SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

For the fiscal year ended September 2, 1999

For the transition period from                 to                        

Commission File No.      333-xxxx

(Exact name of registrant as specified in its charter)

MCMS is a leading electronics manufacturing services ("EMS") provider serving original equipment manufacturers ("OEMs") in the networking, telecommunications, computer systems and other rapidly growing sectors of the electronics industry. The Company offers a broad range of manufacturing management services, including product design and prototype manufacturing; materials procurement and inventory management; manufacturing and testing of printed circuit board assemblies ("PCBAs"), memory modules and systems; quality assurance; and end-order fulfillment. By delivering this comprehensive range of electronic manufacturing services through its strategically located facilities in the United States, Asia and Europe, the Company enables its OEM customers to focus their capital and resources on their core competencies of research, product development, marketing and sales.

The Company's principal operations were established in 1984 as the Memory Applications Group of Micron Technology, Inc. ("MTI"). The Company began providing electronic manufacturing services to external customers in 1989, was incorporated as a wholly owned subsidiary of MTI in 1992 and became a wholly owned subsidiary of Micron Electronics, Inc. ("MEI"), which is a majority owned subsidiary of MTI, in 1995.

The Company provides a comprehensive array of manufacturing services which require the Company and its OEM customers to make a substantial investment of time and resources in their relationships. The Company's manufacturing services are provided on both a turnkey and consignment basis. Under a consignment arrangement, the OEM procures the components and the Company assembles them in exchange for a service fee. Under a turnkey arrangement, the Company assumes responsibilit

The Company's pre-production electronics manufacturing services include product development, materials procurement and inventory management.

The majority of the PCBAs manufactured by MCMS utilize surface mount technology ("SMT") or a combination of SMT and pin-through-hole interconnection technologies. In addition, the Company has expertise in such advanced technologies as flip chip assembly, ball grid array ("BGA"), micro BGA and ceramic column grid array. The Company also offers a comprehensive range of test services, including automated in-circuit and x-ray testing of PCBAs, as well as functional and en level assemblies. MCMS, in conjunction with its customers, either fabricates or procures test hardware and develops application-specific test software. The Company employs standard manufacturing and test platforms at all manufacturing facilities. This standardization allows the Company to deliver consistent product quality on a worldwide basis to its OEM customers.

The Company is a manufacturer of memory modules which it primarily supplies to MTI, the largest manufacturer of dynamic random access memory ("DRAM") in the United States. MCMS manufactures standard and custom memory modules for MTI on a consignment basis and for other customers on a turnkey basis. As a former subsidiary of MTI, the Company has its roots in memory module production, and has used this expertise to gain access to new customers. Once the Company has been basis. As a former subsidiary of MTI, the Company has its roots in memory module production, and has used this expertise to gain access to new customers. Once the Company has been s, MCMS seeks to expand the relationship to include a broader set of services.

System level assembly is the connection of two or more sub-assemblies (such as PCBAs) into a finished enclosure or product. The Company specializes in the system level assembly of secured Internet Protocol routers, Internet servers and land-area network and wide-area network switches and embedded systems. The Company's system level assembly operations are staffed with personnel from various functional areas including engineering, manufacturing management, testing and training.

The Company's relationship with several of its OEM customers extends beyond manufacturing to encompass the shipment of products directly to the OEM's customers. Prior to shipment, the Company performs all quality and testing functions to ensure that the products conform to the customer's standards of functionality, performance and durability. In addition, the Company possesses the flexibility, manufacturing expertise and information systems necessary to custom configure assemblies and software to meet its customers' unique requirements.

The Company operates in one industry segment, electronic manufacturing services. The Company serves the same and similar customers on a global basis and is viewed by management as a global provider of manufacturing services. The Company places primary importance on managing its worldwide services to strategic customers. For further Segment information on the Company, see note 15 of the Notes to Consolidated Financial Statements.

The Company provides a broad range of services for the manufacture of PCBAs, memory modules, and systems, including design, product engineering, procurement and material management, assembly, test engineering, quality assurance, and just-in-time delivery or end-order fulfillment. MCMS focuses on marketing its services to OEMs in the high-growth networking, telecommunications, and computer system industries that generally require custom board and system level design, assembly, and test and short manufacturing lead times at competitive pricing.

The Company generally targets customers who: (i) focus on the high-end of their respective markets; (ii) possess significant volume growth opportunities; (iii) offer the possibility of multiple project or product prospects for MCMS and (iv) are interested in a long-term, strategic partnership.

In fiscal 1999, the Company provided manufacturing services for approximately 26 active customers. As is typical for an EMS provider, a few of the Company's major customers represent a significant percentage of its net sales. During fiscal years 1999, 1998 and 1997, sales to individual customers that exceeded 10% of the Company's net sales were: Cisco Systems, Inc. 43.5%, 39.2% and 32.4% and Fore Systems, Inc. ("Fore Systems") 18.2%, 24.1% and 20.1%, respectively. In fiscal year 1999, the Company's ten largest customers accounted for 86.2% of net sales. Decreases in sales to, or margins with, these or any other key customers could have a material adverse effect on the Company's business, financial condition and results of operations. During the fourth quarter of fiscal 1999, the Company and Fore Systems reached a decision to reduce the scope of their relationship. For further discussion on the risks associated with customer concentration and on the impact of the reduced Fore Systems relationship, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Certain Factors--Customer Concentration; Dependence on Certain Industries."

The Company's backlog as of September 30, 1999 was approximately $103.4 million. Backlog consists of purchase orders received and that are expected to be filled, typically within three months. Because of variations in the timing of orders, quantities ordered, delivery intervals, customer and product mix and delivery schedules, the Company's backlog as of any particular date may not be representative of actual sales for any subsequent period. In addition, subject to certain conditions and limitations, customer orders can be canceled and volume levels can be changed or delayed. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have reduced or delayed the volume of design and manufacturing services performed by the Company. Program or relationship termination and the replacement of canceled, delayed or reduced contracts with new business cannot be assured. Termination of a manufacturing relationship or changes, reductions or delays in orders could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors -- Variability of Results of Operation."

The Company markets its contract manufacturing services through both a direct sales force and independent manufacturers' sales representatives throughout the world. The Company believes that this combination provides a cost-effective means for the Company to market its services, as compensation to its representatives is commission-based. The Company's marketing and sales organization consists of 4 marketing employees, 3 regional sales managers and 30 program managers. Regional sales managers have primary responsibility for identifying and developing new customer accounts. Regional sales managers also manage the Company's independent sales representatives in their respective territories, working closely with representatives to define effective account development strategies.

The Company's ability to consistently meet or exceed customers' expectations has been its most effective marketing tool. Consequently, the program manager plays a critical role. Once a customer is established, a program manager is assigned to each customer and is responsible for the day-to-day management and the progress of existing programs. The program manager also uses his or her daily interface with the customer to identify and pursue additional revenue opportunities within the existing customer base.

The Company concentrates its engineering efforts principally on developing manufacturing process technologies to meet specific customer needs. The Company also conducts a limited amount of research and development in response to general technology trends in the EMS market, realizing these developments will likely become specific customer requirements in the future. As of September 2, 1999, the Company had approximately 201 employees engaged in PCBA  design, process, product and test engineering, and product and equipment technical support.

From time to time, the Company is involved in various legal proceedings arising in the ordinary course of its business. The Company does not expect that these matters will have a material adverse effect on the Company's business, financial condition and results of operations.

The Company currently operates manufacturing facilities in Nampa, Idaho, Durham, North Carolina, Penang, Malaysia, and Colfontaine, Belgium, and has an international procurement office in Singapore. In September 1999, the Company expanded its Penang, Malaysia operation from 36,000 square feet to approximately 118,000 square feet. All of the Company's manufacturing operations employ, where practicable, standard manufacturing and test equipment, information systems and quality assurance practices. All of MCMS's manufacturing operations are ISO 9001 certified.

In an effort to support the global requirements and expanding business opportunities of its customer base, on October 6, 1999, the Company leased a 112,000 square foot facility in Monterrey, Mexico. It is anticipated that the Monterrey, Mexico operation will initially focus on printed circuit board assembly and test and will expand to include system assembly as well as a full range of order fulfillment services. The commencement of this operation is currently scheduled for early in calendar year 2000. The addition of the Monterey, Mexico operation will increase the Company's world-wide, manufacturing facility space to 641,000 square feet.

Not applicable.

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter covered by this report.

There is no established public trading market for any class of the Company's common equity.

As of September 2, 1999, there were 8 holders of record of the registrant's Class A Common Stock, 2 holders of record of the registrants Class B Common Stock and 5 holders of record for the registrants Class C Common Stock.

The Company has never declared or paid any cash dividends on any class of its common equity. Except as the Company may be otherwise required to pay dividends on its outstanding 12 1/2% Series B Senior Exchangeable Preferred Stock ("Redeemable Preferred Stock"), the Company does not currently anticipate paying any cash dividends on any class of common equity in the foreseeable future. Notwithstanding the foregoing, under the Company's Certificate of Incorporation, the Company may not declare or pay dividends on its common equity unless and until the Company has declared and paid any preferential dividends on any then outstanding Redeemable Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. Moreover, the Company's existing credit facility, as well as the indenture governing its outstanding Series B 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes") and Series B Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes"), restrict the Company from declaring or paying cash dividends on its outstanding common equity.

During fiscal 1999 and 1998, MCMS granted options under its 1998 Stock Option Plan (the "Option Plan") to employees of the Company to purchase an aggregate of 797,500 and 1,240,000 shares, respectively, of the Company's Class A Common Stock at an exercise price of $2.27 per share. The Company believes that the foregoing stock option grants did not require registration under the Securities Act, nor an exemption from the registration requirements thereof, insofar as such grants did not involve the "offer" or "sale" of securities within the meaning of Section 2(3) of the Securities Act. During fiscal 1999, options to purchase 35,313 shares of common stock were exercised. No options were exercised in fiscal 1998 under the Option Plan. The Company believes that the foregoing issuances of capital stock were exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(2) thereof, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder, insofar as the offer and sale of such securities did not involve a public offering.

The following selected historical financial information of MCMS has been derived from the historical consolidated financial statements and should be read in conjunction with the consolidated financial statements and the notes included therein.

MCMS is a leading electronics manufacturing services ("EMS") provider serving original equipment manufacturers ("OEMs") in the networking, telecommunications, computer systems and other rapidly growing sectors of the electronics industry. The Company offers a broad range of capabilities and manufacturing management services, including product design and prototype manufacturing; materials procurement and inventory management; manufacturing and testing of printed circuit board assemblies ("PCBAs"), memory modules and systems; quality assurance; and end-order fulfillment.

Net sales of foreign subsidiaries for fiscal 1999 increased $11.5 million, or 46.9%, to $36.0 million from $24.5 million in fiscal 1998. The growth in foreign subsidiary net sales is primarily the result of additional sales of PCBA shipments at the Company's Malaysian operation. This increase was partially offset by lower volumes of custom turnkey memory modules at the Malaysian facility. The increase was also offset as a result of a significant customer of the Belgium operation shifting from a turnkey to consignment model early in the second quarter of fiscal 1999.

During fiscal 1999, the Company set up a valuation allowance of $4.7 million for the amount of the deferred tax asset which may not be realizable through either carryback of its net operating losses or through future income.

Net sales attributable to foreign subsidiaries for fiscal increased $18.5 million to $24.5 million from $6.0 million in fiscal 1997. The growth in foreign subsidiary net sales is the result of additional sales of PCBA shipments at the Company's Malaysia operation and the addition of the Company's Belgium operation.

During fiscal 1999, the Company's cash and cash equivalents decreased by $7.5 million. Net cash used by operating activities was $11.0 million, which includes $19.7 million in interest expense. Net cash used by investing activities was $17.1 million and net cash provided by financing activities was $20.5 million. Net cash used by investing activities during the fiscal year ended September 2, 1999 was primarily attributable to capital expenditures for additional manufacturing capacity primarily in the North American and Malaysian operations, and the implementation of the Company's new enterprise resource planning ("ERP") system. Net cash generated from financing activities principally resulted from net borrowings under the Company's existing credit facilities.

The $11.0 million of cash consumed by operations was primarily due to an increase in accounts receivable of $13.5 million and an increase in inventories of $14.2 million. The growth in accounts receivable is primarily attributable to increased sales. The average collection period for accounts receivable and the average inventory turns were 36.2 days and 11.0 turns compared to 40.4 days and 12.7 turns during fiscal 1999 and 1998, respectively. The average collection period and average inventory turn level vary as a function of sales volume, sales volatility, product mix, payment terms with customers and suppliers and the mix of consigned and turnkey business.

Capital expenditures during fiscal 1999 were $17.1 million, including $12.2 million for additional manufacturing capacity in the North American operations and $4.9 million toward the implementation of the ERP system. See - "ERP System Implementation"." As of September 2, 1999, the Company had commitments of $1.2 million for equipment purchases.

On February 26, 1999, the Company entered into a $60 million Credit Facility (the "Credit Facility") which matures on February 26, 2004. The Credit Facility includes a $10 million equipment loan facility restricted to the purchase of qualifying property, plant and equipment and a $50 million revolving credit facility. Amounts outstanding under the equipment loan facility bear interest at the lesser of the applicable Alternate Base Rate plus 0.25% or the Eurodollar Rate plus 2.50%, as defined in the agreement, and borrowings are limited to the first three loan years. Amounts outstanding under the revolving credit facility bear interest at the lower of the applicable Alternate Base Rate or Eurodollar Rate plus 2.25%. Amounts available to borrow under the revolving credit facility vary depending on accounts receivable and inventory balances, which serve as collateral along with substantially all of the other assets of the Company. The Credit Facility includes a quarterly commitment fee of 0.375% per annum based upon the average unused portion and contains customary covenants such as restrictions on capital expenditures, additional indebtedness and the payment of dividends. In particular, the Credit Facility contains a covenant requiring that the Company maintain a fixed charge ratio of not less than 1.0 to 1.0, provided, however, that this fixed charge ratio covenant will not be applied to any fiscal quarter during the term as long as the Company maintains at all times undrawn availability of more than $10 million. In addition, if at any time undrawn availability is less than $10 million, the fixed charge ratio will be applied to the immediately preceding month with respect to the twelve months then ended. The Credit Facility also contains customary events of default. Any default under the Credit Facility could result in default of the Notes and Redeemable Preferred Stock, as defined below.

On July 13, 1999, the Company amended the Credit Facility. The amendment adds existing equipment to the borrowing base, modifies the inventory advance rates, raises the maximum amount available to borrow based on inventory collateral and allows the full amount of the Credit Facility to be drawn without triggering the fixed charge ratio covenant if adequate collateral is available. As of September 2, 1999, the Company had a $28.9 million outstanding balance under the revolving credit facility and a $3.0 million outstanding balance on the equipment loan facility. On September 2, 1999, the Company had approximately $20.0 million available to borrow under the Credit Facility without triggering the fixed charge ratio covenant, and $7.0 million available to borrow under the equipment loan facility, respectively. Had the Company consumed its adjusted availability and been required to test the fixed charge ratio covenant, the test would not have been satisfied. See "Notes to Consolidated Financial Statement--6. Long-term Debt" and "Certain Factors--Restrictions Imposed by Terms of Indebtedness and Redeemable Preferred Stock".

The Company's principal sources of future liquidity are cash flows from operating activities and borrowings under the Credit Facility. The Company is highly leveraged but believes that these sources will provide sufficient liquidity and capital resources to meet its current and future interest payments, working capital and planned capital expenditures obligations. No assurance can be given, however, that this will be the case. See "Certain Factors--High Level of Indebtedness; Ability to Service Indebtedness and Satisfy Preferred Stock Dividend Requirements."

The Year 2000 presents many issues for the Company because many computer hardware and software systems use only the last two digits to refer to a calendar year. Consequently, these systems may fail to process dates correctly after December 31, 1999, which may cause system failures. In October 1997, the Company established a cross-functional team chartered with the specific task of evaluating all of the Company's software, equipment and processes for Year 2000 compliance. This team determined that a substantial portion of the Company's systems, including its company-wide ERP system, were not Year 2000 compliant and, therefore, developed a plan to resolve this issue which includes, among other things, implementing a new ERP system. The Company substantially completed implementation of this software in its North American operations late in the third quarter of fiscal 1999, in its Malaysian operation early in the fourth quarter of fiscal 1999, with completion scheduled for the Belgian operation in late 1999. In addition, the Company retained the services of outside consulting firms to review and assess the Company's evaluation and implementation plan. The Company believes that the new ERP system will make all "mission critical" company information and operational systems Year 2000 compliant.

Although the Company has no formal contingency plan related to the ERP implementation, the implementation is on schedule with key implementation dates established and completion is slated for late 1999.

The Company is developing contingency plans, where practicable, designed to address other areas of the Company affected by the Year 2000 problem, including problems which might arise from the failure of the Company's key suppliers to timely and adequately address Year 2000 issues. Contingency plans with respect to supplier Year 2000 problems may include, among other things, dual sourcing the supply of materials, creating a materials buffer or changing suppliers. However, there can be no assurance such contingency plans will be adequate to cover all Year 2000 issues that the Company may experience or that the Company will be able to develop contingency plans on a timely basis, which could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company presently believes that by modifying existing software and converting to new software, such as the Baan ERP system, the Year 2000 problem will not pose significant operational problems for the Company's information systems. However, if such modifications and conversions are not timely or not properly implemented, the Year 2000 problem could affect the ability of the Company, among other things, to manufacture product, procure and manage materials, and administer functions and processes, which could have a material adverse effect on the Company's business, financial condition and results of operations. Additionally, failure of third party suppliers to become Year 2000 compliant on a timely basis could create a need for the Company to change suppliers and otherwise impair the sourcing of components, raw materials or services to the Company, or the functionality of such components or raw materials, any of which could have a material adverse effect on the Company's business, financial condition and results of operations.

In addition, the Company's Year 2000 compliance efforts have caused significant strain on the Company's information technology resources and, as a result, could cause the deferral or cancellation of other important Company projects. There can be no assurance that the delay or cancellation of such projects will not have a material adverse affect on the Company's business, financial condition and results of operations. Also, see Customer Concentration; Dependence on Certain Industries.

The Company is highly leveraged. At September 2, 1999, the Company had approximately $207.3 million of total indebtedness and Series B 12 1/2% Senior Preferred Stock (the "Redeemable Preferred Stock") outstanding with an aggregate liquidation preference of $30.1 million. The Company may incur additional indebtedness from time to time to provide for working capital or capital expenditures or for other purposes, subject to certain restrictions in the (i) the Credit Facility (ii) Indenture (the "Indenture") governing Fixed Rate Notes and the Floating Rate Notes (collectively, the "Notes"), (iii) the Certificate of Designation relating to the Redeemable Preferred Stock (the "Certificate of Designation") and (iv) the Indenture governing the 12 1/2% Subordinated Exchange Debentures (the "Exchange Debentures") due 2010, which are issuable in exchange for the Redeemable Preferred Stock (the "Exchange Indenture").

The level of the Company's indebtedness could have important consequences to the Company and the holders of the Company's securities, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future, as needed, may be limited; (iii) the Company's leveraged position and covenants contained in the Indenture, the Certificate of Designation, the Exchange Indenture and the Credit Facility may limit its ability to grow and make capital improvements and acquisitions; (iv) the Company's level of indebtedness may make it more vulnerable to economic downturns; and (v) the Company may be at a competitive disadvantage because some of the Company's competitors are less financially leveraged, resulting in greater operational and financial flexibility for such competitors.

The ability of the Company to pay cash dividends on, and to satisfy the redemption obligations in respect of, the Redeemable Preferred Stock and to satisfy its debt obligations, including the Notes, will be primarily dependent upon the future financial and operating performance of the Company. Such performance is dependent upon financial, business and other general economic factors, many of which are beyond the control of the Company. If the Company is unable to generate sufficient cash flow to meet its debt service obligations or provide adequate long-term liquidity, it will have to pursue one or more alternatives, such as reducing or delaying capital expenditures, refinancing debt, selling assets or raising equity capital. There can be no assurance that such alternatives could be accomplished on satisfactory terms, if at all, or in a timely manner.

Upon an event of default under the Credit Facility, the Indenture or the Exchange Indenture, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In the case of the Credit Facility, if the Company were unable to repay those amounts, the lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. Such collateral is comprised of substantially all of the tangible and intangible assets of the Company, including the capital stock and membership interests of its subsidiary stock.

The Company believes that, in order to achieve its long-term expansion objectives and maintain and enhance its competitive position, it will need significant financial resources over the next several years for capital expenditures, including investments in manufacturing capabilities and management information systems, working capital and debt service. The Company has added significant manufacturing capacity and increased capital expenditures since 1995. More recently, the Company completed a significant expansion of the Penang, Malaysia operations (September 1999) and leased a new facility in Monterrey, Mexico (October 1999). The Company anticipates that its level of capital expenditures in fiscal 2000 will decline substantially from fiscal 1999. The Company intends to re-deploy certain of its equipment from the North American and/or Belgium operations to Malaysia and Mexico. As overall expansion continues, the Company will focus its capital expeditures on the equipment necessary to support new product production, and the technologies and/or equipment necessary to increase the performance and the cost efficiency of its manufacturing operations. The precise amount and timing of the Company's future funding needs cannot be determined at this time and will depend upon a number of factors, including the demand for the Company's services and the Company's management of its working capital. The Company may not be able to obtain additional financing on acceptable terms or at all. If the Company is unable to obtain sufficient capital, it could be required to reduce or delay its capital expenditures and facilities expansion, which could materially adversely affect the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."

At any given time, certain customers may account for significant portions of the Company's net sales. For fiscal 1999, approximately 83% of net sales were derived from networking and telecommunications customers. For fiscal 1999, the Company's ten largest customers accounted for approximately 86.2% of net sales. The Company's top two customers accounted for approximately 43.5% and 18.2% of net sales for fiscal 1999. In addition, the Company has another major customer that operates under a consignment manufacturing model and, while sales are less than 10% of total revenue, the customer makes an important contribution to the Company's overall financial performance. Decreases in sales to or margins with these or any other key customers could have a material adverse effect on the Company's business, financial condition and results of operations.

During the fourth quarter of fiscal 1999, the Company and Fore Systems reached a decision to reduce the scope of their relationship. The Company will continue to provide manufacturing services to support certain more mature programs, but transition support of certain other programs. While the timing and financial impact of such transition is not yet certain, the Company anticipates that it may experience a negative impact to its profitability if and to the extent it is unable to replace this business in a timely manner.

The Company expects to continue to depend upon a relatively small number of customers for a significant percentage of its net sales. There can be no assurance that the Company's principal customers will continue to purchase services at current levels, if at all. The percentage of the Company's sales to such major customers may fluctuate from period-to-period. Significant reductions in sales to any of the Company's major customers as well as period-to-period fluctuations in sales and changes in product mix ordered by such customers could have a material adverse effect on the Company's business, financial condition and results of operations.

In addition, the Company is dependent upon the continued growth, viability and financial stability of its OEM customers, which are in turn substantially dependent on the growth of the networking, telecommunications, computer systems and other industries. These industries are subject to rapid technological change, product obsolescence and price competition. In addition, many of the Company's customers in these industries are affected by general economic conditions. These and other competitive factors affecting the networking, telecommunications and computer system industries in general, and the Company's OEM customers in particular, could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, any further volatility in the market for DRAM components could have a material adverse effect on MTI, which has historically been one of the Company's major customers, and consequently the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations."

The Company's results of operations may be affected by a number of factors including economic conditions, price competition, the level of volume and the timing of customer orders, product mix, management of manufacturing processes, materials procurement and inventory management, fixed asset utilization, foreign currency fluctuations, the level of experience in manufacturing a particular product, customer product delivery requirements, availability and pricing of components, availability of experienced labor, the integration of acquired businesses, start-up costs associated with adding new geographical locations, research and development costs, and failure to introduce, or lack of market acceptance, new processes, services, technologies and products. In addition, the level of net sales and gross margin can greatly shift based on whether certain projects are contracted on a turnkey basis where the Company purchases materials, versus on a consignment basis, where materials are provided by the customer (turnkey manufacturing tends to result in higher net sales and lower gross margins than consignment manufacturing). An adverse change in one or more of these factors could have a material adverse effect on the Company's business, financial condition and results of operations.

In addition, customer orders can be canceled and volume levels can be changed or delayed. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have reduced or delayed the volume of design and manufacturing services performed by the Company. Resolving customer obligations due to program or relationship termination and the replacement of canceled, delayed or reduced contracts with new business cannot be assured. Termination of a manufacturing relationship or changes, reductions or delays in orders could have a material adverse effect on the Company's business, financial condition and results of operations. See "Certain Factors - Customer Concentration; Dependence on Certain Industries."

In September 1999, the Company completed a significant expansion of the Penang, Malaysia operations and leased a facility in Monterrey, Mexico. Continued expansion has caused, and will continue to cause, strain on the Company's infrastructure, including its managerial, technical, financial, information systems and other resources. To manage further growth, the Company must continue to enhance financial and operational controls, develop or hire additional executive officers and other qualified personnel. Continued growth will also require increased investments to add manufacturing capacity and to enhance management information systems. See "Certain Factors--Baan Implementation." There can be no assurance that the Company will be able to scale its internal infrastructure and other resources to effectively manage growth and the failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations.

The markets served by the Company are characterized by short product life cycles and rapid technology changes. The Company's ability to successfully support new product introductions is critical to the Company's customers. New product introductions have caused, and are expected to continue to cause, certain inefficiencies and strain on the Company's resources. Any such inefficiencies could have a material adverse effect on the Company's business, financial condition and results of operations.

New operations, whether foreign or domestic, can require significant start-up costs and capital expenditures. In the event that the Company continues to expand its domestic or international operations, there can be no assurance that the Company will be successful in generating revenue to recover start-up and operating costs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations."

The Company's continued success depends to a large extent upon the efforts and abilities of key managerial and technical employees. The Company's business will also depend upon its ability to continue to attract and retain qualified employees. Although the Company has been successful in attracting and retaining key managerial and technical employees to date, the loss of services of certain key employees or the Company's failure to continue to attract and retain other key managerial and technical employees could have a material adverse effect on the Company's business, financial condition and results of operations.

The electronics manufacturing services industry is intensely competitive and subject to rapid change, and includes numerous regional, national and international companies, a number of which have greater revenue than the Company. The Company believes that the primary competitive factors in its targeted markets are manufacturing technology, product quality, responsiveness and flexibility, consistency of performance, range of services provided, the location of facilities and price. To be competitive, the Company must provide technologically advanced manufacturing services, high quality products, flexible production schedules and reliable delivery of finished products on a timely and price competitive basis. Failure to satisfy any of the foregoing requirements could materially and adversely affect the Company's competitive position. The Company competes directly with a number of EMS firms, including Celestica International Holdings Inc., Flextronics International, Ltd., Jabil Circuits, Inc., SCI Systems, Inc., Sanmina Corporation, and Solectron Corporation. The Company also faces indirect competition from the captive manufacturing operations of its current and prospective customers, which continually evaluate the merits of manufacturing products internally rather than using the services of EMS providers. Many of the Company's competitors have more geographically diversified manufacturing facilities, international procurement capabilities, research and development and capital and marketing resources than the Company. In addition, the Company may be at a competitive disadvantage because some of the Company's competitors are less financially leveraged, resulting in, among other things, greater operational and financial flexibility for such competitors. See "Certain Factors--High Level of Indebtedness; Ability to Service Indebtedness and Satisfy Preferred Stock Dividend Requirements." In recent years, the EMS industry has attracted new entrants, including large OEMs with excess manufacturing capacity, and many existing participants have substantially expanded their manufacturing capacity by expanding their facilities through both internal expansion and acquisitions. In the event of a decrease in overall demand for EMS services, this increased capacity could result in substantial pricing pressures, which could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company's international operations are based in Belgium and Malaysia. Commencing in early calendar year 2000, the Company will also have operations in Mexico. The functional currencies of the Company's international operations are the Belgian Franc and the Malaysian Ringgit. The Company's financial performance may be adversely impacted by changes in exchange rates between these currencies and the U.S. dollar. Fixed assets for the Belgian and Malaysian operations are denominated in each entity's functional currency and translation gains or losses will occur as the exchange rate between the local functional currency and the U.S. dollar fluctuates on each balance sheet reporting date The Company's cumulative translation losses as of September 2, 1999, were $0.0 million and $2.2 million for the Belgian and Malaysian operations, respectively. The Company's investment in Malaysia is long-term in nature and, therefore, the translations adjustments are shown as a separate component of shareholders' equity and do not effect the Company's net income. An additional risk is that certain working capital accounts such as accounts receivable and accounts payable are denominated in currencies other than the functional currency and may give rise to exchange gains or losses upon settlement or at the end of any financial reporting period. Sales in currencies other than the functional currency were approximately 1.4% and 6.1% of consolidated sales for the fiscal year ended September 2, 1999 for Belgium and Malaysia, respectively. The Company's transaction losses for the fiscal year ended September 2, 1999 were $0.5 million for the Belgian operations. There were no transaction gains or losses for the Malaysian operation in fiscal 1999. In fiscal 1998, the exchange rate between the Malaysian Ringgit and U.S. dollar had been extremely volatile. In September 1998, the Malaysian government imposed currency control measures which, among other things, fixed the exchange rate between the United States dollar and the Malaysian Ringgit. The Company attempts to minimize the impact of exchange rate volatility by entering into U.S. dollar denominated transactions whenever possible for purchases of raw materials and capital equipment and by keeping minimal cash balances of foreign currencies. Direct labor, manufacturing overhead, and selling, general and administrative costs of the international operations are also denominated in the local currencies. Transaction losses are reflected in the Company's net income. As exchange rates fluctuate, the Company will continue to experience translation and transaction adjustments related to its investments in Belgium and Malaysia which could have a material and adverse effect on the Company's business, financial condition and results of operations.

The Company is subject to a variety of environmental laws and regulations governing, among other things, air emissions, waste water discharge, waste storage, treatment and disposal, and remediation of releases of hazardous materials. While the Company believes that it is currently in material compliance with all such environmental requirements, any failure to comply with present and future requirements could have a material adverse effect on the Company's business, financial conditions and results of operations. Such requirements could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The imposition of additional or more stringent environmental requirements, the results of future testing at the Company's facilities, or a determination that the Company is potentially responsible for remediation at other sites where problems are not presently known, could result in expenditures in excess of amounts currently estimated to be required for such matters.

Upon consummation of the Recapitalization, Cornerstone and certain other investors beneficially owned in the aggregate approximately 90.0% of the outstanding capital stock (other than the Redeemable Preferred Stock) of the Company. As a result, although no single investor has more than 49.0% of the voting power of the Company's outstanding securities or the ability to appoint a majority of the directors, the aggregate votes of these investors could determine the composition of a majority of the board of directors and, therefore, influence the management and policies of the Company.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued Statement of Accounting Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." See Note 1 of Notes to Consolidated Financial Statements included in "Item 8 -- Financial Statements and Supplementary Data."

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." See Note 1 of Notes to Consolidated Financial Statements included in "Item 8 -- Financial Statements and Supplementary Data."

The Company has $145 million in Fixed Rate Notes and $30 million in Floating Rate Notes. The Company's Floating Rate Notes and Credit Facility are floating interest rate borrowings and are subject to periodic adjustments. As interest rates fluctuate the Company may experience interest expense increases that may materially impact financial results. For example, if interest rates were to increase or decrease by 1% the result would be an annual increase or decrease of $300,000 to interest expense, with respect to the Floating Rate Notes.

The Company uses the U.S. dollar as its functional currency, except for its operations in Belgium and Malaysia. The Company has evaluated the potential costs and benefits of hedging potential adverse changes in the exchange rates between U.S. dollar, Belgian Franc and Malaysian Ringgit. Currently, the Company does not enter into derivative financial instruments because a substantial portion of the Company's sales in these foreign operations are in U.S dollar. The assets and liabilities of the these two operations are translated into U.S. dollars at an exchange rates in effect at the period end date. Income and expense items are translated at the year-to-date average rate. Aggregate transaction gains or losses included in net income have not been material.

MCMS, Inc.

We have audited the accompanying consolidated balance sheets of MCMS, Inc. and subsidiaries as of September 2, 1999 and September 3, 1998, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule as listed in the accompanying index as of and for the years ended September 2, 1999 and September 3, 1998. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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 referred to above present fairly, in all material respects, the financial position of MCMS, Inc. and subsidiaries as of September 2, 1999 and September 3, 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

KPMG LLP

Denver, Colorado
October 15, 1999

The Shareholder and Board of Directors
Micron Custom Manufacturing Services, Inc.

We have audited the accompanying consolidated statements of operations, shareholder's equity and cash flows of Micron Custom Manufacturing Services, Inc. and its subsidiaries for the year ended August 28, 1997, which financial statements are included in the accompanying index. We have also audited the financial statement schedule listed in the accompanying index for the year ended August 28, 1997. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We have not audited the consolidated financial statements of Micron Custom Manufacturing Services, Inc. and its subsidiaries for any period subsequent to August 28, 1997.

We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Micron Custom Manufacturing Services, Inc., and its subsidiaries for the year ended August 28, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.

Coopers & Lybrand L.L.P.

Boise, Idaho
October 29, 1997

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.