EXHIBIT 13
Achieving Global Presence
Benchmark Electronics
Annual Report 1999
Financial Highlights
Benchmark Electronics, Inc. and Subsidiaries
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
(in thousands, except per-share data)
Sales .............................. $877,839 524,065 325,229 201,296 97,353
Income from operations ............. $ 28,623 30,720 25,112 15,391 9,250
Net income ......................... $ 11,974 16,372 15,090 8,864 6,148
Earnings per common share
(diluted) ...................... $ .80 1.35 1.26 0.96 0.75
Working capital .................... $177,926 86,265 87,879 72,586 37,285
Total assets ....................... $760,837 241,896 190,322 168,174 57,037
Long-term debt ..................... $202,811 46,111 30,330 30,485 --
Shareholders' equity ............... $281,935 138,001 120,872 104,999 46,624
Weighted average common and
equivalent shares outstanding .. 15,010 12,098 12,004 9,218 8,213
The Company at a Glance
Benchmark Electronics, Inc. is a leading independent provider of electronics
manufacturing services (EMS) to original equipment manufacturers (OEMs) in the
telecommunication, enterprise computer and peripherals, high-end
video/audio/entertainment, industrial control, testing and instrumentation,
computer and medical device markets. The company offers OEMs a global turnkey
EMS solution, from initial product design to volume production and direct order
fulfillment. The company provides advanced engineering services, including
product design, printed circuit board (PCB) layout, quick-return prototyping and
test development.
Table of Contents
The Company at a Glance ................................................... 1
Financial Highlights ...................................................... 1
President's Letter ........................................................ 2
Achieving Global Presence ................................................. 5
Management's Discussion and Analysis ...................................... 9
Consolidated Financial Statements ......................................... 17
Notes to Consolidated Financial Statements ................................ 21
Independent Auditors' Report .............................................. 34
Management's Report ....................................................... 34
Quarterly Financial Data .................................................. 35
Market for the Registrant's Common Equity
and Related Shareholder Matters ......................................... 35
Selected Financial Data ................................................... 36
Corporate and Shareholder Data ............................................ ISBC
President's Letter
Dear Shareholder:
Once again it is my pleasure to present to you the Benchmark Electronics Inc.
financial reports for the fiscal year ending December 31, 1999.
The electronics industry continues to grow at a rapid pace. This growth
coupled with the growing trend of outsourcing by OEMs has fueled phenomenal
growth and consolidation activity within the EMS industry. Benchmark's revenue
growth likewise continues to exceed the average growth rate for the EMS
industry. Acquisitions have represented a significant portion of the Company's
growth strategy.
In 1999, Benchmark Electronics, Inc. once again posted record sales for the
year.
Our continued growth resulted from the consistent application of our
fundamental business strategies and practices, which coupled internal growth
with the acquisition of AVEX Electronics Inc. to generate record sales of
$877,838,540, a 68% increase over our 1998 sales. Benchmark's level of
performance is reflected in our record-high one billion dollars in backlog as of
December 31, 1999.
(Bar charts: Sales, Income, Diluted EPS)
(Bar chart: Compound Average Growth Rate Comparison)
Highlights of the Year
During 1999, the Benchmark team achieved significant progress in line with
our fundamental business strategies. We took our first major steps toward
becoming a recognized top tier EMS provider, with annualized sales in excess of
$1 billion. This moved Benchmark from a number 12 position in the EMS industry
in 1998 to the number 6 position for 1999 (Electronic Business Magazine).
Another key accomplishment, in line with our strategies, is our global
expansion. Benchmark became a supplier in four continents during 1999; North and
South America, Asia and Europe. As discussed in more detail further on in this
year's shareholder report, we are now present in 14 different facility locations
worldwide. This global footprint gives us the foundation for enhanced customer
service, quick response with localized service to our multi-national customers,
and secures our foundation for continued growth and expansion. During 1999,
Benchmark expanded its industry leading customer base, focusing on the medium
volume/high mix and on the high volume sectors of our industry.
In light of the overall accomplishments of 1999, I am disappointed to report
that after 40 successive quarters of record breaking increasing sales and
profits, that Benchmark's net income was not a record level for 1999. Our net
income of $11,974,430 translated to a diluted earnings per share of $.80.
Achieving significant economies of scale, and "top line growth," are very
important in the contract manufacturing industry. Rapid expansion of revenues
provides us with important leverage in the procurement of components and
subsystems. Since the cost of the components can be greater than 80% of the cost
of goods for a product, cutting our procurement costs enables us to be more
competitive and aggressive in pricing to our customers.
There were several other significant areas that I want to discuss.
Acquisition Integration
During 1999 we focused on emphasizing employee attention to our customers,
which is a traditional Benchmark strength, thus improving long-standing customer
relationships. We implemented organizational changes, initiated overhead
reduction efforts and streamlined the combined corporate structure. These
measures sharpened the focus of the organization, provided more responsive and
timely service to our customers, and improved our efficiency in meeting
customers' needs.
Sales and Marketing Highlights
During 1999 Benchmark strengthened its focus on sales and marketing. We
combined the efforts of the medium volume/higher mix teams with the high volume
programs, aggressively cross-selling our medium volume/higher mix services to
existing high volume accounts and vice-versa. Already, this strategy has yielded
record quotation activities from our traditional customer base, and generated
similar activity from prospective customers seeking new programs.
Our sales and marketing activities during 1999 produced record program
bookings, especially in the traditional medium volume segments, which I believe
will provide a strong basis for growth during 2000 and subsequent years.
It is my pleasure to thank our shareholders for their continued support over
the years. I must also reiterate my praise for the dedicated Benchmark
management team for their commitment to providing our organization with stable
leadership. Our team draws on many years of industry experience and integrity,
and is developing an enviable track record for successful strategic
acquisitions. Given the dramatic change in the revenue, scope of service, and
geographic presence that we accomplished during 1999, Benchmark management's
focus on organizational and material synergies should provide a very strong
foundation for continued growth in the electronics manufacturing industry for
the new millennium.
Sincerely yours,
Donald E. Nigbor
President and Chief Executive Officer
March 24, 2000
(Photo Donald E. Nigbor)
Achieving the Global Presence in the EMS Industry
Excellence and Innovation
During 1999, Benchmark dramatically expanded both the company's size and the
scope of services it offers to EMS clients.
We believe the efforts of the Benchmark management team during 1999
positioned the company in the top tier of the EMS industry, provided us with the
purchasing power to offer competitive solutions to our customers . . . located
us in new strategic markets . . . prepared us for penetration into high volume
electronic sectors . . . and lastly resulted in a company providing a very broad
band of services to customers. Currently many of our top tier competitors engage
primarily in high volume/low cost
manufacturing. Benchmark's capabilities are based on solid experience and
state-of-the-art expertise in the medium volume/high mix assembly, test and
configuration, as well as in those high volume/low cost applications.
Expansion
At the beginning of fiscal year 1999, our manufacturing facilities were
located in the United States, with a box-build facility in Dublin, Ireland.
Pursuing our strategic goals of global expansion and broadening services, by the
end of 1999, we had become a global EMS provider, with 14 locations in 8
countries, with more than one and one- half million square feet of facility
space, and with a staff of more than 7,000 associates worldwide. Our dramatic
expansion has given us a presence in key growth markets within the electronics
manufacturing industry.
In Europe, we added four facilities, in the countries of Ireland, Scotland,
Sweden and Hungary, in order to provide local responsive service to our global,
multi-national electronic customers. These facilities provide design
manufacturing of circuit board assemblies, testing of products, box-builds and
depot repair and upgrade services for customers in Europe.
We also added significant capabilities in South America with a location in
Campinas, Brazil. The Brazil facility is key for growth in this region due to
the high duties imposed by the Brazilian government and the requirements of a
number of our Fortune 100 customers that Benchmark manufacture and distribute
electronic products within this important growth area and emerging
consumer/industrial markets.
Our expansion on the North American continent also continued during 1999. We
added two large domestic facilities in Huntsville, Alabama, and Pulaski,
Tennessee, to provide specialized capabilities in the component procurement,
circuit board design assembly and test areas and box build/final system
integration. The locations of the added facilities in North America were
complementary to our existing domestic facilities, providing additional
geographic coverage and regional support for the Benchmark customer base.
(World Map: Geographic Locations)
South of the border our new Guadalajara, Mexico, plant has a headcount of
over 1,300 associates and is one of the fastest growing operations within the
Benchmark family. Mexico offers a competitive cost structure for the Americas.
Guadalajara itself is a world recognized center for electronic manufacturing,
drawing on a large pool of trained technical and professional staff and a
dedicated direct labor pool that is readily available.
During 1999 the Guadalajara operation moved into a new facility that
consistently exceeds customer expectations as to both its capabilities and its
efficiency. Governor Alberto Cardenas Jiminez of the State of Jalisco visited
the Guadalajara facility in September for our dedication and expressed support
for our expansion of high technology production efforts within this region.
(Pie Chart: Market Segments)
Finally, in 1999 we expanded into the Asian market with a medium
volume/higher mix presence in Singapore. This facility provides us with a strong
complement of management staff, capabilities and resources to expand into other
lower cost areas of Asia, such as Malaysia and Mainland China, to provide our
customer base with the overall global Benchmark model of engineering and
prototype capabilities, medium volume/high mix and high volume/low cost
manufacturing options.
We are favorably positioned to grow further into Asia and to penetrate other
industrial/consumer markets to further diversify our customer base.
Computerized Resource Planning System
During 1999, we began implementing the Baan enterprise resource planning
(ERP) system. Upon completion, the entire corporation will be linked with a
powerful planning system designed to maximize our competitive capabilities
through component procurement leveraging plus flexible plant loading and
scheduling. We anticipate utilizing this system as a tool to manage global
revenue growth.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements regarding our
future financial condition and results of operations and our business
operations. The words "may," "intend," "will," "expect," "anticipate,"
"objective," "projection," "forecast," "plan," "management believes,"
"estimate," "continue," "should," "strategy" or "position" or the negatives of
those terms or other variations of them or by comparable terminology are
intended to identify forward-looking statements. We have based these statements
on our current expectations about future events. Although we believe that our
expectations reflected in or suggested by our forward-looking statements are
reasonable, we cannot assure you that these expectations will be achieved. Our
actual results may differ materially from what we currently expect. Important
factors which could cause our actual results to differ materially from the
forward-looking statements include, without limitation, integration of the
operations of AVEX Electronics, Inc. and Kilbride Holdings B.V. (AVEX);
incurrence of operating losses at AVEX after our acquisition of AVEX; the
resolution of the pending legal proceedings discussed in this report; the loss
of one or more of our major customers; changes in our customer concentration;
the absence of long-term sales contracts with our customers; our dependence on
the growth of the enterprise computer, telecommunications, medical device,
industrial control, testing and instrumentation, networking/servers and high-end
video/audio/entertainment industries; risks associated with international
operations; the availability and cost of customer specified components; our
dependence on certain key executives; the effects of domestic and foreign
environmental laws; the volatility of the price of our common stock; and
competition from other providers of electronics manufacturing services. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
Recent Acquisitions
On August 24, 1999, we acquired AVEX from J.M. Huber Corporation (the
"Seller"). As consideration for the acquisition, the Company paid the Seller
$265.3 million in cash at closing, subject to certain adjustments, including a
working capital adjustment, and issued to the Seller one million shares of the
Company's Common Stock. The transaction was accounted for under the purchase
method of accounting, and, accordingly, the results of operations of AVEX since
August 24, 1999 have been included in the Company's financial statements. The
acquisition resulted in goodwill of approximately $131.1 million, which is being
amortized on a straight line basis over 15 years. In order to finance the AVEX
acquisition, the Company (i) obtained a term loan (Term Loan) from a syndicate
of commercial banks in the amount of $100 million, (ii) obtained a new revolving
credit facility permitting draws of up to $125 million, subject to a borrowing
base calculation, and borrowed $46 million under such facility and (iii) issued
$80.2 million in convertible subordinated debt. In connection with the AVEX
acquisition, the Company borrowed $30 million under the new revolving credit
facility to refinance the Company's prior Senior Note. Certain disputes have
arisen between the Company and the Seller relating to the AVEX acquisition
resulting in legal proceedings between the parties over certain aspects of the
transaction. See Notes 2, 5 and 13 of Notes to Consolidated Financial
Statements.
On March 1, 1999, we acquired certain assets from Stratus, a wholly owned
subsidiary of Ascend Communications, Inc. (Ascend) for approximately $42.3
million in cash, as adjusted. The acquisition price was allocated $6.1 million
to equipment and other assets, and $36.2 million to inventories. Stratus
provided systems integration services for large and sophisticated fault-tolerant
mainframe computers. In connection with the transaction, the Company entered
into a three-year supply agreement to provide these system integration services
to Ascend and Stratus Holdings Limited and the Company hired approximately 260
employees. See Note 2 of Notes to Consolidated Financial Statements.
On February 23, 1998, we acquired LCEC for $70 million in cash and the
Company paid $0.7 million in acquisition costs. LCEC, situated in Hudson, New
Hampshire, was one of New England's largest electronics manufacturing services
companies, providing a broad range of services including printed circuit board
assembly and test, system assembly and test, prototyping, depot repair,
materials procurement, and engineering support services. The transaction was
accounted for under the purchase method of accounting, and, accordingly, the
results of operations of LCEC since February 23, 1998 have been included in the
Company's financial statements. The acquisition resulted in goodwill of
approximately $29.5 million, which is being amortized on a straight line basis
over 15 years. See Note 2 of Notes to Consolidated Financial Statements.
The inclusion in the Company's accounts of the operations of AVEX, the
systems integration facility in Ireland and LCEC are responsible for a
substantial portion of the variations in the results of the Company's operations
(including components thereof) from period to period. The effects of these on
the Company's reported financial condition, liquidity and results of operations
should be considered when reading the financial information contained herein.
The acquisition of AVEX constitutes a significant expansion of the Company's
operations. Accordingly, the potential effect of the AVEX acquisition on the
Company's future financial condition, liquidity and results of operations should
be considered when reading the historical financial information and related
discussions set forth in the following section.
Results of Operations
The following table presents the percentage relationship that certain items
in the Company's Consolidated Statements of Income bear to sales for the periods
indicated. The financial information and the discussion below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
Percentage of Sales
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
Sales ......................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 92.3 90.1 87.8
-------- -------- --------
Gross profit .............................. 7.7 9.9 12.2
Selling, general and administrative expenses .. 3.7 3.4 3.9
Amortization of goodwill ...................... .7 .6 .5
-------- -------- --------
Income from operations .................... 3.3 5.9 7.8
Other income (expense) ........................ (1.0) (.7) (.5)
-------- -------- --------
Income before income taxes and
extraordinary item ..................... 2.3 5.2 7.4
Income tax expense ............................ .8 2.0 2.7
-------- -------- --------
Income before extraordinary item .......... 1.5 3.2 4.6
Extraordinary item - loss on extinguishment
of debt, net of tax ......................... .1 -- --
-------- -------- --------
Net Income ................................ 1.4% 3.2% 4.6%
======== ======== ========
Year Ended December 31, 1999 Compared With Year Ended December 31, 1998 Sales
in 1999 increased $353.8 million, or 67.5%, over 1998 sales. The sales growth
was attributed to the acquisition of AVEX, the operation of the systems
integration facility in Dublin, Ireland, and increases in sales volume from both
existing and new customers.
Americas - Within the Americas, the sales growth of approximately $186
million in fiscal 1999 was primarily due to the acquisition of the AVEX
facilities in Huntsville, Alabama, Pulaski, Tennessee and Guadalajara, Mexico,
and demand increases from existing and new customers.
Europe - Benchmark's new locations in Europe were the result of acquisitions.
Benchmark acquired AVEX and acquired certain assets from Stratus, in Dublin,
Ireland on March 1, 1999. The addition of these sites resulted in the increase
in net sales of approximately $154 million and operating income of approximately
$12 million for 1999 in Europe.
Asia - Benchmark's facility in Singapore was an AVEX facility. This acquired
facility gave rise to the net sales of approximately $13 million and operating
income of approximately $.8 million for Asia in 1999.
Benchmark continues to expand the diversification of our customer base
between countries, market segments and product lines within market segments.
As a result of Benchmark's international sales and facilities, Benchmark's
operations are subject to the risks of doing business abroad. These dynamics
have not had a material adverse effect on Benchmark's results of operations
through December 31, 1999, however, we cannot assure that there will not be an
adverse impact in the future. See "Market Risks" for factors pertaining to our
international sales and fluctuations in the exchange rates of foreign currency
for further discussion of potential adverse effects in operating results
associated with the risks of doing business abroad.
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. During 1999, the Company's three largest customers accounted
for approximately 39.2% of the Company's sales, and the Company's largest
customer accounted for approximately 17.5% of sales. The Company's future sales
are dependent on the success of its customers, some of which operate in
businesses associated with rapid technological change and consequent product
obsolescence. Developments adverse to the Company's major customers or their
products, or the failure of a major customer to pay for components or services,
could have an adverse effect on the Company.
AVEX's largest customer in 1998 has substantially reduced its purchases from
AVEX during 1999 as a result of changed circumstances affecting this customer's
products, and another large customer is currently undergoing a period of
organizational change and has reduced its purchases as a result.
The Company had a record year-end backlog of approximately $1 billion at
December 31, 1999, as compared to the 1998 year-end backlog of $317 million. The
December 31, 1999 figure includes backlog amounts for the recently acquired AVEX
operations. Although the Company expects to fill substantially all of its
backlog in 2000, at December 31, 1999 the Company does not have long-term
agreements with all of its customers and 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 any of the Company's current customers will continue to
utilize the Company's services. Because of these factors, backlog is not a
meaningful indicator of future financial results.
Gross profit increased $15.8 million, or 30.6%, over 1998. Gross profit as a
percentage of sales decreased from 9.9% for 1998 to 7.7% for 1999. The increase
in gross profit was due primarily to higher sales attributable to the AVEX
acquisition, as well as the operation of the new systems integration facility in
Ireland and changes in product and customer mix occurring in the ordinary course
of business. The decrease in gross profit as a percentage of sales during 1999
was due primarily to the higher costs and lower than expected contribution of
AVEX, as well as the slower ramping up of new projects of Benchmark and AVEX
during the last six months of 1999, which resulted in significant
underabsorption of costs. For the foreseeable future, Benchmark's gross margin
is expected to depend primarily on facility utilization, product mix, start-up
of new programs, pricing within the electronics industry, and the integration
costs of acquisitions. The gross margins at each facility and Benchmark as a
whole may continue to fluctuate. Increases in start up costs associated with new
programs and competitive pricing within the electronics industry could impact
our gross margin.
Selling, general and administrative expenses (SG&A) for 1999 increased $14.8
million, or 83.7% from 1998 to $32.5 million in 1999. The increase in SG&A
expenses for 1999 is primarily the result of the acquisition of AVEX.
Additionally, the increase in SG&A expenses reflects the investment in the
business infrastructure such as personnel and other related corporate and
administrative expenses to support the increased size and complexity of our
business. We anticipate SG&A expenses will continue to increase in absolute
dollars in the future as we continue to develop the infrastructure necessary to
support our current and prospective business.
Goodwill is amortized on a straight-line basis over an estimated life of 15
years. The amortization of goodwill for the years ended December 31, 1999 and
1998 was $6.4 million and $3.3 million, respectively. Interest expense incurred
by the Company, including the debt incurred in connection with the recent
acquisitions, was approximately $9.7 million and $4.4 million, respectively, in
1999 and 1998. The increased amortization and interest expense in 1999 resulted
from the additional goodwill and debt incurred in connection with the
acquisition of AVEX during 1999. The Company expects amortization of goodwill
and interest expense in future periods to reflect the increased goodwill and
indebtedness.
Interest income was approximately $0.6 million in 1999 compared to $0.5
million in 1998.
Income tax expense (including $0.7 million of benefit allocated to the
extraordinary item) of $6.3 million represented an effective tax rate of 34.5%
for the year ended December 31, 1999, compared with an effective tax rate of
39.1% for the year ended December 31, 1998. The decrease is due primarily to
lower foreign tax rates applicable to a portion of pretax income in 1999,
partially offset by nondeductible amortization of goodwill.
In connection with the financing of the acquisition of AVEX, the Company
prepaid the 8.02% Senior Note due 2006. An extraordinary loss of $1.3 million
(net of income tax benefit of $0.7 million) was incurred as a result of the
early extinguishment of this indebtedness. See Note 5 of Notes to Consolidated
Financial Statements.
The Company reported net income of approximately $12.0 million, or diluted
earnings of $0.80 per share, for 1999 compared with net income of approximately
$16.4 million, or diluted earnings of $1.35 per share for 1998. The
approximately $4.4 million decrease in net income during 1999 was a result of
the combined effects of the acquisition of AVEX, the slower ramping up of new
projects which resulted in significant underabsorption of costs, the
extraordinary loss on extinguishment of debt and the increase in interest
expense.
Year ended December 31, 1998 compared with year ended Decenber 31, 1997
Sales in 1998 increased $198.8 million, or 61.1%, over 1997 sales. The net
increase in sales resulted primarily from increased sales volume from the
acquisition of LCEC on February 23, 1998, existing customers, and the addition
of new customers, which was partially offset by reduced sales to a major
customer during a period of organizational change.
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. During 1998, the Company's three largest customers accounted
for approximately 53% of the Company's sales, and the Company's largest customer
accounted for approximately 28% of sales.
The Company had a then record year-end backlog of $317 million at December
31, 1998, as compared to the 1997 year-end backlog of $302 million.
Gross profit increased $12.1 million, or 30.6%, over 1997. Gross profit as a
percentage of sales decreased from 12.2% for 1997 to 9.9% for 1998. The increase
in gross profit was due primarily to higher sales volumes and normal changes in
product mix and customer mix. The Company's gross profit reflects a number of
factors, including product mix, the level of start-up costs and efficiencies
associated with new programs, capacity utilization of surface mount and other
equipment, and pricing within the electronics industry. All of these factors are
continually changing and are interrelated, making it impracticable to determine
separately the effect of each factor. The decrease in gross profit as a
percentage of sales during 1998 was due primarily to a less profitable customer
mix, and a reduced capacity utilization, at the LCEC facility.
Selling, general and administrative expenses increased $4.9 million, or
37.9%, from 1997 to $17.7 million in 1998. The increase in selling, general and
administrative expenses reflects additional personnel and related departmental
expense, as well as the additional administrative expenses resulting from the
inclusion of LCEC for ten months of 1998.
The amortization of goodwill for the years ended December 31, 1998 and 1997
was $3.3 million and $1.7 million, respectively. Interest expense incurred by
the Company on the debt incurred in connection with the acquisitions of LCEC in
1998 and EMD Technologies, Inc. (EMD) in 1996 was approximately $4.4 million and
$2.5 million, respectively, in 1998 and 1997. The increased amortization and
interest expense in 1998 resulted from the additional goodwill and debt incurred
in connection with the acquisition of LCEC during 1998.
Interest income was approximately $0.5 million in 1998 compared to $1.2
million in 1997. The decrease was due to the use of a portion of the Company's
cash and interest bearing marketable securities to fund the acquisition of LCEC.
Income tax expense of $10.5 million represented an effective tax rate of
39.1% for the year ended December 31, 1998, compared with an effective tax rate
of 37% for the year ended December 31, 1997. The increase is due primarily to
the increase in nondeductible amortization of goodwill.
The Company reported net income of approximately $16.4 million, or diluted
earnings of $1.35 per share, for 1998 compared with net income of approximately
$15.1 million, or diluted earnings of $1.26 per share for 1997. The
approximately $1.3 million increase in net income during 1998 was a result of
the combined effects of the acquisition of LCEC and the overall increase in
revenues resulting from the factors discussed above.
Liquidity and Capital Resources
The Company has financed its growth and operations through funds generated
from operations, proceeds from the sale of its securities and funds borrowed
under its credit facilities.
Cash provided by operating activities was $69.9 million, $56.9 million and
$19.3 million in 1999, 1998 and 1997, respectively. In 1999, significant
decreases in accounts receivable, net of effects from the acquisition of AVEX,
increases in accounts payable, and increases in depreciation and amortization
were offset by increases in inventories and decreases in accrued liabilities,
net of effects from the acquisition of AVEX. The Company's inventories increased
from $53.7 million at December 31, 1998 to $214.6 million at December 31, 1999,
reflecting the Company's acquisitions of AVEX and certain assets from Stratus
during 1999 and increased sales and backlog during this period. In 1998,
substantial decreases in inventory and accounts receivable, net of effects from
the acquisition of LCEC, and increases in net income, depreciation and
amortization were offset by increases in accounts payable. The Company's
inventories decreased from $61.1 million at December 31, 1997 to $53.7 million
at December 31, 1998, reflecting improved customer forecasting and the Company's
emphasis on supply chain management. In 1997, substantial increases in inventory
were partially offset by net income, depreciation and amortization, and
decreases in accounts payable. The Company's inventories increased from $48.1
million at December 31, 1996 to $61.1 million at December 31, 1997, reflecting
the Company's increased sales and backlog during this period. The Company
expects increases in inventories to support the anticipated growth in sales. The
Company continued and is continuing the practice of purchasing components only
after customer orders are received, which mitigates, but does not eliminate the
risk of loss on inventories. Supplies of electronic components and other
materials used in operations are subject to industry-wide shortages. In certain
instances, suppliers may allocate available quantities to the Company.
Cash used in investing activities was $333.7 million, $78.7 million and $12.4
million, respectively, for the years ended December 31, 1999, 1998 and 1997. On
August 24, 1999, the Company completed the AVEX acquisition with $265.3 million
paid in cash at closing. On March 1, 1999, the Company completed the purchase of
inventories and equipment from Stratus for $42.3 million in cash. On February
23, 1998, the Company completed its acquisition of LCEC for approximately $70.7
million in cash. See Note 2 of Notes to Consolidated Financial Statements.
Capital expenditures of $23.8 million during 1999 consisted primarily of test
and computer equipment. Capital expenditures of $12.2 million during 1998
consisted primarily of test and manufacturing production equipment and computer
equipment to support the Company's implementation of the new ERP system. During
1999 and 1998, the Company invested $2.5 and $7.4 million, respectively on the
new ERP
software system. Capital expenditures of $10.4 million during 1997 were
primarily concentrated in surface mount assembly, test and manufacturing
production equipment. The Company used $11.4 million of proceeds from the sale
of interest bearing marketable securities during 1998, for the purpose of paying
a portion of the purchase price of LCEC. During 1997, the Company invested $2.3
million of available cash in interest bearing marketable securities.
Cash provided by financing activities was $249.8 million, $23.9 million and
$0.4 million, respectively, for the years ended December 31, 1999, 1998 and
1997. In August 1999 in connection with the AVEX acquisition, the Company
borrowed $100 million under the Term Loan, $76 million under the Revolving
Credit Facility and issued $80.2 million principal amount of 6% Convertible
Subordinated Notes. In connection with the purchase of the assets from Stratus
on March 1, 1999, the Company borrowed $25 million. In June 1999, the Company
completed a public offering of 3,525,000 shares of its common stock and used a
portion of the net proceeds of $93.7 million to repay borrowings under its bank
credit facilities. Principal payments on long-term debt and debt issuance costs
totaled $58.4 million and $6.4 million, respectively, during 1999. During 1998,
cash provided by financing activities consisted primarily of $40.0 million of
proceeds from the issuance of long-term debt offset by $16.2 million of
principal payments on long-term debt. During 1997, cash provided by financing
activities consisted primarily of $0.7 million of proceeds from stock options
exercised, offset by $0.2 million of principal payments on long-term debt.
Principal on the Term Loan is payable in twenty quarterly installments,
commencing December 31, 1999 with an installment of $3 million. Thereafter,
quarterly installments of $4 million, $4.5 million, $5 million and $5.5 million
are due during 2000, 2001,2002 and 2003, respectively. The final three
installments of $7 million are due on the last day of March, June and September
2004.
The Company has a $125 million revolving line of credit facility (the
Revolving Credit Facility) with a commercial bank. The Company is entitled to
borrow under the Revolving Credit Facility up to the lesser of $125 million or
the sum of 75% of its eligible accounts receivable, 45% of its eligible
inventories and 50% of its eligible fixed assets. Interest on the Revolving
Credit Facility and the Term Loan is payable quarterly, at the Company's option,
at either the bank's Eurodollar rate plus 1.25% to 2.50% or its prime rate plus
0.00% to 1.00%, based upon the Company's debt ratio as specified in the
agreement. A commitment fee of 0.375% to 0.500% per annum on the unused portion
of the Revolving Credit Facility is payable quarterly in arrears. The Revolving
Credit Facility matures on September 30, 2004. As of December 31, 1999, the
Company had $41.5 million outstanding under the Revolving Credit Facility,
bearing interest at rates ranging from 8.6875% to 9.5%, $5.2 million outstanding
letters of credit and $41.9 million was available for future borrowings.
The Term Loan and the Revolving Credit Facility (collectively the Facility)
is secured by the Company's domestic inventory and accounts receivable, 100% of
the stock of the Company's domestic subsidiaries, and 65% of the voting capital
stock of each direct foreign subsidiary and substantially all of the other
tangible and intangible assets of the Company and its domestic subsidiaries. The
Facility contains customary financial covenants and restricts the ability of the
Company to incur additional debt without the consent of the bank, to pay
dividends, to sell assets, and to merge or consolidate with other persons.
The Company has outstanding $80.2 million principal amount of 6% Convertible
Subordinated Notes (Notes). The indenture relating to the Notes contains
covenants affirmative and negative covenants including covenants restricting the
Company's ability to merge or engage in certain other extraordinary corporate
transactions unless certain conditions are satisfied. Upon the occurrence of a
change of control of the Company (as defined in the indenture relating to the
Notes), each holder of Notes will have the right to require the Company to
repurchase all or part of the Holder's notes at 100% of the face amount thereof,
plus accrued and unpaid interest. See Note 5 of Notes to Consolidated Financial
Statements.
The Company's operations, and the operations of businesses it acquires, are
subject to certain foreign, federal, state and local regulatory requirements
relating to environmental, waste management, health and safety matters. The
Company believes it operates in substantial compliance with all applicable
requirements and the Company seeks to ensure that newly acquired businesses
comply or will comply substantially with applicable requirements. However,
material costs and liabilities may arise from these requirements or from new,
modified or more stringent requirements in the future. In addition, past,
current and future operations may give rise to claims of exposure by employees
or the public, or to other claims or liabilities relating to environmental,
waste management or health and safety concerns.
The Company may require additional capital to finance further enhancements to
or acquisitions or ex-pansions of its manufacturing capacity. Management
believes that the level of working capital will continue to grow at a rate
generally consistent with the growth of the Company's operations. Management
continually evaluates potential strategic acquisitions and investments, but at
the present time, we have no understandings, commitments or agreements with
respect to any such acquisition or investment. Although no assurance can be
given that future financing will be available on terms acceptable to the
Company, the Company may seek additional funds from time to time through public
or private debt or equity offerings or through bank borrowings to the extent
permitted by its existing debt agreements.
At December 31, 1999, the Company's debt to total capitalization ratio was
44%, as compared to 28% at December 31, 1998. Our acquisitions in 1999 have
significantly increased our leverage ratio and decreased our interest coverage
ratio. The level of indebtedness, among other things, could make it difficult
for us to obtain any necessary financing in the future for other acquisitions,
working capital, capital expenditures, debt service requirements and other
expenses; limit our flexibility in planning for, or reacting to changes in, our
business; and make us more vulnerable in the event of an economic downturn in
our business.
Management believes that the existing cash balances, funds generated from
operations and borrowings under the Revolving Credit Facility will be sufficient
to permit the Company to meet its liquidity requirements for the foreseeable
future. Pursuant to the terms of the purchase agreement in connection with the
acquisition of AVEX on August 24, 1999, the Company was required to agree upon a
closing working capital adjustment with the Seller by November 22, 1999. The
Company was unable to reach an agrement with the Seller prior to the November
22, 1999 deadline and has 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. The
Company is unable to predict when the arbitrator will be releasing its findings
but estimates that the net closing working capital adjustment will be in the
range of $20 to $40 million. Management has made its best estimate of the
ultimate resolution of this arbitration proceeding. However, the final working
capital adjustment could have a significant effect on the final purchase price
and the allocation of the purchase price. The Company has recorded a current
liability at December 31, 1999 for the estimated amount, and expects to fund any
amount required from operating cash flows and borrowings under the Revolving
Credit Facility. See Note 13 of Notes to Consolidated Financial Statements.
Market Risks
The Company has exposure to interest rate risk with the variable rate
revolving credit and term loan facilities. These facilities are based on the
spread over the bank's Eurodollar rate. The following table presents principal
cash flows and related interest rates by year of maturity for debt obligations.
The variable interest rate for future years assumes the same rate as December
31, 1999.
Expected Year of Maturity ($ In '000'S)
TOTAL AND
FAIR VALUE AT
DECEMBER 31,
DEBT 2000 2001 2002 2003 2004 THEREAFTER 1999
- ---- -------- -------- -------- -------- -------- --------- ----------
Convertible subordinated notes ... -- -- -- -- -- $ 80,200 $ 80,200
Fixed interest rate ............ 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Variable Rate Term Loan .......... $ 16,000 $ 18,000 $ 20,000 $ 22,000 $ 21,000 -- $ 97,000
Average interest rate .......... 8.72% 8.72% 8.72% 8.72% 8.72% 8.72% 8.72%
Variable Rate Revolving
Credit Facility ................ -- -- -- -- $ 41,500 -- $ 41,500
Average interest rate .......... 9.27% 9.27% 9.27% 9.27% 9.27% 9.27% 9.27%
Subsequent to December 31, we entered into an interest rate swap transaction
for a notional amount of $47 million under which we pay a fixed rate of interest
hedging against the variable interest rates charged by the Term Loan facility.
The interest rate swap expires in the year 2003, which coincides with maturity
dates on the Term Loan.
Our international sales are a growing portion of our net sales; we are
exposed to risks associated with operating internationally, including the
following:
o Foreign currency exchange risk
o Import and export duties, taxes and regulatory changes
o Inflationary economics or currencies
o Economic and political instability
Historically, the Company has not held or issued derivative financial
instruments. We do not use derivative financial instruments for speculative
purposes. The Company's policy is to maintain a hedged position for certain
significant transaction exposures. These exposures are primarily, but not
limited to, vendor payments and inter-company balances in currencies other than
the functional currency of the operating entity. Our international operations in
some instances operate with natural hedge because both operating expenses and a
portion of sales are denominated in local currency. As of December 31, 1999,
Benchmark did not have any hedging contracts in place.
Enterprise Resource Planning System
The Company has selected Baan U.S.A., Inc. to provide an Enterprise Resource
Planning (ERP) system to improve processes and to increase efficiencies. The
estimated total cost associated with the purchase and implementation of the new
ERP system is approximately $13 million. The costs of this software will be
capitalized and amortized over the estimated useful life of the software, and
costs associated with the preliminary project stage and post-implementation
stage have been and will be expensed as incurred. The total amount expended on
the new ERP system through December 31, 1999, is approximately $11.6 million.
Year 2000
The "year 2000 problem" arose because of the potential software failures that
could arise in date-sensitive software applications utilizing a field of
two-digits rather than four to define a specific year. Absent corrective
actions, date-sensitive software could recognize a date using "00" as the year
1900 rather than the year 2000.
The Company initiated a review of its business and operating systems during
1997 to address those systems that were not year 2000 compliant, and also worked
with its customers and vendors to remediate year 2000 issues. As of December 31,
1999 the Company has spent approximately $700,000 in addressing year 2000
issues.
The Company suffered no significant failures in any system or product upon
the date change from December 31, 1999 to January 1, 2000. Management of the
Company is not aware of any vendor used by the Company for data processing or
related services that experienced a material failure of its product or service
due to year 2000 problems. Although many of the critical dates related to
potential 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 business for delayed effects or future
problems.
Consolidated Balance Sheets
Benchmark Electronics, Inc. and Subsidiaries
DECEMBER 31,
------------------------------
1999 l998
------------- -------------
Assets
Current assets:
Cash and cash equivalents ............................. $ 9,436,780 $ 23,076,582
Accounts receivable, net .............................. 197,238,536 57,178,757
Income taxes receivable ............................... 3,351,026 1,120,343
Inventories ........................................... 214,554,363 53,718,247
Prepaid expenses and other assets ..................... 15,498,830 1,896,888
Deferred tax asset .................................... 2,333,874 2,488,328
------------- -------------
Total current assets ............................ 442,413,409 139,479,145
Property, plant and equipment ............................ 175,773,905 80,826,164
Accumulated depreciation ................................. (53,765,670) (35,264,179)
------------- -------------
Net property, plant and equipment ............... 122,008,235 45,561,985
Goodwill, net ............................................ 172,790,906 48,906,481
Other .................................................... 23,624,863 7,948,086
------------- -------------
$ 760,837,413 $ 241,895,697
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of other long-term debt .......... $ 19,183,736 $ 8,199,910
Accounts payable ...................................... 215,971,292 37,046,161
Accrued liabilities ................................... 29,332,611 7,968,412
------------- -------------
Total current liabilities ....................... 264,487,639 53,214,483
------------- -------------
Revolving line of credit ................................. 41,500,000 --
Convertible subordinated notes ........................... 80,200,000 --
Other long-term debt, excluding current installments ..... 81,110,646 46,110,646
Other long-term liability ................................ 5,939,000 --
Deferred tax liability ................................... 5,665,291 4,569,654
Shareholders' equity:
Preferred shares, $.10 par value; 5,000,000 shares
authorized, none issued ............................ -- --
Common shares, $.10 par value; 30,000,000 shares
authorized: issued 16,290,010 and 11,676,967,
respectively; outstanding 16,240,526 and
11,627,483, respectively ........................... 1,624,052 1,162,748
Additional paid-in capital ............................ 200,980,304 70,159,115
Retained earnings ..................................... 78,774,431 66,800,001
Accumulated other comprehensive income ................ 677,000 --
Less treasury shares, at cost, 49,484 shares .......... (120,950) (120,950)
------------- -------------
Total shareholders' equity ...................... 281,934,837 138,000,914
Commitments and contingencies
------------- -------------
$ 760,837,413 $ 241,895,697
============= =============
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
Benchmark Electronics, Inc. and Subsidiaries
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------- ------------- -------------
Sales ................................................. $ 877,838,540 $ 524,065,077 $ 325,229,015
Cost of sales ......................................... 810,309,375 472,354,251 285,630,163
------------- ------------- -------------
Gross profit .................................... 67,529,165 51,710,826 39,598,852
Selling, general and administrative expenses .......... 32,476,575 17,680,338 12,817,317
Amortization of goodwill .............................. 6,429,575 3,310,661 1,669,740
------------- ------------- -------------
Income from operations .......................... 28,623,015 30,719,827 25,111,795
Interest expense ...................................... (9,696,301) (4,393,528) (2,472,183)
Interest income ....................................... 604,896 479,075 1,162,958
Other income .......................................... 744,868 84,663 149,276
------------- ------------- -------------
Income before income taxes and extraordinary item 20,276,478 26,890,037 23,951,846
Income tax expense .................................... 7,005,360 10,517,567 8,862,183
------------- ------------- -------------
Income before extraordinary item ................ 13,271,118 16,372,470 15,089,663
Extraordinary item - loss on extinguishment of debt ... (1,296,688) -- --
------------- ------------- -------------
Net income ................................... $ 11,974,430 $ 16,372,470 $ 15,089,663
============= ============= =============
Earnings per share:
Basic:
Income before extraordinary item ................ $ 0.94 $ 1.41 $ 1.31
Extraordinary item .............................. (0.09) -- --
------------- ------------- -------------
Earnings per share .............................. $ 0.85 $ 1.41 $ 1.31
============= ============= =============
Diluted:
Income before extraordinary item ................ $ 0.88 $ 1.35 $ 1.26
Extraordinary item .............................. (0.08) -- --
------------- ------------- -------------
Earnings per share .............................. $ 0.80 $ 1.35 $ 1.26
============= ============= =============
Weighted average number of shares outstanding:
Basic .............................................. 14,081,235 11,594,271 11,508,407
Diluted ............................................ 15,009,842 12,098,349 12,003,741
============= ============= =============
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Benchmark Electronics, Inc. and Subsidiaries
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES SHARES CAPITAL EARNINGS INCOME SHARES EQUITY
---------- ---------- ------------ ----------- -------- ---------- ------------
Balances,
December 31, 1996 ........ 11,477,068 $1,147,706 $68,634,790 $35,337,868 -- $(120,950) $104,999,414
Stock options exercised .. 96,700 9,670 669,927 -- -- -- 679,597
Federal tax benefit of
stock options exercised -- -- 154,820 -- -- -- 154,820
Net income ............... -- -- -- 15,089,663 -- -- 15,089,663
Other .................... -- -- (51,937) -- -- -- (51,937)
---------- ---------- ------------ ----------- -------- ---------- ------------
Balances,
December 31, 1997 ........ 11,573,768 1,157,376 69,407,600 50,427,531 -- (120,950) 120,871,557
Stock options exercised .. 53,715 5,372 487,870 -- -- -- 493,242
Federal tax benefit of
stock options exercised -- -- 263,645 -- -- -- 263,645
Net income ......... -- -- -- 16,372,470 -- -- 16,372,470
---------- ---------- ------------ ----------- -------- ---------- ------------
Balances,
December 31, 1998 ........ 11,627,483 1,162,748 70,159,115 66,800,001 -- (120,950) 138,000,914
Common shares issued in
public offering net
of expenses ........... 3,525,000 352,500 93,339,051 -- -- -- 93,691,551
Stock options exercised .. 65,850 6,585 796,657 -- -- -- 803,242
Federal tax benefit of
stock options exercised -- -- 321,893 -- -- -- 321,893
Common shares issued
under Employee Stock
Purchase Plan .......... 22,193 2,219 451,588 -- -- -- 453,807
Acquisition of Avex
Electronics, Inc. ...... 1,000,000 100,000 35,912,000 -- -- -- 36,012,000
Net income ............... -- -- -- 11,974,430 -- -- 11,974,430
Foreign currency
translation adjustments -- -- -- -- 677,000 -- 677,000
---------- ---------- ------------ ----------- -------- ---------- -------------
Comprehensive income ..... -- -- -- -- -- -- 12,651,430
Balances,
---------- ---------- ------------ ----------- -------- ---------- ------------
December 31, 1999 ........ 16,240,526 $1,624,052 $200,980,304 $78,774,431 $677,000 $(120,950) $281,934,837
========== ========== ============ =========== ======== ========== ============
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Benchmark Electronics, Inc. and Subsidiaries
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------- ------------- -------------
Cash flows from operating activities:
Net income .................................................. $ 11,974,430 $ 16,372,470 $ 15,089,663
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............................ 24,636,726 13,306,975 10,150,586
Amortization of premiums on marketable securities ........ -- 46,026 342,193
Deferred income taxes .................................... 840,796 2,305,482 (314,801)
Federal tax benefit of stock options exercised ........... 321,893 263,645 154,820
Amortization of goodwill ................................. 6,429,575 3,310,661 1,669,740
Gain on the sale of property, plant and equipment ........ (454,622) (3,696) (86,973)
Extraordinary loss on extinguishment of debt ............. 1,296,688 -- --
Changes in operating assets and liabilities, net
of effects from acquisitions of businesses:
Accounts receivable ................................... 10,745,221 7,403,982 (589,806)
Income taxes receivable ............................... (1,532,912) (806,749) 74,270
Inventories ........................................... (10,681,325) 30,930,316 (13,033,625)
Prepaid expenses and other assets ..................... 734,667 (353,729) (729,367)
Accounts payable ...................................... 38,489,889 (15,369,675) 7,341,651
Accrued liabilities ................................... (12,931,801) (552,417) (779,596)
------------- ------------- -------------
Net cash provided by operations .................... 69,869,225 56,853,291 19,288,755
Cash flows from investing activities:
Additions to property, plant and equipment .................. (23,871,457) (12,204,071) (10,352,112)
Additions to capitalized software ........................... (2,484,721) (7,383,410) --
Proceeds from the sale of property, plant and equipment ..... 1,467,684 182,810 168,912
Acquisitions, net of cash acquired .......................... (308,877,450) (70,679,312) --
Proceeds from the sale of marketable securities ............. -- 11,384,731 --
Purchase of marketable securities ........................... -- -- (2,264,716)
------------- ------------- -------------
Net cash used in investing activities ................. (333,765,944) (78,699,252) (12,447,916)
Cash flows from financing activities:
Net proceeds from public offering of common shares .... 93,691,551 -- (51,937)
Proceeds from issuance of long-term debt .............. 221,700,000 40,000,000 --
Principal payments on long-term debt .................. (58,473,174) (16,174,777) (239,165)
Repayment premium on extinguishment of debt ........... (1,994,905) -- --
Debt issuance costs ................................... (6,389,392) (425,269) --
Proceeds from employee stock purchase plan ............ 453,807 -- --
Proceeds from stock options exercised ................. 803,242 493,242 679,597
------------- ------------- -------------
Net cash provided by financing activities ............. 249,791,129 23,893,196 388,495
------------- ------------- -------------
Effect of exchange rate changes ................................ 465,788 -- --
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ........... (13,639,802) 2,047,235 7,229,334
------------- ------------- -------------
Cash and cash equivalents at beginning of year ................. 23,076,582 21,029,347 13,800,013
------------- ------------- -------------
Cash and cash equivalents at end of year ....................... $ 9,436,780 $ 23,076,582 $ 21,029,347
============= ============= =============
Supplemental disclosures of cash flow information:
Income taxes paid ........................................... $ 8,194,884 $ 8,755,264 $ 8,491,894
============= ============= =============
Interest paid ............................................... $ 8,603,752 $ 4,264,706 $ 2,537,089
============= ============= =============
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1 -- Summary of Significant Accounting Policies
(a) Business
Benchmark Electronics, Inc. (the Company) is a Texas corporation which provides
electronics manufacturing and design services to original equipment
manufacturers (OEMs) in select industries, including enterprise computer and
peripherals, telecommunications, medical devices, industrial control, testing
and instrumentation, high-end video/audio/entertainment and computers. The
Company has manufacturing operations located in the Americas, Europe and Asia.
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of
Benchmark Electronics, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
(d) Inventories
Inventories include material, labor and overhead and are stated at the lower of
cost (principally first-in, first-out method) or market.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the useful lives of the assets, which range from
three to thirty years. Leasehold improvements are amortized on the straight-line
method over the shorter of the useful life of the improvement or the remainder
of the lease term.
(f) Goodwill and Other Assets
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the period of
expected benefit of 15 years. The accumulated amortization of goodwill at
December 31, 1999 and 1998 was $12,105,698 and $5,676,123, respectively. The
carrying value of goodwill will be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the goodwill may
not be recoverable. The Company assesses the recoverability of goodwill by
determining whether the amortization of goodwill over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
business. The amount of goodwill impairment, if any, is measured based on
projected discounted operating cash flows compared to the carrying value of
goodwill. Other assets consist primarily of prepaid pension costs, capitalized
software costs, which are amortized over the estimated useful life of the
related software, and deferred financing costs, which are amortized over the
life of the related debt. During 1999 and 1998, $2,484,721 and $7,383,410 of
software costs were capitalized in connection with the new ERP system
implementation. The accumulated amortization of deferred financing costs at
December 31, 1999 and 1998 was $777,766 and $207,311, respectively.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
In assessing and measuring the impairment of long-lived assets, the Company
applies the provisions of Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(h) Earnings Per Share
Basic earnings per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding stock options to purchase common stock. Incremental shares of
928,607, 504,078, and 495,334 in 1999, 1998 and 1997, respectively, were used in
the calculation of diluted earnings per share. Options to purchase 312,000,
3,000 and 124,000 shares of common stock in 1999, 1998 and 1997, respectively,
were not included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price of the common
stock. The effect of the if-converted method for the 6% Convertible Subordinated
Notes (the Notes) is antidilutive and the weighted average portion of the
1,995,025 of potential common shares has not been considered in computing
diluted earnings per share in 1999.
(i) Revenue Recognition
Revenues are recognized at the time the circuit boards are shipped to the
customer, for both turnkey and consignment method sales. Under the consignment
method, OEMs provide the Company with the electronic components to be assembled,
and the Company recognizes revenue only on the labor used to assemble the
product.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
(k) Employee Stock Plans
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, in accounting for its stock option
plan and its Employee Stock Purchase Plan. As such, compensation expense would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
accordance with generally accepted accounting principles. Actual results could
differ from those estimates.
(m) Fair Values of Financial Instruments
The fair values of the Company's cash equivalents, accounts receivable, accrued
liabilities, and accounts payable approximated their carrying values due to the
short-term maturities of these instruments. The estimated fair value of
long-term debt is equivalent to its carrying value as the applicable interest
rates approximate current market rates.
(n) Capitalized Software Costs
On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants (AICPA) State-ment of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
establishes criteria for capitalizing certain costs related to internal-use
software. The adoption of SOP 98-1 did not have a material impact on the
Company's financial position and results of operations.
(o) Foreign Currency
For foreign subsidiaries using the local currency as their functional currency,
assets and liabilities are translated at exchange rates in effect at the balance
sheet date and income and expenses are translated at average exchange rates. The
effects of these translation adjustments are reported in other comprehensive
income. Exchange gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity involved are included
in income (expense) and totaled approximately $(1,549,000) in 1999.
(p) Start-up Costs
On January 1, 1999, the Company adopted the AICPA SOP 98-5, "Reporting on the
Costs of Start-up Activities." SOP 98-5 requires that all start-up costs related
to new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be expensed when SOP 98-5 is adopted. The
Company adoption of SOP 98-5 did not have a material impact on the Company's
financial position and results of operations.
(q) Derivative Financial Instruments
The Company enters into interest rate swap agreements to reduce its exposure to
market risks from changing interest rates. For interest rate swaps, the
differential to be paid or received is accrued and recognized in interest
expense and may change as market interest rates change. If a swap is terminated
prior to its maturity, the gain or loss is recognized over the remaining
original life of the swap if the item hedged remains outstanding, or
immediately, if the item hedged does not remain outstanding. If the swap is not
terminated prior to maturity, but the underlying hedged item is no longer
outstanding, the interest rate swap is marked to market and any unrealized gain
or loss is recognized immediately.
(r) Recently Enacted Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded 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 on
January 1, 2001, but has not determined the impact on its financial position,
results of operations or liquidity.
Note 2 -- Acquisitions
On August 24, 1999, the Company completed the acquisition of all of the
outstanding capital stock of AVEX Electronics, Inc. and Kilbride Holdings, B.V.
(AVEX) from J.M. Huber Corporation (Seller). AVEX has manufacturing plants or
design centers in the United States in Huntsville, Alabama and Pulaski,
Tennessee, and elsewhere in Campinas, Brazil, Csongrad, Hungary, Guadalajara,
Mexico, Cork, Ireland, Singapore, East Kilbride, Scotland, and Katrineholm,
Sweden. In consideration of the capital stock of AVEX, the Company paid $265.3
million in cash at closing, subject to certain adjustments, including a working
capital adjustment, and issued one million shares of the Company's Common Stock
to the Seller. In addition, the Company paid $5.2 million in acquisition costs.
In order to finance the AVEX acquisition, the Company (i) obtained a term loan
from a syndicate of commercial banks in the amount of $100 million, (ii)
obtained a new revolving credit facility permitting draws of up to $125 million,
subject to a borrowing base calculation, and borrowed $46 million under such
facility and (iii) issued $80.2 million in Notes. In connection with the AVEX
acquisition, the Company borrowed $30 million under the new revolving credit
facility to refinance existing debt pursuant to the Company's prior Senior Note
(see Note 5). The AVEX acquisition was accounted for using the purchase method
of accounting, and, accordingly, the results of operations of AVEX since August
24, 1999 have been included in the accompanying consolidated statements of
income.
The acquisition resulted in goodwill of approximately $131.1 million that is
being amortized on a straight-line basis over 15 years. Pursuant to the terms of
the purchase agreement in connection with the acquisition of AVEX on August 24,
1999, the Company was required to agree upon a closing working capital
adjustment with the Seller by November 22, 1999. The Company was unable to reach
an agrement with the Seller prior to the November 22, 1999 deadline and has
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. The Company is unable to predict
when the arbitrator will be releasing its findings but estimated that the net
closing working capital adjustment will be in the range of $20 to $40 million.
Management has made its best estimate of the ultimate resolution of this
arbitration proceeding. However, the final working capital adjustment could have
a significant effect on the final purchase price and the allocation of the
purchase price.
The net purchase price has been allocated as follows (in thousands):
Working capital, other than cash ............... $ 135,040
Property, plant and equipment .................. 71,492
Goodwill ....................................... 131,134
Other assets ................................... 9,567
Other liabilities .............................. (5,629)
Deferred income taxes .......................... (1,229)
Long-term debt ................................. (4,457)
---------
Purchase price, net of cash received ......... $ 335,918
=========
Net cash portion of purchase price ............. $ 266,570
Estimated adjustments to cash portion
of purchase price ............................ 33,336
Common stock issued ............................ 36,012
---------
Purchase price, net of cash received ........... $ 335,918
=========
On March 1, 1999, the Company acquired certain equipment and inventories from
Stratus Computer Ireland (Stratus), a wholly owned subsidiary of Ascend
Communications, Inc. (Ascend) for approximately $42.3 million in cash, as
adjusted. The acquisition price was allocated $6.1 million to equipment and
other assets, and $36.2 million to inventories. Stratus provided systems
integration services for large and sophisticated fault-tolerant mainframe
computers. In connection with the transaction, the Company entered into a
three-year supply agreement to provide these system integration services to
Ascend and Stratus Holdings Limited and the Company hired approximately 260
employees.
On February 23, 1998, the Company completed its acquisition of Lockheed
Commercial Electronics Company (LCEC) for $70.7 million in cash. LCEC, situated
in Hudson, New Hampshire, provides a broad range of services including printed
circuit board assembly and test, system assembly and test, prototyping, depot
repair, materials procurement, and engineering support services. The transaction
was accounted for under the purchase method of accounting, and, accordingly, the
results of operations of LCEC since February 23, 1998 have been included in the
accompanying consolidated statements of income. The acquisition resulted in
goodwill of approximately $29.5 million that is being amortized on a
straight-line basis over 15 years.
The net purchase price was allocated as follows (in thousands):
Working capital, other than cash ............ $ 30,575
Property, plant and equipment ............... 15,905
Goodwill .................................... 29,536
Other liabilities ........................... (3,096)
Deferred income taxes ....................... (2,241)
--------
Purchase price, net of cash received ...... $ 70,679
========
The following unaudited pro forma condensed consolidated financial
information reflects the acquisitions of AVEX and LCEC as if they had occurred
on January 1, 1998, excluding the loss on extraordinary item of $1,296,688 ($.09
per share diluted). The summary pro forma information is not necessarily
representative of what the Company's results of operations would have been had
the acquisitions of AVEX and LCEC in fact occurred on January 1, 1998, and is
not intended to project the Company's results of operations for any future
period or date.
1999 1998
---------- ---------
(in thousands,
except per share data)
Net sales ........................................ $1,518,013 1,389,380
Gross profit ..................................... 75,510 33,729
Income (loss) from operations .................... 4,652 (45,144)
Income (loss) before extraordinary item .......... (10,088) (44,065)
Income (loss) before extraordinary
item per share:
Basic ........................................ $ (0.66) (3.50)
Diluted ...................................... $ (0.66) (3.50)
Weighted average number of shares outstanding:
Basic ........................................ 15,387 12,594
Diluted ...................................... 15,387 12,594
Note 3 -- Inventories
Inventory costs are summarized as follows:
December 31,
-----------------------------------
1999 1998
------------- -------------
Raw materials ............... $ 191,952,023 42,740,718
Work in process ............. 42,602,796 14,487,797
Obsolescence reserve ........ (20,000,456) (3,510,268)
------------- -------------
$ 214,554,363 53,718,247
============= =============
During 1999, the Company added inventory reserves in connection with the
acquisition of AVEX totaling $14,578,706. In addition, the Company charged
$1,911,482 to operating expenses. During 1998 and 1997, inventory reserves
charged to operations were $582,791 and $300,000 respectively, inventory
disposed from reserves totaled $1,923,927 and $679,441, respectively, and the
Company added inventory reserves in connection with the acquisition of LCEC in
1998 totaling $3,100,000.
Note 4 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
--------------------------------
1999 1998
------------ ------------
Land ............................ $ 2,910,509 391,969
Buildings ....................... 24,775,691 8,441,221
Machinery and equipment ......... 132,867,646 64,189,215
Furniture and fixtures .......... 11,041,208 6,856,395
Vehicles ........................ 286,174 14,383
Leasehold improvements .......... 3,394,352 750,111
Construction in progress ........ 498,325 182,870
------------ ------------
$175,773,905 80,826,164
============ ============
Note 5 -- Borrowing Facilities
Other long-term debt consists of the following:
December 31,
-------------------------------
1999 1998
------------ ------------
Term loan ........................ $ 97,000,000 24,000,000
Senior note ...................... -- 30,000,000
Other ............................ 3,294,382 310,556
------------ ------------
Total other long-term debt ..... 100,294,382 54,310,556
Less current installments ........ 19,183,736 8,199,910
------------ ------------
Other long-term debt ............ $ 81,110,646 46,110,646
============ ============
In order to finance the acquisition of AVEX, the Company obtained $100
million through borrowings under a five-year term loan (the Term Loan) through a
syndicate of commercial banks. Principal on the Term Loan is payable in
quarterly installments in annual amounts of $16 million in 2000, $18 million in
2001, $20 million in 2002, $22 million in 2003 and $21 million in 2004. The Term
Loan bears interest, at the Company's option, at either the bank's Eurodollar
rate plus 1.25% to 2.50% or its prime rate plus 0.00% to 1.00%, based upon the
Company's debt ratio as specified in the agreement and interest is payable
quarterly. As of December 31, 1999, the Company had $97 million outstanding
under the Term Loan, bearing interest at rates ranging from 8.6875% to 8.75%. As
of December 31, 1998, the Company had $24 million outstanding under a previous
term loan obtained in connection with the acquisition of LCEC. In June 1999, the
Company repaid all amounts outstanding under the previous term loan with the
proceeds from a public offering of the Company's common stock.
In connection with the financing of the acquisition of AVEX, the Company
prepaid the 8.02% Senior Note (the Senior Note) due 2006. An extraordinary loss
of $1,296,688 (net of income tax benefit of $698,217) was incurred as a result
of the early extinguishment of the Senior Note.
The Company has a $125 million revolving line of credit facility (the
Revolving Credit Facility) with a commercial bank. The Company is entitled to
borrow under the Revolving Credit Facility up to the lesser of $125 million or
the sum of 75% of its eligible accounts receivable, 45% of its eligible
inventories and 50% of its eligible fixed assets. Interest on the Revolving
Credit Facility is payable quarterly, at the Company's option, at either the
bank's Eurodollar rate plus 1.25% to 2.50% or its prime rate plus 0.00% to
1.00%, based upon the Company's debt ratio as specified in the agreement. A
commitment fee of 0.375% to 0.500% per annum on the unused portion of the
Revolving Credit Facility is payable quarterly in arrears. The Revolving Credit
Facility matures on September 30, 2004. As of December 31, 1999, the Company had
$41.5 million outstanding under the Revolving Credit Facility, bearing interest
at rates ranging from 8.6875% to 9.5%, $5.2 million outstanding letters of
credit and $41.9 million was available for future borrowings.
The Term Loan and the Revolving Credit Facility (collectively the Facility)
is secured by the Company's domestic inventory and accounts receivable, 100% of
the stock of the Company's domestic subsidiaries, and 65% of the voting capital
stock of each direct foreign subsidiary and substantially all of the other
tangible and intangible assets of the Company and its domestic subsidiaries. The
Facility contains customary financial covenants and restricts the ability of the
Company to incur additional debt without the consent of the bank, to pay
dividends, to sell assets, and to merge or consolidate with other persons.
In August 1999, the Company issued $80.2 million principal amount of the
Notes due August 15, 2006. The Notes are convertible, unless previously redeemed
or repurchased, at the option of the holder at any time after 90 days following
the date of original issuance and prior to maturity, into shares of the
Company's common stock at an initial conversion price of $40.20 per share,
subject to adjustment in certain events. The Notes are convertible into a total
of 1,995,025 shares of the Company's common stock. Interest is payable February
15 and August 15 each year, commencing on February 15, 2000.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows: 2000, $19,183,736; 2001,
$18,019,693; 2002, $20,020,699; 2003, $22,021,756; and 2004, $62,548,498.
Note 6 -- Commitments
The Company leases certain manufacturing equipment, office equipment, vehicles
and office, warehouse and manufacturing facilities under operating leases. Some
of the leases provide for escalation of the lease payments as maintenance costs
and taxes increase. The leases expire through 2010. Leases for office space and
manufacturing facilities generally contain renewal options. Rental expense for
each of the years in the three-year period ended December 31, 1999 was
$3,862,011, $2,493,146 and $1,354,607, respectively.
The Company leases manufacturing and office facilities in Minnesota from a
partnership whose partners include stockholders and a director of the Company.
These operating leases have initial terms of eight to ten years, expiring
through August 2006 with annual renewals thereafter. Total rent expense
associated with these leases for the years ended December 31, 1999, 1998 and
1997 was $826,753, $828,900 and $828,900, respectively.
In connection with the acquisition of AVEX, the Company assumed prepaid
operating leases of manufacturing equipment with initial terms of three years
that expire through 2001. The lease expense associated with these leases for the
period from August 24 through December 31, 1999 was $1,522,031.
The Company has no significant capital lease obligations. Aggregate annual
rental payments on future lease commitments at December 31, 1999 were as
follows:
2000 2001 2002 2003 2004 Thereafter Total
- ---------- --------- --------- --------- --------- --------- -----------
$5,626,948 4,190,230 3,780,602 3,401,926 1,622,514 4,337,468 $22,959,688
The Company enters into contractual commitments to deliver products and
services in the ordinary course of business. The Company believes that all such
contractual commitments will be met or renegotiated such that no material
adverse financial impact on the Company's financial position, results of
operations or liquidity will result from these commitments.
Note 7 -- Common Stock and Stock Option Plans
During 1999, the Company issued 3,525,000 shares of common stock in a public
offering for net proceeds of $93,691,551.
The Company's stock option plan authorizes the Company, upon recommendation
of the compensation committee of the Board of Directors, to grant options to
purchase a total of 3,200,000 shares of the Company's common stock to key
employees of the Company.
The stock option plan provides for the discretionary granting by the Company
of "incentive stock options" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended, as well as non qualified stock options. The
exercise price of any incentive stock option must not be less than the fair
market value of the common stock on the date of grant. The stock options will
terminate no later than 10 years after the date of grant. Although options may
vest in increments over time, they historically have become 20% vested two years
after the options are granted and 100% vested after 5 years.
In December of 1994, the Board of Directors of the Company adopted the
Benchmark Electronics, Inc., 1994 Stock Option Plan for Non-Employee Directors
(the "Plan") for the benefit of members of the Board of Directors of the Company
or its Affiliates who are not employees of the Company or its Affiliates (as
defined in the Plan). The aggregate number of shares of common stock for which
options may be granted under the Plan is 200,000.
Under the terms of the Plan, each member of the Board of Directors of the
Company or its Affiliates who was not an employee of the Company or any of its
Affiliates on the date of the grant (a "Non-Employee Director") will receive a
grant of an option to purchase 3,000 shares of the Company's common stock upon
the date of his election or re-election to the Board of Directors. Additionally,
any Non-Employee Director who was a director on the date the Board of Directors
adopted the Plan received (a) an option to purchase 6,000 shares of common stock
for the fiscal year in which the Plan was adopted by the Board of Directors and
(b) an option to purchase shares of common stock in amount equal to (i) 6,000,
multiplied by (ii) the number of consecutive fiscal years (immediately preceding
the fiscal year during which the Plan was adopted) that the individual served as
a director of the Company, provided that the number under clause (ii) shall not
exceed three (3). During 1999, 1998 and 1997, pursuant to the Plan, 12,000,
12,000 and 24,000 options, respectively, were granted to Directors to purchase
shares of common stock at an exercise price of $32.13, $21.38 and $16.32 per
share, respectively.
In April, 1999, the Board of Directors adopted the Benchmark Electronics,
Inc. Employee Stock Purchase Plan (the Purchase Plan). Under the Purchase Plan,
employees meeting specific employment qualifications are eligible to participate
and can purchase shares semi-annually through payroll deductions at the lower of
85% of the fair market value of the stock at the commencement or end of the
offering period. The Purchase Plan permits eligible employees to purchase common
stock through payroll deductions for up to the lesser of 17% of qualified
compensation or $25,000. As of December 31, 1999, 477,840 shares remain
available for issuance under the Purchase Plan. The weighted-average fair value
of the purchase rights granted during 1999 was $7.22.
The following table summarizes the activities relating to the Company's stock
option plans:
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
Balance at December 31, 1996 ............ 1,357,660 $12.00
Granted ............................... 426,000 $19.27
Exercised ............................. (96,700) $ 7.03
Canceled .............................. (96,800) $15.95
---------- ------
Balance at December 31, 1997 ............ 1,590,160 $14.11
Granted ............................... 653,000 $20.99
Exercised ............................. (53,715) $ 9.18
Canceled .............................. (80,000) $17.94
---------- ------
Balance at December 31, 1998 ............ 2,109,445 $16.22
Granted ............................... 715,650 $31.01
Exercised ............................. (65,850) $12.20
Canceled .............................. (145,850) $24.09
---------- ------
Balance at December 31, 1999 ............ 2,613,395 $19.93
========== ======
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Outstanding Options Exercisable
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
$4.38-$10 158,700 3.16 $ 7.37 158,700 $ 7.42
$10-$15 810,795 5.83 $ 13.18 504,345 $ 12.74
$15-$20 512,900 7.46 $ 17.44 84,480 $ 15.56
$20-$25 351,850 7.95 $ 21.93 15,120 $ 21.89
$25-$30 298,000 8.58 $ 28.40 24,000 $ 26.50
$30-$35 481,150 9.05 $ 31.42 12,000 $ 32.13
--------- -------
2,613,395 798,645
========= =======
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $4.38 - $32.13 and 7.39
years, respectively.
At December 31, 1999, 1998 and 1997, the number of options exercisable was
798,645, 646,185 and 492,920, respectively, and the weighted average exercise
price of those options was $12.86, $11.51 and $10.30, respectively.
The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been approximately $7,923,820, or
$0.53 per share diluted during 1999, $13,916,901, or $1.15 per share diluted
during 1998, and $13,396,245, or $1.11 per share diluted during 1997. The
weighted average fair value of the options granted during 1999, 1998, and 1997
is estimated as $9.06, $6.41 and $8.55, respectively, on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: no
dividend yield for all years, volatility of 50% for 1999 and 30% for 1998 and
1997, risk-free interest rate of 4.46% to 5.83% in 1999, 4.33% to 5.86% in 1998
and 5.46% to 6.57% in 1997, assumed annual forfeiture rate of 16% for 1999 and
5% for 1998 and 1997, and an expected life of 4 years in 1999, 4 years in 1998
and 5 years in 1997.
Note 8 -- Income Taxes
Income tax expense (benefit) based on income before income taxes and
extraordinary item consists of:
Year ended December 31,
-------------------------------------------
1999 1998 1997
---------- ---------- ---------
Federal - current ............ $2,996,245 7,275,581 8,178,203
State - current .............. 908,337 936,504 998,781
Foreign - current ............ 2,259,982 -- --
Federal/state - deferred ..... 1,146,422 2,305,482 (314,801)
Foreign - deferred ........... (305,626) -- --
---------- ---------- ---------
$7,005,360 10,517,567 8,862,183
========== ========== =========
Total income tax expense for 1999 is $6,307,143, including the $698,217
benefit allocated to the extraordinary loss. Additionally, a benefit of $818,955
was allocated to goodwill for initial recognition of acquired tax benefits for
which no benefit had been provided.
Income tax expense differed from the amounts computed by applying the U.S.
federal statutory income tax rate to income before income tax and extraordinary
item as a result of the following:
Year ended December 31,
---------------------------------------
1999 1998 1997
---------- ----------- ----------
Tax at statutory rate .......... $7,096,768 9,411,513 8,383,146
State taxes, net of federal
benefit .................... 590,419 608,728 649,203
Tax exempt interest ............ (208,331) (165,288) (386,658)
Tax benefit from use of
foreign sales corporation ... (340,740) (349,727) (393,839)
Effect of foreign operations ... (1,615,644) 132,364 --
Amortization of goodwill ....... 1,481,304 1,122,751 562,413
Other .......................... 1,584 (242,774) 47,918
---------- ----------- ----------
Total income tax expense ....... $7,005,360 $10,517,567 8,862,183
========== =========== ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
December 31,
----------------------------
1999 1998
----------- -----------
Deferred tax assets:
Carrying values of inventories ........ $ 946,321 1,358,217
Accrued liabilities deductible
for tax purposes on a cash basis ... 1,387,553 1,130,111
Net operating loss carryforwards ...... 5,079,005 --
----------- -----------
7,412,879 2,488,328
Less valuation allowance ................ (5,079,005) --
----------- -----------
Net deferred tax assets ............. $ 2,333,874 $ 2,488,328
=========== ===========
Deferred tax liabilities:
Plant and equipment, due to
differences in depreciation ........ $(5,548,060) (4,442,867)
Other ................................... (117,231) (126,787)
----------- -----------
Gross deferred tax liability ............ (5,665,291) (4,569,654)
----------- -----------
Net deferred tax liability .......... $(3,331,417) (2,081,326)
=========== ===========
The valuation allowance for deferred tax assets as of January 1, 1999 and
1998 was zero. The net change in the total valuation allowance for the year
ended December 31, 1999 was an increase of $5,079,005. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at December 31, 1999. At December 31, 1999,
the Company had operating loss carryforwards of approximately $16.2 million and
$3.4 million in Singapore and Brazil, respectively, with unlimited loss
carry-forward lives pursuant to local country tax laws. The utilization of these
net operating loss carryforwards is limited to the future operations of the
Company in the tax jurisdictions in which such carryforwards arose. Any tax
benefits that are realized in the future from the utilization of these
carryforwards will be reported as a reduction of goodwill.
Worldwide income before income taxes and extraordinary item for the years
ended December 31, 1999, 1998 and 1997, consisted of the following (in
thousands):
1999 1998 1997
------- ------- -------
United States .............. $10,294 27,336 23,952
Foreign .................... 9,982 (446) --
------- ------- -------
$20,276 26,890 23,952
======= ======= =======
Cumulative undistributed earnings of the foreign subsidiaries amounted to
$13.5 million as of December 31, 1999. The Company considers earnings from its
foreign subsidiaries to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been made for these
earnings. Upon distribution of foreign subsidiary earnings in the form of
dividends or otherwise, the Company would be subject to U.S. income taxes
(subject to adjustment for foreign tax credits).
In addition, for a period of up to ten years the Company will be subject to
taxes in Ireland at rates substantially less than the statutory tax rates for
that jurisdiction. As a result of these reduced rates, income tax expense for
the year ended December 31, 1999 is approximately $998,000 (approximately $0.07
per share diluted) lower than the amount computed by applying the statutory tax
rates.
Note 9 -- Major Customers
The Company's customers operate in industries that are, to a varying extent,
subject to rapid technological change, vigorous competition and short product
life cycles. Developments adverse to the electronics industry, the Company's
customers or their products could impact the Company's overall credit risk.
The Company extends credit based on evaluation of its customers' financial
condition and generally does not require collateral or other security from its
customers and would incur an accounting loss equal to the carrying value of the
accounts receivable if its customer failed to perform according to the terms of
the credit arrangement. As of December 31, 1999 and 1998, the Company had an
allowance for doubtful accounts totaling $7,705,423 and $100,000, respectively.
During 1999, the Company added allowance for doubtful accounts in connection
with the acquisition of AVEX totaling $7,332,472 and charged $272,951 to
operating expenses. During 1998 and 1997, accounts receivable write-offs totaled
$56,128 and $643,872, respectively, and amounts charged to operations totaled
$18,000 during 1997.
Sales to major customers were as follows for the indicated periods:
Year ended December 31,
---------------------------------
1999 1998 1997
-------- ------- -------
(in thousands)
Customer A .............................. $153,694 58,424 120,500
Customer B .............................. 143,173 148,674 --
Customer C .............................. 46,838 -- --
Customer D .............................. 46,776 -- --
Customer E .............................. * 70,908 42,983
*During 1999, this major customer underwent a period of organizational
change.
Note 10 -- Segment and Geographic Information
The Company has 14 manufacturing facilities in the Americas, Europe, and Asia
regions to serve its customers. The Company is operated and managed
geographically. The Company's management evaluates performance and allocates the
Company's resources on a geographic basis. Intersegment sales, primarily
constituting sales from the Americas to Europe, are generally recorded at prices
that approximate arm's length transactions. Operating segments' measure of
profitability is based on income from operations. Certain corporate expenses,
including items such as insurance and software licensing costs, are allocated to
these operating segments and are included for performance evaluation.
Amortization expense associated with capitalized software costs is allocated to
these operating segments, but the related assets are not allocated. The
accounting policies for the reportable operating segments are the same as for
the Company taken as a whole. Beginning in 1999, the Company had three
reportable operating segments: the Americas, Europe, and Asia. Prior to the
acquisitions in 1999, all of the Company's operations were in the Americas
region. Information about operating segments for the fiscal year ended December
31, 1999, was as follows:
1999
---------
(in thousands)
Net sales:
Americas ......................................... $ 724,963
Europe ........................................... 219,393
Asia ............................................. 14,393
Elimination of intersegment sales ................ (80,910)
---------
$ 877,839
=========
Depreciation and amortization:
Americas ......................................... $ 19,221
Europe ........................................... 5,180
Asia ............................................. 235
Corporate - goodwill ............................. 6,430
---------
$ 31,066
=========
Income from operations:
Americas ......................................... $ 26,140
Europe ........................................... 11,040
Asia ............................................. 826
Corporate and intersegment eliminations .......... (9,383)
---------
$ 28,623
=========
Capital expenditures:
Americas ......................................... $ 20,364
Europe ........................................... 3,347
Asia ............................................. 160
---------
$ 23,871
=========
Total assets:
Americas ......................................... $ 424,521
Europe ........................................... 128,814
Asia ............................................. 12,808
Corporate ........................................ 194,694
---------
$ 760,837
=========
Corporate assets consist primarily of goodwill, capitalized software costs
and debt financing costs.
The following enterprise-wide information is provided in accordance with SFAS
No.131. Geographic net sales information reflects the destination of the product
shipped. Long-lived assets information is based on the physical location of the
asset.
1999
--------
(in thousands)
Net sales derived from:
Printed circuit boards ........................ $756,552
Systems integration and box build ............. 121,287
--------
$877,839
========
Geographic net sales:
United States ................................. $659,134
Europe ........................................ 168,193
Asia and other ................................ 50,512
--------
$877,839
========
Long-lived assets:
United States ................................. $ 99,221
Europe ........................................ 24,538
Asia and other ................................ 21,874
--------
$145,633
========
Note 11 -- Employee Benefit Plans
The Company has defined contribution plans qualified under Section 401(k) of
the Internal Revenue Code for the benefit of its U.S. employees. The plans cover
all U.S. employees with at least one year of service. Under the provisions of
the plans, the Company will match a portion of each participant's contribution.
The Company may also make discretionary contributions to the plans. During 1999,
1998 and 1997 the Company made contributions to the plans of approximately
$1,659,000, $689,000 and $430,000, respectively.
Effective May 6, 1992, the Company adopted an Incentive Bonus Plan (Bonus
Plan) for the benefit of its employees, including executive officers. The Bonus
Plan replaced the Company's Incentive Bonus Plan which was adopted in 1990. The
Bonus Plan is administered by the Compensation Committee. The total amount of
cash bonus awards to be made under the Bonus Plan for any plan year depends
primarily on the Company's sales and net income for such year.
For any plan year, the Company's sales and net income must meet or exceed, or
in combination with other factors satisfy, levels targeted by the Company in its
business plan, as established at the beginning of each fiscal year, for any
bonus awards to be made. Aggregate bonus awards to all participants under the
Bonus Plan may not exceed 7% of the Company's net income. The Compensation
Committee has the authority to determine the total amount of bonus awards, if
any, to be made to the eligible employees for any plan year based on its
evaluation of the Company's financial condition and results of operations, the
Company's business and prospects, and such other criteria as it may determine to
be relevant or appropriate. No bonus amounts were accrued or expensed in 1999.
The Company expensed $1,434,000 in 1998 and $738,000 in 1997 in conjunction with
the Bonus Plan.
AVEX had a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's
compensation. The AVEX defined benefit pension plan was frozen on September 12,
1999 and terminated effective December 31, 1999.
In addition to the AVEX defined benefit pension plan, AVEX had a
post-retirement medical plan that provides postretirement medical benefits to
full-time employees who meet minimum age and service requirements. The plan is
subject to cost-sharing features such as deductibles and coinsurance. The AVEX
post-retirement medical plan was frozen as to eligibility on October 31, 1999,
and will not provide medical benefits to any additional participant.
The following table sets forth the AVEX plans' benefit obligations, fair
value of plan assets, and funded status at December 31, 1999.
POSTRETIREMENT
PENSION BENEFITS BENEFITS
- -------------- ------------- --------
(In Thousands)
Change in benefit obligation:
Benefit obligation at August 24 ............... $ 12,452 $ 5,788
Service cost .................................. -- 136
Interest cost ................................. 322 153
Benefits paid ................................. (399) (55)
Actuarial loss ................................ 29 245
-------- --------
Benefit obligation at end of year ............. 12,404 6,267
-------- --------
Change in plan assets:
Fair value of plan assets at August 24 ........ 18,034 --
Actual return on plan assets .................. 998 --
Employer contribution ......................... -- 55
Benefits paid ................................. (399) (55)
-------- --------
Fair value of plan assets at end of year ...... 18,633 --
-------- --------
Funded status ................................. 6,229 (6,267)
Unrecognized actuarial losses (gains) ......... (647) 478
-------- --------
Prepaid (accrued) benefit cost
recognized in the consolidated
balance sheet ............................. $ 5,582 $ (5,789)
======== ========
Weighted-average assumptions:
Discount rate ................................. 8.0% 7.75%
Expected return on plan assets ................ 9.0% N/A
For measurement purposes, a 8.0% annual rate of increase in the per capita
cost of covered health care costs was assumed for 2000. The rate was assumed to
decrease gradually to 5.0% for 2006 and remain level thereafter.
The components of net periodic benefit costs for the period are as follows:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
-------- --------------
AUGUST 24 TO DECEMBER 31,
-------------------------
1999 1999
-------- ---------
(in thousands)
Service cost ............................. $ -- $ 136
Interest cost ............................ 322 153
Expected return on assets ................ (524) --
----- -----
Net periodic benefit costs (income) ...... $(202) $ 289
===== =====
Note 12 -- Concentrations of Business Risk
Substantially all of the Company's sales are derived from EMS in which the
Company purchases components specified by its customers. The Company uses
numerous suppliers of electronic components and other materials for its
operations. Some components used by the Company have been subject to
industry-wide shortages, and suppliers have been forced to allocate available
quantities among their customers. The Company's inability to obtain any needed
components during periods of allocation could cause delays in manufacturing and
could adversely affect results of operations.
Note 13 -- Contingencies
On October 18, 1999, the Company announced that its third quarter earnings
announcement would be delayed and subsequently, on October 22, the Company
announced its earning for the third quarter were below the level of the same
periods during 1998 and were below expectations. Several class action lawsuits
were filed in federal district court in Houston, Texas against the Company and
two of its officers and directors alleging violations of the federal securities
laws. The lawsuit seeks to recover unspecified damages. The Company denies the
allegations in the lawsuits, however, and further denies that such allegations
provide a basis for recovery of damages as the Company believes that it has made
all required disclosures on a timely basis. Management intends to vigorously
defend against these actions.
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 seeking an unspecified amount of
damages in connection with the Amended and Restated Stock Purchase Agreement
dated August 12, 1999 between the parties whereby Benchmark acquired all of the
stock of AVEX from Seller. 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 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 the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Independent Auditors' Report
The Board of Directors and Shareholders
Benchmark Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Benchmark
Electronics, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Benchmark
Electronics, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Houston, Texas
February 8, 2000
Management's Report
The management of Benchmark Electronics, Inc. has prepared and is responsible
for the consolidated financial statements and related financial data contained
in this report. The consolidated financial statements were prepared in
accordance with generally accepted accounting principles and necessarily include
certain amounts based upon management's best estimates and judgments. The
financial information contained elsewhere in this annual report is consistent
with that in the consolidated financial statements.
The Company maintains internal accounting control systems that are adequate
to prepare financial records and to provide reasonable assurance that the assets
are safeguarded from loss or unauthorized use. We believe these systems are
effective, and the cost of the systems does not exceed the benefits obtained.
The Audit Committee, composed exclusively of outside directors, has reviewed
all financial data included in this report. The committee meets periodically
with the Company's management and independent public accountants on financial
reporting matters. The independent public accountants have complete access to
the Audit Committee and may meet with the committee, without management present,
to discuss their audit results and opinions on the quality of financial
reporting.
The role of independent public accountants is to render a professional,
independent opinion on management's financial statements to the extent required
by generally accepted auditing standards. Benchmark's responsibility is to
conduct its affairs according to the highest standards of personal and corporate
conduct.
Donald E. Nigbor Cary T. Fu
President & Chief Executive Officer Executive Vice President
Corporate Information
Quarterly Financial Data (unaudited)
The following table sets forth certain unaudited quarterly information with
respect to the Company's results of operations for the years 1999, 1998 and
1997. Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total earnings per share amounts for the fiscal year.
1999 QUARTER
1ST 2ND 3RD 4TH
-------- ------- ------- -------
(in thousands, except per share data)
Sales ............................. $146,546 162,621 229,870 338,802
Gross profit ...................... 14,690 16,854 13,764 22,222
Income before extraordinary item .. 5,037 5,605 1,336 1,293
Extraordinary item- loss on
extinguishment of debt ......... -- -- (1,297) --
Net income ........................ 5,037 5,605 39 1,293
Earnings per common share:
Basic ........................ .43 .44 .00 .08
Diluted ...................... .40 .41 .00 .08
1998 QUARTER
1ST 2ND 3RD 4TH
-------- ------- ------- -------
Sales ............................. $108,046 132,636 139,645 143,738
Gross profit ...................... 10,905 12,681 13,545 14,580
Net income ........................ 3,742 3,735 4,182 4,713
Earnings per common share:
Basic ........................... .32 .32 .36 .41
Diluted ......................... .31 .32 .35 .38
1997 QUARTER
1ST 2ND 3RD 4TH
-------- ------- ------- -------
Sales ............................. $ 75,724 78,156 83,183 88,166
Gross profit ...................... 9,242 9,466 10,157 10,734
Net income ........................ 3,291 3,557 4,013 4,229
Earnings per common share:
Basic ........................... .29 .31 .35 .37
Diluted ......................... .28 .30 .33 .35
Market for the Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol "BHE." The following table shows the high and low sales prices for the
Common Stock as reported on the New York Stock Exchange for the fiscal quarters
(or portions thereof) indicated.
1 2 3 4
------- -------- ------ ------
1998
High ................................. $28 1/4 24 15/16 25 1/2 37 1/2
Low .................................. $21 1/8 18 3/8 17 5/8 17 7/8
1999
High ................................. $38 7/8 35 15/16 43 13/16 37 7/8
Low .................................. $26 7/8 27 1/8 31 5/16 12
2000 (through March 24, 2000)
High ................................. $36
Low .................................. $17 13/16
The last reported sale price of Common Stock on March 24, 2000, as reported
by the New York Stock Exchange, was $35 1/16. There were approximately 107
record holders of Common Stock as of March 24, 2000.
The Company has not paid any cash dividends on the Common Stock in the past
and anticipates that, for the foreseeable future, it will retain any earnings
available for dividends for use in its business.
Selected Financial Data
Benchmark Electronics, Inc. and Subsidiaries
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per-share data)
Selected Statements of Income Data
Sales ................................. $ 877,839 $ 524,065 $ 325,229 $ 201,296 $ 97,353
Cost of sales ......................... 810,309 472,354 285,630 177,981 85,113
--------- --------- --------- --------- ---------
Gross profit ...................... 67,530 51,711 39,599 23,315 12,240
Selling, general and
administrative expenses ............ 32,477 17,680 12,817 7,228 2,990
Amortization of goodwill .............. 6,430 3,311 1,670 696 --
--------- --------- --------- --------- ---------
Income from operations ............ 28,623 30,720 25,112 15,391 9,250
Interest expense ...................... (9,696) (4,394) (2,472) (1,442) --
Interest income ....................... 605 479 1,163 442 268
Other income .......................... 744 85 149 92 13
Income tax expense .................... (7,005) (10,518) (8,862) (5,619) (3,383)
--------- --------- --------- --------- ---------
Income before extraordinary
item ........................... 13,271 16,372 15,090 8,864 6,148
Extraordinary item - loss on
extinguishment of debt ............. (1,297) -- -- -- --
--------- --------- --------- --------- ---------
Net Income ............................ 11,974 $ 16,372 $ 15,090 $ 8,864 $ 6,148
========= ========= ========= ========= =========
Earnings per share(1):
Basic Income before extraordinary
item ........................ $ 0.94 $ 1.41 $ 1.31 $ 0.99 $ 0.77
Extraordinary item ............. (0.09) -- -- -- --
--------- --------- --------- --------- ---------
Earnings per share(1) .......... $ 0.85 $ 1.41 $ 1.31 $ 0.99 $ 0.77
========= ========= ========= ========= =========
Diluted:
Income before extraordinary
item ........................ $ 0.88 $ 1.35 $ 1.26 $ 0.96 $ 0.75
Extraordinary item ............. (0.08) -- -- -- --
--------- --------- --------- --------- ---------
Earnings per share(1) .......... $ 0.80 $ 1.35 $ 1.26 $ 0.96 $ 0.75
========= ========= ========= ========= =========
Weighted average number of
shares outstanding
Basic ............................. 14,081 11,594 11,508 8,976 8,031
Diluted ........................... 15,010 12,098 12,004 9,218 8,213
========= ========= ========= ========= =========
Ratio of earnings to
fixed charges ...................... 2.74x 6.03x 9.03x 9.16x 134.75x
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
Selected Balance Sheet Data
Working capital ........... $177,926 $ 86,265 $ 87,879 $ 72,586 $ 37,285
Total assets .............. 760,837 241,896 190,322 168,174 57,037
Long-term debt ............ 202,811 46,111 30,330 30,485 --
Shareholders' equity ...... $281,935 $138,001 $120,872 $104,999 $ 46,624
(1) See Note 1 of Notes to Consolidated Financial Statements for the basis of
computing earnings per common share.
Corporate and Shareholder Data
Officers
Donald E. Nigbor(1)
President and
Chief Executive Officer
Steven A. Barton(2)
Executive Vice President
Cary T. Fu(1)
Executive Vice President
Lenora A. Gurton
Secretary
Gayla J. Delly
Treasurer
Christopher Nawrocki
Vice President;
President of
Benchmark Electronics, Inc. -
Winona Division
General Counsel
Bracewell & Patterson, L.L.P.
Houston, Texas
Independent Auditors
KPMG LLP
Houston, Texas
Directors
David H. Arnold(3)
Former President and
Chairman of the Board
DCM Tech, Inc.
Winona, Minnesota
(Machine Tool Manufacturing)
John C. Custer(4)
Retired - Former Chairman of the Board
Mason & Hanger-Silas Mason Co., Inc.
Lexington, Kentucky
(Technical services contracting and engineering firm)
Steven A. Barton
Executive Vice President
Benchmark Electronics, Inc.
Gerald W. Bodzy(3)
Independent Consultant
Houston, Texas
(Investment banking)
Peter G. Dorflinger(3)(4)
President and Chief Operating Officer
GlasTech, Inc.
Austin, Texas
(Dental products manufacturer)
Cary T. Fu
Executive Vice President
Benchmark Electronics, Inc.
Donald E. Nigbor
President and Chief Executive Officer
Benchmark Electronics, Inc.
(1) Executive Officer
(2) Part-time since June 1993
(3) Member of Audit Committee
(4) Member of Compensation Committee
Notices
Stock Transfer Agent and Registrar
Communications concerning stock transfer requirements, lost certificates or
changes of address should be directed to:
Harris Trust and Savings Bank
Attn: Shareholder Services
311 West Monroe Street, 11th floor
Chicago, IL 60606 312/588-4283.
Stock Trading
The common stock of Benchmark Electronics, Inc. trades on the New York Stock
Exchange under the symbol BHE.
SEC Form 10-K
Benchmark will provide a copy of the company's Annual Report on Form 10-K
(without exhibits) for the fiscal year ended December 31, 1999, filed with the
Securities and Exchange Commission, without charge upon written request to:
Gayla J. Delly
Treasurer
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, TX 77515
Financial Mailing List
Shareholders whose stock is held in trust or by a brokerage firm may receive
timely financial mailings directly from Benchmark by writing to Ms. Gayla J.
Delly at the above address.
Annual Meeting
Shareholders are invited to attend the Benchmark Electronics, Inc. annual
meeting, which will be held at 10:00 a.m. on Tuesday, May 16, 2000, at the
Doubletree Hotel at Allen Center, 400 Dallas Street, Houston, Texas.
This annual report is printed on recycled paper.
(Benchmark logo)
3000 Technology Drive
Angleton, Texas 77515
(979) 849-6550
www.bench.com