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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------______________________
FORM 10-K
---------------FOR ANNUAL AND TRANSITION REPORT PURSUANT TO SECTIONS 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 19981999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________.
COMMISSION FILE NUMBER 1-10560
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
---------------(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
______________________
TEXAS 74-2211011
(State or other jurisdiction of(STATE OR OTHER JURISDICTION OF (I.R.S. Employer
incorporation or organization) Identification Number)EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3000 TECHNOLOGY DRIVE
77515
ANGLETON, TEXAS (Zip Code)
(Address of principal executive offices)77515
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(409)(979) 849-6550
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------- --------------------------------------- ----------------------------
Common Stock, par value $0.10 per share New York Stock Exchange, Inc.
$0.10 per share
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
---------------______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant'sRegistrant's knowledge, in definitive proxy or information statements
incorporated by reference in PartPART III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 26,28, 1999, the number of outstanding shares of Common Stock was
11,666,083.16,272,226. As of such date, the aggregate market value of the shares of Common
Stock held by non-affiliates, based on the closing price of the Common Stock on
the New York Stock Exchange on such date, was approximately $328.8$570.5 million.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 19981999 (Part II Items 5-8 and Part IV Item 14(a)(1)).
(2) Portions of the Company's Proxy Statement for the 19992000 Annual Meeting of
Shareholders (Part III, Items 10-13).
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TABLE OF CONTENTS
PAGE
----
PART I
ITEMItem 1. Business.................................................Business....................................................... 1
ITEMItem 2. Properties...............................................Properties..................................................... 7
ITEMItem 3. Legal Proceedings........................................Proceedings.............................................. 8
ITEMItem 4. Submission of Matters to a Vote of Security Holders......Holders.............. 8
PART II
ITEMItem 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................Stockholder Matters.......................................... 8
ITEMItem 6. Selected Financial Data..................................Data........................................ 8
ITEMItem 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................Operations.......................... 8
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 8
ITEMRisk.................................................. 9
Item 8. Financial Statements and Supplementary Data.............. 8
ITEMData.................... 9
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................Disclosure.......................... 9
PART III
ITEMItem 10. Directors and Executive Officers of the Registrant.......Registrant............. 9
ITEMItem 11. Executive Compensation...................................Compensation......................................... 9
ITEMItem 12. Security Ownership of Certain Beneficial Owners and
Management.............................................Management................................................... 9
ITEMItem 13. Certain Relationships and Related Transactions...........Transactions................. 9
PART IV
ITEMItem 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...............................................8-K.................................................. 9
iii
PART I
ITEM 1. BUSINESS
GENERAL
Benchmark Electronics, Inc. (the "Company") provides contractis a leading provider of
electronics manufacturing and design services (EMS) to original equipment manufacturers
("OEMs") in select industries,the telecommunication, enterprise computer and peripherals,
high-end video/audio/entertainment, industrial control, testing and
instrumentation, computer and medical markets. We have 14 facilities in 8
countries. We offer OEMs a turnkey EMS solution, from initial product design to
volume production and direct order fulfillment. We provide advanced engineering
services including medical devices, communications equipment,
industrial and business computers, testing instrumentation and industrial
controls. The Company specializes in manufacturing high quality, technologically
complexproduct design, printed circuit board (PCB) layout,
quick-turn prototyping and test development. We believe that we have developed
strengths in the manufacturing process for large, complex, high-density
assemblies as well as having the ability to manufacture high and low volume
products in lower cost regions such as Latin America, Eastern Europe and
Southeast Asia. As OEM's expand internationally, they are increasingly requiring
their EMS partners to have strategic regional locations and global procurement
abilities. We believe a global manufacturing solution increases our ability to
be responsive to our customers' needs by providing accelerated time-to-market
and time-to-volume production of high quality products. These enhanced
capabilities should enable us to build stronger strategic relationships with computer-automated equipment using
surface mountour
customers and pin-through-hole interconnection technologies for customers
requiring low to medium volume production runs. The Company frequently works
with customers from product design and prototype stages through ongoing
production and, in some cases, final assembly of the customers' products and
provides manufacturing services for successive product generations. Asbecome a result,
the Company believes that it is often anmore integral part of its customers'their operations.
Substantially all of the Company'sour manufacturing services are provided on a turnkey
basis, whereby the Company purchaseswe purchase customer-specified components from its extensive network ofour suppliers,
assemblesassemble the components on finished printed circuit boards, performsPCBs, perform post-production testing and
provides theprovide our customer with production process and testing documentation. The Company offers
itsWe offer
our customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with theour customers' inventory requirements.
In certain instances, the Company completeswe complete the assembly of itsour customers' products at the Company'sour
facilities by integrating printed circuit board assemblies into other elements
of theour customers' products. The CompanyWe also providesprovide manufacturing services on a
consignment basis, whereby the Company,we, utilizing components provided by the customer,
providesprovide only assembly and post-production testing services. The Company operatesWe currently operate
a total of 3949 surface mount production lines at itsour domestic facilities in
Angleton, Texas,Texas; Beaverton, Oregon,Oregon; Hudson, New Hampshire,Hampshire; Huntsville, Alabama;
Pulaski, Tennessee; and Winona, Minnesota,Minnesota; and 32 surface mount production lines
at our international facilities in Cork and Dublin, Ireland.Ireland; Campinas, Brazil;
Csongrad, Hungary; Guadalajara, Mexico; Singapore; East Kilbride, Scotland; and
Katrineholm, Sweden.
The Company, formerly named Electronics, Inc., began operations in 1979 and
was incorporated under Texas law in 1981 as a wholly owned subsidiary of
Intermedics, Inc. ("Intermedics"), a medical implant manufacturer based in
Angleton, Texas. In 1986, Intermedics sold 90% of the outstanding shares of
common stock of the Company to Electronic Investors Corp. ("EIC"), a
corporation formed by Donald E. Nigbor, Steven A. Barton and Cary T. Fu, the
Company's three executive officers. In 1988, EIC was merged into the Company,
and in 1990 the Company completed the initial public offering of its common
stock.
RECENT ACQUISITIONS
InSince July 1996, we have completed four acquisitions. These acquisitions
have broadened our service offerings, diversified our customer base with leading
OEMs and expanded our geographic presence. These acquisitions were:
o AVEX ELECTRONICS, INC.AND RELATED COMPANIES. On August 24, 1999, we
completed the Company acquired allacquisition of AVEX, one of the outstanding common stocklargest privately-held
contract manufacturers. This acquisition provided us a global presence
with 14 facilities in 8 countries and a sales base of EMD Technologies, Inc. ("EMD"), an independentapproximately
$1.5 billion on a pro forma basis for 1999. With this acquisition, we
became the sixth largest publicly held EMS provider of contract
manufacturing and product design services forin the world based
on 1998 pro forma sales. This acquisition expanded our customer base
to approximately 90 OEMs in industries comparable to
those targeted by the Company. EMD's manufacturing services focus on
manufacturing complex printed circuit board assemblies, operating 15 surface
mount production lines at its Winona, Minnesota facilities. EMD's product design
services include the complete design and development of electronics products and
mechanical packages, from conceptual design of circuit boards to configuring
subsystems and enclosures.
In February 1998, the Company acquired all of the outstanding stock of
Lockheed Commercial Electronics Company ("LCEC"), one of New England's largest
electronics manufacturing services companies, providing a broadbroader range of services including printed circuit board assembly and test, system assembly and
test, prototyping, depot repair, materials procurement, and engineering support
services.end user markets.
1
o STRATUS COMPUTER IRELAND. On March 1, 1999, the Companywe acquired certain assets
from Stratus, Computer
Ireland (Stratus), a wholly-owned subsidiary of Ascend Communications, Inc.
(Ascend) for approximately $48 million, subject to adjustment. Inand in connection with the transaction the Company entered into a
three-year supply agreement to provide system integration services to
Ascend and Stratus Holding LimitedHoldings Limited. The acquired assets increased our
ability to provide a broad range of services to the European market
and enhanced our systems integration and box build engineering
capabilities.
o LOCKHEED COMMERCIAL ELECTRONICS COMPANY. In February 1998, we acquired
Lockheed Commercial Electronics Company. This acquisition provided us
with manufacturing capacity in the Company hired 260 employees. In conjunction with the purchase of the Stratus
assets, the Company increased its revolving line of credit to $65 millionnortheastern United States and borrowed $25 million. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" for a description of the revolving line of
credit. Under Stratus, the plant19
additional customers. Now operated as our Hudson, New Hampshire
division, the facility provides a systems integrationbroad range of services including
PCB assembly and test, system assembly and test, prototyping, depot
repair, materials procurement, and engineering and design support
services.
o EMD TECHNOLOGIES, INC. In July 1996, we acquired EMD Technologies,
Inc., an independent provider of electronics manufacturing and product
design services. Now operated as our Winona, Minnesota division, this
facility for
largeprovides a complete range of enhanced product design and
very sophisticated fault-tolerant mainframe computers. The Company
will continuesubsystem and enclosure configuration. In addition to operatedesign services,
this new Benchmark Division fromacquisition provided us with manufacturing capabilities in the
Company's Dublin,
Ireland facility with the bulk of its present staffmidwestern United States and with19 additional personnel transferred there, under a multi-year exclusive service contract with
Stratus, as a key supplier to Ascend.
1
THE CONTRACT ELECTRONICS MANUFACTURING INDUSTRY
The basis for the development of the contractcustomers.
We believe our primary competitive advantages are our design,
manufacturing, industry in
recent years has been the increasing reliance by OEMs on contracttesting and supply chain management capabilities. We offer our
customers complete and flexible manufacturing specialists such as the Company for the manufacture of printed circuit board
assemblies.solutions that provide accelerated
time-to-market, time-to-volume production, and reduced production costs. As a
result of working closely with our customers and responding promptly to their
needs, we have become an integral part of their operations. In addition, our
workforce is led by a management team that founded the Company and has an
average of 18 years of industry experience.
BUSINESS STRATEGY
Our goal is to be the EMS outsourcing provider of choice to leading OEMs in
the high growth segments of the electronics industry. To meet this goal, we have
implemented the following strategies:
o MAINTAIN AND DEVELOP CLOSE, LONG-TERM RELATIONSHIPS WITH CUSTOMERS.
Our core strategy is to maintain and establish long-term relationships
with leading OEMs in expanding industries by becoming an integral part
of our customers' manufacturing operations. To this end, we work
closely with our customers throughout the design, manufacturing and
distribution process, and we offer flexible and responsive services.
We believe we develop stronger customer relationships by relying on
our local management teams that respond to frequently changing
customer design specifications and production requirements.
o FOCUS ON PRODUCTS IN HIGH GROWTH SECTORS. EMS providers produce
products for a wide range of OEMs in different industries. The product
scope ranges from easy to assemble, low-cost high-volume products
targeted for the consumer market to complicated state-of-the-art,
mission critical electronic hardware. Similarly, OEM customers range
from consumer-oriented companies that compete primarily on price and
redesign their products every year to high-end telecommunications and
enterprise computer manufacturers that compete on technology and
quality. We currently offer state-of-the-art products for industry
leaders who require advanced engineering design and production
services as well as offering high volume manufacturing capabilities to
our customer base. Our ability to offer both of these services enables
us to expand our business relationships.
o DELIVER COMPLETE HIGH AND LOW VOLUME MANUFACTURING SOLUTIONS GLOBALLY.
We believe OEMs increasingly require a wide range of advanced
engineering and manufacturing services in order to reduce their costs
and accelerate their time-to-market and time-to-volume production.
Building on our integrated engineering and manufacturing capabilities,
we offer services from initial product design and test to final
product assembly and distribution to the contract
manufacturing industryOEMs' customers. With the
AVEX acquisition, we also offer our customers high volume production
in low cost regions of the world, such as Brazil, Hungary and Mexico.
These full service capabilities allow us to offer customers the
flexibility to move quickly from design and initial introduction to
production and distribution.
2
o LEVERAGE ADVANCED TECHNOLOGICAL CAPABILITIES. Our traditional
strengths in the manufacturing processes for large, complex
high-density assemblies enable us to offer customers advanced design,
technology and manufacturing solutions for their primary products. We
provide this engineering expertise through our design capabilities in
each of our facilities, and in our design centers located in Winona,
Minnesota, Huntsville, Alabama and Cork, Ireland. We believe our
capabilities help our customers improve product performance and reduce
costs.
o CONTINUE OUR GLOBAL EXPANSION. A strategically positioned facilities
network can simplify and shorten an OEM's supply chain and reduce the
time it takes to bring product to market. We are committed to pursuing
geographic expansion in order to support our global customers with
cost-effective and timely delivery of quality products and services
worldwide. Our AVEX acquisition significantly expanded our service
scope to provide a global manufacturing solution to our customers at
14 facilities located in Brazil, Hungary, Ireland, Mexico, Scotland,
Singapore, Sweden and the United States grewStates.
o SELECTIVELY PURSUE STRATEGIC ACQUISITIONS. We have completed four
acquisitions since July 1996 and will continue to selectively seek
acquisition opportunities. Our acquisitions have enhanced our business
in the following ways:
o Expanded geographic presence;
o Enhanced customer growth opportunities;
o Developed strategic relationships;
o Broadened service offerings;
o Diversified into new market sectors; and
o Added experienced management teams.
We believe that growth by selective acquisitions is critical for achieving
the scale, flexibility and breadth of customer services required to remain
competitive in the EMS industry.
ELECTRONICS MANUFACTURING SERVICES INDUSTRY
Many OEMs in the electronics industry are increasingly using electronics
manufacturing service providers in their business and manufacturing strategies
and are seeking to outsource a broad range of manufacturing and related
engineering services. Outsourcing allows OEMs to take advantage of the
manufacturing expertise and capital investments of EMS providers, thereby
enabling OEMs to concentrate on what they believe to be their core strengths,
such as product development, marketing and sales. OEMs utilize electronics
manufacturing service providers to enhance their competitive position by:
o Reducing capital investment requirements and fixed overhead costs;
o Accessing advanced manufacturing and design capabilities;
o Reducing production costs;
o Accelerating time-to-market and time-to-volume production;
o Improving inventory management and purchasing power; and
o Accessing worldwide manufacturing capabilities.
Industry sources estimate that the overall market for EMS will have grown at a
compound annual rate of 21%25% from 1994 through 1998,1996 to 2002. In addition, according to
industry sources the InstituteEMS industry's revenues accounted for Interconnecting and
Packaging Electronic Circuits ("IPC"). The IPC estimated the sizeapproximately 16% of
the United
States contract manufacturing industry for 1998 in termscost of sales to be $22.5
billion. The Company expects the trend toward outsourcing to continue and to
result in continued growthgoods sold in the contract manufacturing industry. A 1997 IPC
study forecastelectronics industry in 1998. By 2001, industry
sources estimate that the contract manufacturing industry would grow at an
approximate compound annual rate of 20% through 2000 as OEMs continuethis percentage will increase to outsource their manufacturing requirements and look to contract manufacturers to
provide additional services. Some of the advantages OEMs receive as a result of
outsourcing are:
ACCELERATION OF TIME TO MARKET. Rapid technological advances in the
Company's targeted industries require OEMs to make their products
available to their customers quickly to remain competitive. Delays in
bringing a new product to market can result in obsolescence of the product
before it becomes available. Contract manufacturers who specialize in
printed circuit board assembly are often able to provide manufacturing
services in a more timely manner than OEMs, thus allowing OEMs to reduce
the time to market for their products.
REDUCTION OF PRODUCTION COSTS. Contract manufacturers generally are
able to manufacture printed circuit board assemblies at a lower cost than
OEMs because of the efficiencies associated with specialization and
greater production volumes. Additionally, the purchasing power of contract
manufacturers allows OEMs to save on costs of procurement of components.
OEMs also benefit from the inventory management services provided by
contract manufacturers in connection with turnkey manufacturing services.
ACCESS TO ADVANCED TECHNOLOGY. Using contract manufacturers affords
OEMs access to advanced technology in printed circuit board assembly
equipment and techniques that OEMs may consider too costly for in-house
investment. The increasing use of surface mount interconnection
technology, which requires significant investments in computer-automated
equipment and the expertise to operate such equipment, is an example. Many
OEMs have been unwilling to make such investments, relying instead on
contract manufacturers for surface mount assembly. More recent
technological advancements that contract manufacturers are now able to
offer to OEMs include ball grid array and chip on board assembly
processes.
IMPROVED MANUFACTURING QUALITY. Because it is the focus of their
operations, contract manufacturers are consistently able to provide
contract manufacturing services of a higher quality than OEMs can provide
in-house. Printed circuit board assembly and other services provided by
contract manufacturers are typically a small part of the broader
operations of the OEMs.
OPPORTUNITY TO FOCUS RESOURCES. By outsourcing printed circuit board
assembly and other manufacturing services, OEMs are able to focus their
resources on their primary activities, such as research and development of
new products and marketing.
Other factors in the contract manufacturing industry may have a positive
impact on established contract manufacturers such as the Company. The increasing
cost of automated equipment used in the industry, the working capital
requirements relating to inventory and the additional services that contract
manufacturers are providing make it more difficult for smaller manufacturers and
start-up companies to compete with the services that are provided by larger,
well-capitalized companies. Furthermore, the Company believes that these factors
are driving consolidation in the industry and may provide opportunities for
growth through acquisition.
BUSINESS STRATEGY
The Company's business strategy is to provide high quality contract
electronics manufacturing services to OEMs in targeted industries. The Company
seeks to provide services that reduce OEM costs and time to market and increase
OEM product quality. The Company's strategy to achieve these objectives includes
the following key elements:
ESTABLISH AND MAINTAIN LONG-TERM RELATIONSHIPS. The Company pursues
opportunities to provide turnkey manufacturing services whereby the
Company becomes an integral part of its customers' manufacturing
operations. The Company seeks to work closely with its customers in all
phases of design and production. By aggressively marketing its services to
its targeted customers and involving design, marketing and senior
management personnel in the pursuit and maintenance of customer
relationships, the Company attempts to establish itself as the sole or
primary source for its customers' manufacturing requirements. The Company
believes that working to develop close, long-term relationships builds
customer loyalty that is difficult for competitors to overcome.
2
TARGET AND MAINTAIN BALANCE AMONG SELECT OEM INDUSTRIES AND
CUSTOMERS. The Company targets industries and customers that have strict
quality control standards for their products and that have
service-intensive manufacturing requirements. The Company focuses on
complex assemblies in low to medium volumes for commercial and industrial
customers. The Company has not been, and does not intend to become, a
manufacturer of high volume printed circuit board assemblies for personal
computers or consumer-oriented products, which typically have relatively
low margins. The Company targets customers in the medical devices,
communications equipment, industrial and business computers, testing
instrumentation and industrial controls industries and seeks to maintain a
balance of customers among these industries and within each industry. By
balancing its operations among industries and customers, the Company seeks
to avoid becoming dependent on any one industry or customer. In addition,
the Company believes that the industries and customers that it targets
produce products that generally have longer life cycles, more stable
demand and less price pressure as compared to consumer-oriented products.
PROVIDE COMPREHENSIVE DESIGN AND MANUFACTURING SERVICES. The Company
believes that OEMs increasingly expect a broad range of services from
contract manufacturers and that attracting and retaining customers depends
on the Company's ability to provide such services. The Company provides
its customers with services ranging from initial product design and
development and prototype production to the manufacture of printed circuit
board assemblies, post-production testing and final assembly of customers'
products.
PURSUE OPPORTUNITIES FOR GROWTH. The Company is committed to
pursuing opportunities to grow its operations through acquiring additional
facilities or businesses and achieving additional operating efficiencies
in the Company's existing operations.
MAINTAIN FLEXIBILITY. The Company believes that many of its
customers are leaders in their respective industries, and, as a result,
routinely re-engineer their products to incorporate new and more
competitive product features. Accordingly, the Company has organized its
manufacturing operations into flexible work centers, as opposed to
dedicated production lines, which allow the Company to incorporate complex
design specifications and to respond rapidly to design changes.26%.
SERVICES PROVIDED BY THE COMPANY
The Company provides turnkey manufacturing services, including the
purchaseENGINEERING. Our approach is to coordinate and integrate our design,
prototype and other engineering capabilities. Through this approach, we provide
a broad range of customer-specified components from its extensive network of
component suppliers, assembly of the components onto printed circuit boards and
performance of post-production testing. In certain instances, the Company
completes the assembly of its customers' products at the Company's facilities by
integrating printed circuit boards into other elements of the customers'
products.
The Company provides design-for-manufacturability engineering services and, in some cases,
3
dedicated production lines for products it manufactures. With respect to productprototypes. These services strengthen our
relationships with manufacturing customers and attract new customers requiring
advanced engineering services.
To assist customers with initial design, the Company provides
the completewe offer CAE and CAD-based design,
and development of new electronic products and mechanical
packages, as well as the redesign, surface mount conversion and printedengineering for manufacturability, circuit board layout of existing products. The Companyand test development. We
also provides test process design
capabilities that include thecoordinate industrial design and tooling for product manufacturing. After
product design, we offer quickturn prototyping. During this process, we assist
with the transition to volume production. By participating in product design and
prototype development, we can reduce manufacturing costs and accelerate the
time-to-volume production.
MATERIALS PROCUREMENT AND MANAGEMENT. Materials procurement and management
consists of the planning, purchasing, expediting and warehousing of components
and materials. Our inventory management and volume procurement capabilities
contribute to cost reductions and reduce total cycle time. Our materials
strategy is focused on leveraging our procurement volume corporate wide while
providing local execution for maximum flexibility at the division level. In
addition, our Ireland facility has developed material processes required to
support high-end computer system integration operations.
ASSEMBLY AND MANUFACTURING. Our assembly and manufacturing operations
include PCB and subsystem assembly, box build and systems integration. A
substantial portion of our sales are derived from the manufacture and assembly
of complete products. We employ various inventory management techniques such as
just-in-time, ship-to-stock and autoreplenish programs. As OEMs seek to provide
greater functionality in smaller products, they increasingly require more
sophisticated manufacturing technologies and processes. Our investment in
advanced manufacturing equipment and our experience in innovative packaging and
interconnect technologies (such as chip scale packaging and ball grid array)
enable us to offer a variety of advanced manufacturing solutions.
TESTING. We offer computer-aided testing of assembled PCBs, subsystems and
systems, which contributes significantly to our ability to deliver high-quality
products on a consistent basis. We work with our customers to develop
product-specific test fixtures and
procedures and software for bothstrategies. Our test capabilities include manufacturing
defect analysis, in-circuit tests and functional tests. We either custom design
test equipment and software ourselves or use test equipment and software
provided by our customers. In addition, we provide environmental stress tests of
circuit boards, components and products.
The Company's component procurement services for turnkey projects consist
of planning, purchasing, expediting, inspecting, warehousing and financing the
components required to manufacture printed circuit board or system assemblies.
OEMs
increasingly have required manufacturers to purchase all or some components
directly from component manufacturers or distributors and to warehouse and
finance the components. See "-- Suppliers."
In its manufacturing services, the Company offers both surface mount and
pin-through-hole interconnection technologies. Surface mount technology is a
computer-automated process that allows the placement of a higher density of
components directly on both sides of a printed circuit board. The surface mount
process is a more recent
3
advancement over the mature pin-through-hole technology, which normally permits
electronic components to be attached to only one side of a printed circuit board
by inserting the components into holes drilled through the board. The surface
mount process allows OEMs to use advanced circuitry while permitting the
placement of a greater number of components on a printed circuit board without
having to increase the size of the board. By allowing increasingly complex
circuits to be packaged with the components placed in closer proximity to each
other, surface mount technology greatly enhances circuit processing speed and
thus board and system performance. The surface mount process allows a reduction
in the number of printed circuit boards required per system and allows the use
of more fully automated production processes. The Company performs
pin-through-hole assembly both manually and with computer-automated component
insertion and soldering equipment. Although surface mount technology is the
leading interconnection technology, the Company intends to continue providing
pin-through-hole assembly services for its customers. Pin-through-hole
technology is of continuing viability because most printed circuit boards
assembled using surface mount technology require some pin-through-hole assembly.
In addition, the Company believes that by continuing to provide pin-through-hole
assembly services, the Company appeals to current and prospective customers that
have not shifted, or do not wish to change, their manufacturing process to
utilize surface mount technology.
Because the Company may be the sole source or a major source of printed
circuit board assemblies for a customer, frequent communication between the
Company and the customer is necessary to ensure that the Company's manufacturing
services meet the customer's specifications. Accordingly, the Company maintains
a customer service department whose personnel work closely with the customer
throughout the manufacturing process. The Company's engineering and
manufacturing personnel coordinate the implementation of new and reengineered
products with the customer, thereby providing the customer with feedback on such
issues as the overall ease of manufacture of the printed circuit board assembly
and anticipated production lead times.
Component procurement begins after component specifications are verified
and approved sources are confirmed with the customer. Concurrently, the
Company's technical personnel establish complete documentation files on
components and the appropriate set-up, assembly and testing procedures. The
Company's personnel monitor all stages of the manufacturing process in order to
provide flexible and rapid responses to the customer's requirements, including
changes in design, order size and delivery schedules. In addition, the Company
utilizes an automated materials planning system which allows the customer to
monitor the status of an order on a real-time basis.
The Company also provides testing services for completed printed circuit
board assemblies in connection with the manufacturing process. In-circuit tests
verify that the components have been inserted properly and meet certain
functional standards and that the electrical circuits have been completed
properly. These tests are performed on industry standard testing equipment using
proprietary software developed either by the customer or test consultants on a
contractual basis. In-circuit tests normally are performed on all printed
circuit board assemblies for turnkey projects. In addition, using specialized
testing equipment designed and provided by the customer, the Company performs
customized functional tests designed to ensure that the printed circuit board
assembly will perform its intended functions. Because defective components
normally fail after a relatively short period of use, customers occasionally
request that certain printed circuit board assemblies be subjected by the
Company to controlled environmental stresses, typically thermal or electrical
stresses. These procedures accelerate the effects of operational use without
affecting the useful life of the component.
The Company also offers itsDISTRIBUTION. We offer our customers flexible, just-in-time delivery
programs allowing product shipments to be closely coordinated with the
customers'
inventory requirements. Several ofIncreasingly, we ship products directly into customers'
distribution channels or directly to the Company's largerend-user. We believe that this service
can provide our customers
utilize a just-in-time inventory management system. The Company believes that
the attractiveness of just-in-time inventory management will lead other
customers to implement such systems and, accordingly, anticipates that a greater
percentage of the Company's business will be performed on this basis in the
future.
In establishing a turnkey relationship with a manufacturer, OEMs must
incur expense in qualifying the contract manufacturermore comprehensive solution and in some cases its
sources of component supply, refining product design and manufacturing
processes, and developing mutually compatible information and reporting systems.
The Company believes that once this relationship is established, OEMs typically
experience significant difficulty in expeditiously reassigning turnkey projectsenable them to
another manufacturer and, as a result, seek sources of turnkey manufacturing
services that they perceive will be ablemore responsive to meet their production requirements
over a long period of time and successive product generations. Accordingly, the
Company believes that its increasing turnkey business has resulted in greater
stability in its customer base.
4
market demands.
MARKETING AND CUSTOMERS
To better implement its service-intensive business strategy, the Company
markets itsWe market our services to existing and potential customers through itsa direct sales force and independent
marketing representativesrepresentatives. In addition, our divisional and its executive officers.
The Company'smanagement
teams are an integral part of our sales force consists of nine in-house salesmen and two independent
marketing representatives, through which the Company continues to aggressively
market the enhanced service capabilities of the Benchmark Design Center located
in Winona, Minnesota. Four of the nine in-house salesmen are based at the
Winona, Minnesota facility, three at the Hudson, New Hampshire facility and one
each at the Angleton, Texas and Beaverton, Oregon facilities.
A substantial percentage of the Company's sales have been to a small
number of customers, and the loss of a major customer, if not replaced, would
adversely affect the Company.teams. During 1998, the Company's three1999, our
two largest customers, accounted for approximately 28%, 14%Lucent and 11%, respectively,EMC, each represented in excess of 10% of
total sales and, in the Company'saggregate, represented 34% of total sales. See Note 9 of Notes to Consolidated Financial Statements.
The Company targets customers in five industries and seeks to maintain a
balance in its sales to those industries.
The following table sets forth the percentages of the Company's sales to each of the five industriesby
industry for 1996,1999, 1998 and 1997.
1999 1998 1997
and 1998.
1996 1997 1998
-----------------------
Medical Devices ..................... 18% 17% 11%
Telecommunications .................. 26 21 31----- ----- -----
Telecommunication............................ 39% 31% 21%
Enterprise Computer Systems .................... 25& Peripherals............ 30 44 39
44
Tests and Instrumentation ........... 15Industrial Controls.......................... 9 9 12
Medical...................................... 6 11 17
High-end Video/Audio/Entertainment........... 6 -- --
Computer..................................... 6 -- --
Testing & Instrumentation.................... 4 5 Industrial Controls ................. 16 12 911
4
SUPPLIERS
The Company maintains an extensiveWe maintain a network of suppliers of components and other materials used
in assembling printed circuit boards. The Company procuresWe procure components only when a purchase
order or forecast is received from a customer and occasionally utilizes
components or other materials for which a supplier is the single source of
supply. Although the Company experienceswe experience component shortages and longer lead times of
various components from time to time, the
Company haswe have generally been able to reduce the
impact of the component shortages by working with customers to reschedule
deliveries, by working with suppliers to provide the needed components using
just-in-time inventory programs, or by purchasing components at somewhat higher
prices from distributors, rather than directly from manufacturers. These
procedures reduce, but do not eliminate, the
Company'sour inventory risk. In addition, by
developing long-term relationships with suppliers, the Company haswe have been better able to
minimize the effects of component shortages than manufacturers without such
relationships. Because of the continued increase in demand for surface mount
components, the Company
anticipates continued componentwe anticipate shortages with respect to certain components and longer lead times for variouscertain components
to occur from time to time.
BACKLOG
The Company's backlog was approximately $1 billion at December 31, 1999,
compared to $317 million at December 31, 1998,
compared1998. The December 31, 1999 figure
includes backlog amounts for the recently acquired AVEX operations. Although the
Company's expects to $302 millionfill substantially all of its backlog in 2000, at December
31, 19971999 the Company does not have long-term agreements will all of its
customers and $230 million at December 31,
1996. Backlog consists of customer orders can be canceled, changed or delayed by customers.
The timely replacement of canceled, changed or delayed orders with orders from
new customers cannot be assured, nor can there be any assurance that are expected to be filled within
twelve months. Because orders generally may be rescheduled or cancelled by the
paymentany of cancellation charges and because the
Company's current customers update their
orders at different intervals and provide orderswill continue to be filled over different
periods,utilize the Company's services.
Because of these factors, backlog doesis not necessarily provide an accurate measure
of the timing or amounta meaningful indicator of future
sales.financial results.
COMPETITION
The contractelectronics manufacturing services provided by the Companywe provide are available from many
independent sources as well as in-house manufacturing capabilities of current
and potential customers. The Company's competitors include Solectron
Corporation, SCI Systems,Celestica, Inc.,
The DII Group, Inc., Avex Electronics, Inc.Flextronics International Ltd., Jabil Circuit, Inc., SCI Systems, Inc. and
Plexus Corp., some of which areSolectron Corporation, who may be more established in the industry and have
substantially greater financial, manufacturing or marketing resources than the Company. The Company believeswe
do. We believe that the principal competitive factors in itsour targeted markets
are product quality, flexibility and timeliness in responding to design and
schedule changes, reliability in meeting product delivery schedules, pricing,
technological sophistication and geographic location.
The Company believes that it competes effectively with respect to
these factors.
5
GOVERNMENTAL REGULATION
The Company'sOur operations, and the operations of businesses that the
Company acquires,we acquire, are
subject to certain foreign, federal, state and local regulatory requirements
relating to environmental, waste management, and health and safety matters. There can be no assurance thatThe
Company believes it operates in substantial compliance with all applicable
requirements. However, material costs and liabilities will not
be incurredmay arise from these
requirements or that past or future operations will not result in exposure to
injury or claims of injury by employees or the public. Although some risk of
costs and liabilities related to these matters is inherent in the Company's
business, as with many similar businesses, the Company believes that its
business is operated in substantial compliance with applicable regulations.
However,from new, modified or more stringent requirementsrequirements. In addition,
past, current and future operations may give rise to claims of exposure by
employees or enforcement policies
could be adopted, which could adversely affect the Company.
The Companypublic or to other claims or liabilities relating to
environmental, waste management or health and safety concerns.
We periodically generatesgenerate and temporarily handleshandle limited amounts of
materials that are considered hazardous waste under applicable law. The
Company contractsWe contract
for the off-site disposal of these materials and hashave implemented a waste
management program to address related regulatory issues.
EMPLOYEES
As of December 31, 1998, the Company had 2,280 employees,1999, we employed 5,856 people, of whom 1,7014,580 were
engaged in manufacturing and operations, 316614 in materials control and
procurement, 84119 in design and development, 4079 in marketing and sales, and 139464
in administration. NoneAlthough a majority of our workforce is non-union, employees
in our
5
facilities in Brazil, Mexico and Sweden are unionized, and work councils have
been established at our facilities in Cork, Ireland, Scotland and Sweden.
INTERNATIONAL OPERATIONS
Benchmark has 14 manufacturing facilities in the Americas, Europe, and Asia
regions to serve its customers. Benchmark is operated and managed geographically
and management evaluates performance and allocates Benchmark's resources on a
geographic basis. See Note 10 of Notes to Consolidated Financial Statements for
segment information. Prior to the acquisition in 1999, all of our operations
were in the Americas region. In 1999, approximately 19% of our sales were from
operations outside of the Company's employees isUnited States. As a result of continuous customer
demand overseas, we expect foreign sales to increase. Our foreign sales and
operations are subject to a collective
bargaining agreement. Management believesrisk of doing business abroad, including fluctuations
in the value of currency, export duties, import controls and trade barriers,
including stoppages, longer payment cycles, greater difficulty in accounts
receivable collection, burdens of complying with wide variety of foreign laws
and, in certain parts of the world, political instability. While, to date, these
factors have not adversely materially affected Benchmark's results of
operations, we cannot assure that there will not be an adverse impact in the
Company's relationship with
its employees is satisfactory.
EXPORT SALES
In 1998, the Company had export sales of approximately $87 million to Europe, $2
million to Canada, $92,000 to Asia, and $8,000 to Australia from the Company's
United States operations. In 1997 and 1996, the Company had export sales of
approximately $86 million and $29 million, respectively, to Europe from the
Company's United States operations.future.
YEAR 2000 ISSUES
The Company recognizes that it must ensure that its products and operations will
not be adversely impacted by Year"year 2000 problem" arose because of the potential software failures
which canthat could arise in date-sensitive software applications which utilizeutilizing a field of
two digitstwo-digits rather than four to define a specific year. Absent corrective
actions, date-sensitive software maycould recognize a date using "00" as the year
1900 rather than the year 2000.
This could result in system failures or miscalculations causing
disruptions to various activities and operations.
Many of the Company's business and operating systems are currently Year 2000
compliant, and theThe Company initiated a review of thoseits business and operating systems during
1997 to address those systems that arewere not currently Yearyear 2000 compliant. Areas
addressed included major third-party supplierscompliant, and also worked
with its customers and vendors to remediate year 2000 issues. As of components ofDecember 31,
1999, the Company's
products as well as full reviews of the Company's manufacturing equipment,
telephone and voice mail systems, security systems and other office support
systems.Company has spent approximately $700,000 in addressing year 2000
issues.
The Company has also initiated formal communications withsuffered no significant suppliers and customersfailures in any system or product upon
the date change from December 31, 1999 to determine the extent to whichJanuary 1, 2000. Management of the
Company is vulnerable to those third parties' failure to remediate their own Year 2000
issues. Based on its inquiries to date, the Company believes satisfactory
progress is being made by its significant suppliers and customers on Year 2000
issues. No significant information technology initiatives have been deferrednot aware of any vendor used by the Company asfor data processing or
related services that experienced a resultmaterial failure of its Yearproduct or service
due to year 2000 project.
In addition, the Company has selected Baan U.S.A., Inc. to provide an Enterprise
Resource Planning System, which will be Year 2000 compliant, to improve
processes and to increase efficiencies. The new Enterprise Resource Planning
System implementation is scheduled for completion at all locations by November
1999. All necessary Year 2000 upgrades of major systems, including those
supplied by vendors, have been identified and conversion strategies developed
and are under deployment.
The estimated total cost to address the Company's Year 2000 issues, including
the cost associated with the new Enterprise Resource Planning System, is
approximately $13.5 million. Costs incurred and expected to be incurred consist
primarilyproblems. Although many of the costcritical dates related to
potential year 2000 problems have passed, some experts predict that year 2000
related failures could occur throughout the year. The Company will continue to
monitor this issue in the ordinary course of Company personnel involved in updating applicationsbusiness for delayed effects or
future problems.
6
ITEM 2. PROPERTIES
Benchmark currently has 14 facilities worldwide.
[INSERT WORLD MAP WITH LOCATIONS]
The following chart summarizes the facilities owned or leased by Benchmark
and operating systemsits subsidiaries:
LOCATION SQ.FT. FUNCTION OWNERSHIP
- -------------------------- --------- ----------------------------- ---------
Angleton, TX............. 109,000 Executive, manufacturing, and Owned
procurement
Beaverton, OR............ 52,000 Manufacturing Leased
Campinas, Brazil......... 40,000 Manufacturing Leased
Csongrad, Hungary........ 40,000 Manufacturing Leased
Cork, Ireland............ 28,000 Manufacturing and design Owned
Dublin, Ireland.......... 74,000 Manufacturing and procurement Leased
East Kilbride, Scotland.. 90,000 Manufacturing and procurement Owned
Guadalajara, Mexico...... 230,000 Manufacturing Leased
Hudson, NH............... 200,000 Manufacturing and procurement Leased
Huntsville, AL........... 276,000 Manufacturing, design and and Owned
Katrineholm, Sweden...... 60,000 procurement Leased
Manufacturing
Pulaski, TN.............. 112,500 Manufacturing Owned
Singapore................ 59,000 Manufacturing and procurement Leased
Winona, MN............... 201,000 Manufacturing and procurement Leased, Owned
---------
Total 1,571,500
=========
7
ITEM 3. LEGAL PROCEEDINGS
On October 18, 1999, we announced that our third quarter earnings
announcement would be delayed and subsequently, on October 22, we announced our
earnings for the costs of software updates and patches (many of which
are provided free of charge fromthird quarter were below the vendors). The estimated total cost
associated with the purchase and implementationlevel of the new Enterprise Resource
Planning System is approximately $13 million. The costssame periods during
1998 and were below expectations. Several class action lawsuits were filed in
federal district court in Houston, Texas against Benchmark and two of this software will be
capitalizedits
officers and amortized over the estimated useful life
6
directors alleging violations of the software,federal securities laws. The
lawsuits seek to recover unspecified damages. We deny the allegations in the
lawsuits, however, and costs associated with the preliminary project stage and
post-implementation stage has been and will be expensedfurther deny that such allegations provide a basis for
recovery of damages as incurred. The year
2000 component of this system can not be readily segregated from the total cost
of the company-wide Enterprise Resource Planning System implementation. The
total amount expended on Year 2000 issues and the new Enterprise Resource
Planning System through December 31, 1998, is approximately $9 million, of which
$8.8 million related to the new Enterprise Resource Planning System
implementation and approximately $200,000 related to the cost of identifying and
communicating with third parties and installing software patches. The costs of
the Year 2000 process and the timetable on which the Company believes it will
complete any Year 2000 modifications are based on management's best estimates,
which are derived utilizing a number of assumptions of future events, including
the availability of certain resources and other factors. However, there can be
no guaranteewe believe that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correctwe have made all relevant computer codes and similar uncertainties. In addition, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be convertedrequired disclosures on
a timely basis orbasis. We intend to vigorously defend against these actions.
Pursuant to the terms of the Amended and Restated Stock Purchase Agreement
dated August 12, 1999 whereby Benchmark acquired all of the stock of AVEX and
Kilbride Holdings B.V from J.M. Huber Corporation ("Seller"), Benchmark was
required to agree upon a closing working capital adjustment with the Seller by
November 22, 1999. We were unable to reach an agreement with the Seller prior to
the November 22, 1999 deadline and entered into several agreements extending
this deadline. At the present time, the parties still have not reached an
agreement and have hired an independent accounting firm to serve as arbitrator
to resolve the dispute and to calculate the final closing working capital
adjustment. Management is unable to predict when the arbitrator will be
releasing its findings but estimates that such failure by another companythe net closing working capital
adjustment will be in the range of $20 to convert would not$40 million. Management has made its
best estimate of the ultimate resolution of this arbitration proceeding.
However, the final working capital adjustment could have an adversea significant effect on
the Company's systems.
Therefinal purchase price and the allocation of the purchase price.
Benchmark filed suit against Seller in the United States District Court for
the Southern District of Texas for breach of contract, fraud and negligent
misrepresentation on December 14, 1999 and is considerable uncertainty inherentseeking an unspecified amount of
damages in assessingconnection with the Company's
vulnerabilitycontract. On January 5, 2000, Seller filed suit
in the United States District Court for the Southern District of New York
alleging that Benchmark failed to Year 2000 problems,comply with certain obligations under the
contract requiring Benchmark to register shares of its common stock issued to
Seller as partial consideration for the acquisition. Seller's suit has been
consolidated with Benchmark's suit in the United States District Court for the
Southern District of Texas. Management intends to vigorously pursue its claims
against Seller and defend against Seller's allegations.
The Company is also involved in various other legal actions arising in part from the
uncertaintyordinary course of business. In the Year 2000 readinessopinion of management, the Company's suppliers and customers. It is possible
that the failure to correct a material Year 2000 problem could result in an
interruption in, or a failureultimate
disposition of certain normal business operations, and that
such failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Based on the information
available to it, and subject to the effect of the general uncertainty on the
Company's ability to make a definitive determination, the Company doesthese matters will not
believe it has any material exposure to significant business interruption as a
result of the Year 2000 problem, or that the cost of remedial actions will have a material adverse effect on its business, financial condition or result of
operations.
The steps taken by the Company to address the Year 2000 issues are expected to
reduce significantly the
Company's levelconsolidated financial position or results of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material third party suppliers and customers. The Company believes that, with
the implementation of the Enterprise Resource Planning System and completion of
identifying and communicating with third parties as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
Accordingly, and as the program is on schedule to be completed during the fall
of 1999, the Company has not formulated a worse case scenario in the event its
Year 2000 project is not completed in a timely manner. The Company has a
contingency plan in place in the event all scheduled implementations are not
completed by the end of 1999. All necessary Year 2000 upgrades of major systems
and software patches, including those supplied by vendors, have been identified
and conversion strategies are under deployment.
ITEM 2. PROPERTIES
The Company's executive offices and one of its manufacturing facilities
are located in an approximately 109,000 square foot facility on 18.9 acres of
land owned by the Company in Angleton, Texas, where the Company has six surface
mount manufacturing lines. The Company leases its approximately 52,000 square
foot facility in Beaverton, Oregon, where the Company has four surface mount
production lines, under a lease expiring in June 2002. The Company's facilities
in Winona, Minnesota comprise five leased buildings with total square footage of
approximately 137,000 and a 64,000 square foot building that the Company owns.
For the primary leased facilities in Winona, the Company has leases through July
2006, each with purchase options that expire in June 1999. The Winona facilities
include manufacturing facilities with 15 surface mount production lines and
warehouse facilities. The Company leases its approximately 200,000 square feet
facility in Hudson, New Hampshire, which contains 14 surface mount production
lines, under leases expiring in June 2000, with options to extend the leases for
an additional four years. The Company's approximate 44,000 square foot facility
in Dublin, Ireland, where the Company will consolidate the assets purchased in
March 1999 from Stratus Computer Ireland, is leased through September 2003. The
Company's Angleton, Beaverton and Hudson facilities are certified under
ISO-9002, and the Winona facilities are certified under ISO-9001. The Company
believes that its properties are and will be sufficient to conduct the Company's
operations for the foreseeable future.
7
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation.operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information on page 3035 of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 19981999 (the "1998"1999 Annual Report") is
incorporated herein by reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA
The information on page 3136 of the 19981999 Annual Report is incorporated herein
by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information on pages 9 through 1416 of the 19981999 Annual Report is
incorporated herein by reference in response to this item.
8
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on pages 15 through 16 of the 1999 Annual Report is
incorporated herein by reference in response to this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold or issue derivative financial instruments in the
normal course of business. However, the Company, as a result of its
international operating activities, is exposed to market risks, including
changes in foreign currency exchange rates and interest rates, which may
adversely affect its results of operations and financial position. In seeking to
minimize the risks and/or costs associated with such activities, the Company
manages exposure to changes in interest rates by balancing the amount of its
borrowings between fixed rate and variable interest rates. The Company manages
its exposure to foreign currency exchange rates by requiring customers to pay in
U.S. dollars.
Certain financial instruments used to obtain capital are subject to market
risks from fluctuations in interest rates. As of March 31, 1999, the Company has
$30 million of fixed rate financial instruments and $47 million of variable rate
financial instruments.
The Company has a subsidiary located in the Republic of Ireland. The
Company predominantly conducts its foreign sales and purchase transactions in
U.S. dollars. Other currency exchange risks are primarily limited to current
liabilities payable in Irish pounds. Such amounts relate to foreign plant wages,
taxes and facility operating costs. Accordingly, the Company does not expect
that the effects of changes in currency exchange rates upon such non-U.S. dollar
transactions would be material. The Company does not currently hedge against
foreign currency translation risks and believes that foreign currency exchange
risk is not significant to its operations.
The information contained in this Item 7A contains forward looking
statements regarding the future financial condition and results of operations
and the Company's business operations. The word "expect" and similar expressions
are intended to identify such statements. Such statements involve risks,
uncertainties and assumptions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Item 7 of this Form
10-K for a discussion of important factors which could cause actual results to
differ materially from the conclusions expressed in the forward-looking
statements set forth in this Item 7A, and further discussion of the Company's
exposure to market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages 1517 through 2935 of the 19981999 Annual Report is
incorporated herein by reference in response to this item.
8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's Proxy Statement for the 19992000 Annual Meeting of Shareholders (the
"1999"2000 Proxy Statement"), to be filed not later than 120 days after the close
of the Company's fiscal year, is incorporated herein by reference in response to
this item.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation and Other
Matters" in the 19992000 Proxy Statement, to be filed not later than 120 days after
the close of the Company's fiscal year, is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Common Stock Ownership of Certain
Beneficial Owners and Management" in the 19992000 Proxy Statement, to be filed not
later than 120 days after the close of the Company's fiscal year, is
incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in the 19992000
Proxy Statement, to be filed not later than 120 days after the close of the
Company's fiscal year, is incorporated herein by reference in response to this
item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits
1. FINANCIAL STATEMENTS OF THE COMPANY
Reference is made to the Financial Statements, the reports thereon, the
notes thereto and supplementary data commencing at page 1517 of the 19981999 Annual
Report, which financial statements, reports, notes and data are incorporated
herein by reference in response to this item. Set forth below is a list of such
Financial Statements:
Consolidated Financial Statements of the Company
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 19981999 and 19971998
Consolidated Statements of Income for the years ended December 31, 1999,
1998 1997 and 19961997
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997
and 19969
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 1997 and 19961997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions, the information is included in the Consolidated Financial
Statements and notes thereto, or are inapplicable and, therefore, have been
omitted.
9
3. EXHIBITS
Each exhibit marked with an asterisk is filed with this Annual Report on
Form 10-K.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Purchase Agreement dated as of January 22, 1998 by and between
the Company and Lockheed Martin Corporation (incorporated
herein by reference to Exhibit 2 to the Company's Current
Report on Form 8-K dated February 23, 1998).
2.2 -- Agreement and Plan of Merger dated as of March 27, 1996 by and
among the Company, Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
April 5, 1996 by and among the Company, Electronics
Acquisition, Inc., EMD Technologies, Inc., David H. Arnold and
Daniel M. Rukavina (incorporated herein by reference to
Exhibit 2.2 to the Company's Registration Statement on
Form S-4 (Registration No. 333-4230)).
2.4 -- Purchase and Sale Agreement by and among Stratus Computer
Ireland, Ascend Communications Inc., BEI Electronics Ireland
Limited and Benchmark Electronics, Inc.the Company dated January 22, 1999 (incorporated
by reference herein to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated January 22, 1999).
2.5 -- Amended and Restated Stock Purchase Agreement dated as of
August 12, 1999 by and between the Company and J. M. Huber
Corporation (incorporated by reference herein to Exhibit 2 to
the Company's Current Report on Form 8-K dated August 24, 1999
and filed on September 8, 1999).
3.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(Registration No. 33-46316) (the "Registration Statement")).
3.2*3.2 -- Amended and Restated Bylaws of the Company.
3.3*Company (incorporated
herein by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31,1998).
3.3 -- Amendment to Amended and Restated Articles of Incorporation of
the Company adopted by the shareholders of the Company on
May 20, 1997.1997 (incorporated herein by reference to Exhibit 3.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998)
3.4 -- Statement of Resolution Establishing Series A Cumulative
Junior Participating Preferred Stock of Benchmark
Electronics, Inc. (incorporated by reference to Exhibit B of
the Rights Agreement dated December 11, 1998 between the
Company and Harris Trust Savings Bank, as Rights Agent,
included as Exhibit 1 to the Company's Form 8A12B filed
December 11, 1998).
4.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Registration Statement).
4.2 -- Amended and Restated Bylaws of the Company (incorporated
herein by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998).
10
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.3 -- Amendment to the Restated Articles of Incorporation of the
Company adopted by the shareholders of the Company on
May 20, 1997 (incorporated herein by reference to Exhibit 3.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998).
4.4 -- Specimen form of certificate evidencing the Common Stock
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement).
4.5 -- Rights Agreement dated December 11, 1998 between the Company
and Harris Trust Savings Bank, as Rights Agent, together with
the following exhibits thereto: Exhibit A --- Form of Statement
of Resolution Establishing Series A Cumulative Junior
Participating Preferred Stock of Benchmark Electronics, Inc.;
Exhibit B --- Form of Right Certificate; and
Exhibit C --- Summary of Rights to Purchase Preferred Stock of
Benchmark Electronics, Inc. (incorporated by reference to
Exhibit 1 to the Company's Form 8A12B filed
December 11, 1998).
4.6 -- Summary of Rights to Purchase Preferred Stock of Benchmark
Electronics, Inc.the Company
(incorporated by reference to Exhibit 3 to the Company's Form
8A12B/A filed December 22, 1998).
10
10.14.7 -- Form of Indemnity Agreement between the Company and each of
its directors and officers (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement).
10.2 -- Benchmark Electronics, Inc. Stock Option Plan dated May 11,
1990 (incorporated herein by reference to Exhibit 10.12 to the
Registration Statement).
10.3 -- Form of Benchmark Electronics, Inc. Incentive Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.13 to the Registration
Statement).
10.4 -- Form of Benchmark Electronics, Inc. Nonqualified Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement).
10.5* -- Lease Agreement dated February 1, 1997 between Tektronix, Inc.
and the Company.
10.6 -- Registration Rights Agreement dated March 30, 1992 between
Mason & Hanger Corporation and the Company (incorporated herein
by reference to Exhibit 10.17 to the Registration Statement).
10.7* -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan.
10.8 -- Benchmark Electronics, Inc. 1994 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.9 -- Amended and Restated Credit AgreementIndenture dated as of February 6,August 13, 1999 by and between the
Company and Chase BankHarris Trust Company of Texas, N.A.New York, as trustee
(incorporated herein by reference from Exhibit 99.3 to Exhibit 10.1 to the
Company's Current Report onBenchmark's
Form 8-K dated March 1,August 24, 1999 and filed on
September 8, 1999).
10.10 -- Lease Agreement dated July 30, 1996 by and among David H.
Arnold, Muriel M. Arnold, Daniel M. Rukavina, Patricia A.
Rukavina and EMD Associates, Inc., as amended by Amendment to
Lease dated July 30, 1996 (incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.11 -- Lease Agreement dated December 15, 1992 by and among David H.
Arnold, Muriel M. Arnold, Daniel M. Rukavina, Patricia A.
Rukavina and EMD Associates, Inc., as amended by Amendment to
Lease dated January 1, 1994, Amendment to Lease dated December
15, 1995, and Amendment to Lease dated July 30, 1996
(incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.12 -- Note Purchase Agreement dated as of July 30, 1996 by and
between the Company and Northwestern Mutual Life Insurance
Company (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated July 30, 1996).
10.14* -- Guarantee dated September 10, 1998 by the Company in favor of
Kilmore Developments Limited.
13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for
the fiscal year ended December 31, 1998.
21* -- Subsidiaries of Benchmark Electronics, Inc.
23* -- Consent of Independent Auditors concerning incorporation by
reference in the Company's Registration Statement on Form S-8
(Registration No. 33-61660, No. 333-26805, No. 333-28997 and No.
333-66889).
11
27.1* -- Financial Data Schedule.
(b) Reports on Form 8-K
On December 11, 1998, the Company filed a Current Report on Form 8-K under item
5 thereof to report the adoption of a Shareholder Rights Plan.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BENCHMARK ELECTRONICS, INC.
By: /s/ DONALD E. NIGBOR
Donald E. Nigbor
PRESIDENT
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
NAME POSITION DATE
-------- -------------- ---------
Chairman of the
/s/ John C. Custer Board of Directors March 31, 1999
- ---------------------- -------------------
John C. Custer
Director and President
/s/ Donald E. Nigbor (principal executive officer) March 31, 1999
- ---------------------- -------------------
Donald E. Nigbor
Director and Executive
- ---------------------- Vice President -------------------
Stephen A. Barton
Director and Executive
Vice President (principal
/s/ Cary T. Fu financial and accounting officer) March 31, 1999
- ---------------------- -------------------
Cary T. Fu
Director
- ---------------------- -------------------
Peter G. Dorflinger
/s/ Gerald W. Bodzy Director March 31, 1999
- ---------------------- -------------------
Gerald W. Bodzy
Director
- ---------------------- -------------------
David H. Arnold
13
EXHIBIT INDEX
Each exhibit marked with an asterisk is filed with this Annual Report on
Form 10-K.
EXHIBIT
NUMBER DESCRIPTION
2.1 -- Purchase Agreement dated as of January 22, 1998 by and between
the Company and Lockheed Martin Corporation (incorporated herein
by reference to Exhibit 2 to the Company's Current Report on Form
8-K dated February 23, 1998).
2.2 -- Agreement and Plan of Merger dated as of March 27, 1996 by and
among the Company, Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
April 5, 1996 by and among the Company, Electronics Acquisition,
Inc., EMD Technologies, Inc., David H. Arnold and Daniel M.
Rukavina (incorporated herein by reference to Exhibit 2.2 to the
Company's Registration Statement on Form S-4 (Registration No.
333-4230)).
2.4 -- Purchase and Sale Agreement by and among Stratus Computer
Ireland, Ascend Communications Inc., BEI Electronics Ireland
Limited and Benchmark Electronics, Inc. dated January 22, 1999
(incorporated by reference herein to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated January 22, 1999).
3.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-46316)
(the "Registration Statement")).
3.2* -- Amended and Restated Bylaws of the Company.
3.3* -- Amendment to Amended and Restated Articles of Incorporation of
the Company adopted by the shareholders of the Company on May 20,
1997.
3.4 -- Statement of Resolution Establishing Series A Cumulative
Junior Participating Preferred Stock of Benchmark Electronics,
Inc. (incorporated by reference to Exhibit B of the Rights
Agreement dated December 11, 1998 between the Company and Harris
Trust Savings Bank, as Rights Agent, included as Exhibit 1 to the
Company's Form 8A12B filed December 11, 1998).
4.1 -- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Registration Statement).
4.2 -- Amended and Restated Bylaws of the Company (incorporated
herein by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
4.3 -- Amendment to the Restated Articles of Incorporation of the
Company adopted by the shareholders of the Company on May 20,
1997 (incorporated herein by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998).
4.4 -- Specimen form of certificate evidencing the Common Stock
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement).
4.5 -- Rights Agreement dated December 11, 1998 between the Company
and Harris Trust Savings Bank, as Rights Agent, together with the
following exhibits thereto: Exhibit A - Form of Statement of
Resolution Establishing Series A Cumulative Junior Participating
Preferred Stock of Benchmark Electronics, Inc.; Exhibit B - Form
of Right Certificate; and Exhibit C - Summary of Rights to
Purchase Preferred Stock of Benchmark Electronics, Inc.
(incorporated by reference to Exhibit 1 to the Company's Form
8A12B filed December 11, 1998).
14
4.6 -- Summary of Rights to Purchase Preferred Stock of Benchmark
Electronics, Inc. (incorporated by reference to Exhibit 3 to the
Company's Form 8A12B/A filed December 22, 1998).
10.1 -- Form of Indemnity Agreement between the Company and each of
its directors and officers (incorporated herein by reference
to Exhibit 10.11 to the Registration Statement).
10.2 -- Benchmark Electronics, Inc. Stock Option Plan dated
May 11, 1990 (incorporated herein by reference to
Exhibit 10.12 to the Registration Statement).
10.3 -- Form of Benchmark Electronics, Inc. Incentive Stock Option
Agreement between the Company and the optionee
(incorporated herein by reference to Exhibit 10.13 to the
Registration Statement).
10.4 -- Form of Benchmark Electronics, Inc. Nonqualified Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement).
10.5* -- Lease Agreement dated February 1, 1997 between Tektronix, Inc.
and the Company.
10.6 -- Registration Rights Agreement dated March 30, 1992 between
Mason & Hanger Corporation and the Company (incorporated herein
by reference to Exhibit 10.17 to the Registration Statement).
10.7*10.5 -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan.
10.8Plan
(incorporated herein by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.6 -- Benchmark Electronics, Inc. 1994 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.7* -- Benchmark Electronics, Inc. 401(k) Employee Savings Plan.
10.8 -- Benchmark Electronics, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (Registration
Number 333-76207)).
10.9 -- Registration Rights Agreement dated March 30, 1992 between
Mason & Hanger Corporation and the Company (incorporated
herein by reference to Exhibit 10.17 to the Registration
Statement).
10.10 -- Amended and Restated Credit Agreement dated as of
February 6, 1999 by and between the Company and Chase Bank of
Texas, N.A. (incorporated herein by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated
March 1, 1999).
10.1010.11 -- Lease Agreement dated February 1, 1997 between Tektronix, Inc.
and the Company (incorporated herein by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998).
10.12* -- Lease Agreement dated February 29, 2000 between Millikan
Properties, LLC and the Company.
11
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.13 -- Lease Agreement dated July 30, 1996 by and among
David H. Arnold, Muriel M. Arnold, Daniel M. Rukavina,
Patricia A. Rukavina and EMD Associates, Inc., as amended by
Amendment to Lease dated July 30, 1996 (incorporated herein by
reference to Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996).
10.1110.14 -- Lease Agreement dated December 15, 1992 by and among
David H. Arnold, Muriel M. Arnold, Daniel M. Rukavina,
Patricia A. Rukavina and EMD Associates, Inc., as amended by
Amendment to Lease dated January 1, 1994, Amendment to Lease
dated December 15, 1995, and Amendment to Lease dated
July 30, 1996 (incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996).
10.1210.15* -- CE Facility Lease dated February 23, 1998 by and between the
Company and Lockheed Martin Corporation.
10.16* -- Sander's Sublease dated February 23, 1998 by and between the
Company and Sanders, a Lockheed Martin Company and a division
of Lockheed Martin Corporation.
10.17* -- First Amendment to CE Facility Lease dated February 21, 2000
by and between the Company and Lockheed Martin Corporation.
10.18* -- First Amendment to Sanders Sublease dated February 24, 2000
by and between the Company and Sanders, a Lockheed Martin
Company and a division of Lockheed Martin Corporation
10.19* -- Lease Agreement dated February 22, 1999 by and between
Serto, S.A. de C.V. and AVEX Electronics de
Mexico, S.R.L. de C.V.
10.20* -- Sublease Agreement dated February 22, 1999 by and between
Operadora Farmaceutica, S.A. de C.V. and AVEX Electronics de
Mexico, S.R.L. de C.V.
10.21 -- Note Purchase Agreement dated as of July 30, 1996 by and
between the Company and Northwestern Mutual Life Insurance
Company (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated July 30, 1996).
10.14*10.22 -- Guarantee dated September 10, 1998 by the Company in favor of
Kilmore Developments Limited.Limited (incorporated herein by reference
to Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
10.23 -- Credit Agreement dated as of August 24, 1999 by and among the
Company, the lenders party thereto and Chase Bank of Texas,
National Association, as administrative agent (incorporated by
reference from Exhibit 99.1 to Benchmark Electronics, Inc.'s
Form 8-K dated August 24, 1999 and filed on
September 8, 1999).
10.24 -- Registration Rights Agreement dated as of August 24, 1999 by
and between the Company and J. M. Huber Corporation
(incorporated by reference from Exhibit 99.2 to Benchmark
Electronics, Inc.'s Form 8-K dated August 24, 1999
and filed on September 8, 1999).
10.25 -- Registration Agreement dated as of August 9, 1999 by and among
the Company, Salomon Smith Barney Inc. and
Chase Securities Inc. (incorporated by reference from
Exhibit 99.4 to Benchmark Electronics, Inc.'s Form 8-K dated
August 24, 1999 and filed on September 8, 1999).
12* -- Statement regarding Computation of Ratios.
13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for
the fiscal year ended December 31, 1998.1999.
21* -- Subsidiaries of Benchmark Electronics, Inc.
23* -- Consent of Independent Auditors concerning incorporation by
reference in the Company's Registration Statement on Form S-8
(Registration No. 33-61660, No. 333-26805, No. 333-28997,
No. 333-66889 and No. 333-66889)333-76207).
27.1* -- Financial Data Schedule.
99.1* -- Unaudited Pro Forma Condensed Combined Statement of
Operations.
12
(b) The following Current Reports on Form 8-K were filed by the Company
during the quarter ended December 31, 1999 or during the period from December
31, 1999 to the date of this Form 10-K:
The Company's Current Report on Form 8-K dated and filed on
November 23, 1999.
The Company's Current Report on Form 8-K dated and filed on
December 15, 1999.
The Company's Current Report on Form 8-K dated and filed on
February 8, 2000.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BENCHMARK ELECTRONICS, INC.
By /s/ DONALD E. NIGBOR
Donald E. Nigbor
President
Date: March 30, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities indicated and on the dates indicated.
SIGNATURE POSITION DATE
----------- ------------------------------ --------------
/s/ JOHN C. CUSTER Chairman of the Board of March 30, 2000
JOHN C. CUSTER Directors
/s/ DONALD E. NIGBOR Director and President March 30, 2000
DONALD E. NIGBOR (principal executive officer)
STEPHEN A. BARTON Director and Executive Vice
President
/s/ CARY T. FU Director and Executive Vice March 30, 2000
CARY T. FU President (principal financial
and accounting officer)
PETER G. DORFLINGER Director
/s/ GERALD W. BODZY Director March 30, 2000
GERALD W. BODZY
DAVID H. ARNOLD Director
14