AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2000.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BENCHMARK ELECTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2211011
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CARY T. FU
EXECUTIVE VICE PRESIDENT
BENCHMARK ELECTRONICS, INC.
3000 TECHNOLOGY DRIVE
3000 TECHNOLOGY DRIVE ANGLETON, TEXAS 77515
ANGLETON, TEXAS 77515 (979) 849-6550
(979) 849-6550 FAX: (979) 848-5269
(ADDRESS, INCLUDING ZIP CODE, AND (ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL AREA CODE, OF REGISTRANT'S AGENT
EXECUTIVE OFFICES) FOR SERVICE OF PROCESS)
------------------------
Copies to:
Gary W. Orloff William J. Whelan, III
Barcewell & Patterson, L.L.P. Cravath, Swaine & Moore
South Tower Pennzoil Place Worldwide Plaza
711 Louisiana Street, Suite 2900 825 Eighth Avenue
Houston, Texas 77002-2781 New York, New York 10019-7475
(713) 221-1306 (212) 474-1000
Fax: (713) 221-2166 Fax: (212) 474-3700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
===========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.10 per 3,162,500
share.............................. shares $34.28 $108,410,500 $28,621
===========================================================================================================================
</TABLE>
(1) Includes shares that the underwriters may purchase to cover over-allotments,
if any. Pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, the proposed maximum aggregate offering price is estimated solely
for the purpose of calculating the registration fee based upon the average
of the high and low prices of the common stock as reported in The New York
Stock Exchange composite transaction reporting system on June 1, 2000.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 2, 2000
2,750,000 Shares
-----------------------
BENCHMARK
ELECTRONICS
INC
-----------------------
Common Stock
-----------------------
Our common stock is listed on The New York Stock Exchange and trades under
the symbol "BHE." The last reported sale price of our common stock on The New
York Stock Exchange on June 1, 2000, was $34 9/16 per share.
The underwriters have an option to purchase a maximum of 412,500 additional
shares of common stock to cover over-allotments of shares.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS BENCHMARK
------------ ------------ ------------
Per Share............................ $ $ $
Total................................ $ $ $
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
ROBERTSON STEPHENS
The date of this prospectus is , 2000.
<PAGE>
------------------
TABLE OF CONTENTS
PAGE
----
SUMMARY.............................. 3
RISK FACTORS......................... 6
CAUTIONARY NOTE REGARDING FORWARD-
LOOKING STATEMENTS................. 12
PRICE RANGE OF COMMON STOCK AND
DIVIDEND POLICY.................... 13
USE OF PROCEEDS...................... 13
CAPITALIZATION....................... 14
SELECTED FINANCIAL INFORMATION....... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 16
PAGE
----
BUSINESS............................. 25
DESCRIPTION OF CAPITAL STOCK......... 30
U.S. TAX CONSEQUENCES TO NON-U.S.
HOLDERS............................ 31
UNDERWRITING......................... 35
NOTICE TO CANADIAN RESIDENTS......... 37
LEGAL MATTERS........................ 38
EXPERTS.............................. 38
WHERE YOU CAN FIND MORE INFORMATION.. 38
INDEX TO FINANCIAL STATEMENTS........ F-1
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION APPEARING IN OTHER SECTIONS OF THIS
PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT. THIS
PROSPECTUS INCLUDES OR INCORPORATES BY REFERENCE INFORMATION ABOUT THIS
OFFERING, OUR BUSINESS AND OUR FINANCIAL AND OPERATING DATA. BEFORE MAKING AN
INVESTMENT DECISION, WE ENCOURAGE YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE "RISK FACTORS" SECTION AND THE FINANCIAL STATEMENTS AND THE
FOOTNOTES TO THOSE STATEMENTS, WHICH ARE INCLUDED OR INCORPORATED IN THIS
PROSPECTUS BY REFERENCE. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED.
OUR COMPANY
We are a leading 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 markets. We offer
OEMs a turnkey EMS solution, from initial product design to volume production
and direct order fulfillment. We provide advanced engineering services including
product design, printed circuit board (PCB) layout, quick-turn prototyping and
test development. We believe that we have developed strengths in the
manufacturing process for large, complex, high-density assemblies as well as the
ability to manufacture high and low volume products in lower cost regions such
as Latin America, Eastern Europe and Southeast Asia. As OEMs expand
internationally, they are increasingly requiring their EMS partners to have
strategic regional locations and global procurement abilities. We believe that
our global manufacturing presence of 14 facilities in eight countries increases
our ability to be responsive to our customers' needs by providing accelerated
time-to-market and time-to-volume production of high quality products. These
capabilities should enable us to build stronger strategic relationships with our
customers and to become a more integral part of their operations.
Our customers include industry leaders such as EMC Corporation, Lucent
Technologies Inc. and Sun Microsystems, Inc. In 1999, approximately 39% of our
sales come from the telecommunications market and 30% from the enterprise
computer and peripherals markets. Our customers rely on us to manufacture
technologically complex products such as wireless telecommunications equipment,
high-capacity computer storage devices, and fault tolerant computer servers. We
have established long-term relationships with several of our largest customers
by exceeding customer expectations and providing flexibility to respond to their
needs.
Substantially all of our manufacturing services are provided on a turnkey
basis, whereby we purchase customer-specified components from our suppliers,
assemble the components on finished PCBs, perform post-production testing and
provide our customers with production process and testing documentation. We
offer our customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with our customers' inventory requirements.
Additionally, we complete the assembly of our customers' products at our
facilities by integrating PCB assemblies into other elements of our customers'
products. We also provide manufacturing services on a consignment basis, whereby
we utilize components supplied by the customer to provide assembly and
post-production testing services. We currently operate, on approximately 1.5
million square feet, a total of 49 surface mount production lines at our
domestic facilities in Alabama, Minnesota, New Hampshire, Oregon, Tennessee and
Texas; and 32 surface mount production lines at our international facilities in
Brazil, Hungary, Ireland, Mexico, Scotland, Singapore and Sweden.
Since the beginning of 1996, we have completed four acquisitions that have
broadened our service offerings, diversified our customer base with leading OEMs
and expanded our geographic presence. Our August 1999 acquisition of AVEX
Electronics, Inc. and Kilbride Holdings B.V. provided us with a global presence
and enabled us to increase our scale of operations and expand our customer base
significantly. We have also acquired EMD Technologies, Inc., Lockheed Commercial
Electronics
3
<PAGE>
Company and certain assets from Stratus Computer Ireland, which improved our
engineering capabilities, increased our manufacturing capacity and expanded our
international presence.
Our goal is to be the EMS outsourcing provider of choice for leading OEMs
in the high-growth segments of the electronics industry. To achieve this goal,
we have implemented the following strategies:
o maintain and develop close, long-term relationships with customers;
o focus on high-end products in high-growth sectors;
o deliver complete manufacturing solutions;
o leverage advanced technological capabilities;
o continue our global expansion; and
o selectively pursue strategic acquisitions.
Our principal executive offices are located at 3000 Technology Drive,
Angleton, Texas 77515, and our telephone number is (979) 849-6550.
THE OFFERING
Common stock offered ................ 2,750,000 shares
Common stock to be outstanding after
this offering...................... 19,057,126 shares(*)
Use of Proceeds...................... Temporary repayment of indebtedness
under our bank credit facility and
general corporate purposes, including
working capital and possible
acquisitions.
New York Stock Exchange symbol....... BHE
------------
(*) Does not include (1) 2,761,945 shares subject to stock options, of which
options to purchase 901,295 shares are presently exercisable or (2)
898,795 shares reserved for issuance upon conversion of our outstanding
convertible subordinated notes.
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<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary pro forma financial data for the year ended December 31, 1999
are derived from the Unaudited Pro Forma Condensed Combined Statement of
Operations that is incorporated by reference in this prospectus. The pro forma
statement of income data presented below give effect to the acquisition of AVEX
as if it occurred on January 1, 1999. The as adjusted balance sheet data at
March 31, 2000 gives effect to consummation of the offering and the application
of the net proceeds therefrom. See "Use of Proceeds." The pro forma financial
data do not purport to represent what our results of operations actually would
have been had the acquisition, in fact, occurred at the beginning of the period
indicated, nor are they intended to project our results of operations or
financial position for any future date or period. The summary financial
information should be read in conjunction with our financial statements and the
related notes thereto included or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS FOR THE
ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
--------------------------- ----------- -------------------------------------------
2000 1999 1999 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales ............................... $ 349,155 $ 146,546 $ 1,518,013 $ 877,839 $ 524,065 $ 325,229
Cost of sales ....................... 325,509 131,856 1,442,503 810,309 472,354 285,630
----------- ----------- ----------- ----------- ----------- -----------
Gross profit .................... 23,646 14,690 75,510 67,530 51,711 39,599
Selling, general and administrative
expenses .......................... 12,681 4,950 58,516 32,477 17,680 12,817
Amortization of goodwill ............ 3,220 910 12,472 6,430 3,311 1,670
----------- ----------- ----------- ----------- ----------- -----------
Income from operations .......... 7,745 8,830 4,522 28,623 30,720 25,112
Interest expense .................... (5,563) (1,125) (24,066) (9,696) (4,394) (2,472)
Interest income ..................... 44 138 305 605 479 1,163
Other income ........................ 784 78 853 744 85 149
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item ........ 3,010 7,921 (18,386) 20,276 26,890 23,952
Income tax expense (benefit) ........ 1,033 2,884 (6,435) 7,005 10,518 8,862
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item ............ 1,977 5,037 (11,951) 13,271 16,372 15,090
Extraordinary item .................. _ _ 1,297 1,297 _ _
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) ............... $ 1,977 $ 5,037 $ (13,248) $ 11,974 $ 16,372 $ 15,090
=========== =========== =========== =========== =========== ===========
Earnings (loss) per common share:
Basic ........................... $ 0.12 $ 0.43 $ (0.86) $ 0.85 $ 1.41 $ 1.31
=========== =========== =========== =========== =========== ===========
Diluted ......................... $ 0.12 $ 0.40 $ (0.86) $ 0.80 $ 1.35 $ 1.26
=========== =========== =========== =========== =========== ===========
Weighted average number of shares
outstanding:
Basic ........................... 16,248 11,655 15,387 14,081 11,594 11,508
=========== =========== =========== =========== =========== ===========
Diluted ......................... 17,173 12,703 15,387 15,010 12,098 12,004
=========== =========== =========== =========== =========== ===========
</TABLE>
AS OF MARCH 31, 2000
---------------------------
ACTUAL AS ADJUSTED
--------- -----------
BALANCE SHEET DATA:
Working capital...................... $ 233,283 $
Total assets......................... 811,832
Total debt........................... 270,922
Shareholders' equity................. 284,531
5
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should carefully consider the
risks described below and the other information included or incorporated by
reference in this prospectus. Our business, financial condition or results of
operations could be materially adversely affected and the trading price of our
common stock could decline due to any of these risks. As a result, you may lose
all or part of your investment.
OUR RESULTS OF OPERATIONS HAVE BEEN ADVERSELY AFFECTED AS A RESULT OF THE AVEX
ACQUISITION.
During 1997 and 1998, the two fiscal years prior to our acquisition of
AVEX, AVEX incurred a net loss of $15.8 million and $84.2 million, respectively.
On a pro forma basis for 1999, primarily due to losses incurred at AVEX, we
would have had a loss before extraordinary item of $12.0 million had we owned
AVEX for all of 1999. During the first quarter of 2000, our results of
operations continued to be adversely affected as a result of the AVEX
acquisition. Prior to our acquisition of AVEX, AVEX took a number of actions
intended to reduce its fixed and other costs and reverse its history of
unprofitable operations. Since we acquired AVEX in August of 1999, we have
implemented organizational changes, initiated overhead reduction efforts and
streamlined the corporate structure. We cannot, however, assure you that these
actions will be sufficient to make AVEX's operations profitable, and we may
continue to be adversely affected by these operations.
SHORTAGES OR PRICE INCREASES OF COMPONENTS SPECIFIED BY OUR CUSTOMERS WOULD
DELAY SHIPMENTS AND ADVERSELY AFFECT OUR PROFITABILITY.
Substantially all of our sales are derived from electronics manufacturing
services in which we purchase components specified by our customers. In the
past, supply shortages have substantially curtailed production of all assemblies
using a particular component. For example, the September 1999 Taiwan earthquake
affected our supply of product components that originated in that country. In
addition, industry-wide shortages of electronic components, particularly of
tantalum and ceramic capacitors and flash memory have occurred. Many components
are currently on allocation or about to go on allocation. If there are shortages
or if components received are defective, we may be forced to delay shipments,
which could have an adverse effect on our sales and our profit margins. Because
of the continued increase in demand for surface mount components, we anticipate
component shortages and longer lead times for certain components to occur from
time to time. Also, we typically bear the risk of component price increases our
suppliers may institute until we can reprice our customer contracts.
Accordingly, certain component price increases could adversely affect our gross
profit margins.
WE ARE DEPENDENT ON A SMALL NUMBER OF CUSTOMERS AND THE LOSS OF A MAJOR CUSTOMER
WOULD ADVERSELY AFFECT US.
A substantial percentage of our sales has been made to a relatively small
number of customers, and the loss of a major customer would adversely affect us.
In 1999, our three largest customers together represented 39.2% of our sales,
and our largest customer accounted for approximately 17.5% of our sales. We
expect to continue to depend on sales to our largest customers and any material
delay, cancellation or reduction of orders from these or other significant
customers would have a material adverse effect on our results of operations. For
example, our operating results during the last half of 1999 were adversely
affected when a major customer of AVEX significantly reduced its orders.
Similarly, one of AVEX's largest customers in 1999 experienced a change in
economic circumstances that altered its manufacturing needs and also adversely
affected our operating results.
LONG-TERM CONTRACTS ARE UNUSUAL IN OUR BUSINESS, AND CANCELLATIONS, REDUCTIONS
OR DELAYS IN CUSTOMER ORDERS WOULD ADVERSELY AFFECT OUR PROFITABILITY.
We do not typically obtain firm long-term purchase orders or commitments
from our customers. Instead, we work closely with our customers to develop
forecasts for future orders, which are not binding. Customers may cancel their
orders, change production quantities from forecast volumes or
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<PAGE>
delay production for a number of reasons beyond our control. Unexpected
engineering difficulties in the development of our customers' products may cause
us to experience delays and cancellations that may adversely affect our
profitability. Cancellations, reductions or delays by a significant customer or
by a group of customers would have an adverse effect on us. As many of our costs
and operating expenses are relatively fixed, a reduction in customer demand can
disproportionately affect our gross margins and operating income. Our customers'
products have life cycles of varying duration. In the ordinary course of
business, production starts, increases, declines and stops in accordance with a
product's life cycle. Should we fail to replace product programs reaching the
end of their life cycles with new programs, or if there is a substantial time
difference between the loss of a product and the generation of sales from
replacement production, our sales could be adversely affected.
WE SUBSTANTIALLY INCREASED OUR INDEBTEDNESS IN CONNECTION WITH THE AVEX
ACQUISITION, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND FLEXIBILITY.
In connection with the AVEX acquisition, we incurred $226.2 million of
indebtedness. This is composed of $80.2 million from the sale of convertible
subordinated notes and $146.0 million of bank indebtedness. These notes and the
bank debt have significantly increased our leverage ratio and decreased our
interest coverage ratio. As of March 31, 2000, our debt to total capitalization
ratio was 49% and our pro forma earnings were insufficient to cover pro forma
fixed charges for the year ended December 31, 1999 by $18.4 million. As of June
1, 2000, our total outstanding indebtedness was $286.3 million. We have an
underwritten commitment from Chase Bank of Texas, National Association, the
agent under our bank facility, to increase the availability under the revolving
facility by $50.0 million. We may incur substantial additional indebtedness in
the future. The level of our indebtedness, among other things, could:
o make it difficult for us to obtain any necessary financing in the future
for other acquisitions, working capital, capital expenditures, debt
service requirements or other purposes;
o limit our flexibility in planning for, or reacting to changes in, our
business; and
o make us more vulnerable in the event of a downturn in our business.
We cannot assure you that we will be able to meet our debt service obligations.
A DETERIORATION IN THE CONDITION OF THE CAPITAL MARKETS OR A SUBSTANTIAL RISE IN
INTEREST RATES COULD IMPAIR OUR ABILITY TO FINANCE OUR OPERATIONS.
We anticipate that our working capital requirements will increase in order
to support anticipated increases in business capacity. To the extent that our
operations significantly expand, we may be required to obtain additional debt or
equity financing. We may need to raise additional funds to finance our rapid
expansion, including establishing new locations or financing additional
acquisitions.
We have financed our operations, capital expenditures and acquisitions
primarily through the issuance of debt and equity securities, secured bank
borrowings and internally generated cash flows. In order for us to achieve our
planned growth or to obtain large volume customer orders, we expect that we will
need to raise additional financing during the next 12-24 months. If the
condition of the capital markets materially deteriorates, we might not be able
to finance our operations on terms we consider acceptable. In addition, a
substantial rise in interest rates would decrease our net cash flows available
for reinvestment.
A DOWNTURN IN THE INDUSTRIES WE SERVE WOULD LIKELY NEGATIVELY IMPACT OUR SALES.
We are dependent on the continued growth, viability and financial stability
of our customers. Our customers operate in the following industries:
o telecommunication;
o enterprise computer and peripherals;
o high-end video/audio/entertainment;
7
<PAGE>
o industrial controls;
o testing and instrumentation;
o computer; and
o medical.
These industries are, to a varying extent, subject to rapid technological
change, vigorous competition and short product life cycles. When our customers
are adversely affected by these factors, we may be similarly affected.
WE FACE COMPETITION FROM OTHER PROVIDERS OF EMS SERVICES AND THE MANUFACTURING
OPERATIONS OF OUR CURRENT AND FUTURE CUSTOMERS.
We compete against many providers of electronics manufacturing services.
Certain of our competitors have substantially greater resources and more
geographically diversified international operations than we do. We also face
competition from the manufacturing operations of our current and future
customers. To compete effectively, we must continue to provide technologically
advanced manufacturing services, maintain strict quality standards, respond
flexibly and rapidly to customers' design and schedule changes and deliver
products globally on a reliable basis at competitive prices. Our inability to do
so could have an adverse effect on us.
IF WE FAIL TO MAINTAIN OUR TECHNOLOGICAL AND MANUFACTURING PROCESS EXPERTISE, WE
MAY EXPERIENCE CUSTOMER LOSSES.
The market for our manufacturing services is characterized by rapidly
changing technology and continuing process development. We are continually
evaluating the advantages and feasibility of new manufacturing processes. We
believe that our future success will depend upon our ability to develop and
provide manufacturing services which meet our customers' changing needs. This
requires that we maintain technological leadership and successfully anticipate
or respond to technological changes in manufacturing processes on a
cost-effective and timely basis. We cannot assure you that our process
development efforts will be successful.
OUR INTERNATIONAL OPERATIONS MAY BE SUBJECT TO CERTAIN RISKS THAT COULD
ADVERSELY IMPACT OUR OPERATING RESULTS.
We currently operate outside the United States in Brazil, Hungary, Ireland,
Mexico, Scotland, Singapore and Sweden. After giving effect to the AVEX
acquisition, we would have derived 46% of our pro forma combined sales in fiscal
year 1999 from our international operations. In the first quarter of 2000, 22.8%
of our sales were from our international operations. These international
operations may be subject to a number of risks, including:
o difficulties in staffing and managing foreign operations;
o political and economic instability;
o unexpected changes in regulatory requirements and laws;
o longer customer payment cycles and difficulty collecting accounts
receivable;
o export duties, import controls and trade barriers (including quotas);
o governmental restrictions on the transfer of funds;
o burdens of complying with a wide variety of foreign laws and labor
practices;
o fluctuations in currency exchange rates, which could affect component
costs, local payroll, utility and other expenses; and
o inability to utilize net operating losses incurred by our foreign
operations to reduce our U.S. income taxes.
8
<PAGE>
We cannot assure you that our international operations will contribute
positively to our business, financial condition or results of operations.
OUR SUCCESS WILL CONTINUE TO DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN
QUALIFIED PERSONNEL.
Our continued success depends, in part, on our ability to identify,
attract, motivate and retain qualified managerial, technical and sales
personnel. Because our future success is dependent on our ability to continue to
enhance and introduce new products, we are particularly dependent on our ability
to identify, attract, motivate and retain qualified engineers with the requisite
education, backgrounds and industry experience. The loss of services of a
significant number of our managerial, technical or sales personnel could be
disruptive to our development efforts and business relationships and could
adversely affect our financial condition and results of operations.
In particular, we depend significantly on our key executives, including,
but not limited to, Donald E. Nigbor, Steven A. Barton, Cary T. Fu and Gayla J.
Delly. The unexpected loss of the services of any one of these executive
officers would have an adverse effect on us. We do not have employment
agreements or non-competition agreements with these executive officers, and we
do not maintain key-man insurance on our executive officers.
WE ARE INVOLVED IN LEGAL PROCEEDINGS RELATED TO CLASS ACTION LAWSUITS AND THE
AVEX ACQUISITION. AN UNFAVORABLE DECISION IN ANY OF THESE PROCEEDINGS COULD HAVE
A MATERIAL ADVERSE EFFECT ON US.
On October 18, 1999, we announced that our earnings announcement for the
third quarter of 1999 would be delayed and subsequently, on October 22, 1999, we
announced that our earnings for that quarter were below the level of the same
period during 1998 and below the expectations of securities analysts. On October
22, 1999, our closing share price declined 48.3%. As a result, several class
action lawsuits were filed in federal district court in Houston against us and
two of our officers and directors alleging violations of federal securities laws
and seeking to recover unspecified damages. Discovery has not yet commenced in
these cases, and we cannot predict the timing or the outcome of these suits. An
unfavorable decision could have an adverse effect on us.
We have filed suit in Texas against J. M. Huber Corporation, which we call
the "seller," for breach of contract, fraud and negligent misrepresentation,
seeking damages in connection with the purchase contract related to our
acquisition of AVEX. Seller subsequently filed suit against us alleging that we
failed to register the shares of our common stock issued to Seller as partial
consideration for the acquisition of AVEX. We have since effected the
registration of Seller's shares of common stock. Discovery has not yet commenced
in this case, and we cannot predict the timing or the outcome of this suit.
THE INTEGRATION OF ACQUIRED OPERATIONS MAY POSE DIFFICULTIES FOR US.
We have made four significant acquisitions since 1996, and we may acquire
the stock or assets of other companies in the future. The integration of
acquired operations requires substantial management, financial and other
resources and involves a number of risks and challenges, including:
o potential loss of key employees or customers of the acquired companies;
o diversion of management's attention;
o increased expenses and working capital requirements; and
o increased exposure to technology and other risks, including the
integration of different information systems.
During the integration process, other parts of our business could be
disrupted and the financial performance of our business could be adversely
affected. Our success is also dependent upon our ability to integrate our past
and future acquisitions into one enterprise with a common operating plan. We
must also monitor the performance of our acquired companies. These acquired
companies must
9
<PAGE>
change some of their past operating systems such as accounting, employment,
purchasing and marketing. We may not be successful in our efforts to integrate
acquired companies or monitor their performance. If we are unable to do so, or
if we experience delays or unusual expenses in doing so, it could have an
adverse effect on us.
Additional expansions or acquisitions would require investment of financial
resources and may require debt or equity financing which could increase our
level of debt or dilute our shareholders' interest in our company. We cannot
offer you any assurance that we will consummate any acquisitions in the future,
or that any debt or equity financing required for future acquisitions will be
available on terms acceptable to us.
ENVIRONMENTAL LAWS MAY EXPOSE US TO FINANCIAL LIABILITY AND RESTRICTIONS ON
OPERATIONS.
We are subject to a variety of federal, state, local and foreign
environmental laws and regulations relating to environmental, waste management,
and health and safety concerns, including the handling, storage, discharge and
disposal of hazardous materials used in or derived from our manufacturing
processes. If we or companies we acquire have failed or fail in the future to
comply with such laws and regulations, then we could incur liabilities and fines
and our operations could be suspended. Such laws and regulations could also
restrict our ability to modify or expand our facilities, could require us to
acquire costly equipment, or could impose other significant expenditures. In
addition, our operations may give rise to claims of property contamination or
human exposure to hazardous chemicals or conditions.
PROVISIONS IN OUR CHARTER DOCUMENTS AND STATE LAW MAY MAKE IT HARDER FOR OTHERS
TO OBTAIN CONTROL OF BENCHMARK EVEN THOUGH SOME SHAREHOLDERS MIGHT CONSIDER SUCH
A DEVELOPMENT TO BE FAVORABLE.
Our shareholder rights plan, provisions of our amended and restated
articles of incorporation and the Texas Business Corporation Act may delay,
inhibit or prevent someone from gaining control of Benchmark through a tender
offer, business combination, proxy contest or some other method. See
"Description of Capital Stock." These provisions include:
o a "poison pill" shareholder rights plan;
o a statutory restriction on the ability of shareholders to take action by
less than unanimous written consent; and
o a statutory restriction on business combinations with some types of
interested shareholders.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS, WHICH COULD
NEGATIVELY IMPACT THE PRICE OF OUR COMMON STOCK.
Our quarterly results may vary significantly depending on various factors,
many of which are beyond our control. These factors include:
o the volume of customer orders relative to our capacity;
o customer introduction and market acceptance of new products;
o changes in demand for our customers' products;
o the timing of our expenditures in anticipation of future orders;
o our effectiveness in managing manufacturing processes;
o changes in cost and availability of labor and components;
o changes in our product mix;
o changes in economic conditions;
o local factors and events that may affect our production volume, such as
local holidays; and
o seasonality in customer product requirements.
10
<PAGE>
Additionally, as is the case with many high technology companies, we typically
make a significant portion of our shipments in the last few weeks of a quarter.
As a result, our sales may shift from one quarter to the next, having a
significant effect on reported results. If our results of operations are below
the expectations of securities analysts or investors in one or more future
quarters, the price of our common stock could decline significantly.
OUR STOCK PRICE IS VOLATILE.
Our common stock has experienced significant price volatility, and such
volatility may continue in the future. The price of our common stock could
fluctuate widely in response to a range of factors, including variations in our
reported financial results and changing conditions in the economy in general or
in our industry in particular. In addition, stock markets generally experience
significant price and volume volatility from time to time which may affect the
market price of our common stock for reasons unrelated to our performance.
11
<PAGE>
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in this prospectus by
reference include forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. These forward-looking
statements are identified as any statement that does not relate strictly to
historical or current facts. They use words such as "anticipate," "believe,"
"intend," "plan," "projection," "forecast," "strategy," "position," "continue,"
"estimate," "expect," "may," "will," or the negative of those terms or other
variations of them or by comparable terminology. In particular, statements,
express or implied, concerning future operating results or the ability to
generate sales, income or cash flow are forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results of our operations may
differ materially from those expressed in these forward-looking statements. Many
of the factors that will determine these results are beyond our ability to
control or predict. Specific factors which could cause actual results to differ
from those in the forward-looking statements, include:
o incurrence of operating losses at AVEX;
o availability and cost of customer specified components;
o loss of one or more of our major customers;
o absence of long-term sales contracts with our customers;
o our substantial indebtedness;
o a decline in the condition of the capital markets or a substantial rise
in interest rates;
o our dependence on the industries we serve;
o competition from other providers of electronics manufacturing services;
o inability to maintain technical and manufacturing process expertise;
o risks associated with international operations;
o our dependence on certain key executives;
o resolution of the pending legal proceedings discussed in this
prospectus;
o integration of the operations of acquired companies;
o effects of domestic and foreign environmental laws;
o fluctuations in our quarterly results of operation; and
o volatility of the price of our common stock.
You should not put undue reliance on any forward-looking statements.
See the "Risk Factors" section of this prospectus for a more detailed
description of these and other factors that may affect the forward-looking
statements. When considering forward-looking statements, one should keep in mind
these risk factors. We disclaim any obligation to update the above list or to
announce publicly the result of any revisions to any of the forward-looking
statements to reflect future events or developments.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed and trades on The New York Stock Exchange under
the symbol "BHE." The following table sets forth the high and low sale prices
for the common stock as reported by The New York Stock Exchange for the periods
indicated.
HIGH LOW
---- ---
1998
First quarter................... 28 1/4 21 1/8
Second quarter.................. 24 15/16 18 3/8
Third quarter................... 25 1/2 17 5/8
Fourth quarter.................. 37 1/2 17 7/8
1999
First quarter................... 38 7/8 26 7/8
Second quarter.................. 35 15/16 27 1/8
Third quarter................... 43 13/15 31 5/16
Fourth quarter.................. 37 7/8 12
2000
First quarter................... 39 5/16 17 13/16
Second quarter (through June 1,
2000)........................... 42 1/2 31 5/8
On June 1, 2000, the last reported sale price of our common stock on The
New York Stock Exchange was $34 9/16 per share.
We have not paid any cash dividends on the common stock in the past and
anticipate that, for the foreseeable future, we will retain any earnings
available for dividends for use in our business. Our bank credit facility
currently limits the amount of dividends that may be declared on our common
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
USE OF PROCEEDS
The net proceeds from our sale of shares of common stock in this offering
will be approximately $ million at the public offering price of $ after
deducting underwriting discounts and commissions and our estimated offering
expenses of $ ($ million if the over-allotment option is exercised in full).
Such proceeds will be used to temporarily repay $ million of indebtedness under
our revolving credit facility and for working capital and other general
corporate purposes, including possible acquisitions. Amounts paid down on the
revolving credit facility may be available to us to reborrow. Our management
continually evaluates potential strategic acquisitions or investments, but at
the present time we have no understandings, commitments or agreements with
respect to any such acquisition or investment. As of March 31, 2000, the
weighted average interest rate on the debt to be repaid was 9.37%, and the
maturity date of this debt is September 30, 2004.
13
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and summary
capitalization as of March 31, 2000 and as adjusted to give effect to the
issuance of 2,750,000 shares of common stock and the application of the net
proceeds therefrom as described in "Use of Proceeds." This table should be read
in conjunction with our financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included or incorporated by reference in this prospectus. See "Where You Can
Find More Information."
AS OF MARCH 31, 2000
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
Cash and cash equivalents $ 1,073 $
======== =======
Debt:
Line of credit(1).................. $ 95,100 $
Term loan.......................... 93,000 93,000
Convertible subordinated notes..... 80,200 80,200
Other.............................. 2,622 2,622
-------- -------
Total debt................. 270,922 175,822
-------- -------
Shareholders' equity:
Preferred shares, par value $0.10
per share; 5,000,000 shares
authorized, none issued......... _ _
Common shares, par value $0.10 per
share; 30,000,000 shares
authorized; issued 16,326,910
and 19,076,910, respectively;
outstanding 16,277,426 and
19,027,426, respectively........ 1,628
Additional paid-in capital......... 201,732
Retained earnings.................. 80,751 80,751
Accumulated other comprehensive
income.......................... 540 540
Less treasury shares, at cost,
49,484 shares................... (120) (120)
-------- -------
Total shareholders'
equity....................... 284,531
-------- -------
Total capitalization....... $555,453 $
======== =======
(1) As of June 1, 2000, the actual outstanding balance under the line of
credit was $110.6 million, which includes $35.3 million paid to
the Seller in the AVEX acquisition as a result of the resolution of
the post-closing adjustments subsequent to the closing of the
acquisition.
14
<PAGE>
SELECTED FINANCIAL INFORMATION
Our consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the year ended
December 31, 1999 and our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000 are included or incorporated by reference in this prospectus. The
acquisition of AVEX was accounted for under the purchase method of accounting
and is included in our financial information since August 24, 1999, the date of
its acquisition. The summary pro forma financial data for the year ended
December 31, 1999 are derived from the Unaudited Pro Forma Condensed Combined
Financial Statement of Operations that is incorporated by reference in this
prospectus. The pro forma financial data listed below present certain
information, as adjusted for the effect of the acquisition of AVEX as if it had
occurred on January 1, 1999. The pro forma financial data do not purport to
represent what our results of operations actually would have been had the
acquisition, in fact, occurred at the beginning of the period indicated, nor are
they intended to project our results of operations for any future period. You
should read the following in conjunction with our consolidated financial
statements and notes thereto and other financial data included or incorporated
by reference in this prospectus. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS FOR THE
ENDED YEAR ENDED
MARCH 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------- ------------- ----------------------------------------------------
2000 1999 1999 1999 1998 1997 1996 1995
-------- -------- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
Sales.............................. $349,155 $146,546 $1,518,013 $877,839 $524,065 $325,229 $201,296 $ 97,353
Cost of sales...................... 325,509 131,856 1,442,503 810,309 472,354 285,630 177,981 85,113
-------- -------- ---------- -------- -------- -------- -------- --------
Gross profit............... 23,646 14,690 75,510 67,530 51,711 39,599 23,315 12,240
Selling, general and administrative
expenses......................... 12,681 4,950 58,516 32,477 17,680 12,817 7,228 2,990
Amortization of goodwill........... 3,220 910 12,472 6,430 3,311 1,670 696 _
-------- -------- ---------- -------- -------- -------- -------- --------
Income from operations..... 7,745 8,830 4,522 28,623 30,720 25,112 15,391 9,250
Interest expense................... (5,563) (1,125) (24,066) (9,696) (4,394) (2,472) (1,442) _
Interest income.................... 44 138 305 605 479 1,163 442 268
Other income....................... 784 78 853 744 85 149 92 13
-------- -------- ---------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item......... 3,010 7,921 (18,386) 20,276 26,890 23,952 14,483 9,531
Income tax expense (benefit)....... 1,033 2,884 (6,435) 7,005 10,518 8,862 5,619 3,383
-------- -------- ---------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item....... 1,977 5,037 (11,951) 13,271 16,372 15,090 8,864 6,148
Extraordinary item _ _ 1,297 1,297 _ _ _ _
-------- -------- ---------- -------- -------- -------- -------- --------
Net income (loss).......... $ 1,977 $ 5,037 $ (13,248) $ 11,974 $ 16,372 $ 15,090 $ 8,864 $ 6,148
======== ======== ========== ======== ======== ======== ======== ========
Earnings (loss) per common share:
Basic...................... $ 0.12 $ 0.43 $ (0.86) $ 0.85 $ 1.41 $ 1.31 $ 0.99 $ 0.77
======== ======== ========== ======== ======== ======== ======== ========
Diluted.................... $ 0.12 $ 0.40 $ (0.86) $ 0.80 $ 1.35 $ 1.26 $ 0.96 $ 0.75
======== ======== ========== ======== ======== ======== ======== ========
Weighted average number of shares outstanding:
Basic...................... 16,248 11,655 15,387 14,080 11,594 11,508 8,976 8,031
======== ======== ========== ======== ======== ======== ======== ========
Diluted.................... 17,173 12,703 15,387 15,010 12,098 12,004 9,218 8,213
======== ======== ========== ======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
AS OF --------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
--------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $233,283 $177,926 $ 86,265 $ 87,879 $ 72,586 $ 37,285
Total assets......................... 811,832 760,837 241,896 190,322 168,174 57,037
Total debt........................... 270,922 221,994 54,311 30,485 30,724 _
Shareholders' equity................. 284,531 281,935 138,001 120,872 104,999 46,624
</TABLE>
15
<PAGE>
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 should be read in conjunction with the "selected
Financial Information" and our Consolidated Financial Statements and the notes
thereto and our Condensed Consolidated Financial Statements and the notes
thereto appearing elsewhere in this prospectus and incorporated by reference.
See "Where You Can Find More Information."
GENERAL
We are a leading 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 markets. We have 14
facilities in eight countries. We offer OEMs a turnkey EMS solution, from
initial product design to volume production and direct order fulfillment. We
provide advanced engineering services including product design, printed circuit
board (PCB) layout, quick-turn prototyping and test development. We believe that
we have developed strengths in the manufacturing process for large, complex,
high-density assemblies as well as the ability to manufacture high and low
volume products in lower cost regions such as Latin America, Eastern Europe and
Southeast Asia. As OEMs expand internationally, they are increasingly requiring
their EMS providers to have strategic regional locations and global procurement
abilities. We believe a global manufacturing solution increases our ability to
be responsive to our customers' needs by providing accelerated time-to-market
and time-to-volume production of high quality products. These enhanced
capabilities should enable us to build stronger strategic relationships with our
customers and to become a more integral part of their operations.
Sales are recognized at the time products are shipped to customers and may
vary depending on the timing of customers' orders, product mix and availability
of component parts. Substantially all of our business is performed on a turnkey
basis, which involves the procurement of component parts. The gross profit
margin for such materials is generally lower than the gross profit associated
with the manufacturing process and other value-added services.
We do not typically obtain long-term purchase orders or commitments from
our customers. Instead we work with our customers to develop forecasts for
future orders, which are not binding. Customers may cancel their orders, change
their orders, change production quantities from forecast volumes or delay
production for a number of reasons beyond our control. Cancellations, reductions
or delays by a significant customer or by a group of customers would have an
adverse effect on us. In addition, as many of our costs and operating expenses
are relatively fixed, a reduction in customer demand can adversely affect our
gross margins and operating income.
A substantial percentage of our sales have been made to a relatively small
number of customers, and the loss of a major customer would adversely affect us.
During the three months ended March 31, 2000, our two largest customers each
represented in excess of 10% of our sales and together represented 29% of our
sales. We expect to continue to depend on the sales from our largest customers
and any material delay, cancellation or reduction of orders from these or other
significant customers would have a material adverse effect on our results of
operations. We are dependent on the continued growth, viability and financial
stability of our customers, some of which operate in industries that are, to a
varying extent, subject to technological change, vigorous competition and short
product life cycles. When our customers are adversely affected by these factors,
we may be similarly affected.
RECENT ACQUISITIONS
On August 24, 1999, we acquired AVEX from J.M. Huber Corporation (Seller).
As consideration for the acquisition, we 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 our common stock. The
transaction was accounted for under the purchase method of accounting, and,
accordingly,
16
<PAGE>
the results of operations of AVEX since August 24, 1999 have been included in
our 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, we (1) obtained a term loan (Term
Loan) from a syndicate of commercial banks in the amount of $100.0 million, (2)
obtained a new revolving credit facility permitting draws of up to $125.0
million, subject to a borrowing base calculation, and borrowed $46.0 million
under such facility and (3) issued $80.2 million in convertible subordinated
debt. In connection with the AVEX acquisition, we borrowed $30.0 million under
the new revolving credit facility to refinance our prior Senior Note. Certain
disputes have arisen between us 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, Notes 7 and 11 of Notes to Condensed Consolidated Financial
Statements and "Risk Factors."
On March 1, 1999, we acquired certain assets 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, we entered into a three-year supply agreement to provide these
system integration services to Ascend and Stratus Holdings Limited and we hired
approximately 260 employees. See Note 2 of Notes to Consolidated Financial
Statements and Note 7 of Notes to Condensed Consolidated Financial Statements.
On February 23, 1998, we acquired Lockheed Commercial Electronics Company
(LCEC) for $70.0 million in cash and we 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 our 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 our 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 our operations (including components
thereof) from period to period. The effects of these on our reported financial
condition, liquidity and results of operations should be considered when reading
the financial information contained or incorporated by reference in this
prospectus.
The acquisition of AVEX constitutes a significant expansion of our
operations. Accordingly, the potential effect of the AVEX acquisition on our
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.
17
<PAGE>
RESULTS OF OPERATIONS
The following table presents the percentage relationship that certain items
in our 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
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 93.2 90.0 92.3 90.1 87.8
----- ----- ----- ----- -----
Gross profit.................... 6.8 10.0 7.7 9.9 12.2
Selling, general and administrative
expenses........................... 3.6 3.4 3.7 3.4 3.9
Amortization of goodwill............. 0.9 0.6 0.7 0.6 0.5
----- ----- ----- ----- -----
Income from operations.......... 2.2 6.0 3.3 5.9 7.8
Other income (expense)............... (1.4) (0.7) (1.0) (0.7) (0.5)
----- ----- ----- ----- -----
Income before income taxes and
extraordinary item............ 0.9 5.4 2.3 5.2 7.4
Income tax expense................... 0.3 2.0 0.8 2.0 2.7
----- ----- ----- ----- -----
Income before extraordinary
item.......................... 0.6 3.4 1.5 3.2 4.6
Extraordinary item loss on
extinguishment of debt, net of
tax................................ _ _ 0.1 _ _
----- ----- ----- ----- -----
Net Income................. 0.6% 3.4% 1.4% 3.2% 4.6%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999.
We have experienced consistent sales growth over the past few years. The
net increase in sales reflects the impact of growth from acquisitions combined
with internal growth resulting from the trend towards outsourcing among OEMs.
Sales for the first quarter of 2000 were approximately $349.2 million, a 138.3%
increase from sales of approximately $146.5 million for the same quarter in
1999. The net increase in sales resulted primarily from the acquisition of AVEX,
ramping up of new programs and increases in sales volume from both existing and
new customers. Sales in the Americas increased $184.0 million primarily as a
result of the AVEX acquisition and demand increases from existing and new
customers. Sales in Europe increased $60.1 million due to the combined effects
of the AVEX acquisition and the operation of the systems integration facility in
Dublin, Ireland. Sales in Asia increased by $9.0 million as a result of the
acquired AVEX facility in Asia.
Our results of operations are dependent upon the success of our customers,
and a prolonged period of reduced demand for our customers' products would have
an adverse effect on our business. During the three months ended March 31, 2000,
our two largest customers each represented in excess of 10% of our sales and
represented 29% of our sales in the aggregate. The loss of a major customer, if
not replaced, would adversely affect us.
Gross profit increased 61.0% to approximately $23.6 million in the first
quarter of 2000 from approximately $14.7 million in the same quarter in 1999.
The increase in gross profit was due primarily to the higher sales volumes
attributable to the AVEX acquisition and also to the operation of the new
systems integration facility in Ireland and changes in product and customer mix
occurring in the ordinary course of business. Gross profit as a percentage of
sales decreased from 10.0% for the first quarter of 1999 to 6.8% for the first
quarter of 2000. Our gross margin reflects a number of factors.
18
<PAGE>
The reduction in the gross margin for the first quarter of 2000, as compared to
the first quarter of 1999, is primarily attributable to the inclusion of the
AVEX operations and the presence of underutilized capacity at the AVEX
facilities. Additionally, the level of start up costs and inefficiencies
associated with new programs, product mix, capacity utilization of surface mount
and other equipment and pricing within the electronics industry affect our gross
margin. The combined effect of these factors, which are continually changing and
are interrelated, make it impracticable to determine with precision the separate
effect of each factor. We expect that a number of high dollar volume programs of
AVEX will remain subject to contractual and competitive restraints on the margin
that may be realized from such programs and that these restraints will exert
downward pressure on our margins in the near future.
We anticipate continued challenges during the second quarter with certain
components. Many components are currently on allocation or about to go on
allocation. If there are shortages, or if components received are defective, we
may be forced to delay shipments, which could have an adverse effect on our
sales and our profit margins. While the full effect of this period of
constrained supplies of components on us is not known at this time, we expect
prices for such components will increase. If such events were to occur, they
would have an adverse effect on our results of operations. Because of the
continued increase in demand for surface mount components, we anticipate
component shortages and longer lead times for certain components to occur from
time to time. Also, we typically bear the risk of component price increases our
suppliers may institute until we can reprice our customer contracts.
Accordingly, certain component price increases could adversely affect our gross
profit margins.
Selling, general and administrative (SG&A) expenses were $12.7 million in
the first quarter of 2000, an increase of 156.2% from $5.0 million for the same
quarter in 1999. Selling, general and administrative expenses as a percentage of
sales increased from 3.4% for the first quarter of 1999 to 3.6% for the first
quarter of 2000. The increase in selling, general and administrative expenses
during the quarter ended March 31, 2000 reflects the additional administrative
expenses resulting from the acquisition of AVEX. Additionally, the increase
reflects the investment in personnel and the incurrence of related corporate and
administrative expenses necessary to support the increased size and complexity
of our business. We anticipate selling, general and administrative 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.
The amortization of goodwill for the three-month periods ended March 31,
2000 and 1999 was $3.2 million and $0.9 million, respectively. The increase was
due to the acquisition of AVEX on August 24, 1999.
Interest expense for the three-month periods ended March 31, 2000 and 1999
was $5.6 million and $1.1 million, respectively. The increase was due to the
additional debt incurred in connection with the acquisition of AVEX on August
24, 1999.
Income tax expense of approximately $1.0 million represented an effective
tax rate of 34.3% for the three-month period ended March 31, 2000, compared with
an effective tax rate of 36.4% for the three-month period ended March 31, 1999.
The decrease was due primarily to lower foreign tax rates applicable to a
portion of pretax income in 2000, partially offset by nondeductible amortization
of goodwill.
We reported net income of approximately $2.0 million, or diluted earnings
of $0.12 per share, for the first quarter of 2000, compared with net income of
approximately $5.0 million, or diluted earnings of $0.40 per share, for the
first quarter of 1999. The approximate $3.1 million decrease was a result of the
combined effects of the acquisition of AVEX, the ramping up of new projects and
the increase in interest expense.
19
<PAGE>
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 - Our new locations in Europe were the result of acquisitions. We
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 $154.0 million and operating income of approximately $12.0
million for 1999 in Europe.
ASIA - Our facility in Singapore was an AVEX facility. This acquired
facility gave rise to the net sales of approximately $13.0 million and operating
income of approximately $0.8 million for Asia in 1999.
We continue to expand the diversification of our customer base between
countries, market segments and product lines within market segments.
As a result of our international sales and facilities, our operations are
subject to the risks of doing business abroad. These dynamics have not had a
material adverse effect on our results of operations through December 31, 1999,
however, we cannot assure that there will not be an adverse impact in the
future. See "Quantitative and Qualitative Disclosures About 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 our sales have been to a small number of
customers, and the loss of a major customer, if not replaced, would adversely
affect us. During 1999, our three largest customers accounted for approximately
39.2% of our sales, and our largest customer accounted for approximately 17.5%
of sales. Our future sales are dependent on the success of our customers, some
of which operate in businesses associated with rapid technological change and
consequent product obsolescence. Developments adverse to our major customers or
their products, or the failure of a major customer to pay for components or
services, could have an adverse effect on us.
AVEX's largest customer in 1998 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.
We had a record year-end backlog of approximately $1.0 billion at December
31, 1999, as compared to the 1998 year-end backlog of $317.0 million. The
December 31, 1999 figure includes backlog amounts for the recently acquired AVEX
operations. Although we expect to fill substantially all of our backlog in 2000,
at December 31, 1999 we did not have long-term agreements with all of our
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 our
current customers will continue to utilize our 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
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<PAGE>
projects of ours and AVEX during the last six months of 1999, which resulted in
significant underabsorption of costs. For the foreseeable future, our 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 of our facilities
and us 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.
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,
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. We expect 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, we 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.
We 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 DECEMBER 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 our sales have been to a small number of
customers, and the loss of a major customer, if not replaced, would adversely
affect us. During 1998, our three largest customers accounted for approximately
53% of our sales, and our largest customer accounted for approximately 28% of
sales.
We 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.
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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. Our 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.
SG&A 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 expenses, 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 on
the debt incurred in connection with the acquisitions of LCEC in 1998 and EMD
Technologies, Inc. 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 our 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.
We 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 sales resulting from the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our growth and operations through funds generated from
operations, proceeds from the sale of our securities and funds borrowed under
our credit facilities.
Cash provided by (used in) operating activities was ($48.4) million and
$18.4 million for the three months ended March 31, 2000 and 1999, respectively.
The decrease in cash provided by operations was primarily the result of
decreases in net income and increases in accounts receivable and inventories
partially offset by increases in depreciation and amortization. Our accounts
receivables and inventories at March 31, 2000 increased $27.1 million and $34.8
million, respectively, over their levels at December 31, 1999, reflecting our
increased sales and backlog during the first three months of 2000, as compared
to the corresponding period in the prior year. We expect increases in
inventories to support the anticipated growth in sales. We continued and are
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 us.
Cash used in investing activities was $9.8 million and $52.7 million for
the three months ended March 31, 2000 and 1999, respectively. Capital
expenditures of $9.4 million for the three months ended March 31, 2000 were
primarily concentrated in test and manufacturing production equipment.
Capitalized software costs of $0.5 million for the three months ended March 31,
2000 were for the implementation of our new Enterprise Resource Planning System
software. On March 1, 1999, we
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completed the purchase of inventories and plant and equipment from Stratus for
$42.3 million, as adjusted. See Note 7 of Notes to Condensed Consolidated
Financial Statements.
Cash provided by financing activities was $49.4 million and $23.3 million
for the three months ended March 31, 2000 and 1999, respectively. During the
first quarter of 2000, we increased borrowings outstanding under the revolving
line of credit by $53.6 million and made principal payments on long-term debt
totaling $4.7 million.
We have a $125 million revolving line of credit facility (Revolving Credit
Facility) with a commercial bank. We are entitled to borrow under the Revolving
Credit Facility up to the lesser of $125 million or the sum of 75% of our
eligible accounts receivable, 45% of our eligible inventories and 50% of our
eligible fixed assets. Interest on the Revolving Credit Facility and the Term
Loan is payable quarterly, at our 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 our 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 March 31, 2000, we had $95.1 million outstanding under the Revolving
Credit Facility, bearing interest at rates ranging from 8.625% to 10.0%, $5.2
million outstanding letters of credit and $24.7 million was available for future
borrowings.
The Term Loan and the Revolving Credit Facility (collectively the Facility)
is secured by our domestic inventory and accounts receivable, 100% of the stock
of our domestic subsidiaries and 65% of the voting capital stock of each direct
foreign subsidiary and substantially all of our other tangible and intangible
assets of our domestic subsidiaries. The Facility contains customary financial
covenants and restricts our ability to incur additional debt, pay dividends,
sell assets and merge or consolidate with other persons, without the consent of
the bank.
We have outstanding $80.2 million principal amount of 6% Convertible
Subordinated Notes (Notes). The indenture relating to the Notes contains
affirmative and negative covenants, including covenants restricting our 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
our company (as defined in the indenture relating to the Notes), each holder of
Notes will have the right to require us to repurchase all or part of the
Holder's notes at 100% of the face amount thereof, plus accrued and unpaid
interest. The Notes are convertible into shares of our common stock at an
initial conversion price of $40.20 per share at the option of the holder at any
time prior to maturity, unless previously redeemed or repurchased. See Note 3 of
Notes to Condensed Consolidated Financial Statements.
Our operations, and the operations of businesses we acquire, are subject to
certain foreign, federal, state and local regulatory requirements relating to
environmental, waste management, health and safety matters. We believe we
operate in substantial compliance with all applicable requirements and we seek
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.
We may require additional capital to finance further enhancements to or
acquisitions or expansions of our manufacturing capacity. Management believes
that the level of working capital will continue to grow at a rate generally
consistent with the growth of our 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 us, we 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 our existing debt agreements.
At March 31, 2000, our debt to total capitalization ratio was 49%, as
compared to 44% at December 31, 1999. Our acquisitions in 1999 have
significantly increased our leverage ratio and
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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.
Pursuant to the terms of the purchase agreement in connection with the
acquisition of AVEX on August 24, 1999, we were required to agree upon a closing
working capital adjustment with the Seller by November 22, 1999. We were unable
to reach an agreement with the Seller prior to the November 22, 1999 deadline
and on May 22, 2000, the independent accounting firm hired by the Seller and us
to resolve the dispute between the companies released its findings and held that
the final working capital adjustment was $35.3 million. We made the payment to
the Seller on June 1, 2000 by drawing on our Revolving Credit Facility. The
final working capital adjustment was $2.0 million greater than the current
liability we recorded at March 31, 2000 as an estimate of the working capital
adjustment. We will record the $2.0 million increase in goodwill in the quarter
ending June 30, 2000.
We have an underwritten commitment from Chase Bank of Texas, National
Association, the agent under our bank facility, to increase the availability
under the Revolving Credit Facility by $50.0 million.
We will receive net proceeds from this offering, after payment of
underwriting discounts and commissions and our estimated offering expenses, of $
million. We will use $ million of such proceeds to temporarily repay outstanding
indebtedness under our Revolving Credit Facility. After giving effect to such
repayment, we will have approximately $ million of availability under our
Revolving Credit Facility. The balance of the net proceeds from this offering
will be used for working capital and other general corporate purposes, including
possible acquisitions.
Management believes that after giving effect to this offering, our existing
cash balances, funds generated from operations and available funds under our
Revolving Credit Facility will be sufficient to permit us to meet our liquidity
requirements for the next 9-12 months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to interest rate risk under our variable rate revolving
credit and term loan facilities. These facilities are based on the spread over
the bank's Eurodollar rate or its prime rate. Inflation and changing prices have
not significantly affected our operating results or the markets in which we
perform services.
We currently have an interest rate swap transaction agreement for a
notional amount of $43.0 million under which we pay a fixed rate of interest
hedging against the variable interest rates charged by the Term Loan. 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 economies or currencies; and
o economic and political instability.
Historically, we have not held or issued derivative financial instruments.
We do not use derivative financial instruments for speculative purposes. Our
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 in
a natural hedge because both operating expenses and a portion of sales are
denominated in local currency. As of March 31, 2000, we had one foreign currency
hedging contract in place to support expansion of the Dublin, Ireland facility
that expires in December 2000.
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BUSINESS
GENERAL
Benchmark Electronics, Inc. is a leading provider of EMS to OEMs in the
telecommunication, enterprise computer and peripherals, high-end
video/audio/entertainment, industrial control, testing and instrumentation,
computer and medical markets. We offer OEMs a turnkey EMS solution, from initial
product design to volume production and direct order fulfillment. We provide
advanced engineering services including product design, PCB layout, quick-turn
prototyping and test development. We believe that we have developed strengths in
the manufacturing process for large, complex, high-density assemblies as well as
the ability to manufacture high and low volume products in lower cost regions
such as Latin America, Eastern Europe and Southeast Asia. As OEMs expand
internationally, they are increasingly requiring their EMS partners to have
strategic regional locations and global procurement abilities. We believe a
global manufacturing presence of 14 facilities in eight countries increases our
ability to be responsive to our customers' needs by providing accelerated
time-to-market and time-to-volume production of high quality products. These
capabilities should enable us to build stronger strategic relationships with our
customers and to become a more integral part of their operations.
Substantially all of our manufacturing services are provided on a turnkey
basis, whereby we purchase customer-specified components from our suppliers,
assemble the components on finished PCBs, perform post-production testing and
provide our customer with production process and testing documentation. We offer
our customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with our customers' inventory requirements.
In certain instances, we complete the assembly of our customers' products at our
facilities by integrating PCB assemblies into other elements of our customers'
products. We also provide manufacturing services on a consignment basis, whereby
we utilize components provided by the customer to provide assembly and post-
production testing services. We currently operate on approximately 1.5 million
square feet, a total of 49 surface mount production lines at our domestic
facilities in Texas, Oregon, New Hampshire, Alabama, Tennessee and Minnesota and
32 surface mount production lines at our international facilities in Ireland,
Brazil, Hungary, Mexico, Singapore, Scotland and Sweden.
Benchmark, formerly named Electronics, Inc., began operations in 1979 and
was incorporated under Texas law in 1981 as a wholly owned subsidiary of
Intermedics, Inc., a medical implant manufacturer based in Angleton, Texas. In
1986, Intermedics sold 90% of the outstanding shares of common stock of the
Company to Electronic Investors Corp., a corporation formed by Donald E. Nigbor,
Steven A. Barton and Cary T. Fu, three of our executive officers. In 1988,
Electronic Investors Corp. was merged into Benchmark, and in 1990 we completed
the initial public offering of our common stock.
BUSINESS STRATEGY
Our goal is to be the EMS outsourcing provider of choice to leading OEMs in
the high growth segments of the electronics industry. To meet this goal, we have
implemented the following strategies:
o MAINTAIN AND DEVELOP CLOSE, LONG-TERM RELATIONSHIPS WITH CUSTOMERS. Our
core strategy is to maintain and establish long-term relationships with
leading OEMs in expanding industries by becoming an integral part of our
customers' manufacturing operations. To this end, we work closely with
our customers throughout the design, manufacturing and distribution
process, and we offer flexible and responsive services. We believe we
develop stronger customer relationships by relying on our local
management teams that respond to frequently changing customer design
specifications and production requirements.
o FOCUS ON HIGH-END PRODUCTS IN HIGH GROWTH SECTORS. EMS providers produce
products for a wide range of OEMs in different industries. The product
scope ranges from easy to assemble, low-cost high-volume products
targeted for the consumer market to complicated state-of-the-art,
mission critical electronic hardware. Similarly, OEM customers range
from consumer-oriented companies that compete primarily on price and
redesign their products every year to
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high-end telecommunications and enterprise computer manufacturers that
compete on technology and quality. We currently offer state-of-the-art
products for industry leaders who require advanced engineering design
and production services as well as offering high volume manufacturing
capabilities to our customer base. Our ability to offer both of these
services enables us to expand our business relationships.
o DELIVER COMPLETE HIGH AND LOW VOLUME MANUFACTURING SOLUTIONS GLOBALLY.
We believe OEMs increasingly require a wide range of advanced
engineering and manufacturing services in order to reduce their costs
and accelerate their time-to-market and time-to-volume production.
Building on our integrated engineering and manufacturing capabilities,
we offer services from initial product design and test to final product
assembly and distribution to the OEMs' customers. With the AVEX
acquisition, we also offer our customers high volume production in low
cost regions of the world, such as Brazil, Hungary and Mexico. These
full service capabilities allow us to offer customers the flexibility to
move quickly from design and initial introduction to production and
distribution.
o LEVERAGE ADVANCED TECHNOLOGICAL CAPABILITIES. Our traditional strengths
in the manufacturing processes for large, complex high-density
assemblies enable us to offer customers advanced design, technology and
manufacturing solutions for their primary products. We provide this
engineering expertise through our design capabilities in each of our
facilities, and in our design centers located in Winona, Minnesota,
Huntsville, Alabama and Cork, Ireland. We believe our capabilities help
our customers improve product performance and reduce costs.
o CONTINUE OUR GLOBAL EXPANSION. A strategically positioned facilities
network can simplify and shorten an OEM's supply chain and reduce the
time it takes to bring product to market. We are committed to pursuing
geographic expansion in order to support our global customers with
cost-effective and timely delivery of quality products and services
worldwide. Our AVEX acquisition significantly expanded our service scope
to provide a global manufacturing solution to our customers at 14
facilities located in Brazil, Hungary, Ireland, Mexico, Scotland,
Singapore, Sweden and the United States.
o SELECTIVELY PURSUE STRATEGIC ACQUISITIONS. We have completed four
acquisitions since July 1996 and will continue to selectively seek
acquisition opportunities. Our acquisitions have enhanced our business
in the following ways:
o expanded geographic presence;
o enhanced customer growth opportunities;
o developed strategic relationships;
o broadened service offerings;
o diversified into new market sectors; and
o added experienced management teams.
We believe that growth by selective acquisitions is critical for achieving
the scale, flexibility and breadth of customer services required to remain
competitive in the EMS industry.
ACQUISITIONS
Since July 1996, we have completed four acquisitions. These acquisitions
have broadened our service offerings, diversified our customer base with leading
OEMs and expanded our geographic presence. These acquisitions were:
o AVEX ELECTRONICS, INC. AND RELATED COMPANIES. On August 24, 1999, we
completed the acquisition of AVEX, one of the largest privately-held
contract manufacturers. This acquisition provided us a global presence
with 14 facilities in eight countries and a sales base of approximately
$1.5 billion on a pro forma basis for 1999. With this acquisition, we
became the sixth
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largest publicly held EMS provider in the world based on 1998 pro forma
sales. This acquisition expanded our customer base to approximately 90
OEMs in a broader range of end user markets.
o STRATUS COMPUTER IRELAND. On March 1, 1999, we acquired certain assets
from Stratus Computer Ireland, and in connection with the transaction
entered into a three-year supply agreement to provide system integration
services to Ascend and Stratus Holdings Limited. The acquired assets
increased our ability to provide a broad range of services to the
European market and enhanced our systems integration and box build
engineering capabilities.
o LOCKHEED COMMERCIAL ELECTRONICS COMPANY. In February 1998, we acquired
Lockheed Commercial Electronics Company. This acquisition provided us
with manufacturing capacity in the northeastern United States and 19
additional customers. Now operated as our Hudson, New Hampshire
division, the facility provides a broad range of services including PCB
assembly and test, system assembly and test, prototyping, depot repair,
materials procurement, and engineering and design support services.
o EMD TECHNOLOGIES, INC. In July 1996, we acquired EMD Technologies, Inc.,
an independent provider of electronics manufacturing and product design
services. Now operated as our Winona, Minnesota division, this facility
provides a complete range of enhanced product design and subsystem and
enclosure configuration. In addition to design services, this
acquisition provided us with manufacturing capabilities in the
midwestern United States and 19 additional customers.
We believe our primary competitive advantages are our design,
manufacturing, testing and supply chain management capabilities. We offer our
customers complete and flexible manufacturing solutions that provide accelerated
time-to-market, time-to-volume production and reduced production costs. As a
result of working closely with our customers and responding promptly to their
needs, we have become an integral part of their operations. In addition, our
workforce is led by a management team that founded Benchmark and has an average
of 18 years of industry experience.
SERVICES WE PROVIDE
ENGINEERING. Our approach is to coordinate and integrate our design,
prototype and other engineering capabilities. Through this approach, we provide
a broad range of engineering services and, in some cases, dedicated production
lines for prototypes. These services strengthen our relationships with
manufacturing customers and attract new customers requiring advanced engineering
services.
To assist customers with initial design, we offer CAE and CAD-based design,
engineering for manufacturability, circuit board layout and test development. We
also coordinate industrial design and tooling for product manufacturing. After
product design, we offer quickturn prototyping. During this process, we assist
with the transition to volume production. By participating in product design and
prototype development, we can reduce manufacturing costs and accelerate the
time-to-volume production.
MATERIALS PROCUREMENT AND MANAGEMENT. Materials procurement and management
consists of the planning, purchasing, expediting and warehousing of components
and materials. Our inventory management and volume procurement capabilities
contribute to cost reductions and reduce total cycle time. Our materials
strategy is focused on leveraging our procurement volume corporate wide while
providing local execution for maximum flexibility at the division level. In
addition, our Dublin, Ireland facility has developed material processes required
to support high-end computer system integration operations.
ASSEMBLY AND MANUFACTURING. Our assembly and manufacturing operations
include PCB and subsystem assembly, box build and systems integration. A
substantial portion of our sales is derived from the manufacture and assembly of
complete products. We employ various inventory management techniques such as
just-in-time, ship-to-stock and autoreplenish programs. As OEMs seek to provide
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greater functionality in smaller products, they increasingly require more
sophisticated manufacturing technologies and processes. Our investment in
advanced manufacturing equipment and our experience in innovative packaging and
interconnect technologies (such as chip scale packaging and ball grid array)
enable us to offer a variety of advanced manufacturing solutions.
TESTING. We offer computer-aided testing of assembled PCBs, subsystems and
systems, which contributes significantly to our ability to deliver high-quality
products on a consistent basis. We work with our customers to develop
product-specific test strategies. Our test capabilities include manufacturing
defect analysis, in-circuit tests and functional tests. We either custom design
test equipment and software ourselves or use test equipment and software
provided by our customers. In addition, we provide environmental stress tests of
board or system assemblies.
DISTRIBUTION. We offer our customers flexible, just-in-time delivery
programs allowing product shipments to be closely coordinated with customers'
inventory requirements. Increasingly, we ship products directly into customers'
distribution channels or directly to the end-user. We believe that this service
can provide our customers with a more comprehensive solution and enable them to
be more responsive to market demands.
MARKETING AND CUSTOMERS
We market our services through a direct sales force and independent
marketing representatives. In addition, our divisional and executive management
teams are an integral part of our sales and marketing teams. During 1999, our
two largest customers, Lucent and EMC, each represented in excess of 10% of
total sales and, in the aggregate, represented 34% of total sales.
The following table sets forth the percentages of our sales by industry for
the first quarter of 2000 and for the full years 1999, 1998 and 1997.
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH 31, 2000 1999 1998 1997
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
Telecommunication.................... 33% 39% 31% 21%
Enterprise Computer & Peripherals.... 35 30 44 39
Industrial Controls.................. 10 9 9 12
Medical.............................. 5 6 11 17
High-end Video/Audio/Entertainment... 11 6 _ _
Computer............................. _ 6 _ _
Testing & Instrumentation............ 6 4 5 11
</TABLE>
SUPPLIERS
We maintain a network of suppliers of components and other materials used
in assembling printed circuit boards. We procure components only when a purchase
order or forecast is received from a customer and occasionally utilize
components or other materials for which a supplier is the single source of
supply. Although we experience component shortages and longer lead times of
various components from time to time, we have generally been able to reduce the
impact of the component shortages by working with customers to reschedule
deliveries, by working with suppliers to provide the needed components using
just-in-time inventory programs, or by purchasing components at somewhat higher
prices from distributors, rather than directly from manufacturers. These
procedures reduce, but do not eliminate, our inventory risk. In addition, by
developing long-term relationships with suppliers, we have been better able to
minimize the effects of component shortages than manufacturers without such
relationships. Because of the continued increase in demand for surface mount
components, we anticipate shortages and longer lead times for certain components
to occur from time to time.
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BACKLOG
Our backlog was approximately $1 billion at December 31, 1999, compared to
$317 million at December 31, 1998. The December 31, 1999 figure includes backlog
amounts for the recently acquired AVEX operations. Although we expect to fill
substantially all of our December 31, 1999 backlog during 2000, at December 31,
1999 we did not have long-term agreements with all of our 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 our
current customers will continue to utilize our services. Because of these
factors, backlog is not a meaningful indicator of future financial results.
COMPETITION
The electronics manufacturing services we provide are available from many
independent sources as well as in-house manufacturing capabilities of current
and potential customers. Our competitors include Celestica, Inc., Flextronics
International Ltd., Jabil Circuit, Inc., SCI Systems, Inc. and Solectron
Corporation, who may be more established in the industry and have substantially
greater financial, manufacturing or marketing resources than we do. We believe
that the principal competitive factors in our targeted markets are product
quality, flexibility and timeliness in responding to design and schedule
changes, reliability in meeting product delivery schedules, pricing,
technological sophistication and geographic location.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the material features of our capital stock is
intended as a summary only and is qualified in its entirety by reference to our
amended and restated articles of incorporation, a copy of which has been filed
as an exhibit to our report on Form 10-K for the year ended December 31, 1999,
which is incorporated by reference. See "Risk Factors - Provisions in our
charter documents and state law may make it harder for others to obtain control
of Benchmark even though some shareholders might consider such a development to
be favorable."
COMMON STOCK
Our amended and restated articles of incorporation authorizes us to issue
30,000,000 shares of common stock. As of March 31, 2000, 16,277,426 shares of
common stock were outstanding. In addition, as of March 31, 2000, we had issued
and outstanding options to purchase 2,776,395 shares of common stock, of which
options to purchase 805,405 shares are currently exercisable.
Each share of common stock has an equal and ratable right to receive
dividends to be paid from our assets legally available therefor when, as and if
declared by the board of directors. We have never paid, and do not anticipate
that we will pay in the foreseeable future, cash dividends on the common stock.
In addition, the agreement relating to our credit facility with Chase Bank of
Texas, National Association restricts the amount of cash dividends that we may
pay on common stock. The holders of common stock have no preemptive or other
rights to subscribe for additional shares of common stock or any of our other
securities. Each share of common stock entitles the holder thereof to one vote
in the election of directors and on all other matters submitted to a vote of our
shareholders. The holders of common stock have no right to cumulate their votes
in the election of directors. In the event of our dissolution or liquidation,
the holders of common stock will be entitled to share equally and ratably in our
assets available for distribution after payments are made to our creditors and
the holders of any outstanding shares of preferred stock. The outstanding shares
of common stock, including the shares of common stock offered hereby, are fully
paid and non-assessable.
Our common stock is traded on The New York Stock Exchange under the symbol
"BHE." The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank, 88 Pine Street, New York, New York 10005.
PREFERRED STOCK
Our amended and restated articles of incorporation authorize us to issue
5,000,000 shares of preferred stock, par value $0.10 per share. We have
established and designated a series of our preferred stock known as Series A
Cumulative Junior Participating Preferred Stock, par value $0.10 per share,
consisting of an aggregate of 30,000 shares. None of this preferred series has
been issued.
In addition, the board of directors has the authority, without shareholder
approval, to cause the issuance of other preferred stock in one or more series,
with such designations, preferences, limitations and rights as the board of
directors may determine. We have not issued, and have no plans to issue, any
shares of preferred stock. If we were to do so, however, the provisions of the
preferred stock may include, among others, extraordinary voting, dividend,
redemption, conversion or exchange rights.
SHAREHOLDER RIGHTS PLAN
On December 11, 1998, the board of directors adopted a shareholder rights
plan. Under this plan, a dividend of one preferred share purchase right, called
a "Right," was declared for each outstanding share of common stock, paid
December 21, 1998 to shareholders of record on that date. Each Right entitles
shareholders to buy one one-thousandth of a share of newly created Series A
Cumulative Junior Participating Preferred Stock at an exercise price of $155,
subject to adjustment in the event a person acquires, or makes a tender or
exchange offer for, 15% or more of the outstanding common stock. In such event,
each Right entitles the holder, other than the person acquiring 15% or more of
the outstanding common stock, to purchase shares of common stock with a market
value of twice the
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<PAGE>
Right's exercise price. In addition, if we are acquired in a merger or other
business combination, or if we sell more than 50% of our consolidated assets or
earning power, our shareholders are entitled (other than the acquirer) to
purchase, for the exercise price, shares of the common stock of the acquiring
entity or its parent having a market value of two times the exercise price. At
any time prior to such event, the board of directors may redeem the Rights at
one cent per Right. The Rights can be transferred only with common stock and
expire ten years after the date the shareholder rights plan was adopted. The
existence of the Rights may, under certain circumstances, render more difficult
or discourage attempts to acquire us.
NOTES
We have $80.2 million in aggregate principal amount of our 6.00%
Convertible Subordinated Notes due 2006 outstanding. The notes are convertible
into common stock at an initial conversion price of $40.20. If all of the notes
were converted into shares of common stock at the initial conversion price,
1,995,025 shares of common stock would be issued. The notes were issued pursuant
to an Indenture dated August 13, 1999. The notes are unsecured obligations and
are subordinated in right of payment to all our existing and future senior debt
to the extent set forth in the Indenture.
STATUTORY BUSINESS COMBINATION PROVISIONS
Our company is subject to Article 13 of the Texas Business Corporation Act
(Article 13) which, with certain exceptions, prohibits a Texas corporation from
engaging in a "business combination," as defined in Article 13, with any
shareholder who is a beneficial owner of 20% or more of our outstanding stock
for a period of three years after such shareholder acquires the 20% ownership
position, unless: (1) our board of directors approves the transaction or the
shareholder's acquisition of shares prior to the acquisition or (2) two-thirds
of the unaffiliated shareholders of our company approve the transaction at a
shareholders' meeting. Shares that are issuable, but have not yet been issued,
pursuant to options, conversion or exchange rights or other agreements are not
considered outstanding for purposes of Article 13.
U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder. As used in this prospectus, the term "non-U.S. holder" is
a person other than:
o a citizen or individual resident of the U.S. for U.S. federal income tax
purposes,
o a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision of the U.S.,
o an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source or
o a trust, in general, if it is subject to the primary supervision of a
court within the U.S. and the control of one or more U.S. persons.
This discussion does not consider:
o U.S. state and local or non-U.S. tax consequences,
o specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including, if the non-U.S. holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level,
o the tax consequences for the shareholders or beneficiaries of a non-U.S.
holder,
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<PAGE>
o special tax rules that may apply to certain non-U.S. holders, including,
without limitation, banks, insurance companies, dealers in securities
and traders in securities who elect to apply a mark-to-market method of
accounting or
o special tax rules that may apply to a non-U.S. holder that holds our
common stock as part of a "straddle," "hedge," or "conversion
transaction."
The following is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, applicable Treasury regulations, and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which may change, retroactively or prospectively. The following summary is for
general information. Accordingly, each non-U.S. holder should consult a tax
advisor regarding the U.S. federal, state, local and non-U.S. income and other
tax consequences of acquiring, holding and disposing of shares of our common
stock.
DIVIDENDS
In the event that dividends are paid on shares of common stock, dividends
paid to a non-U.S. holder of common stock generally will be subject to
withholding of U.S. federal income tax at a 30% rate, or such lower rate as may
be provided by an applicable income tax treaty. Non-U.S. holders should consult
their tax advisors regarding their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the U.S. or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base," in the U.S., as provided in that treaty ("U.S. trade or business
income"), are generally subject to U.S. federal income tax on a net income basis
at regular graduated rates, but are not generally subject to the 30% withholding
tax if the non-U.S. holder files the appropriate U.S. Internal Revenue Service
form with the payor. Any U.S. trade or business income received by a non-U.S.
holder that is a corporation may also, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as
specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For dividends paid after
2000:
o a non-U.S. holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
o in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number and
o look-through rules will apply for tiered partnerships.
A non-U.S. holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
o the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate non-U.S.
holder,
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<PAGE>
o the non-U.S. holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the U.S. for more than 182 days in the taxable year
of the disposition and meets certain other requirements,
o the non-U.S. holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain U.S. expatriates, or
o we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition or the period that
the non-U.S. holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. We believe
that the Company has not been and is not currently, and we do not anticipate its
becoming, a "U.S. real property holding corporation" for U.S. federal income tax
purposes. The tax relating to stock in a "U.S. real property holding
corporation" will not apply to a non-U.S. holder whose holdings, direct and
indirect, at all times during the applicable period, constituted 5% or less of
the common stock, provided that the common stock was regularly traded on an
established securities market.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, non-U.S. holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
U.S. For dividends paid after 2000, however, a non-U.S. holder of common stock
that fails to certify its non-U.S. holder status in accordance with applicable
U.S. Treasury Regulations may be subject to backup withholding at a rate of 31%
on payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a U.S.
broker generally will be subject to information reporting and backup withholding
at a rate of 31% unless the holder either certifies its status as a non-U.S.
holder under penalties of perjury or otherwise establishes an exemption. The
payment of the proceeds of the disposition by a non-U.S. holder of common stock
to or through a non-U.S. office of a non-U.S. broker will not be subject to
backup withholding or information reporting unless the non-U.S. broker is a
"U.S. related person." In the case of the payment of proceeds from the
disposition of common stock by or through a non-U.S. office of a broker that is
a U.S. person or a "U.S. related person," information reporting, but currently
not backup withholding, on the payment applies unless the broker receives a
statement from the owner, signed under penalty of perjury, certifying its
non-U.S. status or the broker has documentary evidence in its files that the
holder is a non-U.S. holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S. related person" is:
o a "controlled foreign corporation" for U.S. federal income tax purposes,
o a foreign person 50% or more of whose gross income for certain periods
is derived from the conduct of a U.S. trade or business or
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<PAGE>
o effective after 2000, a foreign partnership if, at any time during its
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged
in a U.S. trade or business.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge or reason to know that the holder is a U.S. person. Non-U.S. holders
should consult their own tax advisors regarding the application of the
information reporting and backup withholding rules to them, including changes to
these rules that will become effective after 2000.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
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<PAGE>
UNDERWRITING
Under the terms and conditions contained in an underwriting agreement
dated , 2000, we have agreed to sell to the underwriters named below, for
whom Credit Suisse First Boston Corporation, Chase Securities Inc. and
FleetBoston Robertson Stephens Inc. are acting as representatives, the following
respective number of shares:
NUMBER
UNDERWRITER OF SHARES
----------- ----------
Credit Suisse First Boston Corporation..
Chase Securities Inc....................
FleetBoston Robertson Stephens Inc......
----------
Total...................... 2,750,000
==========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 412,500 additional shares of common stock at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------------------- ---------------------------
WITHOUT WITH WITHOUT WITH
OVER- OVER- OVER- OVER-
ALLOTMENT ALLOTMENT ALLOTMENT ALLOTMENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Underwriting Discounts and $ $ $ $
Commissions paid by us...............
Expenses payable by us............... $ $ $ $
</TABLE>
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
35
<PAGE>
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 90 days after the date of this prospectus. This
agreement does not apply to any existing employee benefit plans or the exercise
of stock options pursuant to existing plans.
Our officers and directors have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of ownership of
our common stock, whether any such aforementioned transaction is to be settled
by delivery of our common stock or such other securities, in cash or otherwise,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 90 days after the date of this
prospectus.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act.
o Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
o Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
o Penalty bids permit the representative to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of such transactions. These transactions may be effected on The
New York Stock Exchange or otherwise and, if commenced, may be discontinued at
any time.
In the ordinary course of their business, the underwriters or their
affiliates have engaged in or provided investment and/or commercial banking and
financial advisory services to us, for which they have received customary
compensation and expense reimbursement, and may do so again in the future. Chase
Securities Inc. is an affiliate of Chase Bank of Texas, National Association
which is our agent bank and a lender under our Revolving Credit Facility. We
intend to use a portion of the proceeds of this offering to repay amounts
outstanding under that credit facility. In addition, Chase Securities Inc. was
an initial purchaser for the offering of our convertible subordinated notes.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
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<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of common stock in Canada is being made only
on a private placement basis exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of shares of common stock are effected. Accordingly, any resale of
the shares of common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the shares of common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of shares of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such shares of common stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer, and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law (Ontario). As a result, Ontario purchasers must rely on
other remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares of common stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any shares of common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one such report must be filed in respect of shares of common stock acquired
on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of shares of common stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the shares of common stock in their particular circumstances and with respect to
the eligibility of the shares of common stock for investment by the purchaser
under relevant Canadian legislation.
37
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby is being passed
upon for us by Bracewell & Patterson, L.L.P., Houston, Texas. The underwriters
have been represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of Benchmark Electronics, Inc. and
subsidiaries as of December 31, 1999 and 1998 and for each of the years in the
three-year period ended December 31, 1999, have been included and incorporated
by reference in this prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants, included and incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The combined financial statements of AVEX Electronics, Inc., its
subsidiaries, and certain related companies as of December 31, 1998 and 1997 and
for each of the years in the three-year period ended December 31, 1998, have
been incorporated by reference in this prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference facilities in Washington,
D.C., New York, New York and Chicago, Illinois at the following addresses:
o 450 Fifth Street, N.W.
Washington, D.C. 20549
o Seven World Trade Center, 13th Floor
New York, New York 10048
o Northwestern Atrium Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference facilities and their copy charges.
Our SEC filings can also be inspected and copied at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005.
We have elected to "incorporate by reference" certain information we file
with the SEC into this prospectus. This means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934 until we sell all of the common
stock:
o our Annual Report on Form 10-K for the fiscal year ended December 31,
1999 (excluding Exhibit 99.1 which has been superseded by our Current
Report on Form 8-K filed June 2, 2000);
o our Quarterly Report on Form 10-Q for quarter ended March 31, 2000;
o our Current Report on Form 8-K filed April 7, 2000;
o our Current Report on Form 8-K filed June 2, 2000; and
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<PAGE>
o the description of our capital stock that is contained in our
Registration Statements on Form 8-A/A filed on June 25, 1990 and
December 11, 1998, as amended December 22, 1998.
You may request a copy of these filings, in most cases without exhibits, at
no cost by writing or telephoning us at the following address:
Corporate Secretary
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
(979) 849-6550
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Audited Annual Financial Statements:
Independent Auditors' Report.... F-2
Consolidated Balance Sheets as
of December 31, 1999 and
1998........................... F-3
Consolidated Statements of
Income for the Years Ended
December 31, 1999, 1998 and
1997........................... F-4
Consolidated Statements of
Shareholders' Equity and
Comprehensive Income
for the Years Ended December
31, 1999, 1998 and 1997........ F-5
Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1999, 1998 and
1997........................... F-6
Notes to Consolidated Financial
Statements..................... F-7
Unaudited Interim Financial
Statements:
Condensed Consolidated Balance
Sheet as of March 31, 2000..... F-23
Condensed Consolidated
Statements of Income for the
Three Months Ended
March 31, 2000 and 1999........ F-24
Condensed Consolidated
Statements of Cash Flows for
the Three Months Ended
March 2000 and 1999............. F-25
Notes to Condensed Consolidated
Financial Statements........... F-26
F-1
<PAGE>
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
F-2
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES SHARES CAPITAL EARNINGS INCOME SHARES EQUITY
---------- ---------- ------------ ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
========== ========== ============ =========== ======== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
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
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
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.
F-7
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
F-8
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(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) Statement 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.
F-9
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
F-10
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
F-11
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
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:
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
F-12
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
F-13
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$5,626,948 $4,190,230 $3,780,602 $3,401,926 $1,622,514 $4,337,468 $22,959,688
</TABLE>
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
F-14
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
<TABLE>
<CAPTION>
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
-------- ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$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
========= =======
</TABLE>
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.
F-15
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
========== =========== ==========
F-16
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
F-17
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
F-18
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
========
F-19
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
F-20
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
F-21
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
F-22
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31,
2000
---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash
equivalents............... $ 1,073
Accounts receivable, net... 224,376
Income taxes receivable.... 3,985
Inventories................ 249,720
Prepaid expenses and other
assets.................... 15,636
Deferred tax asset......... 2,347
--------
Total current assets.. 497,137
--------
Property, plant and equipment... 178,084
Accumulated depreciation........ (56,262)
--------
Net property, plant
and equipment........ 121,822
--------
Other assets, net............... 23,648
Goodwill, net................... 169,225
--------
$811,832
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
other long-term debt...... $ 19,011
Accounts payable........... 216,117
Accrued liabilities........ 28,726
--------
Total current
liabilities.......... 263,854
Revolving line of credit........ 95,100
Convertible subordinated
notes.......................... 80,200
Other long-term debt, excluding
current installments........... 76,611
Other long-term liability....... 5,789
Deferred income taxes........... 5,747
Shareholders' equity:
Preferred shares, $0.10 par
value; 5,000,000 shares
authorized, none issued... _
Common shares, $0.10 par
value; 30,000,000 shares
authorized; issued-
16,326,910;
outstanding - 16,277,426.. 1,628
Additional paid-in
capital................... 201,732
Retained earnings.......... 80,751
Accumulated other
comprehensive income...... 540
Less treasury shares, at
cost; 49,484 shares....... (120)
--------
Total shareholders'
equity............... 284,531
Commitments and
contingencies.............
--------
$811,832
========
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
Sales................................ $349,155 $146,546
Cost of sales........................ 325,509 131,856
-------- --------
Gross profit............... 23,646 14,690
Selling, general and administrative
expenses............................ 12,681 4,950
Amortization of goodwill............. 3,220 910
-------- --------
Income from operations..... 7,745 8,830
Interest expense..................... (5,563) (1,125)
Other income......................... 828 216
-------- --------
Income before income taxes. 3,010 7,921
Income tax expense................... 1,033 2,884
-------- --------
Net income................. $ 1,977 $ 5,037
======== ========
Earnings per share:
Basic........................... $ 0.12 $ 0.43
Diluted......................... $ 0.12 $ 0.40
======== ========
Weighted average number of shares
outstanding:
Basic........................... 16,248 11,655
Diluted......................... 17,173 12,703
======== ========
See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income......................... $ 1,977 $ 5,037
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation and amortization... 12,860 4,818
Deferred income taxes........... 91 47
Gain on the sale of property,
plant and equipment............ (9) (34)
Federal tax benefit of stock
options exercised.............. 249 211
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable............. (27,122) (23,366)
Inventories..................... (34,754) (2,718)
Prepaid expenses and other
assets......................... 49 (323)
Accounts payable................ (384) 30,608
Accrued liabilities............. (532) 1,599
Other long term liability....... (150) _
Income taxes receivable......... (634) 2,568
-------- --------
Net cash provided by (used
in) operations.......... (48,359) 18,447
-------- --------
Cash flows from investing activities:
Capital expenditures, net.......... (9,359) (3,956)
Additions to capitalized
software.......................... (466) (734)
Acquisitions....................... _ (48,000)
-------- --------
Net cash used in investing
activities.............. (9,825) (52,690)
-------- --------
Cash flows from financing activities:
Debt issuance costs................ _ (152)
Proceeds from issuance of debt..... 53,600 25,000
Proceeds from stock options
exercised......................... 507 438
Principal payments on other
long-term debt.................... (4,673) (2,036)
-------- --------
Net cash provided by
financing activities.... 49,434 23,250
-------- --------
Effect of exchange rate changes...... 386 _
-------- --------
Net decrease in cash and cash
equivalents......................... (8,364) (10,993)
Cash and cash equivalents at
beginning of year................. 9,437 23,077
-------- --------
Cash and cash equivalents at
March 31.......................... $ 1,073 $ 12,084
======== ========
Supplemental disclosures of cash
flow information:
Income taxes paid.................. $ 18 $ 57
======== ========
Interest paid...................... $ 6,223 $ 1,610
======== ========
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. The financial statements reflect all
normal and recurring adjustments which in the opinion of management are
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
NOTE 2 - 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 925 and 1,048 for the three months ended March 31, 2000 and 1999,
respectively, were used in the calculation of diluted earnings per share.
Options to purchase 593 shares of common stock for the three-month period ended
March 31, 2000 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 1,995 of
potential common shares have not been considered in computing diluted earnings
per share for the three-month period ended March 31, 2000.
NOTE 3 - BORROWING FACILITIES
In order to finance the acquisition of AVEX Electronics, Inc. and Kilbride
Holdings, B.V. (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 March 31,
2000, the Company had $93 million outstanding under the Term Loan, bearing
interest at rates ranging from 8.6875% to 9.13%. As of March 31, 1999, the
Company had $40 million outstanding under a previous Term Loan obtained in
connection with the acquisition of Lockheed Commercial Electronics Company. 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 an 8.02% Senior Note due 2006. As of March 31, 1999, the Company had $30
million outstanding under the Senior Note.
F-26
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2000, the Company had
$95.1 million outstanding under the Revolving Credit Facility, bearing interest
at rates ranging from 8.625% to 10%, $5.2 million outstanding letters of credit
and $24.7 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, pay dividends, sell assets, and to merge or
consolidate with other persons, without the consent of the bank.
In August 1999, the Company issued $80.2 million principal amount of 6%
Convertible Subordinated Notes due August 15, 2006 (the Notes). The indenture
relating to the Notes contains 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. The Notes are
convertible, unless previously redeemed or repurchased, at the option of the
holder at any time 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 shares of the
Company's common stock. Interest is payable February 15 and August 15 each year.
NOTE 4 - INVENTORIES
Inventory costs are summarized as follows:
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
Raw materials........................ $211,347 $191,952
Work in process...................... 58,396 42,603
Obsolescence reserve................. (20,023) (20,001)
-------- --------
$249,720 $214,554
-------- --------
F-27
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES
Income tax expense consists of the following:
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
------ ------
Federal Current..................... $ 278 $2,305
Foreign Current..................... 554 105
State Current....................... 108 427
Deferred............................. 93 47
------ ------
Total...................... $1,033 $2,884
====== ======
Income tax expense differs from the amount computed by applying the U.S.
federal statutory income tax rate to pretax income due to the impact of
nondeductible amortization of goodwill, foreign income taxes, state income
taxes, net of federal benefit and the benefit from the use of a foreign sales
corporation.
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 quarter ended March 31, 2000 is approximately $82 (approximately $.01 per
share diluted) lower than the amount computed by applying the statutory tax
rates.
NOTE 6 - RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative financial 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 7 - RECENT ACQUISITIONS
On August 24, 1999, the Company completed the acquisition of all of the
outstanding capital stock of AVEX from J.M. Huber Corporation (the 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
F-28
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 3). The AVEX acquisition
was accounted for using the purchase method of accounting. 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
working capital adjustment with the Seller by November 22, 1999. The Company was
unable to reach an agreement with the Seller prior to the November 22, 1999
deadline and entered into several agreements extending this deadline. The
parties hired an independent accounting firm to serve as arbitrator to resolve
the dispute and to calculate the final closing working capital adjustment. On
May 22, 2000 the arbitrator released its findings and held that the working
capital adjustment was $2.0 million greater than the current liability recorded
by the Company at March 31, 2000 as an estimate of the working capital
adjustment. The Company will record the $2.0 million increase in goodwill in the
quarter ending June 30, 2000.
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.
NOTE 8 - BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company has 14 manufacturing facilities in the Americas, Europe and
Asia 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 prior to goodwill amortization.
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.
F-29
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information about operating segments for the three months ended March 31,
2000 and 1999 was as follows:
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
-------- ------------
Net sales:
Americas........................ $316,822 $132,822
Europe.......................... 77,185 17,120
Asia............................ 9,042 _
Elimination of intersegment
sales........................... (53,894) (3,396)
-------- --------
$349,155 $146,546
======== ========
Depreciation and amortization:
Americas........................ $ 7,068 $ 3,573
Europe.......................... 2,397 335
Asia............................ 175 _
Corporate goodwill............. 3,220 910
-------- --------
$ 12,860 $ 4,818
======== ========
Income from operations:
Americas........................ $ 7,043 $ 9,323
Europe.......................... 4,069 1,049
Asia............................ 1,143 _
Corporate and intersegment
eliminations.................... (4,510) (1,542)
-------- --------
$ 7,745 $ 8,830
======== ========
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
Total assets:
Americas........................ $646,741 $424,521
Europe.......................... 126,305 128,814
Asia............................ 15,907 12,808
Corporate....................... 22,879 194,694
-------- --------
$811,832 $760,837
======== ========
F-30
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
Net sales derived from:
Printed circuit boards.......... $322,393 $129,426
Systems integration and box
build........................... 26,762 17,120
-------- --------
$349,155 $146,546
======== ========
Geographic net sales:
United States................... $218,274 $119,319
Europe.......................... 76,381 27,045
Asia and other.................. 54,500 182
-------- --------
$349,155 $146,546
======== ========
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
Long-lived assets:
United States................... $ 96,777 $ 99,221
Europe.......................... 21,972 24,538
Asia and other.................. 26,721 21,874
-------- --------
$145,470 $145,633
-------- --------
NOTE 9 COMPREHENSIVE INCOME
Comprehensive income, which includes net income and the change in the
cumulative translation adjustment, for the three months ended March 31, 2000,
was $1.8 million. For the 1999 period, comprehensive income and net income was
the same
NOTE 10 SUBSEQUENT EVENT
Since quarter end, Benchmark has entered into a letter of intent to sell
the assets of its Sweden operation. This transaction is subject to approval of
the board of directors, execution of a definitive agreement and other customary
conditions.
NOTE 11 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.
F-31
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Subsequent to March 31, 2000, the Company, along with numerous other
companies, was named as a defendant in a lawsuit brought by the Lemelson
Medical, Education & Research Foundation (the Foundation). The lawsuit, which
has not been formally served on the Company, alleges that the Company has
infringed certain of the Foundation's patents relating to machine vision and bar
code technology utilized in machines the Company has purchased. The Company has
been in contact with representatives of the Foundation, and is currently
investigating the nature of the Foundation's claims, the Company's potential
defenses and any indemnity or similar rights the Company may have against
manufacturers of the machines or other third parties. The Company's
investigation of these matters is not complete. If the Foundation's complaint is
served on the Company, the Company intends to vigorously defend against such
claim and pursue all rights it has against third parties.
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.
F-32
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred by Benchmark
Electronics, Inc. (the "Company") in connection with the issuance and
distribution of the common stock being registered. All amounts except the
registration fee are estimated.
Registration Fee..................... $ 28,621
Legal Fees and Expenses.............. 50,000
Accounting Fees...................... 75,000
Printing Fees........................ 60,000
NASD Fees and Expenses............... 12,000
Miscellaneous........................ 24,379
--------
Total $250,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
TEXAS BUSINESS CORPORATION ACT
Article 2.02-1.B of the Texas Business Corporation Act, as amended (the
"TBCA"), grants to a corporation the power to indemnify a person who was, is or
is threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director of the corporation against judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable expenses
actually incurred in connection therewith, only if it is determined that the
person (1) conducted himself in good faith; (2) reasonably believed that (a) in
the case of conduct in his official capacity as a director of the corporation,
his conduct was in the corporation's best interests, and (b) in all other cases,
his conduct was at least not opposed to the corporation's best interests; and
(3) in the case of any criminal proceeding, he had no reasonable cause to
believe that his conduct was unlawful. Article 2.02-1.C limits the allowable
indemnification by providing that, except to the extent permitted by Article
2.02-1.E, a director may not be indemnified in respect of a proceeding in which
the person was found liable (1) on the basis that he improperly received a
personal benefit, whether or not the benefit resulted from an action taken in
his official capacity, or (2) to the corporation. Article 2.02-1.E provides that
if a director is found liable to the corporation or is found liable on the basis
that he received a personal benefit, the permissible indemnification (1) is
limited to reasonable expenses actually incurred by the person in connection
with the proceeding, and (2) shall not be made in respect of any proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. Finally, Article
2.02-1.H provides that a corporation shall indemnify a director against
reasonable expenses incurred by him in connection with a proceeding in which he
is a named defendant or respondent because he is or was a director if he has
been wholly successful, on the merits or otherwise, in defense of the
proceeding.
With respect to the officers of a corporation, Article 2.02-1.O of the TBCA
provides that a corporation may indemnify and advance expenses to an officer of
the corporation to the same extent that it may indemnify and advance expenses to
directors under Article 2.02-1. Further, Article 2.02-1.O provides that an
officer of a corporation shall be indemnified as, and to the same extent,
provided by Article 2.02-1.H for a director.
AMENDED AND RESTATED BYLAWS
The Amended and Restated Bylaws of the Company make mandatory the
indemnification of and advancement of expenses to its directors who become
involved in indemnifiable legal proceedings, subject to their compliance with
certain requirements imposed by Texas law.
II-1
<PAGE>
INDEMNITY AGREEMENTS
The Company has entered into Indemnity Agreements with its directors and
officers pursuant to which the Company generally is obligated to indemnify its
directors and officers to the full extent permitted by Texas law.
UNDERWRITING AGREEMENT
The Underwriting Agreement, under certain circumstances, will provide for
indemnification for the underwriters of the directors, officers, and controlling
persons of the Company.
The Company has purchased liability insurance policies covering the
directors and officers of the Company to provide protection where the Company
cannot legally indemnify a director or officer and where a claim arises under
the Employee Retirement Income Security Act of 1974 against a director or an
officer based on an alleged breach of fiduciary duty or other wrongful act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.1(1) -- Restated Articles of Incorporation of the Company.
4.2(2) -- Amended and Restated Bylaws of the Company.
4.3(3) -- Amendment to Amended and Restated Articles of
Incorporation of the Company adopted by the
shareholders of the Company on May 20, 1997.
4.4(4) -- Statement of Resolution Establishing Series A
Cumulative Junior Participating Preferred Stock of
Benchmark Electronics, Inc.
5(5) -- Opinion of Bracewell & Patterson, L.L.P. as to the
legality of the common stock being offered.
23.1(5) -- Consent of Bracewell & Patterson, L.L.P. (included in
its opinion filed as Exhibit 5 thereto).
23.2(5) -- Consent of KPMG LLP.
24(5) -- Powers of Attorney.
------------
(1) Incorporated herein by reference to Exhibit 3.1 to Benchmark Electronics,
Inc.'s Registration Statement on Form S-1 (Registration No. 33-46316).
(2) Incorporated herein by reference to Exhibit 3.2 of Benchmark Electronics,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 001-10560).
(3) Incorporated herein by reference to Exhibit 3.3 of Benchmark Electronics,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 001-10560).
(4) Incorporated by reference to Exhibit B of the Rights Agreement dated
December 11, 1998 between the Company and Harris Trust Savings Bank, as
Rights Agent, included as Exhibit 1 to Benchmark Electronics, Inc.'s Form
8A12B filed December 11, 1998.
(5) Filed herewith.
(b) Financial Statement Schedules
No financial statement schedules are included herein. All other schedules
for which provision is made in the applicable accounting regulation of the
Commission are not required under the related instructions, are inapplicable, or
the information is included in the consolidated financial statements and have
therefore been omitted.
(c) Reports, Opinions and Appraisals
The following reports, opinions and appraisals are included herein:
None.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial BONA FIDE offering thereof.
(2) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Angleton, State of Texas, on June 2, 2000.
BENCHMARK ELECTRONICS, INC.
By /s/ DONALD E. NIGBOR
-----------------------------------
DONALD E. NIGBOR
PRESIDENT
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Donald E. Nigbor and Cary T. Fu, each with full
power to act without the other, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (until revoked in writing) to sign
any and all amendments (including post-effective amendments and amendments
thereto) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462 of the Securities Act of
1933, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing he might do or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<C> <S> <C>
/s/ JOHN C. CUSTER Chairman of the Board of June 2, 2000
JOHN C. CUSTER Directors
/s/ DONALD E. NIGBOR Director and President June 2, 2000
DONALD E. NIGBOR (principal executive officer)
/s/ STEVEN A. BARTON Director and Executive Vice June 2, 2000
STEVEN A. BARTON President
/s/ CARY T. FU Director and Executive Vice June 2, 2000
CARY T. FU President (principal financial
and accounting officer)
/s/ PETER G. DORFLINGER Director June 2, 2000
PETER G. DORFLINGER
/s/ GERALD W. BODZY Director June 2, 2000
GERALD W. BODZY
/s/ DAVID H. ARNOLD Director June 2, 2000
DAVID H. ARNOLD
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.1(1) -- Restated Articles of Incorporation of the Company.
4.2(2) -- Amended and Restated Bylaws of the Company.
4.3(3) -- Amendment to Amended and Restated Articles of
Incorporation of the Company adopted by the
shareholders of the Company on May 20, 1997.
4.4(4) -- Statement of Resolution Establishing Series A
Cumulative Junior Participating Preferred Stock of
Benchmark Electronics, Inc.
5(5) -- Opinion of Bracewell & Patterson, L.L.P. as to the
legality of the common stock being offered.
23.1(5) -- Consent of Bracewell & Patterson, L.L.P. (included in
its opinion filed as Exhibit 5 thereto).
23.2(5) -- Consent of KPMG LLP.
24(5) -- Powers of Attorney.
------------
(1) Incorporated herein by reference to Exhibit 3.1 to Benchmark Electronics,
Inc.'s Registration Statement on Form S-1 (Registration No. 33-46316).
(2) Incorporated herein by reference to Exhibit 3.2 of Benchmark Electronics,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 001-10560).
(3) Incorporated herein by reference to Exhibit 3.3 of Benchmark Electronics,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 001-10560).
(4) Incorporated by reference to Exhibit B of the Rights Agreement dated
December 11, 1998 between the Company and Harris Trust Savings Bank, as
Rights Agent, included as Exhibit 1 to Benchmark Electronics, Inc.'s Form
8A12B filed December 11, 1998.
(5) Filed herewith.
II-5
