AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000.
REGISTRATION NO. 333-38414
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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
BRACEWELL & 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. [ ]
------------------------
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.
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<PAGE>
SUBJECT TO COMPLETION, DATED JULY 28, 2000
2,750,000 Shares
[BENCHMARK LOGO]
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 July 27, 2000, was $40.8125 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 8.
<TABLE>
UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS BENCHMARK
------------ ------------ ------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total................................ $ $ $
</TABLE>
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................................................................ 5
RISK FACTORS........................................................... 8
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS................... 14
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY........................ 15
USE OF PROCEEDS........................................................ 15
CAPITALIZATION......................................................... 16
SELECTED FINANCIAL INFORMATION......................................... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................ 18
PAGE
----
BUSINESS............................................................... 28
DESCRIPTION OF CAPITAL STOCK........................................... 33
U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS.............................. 34
UNDERWRITING........................................................... 38
NOTICE TO CANADIAN RESIDENTS........................................... 41
LEGAL MATTERS.......................................................... 42
EXPERTS................................................................ 42
WHERE YOU CAN FIND MORE INFORMATION.................................... 42
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.
3
<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 in the business of manufacturing electronics and provide our
services to original equipment manufacturers of telecommunication equipment,
computers and related products for business enterprises,
video/audio/entertainment products, industrial control equipment, testing and
instrumentation products, personal computers and medical devices. The services
that we provide are commonly referred to as electronics manufacturing services.
We offer our customers comprehensive and integrated design and manufacturing
services, from initial product design to volume production and direct order
fulfillment. We provide specialized engineering services including product
design, printed circuit board layout, prototyping and test development. We
believe that we have developed strengths in the manufacturing process for large,
complex, high-density printed circuit boards 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 our customers expand
internationally, they increasingly require their electronics manufacturing
services partners to have strategic regional locations and global procurement
capabilities. 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 came from manufacturers of telecommunications equipment and 30% from
manufacturers of computers and related products for business enterprises. Our
customers rely on us to manufacture technologically complex products such as
wireless telecommunications equipment, high-capacity computer storage devices,
and computer servers for critical business applications. 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 printed circuit boards, 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 printed circuit board
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. Surface mount production lines
are assembly lines where electrical components are soldered directly onto
printed circuit boards.
5
<PAGE>
Since the beginning of 1996, we have completed four acquisitions that have
broadened our service offerings, diversified our customer base with leading
original equipment manufacturers 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 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 electronics manufacturing services outsourcing
provider of choice for leading original equipment manufacturers 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.
On July 12, 2000, we signed an agreement to dispose of our Swedish
operations, which we acquired in connection with the AVEX acquisition. In 1999
and the three months ended March 31, 2000, the Swedish operations accounted for
approximately $4.4 million and $3.0 million, respectively, of our income before
income taxes.
RECENT DEVELOPMENTS
On July 24, 2000 we announced net income of $3.6 million on revenues of
$407.0 million for the quarter ended June 30, 2000 as compared to net income of
$1.98 million on revenues of $349.0 million for the quarter ended March 31,
2000. Our diluted earnings per share were $.21 for the quarter ended June 30,
2000 as compared to $.12 for the quarter ended March 31, 2000, and as compared
to net income of $5.6 million on revenues of $162.6 million and diluted earnings
per share of $.41 for the quarter ended June 30, 1999.
Our principal executive offices are located at 3000 Technology Drive,
Angleton, Texas 77515, and our telephone number is (979) 849-6550.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................. 2,750,000 shares
Common stock to be outstanding after
this offering...................... 19,059,426 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
</TABLE>
------------
(*) Does not include (1) 2,743,145 shares subject to stock options, of which
options to purchase 896,775 shares are presently exercisable or (2)
1,995,025 shares reserved for issuance upon conversion of our outstanding
convertible subordinated notes.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary pro forma financial data are derived from the Unaudited Pro
Forma Condensed Combined Financial Statements that are incorporated by reference
in this prospectus. The pro forma statement of income data presented below give
effect to the acquisition of AVEX and the disposition of the Swedish operations
as if they had occurred on January 1, 1999. The pro forma balance sheet data at
March 31, 2000 gives effect to the disposition of our Swedish operations as if
it had occurred on that date. The pro forma as adjusted balance sheet data at
March 31, 2000 gives further effect to consummation of the offering, assuming a
price per share of $39 5/8 (the last reported sale price on July 12, 2000), 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 THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
-------------------- ------------ ------------ --------------------------------
2000 1999 2000 1999 1999 1998 1997
-------- -------- ------------ ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
Sales................................ $349,155 $146,546 $326,026 $1,491,356 $877,839 $524,065 $325,229
Cost of sales........................ 325,509 131,856 305,856 1,421,055 810,309 472,354 285,630
-------- -------- -------- ---------- -------- -------- --------
Gross profit..................... 23,646 14,690 20,170 70,301 67,530 51,711 39,599
Selling, general and administrative
expenses........................... 12,681 4,950 12,137 57,683 32,477 17,680 12,817
Amortization of goodwill............. 3,220 910 3,220 12,472 6,430 3,311 1,670
-------- -------- -------- ---------- -------- -------- --------
Income from operations........... 7,745 8,830 4,813 146 28,623 30,720 25,112
Interest expense..................... (5,563) (1,125) (5,295) (22,995) (9,696) (4,394) (2,472)
Interest income...................... 44 138 44 305 605 479 1,163
Other income......................... 784 78 718 833 744 85 149
-------- -------- -------- ---------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item......... 3,010 7,921 280 (21,711) 20,276 26,890 23,952
Income tax expense (benefit)......... 1,033 2,884 91 (7,297) 7,005 10,518 8,862
-------- -------- -------- ---------- -------- -------- --------
Income (loss) before
extraordinary item............. 1,977 5,037 189 (14,414) 13,271 16,372 15,090
Extraordinary item................... _ _ _ 1,297 1,297 _ _
-------- -------- -------- ---------- -------- -------- --------
Net income (loss)................ $ 1,977 $ 5,037 $ 189 $ (15,711) $ 11,974 $ 16,372 $ 15,090
======== ======== ======== ========== ======== ======== ========
Earnings (loss) per common share:
Basic............................ $ 0.12 $ 0.43 $ 0.01 $ (1.02) $ 0.85 $ 1.41 $ 1.31
======== ======== ======== ========== ======== ======== ========
Diluted.......................... $ 0.12 $ 0.40 $ 0.01 $ (1.02) $ 0.80 $ 1.35 $ 1.26
======== ======== ======== ========== ======== ======== ========
Weighted average number of shares
outstanding:
Basic............................ 16,248 11,655 16,248 15,387 14,081 11,594 11,508
======== ======== ======== ========== ======== ======== ========
Diluted.......................... 17,173 12,703 17,173 15,387 15,010 12,098 12,004
======== ======== ======== ========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $233,283 $220,734 $241,888
Total assets......................... 811,832 798,009 819,163
Total debt........................... 270,922 257,099 175,822
Shareholders' equity................. 284,531 284,531 386,962
</TABLE>
7
<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, AND OUR PROFITABILITY MAY CONTINUE TO BE ADVERSELY AFFECTED BY
AVEX'S OPERATIONS.
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 its 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. The acquisition resulted
in goodwill of approximately $131.1 million, which is being amortized on a
straight line basis over 15 years. Accordingly, the amortization of goodwill
and any possible future impairment of goodwill, which are noncash charges, will
also negatively impact our net income.
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, there have been industry-wide shortages of some of the electronic
components that we use, particularly of tantalum and ceramic capacitors and
memory devices. In recent months, component shortages have become more prevalent
in our industry and, as a result, suppliers of such components are occasionally
delivering components to customers such as us on a delayed basis. We expect this
trend to continue from time to time in the future. When there are shortages or
if the components we receive are defective, we may be forced to delay shipments,
which could have an adverse effect on our sales and our profit margins. Also, we
typically bear the risk of component price increases our suppliers may
institute, as there may be some lag time before we can implement a price
increase to our customers for the affected board assembly. Accordingly,
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. In
particular, during the last half of 1999 a major customer of AVEX discontinued
sourcing personal computers assembled by AVEX. See "-- We are
8
<PAGE>
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." for disclosure regarding litigation between us
and J.M. Huber Corporation on the alleged non-disclosure of this development.
Similarly, one of AVEX's largest customers in 1999 experienced a change in
ownership that altered its manufacturing needs which resulted in lower sales to
that customer in the last half of 1999. Sales to these two customers during the
first six months of 1999 were approximately $128 million and $58 million,
respectively.
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 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 debt. As of March 31, 2000, our ratio
of our total outstanding indebtedness to our total capitalization was 49% as
compared to 11% on June 30, 1999, the fiscal quarter ended immediately prior to
the incurrence of this indebtedness. For the year ended December 31, 1999, our
ratio of earnings to fixed charges was 2.74, whereas after giving pro forma
effect to the AVEX acquisition, the proposed disposition of our Swedish
operations and the incurrence of debt in connection with the AVEX acquisition as
if they had occurred on January 1, 1999, our earnings would have been
insufficient to cover our fixed charges by $21.7 million for the same period. As
of June 30, 2000, our total outstanding indebtedness was $292.7 million. We
recently amended 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
9
<PAGE>
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 growth and 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 equipment;
o computers and related products for business enterprises;
o video/audio/entertainment products;
o industrial control equipment;
o testing and instrumentation products;
o personal computers; and
o medical devices.
Our business depends on the electronics industry, which is subject to rapid
technological change, short product life-cycles and pricing and margin pressure.
In addition, the electronics industry has historically been cyclical and subject
to significant downturns characterized by diminished product demand, rapid
declines in average selling prices and production over-capacity. When these
factors adversely affect our customers, we may suffer similar effects. Our
customers' markets are also subject to economic cycles and are likely to
experience recessionary periods in the future. The economic conditions affecting
the electronics industry or any of our major customers may adversely affect our
operating results.
WE FACE COMPETITION FROM OTHER PROVIDERS OF ELECTRONICS MANUFACTURING 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
objective requires us to 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.
10
<PAGE>
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. Although we have not
experienced any material impacts from the following risks of international
operations, the nature of our business makes us susceptible to:
o difficulties in staffing and managing foreign operations;
o political and economic instability;
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, and unexpected changes in those laws and 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.
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 that we and the other defendants
violated federal securities laws, by allegedly concealing problems with
defective components and delayed component deliveries during the third quarter
of 1999 until the press release was issued on October 22, 1999, 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.
11
<PAGE>
We have filed suit in Texas against J. M. Huber Corporation for breach of
contract, fraud and negligent misrepresentation, seeking damages in connection
with the purchase contract related to our acquisition of AVEX. The claims for
fraud and negligent misrepresentation involve allegations that Huber failed to
disclose to us the deterioration in AVEX's relationship with several major
customers and misrepresented the financial condition of AVEX. Huber subsequently
filed suit against us alleging that we failed to register the shares of our
common stock issued to it as partial consideration for the acquisition of AVEX.
We have since effected the registration of those 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 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
12
<PAGE>
Benchmark through a tender offer, business combination, proxy contest or some
other method. 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.
OUR CUSTOMER REQUIREMENTS AND OPERATING RESULTS VARY SIGNIFICANTLY FROM QUARTER
TO QUARTER, 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; and
o local factors and events that may affect our production volume, such as
local holidays.
We make significant decisions, including the levels of business that we
will seek and accept, production schedules, component procurement commitments,
personnel needs and other resource requirements, based on our estimates of
customer requirements. The short term nature of our customers' commitments and
the possibility of rapid changes in demand for their products reduces our
ability to estimate accurately future customer requirements. On occasion,
customers may require rapid increases in production, which can stress our
resources and force us to incur expenses that reduce margins. Although we have
increased our manufacturing capacity and plan further increases, we may not have
sufficient capacity at any given time to meet sudden increases in our customers'
demands. In addition, because many of our costs and operating expenses are
relatively fixed, a sudden reduction in customer demand in any fiscal period
that we cannot replace on a timely basis with substitute orders can adversely
affect our gross margins and operating income for the affected period. Also, 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.
13
<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.
14
<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.................. 42 1/2 31 5/8
Third quarter (through July 27,
2000)......................... 52 1/8 36 9/16
On July 27, 2000, the last reported sale price of our common stock on The
New York Stock Exchange was $40.8125 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,
assuming a price per share of $39 5/8 (the last reported sale price of our
common stock on the New York Stock Exchange on July 12, 2000), will be
approximately $102.4 million after deducting underwriting discounts and
commissions and our estimated offering expenses of $6.5 million ($117.8 million
if the over-allotment option is exercised in full). Such proceeds will be used,
together with an estimated $13.8 million of net cash proceeds from the
disposition of our Swedish operations, to temporarily repay $95.1 million of
indebtedness under our revolving credit facility and for working capital and
other general corporate purposes, including possible acquisitions. The actual
net proceeds we receive from the disposition of the Swedish operations will
depend on actual inventory levels on the date of the closing of the disposition.
The revolving credit facility debt being paid down was incurred to finance the
AVEX acquisition in August 1999. Amounts paid down on the revolving credit
facility may be available to us to reborrow and we expect to reborrow a portion
of the amount we repay under the revolving credit facility in the near future
for working capital. 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.
15
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and summary
capitalization on an actual basis as of March 31, 2000, on a pro forma basis to
give effect to the disposition of our Swedish operations and the repayment of
debt with the sale proceeds, and as further adjusted to give effect to the
issuance of 2,750,000 shares of common stock, assuming a price per share of
$39 5/8 (the last reported sale price of our common stock on the New York Stock
Exchange on July 12, 2000), 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
------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- ------------
(IN THOUSANDS)
Cash and cash equivalents............ $ 1,073 $ 1,073 $ 22,227
======== ======== ========
Debt:
Line of credit(1).................. $ 95,100 $ 81,277 $ _
Term loan.......................... 93,000 93,000 93,000
Convertible subordinated notes..... 80,200 80,200 80,200
Other.............................. 2,622 2,622 2,622
-------- -------- --------
Total debt................. 270,922 257,099 175,822
-------- -------- --------
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 1,628 1,903
Additional paid-in capital......... 201,732 201,732 303,888
Retained earnings.................. 80,751 80,751 80,751
Accumulated other comprehensive
income.......................... 540 540 540
Less treasury shares, at cost,
49,484 shares................... (120) (120) (120)
-------- -------- --------
Total shareholders'
equity.................... 284,531 284,531 386,962
-------- -------- --------
Total capitalization....... $555,453 $541,630 $562,784
======== ======== ========
(1) As of June 30, 2000, the actual outstanding balance under the line of
credit was $121.6 million, which includes $35.3 million paid in the
AVEX acquisition as a result of the resolution of the post-closing
adjustments subsequent to the closing of the acquisition.
16
<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. You should read the following in conjunction with our
consolidated financial statements and notes thereto, the pro forma financial
statements and other financial data included or incorporated by reference in
this prospectus. See "Where You Can Find More Information." Pro forma income
(loss) before extraordinary item for the year ended December 31, 1999 and the
three months ended March 31, 2000 was $(14.4 million) and $0.2 million,
respectively.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF INCOME DATA:
Sales................................ $349,155 $146,546 $877,839 $524,065 $325,229 $201,296 $ 97,353
Cost of sales........................ 325,509 131,856 810,309 472,354 285,630 177,981 85,113
-------- -------- -------- -------- -------- -------- --------
Gross profit................. 23,646 14,690 67,530 51,711 39,599 23,315 12,240
Selling, general and administrative
expenses........................... 12,681 4,950 32,477 17,680 12,817 7,228 2,990
Amortization of goodwill............. 3,220 910 6,430 3,311 1,670 696 _
-------- -------- -------- -------- -------- -------- --------
Income from operations....... 7,745 8,830 28,623 30,720 25,112 15,391 9,250
Interest expense..................... (5,563) (1,125) (9,696) (4,394) (2,472) (1,442) _
Interest income...................... 44 138 605 479 1,163 442 268
Other income......................... 784 78 744 85 149 92 13
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item........... 3,010 7,921 20,276 26,890 23,952 14,483 9,531
Income tax expense (benefit)......... 1,033 2,884 7,005 10,518 8,862 5,619 3,383
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... 1,977 5,037 13,271 16,372 15,090 8,864 6,148
Extraordinary item................... _ _ 1,297 _ _ _ _
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ 1,977 $ 5,037 $ 11,974 $ 16,372 $ 15,090 $ 8,864 $ 6,148
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per common share:
Basic........................ $ 0.12 $ 0.43 $ 0.85 $ 1.41 $ 1.31 $ 0.99 $ 0.77
======== ======== ======== ======== ======== ======== ========
Diluted...................... $ 0.12 $ 0.40 $ 0.80 $ 1.35 $ 1.26 $ 0.96 $ 0.75
======== ======== ======== ======== ======== ======== ========
Weighted average number of shares
outstanding:
Basic........................ 16,248 11,655 14,080 11,594 11,508 8,976 8,031
======== ======== ======== ======== ======== ======== ========
Diluted...................... 17,173 12,703 15,010 12,098 12,004 9,218 8,213
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<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>
17
<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 in the business of manufacturing electronics and provide our
services to original equipment manufacturers of telecommunication equipment,
computers and related products for business enterprises, video/audio/
entertainment products, industrial control equipment, testing and
instrumentation products, personal computer and medical devices. Our
headquarters are in Angleton, Texas and we have 14 facilities in eight
countries. As original equipment manufacturers expand internationally, they are
increasingly requiring their electronics manufacturing services 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. As
consideration for the acquisition, we paid $265.3 million in cash at closing,
subject to adjustments, including a working capital adjustment, and issued one
million shares of our common stock. The transaction was accounted for under the
purchase method of accounting, and, accordingly, the results of operations of
AVEX since August 24, 1999 have been included in our financial statements. The
acquisition resulted in goodwill of approximately $131.1 million, which is being
amortized on a straight line basis over 15
18
<PAGE>
years. The amortization of goodwill, which is a noncash charge, negatively
impacted our net income. In order to finance the AVEX acquisition, we
(1) obtained a 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. Disputes have arisen between us and Huber relating to the AVEX acquisition
resulting in legal proceedings between the parties over the transaction.
On March 1, 1999, we acquired various assets from Stratus Computer Ireland,
a wholly owned subsidiary of Ascend Communications, Inc. 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 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.
On February 23, 1998, we acquired Lockheed Commercial Electronics Company
for $70.0 million in cash and we paid $0.7 million in acquisition costs.
Lockheed, 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 Lockheed 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.
The inclusion in our accounts of the operations of AVEX, the systems
integration facility in Ireland and Lockheed 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.
19
<PAGE>
RESULTS OF OPERATIONS
The following table presents the percentage relationship that identified
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 original
equipment manufacturers. 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. Of this total increase in sales approximately 83% was
attributable to the acquisition of AVEX and approximately 17% resulted from the
ramping up of new programs and increases in sales volume from both existing and
new customers.
Sales in the Americas increased $184.0 million with approximately 85% of
this increase resulting from the acquisition of AVEX. The remaining 15% increase
was the result of demand increases from existing and new customers. Sales in
Europe increased $60.1 million due to the combined effects of the AVEX
acquisition (approximately 82% of this increase) and the operations of the
systems integration facility in Dublin, Ireland (comprising approximately 18% of
the total increase). Sales in Asia increased by $9.0 million as a result of the
acquired AVEX facility in Asia.
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. The decrease in the percentage of international sales
on an actual basis for the first quarter of 2000 as compared to the pro forma
basis for 1999 reflects the loss of two of AVEX's customers. The loss of one of
these customers, as well as the deterioration in other customer relationships,
are the subject of litigation between us and Huber.
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.
20
<PAGE>
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 to a shift in mix to customer
programs with higher gross margins, for example, those programs which are more
complex and labor intensive, for the first quarter of 2000. 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 due to the fact that AVEX has historically had
lower margins than our operations. Our gross margin reflects a number of
factors. 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 volume programs serving customers in price sensitive markets will remain
subject to 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.
In recent months, component shortages have become more prevalent in our
industry and, as a result, suppliers of such components are occasionally
delivering components to customers such as us on a delayed basis. We expect this
trend to continue from time to time in the future. When there are shortages, or
if the components we receive 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. Also, we typically bear the risk of component price increases our
suppliers may institute, as there may be some lag time before we can implement a
price increase to our customers for the affected board assembly. Accordingly,
component price increases could adversely affect our gross profit margins.
Selling, general and administrative 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. For the six months ended June
30, 1999 prior to our acquisition of AVEX, AVEX recorded $17.6 million of
selling, general and administrative expenses. 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
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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.
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. Of this
total increase in sales approximately 54% was attributable to the acquisition of
AVEX, approximately 28% was attributable to the operation of the systems
integration facility in Dublin, Ireland, and approximately 18% resulted from the
ramping up of new programs and increases in sales volume from both existing and
new customers.
AMERICAS -- Within the Americas, of the sales growth of approximately $186
million in fiscal 1999, approximately 83% was due to the acquisition of the AVEX
facilities in Huntsville, Alabama, Pulaski, Tennessee and Guadalajara, Mexico,
and approximately 17% was due to demand increases from existing and new
customers.
EUROPE -- Our new locations in Europe were the result of acquisitions. We
acquired AVEX and acquired various 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,
although 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.
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. We believe
the portion of the backlog at December 31, 1999 attributable to former AVEX
operations was approximately $470 million. 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
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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 primarily
due to the fact that AVEX has historically had lower gross margins than our
operations. 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 to a shift in mix to customer
programs with higher gross margins. The decrease in gross profit as a percentage
of sales during 1999 was due primarily to the higher costs and lower than
expected contribution of AVEX, as well as the slower ramping up of new projects
of 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.
Selling, general and administrative expenses for 1999 increased $14.8
million, or 83.7% from 1998 to $32.5 million in 1999. The increase in selling,
general and administrative expenses for 1999 is primarily the result of the
acquisition of AVEX. Prior to our acquisition of AVEX, for the six months ended
June 30, 1999, AVEX recorded $17.6 million of selling, general and
administrative expenses. Additionally, the increase in selling, general and
administrative 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
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 charges to operations for bad debt allowance and inventory obsolescence
were $0.3 million and $1.7 million in 1999, respectively, as compared to $0 and
$0.6 million in 1998, respectively. With the expansion of our operations, we
expect that the nominal amount of such charges may increase in the future, but
do not expect these changes to vary considerably from historical results as a
percentage of sales.
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.
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.
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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 Lockheed 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.
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 Lockheed facility.
Selling, general and administrative expenses increased $4.9 million, or
37.9%, from 1997 to $17.7 million in 1998. The increase in selling, general and
administrative expenses reflects additional personnel and related departmental
expenses, as well as the additional administrative expenses resulting from the
inclusion of Lockheed 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 Lockheed 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 Lockheed 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 Lockheed.
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 Lockheed 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.
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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 some instances, suppliers
may decide not to deliver to us the quantities of components that we have
ordered.
The significant increases in accounts receivable, allowance for doubtful
accounts and accounts payable at December 31, 1999 as compared to December 31,
1998 are due primarily to the acquisition of AVEX and to a lesser extent the
assets we acquired from Stratus in Dublin, Ireland. In connection with the AVEX
acquisition, we added inventory obsolescence reserves and allowance for doubtful
accounts of approximately $14.6 million and $7.3 million, respectively, in 1999.
Accounts receivable, net increased 245% while our sales increased 67% when
comparing the years ended December 31, 1999 and 1998. The increase in accounts
receivable reflects the effect of the AVEX acquisition and all receivables
associated with AVEX at December 31, 1999 while the increase in sales
year-to-year only reflects AVEX sales from August 24, 1999. For the fourth
quarter of 1999, sales increased 47% when compared to the third quarter of 1999,
and accounts receivable at December 31, 1999 decreased 12% when compared to
September 30, 1999.
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 completed the purchase of inventories and plant
and equipment from Stratus for $42.3 million, as adjusted.
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 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 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 term loan and revolving credit facility contain
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 increased the availability under the revolving credit facility by $50.0
million in June 2000.
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We have outstanding $80.2 million principal amount of 6% Convertible
Subordinated Notes. The indenture relating to the notes contains affirmative and
negative covenants, including covenants restricting our ability to merge or
engage in other extraordinary corporate transactions unless 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.
The Company has no significant capital lease obligations. Aggregate annual
rental payments on future lease commitments at December 31, 1999 were as
follows:
2000 2001 2002
---------- ---------- ----------
$5,626,948 $4,190,230 $3,780,602
Additionally, we have an approximately $4 million commitment to expand our
Dublin facility.
Our operations, and the operations of businesses we acquire, are subject to
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. To date the costs of compliance and workplace and
environmental remediation have not been material to us. 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.
Our acquisitions in 1999 have significantly increased our debt. At March
31, 2000, our debt to total capitalization ratio was 49%, as compared to 11% at
June 30, 1999, the last fiscal quarter end prior to the AVEX acquisition. 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 Huber by November 22, 1999. We were unable to
reach an agreement with Huber prior to the November 22, 1999 deadline and on
May 22, 2000, the independent accounting firm hired by Huber 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 Huber 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 will receive net proceeds from this offering, after payment of
underwriting discounts and commissions and our estimated offering expenses, of
$102.4 million, assuming a price per share of $39 5/8 (the last reported sale
price of our common stock on the New York Stock Exchange on July 12,
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2000). We will use such proceeds, together with an estimated $13.8 million of
cash proceeds from the disposition of the Swedish operations, to temporarily
repay $95.1 million of outstanding indebtedness under our revolving credit
facility. The actual net cash proceeds we receive from the disposition of the
Swedish operations will depend on actual inventory levels at our Swedish
operations on the closing of the disposition. After giving effect to such
repayment, we will have approximately $150 million of availability under our
revolving credit facility. We expect to reborrow a portion of the amount we
repay under the revolving credit facility in the near future for working
capital. 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. 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.
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
BACKGROUND
Benchmark Electronics, Inc., 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 electronics manufacturing services outsourcing
provider of choice to leading original equipment manufacturers 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 original equipment manufacturers 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. Electronics
manufacturing services providers produce products for a wide range of
original equipment manufacturers in different high growth industries,
such as consumer electronics, Internet-focused businesses and
telecommunications equipment. 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, original equipment manufacturers' customers range from
consumer-oriented companies that compete primarily on price and redesign
their products every year to manufacturers of high-end
telecommunications equipment and computer and related products for
business enterprises that compete on technology and quality. We
currently offer state-of-the-art products for industry leaders who
require specialized 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 original equipment manufacturers are increasingly requiring
from electronics manufacturing services providers a wide range of
specialized 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 original equipment
manufacturers' 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 assembling large, complex
high-density printed circuit boards 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,
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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 original equipment manufacturer'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 electronics manufacturing services industry.
ACQUISITIONS
Since July 1996, we have completed four acquisitions. These acquisitions
have broadened our service offerings, diversified our customer base with leading
original equipment manufacturers 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 largest publicly held electronics manufacturing
services provider in the world based on 1998 pro forma sales. This
acquisition expanded our customer base to approximately 90 original
equipment manufacturers in a broader range of end user markets.
o STRATUS COMPUTER IRELAND. On March 1, 1999, we acquired various 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 capabilities and
our box build engineering capabilities, which is the process of building
the finished product from subassemblies. The process may also involve
loading software and optional configuration.
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:
o assembly and testing of printed circuit boards;
o systems assembly and testing;
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o prototyping, which is building initial quantities of a new product to
test and refine the design;
o depot repair, which is the method of repairing equipment in which the
customer ships a damaged product to a central location for repair, as
opposed to field repair;
o materials procurement; and
o 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 configurations
for subsystems and enclosures. In addition to design services, this
acquisition provided us with manufacturing capabilities in the
midwestern United States and 19 additional customers.
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 specialized
engineering services.
To assist customers with initial design, we offer computer assisted
engineering, computer assisted 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, which means a rapid process of 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 cycle from product introduction to large-scale 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 manufacturing and assembly operations
include printed circuit boards and subsystem assembly, box build and systems
integration, the process of integrating sub-systems and downloading software
before producing a fully configured product. We purchase the printed circuit
boards used in our assembly operations from third parties. 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, which are programs designed to
ensure timely, convenient and efficient delivery of assembled products to our
customers. As original equipment manufacturers seek to provide greater
functionality in smaller products, they increasingly require more sophisticated
manufacturing technologies and processes. Our investment in
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advanced manufacturing equipment and our experience in innovative packaging and
interconnecttechnologies enable us to offer a variety of advanced manufacturing
solutions. These packaging and interconnect technologies include:
o chip scale packaging, the part of semiconductor manufacturing in which
the semiconductor die is bonded and sealed into a ceramic or plastic
package which physically protects the semiconductor device; and
o ball grid array, a method of attaching components to a printed circuit
board through balls of solder that are arranged in a grid pattern.
TESTING. We offer computer-aided testing of assembled printed circuit
boards, 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 to test the circuitry of
the board 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 assemblies of boards or
systems.
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 equipment.......... 33% 39% 31% 21%
Computers & related products for
business enterprises............... 35 30 44 39
Industrial control equipment......... 10 9 9 12
Medical devices...................... 5 6 11 17
Video/Audio/Entertainment products... 11 6 _ _
Personal computers................... _ 6 _ _
Testing & instrumentation products... 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,
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<PAGE>
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. In recent
months, component shortages have become more prevalent in our industry and, as a
result, suppliers of such components are filling only portions of orders from
customers such as us. We expect this trend to continue from time to time in the
future.
BACKLOG
Our backlog was approximately $1 billion at December 31, 1999, compared to
$317 million at December 31, 1998. We believe the portion of the backlog at
December 31, 1999 attributable to former AVEX operations was approximately $470
million. 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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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 The Bank of New
York, 101 Barclay Street, New York, New York 10286.
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.
The Rights may cause substantial dilution to a person or group that
attempts to acquire us without conditioning the offer on the acquisition of a
substantial number of Rights. Accordingly, the existence of the Rights may deter
acquirors from making takeover proposals or tender offers. However, the Rights
are not intended to prevent a takeover, but rather are designed to enhance the
ability of our
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board of directors to negotiate with an acquiror on behalf of all the
stockholders. In addition, the Rights should not interfere with a proxy contest.
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 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 shares to be in this offering will be
entitled to a Right on the same basis as the common stock currently outstanding.
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 some 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,
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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,
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.
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<PAGE>
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,
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:
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<PAGE>
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
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> <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
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<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 plan or the conversion of notes
outstanding on the date of this prospectus.
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.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
o Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
o Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
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. In determining the source of shares to
close out the short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares
through the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option -- a naked short
position -- that position can only be closed out by buying shares in
the open market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward pressure on
the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.
o Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
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 have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
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<PAGE>
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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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.
41
<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 and schedule 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 or incorporated by reference in this prospectus in reliance upon the
reports of KPMG LLP, independent certified public accountants, included or
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), as amended by Form 10-K/A filed
on July 13, 2000;
o our Quarterly Report on Form 10-Q for quarter ended March 31, 2000;
o our Current Report on Form 8-K filed February 8, 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;
42
<PAGE>
o our Current Report on Form 8-K filed on July 27, 2000;
o our Current Report on Form 8-K filed July 13, 2000; and
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.
We will provide a copy of these filings and any exhibits specifically
incorporated by reference in these filings at no cost by request directed to us
at the following address and telephone number:
Corporate Secretary
Benchmark Electronics, Inc.
3000 Technology Drive
Angleton, Texas 77515
(979) 849-6550
43
<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-24
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999.................................... F-25
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 2000 and 1999................................. F-26
Notes to Condensed Consolidated Financial Statements............... F-27
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
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
Assets
Current assets:
Cash and cash equivalents....... $ 9,436,780 $ 23,076,582
Accounts receivable, net........ 197,238,536 57,178,757
Income taxes receivable......... 3,351,026 1,120,343
Inventories..................... 214,554,363 53,718,247
Prepaid expenses and other
assets........................ 15,498,830 1,896,888
Deferred tax asset.............. 2,333,874 2,488,328
------------ ------------
Total current assets....... 442,413,409 139,479,145
Property, plant and equipment........ 175,773,905 80,826,164
Accumulated depreciation............. (53,765,670) (35,264,179)
------------ ------------
Net property, plant and
equipment............... 122,008,235 45,561,985
Goodwill, net........................ 172,790,906 48,906,481
Other................................ 23,624,863 7,948,086
------------ ------------
$760,837,413 $241,895,697
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of other
long-term debt................ $ 19,183,736 $ 8,199,910
Accounts payable................ 215,971,292 37,046,161
Accrued liabilities............. 29,332,611 7,968,412
------------ ------------
Total current
liabilities............. 264,487,639 53,214,483
------------ ------------
Revolving line of credit............. 41,500,000 _
Convertible subordinated notes....... 80,200,000 _
Other long-term debt, excluding
current installments............... 81,110,646 46,110,646
Other long-term liability............ 5,939,000 _
Deferred tax liability............... 5,665,291 4,569,654
Shareholders' equity:
Preferred shares, $.10 par value;
5,000,000 shares authorized,
none issued..................... _ _
Common shares, $.10 par value;
30,000,000 shares authorized:
issued 16,290,010 and
11,676,967, respectively;
outstanding 16,240,526 and
11,627,483, respectively........ 1,624,052 1,162,748
Additional paid-in capital......... 200,980,304 70,159,115
Retained earnings.................. 78,774,431 66,800,001
Accumulated other comprehensive
income.......................... 677,000 _
Less treasury shares, at cost,
49,484 shares................... (120,950) (120,950)
------------ ------------
Total shareholders'
equity.................. 281,934,837 138,000,914
Commitments and contingencies........
------------ ------------
$760,837,413 $241,895,697
============ ============
See accompanying notes to consolidated financial statements.
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(a)................. _ _ _ 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(a)................. _ _ _ 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>
(a) Net income and comprehensive income are the same for 1997 and 1998.
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. 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
In assessing and measuring the impairment of long-lived assets, the Company
applies the provisions of Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the long-lived asset or identifiable intangible
being tested for impairment was acquired in a purchase business combination, the
goodwill that arose in that transaction is included in the asset grouping in
determining whether an impairment has occurred. If some but not all of the
assets acquired in that transaction are being tested,
F-7
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
goodwill is allocated to the assets being tested for impairment based on the
relative fair values of the long-lived assets and identifiable intangibles
acquired at the acquisition date. 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. Additionally, where
an impairment loss is recognized for long-lived assets and identifiable
intangibles where goodwill has been allocated to the asset grouping, as
described immediately above, the carrying amount of the allocated goodwill is
impaired (eliminated) before reducing the carrying amounts of impaired
long-lived assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
With respect to the carrying amounts of goodwill remaining after the
testing for impairment of long-lived assets and identifiable intangibles,
including enterprise level goodwill not subject to impairment testing under SFAS
No. 121, the Company assesses such carrying value for impairment whenever events
or changes in circumstances indicate that the carrying amount of such goodwill
may not be recoverable. The Company assesses the recoverability of this 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 such
goodwill.
With respect to capitalized software costs, the Company assesses the
carrying value for impairment whenever events or changes in circumstances
indicate that the carrying amount of this long-lived asset may not be
recoverable. Recoverability of capitalized software costs is measured by a
comparison of excess future cash flows (i.e., cash flows in excess of carrying
amounts of other long-lived assets, identifiable intangibles and goodwill) at a
consolidated level. The measurement of impairment, if any, is based on the
excess of the carrying value of the capitalized software costs over the
discounted excess cash flows.
(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
F-8
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
(K) EMPLOYEE STOCK PLANS
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations, in accounting for its
stock option plan and its Employee Stock Purchase Plan. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. SFAS No. 123, "Accounting
for Stock-Based Compensation," established accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has elected
to continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
(L) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
accordance with generally accepted accounting principles. Actual results could
differ from those estimates.
(M) FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's cash equivalents, accounts receivable,
accrued liabilities, and accounts payable approximated their carrying values due
to the short-term maturities of these instruments. The estimated fair value of
long-term debt is equivalent to its carrying value as the applicable interest
rates approximate current market rates.
(N) CAPITALIZED SOFTWARE COSTS
On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants (AICPA) 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.
F-9
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Q) DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements to reduce its
exposure to market risks from changing interest rates. For interest rate swaps,
the differential to be paid or received is accrued and recognized in interest
expense and may change as market interest rates change. If a swap is terminated
prior to its maturity, the gain or loss is recognized over the remaining
original life of the swap if the item hedged remains outstanding, or
immediately, if the item hedged does not remain outstanding. If the swap is not
terminated prior to maturity, but the underlying hedged item is no longer
outstanding, the interest rate swap is marked to market and any unrealized gain
or loss is recognized immediately.
(R) RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that companies recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company expects to adopt SFAS No. 133 on
January 1, 2001, but has not determined the impact on its financial position,
results of operations or liquidity.
NOTE 2 -- ACQUISITIONS
On August 24, 1999, the Company completed the acquisition of all of the
outstanding capital stock of AVEX Electronics, Inc. and Kilbride Holdings, B.V.
(AVEX) from J.M. Huber Corporation (Seller). AVEX has manufacturing plants or
design centers in the United States in Huntsville, Alabama and Pulaski,
Tennessee, and elsewhere in Campinas, Brazil, Csongrad, Hungary, Guadalajara,
Mexico, Cork, Ireland, Singapore, East Kilbride, Scotland, and Katrineholm,
Sweden. In consideration of the capital stock of AVEX, the Company paid $265.3
million in cash at closing, subject to certain adjustments, including a working
capital adjustment, and issued one million shares of the Company's Common Stock
to the Seller. In addition, the Company paid $5.2 million in acquisition costs.
In order to finance the AVEX acquisition, the Company (i) obtained a term loan
from a syndicate of commercial banks in the amount of $100 million, (ii)
obtained a new revolving credit facility permitting draws of up to $125 million,
subject to a borrowing base calculation, and borrowed $46 million under such
facility and (iii) issued $80.2 million in Notes. In connection with the AVEX
acquisition, the Company borrowed $30 million under the new revolving credit
facility to refinance existing debt pursuant to the Company's prior Senior Note
(see Note 5). The AVEX acquisition was accounted for using the purchase method
of accounting, and, accordingly, the results of operations of AVEX since August
24, 1999 have been included in the accompanying consolidated statements of
income.
The acquisition resulted in goodwill of approximately $131.1 million that
is being amortized on a straight-line basis over 15 years. Pursuant to the terms
of the purchase agreement in connection with the acquisition of AVEX on August
24, 1999, the Company was required to agree upon a closing working capital
adjustment with the Seller by November 22, 1999. The Company was unable to reach
an agrement with the Seller prior to the November 22, 1999 deadline and has
entered into several agreements extending this deadline. At the present time,
the parties still have not reached an agreement and have hired an independent
accounting firm to serve as arbitrator to resolve the dispute and to calculate
the final closing working capital adjustment. The Company is unable to predict
when the arbitrator will be releasing its findings but estimated that the net
closing working capital adjustment will be in the range of $20 to $40 million.
Management has made its best estimate of the ultimate resolution of this
arbitration proceeding. However, the final working capital adjustment could have
a significant effect on the final purchase price and the allocation of the
purchase price.
F-10
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net purchase price has been allocated as follows (in thousands):
Working capital, other than cash..... $ 135,040
Property, plant and equipment........ 71,492
Goodwill............................. 131,134
Other assets......................... 9,567
Other liabilities.................... (5,629)
Deferred income taxes................ (1,229)
Long-term debt....................... (4,457)
---------
Purchase price, net of cash
received...................... $ 335,918
=========
Net cash portion of purchase price... $ 266,570
Estimated adjustments to cash portion
of purchase price................... 33,336
Common stock issued.................. 36,012
---------
Purchase price, net of cash
received....................... $ 335,918
=========
On March 1, 1999, the Company acquired certain equipment and inventories
from Stratus Computer Ireland (Stratus), a wholly owned subsidiary of Ascend
Communications, Inc. (Ascend) for approximately $42.3 million in cash, as
adjusted. The acquisition price was allocated $6.1 million to equipment and
other assets, and $36.2 million to inventories. Stratus provided systems
integration services for large and sophisticated fault-tolerant mainframe
computers. In connection with the transaction, the Company entered into a
three-year supply agreement to provide these system integration services to
Ascend and Stratus Holdings Limited and the Company hired approximately 260
employees.
On February 23, 1998, the Company completed its acquisition of Lockheed
Commercial Electronics Company (LCEC) for $70.7 million in cash. LCEC, situated
in Hudson, New Hampshire, provides a broad range of services including printed
circuit board assembly and test, system assembly and test, prototyping, depot
repair, materials procurement, and engineering support services. The transaction
was accounted for under the purchase method of accounting, and, accordingly, the
results of operations of LCEC since February 23, 1998 have been included in the
accompanying consolidated statements of income. The acquisition resulted in
goodwill of approximately $29.5 million that is being amortized on a
straight-line basis over 15 years.
The net purchase price was allocated as follows (in thousands):
Working capital, other than cash..... $30,575
Property, plant and equipment........ 15,905
Goodwill............................. 29,536
Other liabilities.................... (3,096)
Deferred income taxes................ (2,241)
-------
Purchase price, net of cash
received....................... $70,679
=======
F-11
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma condensed consolidated financial
information reflects the acquisition of AVEX as if it had occurred on January 1
of each year, and the acquisition of LCEC as if it had occurred on January 1,
1998. 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 those dates, 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........ 4,522 (45,144)
Income (loss) before extraordinary
item................................ (11,951) (45,734)
Extraordinary item -- loss on
extinguishment of debt............. (1,297) --
Net loss............................. (13,248) (45,734)
Earnings (loss) per share:
Basic and diluted:
Income (loss) before
extraordinary item........... $ (0.78) $ (3.27)
Extraordinary item............ (0.08) --
---------- ----------
Net income (loss)............. $ (0.86) $ (3.27)
========== ==========
Weighted average number of shares
outstanding:
Basic........................... 15,387 13,990
Diluted......................... 15,387 13,990
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.
F-12
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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
F-13
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Facility is payable quarterly in arrears. The Revolving Credit Facility matures
on September 30, 2004. As of December 31, 1999, the Company had $41.5 million
outstanding under the Revolving Credit Facility, bearing interest at rates
ranging from 8.6875% to 9.5%, $5.2 million outstanding letters of credit and
$41.9 million was available for future borrowings.
The Term Loan and the Revolving Credit Facility (collectively the Facility)
is secured by the Company's domestic inventory and accounts receivable, 100% of
the stock of the Company's domestic subsidiaries, and 65% of the voting capital
stock of each direct foreign subsidiary and substantially all of the other
tangible and intangible assets of the Company and its domestic subsidiaries. The
Facility contains customary financial covenants and restricts the ability of the
Company to incur additional debt without the consent of the bank, to pay
dividends, to sell assets, and to merge or consolidate with other persons.
In August 1999, the Company issued $80.2 million principal amount of the
Notes due August 15, 2006. The Notes are convertible, unless previously redeemed
or repurchased, at the option of the holder at any time after 90 days following
the date of original issuance and prior to maturity, into shares of the
Company's common stock at an initial conversion price of $40.20 per share,
subject to adjustment in certain events. The Notes are convertible into a total
of 1,995,025 shares of the Company's common stock. Interest is payable
February 15 and August 15 each year, commencing on February 15, 2000.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1999 are as follows: 2000, $19,183,736; 2001,
$18,019,693; 2002, $20,020,699; 2003, $22,021,756; and 2004, $62,548,498.
NOTE 6 -- COMMITMENTS
The Company leases certain manufacturing equipment, office equipment,
vehicles and office, warehouse and manufacturing facilities under operating
leases. Some of the leases provide for escalation of the lease payments as
maintenance costs and taxes increase. The leases expire through 2010. Leases for
office space and manufacturing facilities generally contain renewal options.
Rental expense for each of the years in the three-year period ended
December 31, 1999 was $3,862,011, $2,493,146 and $1,354,607, respectively.
The Company leases manufacturing and office facilities in Minnesota from a
partnership whose partners include stockholders and a director of the Company.
These operating leases have initial terms of eight to ten years, expiring
through August 2006 with annual renewals thereafter. Total rent expense
associated with these leases for the years ended December 31, 1999, 1998 and
1997 was $826,753, $828,900 and $828,900, respectively.
In connection with the acquisition of AVEX, the Company assumed prepaid
operating leases of manufacturing equipment with initial terms of three years
that expire through 2001. The lease expense associated with these leases for the
period from August 24 through December 31, 1999 was $1,522,031.
The Company has no significant capital lease obligations. Aggregate annual
rental payments on future lease commitments at December 31, 1999 were as
follows:
<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
F-14
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
renegotiated such that no material adverse financial impact on the Company's
financial position, results of operations or liquidity will result from these
commitments.
NOTE 7 -- COMMON STOCK AND STOCK OPTION PLANS
During 1999, the Company issued 3,525,000 shares of common stock in a
public offering for net proceeds of $93,691,551.
The Company's stock option plan authorizes the Company, upon recommendation
of the compensation committee of the Board of Directors, to grant options to
purchase a total of 3,200,000 shares of the Company's common stock to key
employees of the Company.
The stock option plan provides for the discretionary granting by the
Company of "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended, as well as non qualified stock
options. The exercise price of any incentive stock option must not be less than
the fair market value of the common stock on the date of grant. The stock
options will terminate no later than 10 years after the date of grant. Although
options may vest in increments over time, they historically have become 20%
vested two years after the options are granted and 100% vested after 5 years.
In December of 1994, the Board of Directors of the Company adopted the
Benchmark Electronics, Inc., 1994 Stock Option Plan for Non-Employee Directors
(the "Plan") for the benefit of members of the Board of Directors of the Company
or its Affiliates who are not employees of the Company or its Affiliates (as
defined in the Plan). The aggregate number of shares of common stock for which
options may be granted under the Plan is 200,000.
Under the terms of the Plan, each member of the Board of Directors of the
Company or its Affiliates who was not an employee of the Company or any of its
Affiliates on the date of the grant (a "Non-Employee Director") will receive a
grant of an option to purchase 3,000 shares of the Company's common stock upon
the date of his election or re-election to the Board of Directors. Additionally,
any Non-Employee Director who was a director on the date the Board of Directors
adopted the Plan received (a) an option to purchase 6,000 shares of common stock
for the fiscal year in which the Plan was adopted by the Board of Directors and
(b) an option to purchase shares of common stock in amount equal to (i) 6,000,
multiplied by (ii) the number of consecutive fiscal years (immediately preceding
the fiscal year during which the Plan was adopted) that the individual served as
a director of the Company, provided that the number under clause (ii) shall not
exceed three (3). During 1999, 1998 and 1997, pursuant to the Plan, 12,000,
12,000 and 24,000 options, respectively, were granted to Directors to purchase
shares of common stock at an exercise price of $32.13, $21.38 and $16.32 per
share, respectively.
In April, 1999, the Board of Directors adopted the Benchmark Electronics,
Inc. Employee Stock Purchase Plan (the Purchase Plan). Under the Purchase Plan,
employees meeting specific employment qualifications are eligible to participate
and can purchase shares semi-annually through payroll deductions at the lower of
85% of the fair market value of the stock at the commencement or end of the
offering period. The Purchase Plan permits eligible employees to purchase common
stock through payroll deductions for up to the lesser of 17% of qualified
compensation or $25,000. As of December 31, 1999, 477,840 shares remain
available for issuance under the Purchase Plan. The weighted-average fair value
of the purchase rights granted during 1999 was $7.22.
F-15
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-16
<PAGE>
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-17
<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-18
<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. 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.
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-19
<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-20
<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-21
<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-22
<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. At the present time, the Company is unable to
reasonably estimate the possible loss, if any, associated with these matters.
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. At the present time, the Company is unable
to reasonably estimate the possible loss, if any, associated with these matters.
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-23
<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-24
<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-25
<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-26
<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 elsewhere in this prospectus.
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-27
<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-28
<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-29
<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-30
<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-31
<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. At the present time, the Company is unable to
reasonably estimate the possible loss, if any, associated with these matters.
F-32
<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. At the present time, the Company is unable
to reasonably estimate the possible loss, if any, associated with these matters.
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. At the present time,
the Company is unable to reasonably estimate the possible loss, if any,
associated with these matters.
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-33
<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.
<TABLE>
<CAPTION>
<S> <C>
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
========
</TABLE>
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 2.02-1.0 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 2.02-1.0 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.
II-1
<PAGE>
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.
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
------- ----------------------
1(5) -- Form of Underwriting Agreement.
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(6) -- 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 (now The
Bank of New York), as Rights Agent, included as Exhibit 1 to Benchmark
Electronics, Inc.'s Form 8A12B filed December 11, 1998.
(5) Previously filed.
(6) Filed herewith.
II-2
<PAGE>
(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.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) 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.
(3) 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 July 28, 2000.
BENCHMARK ELECTRONICS, INC.
By /s/ DONALD E. NIGBOR
DONALD E. NIGBOR
PRESIDENT
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>
* Chairman of the Board of Directors July 28, 2000
JOHN C. CUSTER
* Director and President (principal July 28, 2000
DONALD E. NIGBOR executive officer)
* Director and Executive Vice July 28, 2000
STEVEN A. BARTON President
/s/CARY T. FU Director and Executive Vice July 28, 2000
CARY T. FU President (principal financial and
accounting officer)
* Director July 28, 2000
PETER G. DORFLINGER
* Director July 28, 2000
GERALD W. BODZY
* Director July 28, 2000
DAVID H. ARNOLD
*By /s/CARY T. FU
CARY T. FU
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1(5) -- Form of Underwriting Agreement.
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(6) -- 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 (now The
Bank of New York), as Rights Agent, included as Exhibit 1 to Benchmark
Electronics, Inc.'s Form 8A12B filed December 11, 1998.
(5) Previously filed.
(6) Filed herewith.
II-5
