FICO to 90% and recorded $8.5 million in goodwill and $420,000
in intangible assets and is amortized over 8 and 3 years, respectively. The
Company also recorded another $7.8 million goodwill from the acquisition of ACL
which is amortized over 10 years. As a result of these acquisitions, goodwill
and intangible asset amortization expense per quarter will increase by
approximately $501,000 starting in the first quarter of fiscal 2000. See Note 2
of Notes to Consolidated Financial Statements.

Goodwill and intangible assets amortization in fiscal 1998 increased to
$3.7 million from $2.6 million in fiscal 1997. In the second quarter of fiscal
1998, the Company reduced its estimate of the useful lives of the goodwill and
intangible assets (consisting of goodwill, customer lists and trademarks and
tradenames) arising from the Astron acquisition from approximately twenty years
to ten years. This reduction increased the Company's amortization expense per
quarter by approximately $279,000, beginning in the second quarter of fiscal
1998.

See Note 2Provision for Excess Facilities

The provision for excess facilities of Notes to Consolidated Financial
Statements.

Goodwill and intangible assets amortization increased to $2.6$3.4 million in fiscal 1997 from $1.31999 is
comprised of $2.2 million relating to the costs for consolidating the Company's
four manufacturing and administrative facilities in fiscal 1996.Hong Kong and $1.2 million
relating to the consolidation of certain U.S. facilities. The increase from fiscal 1996 to
fiscal 1997 was primarilyprovision for
excess facilities are comprised of $1.5 million for the reduction of certain
personnel due to consolidation of certain operations, $1.5 million for the
amortizationwrite-off of additional goodwillequipment and intangible assets which arose fromrelated to the Astron acquisitionoperations the Company has
exited, and $400 related to the consolidation of facilities. In connection with
the provision for excess facilities, the Company terminated approximately 250
employees in 1996.

Provision for Excess Facilitiesthe areas of finance, engineering, operations, production and
purchasing. The Company anticipates the consolidation of facilities will be
substantially complete by November 1999.

The provision for excess facilities of $8.9 million in fiscal 1998 relates
to the costs incurred in closing the Wales facility. This charge consists
primarily of the write-off of goodwill and intangible assets of $3.8 million,
severance payments, reimbursement of government grants, and costs associated
with the disposal of the factory. This closure is a result of the Company's

acquisition of Altatron, which resulted in duplicative facilities in the United
Kingdom. See Note 9 of Notes to Consolidated Financial Statements.

The provision for excess facilities of $5.9 million in fiscal 1997 consists
of the costs incurred in downsizing the Texas facility, downsizing the Singapore
manufacturing operations and writing off obsolete equipment and incurring
certain severance obligations at the nCHIP semiconductor fabrication facility.
The Texas facility was primarily dedicated to production for Global Village
Communications and Apple Computer, to whom the Company is no longer making
sales. The nCHIP semiconductor fabrication facility was primarily dedicated to
producing PCBs for nCHIP's MCMs, and the Company has transferred these
operations to a third party. The Singapore manufacturing facilities waswere
downsized in connection with the shift of manufacturing operations to lower cost
manufacturing locations.

The provision for excess facilities of $1.3 million in fiscal 1996 was
associated with the write-off of certain obsolete equipment at one of the
Company's facilities in Malaysia and in Shekou, China. The provision for excess
facilities were related to the Company ceasing its satellite receiver product
line in Malaysia and the closing of its manufacturing operations in Shekou,
China. Production from the Shekou facility has been moved to the Company's plant
in Xixiang, China.

Acquired In-Process Research and Development

Based on an independent valuation of certain of the assets of AstronACL and other
factors, the Company determined that the purchase price of AstronACL included
in-process research and development costs totaling $29.0$2.0 million which had not
34
reached technological feasabilityfeasibility and had no probable alternative future use.
Accordingly, the Company wrote-off $29.0$2.0 million of in-process research and
development in fiscal 1996.1999.

Merger Expenses

In fiscal 1998, the Company incurred $7.4 million of merger expenses
associated with the acquisitions of Neutronics, EnergiPilot, DTM, Altatron and
Conexao. The Neutronics merger expenses included $3.1$2.2 million in cost associated
with the cancellation of Neutronics's public offering and $900,000 in other
legal and accounting fees. The remaining $4.3 million consists of a $3.1 million
brokerage and finders fees incurred in the Altatron acquisition and $1.2 million
in legal and accounting fees for all of the fiscal 1998 acquisitions.

OtherInterest and other expense, net

OtherInterest and other expense, net increased to $18.3 million in fiscal 1999
from $13.1 million in fiscal 1998 from $6.4
million in fiscal 1997.1998. The following table sets forth information
concerning the components of other income and expense.

FISCAL YEAR ENDED
MARCH 31,
(IN THOUSANDS)
----------------------------------
1996
1997 1998 1999
-------- -------- --------
Interest expense ........................ $ (4,286) $ (6,426) $(17,700) $(21,899)
Interest income ......................... 756 706 2,742 5,161
Foreign exchange gain(loss) ............. (638) 1,665 1,581 (3,115)
Equity in earnings of associated
companies ............................. -- 133 1,194 1,036
Permanent impairment in investment ...... (3,200) -- (3,200) --
Bank commitment fees .................... (750) -- (750) --
Gain on sale of subsidiary's stock ...... 1,027 -- 1,027 --
Minority interest ....................... (103) (394) (363) (1,313)
Other income(expense), net .............. (653) 814 (546) 1,797
-------- -------- --------
$ (4,924) $ (6,425) $(13,092) $(18,333)
======== ======== ========

Net interest expense increased to $16.7 million in fiscal 1999 from $15.0
million in fiscal 1998. The increase was primarily due to increased bank
borrowings to finance the capital expenditures and expansion of the Company's
facilities in Sweden, Hungary, Mexico and China. The Company anticipates that
its interest expense will increase in future periods as a result of borrowings
under its credit facility.

Net interest expense increased to $15.0 million in fiscal 1998 from $5.7
million in fiscal 1997. The increase was primarily due to increased bank borrowings to
finance the acquisition of the Karlskrona Facilities, capital expenditures and
the issuance of the $150.0 million 8.75% Senior Subordinated Notes in October
1997.

The Company anticipates that its interest expense will
increase in future periods as a resultIn fiscal 1999, there was $3.1 million of borrowings under its credit facility.

Net interest expense increasedforeign exchange loss compared to
$5.7$1.6 million foreign exchange gain in fiscal 1997 from $3.5
million1998. The foreign exchange loss in
fiscal 19961999 mainly duerelates to increasesforeign currency monetary liabilities in interest expense in connection
with additional indebtedness used to finance working capital requirements, to
finance acquisitionsAustria,
Brazil and to purchase machinery and equipment for capacity
expansion. The Company also recorded approximately $363,000 of interest expense
in fiscal 1997 related to the cash portion of the Company's obligations to an
affiliate of Stephen Rees, a former shareholder and the Chairman of Astron,
pursuant to the Services Agreement. See "-- Overview."Hungary. Foreign exchange gain decreased to $1.6 million in fiscal 1998 from $1.7
million gain in fiscal 1997. The foreign exchange gain for fiscal 1998 was
mainly due to the strengthening of the U.S. dollar against Asian currencies. Foreign exchange gain increased to $1.7 million in fiscal 1997 from a $638,000
loss in fiscal 1996. The foreign exchange loss in fiscal 1996 was primarily due

to the devaluationSee
Note 2 of the Hungarian Forint. Before the establishment in late
1995 of customs-free zones at the Company's sites in Hungary, the Company was
obliged to prepay (and later reclaim) customs duties to the Hungarian
authorities on all imported materials. As a result of the devaluation of the
Hungarian Forint in 1995, the Company incurred a loss of approximately $1.3
million on these receivables in calendar 1995. Since the Company no longer has
to prepay such duties, depreciation of the Hungarian Forint generally benefits
the Company's results of operations as it reduces the Company's cost of labor.
See "Note 2 --NotesNotes to Consolidated Financial Statements."

Equity in earnings of associated companies for fiscal 1999 decreased to
$1.0 million from $1.2 million in fiscal 1998. The equity in earnings of
associated companies results primarily from the Company's 40% investment in
FICO. In March 1999, the Company acquired an additional 50% interest in FICO and
accordingly, the Company has consolidated the balance sheets and the results of
operations of FICO from March 1999 onward.

Equity in earnings of associated companies for fiscal 1998 increased to
$1.2 million from $133,000 in fiscal 1997. The equity in earnings of associated
companies results primarily from the Company's original 40% investment in FICO
and, to a lesser extent, certain minority investments of Neutronics. The Company
acquired a 40% interest in FICO in December 1996. According to the equity method
of accounting, the Company did not recognize revenue from sales by FICO, but
based on its ownership interest recognized 40% of the net income or loss of the
associated company. The Company has recorded its 40% share of FICO's
post-acquisition net income.

The Company recognized a permanent impairment in an investment in fiscal
1997, represented by a write-off of publicly traded common stock received from a
customer in fiscal 1997 as payment of $3.2 million in accounts receivable. As a
result of a significant decline in the market value of this common stock
following its receipt by the Company, this common stock subsequently was deemed
to be permanently impaired in fiscal 1997, resulting in a $3.2 million expense.
In fiscal 1997, bank commitment fees represented $750,000 of commitment fees
written off in March 1997 when the bank's commitment expired unused.

Gain on sale of subsidiary of $1.0 million in fiscal 1997 was due to a gain
from the sale of a Hungarian subsidiary by Neutronics.

Minority interest expense for fiscal 1996,1999 was comprised primarily of the 8%
minority interest in Neutronics and 10% minority interest in FICO not acquired
by the Company in March 1999.

Minority interest expense for fiscal 1997 and 1998 was comprised primarily
of the 8% minority interest in Neutronics not acquired by the Company in October

29
1997 and the 4.1% minority interest in Ecoplast, a subsidiary of Neutronics held
by a third party.

Other income (expense), net was an income of $1.8 million in fiscal 1999
compared to an expense of $546,000 in fiscal 1998. The other income in fiscal
1999 comprised mainly of gain from disposal of land in Mexico. Other income
(expense), net was an expense of $546,000 in fiscal 1998 compared to an income
of $814,000 in fiscal 1997. Other expense, net in fiscal 1998 and fiscal 1996 primarily
consisted of the write-off of fixed assets. Other expense, net in fiscal 1997
includes $898,000 of income received under the Company's business interruption
insurance policy as a result of an April 1996 fire at its facilities in Doumen,
China.

Provision for Income Taxes

The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Austria, Brazil, China,
Hungary, Malaysia, Mauritius, Mexico, The Netherlands, Singapore, Sweden, the
United Kingdom, and the United States. These subsidiaries are subject to
taxation in the country in which they have been formed. The Company's Asian and
Hungarian manufacturing subsidiaries have, at various times, been granted
certain tax relief in each of these countries, resulting in lower than would
36
otherwise be the case under ordinary tax rates. See Note 7 of Notes to
Consolidated Financial Statements.

The Company's consolidated effective tax rate for any given period is
calculated by dividing the aggregate taxes incurred by each of the operating
subsidiaries and the holding company by the Company's consolidated pre-tax
income. Losses incurred by any subsidiary or by the holding company are not
deductible by the entities incorporated in other countries in the calculation of
their respective local taxes. For example, the charge for the closing of
manufacturing operations at the Company's facility in Richardson, Texas in
fiscal 1997 was incurred by a United States subsidiary that did not have income
against which this charge could be offset. The ordinary corporate tax rates for calendar 19971999
were 34%, 28%, 26%, 18%, 16.5%16% and 15% in Austria, Sweden, Singapore, Hungary,
Hong Kong and China, respectively, and 30% on manufacturing operations in
Malaysia. In addition, the tax rate is de minimis in Labuan, Malaysia and
Mauritius where the Company's offshore marketing subsidiaries are located. The
Company's Hungarian subsidiaries have been on a tax holiday that expired on
December 31, 1997.1998. Effective January 1, 1998,1999, the Company's Hungarian
subsidiaries will be subject to corporate income taxes at a flat rate of 18%,
which will effectively be reduced to 7.2% in the years 19981999 through 20022003 because
a 60% exemption will apply. As a result of this change in tax status, the
Company expects to be subject to current income taxes in Hungary in future
years. The Company's U.S. and U.K. subsidiaries are subject to ordinary
corporate tax rates of 35% and 33%30% respectively. However, these tax rates did
not have any material impact on the Company's taxes in fiscal 19981999 due to the
operating loss carry forwards benefited in this period.

The Company's consolidated effective tax rate was 13.1% for fiscal year
1999 compared to 10.2% for fiscal year 1998 compared to 14.9% for fiscal year 1997.1998. The Company's effective tax rate
decreased primarily due toincrease in the Company benefiting from net loss carry forwards
related to the U.S. operations, due to the United States operations reaching
profitability in fiscal 1998. In addition, the Company's effective tax
rate was reduced bydue to the shiftingexpansion of some of its manufacturing operations from Singapore,
which has an ordinary corporate tax rate of 26%, to low cost manufacturing
operations locatedand increase in profitability in
countries with lower corporatehigher tax rates.

At March 31, 1999, the Company had operating loss carryforwards of
approximately $15,208 for U.S. federal income tax purposes which will expire
between 2003 and 2012 if not previously utilized. Utilization of these net
operating loss carryforwards may be subject to an annual limitation due to the
change in ownership rules provided by the Internal Revenue Code (the "Code").
This limitation and other restrictions provided by the Code may reduce the net

operating loss carryforwards such that they would not be available to offset
future taxable income of the U.S. subsidiary.

At March 31, 1999, the Company had operating loss carryforwards of
approximately $9,867, $6,765 and $6,547 in U.K., Austria and Hong Kong,
respectively with various loss carryforward lives pursuant to local county tax
laws. The utilization of these net operating loss carryforwards is limited to
the future operations of the Company in the tax jurisdictions in which such
carryforwards arose.

The Company has structured its operations in Asia in a manner designed to
maximize income in countries where tax incentives have been extended to
encourage foreign investment or where income tax rates are low. The Company's
investments in its plants in Xixiang and Doumen, China fall under the "Foreign
Investment Scheme" which entitles the Company to apply for a five-year tax
incentive. The Company obtained the tax incentive for the Doumen plant in
December 1995 and the Xixiang plant in October 1996. With the approval, the
Company's tax rates on income from these facilities during the incentive period
will be 0% in years 1 and 2 and 7.5% in years 3 through 5, commencing in the
first profitable year and 15.0% thereafter. In fiscal 1993, theThe Company has transferred its
offshore marketing and distribution functions to a newly formed
marketing subsidiarysubsidiaries located
in Labuan, Malaysia, where the tax rate is de minimis. In February 1996, the Company transferred Astron's salesminimis and marketing
business to a newly formed subsidiary in Mauritius, where the
tax rate is 0%.
The Company's Malaysian manufacturing subsidiary has obtained a five year
pioneer certificate from the relevant authority that provides a tax exemption on
manufacturing income from certain products in Johore, Malaysia. The Company's facility in Shekou, China, which was closed in
fiscal 1996, was located in a "Special Economic Zone" and was an approved
"Product Export Enterprise" that qualified for a special corporate income tax
rate of 10%.

If tax incentives are not renewed upon expiration, if the tax rates
applicable to the Company are rescinded or changed, or if tax authorities were
to challenge successfully the manner in which profits are recognized among the
Company's subsidiaries, the Company's worldwide effective tax rate would
increase and its results of operations and cash flow would be adversely
affected. A significant portion of the products manufactured by the Company's
Asian subsidiaries are sold to customers based in other jurisdictions in North
America and Europe. While the Company believes that profits from its Asian
operations are not sufficiently connected to such other jurisdictions to give
rise to income taxation in such other jurisdictions, there can be no assurance
that tax authorities in such other jurisdictions will not challenge the Company's position or, if such
challenge is made, that the Company will prevail in any such disagreement. If
the Company's Asian profits became subject to income taxes in such other
jurisdictions, the Company's taxes would increase and its results of operations
and cash flows would be adversely affected. The expansion by the Company of its
operations in the Americas and countries in Western Europe that have higher tax
rates is likelyexpected to increase its worldwide effective tax rate. See "Item 1 -
Business - Risk Factors -- Risk of Increased Taxes."

Quarterly Results

The following table contains selected unaudited quarterly financial data
for 19971998 and 19981999 fiscal years. In the opinion of management, this information
has been presented on the same basis as the annual audited consolidated
financial statements appearing elsewhere, and all necessary adjustments
(consisting of normal recurring adjustments) have been included in the amounts
stated below to present fairly the unaudited quarterly results when read in
conjunction with the audited consolidated financial statements of the Company.
The Company's results of operations have varied and may continue to fluctuate
significantly from quarter to quarter. Results of operations in any period

31
should not be considered indicative of the results to be expected from any
future period.

(UNAUDITED)
FISCAL YEAR ENDED MARCH 31, 19971998 FISCAL YEAR ENDED MARCH 31, 1998
---------------------------------------------- ---------------------------------------------1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------ ------------------------------------------------
First Second Third Fourth First Second Third Fourth
--------- --------- --------- --------- --------- --------- --------- ---------

Net sales ............... $ 149,782 $ 156,757 $ 161,248 $ 172,220.................. $ 235,545 $ 251,468 $ 295,000 $ 331,058 $ 376,079 $ 422,948 $ 499,901 $ 508,700
Cost of sales ........... 134,656 138,661 148,614 153,211.............. 212,517 226,786 266,192 298,675 343,023 386,042 457,068 466,758
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin ............ 15,126 18,096 12,634 19,009............... 23,028 24,682 28,808 32,383 33,056 36,906 42,833 41,942
Selling, general and
administrative ....... 8,218 8,550 9,333 10,176........... 12,564 11,806 13,773 15,552 14,355 16,555 17,397 19,814
Goodwill and intangible
amortization ......... 662 741 749 496............. 744 1,009 951 955 880 881 879 982
Provision for excess
facilities ........... -- -- 2,321 3,547............... -- -- -- 8,869 -- -- -- 3,361
Acquired in-process
research and
development .............. -- -- -- -- -- -- -- 2,000
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations .. 6,246 8,805 231 4,790..... 9,720 11,867 14,084 7,007 17,821 19,470 24,557 15,785
Merger-related expenses ..... -- -- (4,000) (3,415) -- -- -- --
-- -- 4,000 3,415
OtherInterest and other
expense, net ...... 336 1,925 173 3,991 2,428 4,333 2,946 3,385............. (2,428) (4,333) (2,946) (3,385) (4,577) (4,853) (6,938) (1,966)
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes ............... 5,910 6,880 58 799.................... 7,292 7,534 7,138 207 13,245 14,617 17,619 13,819
Income tax expense
(benefit) ............ 763 985 281 (2)................ 746 912 1,197 (597) 1,588 1,754 2,126 2,302
--------- --------- --------- --------- --------- --------- --------- ---------
Net income .............. $ 5,147 $ 5,895 $ (223) $ 801................. $ 6,546 $ 6,622 $ 5,941 $ 804 $ 11,656 $ 12,863 $ 15,493 $ 11,517
========= ========= ========= ========= ========= ========= ========= =========

Diluted net income
(loss)earnings
per share ..................... $ 0.19 $ 0.18 $ 0.15 $ 0.02 $ 0.27 $ 0.30 $ 0.34 $ (0.01) $ 0.05 $ 0.37 $ 0.37 $ 0.29 $ 0.040.22
========= ========= ========= ========= ========= ========= ========= =========
Weighted average Ordinary
Shares and equivalents
outstanding - diluted 17,318 17,121 17,393 17,481 17,492 18,047 20,379 20,799... 34,984 35,942 40,606 41,598 43,496 43,150 46,061 51,680
========= ========= ========= ========= ========= ========= ========= =========

The Company has experienced, and expects to continue to experience,
significant periodic and quarterly fluctuations in results of operations due to
a variety of factors. These factors include, among other things, timing of
orders, the short-term nature of most customers' purchase commitments, volume of
orders relative to the Company's capacity, customers' announcement, introduction
and market acceptance of new products or new generations of products, evolution
in the life cycles of customers' products, timing of expenditures in
anticipation of future orders, effectiveness in managing manufacturing
processes, changes in cost and availability of labor and components, mix of
orders filled, timing of acquisitions and related expenses and changes or
anticipated changes in economic conditions. In addition, the Company's net sales
may fluctuate throughout the year as a result of local factors and other eventevents
that may affect production volumes. The market segments served by the Company
are also subject to economic cycles and have in the past experienced, and are
likely in the future to experience, recessionary periods. A recessionary period
affecting the industry segments served by the Company could have a material
adverse effect on the Company's results of operations. Results of operations in
any period should not be considered indicative of the results to be expected for
any future period, and fluctuations in operating results may also result in
fluctuations in the price of the Company's Ordinary Shares. In future periods,
the Company's revenues or results of operations may be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Ordinary Shares would likely be materially adversely affected. See "Item 1 -

32
Business - Risk Factors -- Variability of Customer Requirements and Operating
Results."

BACKLOG

Although the Company obtains firm purchase orders from its customers, OEM
customers typically do not make firm orders for delivery of products more than
30 to 90 days in advance. The Company does not believe that the backlog of
expected product sales covered by firm purchase orders is a meaningful measure
of future sales since orders may be rescheduled or canceled.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations from the proceeds of public offerings
of equity securities and debt offerings, cash and cash equivalents generated
from operations, bank debt and lease financing of capital equipment. In December
1998, the Company issued 5.4 million Ordinary Shares for net proceeds of $194.0
million. In October 1997, the Company issued $150.0 million principal amount of
Senior Subordinated Notes due in 2007 for net proceeds of $145.7 million and
issued 2,185,0004,370,000 Ordinary Shares for net proceeds of $96.2 million. At March 31,
19981999 the Company had cash and cash equivalents balances totaling $89.4$173.0 million,
total bank and other debts amounting to $242.5$261.1 million and $100.5$99.1 million
available for borrowing under its credit facilities subject to compliance with
certain financial ratios.

Cash provided by operating activities was $65.4 million, $38.3 million $54.4 million and
$2.4$54.4 million in fiscal 1999, 1998 and 1997, respectively. Cash provided by
operating activities increased in fiscal 1999 from fiscal 1998 because of the
increase in net income, depreciation and 1996, respectively.amortization and accounts payable,
partially offset by increases in accounts receivables and inventories. Cash
provided by operating activities decreased in fiscal 1998 from fiscal 1997
because of the increase in accounts receivable and inventories, partially offset
by increases in accounts payables, increases in depreciation and amortization
expenses of $30.9 million in fiscal 1998 from $18.1 million in fiscal 1997 and
the increase in profitability in fiscal 1998.

Cash provided by operating activities increased
in fiscal 1997 over fiscal 1996 mainly due to the increase in profitability,
decrease in accounts receivable, increase in accounts payable, and increases in
depreciation and amortization expenses of $18.1 million in fiscal 1997 from

$13.8 million in fiscal 1996 partially off-set by increases in other current
assets.

Accounts receivable, net of allowance for doubtful accounts has increased to
$225.8 million at March 31, 1999 from $155.1 million at March 31, 1998 from $87.5 million at March 31, 1997.1998. The
increase in accounts receivable was primarily due to a 73.9%62.4% increase in sales
in fiscal 1998 and1999.

Inventories increased to $19.4 million of accounts receivable acquired as a result
of the acquisitions of Altatron and Conexao effective March 31, 1998. The
Company's allowance for doubtful accounts increased from $6.1$192.8 million at March 31, 1997 to $9.5 million at March 31, 1998 to reflect the increased receivable
levels.

Inventories increased to1999 from $157.1
million at March 31, 1998 from $124.4
million at March 31, 1997.1998. The increase in inventories was primarily the results
of increased purchases of material to support the growing sales and also $8.5
million of inventories as a result of the acquisitions of Altatron and Conexao
effective March 31, 1998. Inventories increased to $124.4 million at March 31,
1997 from $65.9 million at March 31, 1996. The increase in inventories was
primarily the result of the acquisition of $55.3 million of inventories at the
Karlskrona Facilities. The Company's allowance for inventory obsolescence
increased from $6.2 million at March 31, 1997 to $9.6 million at March 31, 1998.sales.

Cash used in investing activities was $204.6 million, $104.7 million $117.6 million and
$39.8$117.6 million in fiscal 1999, 1998 and 1997, respectively. Cash used in
investing activities in fiscal 1999 were primarily related to (i)$147.9 million
of capital expenditures to purchase equipment and 1996, respectively.expand manufacturing
facilities in Brazil, China, Hungary, Mexico, United States and Sweden.
(ii)$15.0 million for acquisition of ACL, (iii) $7.2 million for acquisition of
FICO, (iv) $24.0 million for the former shareholders of Astron for the remaining
purchase price relating to the acquisition of Astron, (v) $17.5 million for
minority investment in the stocks of various technology companies in software
and related industries. Cash used in investing activities in fiscal 1998 were
primarily related to capital expenditures of $98.6 million. Capital expenditures
in fiscal 1998 related to the purchase of equipment and construction of new

facilities in Doumen, China, Guadalajara, Mexico, San Jose, California and
Karlskrona, Sweden. Cash used in investing activities in fiscal 1997 consisted
primarily of $82.4 million paid for the acquisition of the Karlskrona Facilities
and $37.5 million in capital expenditures.

Cash used in investingprovided by financing activities was $224.8 million, $133.1 million
and $79.0 million in fiscal 1996 was primarily
comprised of capital expenditures of $23.5 million1999, 1998, and $15.2 million cash
portion of the purchase price paid for the Assembly & Automation (Electronics)
Limited and Astron acquisitions.1997, respectively. Cash provided by
financing activities was $133.1 million, $79.0 million and
$34.0 million in fiscal 1999 resulted primarily from the Company's equity
offering of 5.4 million Ordinary Shares in December 1998 1997, and 1996, respectively.with net proceeds of
$194.0 million. Cash provided by financing activities in fiscal 1998 resulted
primarily from net proceeds of the issuance of senior subordinated notes of
$145.7 million and net proceeds from the equity offering of $96.2 million,
partially offset by $108.6 million of net repayments of bank borrowings, capital
leases, long-term debts and payment of $5.0 million notes due to Astron's former
shareholders. See "--- Overview." Cash provided by financing activities in fiscal 1997 consisted
primarily of net bank borrowings and proceeds from long term debt of $97.0. Cash provided by financing
activities in fiscal 1996 consisted primarily of $22.3 million from the sale of
Ordinary Shares and net bank borrowings of $22.9$97.0
million.

This was partially
offset by repayments of capital lease and loan from related company.

On March 27, 1997, theThe Company established themaintains a credit facility (the "Credit
Facility") with a syndicate of banks. The Facility,This
facility provides for revolving credit borrowings by the Company and Flextronics International USA, Inc., a
California corporation and a wholly-owned subsidiarynumber of
the Companyits subsidiaries of an
aggregate of $105.0up to $120.0 million, is subject to compliance with certain
financial covenants and the satisfaction of customary borrowing conditions. BankBoston,
N.A. (the "Bank") is the lead agent and a lender under the Credit Facility. In
January 1998, the Credit Facility was amended to, among other things, (i)
eliminate a term loan facility; (ii) reduce the commitment fees and interest

rate payable under the facility; (iii) provide for loans directly to certain of
the Company's subsidiaries; and (iv) provide for loans in foreign currencies.
The
Credit Facilitycredit facility consists of two separate credit agreements, one providing for up
to $55.0$62.9 million principal amount of revolving credit loans to the Company and
designated subsidiaries and one providing for up to $50.0$57.1 million principal
amount of revolving credit loans to the Company's United States subsidiary.
Loans under the Credit Facilitycredit facility will matureterminate in March 2000.January 2001. See Note 4 of
Notes to Consolidated Financial Statements. The Company anticipates that it will
from time to time borrow revolving credit loans to fund its operations and
growth.

The Company anticipates that its working capital requirements will increase
in order to support anticipated increases in business capacity. In addition, the
Company anticipates incurring significant capital expenditures and operating
lease commitments in order to support its anticipated expansions of these
facilities in China, Hungary, Mexico and Mexico.Brazil. Future liquidity needs will
depend on fluctuations in levels of inventory, the timing of expenditures by the
Company on new equipment, the extent to which the Company utilizes operating
leases for the new facilities and equipment, levels of shipments by the Company
and changes in volumes of customer orders. The Company believes that the
existing cash balances, together with anticipated cash flow from operations and
amounts available under the Credit Facility,credit facility, will be sufficient to fund its
operations through fiscal 1999. However, to the extent that the Company's
operations significantly expand, the Company may be required to obtain
additional debt or equity financing. See "Item 1 - Business - Risk Factors --
ManagementRisks of Expansion of Operations."

Quantitative and Consolidation."Qualitative Disclosures About Market Risk

Interest Rate Risk

A portion of the Company's exposure to market risk for changes in interest
rates relates to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
invests in high-credit quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company ensures
the safety and preservation of its invested principal funds by limiting default

risk, market risk and reinvestment risk. The Company mitigates default risk by
investing in safe and high-credit quality securities and by constantly
positioning its portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer, guarantor or depository. The portfolio
includes only marketable securities with active secondary or resale markets to
ensure portfolio liquidity. Maturities of short-term investments are timed,
whenever possible, to correspond with debt payments and capital investments. As
of March 31, 1999, the outstanding amount in the investment portfolio was $130.5
million, with an average maturity of 71 days and an average return of 5.05%.

The Company also has exposure to interest rate risk with certain variable
rate lines of credit. These credit lines are located throughout the world and
are based on a spread over that country's inter-bank offering rate. The Company
primarily enters into debt obligations to support general corporate purposes
including capital expenditures and working capital needs. As of March 31, 1999,
the outstanding short-term debt, including capitalized leases was $63.9 million.
The following table presents principal cash flows and related interest rates by
fiscal year of maturity for debt obligations. The variable interest rate for
future years assumes the same rate as March 31, 1999.

Expected Fiscal Year of Maturity
(in thousands)

There-
Debt 2000 2001 2002 2003 2004 after Total
- --------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------

Sr. Subordinated Notes ................ -- -- -- -- -- 150,000 150,000
Average interest rate ............. 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75%

Fixed Rate ............................ 11,711 9,344 6,388 4,143 2,788 11,341 45,715
Average interest rate .............. 7.2% 7.2% 6.6% 7.4% 6.6% 7.7% 7.6%

Variable Rate ......................... 52,182 4,027 2,634 2,635 1,788 2,091 65,357
Average interest rate .............. 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1%

Foreign Currency Exchange Risk

The Company transacts business in various foreign countries. The Company
manages its foreign currency exposure by borrowing in various foreign currencies
and by entering into foreign exchange forward contracts only with respect to
transaction exposure. The Company's policy is to maintain a fully hedged
position for all certain, known transactions exposures. These exposures are
primarily, but not limited to, vendor payments and inter-company balances in
currencies other than the functional unit of the operating entity. The Company
will first evaluate and, to the extent possible, use non-financial techniques,
such as currency of invoice, leading and lagging payments, receivable management
or local borrowing to reduce transaction exposure before taking steps to
minimize remaining exposure with financial instruments. As of March 31, 1999,
the total cumulative outstanding amounts of forward contracts in French Franc,
Japanese Yen, Swedish Kronor and United States dollar was approximately $16.5
million.

YEAR 2000 COMPLIANCE

The Company is aware of the issues associated with programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 computer
issue refers to a condition in computer software where a two digit field rather
than a four digit field is used to distinguish a calendar year. Unless
corrected, some computer programs could be unable to function on January 1, 2000

(and thereafter until corrected), as they will be unable to distinguish the
correct date. Such an uncorrected condition could significantly interfere with
the conduct of the Company's business, could result in disruption of its
operations, and could subject it to potentially significant legal liabilities.

The Company has been addressing the Year 2000 issues with a project plan
divided into major initiatives: Enterprise wide applications, networks and
telecommunications, systems hardware and software, personal computer hardware
and software, manufacturing and related equipment and facilities and
infrastructure. The Company has established geographic regional teams to follow
established policies and guidelines on the remediation of the Year 2000 issue.
The Company created an internal intra-net database to record the status and
remediation activity on all internal equipment.

The Company is primarily addressing the Year 2000 issues concerning
enterprise wide applications by replacing its management information system with
a new enterprise management information system that is designed to provide
enhanced functionality. We have been advised that our new enterprise management
information system is Year 2000 compliant. However, there can be no assurance
that the new system will be Year 2000 compliant or that it will be implemented
by January 1, 2000. The new system will significantly affect many aspects of our
business, including our manufacturing, sales and marketing and accounting
functions. In addition, the successful implementation of this system will be
important to our future growth. The Company currently has implemented this new
information system in a majority of its facilities in Asia, Central Europe,
Western Europe, and the Americas and anticipates that the installation of the
new system will be completed in August 1999. The Company is currently evaluating
the implementation of this new management information for its recent
acquisitions in Sweden.

The Year 2000 issue also could affect the Company's infrastructure and
production lines. The possibility also exists that the Company could
inadvertently fail to correct a Year 2000 problem with a mechanical equipment
micro-controller. The Company believes the impact of such an occurrence would be
minor, as substantial Year 2000 compliant equipment additions and upgrades have
occurred in recent years. The Company has been in contact with the manufacturers
of mechanical equipment to fully validate the readiness of its microprocessors.
Additional testing is planned during fiscal 2000 to reasonably ensure their Year
2000 readiness.

The Company has sent a Year 2000 Readiness Questionnaire to most of its
critical and significant suppliers. These critical suppliers have been
classified into risk categories and the Company is in the process of identifying
and devoting resources to verify Year 2000 compliance of these suppliers. The
Company may need to find alternative suppliers based on the results of the
questionnaires. Their can be no assurance that the Company will be able to find
suitable alternative suppliers and contract with them on reasonable prices and
terms, and such inability could have a material and adverse impact on the
Company's business and results of operations.

The Company is currently working with many of its major customers to ensure
year 2000 compliance and has been audited by many of its customers. The Company
currently works with many of its major customers to formula contingency plans.
These contingency plans include the movement of manufacturing production,
identification of alternative suppliers and logistics companies. The Company
intends to review its contracts with customers and suppliers with respect to

responsibility for Year 2000 issues and to seek to address such issues in future
agreements with customers and suppliers.

The Company has currently incurred in excess of $16.0 million in total
hardware, software, and system related costs in connection with remediation of
Year 2000 issues. These costs are primarily costs associated with the
implementation of the Company's new information system and have primarily been
capitalized as fixed assets. The Company anticipates expending $15.0an additional
$2.0 to $4.0 million in fiscal 1999before January 1, 2000 to implementcomplete the implementation of
the new management information system and anticipates funding these
expendituresaddress any Year 2000 compliance issues. There
can be no assurances that the cost estimates associated with cash fromthe Company's Year
2000 issues will prove to be accurate or that the actual costs will not have a
material adverse effect on the Company's results of operations and borrowings underfinancial
condition.

Although the Credit Facility.Company currently anticipates the installation of the new
system will be completed by August 1999, it could be delayed until later.
Implementation of the new system could cause significant disruption in
operations. In the event the new information system is not implemented by
September 1999, the Company's contingency plan is to upgrade the existing
information system currently in use by a majority of the Company's operations to
a new version which the Company has been advised is Year 2000 compliant. The
Company alsoestimates the cost to upgrade the existing information system to be
approximately $500,000. There can be no assurance that such measures will
be required to expend cash in fiscal 1999 pursuant toprevent the termsoccurrence of Year 2000 problems, which can have a material adverse
effect upon the Astron acquisition. The Company is required to make a $14.0 million
payment to an entity affiliated with Stephen Rees in June 1998. Of this amount
$5.0 million is payable in cashCompany's business, operating results and $9.0 million is payable in cash or, at the
option of the Company, in Ordinary Shares, and the Company intends to pay the
$9.0 million portion in Ordinary Shares.

41financial condition.

Item 8. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders' of Flextronics International Ltd:Ltd :

We have audited the accompanying consolidated balance sheets of Flextronics
International Ltd. and subsidiaries (a Singapore company) as of March 31, 19971998
and 19981999 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1998.1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Neutronics Electronics Industries Holding A.G., a company acquired on October
30, 1997 in a transaction accounted for as a pooling-of-interests, as discussed
in Note 2. Such statements are included in the consolidated financial statements
of Flextronics International Ltd. and reflect total assets of 20
percent of the consolidated total as of March 31, 1997 and total revenues of 22
percent and 23 percent respectively, of
the consolidated totals for the yearsyear ended March 31, 1996 and 1997. These statements were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to amounts included for Neutronics Electronics Industries
Holding A.G., is based solely upon the report of the other auditors.

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

In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Flextronics International Ltd. and
subsidiaries as of March 31, 19971998 and 1998,1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
19981999 in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a) 2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

San Jose, California
April 23, 1998

4221, 1999

REPORT OF INDEPENDENT AUDITORS

The Management and Supervisory Boards and Shareholders at
Neutronics Electronic Industries Holding A.G.

We have audited the accompanying consolidated balance sheets (not presented
herein) of Neutronics Electronic Industries Holdings A.G. and its subsidiaries
(the `Group') as at December 31, 1996 1995,1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the periods then ended (not presented herein). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements (not presented
herein) present fairly, in all material respects the financial position of the
Group as at December 31, 1996, 1995 and 1994 and the results of its operations
and its cash flows for the periods then ended in conformity with United States
Generally Accepted Accounting Principles.

/s/ MOORE STEPHENS
Moore Stephens
Registered Auditors
St. Paul's House
Warwick Lane
London EC4P 4BN.

Friday 1225 June 1998

431999

FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS

ASSETS
MARCH 31
----------------------
1997---------------------------------
1998 --------- ---------1999
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................................................................................... $ 24,15989,390 $ 89,390172,984
Accounts receivable, less allowances
for doubtful accounts of $6,072$9,528 and $9,528 ......... 87,507$5,050 ........................................ 155,125 225,790
Inventories ....................................................... 124,362.......................................................................... 157,077 Deferred tax asset ................................................ 3,049 28192,766
Other current assets .............................................. 15,319 37,914
--------- ---------................................................................. 37,942 62,492
----------- -----------
Total current assets ...................................... 254,396......................................................... 439,534 654,032
----------- -----------
Property and equipment, net ......................................... 149,015............................................................ 255,573 367,507
Goodwill and other intangibles, net ................................. 33,506.................................................... 26,561 Related party receivables ........................................... 2,554 2,52038,666
Other assets ........................................................ 6,821 19,935
--------- ---------........................................................................... 22,455 34,174
----------- -----------
Total assets .............................................. $ 446,292................................................................. $ 744,123 ========= =========$ 1,094,379
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long-term debt ............................................. $ 128,51543,209 $ 43,20954,086
Capital lease obligations ......................................... 8,273............................................................ 9,587 9,807
Accounts payable .................................................. 97,917..................................................................... 177,084 251,796
Accrued liabilities and other ..................................... 47,344 84,736
Payables to associated company .................................... 546 382.................................................................. 85,118 91,222
Deferred revenue .................................................. 2,046 0
--------- ---------..................................................................... -- 5,976
----------- -----------
Total current liabilities ................................. 284,641.................................................... 314,998 --------- ---------412,887
----------- -----------
Long-term debt, net of current portion .............................. 9,029................................................. 166,497 173,753
Capital lease obligations, net of current portion ................... 20,099...................................... 23,181 23,426
Deferred income taxes ............................................... 3,710.................................................................. 4,812 4,831
Other long-term liabilities ......................................... 28,326............................................................ 18,832 9,213
Minority interest ................................................... 1,142...................................................................... 994 --------- ---------4,018
----------- -----------
Total long-term liabilities ............................... 62,306.................................................. 214,316 --------- ---------215,241
----------- -----------
Commitments (Note 6)
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value; Authorized -- 100,000,000 shares;
issued and outstanding -- 16,482,243- 41,234,858 and 20,617,42948,205,493 as of March
31, 19971998 and 1998,1999, respectively ................................ 107 134................................................... 260 299
Additional paid-in capital ................................... 106,556 214,466........................................................... 214,340 425,652
Retained earnings(deficit) ........................................ (7,020)earnings .................................................................... 6,934 58,464
Cumulative translation adjustment ................................. (298).................................................... (6,725) --------- ---------(18,164)
----------- -----------
Total shareholders' equity ................................ 99,345................................................... 214,809 --------- ---------466,251
----------- -----------
Total liabilities and shareholders' equity ................ $ 446,292................................... $ 744,123 ========= =========$ 1,094,379
=========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

4440

FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED MARCH 31,
-----------------------------------------
1996-------------------------------------------------------
1997 1998 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

Net Sales ........................................... $ 572,045........................................................ $ 640,007 $ 1,113,071 $ 1,807,628
Cost of Sales ....................................... 517,732.................................................... 575,142 1,004,170 1,652,891
----------- ----------- -----------
Gross margin .............................. 54,313........................................... 64,865 108,901 154,737
----------- ----------- -----------
Operating Expenses:
Selling, general and administrative ............... 28,138............................ 36,277 53,695 68,121
Goodwill and intangibles amortization ............. 1,296.......................... 2,648 3,659 3,622
Provision for excess facilities ................... 1,254................................ 5,868 8,869 3,361
Acquired in-process research and development ...... 29,000................... -- -- 2,000
----------- ----------- -----------
Total operating expenses .................. 59,688............................... 44,793 66,223 77,104
----------- ----------- -----------
Income(loss)Income from operations ........................ (5,375)................................ 20,072 42,678 77,633
Other Expense:
Merger-related expenses ........................... --........................................ -- (7,415) Other--
Interest and other expense, net ................................ (4,924) (6,425) (13,092) (18,333)
----------- ----------- -----------
Income(loss)Income before income taxes ............... (10,299).............................. 13,647 22,171 59,300
Provision for Income Taxes .......................... 3,847....................................... 2,027 2,258 7,770
----------- ----------- -----------
Net income(loss) .................................... $ (14,146)income .............................................. $ 11,620 $ 19,913 $ 51,530
=========== =========== ===========

Earnings Per Share
Basic net income (loss) per share ..................................................................... $ (0.92)0.35 $ 0.700.55 $ 1.091.18
=========== =========== ===========
Diluted net income (loss) per share ................................................................. $ (0.92)0.34 $ 0.670.52 $ 1.041.12
=========== =========== ===========
Weighted average Ordinary Shares outstanding -- basic ......................... 15,436 16,704 18,263used for earnings per share
Basic ....................................................... 33,408 36,526 43,569
=========== =========== ===========
Weighted average Ordinary Shares and equivalents
outstanding -- diluted ....................... 15,436 17,328 19,097Diluted ..................................................... 34,656 38,194 46,163
=========== =========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.

4541

FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED MARCH 31,
--------------------------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)

Net income .......................................................... $ 11,620 $ 19,913 $ 51,530
Other comprehensive loss, net of tax :
Foreign currency translation adjustment ........................... (685) (5,773) (9,940)
-------- -------- --------
Comprehensive income ................................................ $ 10,935 $ 14,140 $ 41,590
======== ======== ========

The accompanying notes are an integral part of these consolidated financial
statements.

FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1997, 1998 AND 19981999
(IN THOUSANDS)

ORDINARY SHARES ADDITIONAL RETAINED CUMULATIVE TOTAL
-------------------------------------------- PAID-IN EARNINGS TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY
--------- --------- --------- --------- ---------- ---------

BALANCE AT MARCH 31, 1995 .......... 14,4101996 ................... 32,038 $ 92207 $ 73,868104,517 $ (5,513)(19,659) $ (12)506 $ 68,435
Issuance of Ordinary Shares for
acquisition of A&A ............ 67 -- 938 -- -- 938
Issuance of Ordinary Shares for
acquisition of Astron ......... 238 2 6,505 -- -- 6,507
Exercise of stock options ........ 304 2 1,007 -- -- 1,009
Sale of shares in public
offering, net of $1,190 in
offering costs ................ 1,000 8 22,302 -- -- 22,310
Net loss ......................... -- -- -- (14,146) -- (14,146)
Foreign exchange gain ............ -- -- -- -- 518 518
--------- --------- --------- --------- --------- ---------
BALANCE AT MARCH 31, 1996 .......... 16,019 104 104,620 (19,659) 506 85,571
Issuance of Ordinary Shares for
acquisition of Fine Line ...... 223 1 196line ............... 446 2 195 1,019 -- 1,216
Exercise of stock options ........ 240 2 1,740................. 480 3 1,739 -- -- 1,742
Net income .......................Income ................................ -- -- -- 11,620 -- 11,620
Foreign exchange loss ............currency translation .............. -- -- -- -- (804) (804)
--------- --------- --------- --------- --------- ---------
BALANCE AT MARCH 31, 1997 .......... 16,482 107 106,556................... 32,964 212 106,451 (7,020) (298) 99,345
Adjustment to conform fiscal year
of pooled entity ................................ -- -- -- (3,136) -- (3,136)
Issuance of Ordinary Shares for
acquisition of DTM ............ 252 2 1,032..................... 505 3 1,031 (1,481) -- (447)
Issuance of Ordinary Shares for
acquisition of Energipilot .... 230 1 257............. 460 2 256 549 -- 807
Issuance of Ordinary Shares for
acquisition of Altatron ....... 788 5 45................ 1,576 9 41 4,132 -- 4,182
Issuance of Ordinary Shares for
acquisition of Conexao ........ 421 3 8,494................. 842 5 8,492 (6,023) -- 2,474
Exercise of stock options ........ 259 2 1,946................. 518 4 1,944 -- -- 1,948
Sale of shares in public offering,
net of $6,545 in offering costs 2,185 14 96,136........ 4,370 25 96,125 -- -- 96,150
Net income ....................................................... -- -- -- 19,913 -- 19,913
Foreign exchange loss ............currency translation .............. -- -- -- -- (6,427) (6,427)
--------- --------- --------- --------- --------- ---------
BALANCE AT MARCH 31, 1998 .......... 20,617................... 41,235 260 214,340 6,934 (6,725) 214,809
Sale of shares in public offering,
net of $1,750 in offering cost ......... 5,400 29 193,971 -- -- 194,000
Issuance of Ordinary Shares for
acquisition of FICO .................... 128 1 4,799 -- -- 4,800
Exercise of stock options ................. 1,370 8 11,377 -- -- 11,385
Ordinary Shares issued under
Employee Stock Purchase Plan ........... 72 1 1,165 -- -- 1,166
Net income ................................ -- -- -- 51,530 -- 51,530
Foreign currency translation .............. -- -- -- -- (11,439) (11,439)
--------- --------- --------- --------- --------- ---------
BALANCE AT MARCH 31, 1999 ................... 48,205 $ 134299 $ 214,466425,652 $ 6,93458,464 $ (6,725)(18,164) $ 214,809466,251
========= ========= ========= ========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

4643

FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31,
-----------------------------------
1996-------------------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................. $ (14,146).................................................................... $ 11,620 $ 19,913 $ 51,530
Adjustments to reconcile net income (loss) to net cash provided
by from operating activities:
Depreciation and amortization ............................... 13,864.............................................. 18,140 30,948 50,407
Gain on sale of subsidiary ................................................................................... (1,027) -- (1,027) --
Provision for receivables anddoubtful accounts ............................................ 3,091 1,218 (2,584)
Provision for inventories ................... 3,496 7,319 4,467.................................................. 4,228 3,249 4,105
Equity in earnings of associated companies .................. --................................. (133) (1,194) (1,036)
In-process research and development ......................... 29,000........................................ -- -- 2,000
Provision for excess facilities ............................. 1,254............................................ 5,308 8,869 3,361
Minority interest expense and other non-cash expenses ....... 346...................... 1,302 413 569
Changes in operating assets and liabilities (net of effect of
acquisitions):
Accounts receivable .................................... (28,957)................................................... 4,290 (46,685) (67,615)
Inventories ............................................ (19,553)........................................................... (8,400) (32,258) (44,346)
Other current assets ................................... 2,126.................................................. (10,581) (22,476) (21,818)
Accounts payable and accrued liabilities and
other ................................................ 14,677.............................. 25,719 74,973 91,068
Deferred revenue ....................................... 171...................................................... 1,788 317 314
Deferred income taxes .................................. 140................................................. (976) 999 (576)
--------- --------- ---------
Net cash provided by operating activities ........................ 2,418....................................... 54,369 38,286 65,379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (23,520)........................................... (37,503) (98,617) (147,865)
Proceeds from sale of property and equipment ................... 630.................................. 4,827 1,622 6,099
Proceeds from sale of subsidiaries ......................................................................... 1,012 -- 1,012 --
Investment in associated company ............................... (1,408).............................................. (3,116) (2,200) --
Proceeds from disposal of investment in associated company .................... -- -- 572
Other investments .............................................. (1,192)............................................................. (25) (3,621) (17,546)
Payment for Astron earnout .....................................and remaining purchase price
related to the acquisition of Astron ........................................ -- -- (6,250) (24,000)
Effect of acquisitions on cash ................................................................................. -- -- 4,363 379
Net cash paid for acquired businesses .......................... (15,152)......................................... (82,354) -- (22,200)
Repayments from (loans to) related party ....................... 815...................................... (469) 35 --
--------- --------- ---------
Net cash used in investing activities ............................ (39,827)........................................... (117,628) (104,668) (204,561)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and proceeds from long-term debt ............... 56,944.............................. 160,940 160,438 148,122
Repayment of bank borrowings and long-term debt ................ (34,069)............................... (63,957) (258,910) (118,711)
Borrowings from (payments to) related company .................. (6,440)................................. (4,403) 2,946 --
Equipment refinanced under capital leases ........................................................... 3,509 -- 3,509 --
Repayment of capital lease obligations ......................... (5,767)........................................ (7,991) (10,152) (11,133)
Proceeds from exercise of stock options ........................ 1,009and Employee
Stock Purchase Plan ......................................................... 1,362 1,948 12,551
Payments on notes payable ...................................... (17)..................................................... (10,463) (5,000) --
Gross proceeds from issuance of Senior Subordinated Notes ........................... -- 150,000 -- 150,000
Expenses related to the issuance of Senior Subordinated
Notes ..notes ....................................................................... -- (4,313) -- (4,313)
Gross proceeds from sales of Ordinary Shares ................... 23,500.................................. -- 102,695 195,750
Expenses related to sales of Ordinary Shares ................... (1,190).................................. -- (6,545) (1,750)
--------- --------- ---------
Net cash provided by financing activities ........................ 33,970....................................... 78,997 133,107 224,829
--------- --------- ---------
Effect of exchange rate changes .................................. (70)................................................. (226) (1,883) (2,053)
Effect of Neutronics fiscal year conversion ........................................................... -- 389 -- 389
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ................. (3,509)................................ 15,512 65,231 83,594
Cash and cash equivalents, beginning of period ................... 12,156.................................. 8,647 24,159 89,390
--------- --------- ---------
Cash and cash equivalents, end of period ......................... $ 8,647........................................ $ 24,159 $ 89,390 $ 172,984
========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

4744

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. ORGANIZATION OF THE COMPANY

Flextronics International Ltd. ("Flextronics" or the "Company") is
incorporated in the Republic of Singapore. Flextronics provides advanced
electronics manufacturing services to sophisticated original equipment
manufacturers ("OEMs") in the telecommunications, networking, computer, consumer
and medical electronics industries. Flextronics offers a full range of services
including product design, printed circuit board ("PCB") assembly and
fabrication, material procurement, inventory management, plastic injection
molding, final system assembly and test, packaging and distribution. The
components, subassemblies and finished products manufactured by the Company
incorporate advanced interconnect, miniaturization and packaging technologies
such as surface mount ("SMT"), multichip modules ("MCM") and chip-on-board
("COB") technologies.

2. SUMMARY OF ACCOUNTING POLICIES

Principles of consolidation and basis of presentation

The accompanying consolidated financial statements include the accounts of
Flextronics and its wholly and majority-owned subsidiaries, after elimination of
all significant intercompany accounts and transactions.

As is more fully described in Note 11, Flextronics acquired 92% of the
outstanding shares of Neutronics Electronics Industries Holding A.G.
("Neutronics") on October 30, 1997. The acquisition was accounted for as a
pooling-of-interests and the consolidated financial statements have been
restated to reflect the combined operations of Neutronics and Flextronics for
all periods presented.

Neutronics operated under a calendar year end prior to merging with
Flextronics, and accordingly, Neutronics' statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1995 and
1996 havehas
been combined with the corresponding Flextronics consolidated statements for the
fiscal years ended March 31, 1996 and 1997. Neutronics'
balance sheet as of December 31, 1996 has been combined with Flextronics'
consolidated balance sheet as of March 31, 1997. During fiscal 1998, Neutronics' fiscal year
end was changed from December 31 1997 to March 31 1998 to conform to the Company's fiscal
year-end. Accordingly, Neutronics' operations for the three months ended March
31, 1997, which included net sales of $34.9 million and net loss of $3.1 million
have been excluded from the consolidated results and have been reported as an
adjustment to retained earnings in the first quarter of fiscal 1998.

All dollar amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated as Singapore dollars (S$).

Reclassifications

Certain prior years' balances have been reclassified to conform with the
current year's presentation.

Translation of Foreign Currencies

The functional currency of the majority of Flextronics' Asian subsidiaries
and certain other subsidiaries is the U.S. dollar. Accordingly, all of the
monetary assets and liabilities of these subsidiaries are translated into U.S.
dollars at the current exchange rate as of the applicable balance sheet 48

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

date,
and all non-monetary assets and liabilities are remeasured at historical rates.
Revenues and expenses are translated at the average exchange rate prevailing
during the period. Gains and losses resulting from the translation of these
subsidiaries' financial statements are included in the accompanying consolidated
statements of operations.

The financial position and results of operations of the Company's Swedish,
UK, Austrian, Brazilian and Hungarian subsidiaries are measured using local
currency as the functional currency. Accordingly, for these subsidiaries all
assets and liabilities are translated into U.S. dollars at current exchange
rates as of the respective balance sheet date. Revenue and expense items are
translated at the average exchange rates prevailing during the period.
Cumulative translation gains and losses from the translation of these
subsidiaries' financial statements are reported as a separate component of
shareholders' equity. On January 1, 1999, the Company's Austrian and Hungarian
subsidiaries adopted the Euro as its functional currency.

Cash and cash equivalents

Cash and cash equivalents consisted of the following as of March 31:

1998 1999
-------- --------
Cash ................................... $ 63,390 $ 42,521
Certificates of deposit ................ 26,000 40,000
Money market funds ..................... -- 40,960
Corporate debt securities .............. -- 49,503
-------- --------
Cash and cash equivalents .......... $ 89,390 $172,984
======== ========

For the purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents. Cash equivalents consist of investments in certificates of
deposit, money market funds, and corporate debt securities with original
maturity of three months or less. The Company entered into forward contracts to hedge foreign currency
exposuresclassifies its investments in
fiscal 1997 related to a kronor denominated intercompany loan.
These transactions were settledcorporate debt securities as available-for-sale and are reported at fair market
value in September 1997accordance with SFAS No. 115 "Accounting for Certain Investments in
Debt and did not subjectEquity Securities". As of March 31, 1999, the Company to riskfair value of accounting losses becausethe
investments in corporate debt securities approximated amortized cost and, as
such, unrealized holding gains and losses were insignificant. The fair value of
the Company's investments was determined based on these contracts
offset losses and gains on the liability. The Company had $6.8 million and $80.7
million of aggregate foreign currency forward exchange contracts outstandingquoted market prices at the
end of fiscal year 1997 and fiscal 1998, respectively.reporting date for those instruments.

Property and equipment

Property and equipment is stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the related
assets (two to ten years), with the exception of building leasehold
improvements, which are amortized over the life of the lease, if shorter.
Repairs and maintenance costs are expensed as incurred. Property and equipment
was comprised of the following as of March 31:

1997 1998 1999
--------- ---------
Machinery and equipment .................... $ 103,243185,113 $ 186,279248,430
Land ....................................... 6,603 15,976 20,949
Buildings .................................. 53,136 80,352 104,698
Leasehold improvements ..................... 7,369 15,506 23,570
Computer equipment and software ............ 19,857 35,464
Furniture, fixtures and vehicles ........... 27,463 37,80219,111 43,539
--------- ---------
197,814 335,915 476,650
Accumulated depreciation and amortization . (48,799).. (80,342) (109,143)
--------- ---------
Property and equipment, net ............... $ 149,015................ $ 255,573 $ 367,507
========= =========

Concentration of credit risk

Financial instruments, which potentially subject the Company to
concentration of credit risk, are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains an allowance for doubtful accounts based on
the outcome of its credit evaluations. The Company maintains cash and cash
equivalents with various financial institutions.institutions that management believes to be
high credit quality. These financial institutions are located in many different
locations throughout the world.

Sales to customers who accounted for more than 10% of net sales were as
follows for the years ended March 31:

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1996 1997 1998 1999
------ ------ ------
Ericsson ................................. --%.............. --% 25.6% 16.4%
Philips Electronics Group (see Note 10) .. 17.8............... 18.8 12.5 18.0
Cisco ................. 1.1 3.2 12.8
Lifescan ................................. 11.1.............. 10.2 5.0 Visioneer ................................ 10.3 5.4 0.4--

Prior to the company's acquisition of Neutronics, Philips Electronics Group
("Philips") held a significant ownership interest in Neutronics (see Note 11).
Sales to Philips, which are included in net sales in the accompanying
consolidated statements of operations, totaled $102 million, $120 million, $139 million, and
$139$325 million in fiscal 1996, 1997, 1998 and 1998,1999, respectively. Neutronics also
purchased raw materials from Philips totaling $9 million, $30 million, $53 million and $53$153
million in fiscal 1996, 1997, 1998 and 1998,1999, respectively.

In addition, Neutronics received an interest free loan from Philips in
fiscal 1994 of $10.8 million which was fully repaid byin fiscal 1997.

Goodwill and other intangibles

Any excess of cost over net assets acquired (goodwill) is amortized by the
straight-line method over estimated lives ranging from teneight to twenty-five
years.

Intangible assets are comprised of technical agreements, patents,
trademarks, developed technologies and other acquired intangible assets
including assembled work forces, favorable leases and customer lists. Technical
agreements are being amortized on a straight-line basis over periods of up to
five years. Patents and trademarks are being amortized on a straight-line basis
over periods of up to ten years. Purchased developed technologies are being
amortized on a straight-line basis over periods of up to seven years. Intangible
assets related to assembled work forces, favorable leases and customer lists are
amortized on a straight-line basis over three to twentyten years.

Goodwill and other intangibles were as follows as of March 31:

1997 1998 1999
-------- --------
Goodwill ................................. $ 26,48321,850 $ 21,85037,315
Other intangibles ........................ 13,964 16,986 13,840
-------- --------
40,447 38,836 51,155
Accumulated amortization ................. (6,941) (12,275) (12,489)
-------- --------
Goodwill and other intangibles, net ...... $ 33,50626,561 $ 26,56138,666
======== ========

47
Long-Lived Assets

Effective December 1995 the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount, including the unamortized portion of goodwill
allocated to the property and equipment, to future net cash flows the property
and equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment, including the allocated goodwill,
if any, exceeds its fair market value. The Company assesses the recoverability
of enterprise level goodwill and intangible assets as well as long-lived assets
by determining whether the unamortized balances can be recovered through
undiscounted future results of the operation or asset. The amount of enterprise
level long lived asset impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting the Company's average
cost of funds. To date, the Company has made no adjustments to the carrying
value of its long-lived assets.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or
market value. Cost is comprised of direct materials, labor and overhead. As of
March 31, the components of inventories are as follows:

1997 1998 1999
-------- --------
Raw materials .................... $ 80,010 $130,868 $153,193
Work-in-process .................. 16,665 21,536 24,964
Finished goods ................... 27,687 4,673 14,609
-------- --------
$124,362 $157,077 $192,766
======== ========

Accrued liabilities and other

Accrued liabilities was comprised of the following as of March 31:

1997 1998 1999
------- -------
Income taxes .......................................... $ 4,171payable ................................... $ 4,183 $ 9,737
Accrued payroll ....................................... 15,443........................................ 19,928 31,593
Accrued loan interest ................................ --.................................. 6,016 6,056
Provision for excess facilities ...................... 5,308(see note 9) ........... 5,445 Amount payable to FICO for remaining purchase price .. 2,200 --
Earnout payable to Astron (See Note 11) ............... 6,250 --2,523
Purchase price payable to former Astron's Shareholders (See Note 11) ..................................... 10,000 -- 10,000
Amount due under the Service Agreement (See Note 11) ................... 13,909 --
13,909Customer deposits ...................................... 4,121 18,299
Sales tax payable ...................................... 4,347 5,779
Other accrued liabilities ............................. 13,972 25,255.............................. 17,169 17,235
------- -------
$47,344 $84,736$85,118 $91,222
======= =======

5148

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Revenue recognition

The Company's net sales are comprised of product sales and service revenue
earned from engineering and design services. Revenue from product sales is
recognized upon shipment of the goods. Service revenue is recognized as the
services are performed, or under the percentage-of-completion method of
accounting, depending on the nature of the arrangement. If total costs to
complete a project exceed the anticipated revenue from that project, the loss is
recognized immediately.

ResearchInterest and development

Research and development costs arise from the Company's efforts to develop
new manufacturing processes and technologies and are expensed as incurred. Cost
of sales included research and development costs of approximately $153, $913 and
$1,153 in fiscal 1996, 1997 and 1998, respectively.

Otherother expense, net

OtherInterest and other expense, net was comprised of the following for the
years ended March 31:

1996 1997 1998 1999
-------- -------- --------
Interest expense ......................... $ (4,286) $ (6,426) $(17,700) $(21,899)
Interest income .......................... 756 706 2,742 5,161
Foreign exchange gain (loss) ............. (638) 1,665 1,581 (3,115)
Equity in earnings of associated companies -- 133 1,194 1,036
Permanent impairment in investment ....... (3,200) -- (3,200) --
Bank commitment fees ..................... (750) -- (750) --
Gain on sale of subsidiary ............... 1,027 -- 1,027 --
Minority interest ........................ (103) (394) (363) (1,313)
Other income(expense), net ............... (653) 814 (546) 1,797
-------- -------- --------
Total other expense, net ....... $ (4,924) $ (6,425) ($13,092)$(13,092) $(18,333)
======== ======== ========

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Net income per share

Basic net income per share is computed using the weighted average number of
Ordinary Shares outstanding during the applicable periods.

Diluted net income per share is computed using the weighted average number
of Ordinary Shares and dilutive Ordinary Share equivalents outstanding during
the applicable periods. Ordinary Share equivalents include Ordinary Shares
issuable upon the exercise of stock options and are computed using the treasury
stock method.

The Company set a record date of December 22, 1998 for a two-for-one stock
split to be effected as a bonus issue (the Singapore equivalent of a stock
dividend). The distribution of Ordinary Shares occurred on January 11, 1999. All
share and per share amounts have been retroactively restated to reflect the
stock split.

Reconciliation between basic and diluted earnings per share is as follows
for the fiscal years ended March 31 (in thousands, except per share data):

199649

1997 1998 -------- -------- --------1999
------- ------- -------
Ordinary Shares issued and outstanding(1) .... 15,342 16,219 17,80332,438 35,606 43,569
Ordinary Shares due to Astron(2) ............. 94 485 460
-------- -------- --------970 920 --
------- ------- -------
Weighted average Ordinary Shares -- basic .... 15,436 16,704 18,26333,408 36,526 43,569
Ordinary Share equivalents -- stock options(3) -- 624 834
-------- -------- --------1,248 1,668 2,594
------- ------- -------
Weighted average Ordinary Shares and
equivalents -- diluted ..................... 15,436 17,328 19,097
======== ======== ========34,656 38,194 46,163
======= ======= =======
Net income (loss) ............................ $(14,146) $ 11,620 $ 19,913
======== ======== ========................................... $11,620 $19,913 $51,530
======= ======= =======
Basic net income (loss)earnings per share ................................. $ (0.92)0.35 $ 0.700.55 $ 1.09
======== ======== ========1.18
======= ======= =======
Diluted net income (loss)earnings per share ............................. $ (0.92)0.34 $ 0.670.52 $ 1.04
======== ======== ========1.12
======= ======= =======

(1) Ordinary Shares issued and outstanding based on the weighted average
method.

(2) Ordinary Shares to be issued as purchase price due to Astron's former
shareholders in June 1998.

(3) Stock options of the Company calculated based on the treasury stock method
using average market price for the period, if dilutive. New accounting standards

InOptions to purchase
495,610, 173,792 and 56,329 weighted shares outstanding during fiscal 1997,
1998, and 1999, respectively, were excluded from the computation of diluted
earnings per share because the options exercise price was greater than the
average market price of the Company's Ordinary Shares during those years.

Comprehensive Income

The Company adopted SFAS No. 129, "Disclosure of information about
capital structure." SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 did not have a material
impact on the Company's consolidated financial statement disclosures.

In 1998, the FASB issued SFAS No. 130, "Comprehensive Income," which will
be adopted by the CompanyIncome" in the first
quarter of fiscal 1999. SFAS No. 130 requires companies to report a new,an additional
measure of income on the income statement referred to as "comprehensive income"
or to create a newseparate financial statement that has the new measure ofreflects comprehensive income.
The Company's comprehensive income on it.
"Comprehensive Income" is to includeincludes net income and foreign currency
translation gainsadjustments.

The following table sets forth the components of other comprehensive loss
net of income tax for the years ended March 31:

1997 1998 1999
------------------------------- ------------------------------- ------------------------------
Tax Tax Tax
Pre-Tax (Expense) Net-of-Tax Pre-Tax (Expense) Net-of-Tax Pre-Tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount Amount or Benefit Amount
------- -------- ------- ------- ------- -------- -------- ------- --------

Other comprehensive
loss :
Foreign currency
translation
adjustment ................. $ (804) $ 119 $ (685) $(6,427) $ 654 $ (5,773) $(11,439) $ 1,499 $(9,940)

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and lossesHedging Activities," ("SFAS No. 133") which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other unrealized gainscontracts and lossesfor hedging activities. It requires
that have been previously excluded
from net incomecompanies recognize all derivatives as either assets or liabilities in the
statement of financial position and reflected instead in equity.measure those instruments at fair value.

The Company expects to adopt SFAS No. 133 the first quarter of fiscal 2001 and
anticipates that SFAS No. 130133 will not have a material impact on its
consolidated financial statements.

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

In 1998, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which will be adopted by the Company in its
1999 annual consolidated financial statements. SFAS No. 131 requires companies
to report financial and descriptive information about its reportable operating
segments, including segment profit or loss, certain specific revenue and expense
items, and segment assets, as well as information about the revenues derived
from the Company's products and services, the countries in which the Company
earns revenues and holds assets, and major customers.

3. SUPPLEMENTAL CASH FLOW DISCLOSURES

For purposes of the statement of cash flows, the Company considers highly
liquid investments with an original maturity of three months or less to be cash
equivalents. The following information relates to fiscal years ended March 31:

1996 1997 1998 1999
------- ------- -------

Cash paid for:
Interest ........................................ $ 4,035............................................... $ 4,927 $11,076 $15,304
Income taxes .................................... 2,656........................................... 1,717 1,271 2,311
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations . 14,381..... 14,783 9,094 Acquisition related items:
Notes payable to Astron's shareholders ......... 15,000 -- --
Ordinary Shares due to Astron's shareholders .... 10,000 -- --
Ordinary Shares due under the Services Agreement 14,124 -- --11,851
Earnout of $6.25 million payable to Astron's
shareholders less reduction in amount due under
the Services Agreement .................................................. 5,250 -- 5,250 --
Issuance of 127,850 Ordinary Shares valued at $37.54 for
acquisition of FICO ............................... -- -- 4,800

Cash and cash equivalents was comprised primarily of cash in bank and short
term certificate of deposits as of March 31, 1998 and cash in bank as of March
31, 1997.

4. BANK BORROWINGS AND LONG-TERM DEBT

The Company has $150 million in unsecured Senior Subordinated Notes due in
2007 outstanding with an annual interest rate of 8.75% due semi-annually. The
fair value of the unsecured Senior Subordinated Notes based on broker trading
prices was 103% of the face value on March 31, 1999. In addition, during fiscal
1998,1999, the Company repaid the $70.0increased its credit facility to $120.0 million in Credit
Facility term loans and amended
the Credit Facility to provide up to $105.0
million in line of credit borrowings, subject to certain covenants and financial ratios and
covenants.ratios. As of March 31, 1998,1999, the Company has
borrowed $20$20.9 million under the Credit Facilitycredit facility line of credit. The Credit
Facility is secured by substantially all of the Company's assets and expires in
December 2000. The annualJanuary 2001. Borrowings under the credit facility bear interest, rateat the
Company's option, of the United States prime rate or the London interbank
offering rate (LIBOR) plus 0.5% (5.0% as of March 31, 1999). As of March 31,
1999, the Company has $99.1 million available under its Credit Facility is 8.5%.line of
credit.

Certain subsidiaries of the Company have various lines of credit available
with annual interest rates ranging from 8.0%4.0% to 9.0%6.4%. These lines of credit
expire on various dates through 2014. In total,
as of March 31, 1998, the2001. The Company has $100.5 million available under its variousterm loans with annual
interest rates generally ranging from 4% to 7% with terms of up to 20 years.
These lines of credit.credit and term loans are primarily secured by assignment of
account receivables and assets.

The Company has financed the purchase of certain facilities with mortgages.
The mortgages generally have terms of 65 to 720 years and annual interest rates
ranging from 4.0%6.0% to 18.25%.

Term loans and other debt include loansare secured by the underlying properties with annual interest rates
generally ranging from 6.72% to 10% with termsa
net book value of up to 8 years.approximately $23 million.

In addition, the Company had notes payable for purchase price due to the
former shareholders of Astron Group Limited, a companyFICO for the additional 50% interest acquired in February 1996.March
1999. The notes were unsecured for 54

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

a total of $15$3 million and borebear interest at
8%2%.

Of the $15 million balance, $10
million was paid in February 1997 and the remaining $5 million was paid in
February 1998.51

Bank borrowings and long-term debt was comprised of the following at March
31:

1997 1998 1999
--------- ---------
Senior Subordinated Notes .............. $ --150,000 $ 150,000
Outstanding under lines of credit ...... $ 50,160 23,010 13,193
Credit Facility term loan .............. 70,000........................ -- 20,914
Mortgages .............................. 7,770 12,848 15,630
Term loans and other debt .............. 9,614 23,848 28,102
--------- ---------
137,544 209,707209,706 227,839
Current portion ...................... (128,515) (43,209) (54,086)
--------- ---------
Non-current portion .................. $ 9,029166,497 $ 166,497173,753
========= =========

Maturities for the bank borrowings and other long-term debt are as follows
for the years ended March 31:

1999 ........................2000.............................................. $ 43,209
2000 ........................ 5,500
2001 ........................ 1,684
2002 ........................ 1,032
2003 ........................ 433
Thereafter .................. 157,849
--------
$209,707
========54,086
2001.............................................. 5,539
2002.............................................. 4,119
2003.............................................. 3,026
2004.............................................. 2,049
Thereafter........................................ 159,020
---------
$ 227,839
=========

5. OTHER LONG-TERM LIABILITIES

OtherFINANCIAL INSTRUMENTS

The value of the Company's cash and cash equivalents, accounts receivable
and accounts payable carrying amount approximates fair value. The fair value of
the Company's long-term liabilities weredebt (see Note 4) is determined based on current broker
trading prices. The Company's cash equivalents are comprised of investment grade
certificates of deposits, money market accounts, and corporate debt securities
(see Note 2). The Company's investment policy limits the following asamount of March 31:

1997credit
exposure to 10% of the total investment portfolio in any single issuer. All of
the Company's investments have an original maturity of 90 days or less.

The Company enters into forward exchange contracts to hedge underlying
transactional currency exposures and does not engage in foreign currency
speculation. The credit risk of these forward contracts is minimal since the
contracts are with large financial institutions. The Company hedges committed
exposures and these forward contracts generally do not subject the Company to
risk of accounting losses. The gains and losses on forward contracts generally
offset the gains and losses on the asset, liabilities and transactions hedged.
The Company's off-balance sheet financial instruments consist of $80.7 million
and $16.5 million of aggregate foreign currency forward contracts outstanding at
the end of fiscal year 1998 ------- -------
Purchase price payable to former Astron shareholders
(See Note 11) .................................... $10,000 $ --
Amount due under the Services Agreement (See Note 11) 13,547 --
Provision for severance and employee related payments -- 6,025
Other long-term liabilities .......................... 4,779 12,807
------- -------
$28,326 $18,832
======= =======1999, respectively. These foreign exchange
contracts expire in less than three months and will settle in French Franc,
Japanese Yen, Swedish Kronor and United States dollar.

6. COMMITMENTS

As of March 31, 19971998 and 1998,1999, the Company has financed a total of $40,467$49,606
and $49,606$52,295, respectively in machinery and equipment purchases with capital
leases,
respectively.leases. Accumulated amortization for property and equipment under capital leases
totals $11,974$13,764 and $13,764$13,997 at March 31, 19971998 and 1998,1999, respectively. These
capital leases have interest rates ranging from 3.7%1.7% to 16.5%16.6%. The Company also
leases certain of its facilities under non-cancelable operating leases. The

52
capital and operating leases expire in various years 55

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

through 20122008 and require
the following minimum lease payments for the years ended March 31:

CAPITAL OPERATING
--------------- ---------
1999 .......................................... $ 11,467 $ 11,004
2000 .......................................... 8,535 9,943
2001 .......................................... 6,017 6,664
2002 .......................................... 3,795 5,674
2003 .......................................... 2,433 4,961
Thereafter .................................... 7,217 10,526
-------- --------2000.................................................. $11,921 $18,278
2001.................................................. 8,592 17,563
2002.................................................. 5,715 13,049
2003.................................................. 4,402 4,942
2004.................................................. 2,971 1,929
Thereafter............................................ 5,145 6,770
------- -------
Minimum lease payments ........................ 39,464 $ 48,772
========payments................................ 38,746 $62,531
=======
Amount representing interest .................. (6,696)
--------interest.......................... (5,513)
-------
Present value of minimum lease payments ....... 32,768payments............... 33,233
Current portion ............................... (9,587)
--------portion....................................... (9,807)
-------
Capital lease obligations, net of current
portion ................................ $ 23,181
========portion............................................. $23,426
=======

Total rent expense was $3,405, $3,144, $8,188 and $8,188$17,033 for the years ended March
31, 1996, 1997, 1998 and 1998,1999, respectively.

7. INCOME TAXES

The domestic and foreign components of income (loss) before income taxes were
comprised of the following for the years ended March 31:

1996 1997 1998 1999
-------- -------- --------
Singapore ............ $(21,977) $ (392) $ (9,346) $ (8,159)
Foreign .............. 11,678 14,039 31,517 67,459
-------- -------- --------
$(10,299)
$ 13,647 $ 22,171 $ 59,300
======== ======== ========

The provision for income taxes consisted of the following for the years
ended March 31:

1997 1998 1999
------- ------- -------
Current :
Singapore ............. $ 1,608 $ 226 $ --
Foreign ............... 1,395 4,364 8,346
------- ------- -------
$ 3,003 $ 4,590 $ 8,346
======= ======= =======

Deferred :
Singapore ............. $ (559) $ (451) $ --
Foreign ............... (417) (1,881) (576)
------- ------- -------
(976) (2,332) (576)
------- ------- -------
$ 2,027 $ 2,258 $ 7,770
======= ======= =======

The Singapore statutory income tax rate was 26% for the years ended March
31, 1996, 1997, 1998 and 1998.1999. The reconciliation of the income tax expense expected
based on Singapore statutory income tax rates to the provision for income taxes
included in the consolidated statements of operations for the years ended March
31 is as follows:

1996 1997 1998
------- -------- -------
Income taxes based on Singapore statutory
rates ...................................... $(2,678) $ 3,548 $ 5,764
Losses from non-incentive Singapore operations 282 498 2,707
In-process research and development .......... 7,540 -- --
Foreign subsidiaries' earnings taxed at rates
below the Singapore statutory rate ......... (2,057) (3,368) (3,443)
Amortization of goodwill and intangibles ..... 329 436 946
Merger Costs ................................ -- -- 398
Benefit from realized deferred tax assets ... -- -- (2,829)
Joint venture losses ........................ -- -- (310)
Bank commitment fees .......................... -- 382 --
Other ......................................... 431 531 (975)
------- ------- -------
Provision for income taxes ......... $ 3,847 $ 2,027 $ 2,258
======= ======= =======
1997 1998 1999
-------- -------- --------

Income taxes based on Singapore statutory
rates ...................................... $ 3,548 $ 5,764 $ 15,418
Losses from non-incentive Singapore operations 498 2,707 3,098
Tax exempt income ............................ -- -- (549)
Effect of foreign operations taxed at various
rates ...................................... (3,368) (3,443) (6,003)
Amortization of goodwill and intangibles ..... 436 946 942
Merger costs ................................. -- 398 --
Benefit from realized deferred tax assets .... -- (2,829) (5,229)
Joint venture losses ......................... -- (310) (269)
Bank commitment fees ......................... 382 -- --
Other ........................................ 531 (975) 362
-------- -------- --------
Provision for income taxes ......... $ 2,027 $ 2,258 $ 7,770
======== ======== ========
Effective tax rate .......................... (37.4%) 14.9% 10.2% 13.1%

The components of deferred income taxes are as follows as of March 31:

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1997 1998
-------- --------

Deferred tax liabilities:
Depreciation .............................................. $ (939) $ (855)
Intangible assets ......................................... (2,751) (2,405)
Others .................................................... (247) (1,552)
-------- --------
Total deferred tax liability ...................... (3,937) (4,812)
-------- --------
Deferred tax assets:
Depreciation .............................................. 591 471
Provision for inventory obsolescence ...................... 1,364 3,117
Provision for doubtful accounts ........................... 1,636 1,100
Provision for severance payments and other employee related
costs .................................................. 1,760 --
Net operating loss carryforwards .......................... 18,793 17,525
Accruals and reserves ..................................... -- 1,540
Unabsorbed capital allowance carryforwards ................ 606 239
Others .................................................... 665 220
-------- --------
25,415 24,212
Valuation allowance ....................................... (22,139) (21,626)
-------- --------
Net deferred tax asset ............................... 3,276 2,586
-------- --------
Net deferred tax liability ........................... $ (661)1998 1999
-------- --------
Deferred tax liabilities:
Depreciation ........................................... $ (855) $ (4,314)
Intangible assets ...................................... (2,405) (2,059)
Fixed assets ........................................... -- (515)
Exchange losses ........................................ -- (857)
Others ................................................. (1,552) (1,097)
-------- --------
Total deferred tax liability ................... $ (4,812) $ (8,842)
-------- --------
Deferred tax assets:
Depreciation ........................................... $ 471 $ 598
Provision for inventory obsolescence ................... 3,117 2,869
Provision for doubtful accounts ........................ 1,100 1,600

Net operating loss carryforwards ....................... 17,525 15,107
General accruals and reserves .......................... 1,540 3,555
Unabsorbed capital allowance carryforwards ............. 239 --
Leasing - interest and exchange ........................ -- 771
Others ................................................. 220 1,330
-------- --------
24,212 25,829
Valuation allowance .................................... (21,626) (18,637)
-------- --------
Net deferred tax asset ............................ $ 2,586 $ 7,192
-------- --------
Net deferred tax liability ............................. $ (2,226) $ (1,650)
======== ========

The net deferred tax liability is classified as follows:
Long-term liability .............................. $ (4,812) $ (4,831)
Current and non-current assets ................... 2,586 3,181
-------- --------
$ (2,226) $ (1,650)
======== ========

The deferred tax asset arises substantially from available tax losses available for
carryforward.loss
carryforwards. These tax losses can only be offset against future income of
operations in respect of which the tax losses arose. As a result, management is
uncertain as to when or whether these operations will generate sufficient

profit to realize the deferred tax asset benefit. The valuation allowance
provides a reserve against deferred tax assets that may expire or go unutilized
by the Company. In accordance with the guidelines included in SFAS No. 109
"Accounting for Income Taxes," management has determined that more likely than
not the Company will not realize these benefits and, accordingly, has provided a
valuation allowance for them. The amount of deferred tax assets considered
realizable, however, could be reduced or increased in the near-term if facts
change, including the amount of taxable income or the mix of taxable income
between subsidiaries.subsidiaries, differ from management's estimates.

At March 31, 1998,1999, the Company had operating loss carryforwards of
approximately $22,159$15,208 for U.S. federal income tax purposes which will expire
between 2003 and 2012 if not previously utilized. Utilization of these net
operating loss carryforwards may be subject to an annual limitation due to the
change in ownership rules provided by the Internal Revenue Code (the "Code").
This limitation and other restrictions provided by the Code may reduce the net
operating loss carryforwards such that they would not be available to offset
future taxable income of the U.S. subsidiary.

At March 31, 1998,1999, the Company had operating loss carryforwards of
approximately $14,853, $632$9,867, $6,765 and $9,332$6,547 in U.K., MalaysiaAustria and 57

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Austria,Hong Kong,
respectively and such losses carry forward indefinitely.with various loss carryforward lives pursuant to local county tax
laws. The utilization of these net operating loss carryforwards is limited to
the future operations of the Company in the tax jurisdictions in which such
carryforwards arose.

Distributions of earnings by the Austrian subsidiary are exempt from
Austrian income taxes under the international participation privilege. No
deferred tax liability has been provided for withholding taxes on distributions
of dividends by the Austrian subsidiary, or any other foreign subsidiaries,
because earnings of foreign subsidiaries are intended to be reinvested indefinitely.

Due to a change in the tax assessment system of Malaysia, the income for
the year ended March 31, 1999 was not subject to Malaysian tax.

The Company has been granted the following tax incentives:

(i) Pioneer status for various products were granted to one of its
Malaysian subsidiaries for a
period of five years under the Promotion of Investment Act. The pioneer
status for the various products expire on various dates ranging from
January 4, 1998 to January 12, 2000. This incentive provides afor
full/partial tax exemption on manufacturing income from the various Pioneer
products for this subsidiary.

(ii) Product Export Enterprise incentive for the Shekou and Shenzhen, China
facility.facilities. The Company's operation in Shekou and Shenzhen, China isare
located in a "Special Economic Zone" and is anare approved "Product Export
Enterprise' which qualifies for a special corporate income tax rate of 10%.
This special tax rate is subject to the Company exporting more than 70% of
its total value of products manufactured in China. The Company's status as
a Product Export Enterprise is reviewed annually by the Chinese government.

(iii) Five year negotiated tax holiday with the Hungarian government
for its Hungarian subsidiaries. This incentive provides for the reduction
of the regular tax rate by 60% to 7.2%. The incentive expires December 31,
2002.

The Company's investmentsinvestment in its plants in Xixiang, China and Doumen,
China fall under the "Foreign Investment Scheme" that entitles the Company

to apply for a five-year tax incentive. The Company obtained the incentive
for the Doumen plant in December 1995 and the Xixiang plant in October 1996.October.
With the approval of the Chinese tax authorities, the Company's tax rates
on income from these facilities during the incentive period will be 0% in
years 1 and 2 and 7.5% in years 3 through 5, commencing in the first
profitable year. The Company has another plant in Doumen which commenced
operations duringin the fiscal year.year 1998. The plant which falls under the
"Foreign Investment Scheme", has applied for
and is awaiting approval forconfident that the five year incentive will
be granted upon formal application in its first profitable year. However,
there can be no assurance that the five year incentive will be granted.

(iv) Five year negotiated tax incentive.holiday with the Hungarian government for its
Hungarian subsidiaries. This incentive provides for the reduction of the
regular tax rate by 60% to 7.2%. The incentive expires December 31, 2003.

A portion of the Company's sales arewere carried out by its subsidiarytwo subsidiaries
in Labuan, Malaysia where the Company has opted to pay the Labuan tax
authorities a fixed amount of $8$6 tax each year in accordance with Labuan tax
legislation.

A portion of the Company's sales were alsowas carried out by its Mauritius
subsidiary which is not taxed.taxed at 0%.

8. SHAREHOLDERS' EQUITY

Issuance of non-employee stock options

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

In June 1996, the Company issued 20,00040,000 stock options with an exercise
price of $31.25$15.62 to a customer as a result of that customer reaching a specified
sales target in accordance with an option agreement. These options were valued
as of the grant date using the Black-Scholes model. The resulting value of $380,000$380
was recorded as a sales discount in the accompanying consolidated statement of
operations for fiscal 1997.

Secondary offerings

In August 1995,October 1997, the Company completed a secondaryan offering of its Ordinary Shares.
A total of 1,000,000 Ordinary Shares4,370,000 shares were sold at a price of $23.50 per share resulting
in net proceeds to the Company of $22.3$96.2 million.

In October 1997,December 1998, the Company completed another offering of its Ordinary
Shares. A total of 2,185,0005,400,000 shares were sold at a price of $47.00$36.25 per share
resulting in net proceeds to the Company of $96.2$194.0 million.

Stock split

The Company set a record date of December 22, 1998 for a 2:1 stock split to
be effected as a bonus issue (the Singapore equivalent of a stock dividend). The
distribution of 23,534,229 Ordinary Shares occurred on January 11, 1999. The
Company has accounted for this transaction as a stock split and all share and
per share amounts have been retroactively restated to reflect the 2:1 stock
split.

Stock-based compensation

The Company's 1993 Share Option Plan (the "Plan") provides for the grant of
up to 2,600,0007,200,000 incentive stock options and non-statutory stock options to
employees and other qualified individuals to purchase Ordinary Shares of the
Company. As of March 31, 1998,1999, the Company had 202,306113,967 Ordinary Shares available
for future option grants under the Plan at an exercise price of not less than
85% of the fair value of the underlying stock on the date of grant. Options
issued under the Plan generally vest over 4 years and expire 5 years from the
date of grant.

The Company's 1997, 1998 and 1999 Interim Option Plan providesPlans provide for the grantgrants
of up to 250,000500,000, 786,000, and 1,300,000 respectively. These plans provide
grants of non-statutory options to employees and other qualified individuals to
purchase Ordinary Shares of the Company. Options under these plans can not be
granted to executive officers and directors. The CompanyCompany's 1997, 1998 and 1999
Interim Option Plans had 39,60585,993, 27,633, and 986,197 Ordinary Shares available
for future option grants under the 1997respectively. All Interim Option Plan atPlans have an exercise
price of not less than 85% of fair market value of the underlying stock on the
date of grant. Options can not be granted to executive officers and
directors under the 1997 Interim Option Plan. Options issued under this plan
generally vest over 4 years and expire 5 years from the date of grant.

The Company's 1998 Interim Option Plan provides for the grant of up to
200,000 non-statutory options to employees and other qualified individuals to
purchase Ordinary Shares of the Company. The Company had 650,000 Ordinary Shares
available for future option grants under the 1998 Interim Option Plan at an
exercise price of not less than 85% of fair market value of the underlying stock
on the date of grant. Options can not be granted to executive officers and
directors under the 1998 Interim Option Plan. Options issued under this planthese plans generally vest over 4 years and
expire 5 years from the date of grant.

The Company has assumed certain option plans and the underlying options of
companies which the Company has merged with or acquired (the "Assumed Plans").
Options under the Assumed Plans have been converted into the Company's options
and adjusted to effect the appropriate conversion ratio as specified by the
applicable acquisition or merger agreement, but are otherwise administered in
accordance with the terms of the Assumed Plans. Options under the Assumed Plans
generally vest over 4 years and expire 5 years from the date of grant.

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following table presents the activity for options outstanding under all
of the stock option plans as of March 31 ("Price" reflects the weighted average
exercise price):

1996 1997 1998 1999
----------------- ------------------ ------------------
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----- --------- ------ --------- ------

Outstanding, beginning of year....... 1,026,052 $4.76 1,315,970 $12.60 1,675,022 $18.622,631,940 $6.30 3,350,044 $9.31 4,894,078 $12.02
Granted.............................. 641,783 20.63 723,314 25.10 1,407,504 29.061,446,628 12.55 2,815,008 14.53 3,428,539 22.96
Exercised............................ (304,201) 3.30 (239,633) 5.86 (259,708) 7.50(479,266) 2.93 (519,416) 3.75 (1,369,370) 8.37
Forfeited............................ (47,664) 11.03 (124,629) 17.81 (375,779) 30.12(249,258) 8.91 (751,558) 15.06 (457,381) 13.98
--------- --------- ---------
Outstanding, end of year............. 1,315,970 $12.60 1,675,022 $18.62 2,447,039 $24.043,350,044 $9.31 4,894,078 $12.02 6,495,866 $18.37
========= ========= =========
Exercisable, end of year............. 1,199,531 1,631,152 1,625,520
========= ========= =========
Weighted average fair value per
option granted................... $6.09 $6.96 $13.22
========= ========= =========

The per-share weighted average fair value of options granted during fiscal 1996,
1997 and 1998 was $20.62, $25.10 and $29.24, respectively.57

The following table presents the composition of options outstanding and
exercisable as of March 31, 19981999 ("Price" and "Life" reflect the weighted
average exercise price and weighted average contractual life unless otherwise
noted):

OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
RANGE OF EXERCISE ----------------------------- ------------------
PRICES AMOUNT PRICE LIFE AMOUNT PRICE
- ----------------------------------------------- --------- ------ ---- -------- -------------- ------
$ 1.190.60 -- $14.75 498,835 $11.06 1.55 411,499 $10.35
15.25$11.63 1,807,865 $11.04 3.26 1,083,413 $10.74
11.88 -- 23.13 549,264 22.19 3.77 204,211 21.21
23.2516.75 1,505,426 16.07 3.93 350,867 15.82
16.81 -- 23.25 570,785 23.25 5.14 110,000 23.25
23.7523.69 1,139,172 19.27 4.10 131,240 20.64
24.00 -- 33.50 660,517 32.03 4.88 73,908 30.45
34.50 - 47.38 167,638 39.86 4.60 15,958 40.3124.00 1,663,000 24.00 4.58 60,000 24.00
24.91 -- 49.94 380,403 35.04 4.85 -- --
--------- ----------------
Total, March 31, 1998 2,447,039 24.041999 6,495,866 $18.37 3.99 815,576 17.221,625,520 $13.13
========= =======

Options for 414,855 and 576,896 Ordinary shares with per-share weighted
average share price of $5.48 and $10.74 was exercisable as of March 31, 1996 and
1997, respectively.=========

Options reserved for future issuance under all stock options plans was
241,9111,213,790 as of March 31, 1998.1999.

The Company's employee stock purchase plan (the "Purchase Plan") provides
for issuance of up to 75,000150,000 Ordinary Shares. The Purchase Plan was approved by
the stockholders in October 1997. Under the Purchase Plan, employees may
purchase, on a periodic basis, a limited number of shares of common stock
through payroll deductions over a six month period up to 10% of each
participant's base salary.compensation. The per share purchase price is 85% of the fair
market value of the stock at the beginning or end of the offering period,
whichever is lower. No sharesA total of 72,430 Ordinary Shares have been issued under the
Purchase Plan as of March 31, 1998 as the Purchase Plan's first purchase period occurs on May 31,
1998.1999. The Company estimated the per-share weighted
average fair value of the
purchase rights granted understock issued to employees in the Purchase Plan to be $33.58.was $8.51
using the Black-Scholes option pricing model with the same assumptions as those
listed for stock options granted during fiscal 1999.

The Company has elected to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock option plans and employee stock purchase plans and has adopted the
disclosure provisions of SFAS No. 123 "Accounting for Stock Based Compensation".

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Because the exercise price of the Company's stock options has equaled the fair
value of the underlying stock on the date of grant, no compensation expense has
been recognized under APB Opinion No. 25. Had the compensation cost for the
Company's stock-based compensation plans been determined based on the fair
values of these options, the Company's fiscal 1997, 1998, and 19981999 net income
and earnings per share would have been adjusted to the pro-forma amounts
indicated below:

1996 1997 1998 1999
---------- ---------- ----------
Net income:
As reported ............... $ (14,146).............. $ 11,620 $ 19,913 $ 51,530
Pro-forma ................. (15,066)................ 9,449 14,242 38,941

Basic earnings per share:
As reported ........................... $ (0.92)0.35 $ 0.700.55 $ 1.091.18
Pro-forma ............... (0.98) 0.57 0.78................ 0.28 0.39 0.89

Diluted earnings per share:
As reported .............. $ (0.92)0.34 $ 0.670.52 $ 1.041.12
Pro-forma ................ (0.98) 0.55 0.750.27 0.37 0.84

In accordance with the disclosure provisions of SFAS No. 123, the fair
value of employee stock options granted during fiscal 1997, 1998 and 19981999 was
estimated at the date of grant using the Black-Scholes model and the following
weighted average assumptions:

Years Ended March 31,
1996 1997 1998 ------- ------- ------1999
---- ---- ----
Volatility ................................................................... 67% 67% 66% 64%
Risk-free interest rate range ................ 5.5%............. 5.9% 5.9% 5.0%
Dividend yield ........................................................... 0% 0% 0%
Expected lives ........................................................... 4.1 yrs 4.14.0 yrs 4.0 yrs

Because SFAS No. 123 is applicable only to awards granted subsequent to
December 30, 1994, and due to the subjective nature of the assumptions used in
the Black-Scholes model, the pro-forma net income(loss)income and net income(loss)income per share
disclosures may not reflect the associated fair value of the outstanding
options.

Report on

Option Repricing

In light of the substantial decline in the market price of the Company's
Ordinary Shares in the first quarter of fiscal 1998, in June 1997 the Company
offered to all employees the opportunity to cancel existing options outstanding
with exercise price in excess of $23.25$11.63 per share, the fair market value of the
Company's Ordinary Shares at that time, and to have such options replaced with
options that have the lower exercise price of $23.25$11.63 per share. Employees
electing to have options repriced were required to accept an extension of their
vesting schedule. The other terms of the options remained unchanged. On June 5,
1997, the Company amendedrepriced options to purchase 288,960577,920 shares pursuant to this
offer.

9. PROVISION FOR EXCESS FACILITIES

The provision for excess facilities of $3.4 million in fiscal 1999 is
comprised of $2.2 million relating to the costs for consolidating the Company's
four manufacturing and administrative facilities in Hong Kong and $1.2 million
relating to the consolidation of certain U.S. facilities. The provision for
excess facilities consists of $1.5 million for the reduction of certain
personnel due to consolidation of certain operations, $1.5 million for the
write-off of equipment and assets related to the operations the Company has
exited, and $400 related to the consolidation of facilities. In connection with
the provision for excess facilities, the Company terminated approximately 250
employees in the areas of finance, engineering, operations, production and
purchasing. The Company anticipates the consolidation of facilities will be
substantially complete by November 1999.

The provision for excess facilities of $8.9 million in fiscal 1998 relates
to the costs incurred in closing the Wales facility. The provision includes $3.8
million for the write-off of goodwill associated with the acquisition of the
Wales facility, $1.6 million for severance payments and payments required under
the pension scheme, $2.4 million for fixed asset write-offs and factory closure
61

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

expenses and $1.0$1.1 million for required repayment of previously received
government grants.

The provision for excess facilities of $5.8$5.9 million in fiscal 1997 relates
to the costs incurred in downsizing the Texas facility, the write-off of
equipment at the nChip semiconductor fabrication facility and downsizing the

59
Singapore manufacturing operations. The provision includes $2.0 million for
severance payments and $500$0.5 million for the write-off of fixed assets in the
Singapore manufacturing facilities. An additional amount of $2.8$2.9 million
associated with certain obsolete equipment at the Company's nChip and Texas
facilities has been written-off. The provision also includes severance payments
amounting to $500$0.5 million for the employees of the Texas and nChip facility
which were paid during fiscal 1997. The Company has not recorded the remaining
costs related to existing leases at the Texas facility as the Company is
continuing to use the facility for certain administrative and warehousing
functions.

The provision for excess facilities of $1,254 in fiscal 1996 was associated
with the write-off of certain obsolete equipment at the Company's facilities in
Malaysia and Shekou, China.

The following table summarizes the Company's components of the provision
for excess facilities during the years ended in fiscal 1996, 1997, 1998 and 1998:1999:

Severance Fixed Factory
Goodwill Other Total
and benefits Assets Closure --------------------------------------------------------------Goodwill Other Total
-----------------------------------------------------------------------------

Balance at March 31, 19951996 $ -- $ 1,254 $ -- $ -- $ -- $ -- $ -- $ --
1996 provision ........ -- 1,254 -- -- -- 1,254
--------------------------------------------------------------
Balance at March 31, 1996 -- 1,254 -- -- -- 1,254
1997 provision ........ 2,560 3,308 -- -- -- 5,868
Cash charges .......... (560) -- -- -- -- (560)
Non-cash charges ...... -- (1,254) -- -- -- (1,254)
--------------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 2,000 3,308 -- -- -- 5,308
1998 provision ........ 1,636 807 1,565 3,769 1,092 8,869
Cash charges .......... (1,655) -- -- -- -- (1,655)
Non-cash charges ...... -- (3,308) -- (3,769) -- (7,077)
-------------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 1,981 807 1,565 -- 1,092 5,445
1999 provision ........ 1,471 1,455 385 -- 50 3,361
Cash charges .......... (923) -- -- -- (937) (1,860)
Non-cash charges ...... (673) (2,149) (1,446) -- (155) (4,423)
-----------------------------------------------------------------------------
Balance at March 31, 1999 $ 1,9811,856 $ 807113 $ 1,565504 $ -- $ 1,09250 $ 5,445
==============================================================2,523
=============================================================================

10. RELATED PARTY TRANSACTIONS AND NOTES PAYABLES TO SHAREHOLDERS

Prior to becoming the Company's Chief Executive Officer in January 1994,
Michael E. Marks was the President and Chief Executive Officer of Metcal, Inc.
("Metcal"). Michael E. Marks remains a director of, and continues to hold a
beneficial interest in, Metcal. The Company had net sales of $2,133, $1,548 and
$1,586 to Metcal during fiscal 1996, 1997 and 1998, respectively.

Stephen Rees, a former Director and Senior Vice President of the Company,
holds a beneficial interest in both Mayfield International Ltd. ("Mayfield") and
Croton Ltd. ("Croton"). During fiscal 1998, the Company paid $140 to Croton for
management services and $208 to Mayfield for the rental of certain office space.
Additionally, as of March 31, 1998,1999, $2,520 was due from Mayfield under a note
receivable. The note is unsecured, bears interest at 7.15% per annum and matures
on February 4, 1999. The note is included in related party receivables on the
accompanying balance sheet.

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

As of March 31, 1997, the Company had notes receivable due from certain
executives and officers amounting to approximately $2.5 million. These notes
bear interest at rates ranging from 7.0% to 7.21% and have maturities of 6
months to 5 years and are reflected in other current assets on the accompanying
balance sheet. Subsequent to March 31, 1998, $425 of the $2.5 million was paid
through forfeiture of management bonuses.

On April 16, 1995, the Company's U.S. subsidiary, Flextronics International
USA, Inc. ("Flextronics USA"), loaned $500 to Michael E. Marks. Mr. Marks
executed a promissory note in favor of Flextronics USA which matures on April
16, 2000. In fiscal 1997, Flextronics USA forgave a total of $200 of outstanding
principal amount and $26 in accrued interest. In fiscal 1998, Flextronics USA
forgave a total of $100 of outstanding principal amount and $73 in accrued
interest. The remaining outstanding balance of the loan as of April 30, 1998March 31, 1999 was
$202$217 (representing $200 in principal and $2$17 in accrued interest) and bears
interest at a rate of 7.21%.

On November 6, 1997, Flextronics USA loaned $1.5 million$1,500 to Mr. Marks. Mr. Marks
executed a promissory note in favor of Flextronics USA which bears interest at a
rate of 7.259% and matures on November 6, 1998.2002. This loan is secured by certain
assets owned by Mr. Marks. The remaining outstanding balance of the loan as of

March 31, 1999 was $1,500 and all interest accrued has been paid up to March 31,
1999.

On October 22, 1996, Flextronics USA loaned $136 to Mr. Michael McNamara.
Mr. McNamara executed a promissory note in favor of Flextronics USA which bears
interest at a rate of 7.0% and matures on October 22, 2001. The remaining
outstanding balance of the loan as of March 31, 1999 was $150 (representing $136
in principal and $14 in accrued interest).

On November 25, 1998, Flextronics USA loaned $130 to Mr. Michael McNamara.
Mr. McNamara executed a promissory note in favor of Flextronics USA which bears
interest at a rate of 7.25% and matures on November 25, 2003. The remaining
outstanding balance of the loan as of March 31, 1999 was $133 (representing $130
in principal and $3 in accrued interest).

On January 15, 1999, Flextronics USA loaned $200 to Mr. Robert Dykes. Mr.
Dykes executed a promissory note in favor of Flextronics USA which bears
interest at a rate of 7.25% and matures on January 15, 2004. The remaining
outstanding balance of the loan as of March 31, 1999 was $203 (representing $200
in principal and $3 in accrued interest).

On February 4, 1999, the Company loaned $410 to Mr. Ronny Nilsson. Mr.
Nilsson executed a promissory note in favor of the Company and the note matures
on March 31, 2000.

The Company also purchases materials from FICO Investment Holdings
("FICO"), an associated company in which the Company holdsheld a 40% interest (seethrough
March 1999.(see Note 11). At March 31, 1998, the amount due to FICO for these
purchases was $382. On March 1, 1999, the Company acquired an additional 50% of
FICO and the results of FICO have been consolidated in the accompanying
financial statements since this date (see Note 11 below).

11. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS

Advanced Component Labs HK Ltd.

On March 1, 1999, the Company acquired the manufacturing facilities and
related assets of Advanced Component Labs HK Ltd. ("ACL"), a Hong Kong based
advanced technology printed circuit board manufacturer for $15 million cash. The
transaction has been accounted for under the purchase method and accordingly,
the results of ACL was included in the Company's consolidated statements of
operations from March 1, 1999. Comparative pro-forma information has not been
presented as the results of operations for ACL are not material to the Company's
financial statements. The goodwill associated with this acquisition is amortized
over ten years.

The purchase price of $15 million was allocated to the net assets acquired
based on their estimated fair values at the date of acquisition as follows:

ACL's net assets at fair value ....................... $ 5,250
In-process research and development .................. 2,000
Goodwill ............................................. 7,750
------
$15,000
======

As of the date of acquisition, the $2 million of purchase price allocated
to in-process research and development related to development projects which had

not reached technological feasibility and had no probable alternative future
uses; accordingly, the Company expensed the entire amount on the date of
acquisition as a one-time charge to operations. ACL's in-process research and
development projects were initiated to address the rapid technological change
associated with the miniaturized printed circuit board market. The incomplete
projects include developing technology for a low cost Ball Grid Array ("BGA")
package, developing thermal vias, and developing new methods that enable the use
of extremely thin 1.5 mil technology.

The Company believes the efforts to complete the in-process research and
development projects will consist of internally staffed engineers and will be
completed during fiscal year 2000. The estimated cost to complete the research
and development is approximately $1,100. There is substantial risk associated
with the completion of each project and there is no assurance that any of the
projects will meet with technological or commercial success.

FICO Investment Holding Ltd.

On December 20, 1996, the Company acquired an initial 40% of FICO, a
plastic injection molding company located in Shenzhen, China for $5.2 million of
which $3.0 million was paid in December 1996. The remaining $2.2 million
purchase price was paid in June 1997. Goodwill and other intangibles resulting
from this initial purchase totaled $3.2 million and are being amortized over ten
years. The Company accounted for its investment in FICO under the equity method
and accordingly has included its 40% share of FICO's operating results in its
accompanying consolidated statement of operations since December 20, 1996
through February 28, 1999. On March 1, 1999, the Company acquired an additional
50% of FICO for (i)$7.2 million cash, (ii)127,850 Ordinary Shares issued at
closing valued at $4.8 million (iii)$3.0 million in 2% promissory notes due $1.0
million each in year 2000 through year 2002. This transaction has been accounted
for under the purchase method and accordingly, the results of operations for
FICO have been included in the accompanying consolidated statements of
operations since March 1, 1999. The acquisition of the additional 50% interest
resulted in additional goodwill and intangible assets of $8.5 million and
$420,000 which were being amortized over 8 and 3 years, respectively.

Conexao Informatical Ltd. and Altatron, Inc.

On March 31, 1998 the Company acquired Conexao, a Brazil-based electronics
manufacturing service provider, in exchange for a total of 421,593843,186 Ordinary
Shares, of which 118,305236,610 Ordinary Shares are to be issued upon resolution of certain
general and specific contingencies. The contingencies were resolved and the
236,610 Ordinary Shares were issued in March 1999. On March 31, 1998, the
Company also acquired Altatron, an electronics manufacturer service provider
headquartered in Fremont, California, with facilities in Fremont, California;
Richardson, Texas; and Hamilton, Scotland in exchange for 788,6501,577,300 Ordinary
Shares, of which 157,730315,460 Ordinary Shares are to be issued upon resolution of
certain general and specific contingencies. The contingencies were resolved and
the 315,460 Ordinary Shares were issued in March 1999. These acquisitions were
accounted for as a pooling-of-interests. The Company did not restate its prior
period financial statements with respect to these acquisitions because they did
not have a material impact on the Company's consolidated results. Accordingly,
the results of the acquired companies are included in the Company's consolidated
statements of operations from the date of acquisition onward.acquisition.

DTM Products, Inc. and Energipilot AB

On December 1, 1997, the Company merged with DTM Products, Inc.("DTM") and
EnergiPilot AB ("Energipilot"). DTM is based in Colorado and produces injection
molded plastics. Energipilot is based in Sweden and produces cable and cable
assemblies. All of the outstanding shares of DTM and Energipilot were acquired
in exchange for 252,469504,938 and 229,990459,980 Ordinary Shares, respectively. These
acquisitions were accounted for as a pooling-of-interests. The Company did not
restate its prior period financial statements with respect to these acquisitions
because they did not have a material impact on the Company's consolidated
results. Accordingly, the results of the acquired companies are included in the
Company's consolidated statements of operations from the date of acquisition
onward.

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Neutronics Holdings A.G.

On October 30, 1997, the Company acquired Neutronics Holdings A.G.
("Neutronics"), an electronics manufacturing services provider with operations
located in Austria and Hungary. The acquisition was accounted for as a
pooling-of-interests and the Company has issued 2,806,0005,612,000 Ordinary Shares in
exchange for 92% of the outstanding shares of Neutronics. All financial
statements presented have been retroactively restated to include the results of
Neutronics. Neutronics operated under a calendar year end prior to merging with
Flextronics, and accordingly, Neutronics' statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1996 has
been combined with the corresponding Flextronics consolidated statements for the
fiscal years ended March 31, 1997. During fiscal 1998, Neutronics' fiscal year
end was changed from December 31 to March 31 to conform to the Company's fiscal
year-end. Accordingly, Neutronics' operations for the three months ended March
31, 1997, which included net sales of $34.9 million and net loss of $3.1 million
have been excluded from the consolidated results and have been reported as an
adjustment to retained earnings in the first quarter of fiscal 1998.

Separate results of operations for the periods presented are as follows for
the years ended March 31, and December 31:

1996 1997
-------- --------1997:

Net sales:
Previously reported ............. $ 448,346reported...................... $ 490,585
Neutronics ...................... 123,699Neutronics............................... 149,422
---------
---------
As restated ..................... $ 572,045restated.............................. $ 640,007
=========
=========
Net income(loss):
Previously reported ............. $ (15,132)reported...................... $ 7,463
Neutronics ...................... 986Neutronics............................... 4,157
---------
---------
As restated ..................... $ (14,146)restated.............................. $ 11,620
========= =========
Shareholders' equity:
Previously reported ............. $ 73,059 $ 83,592
Neutronics ...................... 12,512 15,753
--------- ---------
As restated ..................... $ 85,571 $ 99,345
=========
=========

Ericsson Business Networks AB

On March 27, 1997, the Company acquired certain manufacturing facilities in
Karlskrona, Sweden and related inventory, equipment and assets ("The Karlskrona
Facilities") from Ericsson Business Networks AB ("Ericsson") for $82,354 which
was financed by the Credit Facility described in Note 4. The transaction has
been accounted for as a purchase and accordingly, the purchase price has been
allocated to the net assets acquired based on their estimated fair market values
at the date of acquisition. There was no material purchase price in excess of
the fair value of the net assets acquired. The results of operations of the
Karlskrona Facilities have been included in the consolidated

63
results of the Company since the date of acquisition and such results of these
facilities were immaterial for March 27, 1997 to March 31, 1997.

FICO Investment Holding Ltd.

On December 20, 1996, the Company acquired 40% of FICO, a plastic injection
molding company located in Shenzhen, China for $5.2 million of which $3 million
was paid in December 1996. The remaining $2.2 million purchase price was paid in
June 1997. Goodwill and other intangibles resulting from this purchase totaled
$3.2 million and are being amortized over ten years. The Company had the option
to purchase the remaining 60% of FICO in fiscal 1998; however, the option
expired unexercised on April 17, 1998. The Company accounts for its investment
in FICO under the equity method and accordingly has included its 40% share of
FICO's operating results in its

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

accompanying consolidated statement of operations since the date of acquisition.

Fine Line Printed Circuit Design Inc.

On November 25, 1996, the Company acquired Fine Line Printed Circuit
Design, Inc. ("Fine Line"), a circuit board layout and prototype operation
company located in San Jose, California. The Company issued 223,321446,642 Ordinary
Shares in exchange for all of the outstanding capital stock of Fine Line. The
merger was accounted under the pooling-of-interests method of accounting;
however, prior period financial statements were not restated because the
financial results of Fine Line are not material to the consolidated financial
statements.

Astron Group Ltd.

On February 2, 1996, the Company acquired all the outstanding stock of
Astron Group Ltd. ("Astron") for $13.4 million in cash; 238,684 Ordinary Shares
valued at $6.5 million; issuance of $15 million in notes payable, $10 million of
Ordinary Shares to be issued on June 30, 1998 and $15 million due in June 1998
under a Services Agreement (the "Service Agreement"). These components
aggregated to a purchase price of approximately $59.9 million. This acquisition
was accounted for as a purchase and accordingly, the results of Astron have been
included in the Company's consolidated statements of operations since the date
of acquisition.

The Services Agreement originally provided for an annual fee, plus a $15
million payment to be made on June 30, 1998 subject to certain terms and
conditions. As substantially all of the former shareholders of Astron were
affiliates of Mr. Rees, or members of his family, the Company has accounted for
the amounts due under the Services Agreement as part of the Astron purchase
price.

In addition, the purchase agreement required certain payments contingent
upon resolution of an earn-out provision based on the 1996 operating results of
Astron. In March 1997, the Company contemporaneously negotiated a $6.25 million
settlement of the earn-out provision and the termination of the Services
Agreement, removing the original terms and conditions and reducing the amount
due from $15 million to $14 million, $5 million of which is payable in cash and
$9 million of which may be settled in cash or Ordinary Shares at the Company's
option. Due to the interrelationship of these two settlements, the Company
determined that the resulting amounts should each be accounted for as an
adjustment to the purchase price of Astron. Accordingly, in March of 1997, the
purchase price of Astron was increased by a net amount of $5.25 million which
represents the agreed upon $6.25 million payment due under the earn-out
provision less the $1 million reduction due to the termination of the Services
Agreement. The $6.25 million due under the earn-out provision is included in
accrued liabilities in the accompanying consolidated balance sheets and was paid
in April 1997. As a result, the aggregate adjusted purchase price of Astron
including the earn-out consideration totaled $65 million.

The aggregate adjusted purchase price of $65 million was allocated based on
the relative fair value of the net assets acquired as follows:

Astron's net assets at fair value .................... $14,103
In-process research and development .................. 29,000
Goodwill and other intangible assets ................. 21,918
-------
Total purchase price ....................... $65,021
=======

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Goodwill and other intangible assets consist of goodwill, developed
technologies, customer lists, assembled workforce and trademarks which were
initially being amortized over 5 to 25 years.

As of the date of acquisition, the $29 million of purchase price allocated
to in-process research and development related to development projects which had
not reached technological feasibility and had no probable alternative future
uses; accordingly, the Company expensed the entire amount on the date of
acquisition as a one-time charge to operations.

Subsequent to March 31, 1997, the Company revised prospectively its
estimate of the useful lives associated with the Astron goodwill and other
intangible assets from 5 to 25 years to 5 to 10 years. This revision has
increased amortization expense by $279 per quarter beginning in the second
quarter of fiscal 1998.

Assembly & Automation (Electronics) Ltd.

On April 12, 1995, the Company acquired all of the issued share capital of
Assembly & Automation (Electronics) Ltd. ("A&A"), a private limited company
incorporated in the United Kingdom that provided electronics manufacturing
services for the electronics and telecommunications industries, for total
consideration of $4.1 million, which included cash of $3.2 million and the
issuance of 66,908 Ordinary Shares valued at $938. The transaction has been
accounted for as a purchase, and accordingly, the results of operations for A&A
have been included in the accompanying consolidated statements of operations
since the date of acquisition. The acquisition resulted in goodwill and other
intangible assets of $4.6 million which were being amortized over 3 to 20 years
prior to closure of the facility in 1998, at which time the remaining balances
were expensed. (See Note 9)

12. SEGMENT REPORTING

The Company operatesadopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" during the fourth quarter of fiscal 1999.
SFAS No. 131 establishes standards for reporting information about operating
segments in one primary business segment: providing
sophisticated electronics assemblyfinancial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or chief decision
making group, in deciding how to allocate resources and turnkey electronics manufacturing
services to a select group of original equipment manufacturers engaged in assessing
performance. Mr. Michael Marks, the computer, medical, consumer electronicsChairman and communications industries.

Sales for similar classes of products withinchief executive officer, is the
Company's chief decision maker. The Company operates and is managed internally
by four geographic business segments. The operating segments include Asia,
Americas, Western Europe and Central Europe. Each operating segment is presented belowhas a
regional president that reports to Mr. Michael Marks.

Information about segments for the years ended March 31:

1996 1997 1998
---------- ---------- ----------
Medical ........................ $ 78,395 $ 94,238 $ 106,682
Computer ....................... 238,120 260,687 191,770
Telecommunication and Networking 67,254 110,093 514,765
PCB ............................ 4,485 28,470 39,632
Industrial ..................... 10,691 8,612 7,032
Consumer products .............. 105,204 110,397 204,071
MCMs ........................... 19,817 19,214 24,410
Others ......................... 48,079 8,296 24,709
---------- ---------- ----------
$ 572,045 $ 640,007 $1,113,071
========== ========== ==========

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The following tables summarize the Company's operations by geographical
area for the years ended March 31:

1996
1997 1998 1999
----------- ----------- -----------

Net Sales:
Asia .................... $ 307,545 $ 303,993 $ 401,126
Americas ................ 160,860 277,783 683,564
Western Europe .......... 22,560 332,837 368,046
Central Europe .......... 149,042 210,233 406,107
Intercompany eliminations -- (11,775) (51,215)
----------- ----------- -----------
NET SALES:
Asia:
Domestic ............. $ 12,491 $ 12,799 $ 24,734
Export ............... 214,127 267,129 229,876
Intercompany ......... 30,615 29,376 49,277
----------- ----------- -----------
257,233 309,304 303,887
----------- ----------- -----------

Americas:
Domestic ............. 191,209 188,097 309,314
Export ............... 11,178 -- 16,643
Intercompany ......... 27 9 5
----------- ----------- -----------
202,414 188,106 325,962
----------- ----------- -----------
Western Europe:
Domestic ............. 16,753 20,128 297,192
Export ............... 2,589 2,431 25,079
Intercompany ......... -- -- 306
----------- ----------- -----------
19,342 22,559 322,577
----------- ----------- -----------
Central Europe:
Domestic ............. 21,471 58,377 39,253
Export ............... 102,227 $ 91,046 170,980
Intercompany ......... -- -- --
----------- ----------- -----------
123,698 149,423 210,233
----------- ----------- -----------

Intercompany eliminations ... (30,642) (29,385) (49,588)
----------- ----------- -----------
$ 572,045
$ 640,007 $ 1,113,071 $ 1,807,628
=========== =========== ===========

Income(Loss) before Income Tax:
Asia .................... $ 25,974 $ 15,970 $ 25,416
Americas ................ (3,973) (4,413) 19,296
Western Europe .......... (2,487) 8,871 12,137
Central Europe .......... 4,598 7,723 12,833
Intercompany eliminations,
corporate allocations
and non-recurring
charges (10,465) (5,980) (10,382)
----------- ----------- -----------
$ 13,647 $ 22,171 $ 59,300
=========== =========== ===========

Long Lived Assets:
Asia .................... $ 52,702 $ 76,011 $ 109,513
Americas ................ 20,601 86,390 117,526
Western Europe .......... 37,662 45,698 45,775
Central Europe .......... 38,050 47,474 94,693
----------- ----------- -----------
$ 149,015 $ 255,573 $ 367,507
=========== =========== ===========
1996

1997 1998 ----------- ----------- -----------
INCOME(LOSS) FROM OPERATIONS:1999
-------- -------- --------
Depreciation and Amortization:
Asia ............................................. $ (12,491)8,004 $ 22,22912,690 $ 19,46115,321
Americas .................. 4,570 (5,531) 4,049................... 2,873 5,703 14,815
Western Europe ............ (1,514) (1,829) 11,046............. 929 7,298 10,110
Central Europe ............ 4,060 5,203 8,122
----------- ----------- -----------............. 6,334 5,257 10,161
-------- -------- --------
$ (5,375)18,140 $ 20,07230,948 $ 42,678
=========== =========== ===========
IDENTIFIABLE ASSETS:50,407
======== ======== ========

Capital Expenditure:
Asia ............................................. $ 146,41215,729 $ 167,43134,549 $ 244,99437,418
Americas .................. 73,552 74,884 243,366................... 11,562 38,799 46,427
Western Europe ............ 11,060 116,919 144,338............. 586 12,102 10,850
Central Europe ............ 78,243 87,058 111,425
----------- ----------- -----------............. 9,626 13,167 53,170
-------- -------- --------
$ 309,26737,503 $ 446,292 $ 744,123
=========== =========== ===========98,617 $147,865
======== ======== ========

For purposes of the preceding tables, "Asia" includes China, Malaysia, and
Singapore, "Americas" includes U.S.U.S, Mexico, and Mexico,Brazil, "Western Europe"
includes Sweden, Scotland and United Kingdom and "Central Europe" includes
Austria Hungary and Italy.

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)Hungary.

Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income (loss) from operationsbefore tax is net sales less operating
expenses, goodwill amortization and provision for excess facilities,
but prior to interest or other expenses, andbut prior to income taxes.

The Company's subsidiaries are interdependent1997 1998 1999
---- ---- ----
Net Sales:
China ..................... 22% 19% 17%
United States ............. 25% 24% 27%
Sweden .................... -- 27% 18%
Hungary ................... 13% 13% 17%
All others ................ 40% 17% 21%

Long Lived Assets:
China ..................... 25% 26% 27%
United States ............. 11% 23% 19%
Sweden .................... 22% 16% 11%
Hungary ................... 19% 14% 18%
All others ................ 23% 21% 25%

13. SUBSEQUENT EVENTS (UNAUDITED)

In April 1999, Flextronics entered into an agreement to purchase the
manufacturing facility and are not managed for
stand-alone results. Certain operational functions forrelated assets of Ericsson's Visby, Sweden
operations. Ericsson's Visby facility manufactures mobile systems
infrastructure, primarily radio base stations. Under the entire Company, such
as marketingterms of the agreement,
Flextronics will acquire the facility, including equipment and administration, may be carried out by a subsidiary in one
country.materials. In
addition,connection with the acquisition of assets, the Company may from timehas also entered into a
manufacturing service agreement with Ericsson. The asset transfer is expected to
time shift responsibilities
from a subsidiaryclose during the second quarter of fiscal 2000.

In May 1999, Flextronics purchased the manufacturing facility and realted
assets of ABB Automation Products in one countryVasteras, Sweden for approximately $25.9
million. This facility provides printed circuit board assemblies and other
electronic equipment. Flextronics has also offered employment to a subsidiary in another country, thereby
changing575 ABB
personnel who were previously employed by ABB Automation Products. In connection
with the operating resultsacquisition of the impacted subsidiaries but notcertain fixed assets, the Company has also entered into
a manufacturing service agreement with ABB Automation Products.

68pooling-of-interests.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

None

PART III

Item 10. DIRECTORS AND OFFICERS

The names, ages and positions of the Company's Directors and officers as of
March 31, 19981999 are as follows:

NAME AGE POSITION
- ----------------- --- ------------------------------------------------
Michael E. Marks 47
NAME AGE POSITION
- ----------------- --- ------------------------------------------------

Michael E. Marks 48 Chairman and Chief Executive Officer
Tsui Sung Lam 48 President, Asia Pacific Operations and Chief Executive Officer
Robert R. B. Dykes 49 President, Systems Group and
Chief Financial Officer
Ash Bhardwaj 35 President, Asia Pacific Operations
Michael McNamara 42 President, Americas Operations
Ronny Nilsson 50 President, Western European Operations
Humphrey Porter 51 President, Central/Eastern European Operations
Chuen Fah Alain Ahkong 51 Director
Patrick Foley 67 Director
Hui Shing Leong 40 Director
Michael J. Moritz 48 Director
Richard L. Sharp 51 Director
Robert R. B. Dykes 48 Senior Vice President of Finance and
Administration, Chief Financial Officer
Ronny Nilsson 49 Senior Vice President, Western European
Operations
Michael McNamara 41 President, Americas Operations
Stephen J. L. Rees 36 Senior Vice President, Worldwide Sales and
Marketing and Director
Michael J. Moritz 47 Director
Richard L. Sharp 50 Director
Patrick Foley 66 Director
Chuen Fah Alain Ahkong 50 Director
Hui Shing Leong 39 Director

Michael E. Marks -- Mr. Marks has been the Company's Chief Executive
Officer since January 1994 and is Chairman of the Board since July 1993. He has
been a Director of the Company since December 1991. From November 1990 to
December 1993, Mr. Marks was President and Chief Executive Officer of Metcal,
Inc., a precision heating instrument company ("Metcal"). Mr. Marks received a
B.A. and M.A. from Oberlin College and an M.B.A. from the Harvard Business
School.

Tsui Sung Lam -- Mr. Tsui has been the Company's President, Asia-Pacific
since April 1997, and a Director since 1991. From January 1994 to April 1997, he
served as the Company's President and Chief Operating Officer. From June 1990 to
December 1993, he was the Company's Managing Director and Chief Executive
Officer. From 1982 to June 1990, Mr. Tsui served in various positions for
Flextronics, Inc., the Company's predecessor, including Vice President of Asian
Operations. Mr. Tsui received Diplomas in Production Engineering and Management
Studies from Hong Kong Polytechnic, and a Certificate in Industrial Engineering
from Hong Kong University.

Robert R. B. Dykes -- Mr. Dykes served as a Director of the Company from
January 1994 until August 1997 and since February 1997 he has served as its
Senior Vice President of Finance and Administration. Mr. Dykes was Executive
Vice President, Worldwide Operations and Chief Financial Officer of Symantec
Corporation, an application and system software products company, from 1988 to
February 1997. Mr. Dykes received a Bachelor of Commerce and Administration
degree from Victoria University in Wellington, New Zealand. Mr. Dykes is on the
board of directors of Symantec Corporation.

69Ash Bhardwaj -- Mr. Bhardwaj joined Flextronics in 1988 and has served as
President, Asia pacific Operations since April 1999. Previously, he served as
Vice President for the China region for Flextronics from April 1997 to March
1999, with responsibility for all Flextronics operations in China. Prior to
that, Mr. Bhardwaj oversaw the implementation of Flextronics' manufacturing
operation in Xixiang, People's Republic of China and was general manager for the
Flextronics plant in Shekou, China. Mr. Bhardwaj has a degree in electrical
engineering from Thapar Institute of Engineering and Technology in India and
earned an MBA from the Southeastern Louisiana University, Hammond, LA. Mr.
Bhardwaj succeeds Mr. S.L.Tsui, who is leaving the company in June 1999.

Michael McNamara -- Mr. McNamara has served as President of Americas
Operations since April 1994. From May 1993 to March 1994, he was President and
Chief Executive Officer of Relevant Industries, Inc., which was acquired by the
Company in March 1994. From May 1992 to May 1993, he was Vice President,
Manufacturing Operations at Anthem Electronics, an electronics distributor. From
April 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath,
an operations consulting firm. Mr. McNamara received a B.S. from the University
of Cincinnati and an M.B.A. from Santa Clara University.

Ronny Nilsson -- Mr. Nilsson has served as the Company's Senior Vice
President, EuropeWestern
European Operations since April 1997. From May 1995 to April 1997, he was Vice
President and General Manager, Supply & Distribution and Vice President,
Procurement, of Ericsson Business Networks where he was responsible for
facilities in Sweden, Austria, China, the Netherlands, Mexico and Australia.
From January 1991 to May 1995, he was Director of Production at the EVOX+RIFA
Group, a manufacturer of components, and Vice President of RIFA AB where he was
responsible for factories in Sweden, Finland, Singapore and Indonesia. Mr.
Nilsson received a certificate in Mechanical Engineering from the Lars Kagg
School in Kalmar, Sweden and certificates from the Swedish Management Institute
and the Ericsson Management Program.

Michael McNamaraHumphrey Porter -- Mr. McNamaraPorter has served as President of AmericasCentral and
Eastern European Operations since April 1994.October 1997. From May 1993July 1994 to March 1994,October 1997,
he was President and Chief Executive Officer of RelevantNeutronics Electronics
Industries Inc.,Holding, AG, which was acquired by the Company in March 1994. From May 1992October 1997. Prior
to May 1993,joining Neutronics, Mr. Porter worked for over 27 years for the Philips
organization. Between 1989 and 1994, he was Vice President,
Manufacturing Operations at Anthem Electronics, an electronics distributor. From
April 1987 to May 1992,Industrial Director for Philips
Audio Austria and between 1984 and 1989, he was Managing Director of the Philips
Audio factory in Penang, Malaysia. Prior to this, Mr. Porter held various
management and technical staff positions in Hong Kong, Holland, the United
States and the U.K. Mr. Porter has a Principal of Pittiglo, Rabin, Todd & McGrath,
an operations consulting firm. Mr. McNamara received a B.S.B.Sc. degree in production engineering from
theTrent University of Cincinnati and an M.B.A. from Santa Clara University.

Stephen J. L. Reesin Nottingham, England.

Chuen Fah Alain Ahkong -- Mr. ReesAhkong has served as a Director of the
Company since April 1996, as Senior ViceOctober 1997. Mr. Ahkong is a founder of Pioneer Management
Services Pte. Ltd. ("Pioneer"), a Singapore-based consultancy firm, and has been
the Managing Director of Pioneer since 1990. Pioneer provides advice to the
Company, and other multinational corporations, on matters related to
international taxation.

Patrick Foley -- Mr. Foley has been a Director of the Company since October
1997. Mr. Foley is Chairman, President Worldwide Sales and Marketing since
May 1997, and as Chairman and Chief Executive Officer of Astron since the
acquisitionDHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global
document, package and airfreight delivery company. He joined DHL in September
1988 with more than 30 years experience in hotel and airline industries. Mr.
Foley also serves as a director of Astron byContinental Airlines, Inc., Del Monte
Corporation, DHL International, Foundation Health Systems, Inc. and Glenborough
Realty Trust, Inc.

Hui Shing Leong -- Mr. Hui has served as a Director of the Company in February 1996. Mr. Reessince
October 1997. Since 1996 he has been Managing Director of CS Hui Holdings in
Malaysia. Between 1984 and 1994 he was Managing Director of Samda Plastics
Industries Ltd., a plastic injection molding company in Malaysia. Since 1994 Mr.
Hui has also been a committee member of the Penang, Malaysia Industrial Council,
Vice-Chairman of the SMI Center in Malaysia, and Chairman of the Sub-Committee
Plastics Technology Training Center in Malaysia. Since 1990 he has been
President of the North Malaysian Small and Chief Executive Officer of Astron since November 1991. Mr. Rees
holds a B.A. in Finance from the City of London Business School and graduated in
Production Technology and Mechanical Engineering from the HTL St. Polten
Technical Institute in Austria.Medium Enterprises Association.

Michael J. Moritz -- Mr. Moritz has served as a Director of the Company
since July 1993. Mr. Moritz has been a General Partner of Sequoia Capital, a
venture capital firm, since 1988. Mr. Moritz also serves as director of Yahoo,
Inc., Neomagic and several privately-held companies.

Richard L. Sharp -- Mr. Sharp has served as a Director of the Company since
July 1993. He is Chairman of the Board and Chief Executive Officer of Circuit
City Stores, Inc., a consumer electronics and appliance retailer. He joined
Circuit City as an Executive Vice President in 1982. He was President from June
1984 to March 1997 and became Chief Executive Officer in 1986 and Chairman of
the Board in 1994. Mr. Sharp also serves as a director of Fort James
Corporation.

Patrick Foley -- Mr. Foley has been a Director of the Company since October
1997. Mr. Foley is Chairman, President and Chief Executive Officer of DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global
document, package and airfreight delivery company. He joined DHL in September
1988 with more than 30 years experience in hotel and airline industries. Mr.
Foley also serves as a director of Continental Airlines, Inc., Del Monte
Corporation, DHL International, Foundation Health Systems, Inc. and Glenborough
Realty Trust, Inc.

Chuen Fah Alain Ahkong -- Mr. Ahkong has served as a Director of the
Company since October 1997. Mr. Ahkong is a founder of Pioneer Management
Services Pte. Ltd. ("Pioneer"), a Singapore-based consultancy firm, and has been
the Managing Director of Pioneer since 1990. Pioneer provides advice to the

Company, and other multinational corporations, on matters related to
international taxation.

Hui Shing Leong -- Mr. Hui has served as a Director of the Company since
October 1997. Since 1996 he has been Managing Director of CS Hui Holdings in
Malaysia. Between 1984 and 1994 he was Managing Director of Samda Plastics
Industries Ltd., a plastic injection molding company in Malaysia. Since 1994 Mr.
Hui has also been a committee member of the Penang, Malaysia Industrial Council,
Vice-Chairman of the SMI Center in Malaysia, and Chairman of the Sub-Committee
Plastics Technology Training Center in Malaysia. Since 1990 he has been
President of the North Malaysian Small and Medium Enterprises Association.

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information under the caption "Executive Compensation" of the Registrants
definitive Proxy Statement and notice of the Company's Annual Meeting of
shareholders to be held on June 17, 1998August 12, 1999 which the Company will file with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this report.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" of the Registrants definitive Proxy Statement and notice of the
Company's Annual Meeting of shareholders to be held on June 17, 1998August 12, 1999 which the
Company will file with the Securities and Exchange Commission within 120 days
after the end of the fiscal year covered by this report.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information with required by this item is incorporated by reference to
the information under the caption "Certain Relationships and Related
Transactions" of the Registrants definitive Proxy Statement and notice of the
Company's Annual Meeting of shareholders to be held on June 17, 1998August 12, 1999 which the
Company will file with the Securities and Exchange Commission within 120 days
after the end of the fiscal year covered by this report.

SIGNATURES

Pursuant to the requirement 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, thereto duly authorized.

Date : June 12, 1998

FLEXTRONICS INTERNATIONAL LTD.

By: /s/ MICHAEL E. MARKS
------------------------------------
Michael E. Marks

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Michael E. Marks
and Robert R.B. Dykes and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Report (including any and all amendments), and to file the
same, with exhibits thereto and other documents In connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitutes, may do or cause to be done
by virtue hereof.

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ MICHAEL E. MARKS Chairman of the Board, and Chief June 12, 1998
- -------------------------------------- Executive Officer (principal
Michael E. Marks executive officer)

/s/ TSUI SUNG LAM President, Asia Pacific Operations June 12, 1998
- -------------------------------------- and Director
Tsui Sung Lam

/s/ ROBERT R.B. DYKES Senior Vice President of Finance and June 12, 1998
- -------------------------------------- Administration and Chief Financial
Robert R.B. Dykes Officer (principal financial and
accounting officer)

/s/ MICHAEL J. MORITZ Director June 12, 1998
- --------------------------------------
Michael J. Moritz

/s/ STEPHEN J.L. REES Senior Vice President, June 12, 1998
- -------------------------------------- Worldwide Sales and Marketing
Stephen J.L. Rees and Director

/s/ RICHARD L. SHARP Director June 12, 1998
- --------------------------------------
Richard L. Sharp

/s/ PATRICK FOLEY Director June 12, 1998
- --------------------------------------
Patrick Foley

/s/ ALAIN AHKONG Director June 12, 1998
- --------------------------------------
Alain Ahkong

/s/ HUI SHING LEONG Director June 12, 1998
- --------------------------------------
Hui Shing Leong

7269

Part IV

ITEM 16.14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------------------------------------------------------

2.1 Agreement among the Registrant, Alberton Holdings Limited and Omac
Sales Limited dated as of January 6, 1996. (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on
Form 8-K for the event reported on February 2, 1996.)

2.2 Asset Transfer Agreement between Ericsson Business Networks AB
and Flextronics International Sweden AB dated as February 12,
1997. Certain schedules have been omitted. The Company agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request. (Incorporated by reference to Exhibit
2.6 of the Registrant's registration statement on Form S-3, No.
333-21715.)

2.32.2 Exchange Agreement dated October 19, 1997 by and among
Registrant, Neutronics Electronic Industries Holding A.G. and the
named Shareholders of Neutronics Electronic Industries Holding
A.G. (Incorporated by reference to Exhibit 2 of the Registrant's
Current Report on Form 8-K for event reported on October 30,
1997.)

2.3 Exchange Agreement dated as of June 11, 1999 among the
Registrant, Flextronics Holding Finland Oyj and Seppo
Parhankangas.

3.1 Memorandum of Association of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's registration
statement on Form S-1, No. 33-74622.)

3.2 Articles of Association of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's registration
statement on Form S-4, No. 33-85842.)

4.1 Indenture dated as of October 15, 1997 between Registrant and
State Street Bank and Trust Company of California, N.A., as
trustee. (Incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K for event reported on
October 15, 1997.)

10.1 Form of Indemnification Agreement between the Registrant and its
Directors and certain officers. (Incorporated by reference to
Exhibit 10.1 of the Company's registration statement on Form S-1,
No. 33-74622.)

10.2 1993 Share Option Plan. (Incorporated by reference to Exhibit
10.2 of the Company's registration statement on Form S-1, No.
33-74622.)

10.3 nCHIP, Inc. Amended and Restated 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 of the Company's
registration statement on Form S-4, No. 33-85842.)

10.4* Agreement to Grant Options dated as of June 9, 1995 between the
Company and Lifescan. (Incorporated by reference to Exhibit 10.7
of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.)

10.5 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan
Industrial Shareholdings Limited, Flextronics Industrial
(Shenzhen) Limited and Flextronics Singapore Pte Ltd.
(Incorporated by reference to Exhibit 10.25 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1995.)

10.6 Lease Agreement dated as of January 2, 1995 between Shenzhen
Xinan Industrial Shareholdings Limited and Flextronics Industrial
(Shenzhen) Limited. (Incorporated by reference to Exhibit 10.25
of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.)

10.7 Services Agreement between the Registrant and Stephen Rees dated
as of January 6, 1996. (Incorporated by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K for the event
reported on February 2, 1996.)

10.8 Supplemental Services Agreement between Astron and Stephen Rees
dated as of January 6, 1996. (Incorporated by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K for the
event reported on February 2, 1996.)

10.9 Promissory Note dated April 17, 1995 executed by Michael E. Marks
in favor of Flextronics Technologies, Inc. (Incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1995.)

7370

10.10* Printed Circuit Board Assembly Services Agreement between
Lifescan Inc., a Johnson & Johnson Company, and the Registration
dated November 1, 1992. (Incorporated by reference to Exhibit
10.41 of the Company's registration statement on Form S-1, No.
33-74622.)

10.11 Tenancy of Flatted Factory Unit dated February 28, 1996 between
Jurong Town Corporation and the Registrant. (Incorporated by
reference to Exhibit 10.44 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1990.)

10.12 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong
Town Corporation and the Registrant. (Incorporated by reference
to Exhibit 10.45 of the Company's registration statement on Form
S-1, No. 33-74622.)

10.13 Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference
to Exhibit 10.52 of the Company's registration statement on Form
S-1, No. 33-74622.)

10.14 Amended and Restated Revolving Credit Agreement dated as of
January 14, 1998 among Flextronics International USA, Inc.,
BankBoston, N.A. and the lending institutions listed on Schedule
1 attached thereto and BankBoston, N.A. as agent with BancBoston
Securities Inc. as arranger. The Company agrees to furnish a copy
of the omitted schedules to the Commission upon request.
(Incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 10-Q for the quarterly period ended December 31,
1997.)

10.15 Amended and Restated Revolving Credit Agreement dated as of
January 14, 1998 among Flextronics International Ltd.,
BankBoston, N.A. and the lending institutions listed on Schedule
1 attached thereto and BankBoston, N.A. as agent with BancBoston
Securities Inc. as arranger. The Company agrees to furnish a copy
of the omitted schedules to the Commission upon request.
(Incorporated by reference to Exhibit 10.2 of the Company's
Report on Form 10-Q for the quarterly period ended December 31,
1997.)

10.16 Employment and Noncompetition Agreement dated as of April 30,
1997 between Flextronics International Sweden AB and Ronny
Nilsson. (Incorporated by reference to Exhibit 10.29 of the
Company's Annual Report on Form 10-K for fiscal year ended March
31, 1997.)

10.17 Services Agreement dated as of April 30, 1997 between Flextronics
International USA, Inc. and Ronny Nilsson. (Incorporated by
reference to Exhibit 10.30 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)

10.18 Promissory Note dated April 15, 1997 executed by Ronny Nilsson in
favor of Flextronics International USA, Inc. (Incorporated by
reference to Exhibit 10.31 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)

10.19 Letter Agreement dated March 27, 1997 among the Company, Astron
Technologies Limited, Croton Technology Ltd. and Stephen Rees
regarding the termination of the Services Agreement.
(Incorporated by reference to Exhibit 10.32 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31, 1997.)

10.20 Letter Agreement dated March 27, 1997 between Astron Group
Limited and Stephen Rees regarding the termination of the
Supplemental Services Agreement. (Incorporated by reference to
Exhibit 10.33 of the Company's Annual Report on Form 10-K for
fiscal year ended March 31, 1997.)

10.21 Services Agreement between Astron Technologies Limited and Tsui
Sung Lam effective as of April 1, 1997. (Incorporated by
reference to Exhibit 10.36 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)

10.22 Services Agreement between Flextronics Singapore Pte Limited and
Tsui Sung Lam effective as of April 1, 1997. (Incorporated by
reference to Exhibit 10.37 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)

7471

10.23 Loan Agreement between Flextronics International USA, Inc. as
lender, and Michael E. Marks, as borrower dated November 6, 1997.
(Incorporated by reference to Exhibit 10.35 of the Company's
Registration Statement on Form S-4, No. 333-41293.)

10.24 Secured Full Recourse Promissory Note, dated November 6, 1997,
executed by Michael E. Marks in favor of Flextronics
International USA, Inc. (Incorporated by reference to Exhibit
10.36 to the Company's Registration Statement on Form S-4, No.
333-41293.)

10.25 Second amendment to the amended and restated revolving credit
agreement dated as of June 26, 1998 among Flextronics
International USA, Inc. Bankboston, N.A. and the lending
institutions listed on Schedule 1 thereto. (Incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q
for the quarterly period ended December 31, 1998.)

10.26 Second amendment to the amended and restated revolving credit
agreement dated as of June 26, 1998 among Flextronics
International Ltd., Bankboston, N.A. and the lending institutions
listed on Schedule 1 thereto. (Incorporated by reference to
Exhibit 10.2 of the Company's Report on Form 10-Q for the
quarterly period ended December 31, 1998.)

10.27 Third amendment to the amended and restated revolving credit
agreement dated as of September 29, 1998 among Flextronics
International USA, Inc. Bankboston, N.A. and the lending
institutions listed on Schedule 1 thereto. (Incorporated by
reference to Exhibit 10.3 of the Company's Report on Form 10-Q
for the quarterly period ended December 31, 1998.)

10.28 Third amendment to the amended and restated revolving credit
agreement dated as of September 29, 1998 among Flextronics
International Ltd., Bankboston, N.A. and the lending institutions
listed on Schedule 1 thereto. (Incorporated by reference to
Exhibit 10.4 of the Company's Report on Form 10-Q for the
quarterly period ended December 31, 1998.)

10.29 Fourth amendment to the amended and restated revolving credit
agreement dated as of February 5, 1999 among Flextronics
International Ltd., Bankboston, N.A. and the lending institutions
listed on Schedule 1 thereto.

10.30 Promissory Note dated February 4, 1999 executed by Ronny Nilsson
in favor of Flextronics International Ltd.

21.1 Subsidiaries of Registrant.

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of Moore Stephens.

- -------------------------------
* Confidential treatment requested for portions of agreement.

7572

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

YEARYEARS ENDED MARCH 31, 1996, 1997, 1998 AND 19981999
(IN THOUSANDS)

ADDITIONS
-------------------------------------------------
BALANCE AT EFFECT CHARGED TO CHARGED BALANCE AT
BEGINNING OF OF COSTS AND TO OTHER DEDUCTIONS/ END OF
PERIOD ACQUISITIONS EXPENSES ACCOUNTS WRITE-OFFS PERIOD
------ ------------ -------- -------------------- ---------- --------------- ---------- ----------

Allowance for doubtful accounts
receivable:
Period
Year ended March 31, 1996. 1,903 0 2,170 0 (307)1997 3,766 Year ended March 31, 1997. 3,766 0-- 3,091 0-- (785) 6,072
Year ended March 31, 1998.1998 6,072 4,188 1,216 01,218 -- (1,950) 9,528
Year ended March 31, 1999 9,528 223 (2,584) -- (2,117) 5,050

Provision for excess facilities:
Period
Year ended March 31, 1997 1,254 -- 5,868 -- (1,814) 5,308
Year ended March 31, 1998 5,308 -- 8,869 -- (8,732) 5,445
Year ended March 31, 1999 5,445 -- 3,361 -- (6,283) 2,523

7673

SIGNATURES

Date : June 25, 1999
FLEXTRONICS INTERNATIONAL LTD.

By: /s/ MICHAEL E. MARKS
----------------------------------
Michael E. Marks

POWER OF ATTORNEY

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ MICHAEL E. MARKS Chairman of the Board, and Chief June 25, 1999
- ----------------------- Executive Officer (principal
Michael E. Marks executive officer)

/s/ ROBERT R.B. DYKES President, Systems Group and June 25, 1999
- ----------------------- Chief Financial Officer (principal
Robert R.B. Dykes financial and accounting officer)

Director June 25, 1999
- -----------------------
Tsui Sung Lam

Director June 25, 1999
- -----------------------
Michael J. Moritz

/s/ RICHARD L. SHARP Director June 25, 1999
- -----------------------
Richard L. Sharp

/s/ PATRICK FOLEY Director June 25, 1999
- -----------------------
Patrick Foley

/s/ Alain Ahkong Director June 25, 1999
- -----------------------
Alain Ahkong

Director June 25, 1999
- -----------------------
Hui Shing Leong