FLEXTRONICS INTERNATIONAL LTD, 10-Q, 2000-08-14

FLEXTRONICS INTERNATIONAL LTD
10-Q, 2000-08-14
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<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2000

[ ] 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: 0-23354

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

SINGAPORE NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

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

MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
11 UBI ROAD 1 #07-01/02
MEIBAN INDUSTRIAL BUILDING
SINGAPORE 408723
(65) 844-3366
(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 [ ]

At August 5, 2000, there were 200,135,541 Ordinary Shares, S$0.01 par
value, outstanding.

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<PAGE> 2

FLEXTRONICS INTERNATIONAL LIMITED
INDEX

PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Page
-----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000 and March 31, 2000 .......... 3
Condensed Consolidated Statements of Operations - Three Months Ended June 30,
2000 and June 25, 1999 ........................................................... 4
Condensed Consolidated Statements of Cash Flows - Three Months Ended June 30,
2000 and June 25, 1999 ........................................................... 5
Notes to Condensed Consolidated Financial Statements .............................. 6-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................ 13-23

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K ......................................................... 24

Signatures .............................................................................. 25
</TABLE>

2
<PAGE> 3

ITEM 1. FINANCIAL STATEMENTS

FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................. $ 769,483 $ 725,647
Accounts receivable, net ................................... 1,057,828 861,764
Inventories ................................................ 1,415,268 992,711
Deferred income taxes and other current assets ............. 289,680 255,379
----------- ----------
Total current assets ............................... 3,532,259 2,835,501

Property and equipment, net ................................ 1,239,396 1,095,485
Other non-current assets ................................... 438,893 394,999
----------- ----------
Total assets ...................................... $ 5,210,548 $4,325,985
=========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion of long-term debt ...... $ 184,951 $ 380,003
Current portion of capital lease obligations ............... 17,039 16,528
Accounts payable and accrued liabilities ................... 1,268,785 1,033,100
Other current liabilities .................................. 348,022 256,376
----------- ----------
Total current liabilities .......................... 1,818,797 1,686,007
----------- ----------

Long-term debt, net of current portion ....................... 835,633 343,509
Capital lease obligations, net of current portion ............ 32,047 36,095
Other long-term liabilities .................................. 44,193 36,554
Minority interest ............................................ 11,686 9,747
----------- ----------
Total long-term liabilities ........................ 923,559 425,905
----------- ----------

Shareholders' Equity:
Ordinary Shares ............................................ 1,512 1,473
Additional paid-in capital ................................. 2,516,700 1,827,651
Retained (deficit) earnings ................................ (23,787) 375,722
Accumulated other comprehensive income (loss) .............. (26,233) 9,227
----------- ----------
Total shareholders' equity ......................... 2,468,192 2,214,073
----------- ----------
Total liabilities and shareholders' equity ......... $ 5,210,548 $4,325,985
=========== ==========
</TABLE>

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

3
<PAGE> 4

FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Three months ended
--------------------------
June 30, June 25,
2000 1999
----------- --------

<S> <C> <C>
Net .............................................. $ 2,285,732 $956,367
sales
Cost of sales .................................... 2,116,467 861,023
Unusual charges .................................. 83,721 --
----------- --------
Gross margin .............................. 85,544 95,344
----------- --------
Selling, general and administrative .............. 72,145 50,549
Goodwill and intangibles amortization ............ 4,930 2,919
Unusual charges .................................. 409,383 --
Interest and other (income) expense, net ......... (12,288) 9,516
----------- --------
Income (loss) before income taxes ......... (388,626) 32,360

Provision for (benefit from) income taxes ........ (19,563) 4,358
----------- --------
Net income (loss) ......................... $ (369,063) $ 28,002
=========== ========
Earnings (loss) per share:
Basic .......................................... $ (1.92) $ .19
Diluted ........................................ $ (1.92) $ .18

Shares used in computing per share amounts:
Basic .......................................... 191,938 148,966
Diluted ........................................ 191,938 162,366
</TABLE>

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

4
<PAGE> 5

FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Three months ended
-------------------------
June 30, June 25,
2000 1999
--------- ---------

<S> <C> <C>
Net cash (used in)provided by operating activities ................. $(325,578) $ 6,420
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment ....................... (193,498) (67,988)
Proceeds from sales of property, plant and equipment ............. 10,839 9,195
Proceeds from sale of investments and certain subsidiaries ....... 32,900 12,000
Payments for business acquisitions, net of cash acquired ......... (28,838) (24,524)
Investments in minority owned entities ........................... -- (20,510)
Other ............................................................ -- (4,796)
--------- ---------
Net cash used in investing activities .............................. (178,597) (96,623)
--------- ---------
Cash flows from financing activities:
Short-term credit facility repayments ............................ (134,717) --
Repayments of capital lease obligations .......................... (5,158) (7,023)
Repayments of long-term debt ..................................... (281,649) (18,527)
Bank borrowings and proceeds from long-term debt ................. 639,416 61,691
Proceeds from stock issued under stock plans ..................... 13,473 2,961
Net proceeds from sale of ordinary shares ........................ 375,920 --
Other ............................................................ -- 383
--------- ---------
Net cash provided by financing activities .......................... 607,285 39,485
--------- ---------
Effect on cash from:
Exchange rate changes on cash .................................... (3,301) (12,388)
Adjustment to conform fiscal year of pooled entities ............. (55,973) --
--------- ---------
Net increase (decrease) in cash and cash equivalents ............... 43,836 (63,106)
Cash and cash equivalents at beginning of period ................... 725,647 275,926
--------- ---------
Cash and cash equivalents at end of period ......................... $ 769,483 $ 212,820
========= =========
</TABLE>

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

5
<PAGE> 6

FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(unaudited)

Note A - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the instructions to
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements, and should be read in conjunction with the
Company's annual audited consolidated financial statements as of and for the
fiscal year ended March 31, 2000 contained in the Company's fiscal 2000 annual
report on Form 10-K and the Company's current report on Form 8-K dated June 12,
2000. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending March 31, 2001.

In April 2000, Flextronics acquired 100% of the outstanding shares of
The DII Group, Inc. ("DII") and Palo Alto Products International Pte. Ltd.
("Palo Alto Products International"). Both acquisitions were accounted for as
pooling-of-interests and the consolidated financial statements have been
prepared to give retroactive effect to the mergers.

DII is a leading provider of electronics manufacturing and design
services, operating through a global operations network in the Americas,
Asia/Pacific and Europe. As a result of the merger, the Company issued
62,768,139 ordinary shares for all of the outstanding shares of DII common
stock, based upon the exchange ratio of 1.61 Flextronics ordinary shares for
each share of DII common stock. DII operated under a calendar year end prior to
merging with Flextronics and, accordingly, DII's balance sheets, statements of
operations, shareholders' equity and cash flows as of December 31, 1998 and 1999
and for each of the three years ended December 31, 1999 have been combined with
the Company's consolidated financial statements as of March 31, 1999 and 2000
and for each of the three fiscal years ended March 31, 2000. Starting in fiscal
2001, DII changed its year end from December 31 to March 31 to conform to the
Company's fiscal year end. Accordingly, DII's operations for the three months
ended March 31, 2000 have been excluded from the consolidated results of
operations for fiscal 2001 and reported as an adjustment to retained earnings in
the first quarter of fiscal 2001.

Palo Alto Products International is an enclosure design and plastic
molding company with operations in Taiwan, Thailand and the United States. The
Company merged with Palo Alto Products International by exchanging 3,618,374
ordinary shares of Flextronics for all of the outstanding shares of Palo Alto
Products International common stock. Palo Alto Products International operated
under the same fiscal year end as Flextronics, and accordingly, Palo Alto
Products International's balance sheets, statements of operations, shareholders'
equity and cash flows have been combined with the Company's consolidated
financial statements as of March 31, 1999 and 2000 and for each of the fiscal
years ended March 31, 2000.

A reconciliation of results of operations previously reported by the
separate companies for the three months ended June 25, 1999 to the results in
this Form 10-Q is as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Net revenues:
As previously reported $ 685,641
DII 247,468
Palo Alto Products International 23,588
Intercompany elimination (330)
---------
As restated $ 956,367
=========
Net income :
As previously reported $18,854
DII 8,883
Palo Alto Products International 265
---------
As restated $28,002
=========
</TABLE>

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<PAGE> 7

Note B - INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---------- --------
<S> <C> <C>
Raw materials ................ $1,065,065 $747,822
Work-in-process .............. 217,058 160,171
Finished goods ............... 133,145 84,718
---------- --------
$1,415,268 $992,711
========== ========
</TABLE>

Note C - UNUSUAL CHARGES

During the first quarter of fiscal 2001, the Company recognized unusual
pre-tax charges of $493.1 million. These unusual charges were comprised of
approximately $286.5 million related to the issuance of an equity instrument to
Motorola combined with approximately $206.6 million of expenses resulting from
the DII and Palo Alto Products International business combinations.

On May 30, 2000, the Company entered into a strategic alliance for
product manufacturing with Motorola. See Note I for further information
concerning the strategic alliance. In connection with this strategic alliance,
Motorola will pay $100.0 million for an equity instrument that entitles it to
acquire 11,000,000 Flextronics ordinary shares at any time through December 31,
2005, upon meeting targeted purchase levels or making additional payments to the
Company. The issuance of this equity instrument resulted in a one-time non-cash
charge equal to the excess of the fair value of the equity instrument issued
over the $100.0 million proceeds to be received. As a result, the one-time
non-cash charge amounted to approximately $286.5 million offset by a
corresponding credit to additional paid-in capital in the first quarter of
fiscal 2001.

In connection with the DII and Palo Alto Products International mergers,
the Company recorded aggregate merger-related charges of $206.6 million, which
included approximately $133.3 million of integration expenses and approximately
$73.3 million of direct transaction costs. As discussed below, $83.7 million of
the unusual charges relating to integration expenses have been classified as a
component of Cost of Sales. The components of the merger-related unusual charges
recorded are as follows (in thousands):

<TABLE>
<CAPTION>
NATURE OF
AMOUNT CHARGE
-------- ------------
<S> <C> <C>
Integration Costs:
Severance $ 62,487 cash
Long-lived asset impairment 46,646 non-cash
Inventory write-downs 11,863 non-cash
Other exit costs 12,338 cash/non-cash
--------
Total Integration Costs 133,334

Direct Transaction Costs:
Professional fees 50,851 cash
Other costs 22,382 cash/non-cash
--------
Total Direct Transaction Costs 73,233
--------
Total merger-related unusual pre-tax charges $206,567
========
</TABLE>

As a result of the consummation of the DII and Palo Alto Products
International business combinations, the Company developed formal plans to exit
certain activities and involuntarily terminate employees. Management's plan to
exit an activity included the identification of duplicate manufacturing and
administrative facilities for closure and the identification of manufacturing
and administrative facilities for consolidation into other facilities.
Management currently anticipates that the integration costs and activities to
which all of these charges relate will be substantially completed within fiscal
2001, except for certain long-term contractual obligations. The following table
summarizes the components of the integration costs and activity related to the
first quarter of fiscal 2001:

7
<PAGE> 8

<TABLE>
<CAPTION>
Long-Lived Other
Asset Exit
Severance Impairment Inventory Costs Total
--------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 ........ $ -- $ -- $ -- $ -- $ --
Activities during the year:
2001 provision ................. 62,487 46,646 11,863 12,338 133,334
Cash charges ................... (35,800) -- -- (4,753) (40,553)
Non-cash charges ............... -- (46,646) (4,315) -- (50,961)
-------- -------- -------- -------- ---------
Balance at June 30, 2000 ......... $ 26,687 $ -- $ 7,548 $ 7,585 $ 41,820
======== ======== ======== ======== =========
</TABLE>

Of the total pre-tax integration charges, $62.5 million relates to
employee termination costs, of which, $12.9 million have been classified as a
component of Cost of Sales. As of June 30, 2000, approximately 1,052 people have
been terminated, and approximately another 940 people have been notified that
they are to be terminated upon completion of the various facility closures and
consolidations. The Company paid approximately $35.8 million of employee
termination costs during the first quarter of fiscal 2001. The remaining $26.7
million of employee termination costs is classified as accrued liabilities as of
June 30, 2000 and is expected to be paid out by the end of fiscal 2001.

The unusual pre-tax charges include $46.6 million for the write-down of
long-lived assets to fair value. This amount has been classified as a component
of Cost of Sales. Included in the long-lived asset impairment are charges of
$43.7 million, which relate to property, plant and equipment associated with the
various manufacturing and administrative facility closures which were written
down to their net realizable value based on their estimated sales price. Certain
facilities will remain in service until their anticipated disposal date in the
latter part of the second quarter of fiscal 2001. Since the assets will remain
in service from the date of the decision to dispose of these assets to the
anticipated disposal date, the remaining net book value of the assets will be
depreciated over this period. The impaired long-lived assets consisted primarily
of machinery and equipment and building and improvements of $41.0 million and
$2.7 million, respectively. The long-lived asset impairment also includes the
write-off of the remaining goodwill and other intangibles related to certain
closed facilities of $2.9 million.

The unusual pre-tax charges also include approximately $24.2 million for
losses on inventory write-downs and other exit costs which resulted from the
integration plans, which have been classified as a component of Cost of Sales.
The Company has written off and disposed of approximately $4.3 million of
inventory. The remaining $7.5 million of inventory write-downs was accrued for
and classified as inventory reserve as of June 30, 2000 and is expected to be
utilized by the end of fiscal 2001. The $12.3 million of other exit costs
relates primarily to items such as lease termination costs, incremental amounts
of uncollectible accounts receivable, legal and other exit costs, incurred
directly as a result of the exit plan. The Company paid approximately $4.8
million of the other exit costs during the first quarter of fiscal 2001. The
remaining $7.6 million is classified in accrued liabilities as of June 30, 2000
and is expected to be paid out by the end of the second quarter of fiscal 2001,
except for certain long-term contractual obligations.

The direct transaction costs include approximately $50.9 million of
costs primarily related to investment banking and financial advisory fees as
well as legal and accounting costs associated with the transactions. Other
direct transaction costs which totaled approximately $22.4 million was mainly
comprised of $8.9 million of accelerated debt prepayment expense, $6.3 million
of accelerated executive stock compensation and $7.2 million of other
merger-related costs. The Company paid approximately $70.2 million of the direct
transaction costs during the first quarter of fiscal 2001. The remaining $3.1
million is classified in accrued liabilities as of June 30, 2000 and is expected
to be substantially paid out by the end of the second quarter of fiscal 2001.

Note D - EARNINGS PER SHARE

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. Earnings per share data were computed as follows for the
three month periods ended June 30, 2000 and June 25, 1999:

8
<PAGE> 9

<TABLE>
<CAPTION>
Three Months Ended
------------------------
June 30, June 25,
2000 1999
--------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
BASIC EPS:
Net income (loss) ........................................ $(369,063) $ 28,002
Shares used in computation: .............................. -- --
Weighted-average ordinary shares outstanding(1) .......... 191,938 148,966
========= ========
Basic EPS ................................................ $ (1.92) $ 0.19
========= ========
DILUTED EPS:
Net income (loss) ........................................ $(369,063) $ 28,002
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible
subordinated notes .................................... -- 400
Amortization (net of tax) of debt issuance cost on
Convertible subordinated notes ........................ -- 33
--------- --------
Net income available to shareholders ................... $(369,063) $ 28,435

SHARES USED IN COMPUTATION:
Weighted-average ordinary shares outstanding ............. 191,938 148,966
Shares applicable to exercise of dilutive options(2) ..... -- 10,190
Shares applicable to deferred stock compensation ......... -- 293
Shares applicable to convertible subordinated notes ...... -- 2,917
--------- --------
Shares applicable to diluted earnings .................. 191,938 162,366
========= ========
Diluted EPS .............................................. $ (1.92) $ 0.18
========= ========
</TABLE>

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

(2) Stock options of the Company calculated based on the treasury stock
method using average market price for the period, if dilutive. The
ordinary share equivalents from stock options were antidilutive for the
three months ended June 30, 2000, and therefore not assumed to be
converted for diluted earnings per share computations. Options to
purchase 271,194 weighted shares outstanding during the three month
period ended June 25, 1999 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.

Note E - COMPREHENSIVE INCOME (in thousands)

<TABLE>
<CAPTION>
Three months ended
------------------------
June 30, June 25,
2000 1999
---------- ---------
<S> <C> <C>
Net income (loss) .................................. $(369,063) $ 28,002
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments ......... (4,559) (4,961)
Unrealized holding gain on available-for-sale
securities ..................................... 959 --
--------- --------
Comprehensive income (loss) ........................ $(372,663) $ 23,041
========= ========
</TABLE>

Note F - SEGMENT REPORTING

The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131") during the fourth quarter
of fiscal 1999. SFAS No. 131 establishes standards for reporting information
about operating segments in financial 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 in
assessing performance. Mr. Michael Marks, Chairman of the Board and Chief
Executive Officer, is the Company's chief decision maker. The Company operates

9
<PAGE> 10

and is managed internally by four geographic business segments. The operating
segments include Asia, Americas, Western Europe, and Central Europe. Each
operating segment has a regional president who reports to Mr. Marks.

Information about segments was as follows (in thousands):

<TABLE>
<CAPTION>
Three months ended
----------------------------
June 30, June 25,
2000 1999
----------- ---------
<S> <C> <C>
Net Sales :
Asia .............................. $ 381,892 $ 165,572
Americas .......................... 1,046,681 442,007
Western Europe .................... 452,714 192,115
Central Europe .................... 448,805 165,718
Intercompany eliminations ......... (44,360) (9,045)
----------- ---------
$ 2,285,732 $ 956,367
=========== =========
Income (Loss) before Income Tax :
Asia .............................. $ 22,715 $ 13,954
Americas .......................... 30,247 3,548
Western Europe .................... 2,808 5,655
Central Europe .................... 9,250 6,565
Intercompany eliminations,
corporate allocations and
unusual charges ................... (453,646) 2,638
----------- ---------
$ (388,626) $ 32,360
=========== =========
</TABLE>

<TABLE>
<CAPTION>
As of As of
June 30, March 31,
2000 2000
---------- ----------
<S> <C> <C>
Long-lived assets :
Asia ................. $ 288,845 $ 343,843
Americas ............. 509,429 539,288
Western Europe ....... 229,783 182,165
Central Europe ....... 211,339 166,656
---------- ----------
$1,239,396 $1,231,952
========== ==========
</TABLE>

For purposes of the preceding tables, "Asia" includes China, Malaysia,
Singapore, Thailand and Taiwan, "Americas" includes the U.S., Mexico, and
Brazil, "Western Europe" includes Denmark, Germany, Sweden, Switzerland, Norway,
Finland, France, Scotland and United Kingdom, and "Central Europe" includes
Austria, Czech Republic, Hungary, Ireland, and Italy.

Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income before income tax is net sales less operating
expenses, interest or other expenses, but prior to income taxes.

Note G - EQUITY OFFERING

In June 2000, the Company completed an equity offering of 5.5 million
Ordinary Shares at $71.25 per share with net proceeds of $375.9 million. The
Company used the net proceeds from the offering to fund the further expansion of
its business including additional working capital and capital expenditures, and
for other general corporate purposes. The Company may also use a portion of the
net proceeds for strategic acquisitions or investments.

Note H - SENIOR SUBORDINATED NOTES

In June 2000, the Company issued approximately $645.0 million of senior
subordinated notes, consisting of $500.0 million of 9.875% notes and euros 150.0
million of 9.75%. Interest is payable on July 1 and January 1 of each year,
commencing January 1, 2001. The notes mature on July 1, 2010. The Company may
redeem

10
<PAGE> 11
the notes on or after July 1, 2005. The indenture contains certain covenants
that, among other things, limit the ability of the Company and certain of its
subsidiaries to (i) incur additional debt, (ii) issue or sell stock of certain
subsidiaries, (iii) engage in asset sales, (iv) incur layered debt, (v) create
liens on its properties and assets, and (vi) make distributions or pay
dividends. The covenants are subject to a number of significant exceptions and
limitations.

Note I - STRATEGIC ALLIANCE

On May 30, 2000, the Company entered into a strategic alliance for
product manufacturing with Motorola. This alliance provides incentives for
Motorola to purchase approximately $32.0 billion of products and services from
us through December 31, 2005. The relationship is not exclusive and does not
require that Motorola purchase any specific volumes of products or services from
the Company. The Company's ability to achieve any of the anticipated benefits of
this relationship is subject to a number of risks, including its ability to
provide services on a competitive basis and to expand manufacturing resources,
as well as demand for Motorola's products. In connection with this strategic
alliance, Motorola will pay $100.0 million for an equity instrument that
entitles it to acquire 11,000,000 Flextronics ordinary shares at any time
through December 31, 2005 upon meeting targeted purchase levels or making
additional payments to the Company. The issuance of this equity instrument
resulted in a one-time non-cash charge equal to the excess of the fair value of
the equity instrument issued over the $100.0 million proceeds to be received. As
a result, the one-time non-cash charge amounted to approximately $286.5 million
offset by a corresponding credit to additional paid-in capital in the first
quarter of fiscal 2001. During the term of the strategic alliance, if Motorola
meets targeted purchase levels, no additional payments may be required by
Motorola to acquire 11,000,000 Flextronics ordinary shares. However, there may
be additional non-cash charges of up to $300.0 million over the term of the
strategic alliance.

Note J - NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133") which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts and for hedging activities.
It requires that companies recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company expects to adopt SFAS No. 133 in the fourth quarter
of fiscal 2001 and anticipates that SFAS No. 133 will not have a material impact
on its consolidated financial statements.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the fourth quarter of fiscal 2001 and
anticipates that SAB 101 will not have a material impact on its consolidated
financial statements.

Note K - SUBSEQUENT EVENTS

On July 17, 2000, the Company completed an equity offering of 825,000
Ordinary Shares at $71.25 per share with net proceeds of $56.3 million, which
represents the overallotment option on the equity offering completed in June
2000. The Company intends to use the net proceeds from the offering to fund
working capital requirements and capital expenditures, and for other general
corporate purposes. The Company may also use a portion of the net proceeds for
strategic acquisitions or investments.

On July 26, 2000, the Company announced a two-for-one stock split of its
Ordinary Shares, to be effected in the form of a bonus issue (equivalent to a
stock dividend), payable to the Company's shareholders of record as of September
22, 2000. The Company's shareholders of record at the close of business on
September 22, 2000 will receive certificates representing one additional share
for every one share held at that time. Distribution of the additional shares is
expected to occur on or about October 16, 2000.

On July 31, 2000, the Company announced the signing of definitive merger
agreement to acquire Chatham Technologies, an enclosure company primarily for
the telecommunications industry. Chatham Technologies is a leading global
provider of integrated electronics packaging systems, with operations in Brazil,
China, France, Mexico, Spain, Sweden and the United States. The merger agreement
provides that the Company will issue a total of approximately 8.33 million
ordinary shares in exchange for all of Chatham's outstanding stock, warrants and
options. This merger is expected to be completed by the end of August 2000.
Completion of the transaction is subject to applicable government approvals and
various conditions of closing. The transaction is intended to be accounted for
as a pooling-of-interests.

11
<PAGE> 12
On August 10, 2000 the Company announced the signing of a definitive
merger agreement to acquire JIT Holdings Ltd., a global provider of electronics
manufacturing and design services with operations in Singapore, China, Malaysia,
Hungary and Indonesia. Under the terms of the merger, Flextronics will issue
ordinary shares having a total value of approximately $640 million in exchange
for all of the outstanding ordinary shares and options of JIT. The number of
Flextronics shares to be issued is subject to a collar, so that the Flextronics
shares to be issued cannot exceed approximately 9.85 million shares or be less
than approximately 7.27 million shares. Based on Flextronics closing price of
$77.375 on August 9, 2000, Flextronics would issue approximately 8.27 million
shares of its stock. This merger is intended to be accounted for as a
pooling-of-interests and is subject to certain closing conditions, including
approval by JIT shareholders. The Company anticipates that the transaction will
be completed at the end of November.

12
<PAGE> 13

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

Except for historical information contained herein, the matters
discussed in this Form 10-Q 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. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The Company undertakes
no obligation to publicly disclose any revisions to these forward-looking
statements to reflect events or circumstances occurring subsequent to filing
this Form 10-Q with the Securities and Exchange Commission. These
forward-looking statements are subject to certain risks and uncertainties,
including, without limitation, those discussed in "Item 2-Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Operating Results." Accordingly, our
future results may differ materially from historical results or from those
discussed or implied by these forward-looking statements.

Acquisition, Purchases of Facilities and Other Strategic Transactions

We have actively pursued mergers and other business acquisitions to
expand our global reach, manufacturing capacity and service offerings and to
diversify and strengthen customer relationships. We have completed several
significant business combinations since the end of fiscal 2000. In April 2000,
we acquired all of the outstanding shares of DII and Palo Alto Products
International. Each of these acquisitions was accounted for as pooling of
interests and our consolidated financial statements have been restated to
reflect the combined operations of the merged companies for all periods
presented.

Additionally, we have completed a number of other smaller
pooling-of-interests transactions. Prior period statements have not been
restated for these transactions. We have also made a number of purchase
acquisitions of other companies and manufacturing facilities. Our consolidated
financial statements include the operating results of each business from the
date of acquisition. Pro forma results of operations have not been presented
because the effects of these acquisitions were not material on either an
individual or an aggregate basis.

We have completed the following business combinations in the first
quarter of fiscal 2001:

<TABLE>
<CAPTION>
Date Acquired Company Nature of Business Consideration Location(s)
--------- ------------------- --------------------- -------------- -----------
<S> <C> <C> <C> <C>
June 2000 Electronics, S.A. de C.V. Manufactures PCB's $8.9 million cash Mexico

June 2000 Uniskor, Ltd Provides electronics $20.0 million cash Israel
manufacturing services

May 2000 Sample Rate Systems Oyj Provides electronics 88,657 ordinary Finland
manufacturing services shares

May 2000 San Marco Engineering Srl Provides electronics 275,000 ordinary Italy
manufacturing services shares

April 2000 Palo Alto Products Provides industrial and 3,618,374 ordinary Taiwan
International Pte. Ltd. electronics manufacturing shares Thailand
design services California
Texas
</TABLE>

13
<PAGE> 14

<TABLE>
<CAPTION>
Date Acquired Company Nature of Business Consideration Location(s)
--------- ------------------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
April 2000 The DII Group, Inc. Provides 62,768,139 California
electronics ordinary Florida
manufacturing shares Texas
services Minnesota
New York
Colorado
China
Malaysia
Singapore
Austria
Czech Republic
Germany
Ireland
Mexico
Brazil
</TABLE>

Acquisitions of Manufacturing Facilities

We have purchased a number of manufacturing facilities and related
assets from customers and simultaneously entered into manufacturing agreements
to provide electronics design, assembly and test services to these customers.
The transactions were accounted for as purchases of assets. We have completed
the following facilities purchases in the first quarter of fiscal 2001:
<TABLE>
<CAPTION>
Date Customer Consideration Facility Location(s)
------------ ------------------ ------------- --------------------
<S> <C> <C> <C>
May 2000 Ascom $59.7 million Switzerland
May 2000 Bosch Telecom GmbH $98.3 million Denmark
</TABLE>

We will continue to review opportunities to acquire OEM manufacturing
operations and enter into business combinations and selectively pursue strategic
transactions that we believe will further our business objectives. We are
currently in preliminary discussions to acquire additional businesses and
facilities. We cannot assure the terms of, or that we will complete, such
acquisitions, and our ability to obtain the benefits of such combinations and
transactions is subject to a number of risks and uncertainties, including our
ability to successfully integrate the acquired operations and our ability to
maintain and increase sales to customers of the acquired companies. See "Risk
Factors -- We may encounter difficulties with acquisitions, which could harm our
business".

Other Strategic Transactions

On May 30, 2000, the Company entered into a strategic alliance for
product manufacturing with Motorola. This alliance provides incentives for
Motorola to purchase approximately $32.0 billion of products and services from
us through December 31, 2005. The Company anticipates that this relationship
will encompass a wide range of products, including cellular phones, pagers,
set-top boxes and infrastructure equipment, and will involve a broad range of
services, including design, PCB fabrication and assembly, plastics, enclosures
and supply chain services. The relationship is not exclusive and does not
require that Motorola purchase any specific volumes of products or services from
the Company. The Company's ability to achieve any of the anticipated benefits of
this relationship is subject to a number of risks, including its ability to
provide services on a competitive basis and to expand manufacturing resources,
as well as demand for Motorola's products. In connection with this strategic
alliance, Motorola will pay $100.0 million for an equity instrument that
entitles it to acquire 11,000,000 Flextronics ordinary shares at any time
through December 31, 2005 upon meeting targeted purchase levels or making
additional payments to the Company. The issuance of this equity instrument
resulted in a one-time non-cash charge equal to the excess of the fair value of
the equity instrument issued over the $100.0 million proceeds to be received. As
a result, the one-time non-cash charge amounted to approximately $286.5 million
offset by a corresponding credit to additional paid-in capital in the first
quarter of fiscal 2001. During the term of the strategic alliance, if Motorola
meets targeted purchase levels, no additional payments may be required by
Motorola to acquire 11,000,000 Flextronics ordinary shares. However, there may
be additional non-cash charges of up to $300.0 million over the term of the
strategic alliance.

14
<PAGE> 15
RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
Three months ended
--------------------
June 30, June 25,
2000 1999
-------- --------
<S> <C> <C>
Net sales ...................................... 100.0% 100.0%
Cost of sales .................................. 92.6 90.0
Unusual charges ................................ 3.7 --
----- -----
Gross margin .............................. 3.7 10.0
Selling, general and administrative ............ 3.2 5.3
Goodwill and intangibles amortization .......... 0.2 0.3
Unusual charges ................................ 17.9 --
Interest and other (income) expenses, net ...... (0.6) 1.0
----- -----
Income (loss) before income taxes ......... (17.0) 3.4
Provision for (benefit from) income taxes ...... (0.9) 0.5
----- -----
Net income (loss) ......................... (16.1)% 2.9%
===== =====
</TABLE>

Net Sales

We derive our net sales from our wide range of service offerings,
including product design, semiconductor design, printed circuit board assembly
and fabrication, material procurement, inventory management, plastic injection
molding, final system assembly and test, packaging and distribution.

Net sales for the first quarter of fiscal 2001 increased 139% to $2.3
billion from $956.4 million for the first quarter of fiscal 2000. The increase
in net sales was primarily the result of expanding sales to our existing
customer base (primarily our ten largest customers) and, to a lesser extent,
sales to new customers. During the first quarter of fiscal 2001, the Company's
five largest customers accounted for approximately 42% of net sales, with
Ericsson accounting for approximately 10.7% of consolidated net sales. During
the first quarter of fiscal 2000, the Company's five largest customers accounted
for approximately 37% of net sales, with no customer accounting for more than
10% of consolidated net sales. See "-Certain Factors Affecting Operating Results
- The majority of our sales comes from a small number of customers; if we loss
any of these customers, our sales could decline significantly" and "-We depend
on the electronics industry which continually produces technologically advanced
products with short life cycles; our inability to continually manufacture such
products on a cost-effective basis would harm our business."

Gross Margin

Gross margin varies from period to period and is affected by a number of
factors, including product mix, component costs, product life cycles, unit
volumes, startup, expansion and consolidation of manufacturing facilities,
pricing, competition and new product introductions.

Gross margin for the first quarter of fiscal 2001 decreased to 3.7% from
10.0% for the first quarter of fiscal 2000. The decrease in gross margin is
primarily attributable to unusual pre-tax charges amounting to $83.7 million,
which were associated with the integration costs as more fully described below
in "unusual charges". Excluding these unusual charges, our gross margin
decreased from 10.0% to 7.4%. Gross margin decreased due to several factors,
including i) costs associated with expanding our facilities; ii) costs
associated with the startup of new customers and new projects, which typically
carry higher levels of underabsorbed manufacturing overhead costs until the
projects reach higher volume production; and iii) changes in product mix to
higher volume projects and final systems assembly projects, which typically have
a lower gross margin.

Increased mix of products that have relatively high materials costs as a
percentage of total unit costs can adversely affect our gross margins. We
believe that this and other factors may adversely affect our gross margins, but
we do not expect that this will have a material effect on our income from
operations. See "-Certain Factors Affecting Operating Results - If we do not
manage effectively the expansion of our operations, our business may be harmed."

Unusual Charges

15
<PAGE> 16

<TABLE>
<CAPTION>
NATURE OF
AMOUNT CHARGE
-------- --------------
<S> <C> <C>
Integration Costs:
Severance $ 62,487 cash
Long-lived asset impairment 46,646 non-cash
Inventory write-downs 11,863 non-cash
Other exit costs 12,338 cash/non-cash
--------
Total Integration Costs 133,334

<TABLE>
<CAPTION>
Long-Lived Other
Asset Exit
Severance Impairment Inventory Costs Total
--------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 ...... $ -- $ -- $ -- $ -- $ --
Activities during the year:
2001 provision ............... 62,487 46,646 11,863 12,338 133,334
Cash charges ................. (35,800) -- (4,753) (40,553)
---------
Non-cash charges ............. -- (46,646) (4,315) -- (50,961)
-------- -------- -------- -------- ---------
Balance at June 30, 2000 ....... $ 26,687 $ -- $ 7,548 $ 7,585 $ 41,820
======== ======== ======== ======== =========
</TABLE>

16
<PAGE> 17

notified that they are to be terminated upon completion of the various facility
closures and consolidations. The Company paid approximately $35.8 million of
employee termination costs during the first quarter of fiscal 2001. The
remaining $26.7 million of employee termination costs is classified as accrued
liabilities as of June 30, 2000 and is expected to be paid out by the end of
fiscal 2001.

The unusual pre-tax charges include $46.6 million for the write-down of
long-lived assets to fair value. This amount has been classified as a component
of Cost of Sales. Included in the long-lived asset impairment are charges of
$43.7 million, which relate to property, plant and equipment associated with the
various manufacturing and administrative facility closures which were written
down to their net realizable value based on their estimated sales price. Certain
facilities will remain in service until their anticipated disposal date in the
later part of the second quarter of fiscal 2001. Since the assets will remain in
service from the date of the decision to dispose of these assets to the
anticipated disposal date, the remaining net book value of the assets will be
depreciated over this period. The impaired long-lived assets consisted primarily
of machinery and equipment and building and improvements of $41.0 million and
$2.7 million, respectively. The long-lived asset impairment also includes the
write-off of the remaining goodwill and other intangibles related to certain
closed facilities of $2.9 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for the first
quarter of fiscal 2001 increased to $72.1 million from $50.5 million for the
first quarter of fiscal 2000 but decreased as a percentage of net sales to 3.2%
for the first quarter of fiscal 2001 from 5.3% for the first quarter of fiscal
2000. The dollar increase in SG&A was primarily due to the continued investment
in infrastructure such as sales, marketing, supply-chain management, information
systems and other related corporate and administrative expenses. The decline in
SG&A as a percentage of net sales reflects the increases in the Company's net
sales, as well as its continued focus on controlling its operating expenses.

Goodwill and Intangibles Amortization

Goodwill and intangible asset amortization for the first quarter of
fiscal 2001 increased to $4.9 million from $2.9 million for the same period of
fiscal 2000. The increase in goodwill and intangible assets amortization in the
first quarter was primarily due to the goodwill and intangible assets
amortization associated with the additional 50% interest in FICO and the
increased amount of contingent consideration issued to the former owners of
Greatsino and Advanced Component Labs HK Ltd in Asia.

Interest and Other (Income) Expense, Net

Interest and other (income) expense, net was ($12.3) million for the
first quarter of fiscal 2001 compared to $9.5 million for the first quarter of
fiscal 2000. The decrease in interest and other (income) expense, net for the
quarter ended June 30, 2000 was primarily attributable to the $22.4 million gain
on sale of marketable equity securities, which was offset by increased interest
expense associated with our increased borrowing.

Provision for Income Taxes

The consolidated effective tax rate for a particular period varies
depending on the mix of earnings, operating loss carryforwards, income tax
credits and changes in previously established

17
<PAGE> 18

valuation allowances for deferred tax assets based upon management's current
analysis of the realizability of these deferred tax assets. The Company's
consolidated effective tax rate was (5.0%) for the first quarter of fiscal 2001
compared to 13.5% for the comparable period of fiscal 2000. Excluding the
unusual charges, the effective income tax rate in the first quarter of fiscal
2001 was 12.0%. The decrease in the effective tax rate was due primarily to the
expansion of operations and increase in profitability in countries with lower
tax rates or a tax holiday, the recognition of income tax loss and tax credit
carryforwards and management's current assessment of the required valuation
allowance. See "- Certain Factors Affecting Operating Results - We are subject
to Risk of Increased Taxes."

Liquidity and Capital Resources

As of June 30, 2000, the Company had cash and cash equivalents totaling
$769.5 million, total bank and other debts totaling $1.1 billion and $500.0
million available for future borrowing under its credit facility subject to
compliance with certain financial covenants.

Cash used by operating activities was $325.6 million for the first
quarter of fiscal 2001 compared to cash provided by operating activities of $6.4
million for first quarter of fiscal 2000. Cash provided by operating activities
decreased in the first quarter of fiscal 2001 from first quarter of fiscal 2000
because of significant increases in accounts receivable and inventory, offset by
increases in depreciation and amortization and accounts payable.

Accounts receivable, net of allowance for doubtful accounts increased to
$1.1 billion at June 30, 2000 from $861.8 million at March 31, 2000. The
increase in accounts receivable was primarily due to an increase of 139% in
sales for the first quarter of fiscal 2001 over the comparable period in the
prior year.

Inventories increased to $1.4 billion at June 30, 2000 from $992.7
million at March 31, 2000. The increase in inventories was primarily the result
of increased purchases of material to support the growing sales combined with
the inventory acquired in connection with the manufacturing facility purchases
in the first quarter of fiscal 2001.

Cash used in investing activities was $178.6 million and $96.6 million
for the first three months of fiscal 2001 and fiscal 2000, respectively. Cash
used in investing activities for the first three months of fiscal 2001 was
primarily related to (i) capital expenditures of $193.5 million to purchase
equipment and continued expansion of manufacturing facilities in Brazil, China,
Hungary, Mexico, United States and Sweden, (ii)$28.8 million related to the
acquisition of Uniskor, Ltd. and Cumex, offset by (iii) $10.8 million related to
proceeds from the sale of equipment and (iv) $32.9 million in proceeds from the
sale of marketable equity securities. Cash used in investing activities for the
first three months of fiscal 2000 consisted primarily of i) capital expenditures
of $68.0 million to purchase equipment, ii) payment of $24.5 million related to
the acquisition of assets from ABB in Sweden, and iii) payment of $20.5 million
for minority investments in the stocks of various technology companies offset by
proceeds of $9.2 million and $12.0 million related to the sale of equipment and
the sale of certain subsidiaries, respectively.

Net cash provided by financing activities was $607.3 million and $39.5
million for the first three months of fiscal 2001 and fiscal 2000, respectively.
Cash provided by financing activities for the first three months of fiscal 2001
was primarily resulting from $639.4 million of net proceeds from long-term debt
and bank borrowings, $375.9 million of net proceeds from equity offerings
combined with $13.5 million in proceeds from proceeds from stock issued under
stock plans, offset by $281.6 million and $134.7 million of long-term debt and
short term credit facility repayments, respectively.

The Company anticipates that its working capital requirements and
capital expenditures will continue to increase in order to support the
anticipated continued growth in its operations. The Company anticipates
incurring significant capital expenditures and operating lease commitments in
order to support our anticipated expansions of our industrial parks in China,
Hungary, Mexico, Brazil and Poland. The Company intends to continue its
acquisition strategy and it is possible that future acquisitions may be
significant. Future liquidity needs will also depend on fluctuations in levels
of inventory, the timing of expenditures by us on new equipment, the extent to
which the Company utilizes operating leases for the new facilities and
equipment, levels of shipments and changes in volumes of customer orders.

Historically, the Company have funded its operations from the proceeds
of public offerings of equity securities and debt offerings, cash and cash
equivalents generated from operations, bank debt, sales of accounts receivable
and capital equipment lease financings. The Company believes that its existing
cash balances, together with anticipated cash flows from operations, borrowings
available under our credit facility and the net proceeds from its recent equity
offering and private offering of senior subordinated notes will be sufficient to
fund its operations through for at least the next twelve months. The Company
anticipates that it will continue to enter into debt and equity financings,
sales of accounts receivable and lease transactions to fund its acquisitions and

18
<PAGE> 19

anticipated growth. Such financings and other transactions may not be available
on terms acceptable or at all. See "- Certain Factors Affecting Operating
Results - If we do not manage effectively the expansion of our operations, our
business may be harmed."

Qualitative and Quantitative Disclosures About Market Risk

There were no material changes during the three months ended June 30, 2000 to
the Company's exposure to market risk for changes in interest rates and foreign
currency exchange rates.

CERTAIN FACTORS AFFECTING OPERATING RESULTS

IF WE DO NOT MANAGE EFFECTIVELY THE EXPANSION OF OUR OPERATIONS, OUR BUSINESS
MAY BE HARMED.

We have grown rapidly in recent periods. Our workforce has tripled in
size over the last year as a result of internal growth and acquisitions. This
growth is likely to considerably strain our management control system and
resources, including decision support, accounting management, information
systems and facilities. If we do not continue to improve our financial and
management controls, reporting systems and procedures to manage our employees
effectively and to expand our facilities, our business could be harmed.

We plan to increase our manufacturing capacity by expanding our
facilities and by adding new equipment. Such expansion involves significant
risks, including, but not limited to the following:

- we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;

- we may not efficiently and effectively integrate new operations and
information systems, expand our existing operations and manage
geographically dispersed operations;

- we may incur cost overruns;

- we may encounter construction delays, equipment delays or shortages,
labor shortages and disputes and production start-up problems that could
harm our growth and our ability to meet customers' delivery schedules;
and

- 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 operating expenses associated
with our expansion efforts, including substantial increases in depreciation
expense and rental expense, that will increase our cost of sales. If our
revenues do not increase sufficiently to offset these expenses, our operating
results would be seriously harmed. Our expansion, both through internal growth
and acquisitions, has contributed to our incurring significant accounting
charges. For example, in connection with our acquisitions of DII and Palo Alto
Products International, we recorded a one-time charge of approximately $206.6
million and in connection with the issuance of an equity instrument to Motorola
relating to our alliance with Motorola, we recorded a one-time non-cash charge
of approximately $286.5 million, both in the first fiscal quarter of fiscal
2001.

WE MAY ENCOUNTER DIFFICULTIES WITH ACQUISITIONS, WHICH COULD HARM OUR BUSINESS.

We have completed a number of acquisitions of businesses and facilities
and expect to continue to acquire additional businesses and facilities in the
future including our recent agreements to acquire Chatham Technologies and JIT
Holdings Ltd. We are currently in preliminary discussions to acquire additional
businesses and facilities. Any future acquisitions may require additional debt
or equity financing, which could increase our leverage or be dilutive to our
existing shareholders. We cannot assure the terms of, or that we will complete,
any acquisitions in the future.

To integrate acquired businesses, we must implement our management
information systems and operating systems and assimilate and manage the
personnel of the acquired operations. The difficulties of this integration may
be further complicated by geographic distances. The integration of acquired
businesses may not be successful and could result in disruption to other parts
of our business.

In addition, acquisitions involve a number of other risks and
challenges, including, but not limited to,

- diversion of management's attention;

- potential loss of key employees and customers of the acquired companies;

- lack of experience operating in the geographic market of the acquired
business; and

19
<PAGE> 20

- an increase in our expenses and working capital requirements.

Any of these and other factors could harm our ability to achieve
anticipated levels of profitability at acquired operations or realize other
anticipated benefits of an acquisition.

We have new customer relationships from which we are not yet receiving
significant revenues, and orders from these customers may not reach anticipated
levels.

We have recently announced major new customer relationships, including
our alliance with Motorola, from which we anticipate significant future sales.
However, similar to our other customer relationships, there are no volume
purchase commitments under these new programs, and the revenues we actually
achieve may not meet our expectations. In anticipation of future activities
under these programs, we are incurring substantial expenses as we add personnel
and manufacturing capacity and procure materials. Our operating results will be
seriously harmed if sales do not develop to the extent and within the time frame
we anticipate.

OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
PRODUCTION.

Electronics manufacturing service providers must provide increasingly
rapid product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers and we continue to experience
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 seriously harm our results of operations.

In addition, we make significant decisions, including determining the
levels of business that we 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. On occasion, customers may require rapid increases in production,
which can stress our resources and reduce margins. Although we have increased
our manufacturing capacity and plan further increases, we may not have
sufficient capacity at any given time to meet our customers' demands. In
addition, because many of our costs and operating expenses are relatively fixed,
a reduction in customer demand can harm our gross margins and operating income.

OUR OPERATING RESULTS VARY SIGNIFICANTLY.

We experience significant fluctuations in our results of operations. The
factors which contribute to fluctuations include:

- the timing of customer orders;

- the volume of these orders relative to our capacity;

- market acceptance of customers' new products;

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

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

- our effectiveness in managing manufacturing processes;

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

- changes in our product mix;

- changes in economic conditions;

- local factors and events that may affect our production volume, such as
local holidays; and

- seasonality in customers' product requirements.

One of our significant end-markets is the consumer electronics market.
This market exhibits particular strength towards the end of the year in
connection with the holiday season. As a result, we have experienced relative
strength in revenues in our third fiscal quarter.

20
<PAGE> 21

THE MAJORITY OF OUR SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF WE LOSE ANY
OF THESE CUSTOMERS, OUR SALES COULD DECLINE SIGNIFICANTLY.

Sales to our five largest customers have represented a significant
percentage of our net sales in recent periods. Our five largest customers
accounted for approximately 44% of consolidated net sales in fiscal 2000. Our
largest customers during fiscal 2000 were Ericsson and Philips accounting for
approximately 12% and 10% of consolidated net sales. Our largest customer during
fiscal 1999 was Philips accounting for approximately 10% of consolidated net
sales. The identity of our principal customers have varied from year to year,
and our principal customers may not continue to purchase services from us at
current levels, if at all. Significant reductions in sales to any of these
customers, or the loss of major customers, would seriously harm our business. If
we are not be able to timely replace expired, canceled or reduced contracts with
new business, our revenues would be harmed.

WE DEPEND ON THE ELECTRONICS INDUSTRY WHICH CONTINUALLY PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY TO CONTINUALLY
MANUFACTURE SUCH PRODUCTS ON A COST-EFFECTIVE BASIS WOULD HARM OUR BUSINESS.

Factors affecting the electronics industry in general could seriously
harm our customers and, as a result, us. These factors include:

- the inability of our customers to adapt to rapidly changing technology
and evolving industry standards, which results in short product life
cycles;

- the inability of our customers to develop and market their products,
some of which are new and untested, the potential that our customers'
products may become obsolete or the failure of our customers' products
to gain widespread commercial acceptance; and

- recessionary periods in our customers' markets.

If any of these factors materialize, our business would suffer.

THERE MAY BE SHORTAGES OF REQUIRED ELECTRONIC COMPONENTS.

A substantial majority of our net sales are derived from turnkey
manufacturing in which we are responsible for purchasing components used in
manufacturing our customers products. We generally do not have long-term
agreements with suppliers of components. This typically results in our bearing
the risk of component price increases because we may be unable to procure the
required materials at a price level necessary to generate anticipated margins
from our agreements with our customers. Accordingly, component price changes
could seriously harm our operating results.

At various times, there have been shortages of some of the electronic
components that we use, and suppliers of some components have lacked sufficient
capacity to meet the demand for these components. In recent months, component
shortages have become more prevalent in our industry. In some cases, supply
shortages and delays in deliveries of particular components have resulted in
curtailed production, or delays in production, of assemblies using that
component, which has contributed to an increase in our inventory levels. We
expect that shortages and delays in deliveries of some components will continue.
If we are unable to obtain sufficient components on a timely basis, we may
experience manufacturing and shipping delays, which could harm our relationships
with current or prospective customers and reduce our sales.

OUR INDUSTRY IS EXTREMELY COMPETITIVE.

The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of which have achieved substantial
market share. Current and prospective customers also evaluate our capabilities
against the merits of internal production. Some of our competitors, including
Solectron, Celestica and SCI Systems, have substantially greater market share
than us, and substantially greater manufacturing, financial, research and
development and marketing resources.

In recent years, many participants in the industry, including us, have
substantially expanded their manufacturing capacity. If overall demand for
electronics manufacturing services should decrease, this increased capacity
could result in substantial pricing pressures, which could seriously harm our
operating results.

WE ARE SUBJECT TO THE RISK OF INCREASED TAXES.

We have structured our 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. We base our tax position upon the
anticipated nature and conduct of our business and upon our understanding of the
tax laws of the various countries in which we have assets or conduct

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activities. However, our tax position is subject to review and possible
challenge by taxing authorities and to possible changes in law which may have
retroactive effect. We cannot determine in advance the extent to which some
jurisdictions may require us to pay tax or make payments in lieu of tax.

Several countries in which we are located allow for tax holidays or
provide other tax incentives to attract and retain business. We have obtained
holidays or other incentives where available. Our taxes could increase if
certain tax holidays or incentives are not renewed upon expiration, or tax rates
applicable to us in such jurisdictions are otherwise increased. In addition,
further acquisitions of businesses may cause our effective tax rate to increase.

WE CONDUCT OPERATIONS IN A NUMBER OF COUNTRIES AND ARE SUBJECT TO RISKS OF
INTERNATIONAL OPERATIONS.

The geographical 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, the Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy,
Malaysia, Mexico, Sweden, the United Kingdom and the United States. As a result,
we are affected by economic and political conditions in those countries,
including:

- fluctuations in the value of currencies;

- changes in labor conditions;

- longer payment cycles;

- greater difficulty in collecting accounts receivable;

- burdens and costs of compliance with a variety of foreign laws;

- political and economic instability;

- increases in duties and taxation;

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

- limitations on imports or exports;

- expropriation of private enterprises; and

- reversal of the current policies including favorable tax and lending
policies encouraging foreign investment or foreign trade by our host
countries.

The attractiveness of our services to our U.S. customers can be affected
by changes in U.S. trade policies, such as "most favored nation" status and
trade preferences for some Asian nations. In 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 have a significant effect
on us. Finally, we could be seriously harmed by inadequate infrastructure,
including lack of adequate power and water supplies, transportation, raw
materials and parts in countries in which we operate.

WE ARE SUBJECT TO RISKS OF CURRENCY FLUCTUATIONS AND HEDGING OPERATIONS.

A significant portion of our business is conducted in the European euro,
the Swedish krona and the Brazilian real. In addition, some of our costs, such
as payroll and rent, are denominated in currencies such as the Austrian
schilling, the British pound, the Chinese renminbi, the German deutsche mark,
the Hong Kong dollar, the Hungarian forint, the Irish pound, the Malaysian
ringgit, the Mexican peso and the Singapore dollar, as well as the krona, the
euro and the real. In recent years, the Hungarian forint, Brazilian real and
Mexican peso have experienced significant devaluations. Changes in exchange
rates between these and other currencies and the U.S. dollar will affect our
cost of sales, operating margins and revenues. We cannot predict the impact of
future exchange rate fluctuations. We use financial instruments, primarily
forward purchase contracts, to hedge Japanese yen, European euro, U.S. dollar
and other foreign currency commitments arising from trade accounts payable and
fixed purchase obligations. Because we hedge only fixed obligations, we do not
expect that these hedging activities will harm our 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. As a result, we may experience
significant unexpected expenses from fluctuations in exchange rates.

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WE DEPEND ON OUR KEY PERSONNEL.

Our success depends to a large extent upon the continued services of our
key executives, managers and skilled personnel. Generally our employees are not
bound by employment or non-competition agreements, and we cannot assure that we
will retain our key officers and employees. We could be seriously harmed by the
loss of key personnel.

WE ARE SUBJECT TO ENVIRONMENTAL COMPLIANCE RISKS.

We are subject to various federal, state, local and foreign
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous substances in the ordinary course of our
manufacturing process. In addition, we are responsible for cleanup of
contamination at some of our current and former manufacturing facilities and at
some third party sites. If more stringent compliance or cleanup standards under
environmental laws or regulations are imposed, or the results of future testing
and analyses at our current or former operating facilities indicate that we are
responsible for the release of hazardous substances, we may be subject to
additional remediation liability. Further, additional environmental matters may
arise in the future at sites where no problem is currently known or at sites
that we may acquire in the future. Currently unexpected costs that we may incur
with respect to environmental matters may result in additional loss
contingencies, the quantification of which cannot be determined at this time.

THE MARKET PRICE OF OUR ORDINARY SHARES IS VOLATILE.

The stock market in recent years has experienced significant price and
volume fluctuations that have affected the market prices of technology
companies. These fluctuations have often been unrelated to or disproportionately
impacted by the operating performance of these companies. The market for our
ordinary shares may be subject to similar fluctuations. Factors such as
fluctuations in our operating results, 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 price of our ordinary shares.

PART II - OTHER INFORMATION

(a) Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

4.1 U.S. Dollar indenture dated as of June 29, 2000 between
the Company and Chase Manhattan Bank and Trust Company,
National Association, as Trustee.

4.2 Euro indenture dated as of June 29, 2000 between the
Company and Chase Manhattan Bank and Trust Company,
National Association, as Trustee.

27.01 Financial Data Schedule

(b) Reports on Form 8-K

On April 18, 2000 we filed Form 8-K, including the Agreement and Plan of
Merger, audited and pro forma financial statements and a press release, each
relating to the completion of our acquisition of The DII Group, Inc.

On June 19, 2000, we filed an amendment to our current report on Form
8-K to include the audited financial statements of The DII Group, Inc.

On June 22, 2000, we filed a current report on Form 8-K including an
Underwriting Agreement with Banc of America Securities LLC, Salomon Smith Barney
Inc., Thomas Weisel Partners LLC and Lehman Brothers Inc. providing for the
public offering of 5,500,000 Ordinary Shares of Flextronics, all of which were
sold by Flextronics, at a public offering price of $71.25 per share. In
addition, we granted the underwriters an option to purchase an additional
825,000 Ordinary Shares to cover over-allotments, which option was exercised in
full on July 19, 2000.

On June 27, 2000 the Company filed a current report on Form 8-K
including press releases dated June 7 and June 27, 2000, relating to our private
offering of $500 million aggregate principal amount of 9.875% Senior
Subordinated Notes due 2010 and E 150 million of 9.75% Senior Subordinated Notes
due 2010, in each case to qualified institutional buyers, pursuant to Rule 144A
under the Securities Act of 1933, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

FLEXTRONICS INTERNATIONAL LTD.
(Registrant)

Date : August 14, 2000 /s/ MICHAEL E.MARKS
------------------------------------
Michael E. Marks
Chief Executive Officer

Date : August 14, 2000 /s/ ROBERT R.B. DYKES
------------------------------------
Robert R.B. Dykes
President, Systems Group
and Chief Financial Officer
(principal financial and
accounting officer)

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<PAGE> 25
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
4.1 U.S. Dollar indenture dated as of June 29, 2000 between the
Company and Chase Manhattan Bank and Trust Company, National
Association, as Trustee.

4.2 Euro indenture dated as of June 29, 2000 between the
Company and Chase Manhattan Bank and Trust Company, National
Association, as Trustee.

27.1 Financial Data Schedule
</TABLE>