BENCHMARK ELECTRONICS INC - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark One)
x Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
fiscal year ended December 31, 2008
or
¨ Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from ______________ to ______________
Commission
File Number 1-10560
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
Number)
|
3000
Technology Drive
Angleton,
Texas 77515
(979)
849-6550
(Address,
including zip code, and telephone number, including area code, of principal
executive offices)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
Common
Stock, par value $0.10 per share
|
New
York Stock Exchange, Inc.
|
|
Preferred
Stock Purchase Rights
|
New
York Stock Exchange, Inc.
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes þ No ¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
þ
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b–2 of the Act.
|
Large accelerated filer þ
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
Smaller Reporting Company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b–2 of the Act).
Yes ¨ No
þ
As of
June 30, 2008, the number of outstanding Common Shares was 66,977,155. As of
such date, the aggregate market value of the Common Shares held by
non-affiliates, based on the closing price of the Common Shares on the New York
Stock Exchange on such date, was approximately $1.1 billion.
As of
February 26, 2009, there were 65,239,831 Common Shares of Benchmark Electronics,
Inc., par value $0.10 per share, outstanding.
Documents
Incorporated by Reference:
Portions
of the Company’s Proxy Statement for the 2009 Annual Meeting of Shareholders
(Part III, Items 10-14).
2
TABLE
OF CONTENTS
|
Page
|
|||
| PART I | |||
|
3
|
|||
|
12
|
|||
|
20
|
|||
|
21
|
|||
|
22
|
|||
|
22
|
|||
|
22
|
|||
|
25
|
|||
|
26
|
|||
|
37
|
|||
|
38
|
|||
|
74
|
|||
|
74
|
|||
|
76
|
|||
|
76
|
|||
|
76
|
|||
|
77
|
|||
|
77
|
|||
|
77
|
|||
|
78
|
|||
|
84
|
|||
3
Background
Benchmark
Electronics, Inc. (Benchmark), formerly named Electronics, Inc., began
operations in 1979 and was incorporated under Texas law in 1981 as a wholly
owned subsidiary of Intermedics, Inc., a medical implant manufacturer based in
Angleton, Texas. In 1986, Intermedics sold 90% of the outstanding common shares
of the Company to Electronic Investors Corp., a corporation formed by Donald E.
Nigbor, Steven A. Barton and Cary T. Fu. Mr. Fu is currently serving as our
Chief Executive Officer and as a director. Mr. Nigbor and Mr. Barton retired
from their positions as officers of Company on December 1, 2008 and will
continue to serve as directors until the 2009 annual meeting of shareholders. In
1988, Electronic Investors Corp. was merged into Benchmark, and in 1990 we
completed the initial public offering of our common shares.
General
We are in
the business of manufacturing electronics and we provide our services to
original equipment manufacturers (OEMs) of computers and related products for
business enterprises, medical devices, industrial control equipment, testing and
instrumentation products, and telecommunication equipment. The services that we
provide are commonly referred to as electronics manufacturing services (EMS). We
offer our customers comprehensive and integrated design and manufacturing
services, from initial product design to volume production and direct order
fulfillment. We also provide specialized engineering services, including product
design, software development, industrial design, assembly automation, 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 Brazil, China, Malaysia,
Mexico, Romania and Thailand.
As our
customers expand internationally, they increasingly require their EMS partners
to have strategic regional locations and global procurement capabilities. We
believe that our global manufacturing presence 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 face challenges
in planning, procuring and managing their inventories efficiently due to
fluctuations in customer demand, product design changes, short product life
cycles and component price fluctuations. We employ production management systems
to manage their procurement and manufacturing processes in an efficient and
cost-effective manner so that, where possible, components arrive on a
just-in-time, as-and-when needed basis. We are a significant purchaser of
electronic components and other raw materials, and can capitalize on the
economies of scale associated with our relationships with suppliers to negotiate
price discounts, obtain components and other raw materials that are in short
supply, and return excess components. Our expertise in supply chain management
and our relationships with suppliers across the supply chain enable us to reduce
our customers’ cost of goods sold and inventory exposure.
We
currently operate a total of 54 surface mount production lines (where electrical
components are soldered directly onto printed circuit boards) at our domestic
facilities and 75 surface mount production lines at our international
facilities. Our worldwide facilities include 1.4 million square feet in our
domestic facilities in Alabama, Minnesota, New Hampshire, North Dakota, Oregon
and Texas; and 1.5 million square feet in our international facilities in
Brazil, China, Ireland, Malaysia, Mexico, the Netherlands, Romania, Singapore
and Thailand.
4
Our
capabilities have continued to grow through acquisitions and through internal
expansion. In 2008, we completed the construction of a new building in Suzhou,
China and increased our China manufacturing capacity. We recently leased a
larger facility in Brasov, Romania as we expand our manufacturing capability in
Eastern Europe. In January 2007, we acquired Pemstar Inc. (Pemstar), a publicly
traded EMS company headquartered in Rochester, Minnesota (the Merger). This
acquisition expanded our customer base and added depth to our engineering and
systems integration capabilities. Additionally, we expanded our relationships
with certain customers during 2007 and added a new facility in Penang, Malaysia.
With these acquisitions and expansions, our global operations now include 20
facilities in ten countries. We expanded our manufacturing capacity in Thailand
with a printed circuit board assembly (PCBA) facility in Korat in 2004 and a new
systems integration facility in Ayudhaya in 2005.
We
believe our primary competitive advantages are our design, manufacturing,
testing and supply chain management capabilities. We offer our customers
flexible manufacturing solutions throughout the life cycle of their products.
These solutions 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.
Our
Industry
The EMS
industry experienced rapid change and growth over most of the past decade as an
increasing number of OEMs outsourced their manufacturing requirements. In
mid-2001 and again in late 2008, the industry’s revenue declined as a result of
significant cut backs in its customers’ production requirements, which was
consistent with overall global economic downturns. OEMs have continued to turn
to outsourcing in order to reduce product cost; achieve accelerated
time-to-market and time-to-volume production; access advanced design and
manufacturing technologies; improve inventory management and purchasing power;
and reduce their capital investment in manufacturing resources. This enables
OEMs to concentrate on what they believe to be their core strengths, such as new
product definition, marketing and sales. In addition, the number of industries
serviced, as well as the market penetration in certain industries, by EMS
providers has increased in recent years. We believe further growth opportunities
exist for EMS providers to penetrate the worldwide electronics markets. However,
the recent global economic downturn has had a negative affect on demand for our
customers’ products and thus adversely affected our sales.
Our
Strategy
Our goal
is to be the EMS outsourcing provider of choice to leading OEMs in the
electronics industry that we perceive from time to time to offer the greatest
potential for growth. To meet this goal, we have implemented the following
strategies:
|
|
·
|
Maintain and Develop Close,
Long-Term Relationships with Customers. Our core strategy is to
maintain and establish long-term relationships with leading OEMs in
expanding industries by becoming an integral part of our customers’
manufacturing operations. To accomplish this, we work closely with our
customers throughout the design, manufacturing and distribution process,
and we offer flexible and responsive services. We believe that we develop
stronger customer relationships by relying on our local management teams
that respond to frequently changing customer design specifications and
production requirements.
|
5
|
|
·
|
Focus on High-End Products in
Growth Industries. EMS providers produce products for a wide range
of OEMs in different industries, such as consumer electronics,
Internet-focused businesses and information technology 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 targeted for military, medical and other
high-end computer use. Similarly, OEMs’ 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 high volume manufacturing capabilities
to our customer base. Our ability to offer both of these types of services
enables us to expand our business
relationships.
|
|
|
·
|
Deliver Complete High and Low
Volume Manufacturing Solutions Globally. We believe OEMs are
increasingly requiring a wide range of specialized engineering and
manufacturing services from EMS providers in order to reduce 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 OEM customers. Our systems integration assembly and
direct order fulfillment services allow our customers to reduce product
cost and risk of product obsolescence by reducing their total
work-in-process and finished goods inventory. These services are available
at many of our manufacturing locations. We also offer our customers high
volume production in low cost regions of the world, such as Brazil, China,
Malaysia, Mexico, Romania and Thailand. These full service capabilities
allow us to offer customers the flexibility to move quickly from design
and initial product introduction to production and distribution. We offer
our customers the opportunity to combine the benefits of low cost
manufacturing (for the portions of their products or systems that can
benefit from the use of these geographic areas) with the benefits and
capabilities of our higher complexity support of systems integration in
Asia, Europe or the United States.
|
|
|
·
|
Leverage Advanced
Technological Capabilities. In addition to traditional strengths in
manufacturing large, complex high-density printed circuit boards we offer
customers advanced design, technology and manufacturing solutions for
their primary products. We provide this engineering expertise through our
design capabilities in each of our facilities, and in our design centers.
We believe our capabilities help our customers improve product performance
and reduce costs.
|
|
|
·
|
Continue to Seek Cost Savings
and Efficiency Improvements. We seek to optimize our facilities to
provide cost-efficient services for our customers. We provide operations
in lower cost locations, including Brazil, China, Malaysia, Mexico,
Romania and Thailand, and we continue to expand our presence in these
lower cost locations to meet the needs of our
customers.
|
|
|
·
|
Continue Our Global Expansion.
A network of strategically positioned facilities can reduce costs,
simplify and shorten an OEM’s supply chain and thus reduce the time it
takes to bring product to market. We are committed to geographic expansion
in order to support our customers with cost-effective and timely delivery
of quality products and services worldwide. Our acquisition of facilities
in Malaysia, Romania and the Netherlands has expanded our service scope to
provide a global manufacturing solution to our customers through our 20
facilities in ten countries located in Brazil, China, Ireland, Malaysia,
Mexico, the Netherlands, Romania, Singapore, Thailand and the United
States.
|
6
|
|
·
|
Pursue Strategic
Acquisitions. Our capabilities have continued to grow through
acquisitions and we will continue to selectively seek acquisition
opportunities. Our acquisitions, including the Pemstar acquisition, have
enhanced our business in the following
ways:
|
|
|
-
|
expanded
geographic presence;
|
|
|
-
|
enhanced
customer growth opportunities;
|
|
|
-
|
developed
strategic relationships;
|
|
|
-
|
broadened
service offerings;
|
|
|
-
|
diversified
into new market sectors; and
|
|
|
-
|
added
experienced management teams.
|
We
believe that growth by selective acquisitions is critical for achieving the
scale, flexibility and breadth of customer services required to remain
competitive in the EMS industry.
Services
We Provide
We offer
a wide range of engineering, automation, test, manufacturing and fulfillment
solutions that support our customers’ products from initial design through
prototyping, design validation, testing, ramp to volume production, worldwide
distribution and aftermarket support. We support all of our service offerings
with supply chain management systems, superior quality program management and
sophisticated information technology systems. Our comprehensive service
offerings enable us to provide a complete solution for our customers’
outsourcing requirements.
Engineering
Solutions
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.
|
|
·
|
New Product Design, Prototype,
Test and Related Engineering Solutions. We offer a full spectrum of
new product design, prototype, test and related engineering solutions. Our
concurrent engineering approach shortens product development cycles and
gives our customers a competitive advantage in time-to-market and
time-to-profit. Our multi-disciplined engineering teams provide expertise
in a number of core competencies critical to serving OEMs in our target
markets, including award-winning industrial design, mechanical and
electrical hardware, firmware, software and systems integration and
support. We create specifications, designs and quick-turn prototypes, and
validate and ramp our customers’ products into high volume manufacturing.
Our technical expertise includes electronic circuit design for analog,
digital, radio frequency, microwave and mixed signal technology, as well
as Microsoft and Intel design
capabilities.
|
|
|
·
|
Custom Test and Automation
Equipment Design and Build Solutions. We provide our customers with
a comprehensive range of custom automated test equipment, functional test
equipment, process automation and replication solutions. We have expertise
in tooling, testers, equipment control, systems planning, automation,
floor control, systems integration, replication and programming. Our
custom functional test equipment, process automation and replication
solutions are available to our customers as part of our full service
product design and manufacturing solutions package or on a stand-alone
basis for products designed and manufactured elsewhere. We also provide
custom test equipment and automation system solutions to OEMs. Our ability
to provide these solutions allows us to capitalize on OEMs’ increasing
needs for custom manufacturing solutions and provides an additional
opportunity for us to introduce these customers to our comprehensive
engineering and manufacturing
services.
|
7
Manufacturing
and Fulfillment Solutions
As OEMs
seek to provide greater functionality in smaller products, they increasingly
require more sophisticated manufacturing technologies and processes. Our
investment in advanced manufacturing equipment and our experience in innovative
packaging and interconnect technologies enable us to offer a variety of advanced
manufacturing solutions. These packaging and interconnect technologies
include:
|
|
·
|
Printed Circuit Board Assembly
& Test. We offer a wide range of printed circuit board assembly
and test solutions, including printed circuit board assembly, assembly of
subsystems, circuitry and functionality testing of printed assemblies,
environmental and stress testing and component reliability
testing.
|
|
|
·
|
Flex Circuit Assembly &
Test. We provide our customers with a wide range of flex circuit
assembly and test solutions. We utilize specialized tooling strategies and
advanced automation procedures to minimize circuit handling and ensure
that consistent processing parameters are maintained throughout the
assembly process.
|
|
|
·
|
Systems Assembly &
Test. 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
to confirm that the board or assembly operates in accordance with its
final design and manufacturing specifications. 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.
|
We also
have expertise in advanced precision and electromechanical technologies and
optical manufacturing services. In order to meet our customers’ demand for
systems assembly and test solutions, we offer subassembly build, final assembly,
functionality testing, configuration and software installation and final
packaging services.
Precision Electromechanical Assembly
and Test. We offer a full spectrum of precision subsystem and system
integration services. These services include assembly, configuration and test of
complex computers and related products for business enterprises, medical
devices, industrial control equipment, testing and instrumentation products, and
telecommunication equipment. We design, develop and build product specific
manufacturing processes utilizing manual, mechanized or fully automated lines to
meet our customers’ product volume and quality requirements. All of our assembly
and test processes are developed according to customer specifications and
replicated within our facilities. Product life cycle testing services are
provided such as Ongoing Reliability Testing where units are continuously cycled
for extended testing while monitoring for early life failures.
Direct Order Fulfillment. We
provide direct order fulfillment for certain of our OEM customers. Direct order
fulfillment involves receiving customer orders, configuring products to quickly
fill the orders and delivering the products either to the OEM, a distribution
channel or directly to the end customer. We manage our direct order fulfillment
processes using a core set of common systems and processes that receive order
information from the customer and provide comprehensive supply chain management,
including procurement and production planning. These systems and processes
enable us to process orders for multiple system configurations, and varying
production quantities, including single units. Our direct order fulfillment
services include build-to-order (BTO) and configure-to-order (CTO) capabilities.
BTO involves building a complete system in real-time to a highly customized
configuration ordered by the OEM customer. CTO involves configuring systems to
an end customer’s specifications at the time the product is ordered. The end
customer typically places this order by choosing from a variety of possible
system configurations and options. We are capable of meeting a 2 to 24 hour
turn-around-time for BTO and CTO. We support our direct order fulfillment
services with logistics that include delivery of parts and assemblies to the
final assembly site, distribution and shipment of finished systems, and
processing of customer returns.
8
Aftermarket Non-Warranty
Services. We provide our customers with a range of aftermarket
non-warranty services, including repair, replacement, refurbishment,
remanufacturing, exchange, systems upgrade and spare part manufacturing
throughout a products life cycle. These services are tracked and supported by
specific information technology systems that can be tailored to meet our
customers’ individual requirements.
Value-Added Support Systems.
We support our engineering, manufacturing, distribution and aftermarket support
services with an efficient supply chain management system and a superior quality
management program. All of our value-added support services are implemented and
managed through web-based information technology systems that enable us to
collaborate with our customers throughout all stages of the engineering,
manufacturing and order fulfillment processes.
Supply Chain Management. 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 company wide while providing local execution
for maximum flexibility at the division level. In addition, our systems
integration facilities have developed material processes required to support
system integration operations.
We
utilize a full complement of electronic data interchange transactions with our
suppliers to coordinate forecasts, orders, reschedules, inventory and component
lead times. Our enterprise resource planning systems provide product and
production information to our supply chain management, engineering change
management and floor control systems. Our information systems also control
serialization, production and quality data for all of our facilities around the
world utilizing state-of-the-art statistical process control techniques for
continuous process improvements. To enhance our ability to rapidly respond to
changes in our customers’ requirements by effectively managing changes in our
supply chain, we utilize web-based interfaces and real-time supply chain
management software products from Kinaxis Inc. Kinaxis allows for scaling
operations to meet customer needs, shifting capacity in response to product
demand fluctuations, reducing materials costs and effectively distributing
products to our customers or their end-customers.
Manufacturing Technologies.
We offer our customers expertise in a wide variety of traditional and advanced
manufacturing technologies. Our technical expertise supports standard printed
circuit board assembly as well as complex products that require advanced
engineering skills and equipment.
We also
provide our customers with a comprehensive set of manufacturing technologies and
solutions which include:
|
|
·
|
Pin
Thru Hole,
|
|
|
·
|
Surface
Mount Technology,
|
|
|
·
|
Fine
Pitch,
|
|
|
·
|
Ball
Grid Array,
|
|
|
·
|
Flip
Chip,
|
|
|
·
|
Chip
On Board/Wirebonding,
|
|
|
·
|
In-Circuit
Test,
|
|
|
·
|
Board
Level Functional Test, and
|
|
|
·
|
Stress
Testing.
|
9
We also
provide specialized solutions in support of Optical and Wireless components and
systems which include:
|
|
·
|
Adhesives,
|
|
|
·
|
Conformal
Coating,
|
|
|
·
|
Laser
Welding,
|
|
|
·
|
Hybrid
Optical/Electrical Printed Circuit Board Assembly and Test,
and
|
|
|
·
|
Sub-micron
Alignment of Optical
Sub-Assemblies.
|
Through
our Component Engineering Services, we are helping our customers deal with the
changing international environmental regulations such as the European Union (EU)
Restriction of the Use of Hazardous Substances in electrical and electronic
Equipment (RoHS). Manufacturing sites in the Americas, Asia and European regions
are certified in both water soluble and no-clean processes and are currently
producing products that are RoHS compliant.
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. We generally enter into
supply arrangements with our customers. These arrangements, similar to purchase
orders, generally govern the conduct of business between our customer and
ourselves relating to, among other things, the manufacture of products which in
many cases were previously produced by the customer itself. Such arrangements
generally identify the specific products to be manufactured, quality and
production requirements, product pricing and materials management. There can be
no assurance that at any time these arrangements will remain in effect or be
renewed.
Our key
customer accounts are supported by a dedicated team, including a global account
manager who is directly responsible for account management. Global account
managers coordinate activities across divisions to effectively satisfy customer
requirements and have direct access to our executive management to quickly
address customer concerns. Local customer account teams further support the
global teams and are linked by a comprehensive communications and information
management infrastructure. In addition, our executive management, including our
chief executive officer, Cary Fu, and our president, Gayla Delly, are heavily
involved in customer relations and devote significant attention to broadening
existing, and developing new, customer relationships.
The
following table sets forth the percentages of our sales by industry for 2008,
2007 and 2006.
|
2008
|
2007
|
2006
|
||||||||||
|
Computers
and related products for business enterprises
|
48 | % | 53 | % | 58 | % | ||||||
|
Telecommunication
equipment
|
18 | 15 | 12 | |||||||||
|
Industrial
control equipment
|
16 | 13 | 11 | |||||||||
|
Medical
devices
|
14 | 13 | 13 | |||||||||
|
Testing
and instrumentation products
|
4 | 6 | 6 | |||||||||
Sales to
customers in the computers and related products for business enterprises
industry and the testing and instrumentation products industry declined 21% and
43%, respectively, from 2007 to 2008. Historically, a substantial percentage of
our sales have been made to a small number of customers. The loss of a major
customer, if not replaced, would adversely affect us. Sales to our largest
customer, Sun Microsystems, Inc., represented 16% of our sales during 2008
compared to 22% of our sales in 2007. 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.
10
Suppliers
We
maintain a network of suppliers of components and other materials used in our
operations. We procure components 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. If any of these single source
suppliers were to be unable to provide these materials, a shortage of these
components could temporarily interrupt our operations and lower our profits
until such time as an alternate component could be identified and qualified for
use. Although we experience component shortages and longer lead times for
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. In addition,
by developing long-term relationships with suppliers, we have been better able
to minimize the effects of component shortages compared to manufacturers without
such relationships. These procedures reduce, but do not eliminate, our inventory
risk.
Backlog
We had
sales backlog of approximately $1.6 billion at December 31, 2008, as compared to
the 2007 year-end backlog of $1.7 billion. Backlog consists of purchase orders
received, including, in some instances, forecast requirements released for
production under customer contracts. Although we expect to fill substantially
all of our year-end backlog during 2009, we currently do 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, our 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 from the in-house manufacturing capabilities of
current and potential customers. Our competitors include Celestica Inc.,
Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd., Jabil
Circuit, Inc., and Sanmina-SCI 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 engineering capabilities, product quality, flexibility,
cost and timeliness in responding to design and schedule changes, reliability in
meeting product delivery schedules, pricing, technological sophistication and
geographic location.
In
addition, in recent years, original design manufacturers (ODMs) that provide
design and manufacturing services to OEMs have significantly increased their
share of outsourced manufacturing services provided to OEMs in markets such as
notebook and desktop computers, personal computer motherboards, and consumer
electronic products. Competition from ODMs may increase if our business in these
markets grows or if ODMs expand further into or beyond these
markets.
11
Governmental
Regulation
Our
operations, and the operations of businesses that we acquire, are subject to
certain foreign, federal, state and local regulatory requirements relating to
security clearance, environmental, waste management, and health and safety
matters. We believe we operate in substantial compliance with all applicable
requirements. However, material costs and liabilities may arise from these
requirements or from new, modified or more stringent requirements, which could
affect our earnings and competitive position. In addition, our past, current and
future operations, and those of businesses we acquire, 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
periodically generate and temporarily handle limited amounts of materials that
are considered hazardous waste under applicable law. We contract for the
off-site disposal of these materials and have implemented a waste management
program to address related regulatory issues.
Employees
As of
December 31, 2008, we employed 10,522 people, of whom 8,031 were engaged in
manufacturing and operations, 1,162 in materials control and procurement, 543 in
design and development, 272 in marketing and sales, and 514 in administration.
None of our domestic employees are represented by a labor union. In certain
international locations, our employees are represented by labor unions and by
works councils. Some European countries also often have mandatory legal
provisions regarding terms of employment, severance compensation and other
conditions of employment that are more restrictive than U.S. laws. We have never
experienced a strike or similar work stoppage and we believe that our employee
relations are satisfactory.
Segments
and International Operations
Benchmark
has 20 manufacturing facilities in the Americas, Asia and Europe regions to
serve its customers. Benchmark is operated and managed geographically and
management evaluates performance and allocates Benchmark’s resources on a
geographic basis. We currently operate outside the United States in Brazil,
China, Ireland, Malaysia, Mexico, the Netherlands, Romania, Singapore and
Thailand. During 2008 and 2007, 48% and 43%, respectively, of our sales were
from our international operations. As a result of customer demand overseas, we
expect foreign sales to continue to increase. Our foreign sales and operations
are subject to risk of doing business abroad, including fluctuations in the
value of currency, export duties, import controls and trade barriers, including
stoppages, longer payment cycles, greater difficulty in accounts receivable
collection, burdens of complying with a wide variety of foreign laws and, in
certain parts of the world, political instability. While, to date, these factors
have not had a material adverse effect on Benchmark’s results of operations,
there can be no assurances that there will not be an adverse impact in the
future. See Note 9 and Note 13 of Notes to Consolidated Financial Statements in
Item 8 of this report for segment and geographical information.
Available
Information
Our
internet address is http://www.bench.com. We make available free of charge
through our internet website our filings with the Securities and Exchange
Commission (SEC), including our annual reports on Form 10–K, quarterly reports
on Form 10–Q, current reports on Form 8–K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after electronically filing such material with, or
furnishing it to, the SEC. All reports we file with the SEC are also available
free of charge via EDGAR through the SEC’s website at http://www.sec.gov or to
read and copy at the SEC Public Reference Room located at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.
12
Fluctuating
circumstances in the global financial markets are impacting businesses around
the globe.
Fluctuating
circumstances in the global financial markets are impacting businesses around
the globe. The gross domestic products of the United States, Europe and certain
countries in Asia have declined, indicating that many of these countries’
economies, including the U.S. economy, are in a recession. These unfavorable
changes in economic conditions result in lower information technology spending
by businesses, which in turn affects demand for our customers’ products and thus
adversely affects our sales. Certain of our customers may face challenges
gaining timely access to sufficient credit, which could result in an impairment
of their ability to make timely payments to us. If that were to occur, we may be
required to increase our allowance for doubtful accounts and our days sales
outstanding would be negatively impacted. Additionally, the current market
turbulence may also impact our critical suppliers causing them to be unable to
supply, in a timely manner, sufficient quantities of customized components
ordered by us, thereby impairing our ability to manufacture on schedule and at
commercially reasonable costs.
We
are dependent on the success of our customers.
We are
dependent on the continued growth, viability and financial stability of our
customers. Our customers are OEMs of:
|
|
·
|
computers
and related products for business
enterprises;
|
|
|
·
|
medical
devices;
|
|
|
·
|
industrial
control equipment;
|
|
|
·
|
testing
and instrumentation products; and
|
|
|
·
|
telecommunication
equipment.
|
Often,
these industries are subject to rapid technological change, vigorous competition
and short product life cycles. When our customers are adversely affected by
these factors, we may be similarly affected.
The
loss of a major customer would adversely affect us.
Historically,
a substantial percentage of our sales have been made to a small number of
customers. The loss of a major customer, if not replaced, would adversely affect
us. During 2008, our largest customer represented 16% of our 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 expect
to continue to depend on the sales to our largest customers and any material
delay, cancellation or reduction of orders from these customers or other
significant customers would have a material adverse effect on our results of
operations. In addition, we generate significant accounts receivables in
connection with providing manufacturing services to our customers. If one or
more of our customers were to become insolvent or otherwise unable to pay for
the manufacturing services provided by us, our operating results and financial
condition would be adversely affected.
13
Most
of our customers do not commit to long-term production schedules, which makes it
difficult for us to schedule production and achieve maximum efficiency of our
manufacturing capacity.
The
volume and timing of sales to our customers may vary due to:
|
|
·
|
variation
in demand for our customers’
products;
|
|
|
·
|
our
customers’ attempts to manage their
inventory;
|
|
|
·
|
electronic
design changes;
|
|
|
·
|
changes
in our customers’ manufacturing strategy;
and
|
|
|
·
|
acquisitions
of or consolidations among
customers.
|
Due in
part to these factors, most of our customers do not commit to firm production
schedules for more than one quarter in advance. Our inability to forecast the
level of customer orders with certainty makes it difficult to schedule
production and maximize utilization of manufacturing capacity. In the past, we
have been required to increase staffing and other expenses in order to meet the
anticipated demand of our customers. Anticipated orders from many of our
customers have, in the past, failed to materialize or delivery schedules have
been deferred as a result of changes in our customers’ business needs, thereby
adversely affecting our results of operations. On other occasions, our customers
have required rapid increases in production, which have placed an excessive
burden on our resources. Such customer order fluctuations and deferrals have had
a material adverse effect on us in the past, and we may experience such effects
in the future. A business downturn resulting from any of these external factors
could have a material adverse effect on our operating income. See Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Item
7 of this report.
Our
customers may cancel their orders, change production quantities, delay
production or change their sourcing strategy.
EMS
providers must provide increasingly rapid product turnaround for their
customers. We generally do not obtain firm, long-term purchase commitments from
our customers and we continue to experience reduced lead-times in customer
orders. Customers may cancel their orders, change production quantities, delay
production or change their sourcing strategy for a number of reasons. The
success of our customers’ products in the market affects our business.
Cancellations, reductions, delays or changes in their sourcing strategy by a
significant customer or by a group of customers could negatively impact our
operating income.
In
addition, we make significant decisions, including determining the levels of
business that we will seek and accept, production schedules, component
procurement commitments, personnel needs and other resource requirements, based
on our estimate 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 accurately estimate the future requirements of
those customers.
On
occasion, customers may require rapid increases in production, which can stress
our resources and reduce operating margins. In addition, because many of our
costs and operating expenses are relatively fixed, a reduction in customer
demand can harm our gross profits and operating results. See Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Item
7 of this report.
14
We
may encounter significant delays or defaults in payments owed to us by customers
for products we have manufactured or components that are unique to particular
customers.
We
structure our agreements with customers to mitigate our risks related to
obsolete or unsold inventory. However, enforcement of these contracts may result
in material expense and delay in payment for inventory. If any of our
significant customers become unable or unwilling to purchase such inventory, our
business may be materially harmed. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 of this
report.
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. In addition, industry-wide shortages of electronic components,
particularly of memory and logic devices, have occurred. If shortages of these
components occur or if components received are defective, we may be forced to
delay shipments, which could have an adverse effect on our profit margins.
Because of the continued increase in demand for surface mount components, we
anticipate component shortages and longer lead times for certain components to
occur from time to time. Also, we typically bear the risk of component price
increases that occur between periodic repricings during the term of a customer
contract. Accordingly, certain component price increases could adversely affect
our gross profit margins.
Our
international operations may be subject to certain risks.
We
currently operate outside the United States in Brazil, China, Ireland, Malaysia,
Mexico, the Netherlands, Romania, Singapore and Thailand. During 2008, 2007 and
2006, 48%, 43% and 37%, respectively, of our sales were from our international
operations. These international operations may be subject to a number of risks,
including:
|
|
·
|
difficulties
in staffing and managing foreign
operations;
|
|
|
·
|
political
and economic instability (including acts of terrorism and outbreaks of
war), which could impact our ability to ship and/or receive
product;
|
|
|
·
|
unexpected
changes in regulatory requirements and
laws;
|
|
|
·
|
longer
customer payment cycles and difficulty collecting accounts
receivable;
|
|
|
·
|
export
duties, import controls and trade barriers (including
quotas);
|
|
|
·
|
governmental
restrictions on the transfer of
funds;
|
|
|
·
|
burdens
of complying with a wide variety of foreign laws and labor
practices;
|
|
|
·
|
fluctuations
in currency exchange rates, which could affect component costs, local
payroll, utility and other expenses;
and
|
|
|
·
|
inability
to utilize net operating losses incurred by our foreign operations to
reduce our U.S. income taxes.
|
In
addition, several of the countries where we operate have emerging or developing
economies, which may be subject to greater currency volatility, negative growth,
high inflation, limited availability of foreign exchange and other risks. These
factors may harm our results of operations, and any measures that we may
implement to reduce the effect of volatile currencies and other risks of our
international operations may not be effective. In our experience, entry into new
international markets requires considerable management time as well as start-up
expenses for market development, hiring and establishing office facilities
before any significant revenues are generated. As a result, initial operations
in a new market may operate at low margins or may be
unprofitable.
15
We
operate in a highly competitive industry.
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. Our competitors include large
independent manufacturers such as Celestica Inc., Flextronics International
Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc. and Sanmina-SCI
Corporation. In addition, we may in the future encounter competition from other
large electronic manufacturers that are selling, or may begin to sell,
electronics manufacturing services.
We also
face competition from the manufacturing operations of our current and future
customers, who are continually evaluating the merits of manufacturing products
internally against the advantages of outsourcing to electronics manufacturing
services providers. In addition, in recent years, ODMs that provide design and
manufacturing services to OEMs, have significantly increased their share of
outsourced manufacturing services provided to OEMs
in several markets, such as notebook and desktop computers, personal computer
motherboards, and consumer electronic products. Competition from ODMs may
increase if our business in these markets grows or if ODMs expand further into
or beyond these markets.
During
periods of recession in the electronics industry, our competitive advantages in
the areas of quick turnaround manufacturing and responsive customer service may
be of reduced importance to electronics OEMs, who may become more price
sensitive. We may also be at a competitive disadvantage with respect to price
when compared to manufacturers with lower cost structures, particularly those
with more offshore facilities located where labor and other costs are
lower.
We
experience intense competition, which can intensify further as more companies
enter the markets in which we operate, as existing competitors expand capacity
and as the industry consolidates. The availability of excess manufacturing
capacity at many of our competitors creates intense pricing and competitive
pressure on the EMS industry as a whole and Benchmark in particular. 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.
The
integration of acquired operations may pose difficulties for us.
Our
capabilities have continued to grow through acquisitions and we may pursue
additional acquisitions over time. These acquisitions involve risks,
including:
|
|
·
|
integration
and management of the operations;
|
|
|
·
|
retention
of key personnel;
|
|
|
·
|
integration
of purchasing operations and information
systems;
|
|
|
·
|
retention
of the customer base of acquired
businesses;
|
|
|
·
|
management
of an increasingly larger and more geographically disparate business;
and
|
|
|
·
|
diversion
of management’s attention from other ongoing business
concerns.
|
Our
profitability will suffer if we are unable to successfully integrate any
acquisition and manage any future acquisitions that we might pursue, or if we do
not achieve sufficient revenue to offset the increased expenses associated with
these acquisitions.
16
We
may experience fluctuations in quarterly results.
Our
quarterly results may vary significantly depending on various factors, many of
which are beyond our control. These factors include:
|
|
·
|
the
volume of customer orders relative to our
capacity;
|
|
|
·
|
customer
introduction and market acceptance of new
products;
|
|
|
·
|
changes
in demand for customer products;
|
|
|
·
|
pricing
and other competitive pressures;
|
|
|
·
|
the
timing of our expenditures in anticipation of future
orders;
|
|
|
·
|
our
effectiveness in managing manufacturing
processes;
|
|
|
·
|
changes
in cost and availability of labor and
components;
|
|
|
·
|
changes
in our product mix;
|
|
|
·
|
changes
in political and economic conditions;
and
|
|
|
·
|
local
factors and events that may affect our production volume, such as local
holidays.
|
Additionally,
as is the case with many high technology companies, a significant portion of our
shipments typically occurs in the last few weeks of a quarter. As a result, our
sales may shift from one quarter to the next, having a significant effect on
reported results.
Our
investments in auction rate securities are subject to risks which may cause
losses and affect the liquidity of these investments.
As of
December 31, 2008, we held $53.5 million (par value) of auction rate securities,
classified as long-term investments, whose underlying assets were in guaranteed
student loans backed by a U. S. Government agency and municipal issue bonds.
These investments are of a high credit quality with primarily AAA type credit
ratings because of the government agency guarantee and other insurers. Auction
rate securities are adjustable rate debt instruments whose interest rates are
intended to reset every 7 to 35 days through an auction process, with underlying
securities that have original contractual maturities greater than 10 years. The
long-term investments were reclassified from short-term during the three months
ended March 31, 2008, due to the overall changes that have occurred in the
global credit and capital markets that have led to failed auctions. These failed
auctions, in addition to overall global economic conditions, have impacted the
liquidity of these investments and have resulted in our continuing to hold these
securities beyond their typical auction reset dates. The market for these types
of securities remains illiquid as of December 31, 2008. As a result, our ability
to liquidate and fully recover the carrying value of our adjustable rate
securities in the near term may be limited or not exist. If the issuers of these
adjustable rate securities are unable to successfully close future auctions or
their credit quality deteriorates, we may in the future be required to record an
impairment charge on these investments. We may be required to wait until market
stability is restored for these instruments or until the final maturity of the
underlying notes (up to 40 years) to realize our investments’ recorded value. As
of December 31, 2008, we had $5.3 million of unrealized losses on these
securities, based on a Level 3 evaluation performed by an independent valuation
firm, that is recorded in other comprehensive income. We have not to date
incurred any payment defaults on any maturing auction rate securities we
hold.
Start-up
costs and inefficiencies related to new or transferred programs can adversely
affect our operating results and such costs may not be recoverable if such new
programs or transferred programs are cancelled.
Start-up
costs, the management of labor and equipment resources in connection with the
establishment of new programs and new customer relationships, and the need to
estimate required resources in advance can adversely affect our gross margins
and operating results. These factors are particularly evident in the early
stages of the life cycle of new products and new programs or program transfers
and in the opening of new facilities. These factors also affect our ability to
efficiently use labor and equipment. We are currently managing a number of new
programs and are expanding our capacity in Brasov, Romania. Consequently, our
exposure to these factors has increased. In addition, if any of these new
programs or new customer relationships were terminated, our operating results
could be harmed, particularly in the short term. We may not be able to recoup
these start-up costs or replace anticipated new program
revenues.
17
Complications
with the implementation of our information systems could disrupt our operations
and cause unanticipated increases in our costs.
We have
completed the installation of an Enterprise Resource Planning system in many of
our manufacturing sites and in our corporate location. Complications with the
implementation of these information systems in the remaining plants to replace
the existing Manufacturing Resource Planning systems and financial information
systems used by these sites could result in material adverse consequences,
including disruption of operations, loss of information and unanticipated
increases in cost.
We
are exposed to general economic conditions, which could have a material adverse
impact on our business, operating results and financial condition.
Our
business is cyclical and has experienced economic and industry downturns. If the
economic conditions and demand for our customers’ products deteriorate, we may
experience a material adverse impact on our business, operating results and
financial condition.
In cases
where the evidence suggests a customer may not be able to satisfy its obligation
to us, we set up reserves in an amount we determine appropriate for the
perceived risk. There can be no assurance that our reserves will be adequate to
meet this risk. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
receivable and inventory reserves may be required.
We
may be affected by consolidation in the electronics industry.
Consolidation
in the electronics industry could result in an increase in excess manufacturing
capacity as companies seek to close plants or take other steps to increase
efficiencies and realize synergies of mergers. The availability of excess
manufacturing capacity could create increased pricing and competitive pressures
for the electronics manufacturing services industry as a whole and our business
in particular. In addition, consolidation could also result in an increasing
number of very large electronics companies offering products in multiple sectors
of the electronics industry. The growth of these large companies, with
significant purchasing and marketing power, could also result in increased
pricing and competitive pressures for us. Accordingly, industry consolidation
could harm our business.
We
are subject to the risk of increased taxes.
We base
our tax position upon the anticipated nature and conduct of our business and
upon our understanding of the tax laws of the various countries in which we have
assets or conduct activities. Our tax position, however, is subject to review
and possible challenge by taxing authorities and to possible changes in law. We
cannot determine in advance the extent to which some jurisdictions may assess
additional tax or interest and penalties on such additional taxes.
Several
countries in which we are located allow for tax holidays or provide other tax
incentives to attract and retain business. We have obtained holidays or other
incentives where available. Our taxes could increase if certain tax holidays or
incentives are retracted, or if they are not renewed upon expiration, or tax
rates applicable to us in such jurisdictions are otherwise increased. In
addition, further acquisitions may cause our effective tax rate to
increase.
18
We
are exposed to intangible asset risk.
We have
recorded intangible assets, including goodwill, in connection with business
acquisitions. We are required to perform goodwill and intangible asset
impairment tests at least on an annual basis and whenever events or
circumstances indicate that the carrying value may not be recoverable from
estimated future cash flows. Our annual goodwill impairment analysis in the
fourth quarter of 2008 indicated there was an impairment of goodwill in two of
our reporting segments, the Americas and Europe, primarily due to a decline in
our market capitalization and recent market turmoil. Accordingly, we recorded a
non-cash impairment charge in the fourth quarter of 2008 totaling $247.5
million. See Note 1(i) to the consolidated financial statements in Item 8 of
this report. A further significant and sustained decline in our market
capitalization could result in material charges in future periods that could be
adverse to our operating results and financial position. As of December 31,
2008, we had $37.9 million in goodwill and $14.4 million of identifiable
intangible assets.
There
are inherent uncertainties involved in estimates, judgments and assumptions used
in the preparation of financial statements in accordance with US GAAP. Any
changes in estimates, judgments and assumptions could have a material adverse
effect on our business, financial position and results of
operations.
The
consolidated financial statements included in the periodic reports we file with
the SEC are prepared in accordance with accounting principles generally accepted
in the United States (US GAAP). The preparation of financial statements in
accordance with US GAAP involves making estimates, judgments and assumptions
that affect reported amounts of assets (including intangible assets),
liabilities and related reserves, revenues, expenses and income. Estimates,
judgments and assumptions are inherently subject to change in the future, and
any such changes could result in corresponding changes to the amounts of assets,
liabilities, revenues, expenses and income. Any such changes could have a
material adverse effect on our financial position and results of
operations.
We
are involved in various legal proceedings.
In the
past, we have been notified of claims relating to various matters including
intellectual property rights, contractual matters or other issues arising in the
ordinary course of business. In the event of such a claim, we may be required to
spend a significant amount of money to defend or otherwise address the claim.
Any litigation, even where a claim is without merit, could result in substantial
costs and diversion of resources. Accordingly, the resolution or adjudication of
such disputes, even those encountered in the ordinary course of business, could
have a material adverse effect on our business, consolidated financial
conditions and results of operations. See Note 15 to the consolidated financial
statements in Item 8 of this report.
Our
success will continue to depend to a significant extent on our
executives.
We depend
significantly on certain key executives, including, but not limited to, Cary T.
Fu, Donald F. Adam 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
must maintain our technological and manufacturing process
expertise.
The
market for our manufacturing services is characterized by rapidly changing
technology and continuing process development. We are continually evaluating the
advantages and feasibility of new manufacturing processes. We believe that our
future success will depend upon our ability to develop and provide manufacturing
services which meet our customers’ changing needs. This requires that we
maintain technological leadership and successfully anticipate or respond to
technological changes in manufacturing processes on a cost-effective and timely
basis. Our failure to maintain our technological and manufacturing process
expertise could have a material adverse effect on our business.
19
Our
stock price is volatile.
Our
common shares have experienced significant price volatility, and such volatility
may continue in the future. The price of our common shares 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 shares for reasons unrelated to our
performance.
Provisions
in our shareholder rights plan, our charter documents and state law may make it
harder for others to obtain control of our company even though some shareholders
might consider such a development to be favorable.
Our
shareholder rights plan, which was amended in December 2008, 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
our company through a tender offer, business combination, proxy contest or some
other method. These provisions include:
|
|
·
|
a
“poison pill” shareholder rights
plan;
|
|
|
·
|
a
statutory restriction on the ability of shareholders to take action by
less than unanimous written consent;
and
|
|
|
·
|
a
statutory restriction on business combinations with some types of
interested shareholders.
|
Impact
of Governmental Regulation.
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.
Our
worldwide operations are subject to local laws and regulations. Over the last
several years, we have become subject to subject to the RoHS directive and the
Waste Electrical and Electronic Equipment Directive. These directives restrict
the distribution of products within the EU containing certain substances,
including lead, and require a manufacturer or importer to recycle products
containing those substances. In addition, China has recently passed the
Management Methods for Controlling Pollution by Electronic Information Products,
which will eventually prohibit the import of products for use in China that
contain substances similar to those banned by the RoHS directive.
Both
directives affect the worldwide electronics, and electronics components,
industries as a whole. If we or our customers fail to comply with such laws and
regulations, we could incur liabilities and fines and our operations could be
suspended.
In
addition, as global warming issues become more prevalent, the U.S. and foreign
governments are beginning to respond to these issues. This increasing
governmental focus on global warming may result in new environmental regulations
that may negatively affect us, our suppliers and our customers. This could cause
us to incur additional direct costs in complying with any new environmental
regulations, as well as increased indirect costs resulting from our customers,
suppliers or both incurring additional compliance costs that get passed on to
us. These costs may adversely impact our operations and financial
condition.
20
Our
business may be impacted by geopolitical events.
As a
global business, we operate and have customers located in many countries.
Geopolitical events such as terrorist acts may effect the overall economic
environment and negatively impact the demand for our customers’ products or our
ability to ship and/or receive products. As a result, customer orders may be
lower and our financial results may be adversely affected.
Our
business may be impacted by natural disasters.
Some of
our facilities, including our corporate headquarters, are located in areas which
may be impacted by hurricanes, earthquakes, water shortages, tsunamis, floods,
typhoons, fires, extreme weather conditions and other natural or manmade
disasters. Our insurance coverage with respect to natural disasters is limited
and is subject to deductibles and coverage limits. Such coverage may not be
adequate, or may not continue to be available at commercially reasonable rates
and terms.
We
may be exposed to interest rate fluctuations.
We will
have exposure to interest rate risk under our variable rate revolving credit
facilities to the extent we incur indebtedness under such facilities. These
facilities’ interest rates are based on the spread over the bank’s LIBOR rate or
its prime rate. We are also exposed to interest rate risk on our investment
portfolio.
Changes
in financial accounting standards or policies have affected, and in the future
may affect, our reported financial condition or results of operations.
Additionally, changes in securities laws and regulations have increased, and are
likely to continue to increase, our operating costs.
We
prepare our financial statements in conformity with US GAAP. These
principles are subject to interpretation by the Financial Accounting Standards
Board (FASB), the American Institute of Certified Public Accountants (AICPA),
the SEC and various bodies formed to interpret and create appropriate accounting
policies. A change in those policies can have a significant effect on our
reported results and may affect our reporting of transactions which are
completed before a change is announced. Changes to those rules or the
questioning of how we interpret or implement those rules may have a material
adverse effect on our reported financial results or on the way we conduct
business. For example, although not yet currently required, we could be required
to adopt International Financial Reporting Standards (IFRS) which is different
than US GAAP.
In
addition, in connection with our Section 404 certification process, we may
identify from time to time deficiencies in our internal controls. Any material
weakness or deficiency in our internal controls over financial reporting could
materially and negatively impact our reported financial results and the market
price of our stock could significantly decline. Additionally, adverse publicity
related to the disclosure of a material weakness or deficiency in internal
controls over financial reporting could have a negative impact on our
reputation, business and stock price.
Not
applicable.
21
Our
customers market numerous products throughout the world and therefore need to
access manufacturing services on a global basis. To enhance our EMS offerings,
we seek to locate our facilities either near our customers and our customers’
end markets in major centers for the electronics industry or, where appropriate,
in lower cost locations. Many of our plants located near customers and their end
markets are focused primarily on final system assembly and test, while plants
located in lower cost areas are engaged primarily in less complex component and
subsystem manufacturing and assembly.
The
following chart summarizes our principal manufacturing facilities owned or
leased by Benchmark and its subsidiaries:
|
Location
|
Sq.
Ft.
|
Ownership
|
|||
|
Almelo,
the Netherlands
|
132,000 |
Leased
|
|||
|
Angleton,
Texas
|
109,000 |
Owned
|
|||
|
Austin,
Texas
|
93,000 |
Leased
|
|||
|
Ayudhaya,
Thailand
|
243,000 |
Owned
|
|||
|
Ayudhaya,
Thailand
|
180,000 |
Owned
|
|||
|
Beaverton,
Oregon
|
77,000 |
Leased
|
|||
|
Brasov,
Romania
|
108,000 |
Leased
|
|||
|
Campinas,
Brazil
|
40,000 |
Leased
|
|||
|
Dublin,
Ireland
|
104,000 |
Leased
|
|||
|
Dunseith,
North Dakota
|
47,000 |
Owned
|
|||
|
Dunseith,
North Dakota
|
53,000 |
Leased
|
|||
|
Guadalajara,
Mexico
|
150,000 |
Leased
|
|||
|
Hudson,
New Hampshire
|
170,000 |
Leased
|
|||
|
Huntsville,
Alabama
|
276,000 |
Owned
|
|||
|
Huntsville,
Alabama
|
144,000 |
Leased
|
|||
|
Korat,
Thailand
|
126,000 |
Owned
|
|||
|
Penang,
Malaysia
|
103,000 |
Leased
|
|||
|
Rochester,
Minnesota
|
260,000 |
Leased
|
|||
|
Suzhou,
China
|
250,000 |
Owned
|
|||
|
Singapore
|
48,000 |
Leased
|
|||
|
Winona,
Minnesota
|
199,000 |
Owned
|
|||
|
Total
|
2,912,000 |
|
|||
We lease
other facilities in the U.S. with a total of 46,000 sq. ft. that house
individuals that provide engineering services. We also own facilities with a
total of 396,000 sq. ft. and lease facilities with a total of 79,000 sq. ft.
that are currently not in operation. These facilities are both in the U.S. and
abroad.
|
22
|
We are
involved in various 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 our consolidated financial position or results
of operations.
No
matters were submitted to a vote of security holders during the fourth quarter
of 2008.
Our
common shares are listed on the New York Stock Exchange under the symbol “BHE.”
The following table shows the high and low sales prices for our common shares as
reported on the New York Stock Exchange for the quarters (or portions thereof)
indicated.
|
High
|
Low
|
|||||||
|
2009
|
||||||||
|
First
quarter (through February 26, 2009)
|
$ | 13.60 | $ | 10.00 | ||||
|
2008
|
||||||||
|
Fourth
quarter
|
$ | 14.36 | $ | 8.75 | ||||
|
Third
quarter
|
$ | 19.11 | $ | 13.88 | ||||
|
Second
quarter
|
$ | 18.97 | $ | 16.22 | ||||
|
First
quarter
|
$ | 19.98 | $ | 14.90 | ||||
|
2007
|
||||||||
|
Fourth
quarter
|
$ | 24.40 | $ | 16.13 | ||||
|
Third
quarter
|
$ | 27.01 | $ | 21.03 | ||||
|
Second
quarter
|
$ | 23.54 | $ | 20.16 | ||||
|
First
quarter
|
$ | 25.26 | $ | 19.86 | ||||
The last
reported sale price of our common shares on February 26, 2009, as reported by
the New York Stock Exchange, was $10.03. There were approximately 1,030
record holders of our common shares as of February 26, 2009.
We have
not paid any cash dividends on our common shares in the past. In addition, our
credit facility includes restrictions on the amount of dividends we may pay to
shareholders.
23
Issuer
Purchases of Equity Securities
The
following table provides information about the Company’s repurchases of its
equity securities that are registered pursuant to Section 12 of the Exchange Act
during the quarter ended December 31, 2008, at a total cost of $6.8
million:
|
(d)
Maximum
|
||||||||||||||||
|
(c)
Total
|
Number
(or
|
|||||||||||||||
|
Number
of
|
Approximate
|
|||||||||||||||
|
Shares
(or
|
Dollar
Value)
|
|||||||||||||||
|
Units)
|
of
Shares (or
|
|||||||||||||||
|
Purchased
as
|
Units)
that
|
|||||||||||||||
|
(a)
Total
|
Part
of
|
May
Yet Be
|
||||||||||||||
|
Number
of
|
(b)
Average
|
Publicly
|
Purchased
|
|||||||||||||
|
Shares
(or
|
Price
Paid per
|
Announced
|
Under
the
|
|||||||||||||
|
Units)
|
Share
(or
|
Plans
or
|
Plans
or
|
|||||||||||||
|
Period
|
Purchased
(1)
|
Unit) (2)
|
Programs
|
Programs (3)
|
||||||||||||
|
October
1 to 31, 2008
|
599,400 | $ | 11.25 | 599,400 | $ | 78.2 million | ||||||||||
|
November
1 to 30, 2008
|
— | — | — | $ | 78.2 million | |||||||||||
|
December
1 to 31, 2008
|
— | — | — | $ | 78.2 million | |||||||||||
|
Total
|
599,400 | $ | 11.25 | 599,400 | ||||||||||||
(1) All
share repurchases were made on the open market.
(2)
Average price paid per share is calculated on a settlement basis and
excludes commission.
(3) On
July 24, 2008, the Company completed the repurchase of 6.8 million of its common
shares under the $125 million share repurchase program approved by the
Board of Directors on July 25, 2007. On July 24, 2008, the Board of Directors of
the Company approved the additional repurchase of up to $100 million of the
Company’s outstanding common shares. Purchases under the plan commenced on July
28, 2008. Share purchases may be made in the open market, in privately
negotiated transactions or block transactions, at the discretion of the
Company’s management and as market conditions warrant. Purchases will be funded
from available cash and may be commenced, suspended or discontinued at any time
without prior notice. Shares repurchased under the program will be
retired.
During
the period from October 1 to December 31, 2008, the Company repurchased a total
of 599,400 common shares for $6.8 million at an average price of $11.25 per
share. All share purchases were made in the open market and the shares
repurchased through December 31, 2008 were retired.
24
Performance
Graph
The
following Performance Graph compares the cumulative total shareholder return on
our common shares for the five-year period commencing December 31, 2003 and
ending December 31, 2008, with the cumulative total return of the
Standard & Poor’s 500 Stock Index (which does not include Benchmark),
and the Peer Group Index, which is composed of Celestica Inc., Suntron Corp,
Flextronics International, Ltd., Jabil Circuit, Inc., Plexus Corp and
Sanmina-SCI Corp. Dividend reinvestment has been assumed.
|
Dec-03
|
Dec-04
|
Dec-05
|
Dec-06
|
Dec-07
|
Dec-08
|
|||||||||||||||||||
|
Benchmark
Electronics, Inc.
|
$ | 100.00 | $ | 98.00 | $ | 96.60 | $ | 105.00 | $ | 76.40 | $ | 55.00 | ||||||||||||
|
Peer
Group
|
$ | 100.00 | $ | 86.30 | $ | 76.60 | $ | 66.80 | $ | 57.40 | $ | 18.90 | ||||||||||||
|
S&P
500
|
$ | 100.00 | $ | 109.00 | $ | 112.30 | $ | 127.60 | $ | 132.10 | $ | 81.20 | ||||||||||||
NOTES:
Assumes $100 invested on December 31, 2003 in Benchmark Electronics, Inc. Common
Shares, in the S&P 500, and in the Peer Group Index. Reflects month-end
dividend reinvestment, and annual reweighting of the Peer Group Index
portfolios.
25
|
Year
Ended December 31,
|
||||||||||||||||||||
|
(in
thousands, except per share data)
|
2008
|
2007(1)
|
2006(1)
|
2005
|
2004
|
|||||||||||||||
|
Selected Statements of Income (Loss)
Data
|
||||||||||||||||||||
|
Sales
|
$ | 2,590,167 | $ | 2,915,919 | $ | 2,907,304 | $ | 2,257,225 | $ | 2,001,340 | ||||||||||
|
Cost
of sales
|
2,414,231 | 2,717,425 | 2,708,144 | 2,095,623 | 1,847,573 | |||||||||||||||
|
Gross
profit
|
175,936 | 198,494 | 199,160 | 161,602 | 153,767 | |||||||||||||||
|
Selling,
general and administrative expenses
|
90,372 | 94,826 | 70,109 | 62,322 | 61,108 | |||||||||||||||
|
Restructuring
charges and integration costs (2)
|
2,780 | 11,581 | 4,723 | — | — | |||||||||||||||
|
Amortization
of intangibles
|
1,782 | 1,788 | — | — | — | |||||||||||||||
|
Goodwill
impairment (3)
|
247,482 | — | — | — | — | |||||||||||||||
|
Income
(loss) from operations
|
(166,480 | ) | 90,299 | 124,328 | 99,280 | 92,659 | ||||||||||||||
|
Interest
expense
|
(1,455 | ) | (2,183 | ) | (354 | ) | (330 | ) | (1,705 | ) | ||||||||||
|
Interest
income
|
8,675 | 11,217 | 8,824 | 7,786 | 4,516 | |||||||||||||||
|
Other
income (expense)
|
1,772 | 693 | (2,214 | ) | (922 | ) | (1,317 | ) | ||||||||||||
|
Income
tax benefit (expense) (4)
|
21,856 | (7,670 | ) | (19,762 | ) | (25,225 | ) | (23,162 | ) | |||||||||||
|
Net
income (loss)
|
$ | (135,632 | ) | $ | 92,356 | $ | 110,822 | $ | 80,589 | $ | 70,991 | |||||||||
|
Earnings
(loss) per share: (5)
|
||||||||||||||||||||
|
Basic
|
$ | (2.02 | ) | $ | 1.28 | $ | 1.72 | $ | 1.29 | $ | 1.15 | |||||||||
|
Diluted
|
$ | (2.02 | ) | $ | 1.27 | $ | 1.70 | $ | 1.25 | $ | 1.11 | |||||||||
|
Weighted-average
number of shares
outstanding:
|
||||||||||||||||||||
|
Basic
|
67,060 | 72,061 | 64,306 | 62,682 | 61,701 | |||||||||||||||
|
Diluted
|
67,060 | 72,829 | 65,121 | 64,279 | 63,697 | |||||||||||||||
|
December
31,
|
||||||||||||||||||||
|
(in thousands)
|
2008
|
2007(1)
|
2006(1)
|
2005
|
2004
|
|||||||||||||||
|
Selected
Balance Sheet Data
|
||||||||||||||||||||
|
Working
capital
|
$ | 822,418 | $ | 885,144 | $ | 760,892 | $ | 646,363 | $ | 569,938 | ||||||||||
|
Total
assets
|
1,438,921 | 1,762,848 | 1,406,120 | 1,298,408 | 1,092,001 | |||||||||||||||
|
Total
debt
|
11,939 | 12,526 | — | — | — | |||||||||||||||
|
Shareholders’
equity
|
$ | 1,056,455 | $ | 1,289,248 | $ | 985,340 | $ | 846,119 | $ | 751,517 | ||||||||||
|
(1)
|
See
Note 1(r) to the Consolidated Financial Statements for a discussion of the
correction of an immaterial error related to stock-based compensation
expense.
|
|
(2)
|
See
Note 16 to the Consolidated Financial Statements for a discussion of the
restructuring charges and integration costs occurring in 2008, 2007 and
2006.
|
|
(3)
|
During
the fourth quarter of 2008, the Company recorded a non-cash goodwill
impairment charge totaling $247.5 million. See Note 1(i) to the
Consolidated Financial Statements for a discussion of the impairment
charge.
|
|
(4)
|
During
the third quarter of 2008, the Company recorded a $3.4 million discrete
tax benefit related to a previously closed facility. During the third
quarter of 2007, the Company recorded a $6.5 million discrete tax benefit
related to a previously closed facility. During the first quarter of 2006,
the Company recorded a $4.8 million tax benefit for the write-off of the
investment in the Leicester, England
subsidiary.
|
|
(5)
|
See
Note 1(j) to the Consolidated Financial Statements for the basis of
computing earnings (loss) per
share.
|
26
References
in this report to “the Company,” “Benchmark,” “we,” or “us” mean Benchmark
Electronics, Inc. together with its subsidiaries. The following Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. 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 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,
including those discussed under Item 1A of this report. 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. Undue reliance should not
be placed on any forward-looking statements. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
The
following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto in Item 8 of this report.
OVERVIEW
We are in
the business of manufacturing electronics and provide our services to original
equipment manufacturers (OEMs) of computers and related products for business
enterprises, medical devices, industrial control equipment, testing and
instrumentation products, and telecommunication equipment. The services that we
provide are commonly referred to as electronics manufacturing services (EMS). We
offer our customers comprehensive and integrated design and manufacturing
services, from initial product design to volume production and direct order
fulfillment. Our manufacturing and assembly operations include printed
circuit boards and subsystem assembly, box build and systems integration, the
process of integrating subsystems and, often, downloading and integrating
software, to produce a fully configured product. We also 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 Brazil, China, Malaysia, Mexico, Romania and
Thailand.
As our
customers have continued to expand their globalization strategy during the past
several years, we have made the necessary changes to align our business
operations with our customers’ demand. These changes include, among other
activities, moving production between facilities, reducing staff levels,
realigning our business processes and reorganizing our management. During the
year ended December 31, 2008, the Company recognized $2.8 million (pre-tax) of
restructuring charges, primarily employee termination costs associated with the
involuntary terminations of employees in connection with reductions in workforce
of certain facilities. During the year ended December 31, 2007, we incurred $4.7
million (pre-tax) of restructuring charges, primarily related to the closure of
our Redmond, Washington facility, the transfer of the Company’s printed circuit
board assembly (PCBA) operations in Dublin, Ireland to Brasov, Romania and the
consolidation and resizing of certain other facilities, as we continued to
expand our low-cost capacity while realigning and further strengthening our
global footprint to support continued business opportunities. In connection with
the acquisition of Pemstar Inc. (Pemstar) on January 8, 2007, a total of $7.0
million (pre-tax) in integration costs were incurred during the year ended
December 31, 2007. These costs included redundant operating costs that have
been eliminated.
27
We
believe that our global manufacturing presence 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 face challenges
in planning, procuring and managing their inventories efficiently due to
customer demand fluctuations, product design changes, short product life cycles
and component price fluctuations. We employ production management systems to
manage their procurement and manufacturing processes in an efficient and
cost-effective manner so that, where possible, components arrive on a
just-in-time, as-and-when needed basis. We are a significant purchaser of
electronic components and other raw materials, and can capitalize on the
economies of scale associated with our relationships with suppliers to negotiate
price discounts, obtain components and other raw materials that are in short
supply, and return excess components. Our expertise in supply chain management
and our relationships with suppliers across the supply chain enables us to
reduce our customers’ cost of goods sold and inventory exposure.
We
recognize revenue from the sale of circuit board assemblies, systems and excess
inventory when the goods are shipped, title and risk of ownership have passed,
the price to the buyer is fixed and determinable and collectibility is
reasonably assured. Revenue from design, development and engineering services is
recognized when the services are performed and collectibility is reasonably
certain. Such services provided under fixed price contracts are accounted for
using the percentage of completion method. We assume no significant
obligations after product shipment as we typically warrant workmanship only.
Therefore, our warranty provisions are immaterial.
Our cost
of sales includes the cost of materials, electronic components and other
materials that comprise the products we manufacture, the cost of labor and
manufacturing overhead, and adjustments for excess and obsolete inventory. Our
procurement of materials for production requires us to commit significant
working capital to our operations and to manage the purchasing, receiving,
inspection and stocking of materials. Although we bear the risk of fluctuations
in the cost of materials and excess scrap, we periodically negotiate cost of
materials adjustments with our customers. Our gross margin for any product
depends on the sales price, the proportionate mix of the cost of materials in
the product and the cost of labor and manufacturing overhead allocated to the
product. We typically have the potential to realize higher gross margins on
products where the proportionate level of labor and manufacturing overhead is
greater than that of materials. As we gain experience in manufacturing a
product, we usually achieve increased efficiencies, which result in lower labor
and manufacturing overhead costs for that product and higher gross
margins. Our operating results are impacted by the level of capacity
utilization of manufacturing facilities. Operating income margins have generally
improved during periods of high production volume and high capacity utilization.
During periods of low production volume, we generally have idle capacity and
reduced operating income margins.
Recent
Acquisition
Effective
January 8, 2007, we acquired Pemstar Inc. (Pemstar), a publicly traded EMS
company headquartered in Rochester, Minnesota (the Merger). Pursuant to the
Agreement and Plan of Merger among Benchmark and Pemstar dated October 16, 2006
(the Merger Agreement), each issued and outstanding share of common stock, par
value $0.01 per share, of Pemstar was converted into the right to receive 0.160
of a common share, par value $0.10 per share, of Benchmark. With the closing of
the Merger, Pemstar became a wholly owned subsidiary of
Benchmark. This acquisition expanded our customer base and deepened our
engineering and systems integration capabilities.
We
accounted for the Merger utilizing the accounting principles promulgated by
Statement of Financial Accounting Standards (SFAS) Nos. 141 and 142. Therefore,
the results of operations of the Pemstar operations since January 8, 2007 have
been included in the accompanying consolidated statements of income. The
inclusion of the operations of the acquired facilities in Benchmark’s accounts
is responsible for a substantial portion of the variations in the results of our
operations (including components thereof) from 2006 to 2007. The effects of the
Merger on our financial condition and our reported results of operations should
be considered when reading the financial information contained herein. See Note
2 to the Consolidated Financial Statements in Item 8 of this
report.
28
Summary
of 2008 Results
Sales for
the year ended December 31, 2008 and 2007 were $2.6 billion and $2.9 billion,
respectively. Sales to customers in the computers and related products for
business enterprises industry and the testing and instrumentation products
industry declined 21% and 43%, respectively, from 2007 to 2008. Sales to our
largest customer, Sun Microsystems, Inc., represented 16% of our sales in 2008
compared to 22% of our sales in 2007. Sales to this customer decreased $232.7
million from $643.9 million in 2007 to $411.2 million in 2008. This
decrease is primarily attributable to a combination of reduced demand and partly
due to the timing of certain product transitions as well as a second sourcing
strategy. In 2008, these declines were partially offset by sales increases to
customers in the industrial control equipment (an increase of 9%) and
telecommunication equipment (an increase of 7%) industries. 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. Recent unfavorable economic conditions and uncertainty because of
fluctuating circumstances in the global financial markets is impacting
businesses around the globe. The global economic downturn has had a
negative affect on demand for our customers’ products and thus adversely
affected our sales.
Our gross
profit as a percentage of sales in 2008 and 2007 was 6.8% in each year. We do
experience fluctuations in gross profit from period to period. Different
programs can contribute different gross profits depending on factors such as the
types of services involved, location of production, size of the program,
complexity of the product, and level of material costs associated with the
various products. New programs can contribute relatively less to our gross
profit in their early stages when manufacturing volumes are usually lower,
resulting in inefficiencies and unabsorbed manufacturing overhead costs. In
addition, new and higher volume programs remain subject to competitive
constraints that could exert downward pressure on our margins. During
periods of low production volume, we generally have idle capacity and reduced
gross profit.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. Our significant accounting policies are summarized in
Note 1 to the Consolidated Financial Statements in Item 8 of this report. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to allowance
for doubtful accounts, inventories, deferred taxes, impairment of long-lived
assets, and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ materially from
these estimates. We believe the following critical accounting policies affect
our more significant judgments and estimates used in the preparation of our
consolidated financial statements.
Allowance
for doubtful accounts
Our
accounts receivable balance is recorded net of allowances for amounts not
expected to be collected from our customers. Because our accounts receivable are
typically unsecured, we periodically evaluate the collectibility of our accounts
based on a combination of factors, including a particular customer’s ability to
pay as well as the age of the receivables. To evaluate a specific customer’s
ability to pay, we analyze financial statements, payment history, third-party
credit analysis reports and various information or disclosures by the customer
or other publicly available information. In cases where the evidence suggests a
customer may not be able to satisfy its obligation to us, we set up a specific
allowance in an amount we determine appropriate for the perceived risk. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
29
Inventory
obsolescence reserve
We
purchase inventory based on forecasted demand and record inventory at the lower
of cost or market. We reserve for estimated obsolescence as necessary in an
amount equal to the difference between the cost of inventory and estimated
market value based on assumptions of future demands and market conditions. We
evaluate our inventory valuation on a quarterly basis based on current and
forecasted usage and the latest forecasts of product demand and production
requirements from our customers. Customers frequently make changes to their
forecasts, requiring us to make changes to our inventory purchases, commitments,
and production scheduling and may require us to cancel open purchase commitments
with our vendors. This process may lead to on-hand inventory quantities and
on-order purchase commitments that are in excess of our customer’s revised
needs, or parts that become obsolete before use in production. We record
inventory reserves on excess and obsolete inventory. These reserves are
established on inventory which we have determined that our customers are not
responsible for or on inventory which we believe our customers will be unable to
fulfill their obligation to ultimately purchase. If actual market conditions are
less favorable than those we projected, additional inventory write-downs may be
required.
Income
Taxes
We
estimate our income tax provision in each of the jurisdictions in which we
operate, including estimating exposures related to examinations by taxing
authorities. We must also make judgments regarding the ability to realize the
deferred tax assets. We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to subsequently determine that we would be able to realize our deferred tax
assets in excess of our net recorded amount, an adjustment to the valuation
allowance would increase income in the period such determination was made.
Similarly, should we determine that we would not be able to realize all or part
of our net deferred tax assets in the future, an adjustment to the valuation
allowance would reduce income in the period such determination was
made.
We are
subject to examination by tax authorities for varying periods in various U.S.
and foreign tax jurisdictions. During the course of such examinations disputes
occur as to matters of fact and/or law. Also, in most tax jurisdictions the
passage of time without examination will result in the expiration of applicable
statutes of limitations thereby precluding the taxing authority from conducting
an examination of the tax period(s) for which such statute of limitations has
expired. We believe that we have adequately provided for our tax
liabilities.
30
Impairment
of Long-Lived Assets
In
accordance with SFAS No. 144, long-lived assets, such as property, plant,
and equipment, and purchased intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to the estimated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its estimated
undiscounted future cash flows, an impairment charge would be recognized by the
amount that the carrying amount of the asset exceeds the fair value of the
asset.
Goodwill
is tested annually for impairment, and is tested for impairment more frequently
if events and circumstances indicate that the asset might be impaired. An
impairment loss would be recognized to the extent that the carrying amount
exceeds the asset’s fair value. Goodwill is measured at the reporting unit
level, which we have determined to be consistent with our operating segments as
defined in Note 13 to the Consolidated Financial Statements in Item 8 of this
report, by determining the fair values of the reporting units using a discounted
cash flow model and comparing those fair values to the carrying values,
including goodwill, of the reporting unit. Our annual goodwill impairment
analysis indicated there was an impairment of goodwill in two of our reporting
units, the Americas and Europe, primarily due to a decline in our market
capitalization and recent market turmoil. Accordingly, we recorded a non-cash
impairment charge in the fourth quarter of 2008 totaling $247.5 million. At
December 31, 2008, we had net goodwill of approximately $37.9 million.
Circumstances that may lead to future impairment of goodwill include unforeseen
decreases in future performance or industry demand, and the restructuring of our
operations as a result of a change in our business strategy or other
factors.
Stock-Based
Compensation
In
accordance with the provisions of SFAS No. 123 (Revised 2004) and the
Security and Exchange Commission Staff Accounting Bulletin No. 107 (SAB
107), we began recognizing stock-based compensation expense in our consolidated
statement of income on January 1, 2006. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model.
Option pricing models require the input of subjective assumptions, including the
expected life of the option and the expected stock price volatility. Judgment is
also required in estimating the number of option awards that are expected to
vest as a result of satisfaction of time-based vesting schedules. If actual
results or future changes in estimates differ significantly from our current
estimates, stock-based compensation could increase or decrease. See Note 1 to
the Consolidated Financial Statements in Item 8 of this report.
Recently
Enacted Accounting Principles
See Note
1 to the Consolidated Financial Statements in Item 8 of this report for a
discussion of recently enacted accounting principles.
31
RESULTS
OF OPERATIONS
The
following table presents the percentage relationship that certain items in our
Consolidated Statements of Income (Loss) 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 in Item
8 of this report. The 2007 and 2006 Consolidated Financial Statements in
Item 8 of this report reflect the correction of an immaterial error related to
stock-based compensation expense. See Note 1(r) to the Consolidated
Financial Statements in Item 8 of this report.
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
of sales
|
93.2 | 93.2 | 93.1 | |||||||||
|
Gross
profit
|
6.8 | 6.8 | 6.9 | |||||||||
|
Selling,
general and administrative expenses
|
3.5 | 3.3 | 2.4 | |||||||||
|
Amortization
of intangibles
|
0.0 | 0.0 | — | |||||||||
|
Restructuring
charges and integration costs
|
0.1 | 0.4 | 0.2 | |||||||||
|
Goodwill
impairment
|
9.6 | — | — | |||||||||
|
Income
(loss) from operations
|
(6.4 | ) | 3.1 | 4.3 | ||||||||
|
Other
income, net
|
0.3 | 0.3 | 0.2 | |||||||||
|
Income
(loss) before income taxes
|
(6.1 | ) | 3.4 | 4.5 | ||||||||
|
Income
tax benefit (expense)
|
0.8 | (0.3 | ) | (0.7 | ) | |||||||
|
Net
income (loss)
|
(5.2 | )% | 3.2 | % | 3.8 | % | ||||||
Year
Ended December 31, 2008 Compared With Year Ended December 31, 2007
Sales
Sales for
the year ended December 31, 2008 and 2007 were $2.6 billion and $2.9 billion,
respectively. The following table sets forth the percentages of our sales by
industry for 2008 and 2007.
|
2008
|
2007
|
|||||||
|
Computers
and related products for business enterprises
|
48 | % | 53 | % | ||||
|
Telecommunication
equipment
|
18 | 15 | ||||||
|
Industrial
control equipment
|
16 | 13 | ||||||
|
Medical
devices
|
14 | 13 | ||||||
|
Testing
and instrumentation products
|
4 | 6 | ||||||
| 100 | % | 100 | % | |||||
A
substantial percentage of our sales have been made to a small number of
customers, and the loss of a major customer, if not replaced, would adversely
affect us. Sales to customers in the computers and related products for business
enterprises industry and the testing and instrumentation products industry
declined 21% and 43%, respectively, from 2007 to 2008. Sales to our largest
customer, Sun Microsystems, Inc., represented 16% of our sales in 2008 compared
to 22% of our sales in 2007. Sales to this customer decreased $232.7 million
from $643.9 million in 2007 to $411.2 million in 2008. This decrease is
primarily attributable to a combination of reduced demand for products and
partly due to the timing of certain product transitions as well as a second
sourcing strategy. In 2008, these declines were partially offset by sales
increases to customers in the industrial control equipment (9%) and
telecommunication equipment (7%) industries.
32
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. Recent unfavorable economic conditions and
uncertainty because of fluctuating circumstances in the global financial markets
is impacting our customers. See Note 10 to the Consolidated Financial Statements
in Item 8 of this report.
Our
international operations are subject to the risks of doing business abroad.
These risks have not had a material adverse effect on our results of operations
through December 31, 2008. However, we can make no assurances that there will
not be an adverse impact in the future. See Item 1A for factors pertaining to
our international sales and fluctuations in the exchange rates of foreign
currency and for further discussion of potential adverse effects in operating
results associated with the risks of doing business abroad. During 2008 and
2007, 48% and 43%, respectively, of our sales were from our international
operations.
We had a
backlog of approximately $1.6 billion at December 31, 2008, as compared to the
2007 year-end backlog of $1.7 billion. Backlog consists of purchase orders
received, including, in some instances, forecast requirements released for
production under customer contracts. Although we expect to fill substantially
all of our backlog at December 31, 2008 during 2009, we do not have long-term
agreements with all of our customers and customer orders can be canceled,
changed or delayed by customers. The timely replacement of canceled, changed or
delayed orders with orders from new customers cannot be assured, nor can there
be any assurance that any of our current customers will continue to utilize our
services. Because of these factors, backlog is not a meaningful indicator of
future financial results.
Gross
Profit
Gross
profit decreased 11% to $175.9 million for 2008 from $198.5 million in 2007 as a
result of a decrease in sales. Gross profit as a percentage of sales was 6.8%
during 2008 and 2007. We experience fluctuations in gross profit from period to
period. Different programs contribute different gross profits depending on
factors such as the types of services involved, location of production, size of
the program, complexity of the product, and level of material costs associated
with the various products. Moreover, new programs can contribute relatively
less to our gross profit in their early stages when manufacturing volumes are
usually lower, resulting in inefficiencies and unabsorbed manufacturing overhead
costs. In addition, a number of our new and higher volume programs remain
subject to competitive constraints that could exert downward pressure on our
margins. During periods of low production volume, we generally have idle
capacity and reduced gross profit.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses decreased 5% to $90.4 million in 2008 from
$94.8 million in 2007. Selling, general and administrative expenses, as a
percentage of sales, were 3.5% and 3.3%, respectively, for 2008 and 2007. The
decrease in selling, general and administrative expenses is primarily due to
reduced overhead resulting from cost controls and lower variable compensation
and employee related expenses. The increase in selling, general and
administrative expenses as a percentage of sales is primarily associated with
the impact of lower sales volumes in 2008.
Restructuring
Charges and Integration Costs
We
recognized $2.8 million in restructuring charges during 2008 primarily related
to reductions in workforce in certain facilities around the globe.
The
recognition of the restructuring charges requires that we make certain judgments
and estimates regarding the nature, timing and amount of costs associated with
the planned exit activity. To the extent our actual results in exiting these
facilities differ from our estimates and assumptions, we may be required to
revise the estimates of future liabilities, requiring the recognition of
additional restructuring charges or the reduction of liabilities already
recognized. At the end of each reporting period, we evaluate the remaining
accrued balances to ensure that no excess accruals are retained and the
utilization of the provisions are for their intended purpose in accordance with
developed exit plans. See Note 16 to the Consolidated Financial Statements
in Item 8 of this report.
33
Goodwill
Impairment
Our
annual goodwill impairment analysis indicated there was an impairment of
goodwill in two of our reporting units, the Americas and Europe, primarily due
to a decline in our market capitalization and recent market turmoil.
Accordingly, we recorded a non-cash impairment charge in the fourth quarter of
2008 of $247.5 million.
Interest
Expense
Interest
expense for 2008 and 2007 was $1.5 million and $2.2 million, respectively. The
decrease is due to the repayment of the debt assumed in the Merger. The
remaining debt outstanding is primarily a long-term capital lease on one
facility that was assumed in the Merger. See Note 6 to the Consolidated
Financial Statements in Item 8 of this report.
Income
Tax Benefit (Expense)
Income
tax benefit of $21.9 million represented an effective tax rate of 13.9% for
2008, compared with income tax expense $(7.7) million at an effective tax rate
of 7.7% for the same period in 2007. The change in the effective tax rate is
primarily due to non deductible goodwill impairment recorded in 2008. See Note 9
to the Consolidated Financial Statements in Item 8 of this report.
Net
Income (Loss)
We
reported net income (loss) of approximately $(135.6) million, or a loss per
diluted share of $2.02 for 2008, compared with net income of approximately $92.4
million, or $1.27 per diluted share for 2007. The net decrease of $228.0 million
in 2008 was due to the factors discussed above.
Year
Ended December 31, 2007 Compared With Year Ended December 31, 2006
Sales
Sales for
the year ended December 31, 2007 and 2006 were $2.9 billion in each year. The
following table sets forth the percentages of our sales by industry for 2007 and
2006.
|
2007
|
2006
|
|||||||
|
Computers
and related products for business enterprises
|
53 | % | 58 | % | ||||
|
Telecommunication
equipment
|
15 | 12 | ||||||
|
Medical
devices
|
13 | 13 | ||||||
|
Industrial
control equipment
|
13 | 11 | ||||||
|
Testing
and instrumentation products
|
6 | 6 | ||||||
| 100 | % | 100 | % | |||||
During
2007 and 2006, 43% and 37%, respectively, of our sales were from our
international operations.
We had a
backlog of approximately $1.7 billion at December 31, 2007, as compared to the
2006 year-end backlog of $1.9 billion.
Gross
Profit
Gross
profit decreased 0.3% to $198.5 million for 2007 from $199.2 million in 2006.
Gross profit as a percentage of sales decreased to 6.8% during 2007 from 6.9% in
2006 due primarily to under-absorbed costs. Our margin was also impacted by
inefficiencies and resources necessary for the integration activities related to
the acquisitions in 2007, as well as the closing of several
facilities.
34
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased 35% to $94.8 million in 2007 from
$70.1 million in 2006. Selling, general and administrative expenses, as a
percentage of sales, were 3.3% and 2.4%, respectively, for 2007 and 2006. The
increase in selling, general and administrative expenses were primarily
associated with the Merger.
Restructuring
Charges and Integration Costs
We
recognized $11.6 million in restructuring charges and integration costs during
2007 related to reductions in workforce, the re-sizing and closure of certain
facilities and the integration of the facilities acquired in the
Merger.
Interest
Expense
Interest
expense for 2007 and 2006 was $2.2 million and $0.4 million, respectively. The
increase is due to interest expense on the debt assumed in the Merger. See Note
6 to the Consolidated Financial Statements in Item 8 of this
report.
Income
Tax Expense
Income
tax expense of $7.7 million represented an effective tax rate of 7.7% for 2007,
compared with $19.8 million at an effective tax rate of 15.1% for the same
period in 2006. The decrease in the effective tax rate was primarily due to a
discrete tax benefit of $6.5 million recorded in the third quarter of 2007
related to a previously closed facility that generated a worthless stock
deduction and an increase in tax-exempt income in certain foreign locations in
2007. In 2006, a discrete tax benefit of $4.8 million related to the closure of
our Leicester, England facility was recorded in the first quarter. See Note 9 to
the Consolidated Financial Statements in Item 8 of this report.
Net
Income
We
reported net income of approximately $92.4 million, or diluted earnings per
share of $1.27 for 2007, compared with net income of approximately $110.8
million, or diluted earnings per share of $1.70 for 2006. The net decrease of
$18.5 million in 2007 was due to the factors discussed above.
LIQUIDITY
AND CAPITAL RESOURCES
We have
historically financed our growth and operations through funds generated from
operations, proceeds from the sale and maturity of our investments and funds
borrowed under our credit facilities. Cash and cash equivalents increased to
$359.7 million at December 31, 2008 from $199.2 million at December 31,
2007.
Cash
provided by operating activities was $163.5 million in 2008. The cash provided
by operations during 2008 consisted primarily of a net loss of $(135.6) million
adjusted for $247.5 million of goodwill impairments, $40.7 million of
depreciation and amortization, a $61.3 million decrease in accounts receivable,
and a $16.0 million decrease in inventories offset by a $70.2 million
decrease in accounts payable. Working capital was $822.4 million at December 31,
2008 and $885.1 million at December 31, 2007. As of December 31, 2008, the $48.2
million of long-term investments consist of auction rate securities that were
reclassified to long-term during the three months ended March 31, 2008, due to
the overall changes that occurred in the global credit and capital markets that
have led to failed auctions. These failed auctions, in addition to the overall
global economic conditions, have impacted the liquidity of these investments and
have resulted in our continuing to hold these securities beyond their typical
auction reset dates. The decrease in working capital during 2008 is primarily a
result of this reclassification from short-term to long-term investments, in
addition to other items.
We are
continuing the practice of purchasing components only after customer orders are
received, which mitigates, but does not eliminate the risk of loss on
inventories. Supplies of electronic components and other materials used in
operations are subject to industry-wide shortages. In certain instances,
suppliers may allocate available quantities to us. We did not experience
shortages of electronic components and other material supplies during the
reporting period. If shortages of these components and other material supplies
used in operations occur, vendors may not ship the quantities we need for
production and we may be forced to delay shipments, which would increase
backorders.
35
Cash
provided by investing activities was $93.5 million for the year ended December
31, 2008 primarily due to the sale and maturities of investments offset by
the purchases of investments and additional property, plant and equipment.
Capital expenditures of $35.9 million were primarily concentrated in
manufacturing production equipment in the Americas and Asia to support our
ongoing business and to expand certain existing manufacturing
operations.
Cash used
in financing activities was $91.2 million for the year ended December 31, 2008.
During the year ended December 31, 2008, share repurchases totaled $93.8
million. During 2008, we received $2.9 million from the exercise of stock
options and $0.5 million in federal tax benefits of stock options
exercised. Principal payments of long-term debt and capital lease
obligations were $0.6 million in 2008.
Under the
terms of a Credit Agreement (the Credit Agreement), we have a $100.0 million
five-year revolving credit facility for general corporate purposes with a
maturity date of December 21, 2012. The Credit Agreement includes an accordion
feature under which total commitments under the facility may be increased by an
additional $100 million, subject to satisfaction of certain conditions. Interest
on outstanding borrowings under the Credit Agreement is payable quarterly, at
our option, at LIBOR plus 0.75% to 1.75% or a prime rate plus 0.00% to 0.25%,
based upon our debt ratio as specified in the Credit Agreement. A commitment fee
of 0.15% to 0.35% per annum (based upon our debt ratio) on the unused portion of
the revolving credit line is payable quarterly in arrears. As of December 31,
2008, we had no borrowings outstanding under the Credit Agreement, $0.9 million
in outstanding letters of credit and $99.1 million was available for future
borrowings.
The
Credit Agreement 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 and our
domestic subsidiaries’ other tangible and intangible assets. The Credit
Agreement contains customary financial covenants as to working capital, debt
leverage, fixed charges, and consolidated net worth, and restricts our ability
to incur additional debt, pay dividends, sell assets and to merge or consolidate
with other persons. As of December 31, 2008, we were in compliance
with all such covenants and restrictions.
Our
Thailand subsidiary has a credit agreement with Kasikornbank Public Company (the
Thai Credit Agreement). The Thai Credit Agreement provides that the lender will
make available to our Thailand subsidiary up to approximately $16 million
in revolving loans and machinery loans. The Thai Credit Agreement is secured by
land, buildings and machinery in Thailand. In addition, the Thai Credit
Agreement provides for approximately $1.8 million (62 million Thai baht) in
working capital availability in the form of working capital loans (10 million
Thai baht) and bank guarantees (52 million Thai baht). Availability of funds
under the Thai Credit Agreement is reviewed annually and is currently accessible
through September 2009. As of December 31, 2008, our Thailand subsidiary had no
working capital borrowings outstanding.
Our
operations, and the operations of businesses we acquire, are subject to certain
foreign, federal, state and local regulatory requirements relating to
environmental, waste management, health and safety matters. We believe we
operate in substantial compliance with all applicable requirements and we seek
to ensure that newly acquired businesses comply or will comply substantially
with applicable requirements. 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, our past, current and future
operations, and the operations of businesses we have or may acquire, 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.
36
As of
December 31, 2008, we had cash and cash equivalents totaling $359.7 million and
$99.1 million available for borrowings under our revolving credit line. We
believe that during the next twelve months, our capital expenditures will be
approximately $20 to $30 million, principally for machinery and equipment to
support our ongoing business around the globe. On July 24, 2008, the Company
completed the repurchase of 6.8 million shares under the $125 million share
repurchase program approved in July 2007. On July 24, 2008, our Board of
Directors approved the additional repurchase of up to $100 million of our
outstanding common shares (the 2008 Repurchase Program). During 2008, the
Company repurchased a total of 5.8 million common shares for $93.8 million
at an average price of $16.14 per share. We have $78.2 million remaining under
the 2008 Repurchase Program to repurchase additional shares. We are under no
commitment or obligation to repurchase any particular amount of common shares
and share purchases may be suspended at any time at management’s discretion.
Management believes that our existing cash balances and funds generated from
operations will be sufficient to permit us to meet our liquidity requirements
over the next twelve months. Management further believes that our ongoing cash
flows from operations and any borrowings we may incur under our credit
facilities will enable us to meet operating cash requirements in future years.
Should we desire to consummate significant acquisition opportunities, our
capital needs would increase and could possibly result in our need to increase
available borrowings under our revolving credit facility or access public or
private debt and equity markets. There can be no assurance, however, that we
would be successful in raising additional debt or equity on terms that we would
consider acceptable.
CONTRACTUAL
OBLIGATIONS
We have
certain contractual obligations that extend out beyond 2009 under lease
obligations and debt arrangements. Non-cancelable purchase commitments do not
typically extend beyond the normal lead-time of several weeks. Purchase orders
beyond this time frame are typically cancelable. We do not utilize off-balance
sheet financing techniques other than traditional operating leases and we have
not guaranteed the obligations of any entity that is not one of our wholly owned
subsidiaries. The total contractual cash obligations in existence at December
31, 2008 due pursuant to contractual commitments are:
|
Payments
due by period
|
||||||||||||||||||||
|
Less
than
|
1-3
|
3-5
|
More
than
|
|||||||||||||||||
|
(in
thousands)
|
Total
|
1
year
|
years
|
years
|
5
years
|
|||||||||||||||
|
Operating
lease obligations
|
$ | 29,657 | $ | 8,109 | $ | 9,150 | $ | 4,403 | $ | 7,995 | ||||||||||
|
Capital
lease obligations
|
23,378 | 1,450 | 2,968 | 3,070 | 15,890 | |||||||||||||||
|
Total
obligations
|
$ | 53,035 | $ | 9,559 | $ | 12,118 | $ | 7,473 | $ | 23,885 | ||||||||||
We
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. The
amount of unrecognized tax benefits as of December 31, 2008 was
$26.9 million. We have not provided a detailed estimate of the timing of
future cash outflows associated with the liabilities recognized in this balance
due to the uncertainty of when the related tax settlements will become due. See
Note 9 to the Consolidated Financial Statements in Item 8 of this
report.
OFF-BALANCE
SHEET ARRANGEMENTS
As of
December 31, 2008, we did not have any significant off-balance sheet
arrangements. See Note 11 to the Consolidated Financial Statements in Item 8 of
this report.
37
Our
international sales are a significant portion of our net sales; we are exposed
to risks associated with operating internationally, including the
following:
|
|
•
|
Foreign
currency exchange risk;
|
|
|
•
|
Import
and export duties, taxes and regulatory
changes;
|
|
|
•
|
Inflationary
economies or currencies; and
|
|
|
•
|
Economic
and political instability.
|
We do not
use derivative financial instruments for speculative purposes. As of December
31, 2008, we did not have any foreign currency hedges. In the future,
significant transactions involving our international operations may cause us to
consider engaging in hedging transactions to attempt to mitigate our exposure to
fluctuations in foreign exchange rates. These exposures are primarily, but not
limited to, vendor payments and intercompany balances in currencies other than
the currency in which our foreign operations primarily generate and expend cash.
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. Our sales are substantially denominated in U.S. dollars. Our foreign
currency cash flows are generated in certain Asian and European countries,
Mexico and Brazil.
We are
also exposed to market risk for changes in interest rates, a portion of which
relates to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We place cash and cash equivalents and
investments with various major financial institutions. We protect our invested
principal funds by limiting default risk, market risk and reinvestment risk. We
mitigate default risk by generally investing in investment grade securities. As
of December 31, 2008, the outstanding amount in the long-term investment
portfolio included $53.5 million (par value) of auction rate securities
with an average return of approximately 1.9%.
38
BENCHMARK
ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
December
31,
|
||||||||
|
(in
thousands, except for par value)
|
2008
|
2007
|
||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 359,694 | $ | 199,198 | ||||
|
Short-term
investments
|
— | 182,825 | ||||||
|
Accounts
receivable, net of allowance for doubtful accounts of $1,072 and $1,406,
respectively
|
422,058 | 485,907 | ||||||
|
Inventories,
net
|
343,163 | 361,952 | ||||||
|
Prepaid
expenses and other assets
|
28,308 | 60,847 | ||||||
|
Deferred
income taxes
|
10,726 | 14,562 | ||||||
|
Total
current assets
|
1,163,949 | 1,305,291 | ||||||
|
Long-term
investments
|
48,162 | — | ||||||
|
Property,
plant and equipment, net
|
134,618 | 144,182 | ||||||
|
Goodwill,
net
|
37,912 | 283,725 | ||||||
|
Deferred
income taxes
|
21,656 | — | ||||||
|
Other,
net
|
32,624 | 29,650 | ||||||
| $ | 1,438,921 | $ | 1,762,848 | |||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
installments of long-term debt and capital lease
obligations
|
$ | 256 | $ | 430 | ||||
|
Accounts
payable
|
288,045 | 359,422 | ||||||
|
Income
taxes payable
|
3,745 | 1,699 | ||||||
|
Accrued
liabilities
|
49,485 | 58,596 | ||||||
|
Total
current liabilities
|
341,531 | 420,147 | ||||||
|
Long-term
debt and capital lease obligations, less current
installments
|
11,683 | 12,096 | ||||||
|
Other
long-term liabilities
|
29,252 | 32,675 | ||||||
|
Deferred
income taxes
|
— | 8,682 | ||||||
|
Shareholders’
equity:
|
||||||||
|
Preferred
shares, $0.10 par value; 5,000 shares authorized, none
issued
|
— | — | ||||||
|
Common
shares, $0.10 par value; 145,000 shares authorized;
|
||||||||
|
issued
– 65,337 and 70,687, respectively;
|
||||||||
|
outstanding
– 65,226 and 70,576, respectively
|
6,523 | 7,058 | ||||||
|
Additional
paid-in capital
|
741,813 | 795,779 | ||||||
|
Retained
earnings
|
318,576 | 485,067 | ||||||
|
Accumulated
other comprehensive income (loss)
|
(10,185 | ) | 1,616 | |||||
|
Less
treasury shares, at cost; 111 shares
|
(272 | ) | (272 | ) | ||||
|
Total
shareholders’ equity
|
1,056,455 | 1,289,248 | ||||||
|
Commitments
and contingencies
|
||||||||
| $ | 1,438,921 | $ | 1,762,848 | |||||
See
accompanying notes to consolidated financial statements.
39
BENCHMARK
ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated
Statements of Income (Loss)
|
Year
ended December 31,
|
||||||||||||
|
(in
thousands, except per share data)
|
2008
|
2007
|
2006
|
|||||||||
|
Sales
|
$ | 2,590,167 | $ | 2,915,919 | $ | 2,907,304 | ||||||
|
Cost
of sales
|
2,414,231 | 2,717,425 | 2,708,144 | |||||||||
|
Gross
profit
|
175,936 | 198,494 | 199,160 | |||||||||
|
Selling,
general and administrative expenses
|
90,372 | 94,826 | 70,109 | |||||||||
|
Amortization
of intangibles
|
1,782 | 1,788 | — | |||||||||
|
Restructuring
charges and integration costs
|
2,780 | 11,581 | 4,723 | |||||||||
|
Goodwill
impairment
|
247,482 | — | — | |||||||||
|
Income
(loss) from operations
|
(166,480 | ) | 90,299 | 124,328 | ||||||||
|
Interest
expense
|
(1,455 | ) | (2,183 | ) | (354 | ) | ||||||
|
Interest
income
|
8,675 | 11,217 | 8,824 | |||||||||
|
Other
income (expense)
|
1,772 | 693 | (2,214 | ) | ||||||||
|
Income
(loss) before income taxes
|
(157,488 | ) | 100,026 | 130,584 | ||||||||
|
Income
tax benefit (expense)
|
21,856 | (7,670 | ) | (19,762 | ) | |||||||
|
Net
income (loss)
|
$ | (135,632 | ) | $ | 92,356 | $ | 110,822 | |||||
|
Earnings
(loss) per share:
|
||||||||||||
|
Basic
|
$ | (2.02 | ) | $ | 1.28 | $ | 1.72 | |||||
|
Diluted
|
$ | (2.02 | ) | $ | 1.27 | $ | 1.70 | |||||
|
Weighted-average
number of shares outstanding:
|
||||||||||||
|
Basic
|
67,060 | 72,061 | 64,306 | |||||||||
|
Diluted
|
67,060 | 72,829 | 65,121 | |||||||||
See
accompanying notes to consolidated financial statements.
40
BENCHMARK
ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Income (Loss)
|
Year
ended December 31,
|
||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Net
income (loss)
|
$ | (135,632 | ) | $ | 92,356 | $ | 110,822 | |||||
|
Other
comprehensive income (loss):
|
||||||||||||
|
Foreign
currency translation adjustments
|
(6,462 | ) | 8,019 | 1,772 | ||||||||
|
Unrealized
loss on investments
|
(5,313 | ) | — | — | ||||||||
|
Other
|
(26 | ) | 76 | (76 | ) | |||||||
|
Comprehensive
income (loss)
|
$ | (147,433 | ) | $ | 100,451 | $ | 112,518 | |||||
The
components of accumulated other comprehensive income (loss) are as
follows:
|
December
31,
|
||||||||
|
(in
thousands)
|
2008
|
2007
|
||||||
|
Cumulative
foreign currency translation gains (losses)
|
$ | (4,846 | ) | $ | 1,616 | |||
|
Unrealized
loss on investments
|
(5,313 | ) | — | |||||
|
Other
|
(26 | ) | — | |||||
| $ | (10,185 | ) | $ | 1,616 | ||||
See
accompanying notes to consolidated financial statements.
41
BENCHMARK
ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated
Statements of Shareholders’ Equity
|
Accumulated
|
||||||||||||||||||||||||||||
|
Additional
|
other
|
Total
|
||||||||||||||||||||||||||
|
Common
|
paid-in
|
Retained
|
comprehensive
|
Treasury
|
shareholders’
|
|||||||||||||||||||||||
|
(in
thousands)
|
Shares
|
shares
|
capital
|
earnings
|
income (loss)
|
shares
|
equity
|
|||||||||||||||||||||
|
Balances,
December 31, 2005
|
63,249 | $ | 6,325 | $ | 560,969 | $ | 287,272 | $ | (8,175 | ) | $ | (272 | ) | $ | 846,119 | |||||||||||||
|
Stock-based
compensation expense
|
— | — | 4,125 | — | — | — | 4,125 | |||||||||||||||||||||
|
Stock
split
|
(1 | ) | — | (66 | ) | — | — | — | (66 | ) | ||||||||||||||||||
|
Stock
options exercised
|
1,503 | 150 | 15,920 | — | — | — | 16,070 | |||||||||||||||||||||
|
Federal
tax benefit of stock options exercised
|
— | — | 6,512 | — | — | — | 6,512 | |||||||||||||||||||||
|
Federal
tax benefit of Employee Stock Purchase Plan
|
— | — | 62 | — | — | — | 62 | |||||||||||||||||||||
|
Comprehensive
income
|
— | — | — | 110,822 | 1,696 | — | 112,518 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balances,
December 31, 2006
|
64,751 | 6,475 | 587,522 | 398,094 | (6,479 | ) | (272 | ) | 985,340 | |||||||||||||||||||
|
Adoption
of FIN 48
|
— | — | — | 19,335 | — | — | 19,335 | |||||||||||||||||||||
|
Stock-based
compensation expense
|
— | — | 4,454 | — | — | — | 4,454 | |||||||||||||||||||||
|
Merger
|
7,302 | 730 | 215,240 | — | — | — | 215,970 | |||||||||||||||||||||
|
Conversion
of debt
|
351 | 35 | 4,965 | — | — | — | 5,000 | |||||||||||||||||||||
|
Shares
repurchased and retired
|
(2,602 | ) | (260 | ) | (27,991 | ) | (24,718 | ) | — | — | (52,969 | ) | ||||||||||||||||
|
Stock
options exercised
|
774 | 78 | 9,134 | — | — | — | 9,212 | |||||||||||||||||||||
|
Federal
tax benefit of stock options exercised
|
— | — | 2,455 | — | — | — | 2,455 | |||||||||||||||||||||
|
Comprehensive
income
|
— | — | — | 92,356 | 8,095 | — | 100,451 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Balances,
December 31, 2007
|
70,576 | 7,058 | 795,779 | 485,067 | 1,616 | (272 | ) | 1,289,248 | ||||||||||||||||||||
|
Stock-based
compensation expense
|
— | — | 4,732 | — | — | — | 4,732 | |||||||||||||||||||||
|
Shares
repurchased and retired
|
(5,802 | ) | (580 | ) | (62,394 | ) | (30,859 | ) | — | — | (93,833 | ) | ||||||||||||||||
|
Stock
options exercised
|
312 | 31 | 2,902 | — | — | — | 2,933 | |||||||||||||||||||||
|
Issuance
of restricted shares
|
140 | 14 | (14 | ) | — | — | — | — | ||||||||||||||||||||
|
Federal
tax benefit of stock options exercised
|
— | — | 808 | — | — | — | 808 | |||||||||||||||||||||
|
Comprehensive
loss
|
— | — | — | (135,632 | ) | (11,801 | ) | — | (147,433 | ) | ||||||||||||||||||
|
Balances,
December 31, 2008
|
65,226 | $ | 6,523 | $ | 741,813 | $ | 318,576 | $ | (10,185 | ) | $ | (272 | ) | $ | 1,056,455 | |||||||||||||
See
accompanying notes to consolidated financial statements.
42
BENCHMARK
ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
Year
Ended December 31,
|
||||||||||||
|
(in
thousands)
|
2008
|
2007
|
2006
|
|||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (135,632 | ) | $ | 92,356 | $ | 110,822 | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
40,668 | 43,132 | 27,378 | |||||||||
|
Deferred
income taxes
|
(26,502 | ) | 6,154 | (1,137 | ) | |||||||
|
Asset
impairments
|
247,482 | 1,453 | — | |||||||||
|
Gain
on the sale of property, plant and equipment
|
(70 | ) | (409 | ) | (67 | ) | ||||||
|
Stock-based
compensation expense
|
4,732 | 4,454 | 4,125 | |||||||||
|
Federal
tax benefit of stock options exercised
|
274 | 813 | 1,311 | |||||||||
|
Changes
in operating assets and liabilities, net of effects from
acquisitions:
|
||||||||||||
|
Accounts
receivable
|
61,296 | 111,613 | (106,032 | ) | ||||||||
|
Inventories
|
15,985 | 134,781 | (58,406 | ) | ||||||||
|
Prepaid
expenses and other assets
|
33,718 | 23,512 | (25,214 | ) | ||||||||
|
Accounts
payable
|
(70,160 | ) | (109,250 | ) | (36,919 | ) | ||||||
|
Accrued
liabilities
|
(7,529 | ) | (23,906 | ) | 1,868 | |||||||
|
Income
taxes
|
(725 | ) | (2,597 | ) | 1,772 | |||||||
|
Net
cash provided by (used in) operations
|
163,537 | 282,106 | (80,499 | ) | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchases
of investments
|
(162,709 | ) | (551,050 | ) | (520,380 | ) | ||||||
|
Proceeds
from sales and maturities of investments
|
292,050 | 468,685 | 635,880 | |||||||||
|
Additions
to property, plant and equipment
|
(35,873 | ) | (17,003 | ) | (42,276 | ) | ||||||
|
Proceeds
from the sale of property, plant and equipment
|
291 | 2,056 | 586 | |||||||||
|
Additions
to purchased software
|
(271 | ) | (3,569 | ) | (2,342 | ) | ||||||
|
Other
|
— | 400 | (132 | ) | ||||||||
|
Net
cash acquired in acquisitions
|
— | 3,415 | — | |||||||||
|
Net
cash provided by (used in) investing activities
|
93,488 | (97,066 | ) | 71,336 | ||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from stock options exercised
|
2,933 | 9,212 | 16,070 | |||||||||
|
Federal
tax benefit of stock options exercised
|
534 | 1,642 | 5,263 | |||||||||
|
Debt
issuance cost
|
(234 | ) | (228 | ) | — | |||||||
|
Principal
payments on long-term debt and capital lease obligations
|
(621 | ) | (88,910 | ) | — | |||||||
|
Proceeds
from long-term debt
|
— | 16,760 | — | |||||||||
|
Share
repurchases
|
(93,833 | ) | (52,969 | ) | — | |||||||
|
Stock
split costs
|
— | — | (66 | ) | ||||||||
|
Net
cash provided by (used in) financing activities
|
(91,221 | ) | (114,493 | ) | 21,267 | |||||||
|
Effect
of exchange rate changes
|
(5,308 | ) | 4,779 | 923 | ||||||||
|
Net
increase in cash and cash equivalents
|
160,496 | 75,326 | 13,027 | |||||||||
|
Cash
and cash equivalents at beginning of year
|
199,198 | 123,872 | 110,845 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 359,694 | $ | 199,198 | $ | 123,872 | ||||||
See
accompanying notes to consolidated financial statements.
43
Notes
to Consolidated Financial Statements
(amounts
in thousands, except per share data, unless otherwise noted)
Note
1—Summary of Significant Accounting Policies
(a)
Business
Benchmark
Electronics, Inc. (the Company) is a Texas corporation in the business of
manufacturing electronics and provides services to original equipment
manufacturers (OEMs) of computers and related products for business enterprises,
medical devices, industrial control equipment, testing and instrumentation
products and telecommunication equipment. The Company has manufacturing
operations located in the Americas, Asia and Europe.
(b)
Principles of Consolidation
The
consolidated financial statements include the financial statements of Benchmark
Electronics, Inc. and its wholly owned and majority 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
at the date of purchase of three months or less to be cash equivalents. Cash
equivalents of $209.6 million and $75.1 million at December 31, 2008 and 2007,
respectively, consist primarily of money-market funds, certificates of deposit,
time deposits, commercial paper and U.S. Government backed Agency securities
with an initial term of less than three months.
(d)
Investments
Effective
January 1, 2008, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 157 with respect to financial assets and liabilities
only.
SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value under generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined under SFAS No. 157 as
the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. SFAS No. 157 establishes a hierarchy of inputs employed to
determine fair value measurements, with three levels. Level 1 inputs are quoted
prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 inputs are observable prices that are not quoted on active exchanges,
such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; and model-derived valuations whose inputs are
observable or whose significant value drivers are observable. Level 3 inputs are
unobservable inputs employed for measuring the fair value of assets or
liabilities. This hierarchy required the Company to use observable market data,
when available, and to minimize the use of unobservable inputs when determining
fair value.
As of
December 31, 2008, $53.5 million (par value) of long-term investments were
recorded at fair value. The long-term investments consist of auction rate
securities classified as available-for-sale in conformity with SFAS No. 115. As
of December 31, 2007, the Company’s short-term investments consisted of $182.8
million of auction rate securities that were reclassified from short-term
investments to long-term investments during the three months ended March 31,
2008, due to the overall changes in the global credit and capital markets that
led to failed auctions. These failed auctions in addition to overall global
economic conditions have impacted the liquidity of these investments and have
resulted in our continuing to hold these securities beyond their typical auction
reset dates. The market for these types of securities remains illiquid as of
December 31, 2008.
The
adoption of SFAS No. 157 impacted the calculation of fair value associated with
the Company’s investments. The long-term investments, consisting of auction rate
securities, were valued using Level 2 inputs during the first and second
quarters of 2008. Due to the current global financial and credit crisis and the
continued illiquidity of these securities, the Company transferred these
securities from Level 2 to Level 3 as of September 30, 2008, as the assets were
subject to valuation using significant unobservable inputs. The fair value of
each security was estimated by an independent valuation firm using a discounted
cash flow model to calculate the present value of projected cash flows based on
a number of inputs and assumptions including the security structure and terms,
the current market conditions and the related impact on the expected weighted
average life, interest rate estimates and default risk of the
securities.
44
During
the year ended December 31, 2008, the Company recorded an unrealized loss
of $5.3 million on the long-term investments. The Company has determined that
this reduction in fair value is temporary in nature, after considering factors
including that the decline in fair value originally occurred in the first
quarter of 2008 as a result of the market dislocations that caused the auction
process to fail and not because of any deterioration in the credit quality or
actual performance of the underlying securities. Additional declines in value
occurred during 2008, as a result of widened credit spreads and the overall
financial market instability. The Company has the intent and ability to hold
these investments for a period of time sufficient to allow for the anticipated
recovery in the market value and management intends to hold each investment
until the earlier of its recovery or maturity. This unrealized loss reduced the
fair value of the Company’s auction rate securities as of December 31, 2008 to
$48.2 million. These securities are classified as long-term investments due to
the contractual maturity of the underlying securities being over ten years, and
the cumulative unrealized loss is included as a component of other comprehensive
income (loss) within shareholders’ equity in the accompanying consolidated
balance sheet. The following table provides a reconciliation of the beginning
and ending balance of our auction rate securities classified as long-term
investments measured at fair value using significant unobservable inputs (Level
3 under SFAS No. 157):
|
Balance
as of January 1, 2008
|
$ | — | ||
|
Transfers
into Level 3
|
55,484 | |||
|
Net
unrealized losses included in other comprehensive income
(loss)
|
(2,397 | ) | ||
|
Redemptions
of investments
|
(4,925 | ) | ||
|
Balance
as of December 31, 2008
|
$ | 48,162 | ||
|
Unrealized
losses still held
|
$ | 5,313 |
As of
December 31, 2008, there were no long-term investments measured at fair value
using Level 1 and Level 2 inputs.
The
Company’s investments had no impairments as of December 31, 2007. All income
generated from these investments is recorded as interest income.
(e)
Inventories
Inventories
include material, labor and overhead and are stated at the lower of cost
(principally first-in, first-out method) or market.
(f)
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 – 5 to 40 years for
buildings and building improvements, 2 to 10 years for machinery and equipment,
2 to 10 years for furniture and fixtures, 2 to 5 years for vehicles. 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.
(g)
Goodwill and Other Intangible Assets
Goodwill
represents the excess of purchase price over fair value of net assets acquired.
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,”
goodwill and intangible assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized, but instead
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144, “Accounting for Impairment or
Disposal of Long-Lived Assets.”
45
(h)
Other Assets
Other
assets consist primarily of acquired identifiable intangible assets, which are
amortized on a straight-line basis over their estimated useful life of 10 years,
capitalized purchased software costs, which are amortized straight-line over the
estimated useful life of the related software, which ranges from 3 to 7 years,
and assets held for sale. Identifiable intangible assets and changes in those
amounts during years ended December 31, 2008 and 2007 were as
follows:
|
Gross
|
Net
|
|||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
||||||||||
|
Amount
|
Amortization
|
Amount
|
||||||||||
|
Customer
relationships, December 31, 2006
|
$ | — | $ | — | $ | — | ||||||
|
Acquired
|
17,877 | — | 17,877 | |||||||||
|
Amortization
of intangibles
|
— | (1,788 | ) | (1,788 | ) | |||||||
|
Currency
translation adjustment
|
175 | (76 | ) | 99 | ||||||||
|
Customer
relationships, December 31, 2007
|
18,052 | (1,864 | ) | 16,188 | ||||||||
|
Amortization
of intangibles
|
— | (1,782 | ) | (1,782 | ) | |||||||
|
Currency
translation adjustment
|
(48 | ) | 22 | (26 | ) | |||||||
|
Customer
relationships, December 31, 2008
|
$ | 18,004 | $ | (3,624 | ) | $ | 14,380 | |||||
Amortization
of these intangible assets for 2009 through 2017 will be approximately $1.8
million per year.
During
2008, 2007 and 2006, $0.3 million, $3.6 million and $2.3 million, respectively,
of purchased software costs were capitalized. As of December 31, 2008 and 2007,
purchase software, net of accumulated amortization totaled $5.9 million and $8.2
million, respectively. The accumulated amortization of purchased software costs
at December 31, 2008 and 2007 was $19.4 million and $16.8 million,
respectively.
As of
December 31, 2008, the Company reclassified assets with a net book value of $8.2
million to assets held for sale in other assets. These assets consist of the
manufacturing facility in Tianjin, China acquired in an acquisition (see Note 2)
and are available for immediate sale. During 2008, the Company committed to a
plan to divest its Tianjin facility.
(i)
Impairment of Long-Lived Assets
In
accordance with SFAS No. 144, long-lived assets, such as property, plant, and
equipment, and purchased intangibles subject to amortization, are 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 evaluated by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the estimated fair value of the asset.
Assets to be disposed of would be separately presented in the balance sheet and
reported at the lower of the carrying amount or estimated fair value less costs
to sell, and are no longer depreciated. The assets and liabilities of a disposed
group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the balance sheet.
46
Goodwill
is tested annually for impairment, and is tested for impairment more frequently
if events and circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying amount exceeds the
asset’s fair value. The impairment determination is made at the reporting unit
level and consists of two steps. First, the Company determines the fair value of
a reporting unit, which the Company has determined to be consistent with its
operating segments as defined in Note 13 – “Segment and Geographic Information,”
and compares it to its carrying amount. Second, if the carrying amount of a
reporting unit exceeds its estimated fair value, an impairment loss is
recognized for any excess of the carrying amount of the reporting unit’s
goodwill over the implied fair value of that goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit in a
manner similar to a purchase price allocation, in accordance with Financial
Accounting Standards Board (FASB) Statement No. 141, “Business Combinations”.
The residual fair value after this allocation is the implied fair value of the
reporting unit goodwill. This impairment analysis is based on significant
assumptions of future results made by management, including revenue and cash
flow projections. Circumstances that may lead to impairment of goodwill include
unforeseen decreases in future performance or industry demand and the
restructuring of our operations as a result of a change in our business
strategy.
The
Company’s annual goodwill impairment analysis indicated there was an impairment
of goodwill in two of its reporting units, the Americas and Europe, primarily
due to a decline in the Company’s market capitalization and recent market
turmoil. Accordingly, the Company recorded a non-cash impairment charge in the
fourth quarter of 2008 totaling $247.5 million. See Note 5.
(j)
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 equivalents during the years ended December 31, 2008, 2007 and
2006. Stock equivalents include common shares issuable upon the exercise of
stock options and other equity instruments, and are computed using the treasury
stock method of SFAS No. 128, “Earnings Per Share”. Under the treasury stock
method, the exercise price of a share, the amount of compensation cost, if any,
for future service that the Company has not yet recognized, and the amount of
estimated tax benefits that would be recorded in paid-in-capital, if any, when
the share is exercised are assumed to be used to repurchase shares in the
current period.
47
The
following table sets forth the calculation of basic and diluted earnings per
share.
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Numerator
for basic earnings per share – net income (loss)
|
$ | (135,632 | ) | $ | 92,356 | $ | 110,822 | |||||
|
Interest
expense on convertible debt, net of tax
|
— | 147 | — | |||||||||
|
Numerator
for diluted earnings per share
|
$ | (135,632 | ) | $ | 92,503 | $ | 110,822 | |||||
|
Denominator
for basic earnings per share – weighted-average number of common shares
outstanding during the period
|
67,060 | 72,061 | 64,306 | |||||||||
|
Incremental
common shares attributable to exercise of outstanding dilutive
options
|
— | 593 | 815 | |||||||||
|
Incremental
common shares attributable to conversion of 6.5% convertible
debt
|
— | 42 | — | |||||||||
|
Incremental
common shares attributable to exercise of warrants
|
— | 133 | — | |||||||||
|
Denominator
for diluted earnings per share
|
67,060 | 72,829 | 65,121 | |||||||||
|
Basic
earnings (loss) per share
|
$ | (2.02 | ) | $ | 1.28 | $ | 1.72 | |||||
|
Diluted
earnings (loss) per share
|
$ | (2.02 | ) | $ | 1.27 | $ | 1.70 | |||||
In 2008,
all outstanding options, warrants, restricted shares and phantom stock awards
are not included in the computation of diluted loss per share because the
Company is in a net loss position. Options to purchase 3.0 million, and 0.8
million common shares in 2007 and 2006, 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 shares.
As of
December 31, 2008, the Company has outstanding warrants to purchase common
shares as follows:
|
Shares
|
Exercise Price
|
Expiration Date
|
||||
|
126
|
$ | 14.25 |
May 1, 2009
|
|||
|
160
|
$ | 12.50 |
May 1, 2009
|
|||
|
40
|
$ | 10.125 |
July
18,
2009
|
|||
These
warrants were assumed on January 8, 2007 in connection with an acquisition. See
Note 2.
48
(k)
Revenue Recognition
Revenue
is primarily derived from the sale of circuit boards and systems. Revenue from
the sale of circuit board assemblies, systems and excess inventory is recognized
when the goods are shipped, title and risk of ownership have passed, the price
to the buyer is fixed and determinable and recoverability is reasonably assured.
To a lesser extent, the Company also derives revenue from non-manufacturing
services, such as product design, circuit board layout, and test development.
Revenue from design, development and engineering services is recognized when the
services are performed and collectibility is reasonably certain. Such services
provided under fixed price contracts are accounted for using the percentage of
completion method. Costs related to these services are expensed as incurred. The
Company assumes no significant obligations after shipment as the Company
typically warrants workmanship only. Based on historical experience, the
warranty provision is immaterial.
(l)
Income Taxes
Income
taxes are accounted for under the asset and liability method. Deferred income
taxes are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
(m)
Stock-Based Compensation
The
Company’s stock awards plan permits the grant of a variety of types of awards,
including stock options, restricted stock awards, stock appreciation rights,
performance awards, and phantom stock awards, or any combination thereof, to key
employees of the Company. Stock options are granted to employees with an
exercise price equal to the market price of the Company’s stock on the date of
grant, vest over a four-year period from the date of grant and have a term of
ten years. Restricted shares and phantom stock awards granted to employees vest
over a four-year period from the date of grant, subject to the continued
employment of the employee by the Company. Members of the Board of Directors of
the Company who are not employees of the Company participate in a separate stock
option plan that provides for the granting of stock options upon the occurrence
of the non-employee director’s election or re-election to the Board of
Directors. All awards under the non-employee director stock option plan are
fully vested upon the date of grant and have a term of ten years. As of December
31, 2008, 4.5 million additional options or other equity awards may be granted
under the Company’s existing plans. See Note 8.
SFAS No.
123 (revised 2004), “Share-Based Payment” (SFAS No. 123R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. The
total compensation cost recognized for stock-option awards was $4.7 million,
$4.5 million and $4.1 million for 2008, 2007 and 2006. The compensation expense
for stock-based awards includes an estimate for forfeitures and is recognized
over the vesting period of the options using the straight-line method. SFAS No.
123R requires that cash flows from the tax benefits resulting from tax
deductions in excess of the compensation cost recognized for stock-based awards
(excess tax benefits) be classified as cash flows from financing activities.
Awards of restricted shares and phantom stock are valued at the closing market
price of the Company’s stock on the date of grant.
As of
December 31, 2008, there was approximately $10.2 million of total
unrecognized compensation cost related to nonvested stock options. That cost is
expected to be recognized over a weighted-average period of 2.3 years. As
of December 31, 2008, there was $1.8 million of total unrecognized compensation
cost related to restricted share awards. That cost is expected to be recognized
over a weighted-average period of 3.74 years. As of December 31, 2008, there was
$0.4 million of total unrecognized compensation cost related to phantom stock
awards. That cost is expected to be recognized over a weighted-average period of
3.95 years.
49
During
the years ended December 31, 2008, 2007 and 2006, the Company issued 0.8
million, 0.8 million and 1.8 million options, respectively. In
connection with the Merger, all outstanding Pemstar options were converted into
369 thousand options of the Company at the 0.160 exchange ratio on January 8,
2007. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The weighted-average assumptions
used to value the options converted from Pemstar and the option grants and
purchase rights during the years ended December 31, 2008, 2007 and 2006 were as
follows:
|
Year
ended December 31,
|
|||||||||
|
2008
|
2007
|
2006
|
|||||||
|
Stock
Options
|
|||||||||
|
Expected
term of options
|
4.8
years
|
3.8
years
|
4.5
years
|
||||||
|
Expected
volatility
|
40%
|
32%
|
43%
|
||||||
|
Risk-free
interest rate
|
1.91%
|
3.82%
|
4.48%
|
||||||
|
Dividend
yield
|
zero
|
zero
|
zero
|
||||||
The
expected term of the options represents the estimated period of time until
exercise and is based on historical experience, giving consideration to the
contractual terms, vesting schedules and expectations of future employee
behavior. Separate groups of employees that have similar historical exercise
behavior are considered separately for valuation purposes. Expected stock price
volatility is based on the historical volatility of the Company’s stock. The
risk-free interest rate is based on the U.S. Treasury zero-coupon rates in
effect at the time of grant with an equivalent remaining term. The dividend
yield reflects that the Company has not paid any cash dividends since
inception.
The
weighted-average fair value per option granted during the years ended
December 31, 2008, 2007 and 2006 was $4.75, $6.94 and $10.16, respectively.
The total cash received as a result of stock option exercises for year ended
December 31, 2008, 2007 and 2006 was approximately $2.9 million, $9.2
million and $16.1 million, respectively. The tax benefit realized as a result of
the stock option exercises during 2008, 2007 and 2006 was $0.8 million, $2.5
million and $6.5 million, respectively. For the year ended December 31, 2008,
2007 and 2006, the total intrinsic value of stock options exercised was
$2.4 million, $8.0 million and $21.1 million, respectively.
(n)
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.
(o)
Fair Values of Financial Instruments
The
Company’s financial instruments consist of cash equivalents, investments,
accounts receivable, accrued liabilities, accounts payable and long-term debt.
The Company believes that the carrying value of these instruments approximate
their fair value. See Note 11.
(p)
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 losses arising from transactions denominated in a currency
other than the functional currency of the entity involved are included in other
expense and totaled approximately $1.9 million, $0.2 million and $3.2 million in
2008, 2007 and 2006, respectively.
(q)
Recently Enacted Accounting Principles
On
January 1, 2008, the Company adopted SFAS No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115” (SFAS No. 159). SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. The adoption of SFAS No. 159 did not have an
effect on the Company’s financial condition or results of operations as it did
not elect the fair value option.
50
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS No.
141R). SFAS No. 141R states that all business combinations (whether full,
partial or step acquisitions resulting in control of the acquired business) will
result in all assets and liabilities of an acquired business being recorded at
their fair values. Certain forms of contingent consideration and certain
acquired contingencies will be recorded at fair value at the acquisition date.
SFAS No. 141R also states acquisition costs will generally be expensed as
incurred and restructuring costs will be expensed in periods after the
acquisition date. SFAS No. 141R also provides guidance for recognizing changes
in an acquirer’s existing income tax valuation allowances and tax uncertainty
accruals that result from a business combination transaction as adjustments to
income tax expense. This statement is effective for the Company for business
combinations for which the acquisition date is on or after January 1, 2009. The
impact of adopting SFAS No. 141R will be dependent on the future business
combinations that the Company may pursue after January 1, 2009 and any future
adjustments made to tax valuation allowances and uncertainty accruals related to
business combinations entered into prior to the effective date.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements—an amendment of ARB No. 51” (SFAS No.
160). SFAS No. 160 requires a parent company to clearly identify and present
ownership interests in subsidiaries held by parties other than the parent
company in the consolidated financial statements within the equity section but
separate from the parent company’s equity. It also requires the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income. Moreover, changes in ownership interest must be accounted
as equity transactions, and when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary must be measured at fair value. This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. SFAS No. 160 currently
would not impact the Company as the Company has full controlling interest in all
of its subsidiaries.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No.133” (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about derivative and hedging
activities. This statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The Company
will be required to adopt SFAS No. 161 as of January 1, 2009. The Company does
not anticipate that the adoption of SFAS No. 161 will have a material impact on
its financial position, results of operations or cash flows.
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (FSP No. 142-3). FSP No. 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill
and Other Intangible Assets” (SFAS No. 142). FSP No. 142-3 applies to all
intangible assets, whether acquired in a business combination or otherwise, and
shall be effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. FSP No.
142-3 shall be applied prospectively to intangible assets acquired after the
effective date. Early adoption of FSP No. 142-3 is prohibited. The Company is
currently evaluating the impact that FSP No. 142-3 will have on its financial
statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements presented in conformity with U.S.
generally accepted accounting principles. SFAS No. 162 is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles”. The implementation of this
standard will not have a material impact on the Company’s consolidated financial
position and results of operations because SFAS No. 162 applies only to
establishing hierarchy and did not change current accounting
practice.
51
In
October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active” (FSP No. 157-3).
FSP No. 157-3 clarifies the application of SFAS No. 157 in a market that is not
active and illustrates how an entity would determine fair value of a financial
asset when the market for that financial asset is not active. FSP No. 157-3
provides guidance on how an entity’s own assumptions about cash flows and
discount rates should be considered when measuring fair value when relevant
market data does not exist, how observable market information in an inactive or
dislocated market affects fair value measurements and how the use of broker and
pricing service quotes should be considered when applying fair value
measurements. FSP No. 157-3 was effective immediately as of September 30, 2008
and for all interim and annual periods thereafter. The adoption of FSP No. 157-3
did not have a material impact on the Company’s consolidated financial
statements.
(r)
Correction of an Immaterial Error
The 2007
and 2006 consolidated financial statements presented herein reflect the
correction of an immaterial error related to stock-based compensation expense.
The correction is due to a data input error in the software used to calculate
stock-based compensation expense in accordance with SFAS No. 123R. The 2007
correction resulted in a $0.4 million increase in cost of goods sold, a $0.9
million increase in selling, general and administrative expense and a $0.4
million decrease in income tax expense resulting in a $0.9 million ($0.01 per
diluted share) decrease in net income as previously reported. The 2006
correction resulted in a $0.4 million increase in cost of goods sold, a $0.8
million increase in selling, general and administrative expense and a $0.3
million decrease in income tax expense resulting in a $0.9 million ($0.01 per
diluted share) decrease in net income as previously reported. Associated
adjustments were also made to increase additional paid-in capital by $2.5
million, decrease non-current deferred tax liabilities by $0.7 million and
decrease retained earnings by $1.8 million as of December 31, 2007.
The revision had no impact on the Company’s net cash flows from operating
activities for 2007 or 2006.
(s)
Reclassifications
Certain
reclassifications of prior period amounts have been made to conform to the
current year presentation.
Note
2—Acquisitions
Effective
January 8, 2007, the Company acquired Pemstar Inc. (Pemstar), a publicly traded
electronics manufacturing services (EMS) company headquartered in Rochester,
Minnesota (the Merger). Pursuant to the Agreement and Plan of Merger among the
Company and Pemstar dated October 16, 2006 (the Merger Agreement), each issued
and outstanding share of common stock, par value $0.01 per share, of Pemstar was
converted into the right to receive 0.160 of a common share, par value $0.10 per
share, of the Company. With the closing of the Merger, Pemstar became a wholly
owned subsidiary of the Company. This acquisition expanded the Company’s
customer base and deepened its engineering and systems integration
capabilities.
The
aggregate purchase price was $221.5 million, including common shares valued at
$202.5 million, stock options and warrants valued at $9.0 million,
conversion feature of debt valued at $4.8 million and acquisition costs of $5.2
million. The value of the 7.3 million common shares issued was based on the
average market price of the Company’s common shares over the 2-day period before
and after the terms of the acquisition were agreed to and
announced.
As a
direct result of the Merger, the Company assumed approximately $89.4 million of
indebtedness, including $5 million in convertible senior subordinated
notes. The Company reduced the assumed debt by $72.2 million in 2007. The
convertible senior subordinated notes matured on May 1, 2007 and were converted
into 0.4 million common shares at the request of the noteholders. Prior to the
Merger, the Company had no outstanding debt.
The
Company accounted for the Merger utilizing the accounting principles promulgated
by SFAS Nos. 141 and 142. Therefore, the results of operations of the Pemstar
operations since January 8, 2007 have been included in the accompanying
consolidated statement of income. The allocation of the net purchase price of
the Merger resulted in goodwill of $165.9 million.
52
The
purchase price paid in the Merger has been allocated as follows:
|
Acquisition
of the 45.6 million shares of outstanding common stock of Pemstar at $4.44
per share
|
$ | 202,475 | ||
|
Estimated
fair value of Pemstar stock options and warrants
|
9,028 | |||
|
Estimated
fair value of the conversion feature of debt
|
4,773 | |||
|
Acquisition
costs
|
5,179 | |||
|
Total
purchase price
|
$ | 221,455 | ||
|
Current
assets
|
$ | 241,539 | ||
|
Property,
plant and equipment
|
52,542 | |||
|
Deferred
taxes
|
14,256 | |||
|
Goodwill
|
165,878 | |||
|
Intangible
assets
|
18,277 | |||
|
Other
assets
|
4,386 | |||
|
Total
assets acquired
|
496,878 | |||
|
Current
liabilities
|
182,806 | |||
|
Long-term
debt, capital lease obligations and other long-term
liabilities
|
92,617 | |||
|
Total
liabilities assumed
|
275,423 | |||
|
Net
assets acquired
|
$ | 221,455 |
On March
1, 2007, we terminated a joint venture agreement and acquired for $5.3 million
the remaining 40% minority interest in the Company’s Romanian subsidiary. We
acquired the other 60% interest in the Merger discussed above. The purchase
price in excess of the 40% minority interest liability resulted in goodwill of
$4.7 million.
The
following summary pro forma condensed consolidated financial information
reflects the acquisition of Pemstar as if it had occurred on January 1, 2006 for
purposes of the statements of income (loss). The summary pro forma information
is not necessarily representative of what the Company’s results of operations
would have been had the acquisition of Pemstar in fact occurred on January 1,
2006 and is not intended to project the Company’s results of operations for any
future period or date. Pro forma results of operations for the year ended
December 31, 2007 related to the Merger have not been presented since the
operating results for Pemstar for the period during 2007 up to the date of
acquisition are immaterial.
|
Year ended December 31,
|
||||
|
2006
|
||||
|
Net
sales
|
$ | 3,479,732 | ||
|
Gross
profit
|
$ | 250,449 | ||
|
Income
from operations
|
$ | 111,292 | ||
|
Net
income
|
$ | 85,874 | ||
|
Earnings
per share:
|
||||
|
Basic
|
$ | 1.20 | ||
|
Diluted
|
$ | 1.19 | ||
|
Weighted-average
number of shares outstanding:
|
||||
|
Basic
|
71,608 | |||
|
Diluted
|
73,050 | |||
53
Note
3—Inventories
Inventory
costs are summarized as follows:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Raw
materials
|
$ | 254,170 | $ | 262,765 | ||||
|
Work
in process
|
56,486 | 75,560 | ||||||
|
Finished
goods
|
32,507 | 23,627 | ||||||
| $ | 343,163 | $ | 361,952 | |||||
Note
4—Property, Plant and Equipment
Property,
plant and equipment consists of the following:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Land
|
$ | 6,223 | $ | 6,223 | ||||
|
Buildings
and building improvements
|
63,788 | 56,654 | ||||||
|
Machinery
and equipment
|
297,672 | 288,776 | ||||||
|
Furniture
and fixtures
|
6,684 | 6,437 | ||||||
|
Vehicles
|
802 | 700 | ||||||
|
Leasehold
improvements
|
15,328 | 17,717 | ||||||
|
Construction
in progress
|
1,620 | 1,114 | ||||||
| 392,117 | 377,621 | |||||||
|
Less
accumulated depreciation
|
(257,499 | ) | (233,439 | ) | ||||
| $ | 134,618 | $ | 144,182 | |||||
Note
5—Goodwill
Goodwill
associated with each of the Company’s business segments and changes in those
amounts each year were as follows:
|
Americas
|
Asia
|
Europe
|
Total
|
|||||||||||||
|
Goodwill,
December 31, 2005
|
$ | 106,910 | $ | 6,068 | $ | — | $ | 112,978 | ||||||||
|
Currency
translation adjustment
|
21 | — | — | 21 | ||||||||||||
|
Goodwill,
December 31, 2006
|
106,931 | 6,068 | — | 112,999 | ||||||||||||
|
Acquisitions
|
119,138 | 31,844 | 19,691 | 170,673 | ||||||||||||
|
Currency
translation adjustment
|
53 | — | — | 53 | ||||||||||||
|
Goodwill,
December 31, 2007
|
226,122 | 37,912 | 19,691 | 283,725 | ||||||||||||
|
Impairment
charge
|
(227,791 | ) | — | (19,691 | ) | (247,482 | ) | |||||||||
|
Currency
translation adjustment
|
1,669 | — | — | 1,669 | ||||||||||||
|
Goodwill,
December 31, 2008
|
$ | — | $ | 37,912 | $ | — | $ | 37,912 | ||||||||
See Note
2 for a discussion of the acquisitions completed during 2007.
54
Note
6—Borrowing Facilities
Long-term
debt and capital lease obligations outstanding consist of the
following:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Long-term
debt
|
$ | — | $ | 192 | ||||
|
Capital
lease obligations
|
11,939 | 12,334 | ||||||
|
Total
|
11,939 | 12,526 | ||||||
|
Less
current installments
|
256 | 430 | ||||||
|
Long-term
debt and capital lease obligations, less current
installments
|
$ | 11,683 | $ | 12,096 | ||||
Under the
terms of a Credit Agreement (the Credit Agreement), the Company has a $100
million five-year revolving credit facility for general corporate purposes with
a maturity date of December 21, 2012. The Credit Agreement includes an accordion
feature under which total commitments under the facility may be increased by an
additional $100 million, subject to satisfaction of certain conditions and
lender approval.
Interest
on outstanding borrowings under the Credit Agreement is payable quarterly, at
the Company’s option, at either LIBOR plus 0.75% to 1.75% or a prime rate plus
0.00% to 0.25%, based upon the Company’s debt ratio as specified in the Credit
Agreement. A commitment fee of 0.15% to 0.35% per annum (based upon the
Company’s debt ratio) on the unused portion of the revolving credit line is
payable quarterly in arrears. As of December 31, 2008, the Company had no
borrowings outstanding under the Credit Agreement, $0.9 million in outstanding
letters of credit and $99.1 million was available for future
borrowings.
The
Credit Agreement is secured by the Company’s domestic inventory and accounts
receivable, 100% of the stock of the Company’s domestic subsidiaries, 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 Credit Agreement contains customary financial covenants as to
working capital, debt leverage, fixed charges, and consolidated net worth, and
restricts the ability of the Company to incur additional debt, pay dividends,
sell assets, and to merge or consolidate with other persons. As of December 31,
2008, the Company was in compliance with all such covenants and
restrictions.
The
Company’s Thailand subsidiary has a credit agreement with Kasikornbank Public
Company Limited (the Thai Credit Agreement). The Thai Credit Agreement provides
that the lender will make available to the Company’s Thailand subsidiary up to
approximately $16 million in revolving loans and machinery loans. The Thai
Credit Agreement is secured by land, buildings and machinery in Thailand. In
addition, the Thai Credit Agreement provides for approximately $1.8 million (62
million Thai baht) in working capital availability in the form of working
capital loans (10 million Thai baht) and bank guarantees (52 million Thai baht).
Availability of funds under the Thai Credit Agreement is reviewed annually and
is currently accessible through September 2009. As of December 31, 2008, the
Company’s Thailand subsidiary had no working capital borrowings
outstanding.
The
aggregate maturities of capital lease obligations for each of the five years
subsequent to December 31, 2008 are as follows: 2009, $0.3 million; 2010, $0.3
million; 2011, $0.4 million; 2012, $0.4 million; and 2013,
$0.5 million.
55
Note
7—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 at various times through 2020. Leases for
office space and manufacturing facilities generally contain renewal options.
Rental expense for the years ended December 31, 2008, 2007 and 2006 was $10.9
million, $12.3 million and $9.3 million, respectively.
The
Company is obligated under capital leases, assumed in the Merger, that expire on
various dates through 2023. As of December 31, 2008, property, plant and
equipment include the following amounts under capital leases:
|
Buildings
and building improvements
|
$ | 12,207 | ||
|
Vehicles
|
91 | |||
| 12,298 | ||||
|
Less
accumulated depreciation
|
1,563 | |||
| $ | 10,735 |
Future
minimum lease payments under noncancelable operating leases and future minimum
capital lease payments are as follows:
|
Capital
|
Operating
|
|||||||
|
Year ending December 31,
|
Leases
|
Leases
|
||||||
|
2009
|
$ | 1,450 | $ | 8,109 | ||||
|
2010
|
1,468 | 6,027 | ||||||
|
2011
|
1,500 | 3,123 | ||||||
|
2012
|
1,520 | 2,230 | ||||||
|
2013
|
1,550 | 2,173 | ||||||
|
Thereafter
|
15,890 | 7,995 | ||||||
|
Total
minimum lease payments
|
$ | 23,378 | $ | 29,657 | ||||
|
Less:
amount representing interest
|
11,439 | |||||||
|
Present
value of minimum lease payments
|
11,939 | |||||||
|
Less:
current installments
|
256 | |||||||
|
Capital
lease obligations, less current installments
|
$ | 11,683 | ||||||
The
Company enters into contractual commitments to deliver products and services in
the ordinary course of business. The Company believes that all such contractual
commitments will be met or renegotiated such that no material adverse financial
impact on the Company’s financial position, results of operations or liquidity
will result from these commitments.
56
Note
8—Common Shares and Stock Option Plans
On July
24, 2008, the Company completed the repurchase of 6.8 million of its common
shares under the $125 million share repurchase program approved by the
Board of Directors on July 25, 2007. On July 24, 2008, the Board of Directors of
the Company approved the additional repurchase of up to $100 million of the
Company’s outstanding common shares. Share purchases may be made in the open
market, in privately negotiated transactions or block transactions, at the
discretion of the Company’s management and as market conditions warrant.
Purchases will be funded from available cash and may be commenced, suspended or
discontinued at any time without prior notice. Shares repurchased under the
program will be retired. During 2008, the Company repurchased a total of 5.8
million common shares for $93.8 million at an average price of $16.14 per share.
During the period from July 25, 2007 to December 31, 2007, the Company
repurchased a total of 2.6 million common shares for $53.0 million at an average
price of $20.33 per share.
In 1990,
the Board of Directors of the Company adopted and its shareholders approved a
Stock Option Plan (the 1990 Plan) for the benefit of its employees, including
executive officers. The 1990 Plan, as amended, authorized the Company, upon
recommendation of the compensation committee of the Board of Directors, to grant
options to purchase a total of 7.2 million common shares of the Company to key
employees of the Company. As of December 31, 2008, the Company has outstanding
options with respect to 0.5 million common shares under the 1990 Plan. The 1990
Plan expired in May 2000, and no additional grants may be made under that
plan.
The 1990
Plan provided 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 shares on the date of grant. The stock options will terminate no later
than 10 years after the date of grant.
On
February 16, 2000, the Board of Directors of the Company adopted and
subsequently its shareholders approved the Benchmark Electronics, Inc. 2000
Stock Awards Plan (the 2000 Plan). The 2000 Plan authorizes the Company, upon
recommendation of the compensation committee of the Board of Directors, to grant
a variety of types of awards, including stock options, restricted stock awards,
stock appreciation rights, performance awards, and phantom stock awards, or any
combination thereof, to key employees of the Company. The maximum number of
common shares that may be subject to outstanding awards determined immediately
after the grant of any award, and the maximum number of shares which may be
issued under the 2000 Plan, as amended, pursuant to all awards, may not exceed
11.25 million shares (subject to antidilutive adjustment).
The 2000
Plan provides for the discretionary granting by the Company of incentive stock
options as well as non qualified stock options. Incentive stock options may only
be granted to employees of the Company or its subsidiaries. The exercise price
of any incentive stock option must not be less than the fair market value of the
common shares on the date of grant. The exercise price of any incentive stock
option granted to 10% shareholders (employees who possess more than 10% of the
total combined voting power of all classes of shares of the Company) must be at
least 110% of the fair market value of the common shares at the time such option
is granted. The stock options will terminate 5 years after the grant date for
10% shareholders and 10 years after the date of grant for all other optionees.
Options granted under the 2000 Plan vest over 4 years, subject to the continued
employment of the employee by the Company. Restricted shares and phantom stock
awards granted to employees vest over a four-year period from the date of grant,
subject to the continued employment of the employee by the Company. As of
December 31, 2008, the Company has 5.3 million equity awards outstanding with
respect to common shares and 4.2 million additional options or other equity
awards may be granted under the 2000 Plan.
57
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 1994
Plan) for the benefit of members of the Board of Directors of the Company or its
affiliates who were not employees of the Company or its affiliates (as defined
in the 1994 Plan). The aggregate number of common shares for which options may
be granted under the 1994 Plan was 450 thousand. Under the terms of the 1994
Plan, as amended, 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) received a grant of an option to
purchase 13.5 thousand common shares of the Company upon the date of his
election or re-election to the Board of Directors. The 1994 Plan was replaced in
2002, and no additional grants may be made under that plan. As of December 31,
2008, the Company has outstanding options with respect to 33.8 thousand common
shares under the 1994 Plan.
In May
2002, the shareholders of the Company adopted the Benchmark Electronics, Inc.
2002 Stock Option Plan for Non-Employee Directors (the 2002 Plan). The 2002 Plan
replaced the 1994 Plan. The 2002 Plan, as amended, provides for the granting of
a stock option to purchase up to 15.75 thousand common shares upon the
occurrence of the non-employee director’s election or re-election to the Board.
The maximum number of common shares for which options may be granted under the
2002 Plan is 675 thousand. No awards may be granted under the 2002 Plan after
the expiration of ten years from February 26, 2002, the date of its adoption by
the Board of Directors. The 2002 Plan remains in effect as to awards made prior
to the expiration of ten years until such awards have been satisfied or have
expired. All awards under the 2002 Plan are fully vested upon the date of grant.
The exercise price per common share of options granted under the 2002 Plan will
be the fair market value of a common share on the date such option is granted.
In 2008, 2007 and 2006, pursuant to the 2002 Plan, 60.5 thousand, 50.5
thousand and 60.5 thousand options, respectively, were granted to Non-Employee
Directors to purchase common shares at a weighted-average exercise price of
$16.25, $21.35 and $26.56 per share, respectively. As of December 31, 2008, the
Company has outstanding options with respect to 264.3 thousand common shares and
281.0 thousand additional options may be granted under the 2002
Plan.
58
The
following table summarizes the activities relating to the Company’s stock
option:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Number of
|
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||||
|
Options
|
Price
|
Term (Years)
|
Value
|
|||||||||||||
|
Outstanding
at December 31, 2005
|
5,587 | $ | 14.49 | |||||||||||||
|
Granted
|
1,812 | $ | 24.85 | |||||||||||||
|
Exercised
|
(1,503 | ) | $ | 10.69 | ||||||||||||
|
Canceled
|
(180 | ) | $ | 21.76 | ||||||||||||
|
Outstanding
at December 31, 2006
|
5,716 | $ | 18.54 | |||||||||||||
|
Granted
|
846 | $ | 17.47 | |||||||||||||
|
Converted
from Merger
|
369 | $ | 25.47 | |||||||||||||
|
Exercised
|
(774 | ) | $ | 11.89 | ||||||||||||
|
Canceled
|
(282 | ) | $ | 30.08 | ||||||||||||
|
Outstanding
at December 31, 2007
|
5,875 | $ | 19.15 | |||||||||||||
|
Granted
|
817 | $ | 12.91 | |||||||||||||
|
Exercised
|
(313 | ) | $ | 9.38 | ||||||||||||
|
Canceled
|
(541 | ) | $ | 23.04 | ||||||||||||
|
Outstanding
at December 31, 2008
|
5,838 | $ | 18.43 | 6.10 | $ | 3,221 | ||||||||||
|
Exercisable
at December 31, 2008
|
3,375 | $ | 18.02 | 4.26 | $ | 3,123 | ||||||||||
The
aggregate intrinsic value in the table above is before income taxes and is
calculated as the difference between the exercise price of the underlying
options and the Company’s closing stock price of $12.77 as of the last business
day of the year ended December 31, 2008 for options that had exercise
prices that were below the closing price.
At
December 31, 2008, 2007 and 2006, the number of options exercisable was 3.4
million, 3.6 million and 3.9 million, respectively, and the
weighted-average exercise price of those options was $18.02, $17.11 and $15.96,
respectively.
59
The
following table summarizes the activities relating to the Company’s restricted
shares:
|
Weighted-
Average
|
||||||||
|
Grant Date
|
||||||||
|
Shares
|
Fair Value
|
|||||||
|
Outstanding
at December 31, 2007
|
—
|
— | ||||||
|
Granted
|
140
|
$ | 13.99 | |||||
|
Outstanding
at December 31, 2008
|
140
|
$ | 13.99 | |||||
As of
December 31, 2008, there were no vested restricted shares.
The
following table summarizes the activities relating to the Company’s phantom
stock awards:
|
Weighted-
Average
|
||||||||
|
Grant Date
|
||||||||
|
Shares
|
Fair Value
|
|||||||
|
Outstanding
at December 31, 2007
|
—
|
— | ||||||
|
Granted
|
34
|
$ | 12.64 | |||||
|
Outstanding
at December 31, 2008
|
34
|
$ | 12.64 | |||||
As of
December 31, 2008, there were no vested phantom stock awards.
60
Note
9—Income Taxes
Income
tax expense (benefit) based on income (loss) before income taxes consists
of:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Current:
|
||||||||||||
|
U.S.
Federal
|
$ | (1,922 | ) | $ | (3,361 | ) | $ | 13,419 | ||||
|
State
and local
|
226 | 1,253 | 3,135 | |||||||||
|
Foreign
|
6,342 | 3,624 | 4,345 | |||||||||
| 4,646 | 1,516 | 20,899 | ||||||||||
|
Deferred:
|
||||||||||||
|
U.S.
Federal
|
(22,598 | ) | 6,350 | 396 | ||||||||
|
State
and local
|
(2,751 | ) | (321 | ) | 54 | |||||||
|
Foreign
|
(1,153 | ) | 125 | (1,587 | ) | |||||||
| (26,502 | ) | 6,154 | (1,137 | ) | ||||||||
| $ | (21,856 | ) | $ | 7,670 | $ | 19,762 | ||||||
Worldwide
income (loss) before income taxes consisted of the following:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
United
States
|
$ | (238,750 | ) | $ | 28,129 | $ | 59,724 | |||||
|
Foreign
|
81,262 | 72,497 | 70,860 | |||||||||
| $ | (157,488 | ) | $ | 100,026 | $ | 130,584 | ||||||
Income
tax expense (benefit) differed from the amounts computed by applying the U.S.
federal statutory income tax rate to income (loss) before income taxes as a
result of the following:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Tax
at statutory rate
|
$ | (55,121 | ) | $ | 35,009 | $ | 45,704 | |||||
|
State
taxes, net of federal tax effect
|
(1,641 | ) | 605 | 2,073 | ||||||||
|
Tax
exempt interest
|
(1,354 | ) | (2,147 | ) | (1,965 | ) | ||||||
|
U.S.
tax benefit on export sales
|
— | — | (738 | ) | ||||||||
|
Effect
of foreign operations and tax incentives
|
(21,358 | ) | (22,200 | ) | (24,590 | ) | ||||||
|
Valuation
allowance
|
(1,493 | ) | (434 | ) | 100 | |||||||
|
Write-off
of investment in inactive foreign owned subsidiary
|
(3,440 | ) | (6,481 | ) | (4,760 | ) | ||||||
|
Non
deductible goodwill impairment
|
61,289 | — | — | |||||||||
|
Losses
in foreign jurisdictions for which no benefit has been
provided
|
758 | 382 | 1,426 | |||||||||
|
Other
|
504 | 2,936 | 2,512 | |||||||||
|
Total
income tax expense (benefit)
|
$ | (21,856 | ) | $ | 7,670 | $ | 19,762 | |||||
61
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,
|
||||||||
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Carrying
value of inventories
|
$ | 5,658 | $ | 5,754 | ||||
|
Accrued
liabilities and allowances deductible for tax purposes on a cash
basis
|
5,149 | 7,262 | ||||||
|
Goodwill
|
21,441 | 7,311 | ||||||
|
Stock-based
compensation
|
4,186 | 2,700 | ||||||
|
Net
operating loss carryforwards
|
58,757 | 59,776 | ||||||
|
Tax
credit carryforwards
|
3,621 | 2,083 | ||||||
|
Other
|
6,985 | 4,588 | ||||||
| 105,797 | 89,474 | |||||||
|
Less:
valuation allowance
|
(64,683 | ) | (64,113 | ) | ||||
|
Net
deferred tax assets
|
41,114 | 25,361 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Plant
and equipment, due to differences in depreciation
|
(2,930 | ) | (4,485 | ) | ||||
|
Goodwill
|
(4,596 | ) | (13,807 | ) | ||||
|
Other
|
(1,206 | ) | (1,189 | ) | ||||
|
Gross
deferred tax liability
|
(8,732 | ) | (19,481 | ) | ||||
|
Net
deferred tax asset
|
$ | 32,382 | $ | 5,880 | ||||
|
Recorded
as:
|
||||||||
|
Current
deferred tax assets
|
$ | 10,726 | $ | 14,562 | ||||
|
Non-current
deferred tax assets
|
21,656 | — | ||||||
|
Non-current
deferred tax liabilities
|
— | (8,682 | ) | |||||
|
Net
deferred tax asset
|
$ | 32,382 | $ | 5,880 | ||||
62
The net
change in the total valuation allowance for the years ended December 31, 2008,
2007 and 2006 was an increase of $0.6 million, $60.0 million and $1.8 million,
respectively. The increase in the valuation allowance for the year ended
December 31, 2007 was primarily a result of $60.2 million that was recorded in
connection with the Merger. 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 as of December 31, 2008.
As of
December 31, 2008, the Company had $132.5 million in domestic operating loss
carryforwards which will expire from 2022 to 2026, foreign operating loss
carryforwards of approximately $25.9 million with indefinite carryforward
periods, and foreign operating loss carryforwards of approximately $5.5 million
which will expire at varying dates through 2017. 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. The Company has U.S.
federal tax credit carryforwards of $1.9 million which will expire at varying
dates through 2028. The Company has state tax credit carryforwards of $1.7
million which will expire at varying dates through 2027.
Cumulative
undistributed earnings of certain foreign subsidiaries amounted to approximately
$339 million as of December 31, 2008. The Company considers earnings from
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, such distributed earnings would be reportable for U.S.
income tax purposes (subject to adjustment for foreign tax credits).
Determination of the amount of any unrecognized deferred tax liability on these
undistributed earnings is not practical.
The
Company has been granted certain tax incentives, including tax holidays, for its
subsidiaries in China, Ireland, Malaysia and Thailand. These tax incentives,
including tax holidays, expire on various dates through 2012, and are subject to
certain conditions with which the Company expects to comply. The net impact of
these tax incentives was to lower income tax expense for the years ended
December 31, 2008, 2007, and 2006 by approximately $15.9 million (approximately
$0.24 per diluted share), $15.7 million (approximately $0.22 per diluted share)
and $19.4 million (approximately $0.30 per diluted share),
respectively.
63
On
January 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN
48). FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken in a tax
return. Under FIN 48, the Company must determine whether it is
“more-likely-than-not” that a tax position will be sustained upon examination,
including resolution of any related appeals or litigation processes, based on
the technical merits of the position. Once it is determined that a position
meets the more-likely-than-not recognition threshold, the position is measured
to determine the amount of benefit to recognize in the financial statements. FIN
48 applies to all tax positions related to income taxes subject to SFAS
No. 109, “Accounting for Income Taxes”. The cumulative effect of adopting
FIN 48 was a $19.3 million decrease to income taxes payable with a
corresponding increase to the January 1, 2007 balance of retained earnings for
tax benefits not previously recognized. A reconciliation of the beginning and
ending amount of unrecognized tax benefits, excluding interest and penalties, is
as follows:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Balance
as of January 1
|
$ | 27,478 | $ | 16,510 | ||||
|
Additions
related to prior year tax positions
|
182 | 600 | ||||||
|
Decreases
related to prior year tax positions
|
(800 | ) | (200 | ) | ||||
|
Increase
from entities acquired in the current year
|
— | 16,224 | ||||||
|
Additions
related to current period tax positions
|
— | 825 | ||||||
|
Decreases
as a result of a lapse of the applicable statute of limitations in current
year
|
(3,739 | ) | (6,481 | ) | ||||
|
Balance
as of December 31
|
$ | 23,121 | $ | 27,478 | ||||
The
decrease in the total amount of unrecognized tax benefits reserve during 2008 is
primarily the result of the expiration of the statute of limitations for a
worthless stock deduction. The increase in the total amount of unrecognized tax
benefits reserve from the date of adoption to December 31, 2007 is primarily the
result of the addition of $16.2 million of uncertain tax benefits acquired in
2007. See Note 2. The analysis of the uncertain tax positions related to an
acquisition in 2007 for both U.S. and foreign jurisdictions under FIN 48 was
performed as of the acquisition date pursuant to SFAS No. 141 without any
adjustment to income tax expense.
The
reserve is classified as a current or long-term liability in the consolidated
balance sheet based on the Company’s expectation of when the items will be
settled. The Company records interest expense and penalties accrued in relation
to uncertain income tax benefits as a component of current income tax expense.
The total amount of interest and penalties included in income tax expense during
the year ended December 31, 2008 and 2007 was $0.04 million and $0.3 million,
respectively. The total amount of accrued potential interest and penalties on
unrecognized tax benefits as of December 31, 2008 is $2.2 million and $1.6
million, respectively.
During
the next twelve months, it is reasonably possible that the reserve for uncertain
tax benefits will decrease by approximately $5.1 million primarily due to the
expiration of the statute of limitations for worthless stock deductions on
certain unrecognized tax benefits and various other prior year unrecognized tax
benefits. The Company’s business locations in Brazil, China, Ireland,
Luxembourg, Malaysia, Mexico, the Netherlands, Romania, Singapore, Thailand and
the United States remain open to examination by the various local taxing
authorities, in total or in part, for fiscal years 2001 to 2008.
64
Note
10—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 a loss equal to the carrying value of the accounts receivable if
its customer failed to perform according to the terms of the credit
arrangement.
Sales to
major customers were as follows for the indicated periods:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Customer
A
|
$ | 411,175 | $ | 643,868 | $ | 1,118,790 | ||||||
Note
11—Financial Instruments and Concentration of Credit Risk
The
carrying amounts of cash equivalents, accounts receivable, accrued liabilities,
accounts payable and long-term debt approximate fair value. As of December 31,
2008, the Company’s investments are recorded at fair value. See Note 1 (d). As
of December 31, 2008, the Company had no significant off-balance sheet
concentrations of credit risk such as foreign currency exchange contracts or
other hedging arrangements. Financial instruments that subject the Company to
credit risk consist of cash and cash equivalents, investments and trade accounts
receivable. Management maintains the majority of the Company’s cash and cash
equivalents with financial institutions. One of the most significant credit
risks is the ultimate realization of accounts receivable. This risk is mitigated
by (i) sales to well established companies, (ii) ongoing credit evaluation of
customers, and (iii) frequent contact with customers, especially the most
significant customers, thus enabling management to monitor current changes in
business operations and to respond accordingly. Management considers these
concentrations of credit risks in establishing our allowance for doubtful
accounts and believes these allowances are adequate. The Company’s largest
customer represented approximately 11% and 21% of its gross accounts receivable
as of December 31, 2008 and 2007, respectively.
Note
12—Concentrations of Business Risk
Substantially
all of the Company’s sales are derived from electronics manufacturing services
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.
65
Note
13—Segment and Geographic Information
The
Company has manufacturing facilities in the Americas, Asia and Europe 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 are generally recorded at prices that
approximate arm’s length transactions. Operating segments’ measure of
profitability is based on income (loss) from operations, except for a non-cash
goodwill impairment charge totaling $247.5 million in 2008. These non-cash
impairment charges are recorded in the Corporate and intersegment eliminations
below. See Note 1(i). The accounting policies for the reportable operating
segments are the same as for the Company taken as a whole. The Company has three
reportable operating segments: the Americas, Asia, and Europe. Information about
operating segments was as follows:
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
sales:
|
||||||||||||
|
Americas
|
$ | 1,689,146 | $ | 2,100,431 | $ | 2,514,536 | ||||||
|
Asia
|
908,539 | 965,268 | 896,024 | |||||||||
|
Europe
|
257,235 | 354,489 | 358,245 | |||||||||
|
Elimination
of intersegment sales
|
(264,753 | ) | (504,269 | ) | (861,501 | ) | ||||||
| $ | 2,590,167 | $ | 2,915,919 | $ | 2,907,304 | |||||||
|
Depreciation
and amortization:
|
||||||||||||
|
Americas
|
$ | 17,361 | $ | 21,306 | $ | 13,923 | ||||||
|
Asia
|
16,892 | 16,791 | 10,196 | |||||||||
|
Europe
|
2,834 | 2,598 | 657 | |||||||||
|
Corporate
|
3,581 | 2,437 | 2,602 | |||||||||
| $ | 40,668 | $ | 43,132 | $ | 27,378 | |||||||
|
Income
(loss) from operations:
|
||||||||||||
|
Americas
|
$ | 42,816 | $ | 47,296 | $ | 78,711 | ||||||
|
Asia
|
68,726 | 64,536 | 72,863 | |||||||||
|
Europe
|
2,383 | 3,888 | 304 | |||||||||
|
Corporate
and intersegment eliminations
|
(280,405 | ) | (25,421 | ) | (27,550 | ) | ||||||
| $ | (166,480 | ) | $ | 90,299 | $ | 124,328 | ||||||
|
Capital
expenditures:
|
||||||||||||
|
Americas
|
$ | 13,937 | $ | 5,509 | $ | 23,214 | ||||||
|
Asia
|
19,113 | 9,600 | 17,921 | |||||||||
|
Europe
|
2,301 | 1,221 | 867 | |||||||||
|
Corporate
|
793 | 4,242 | 2,616 | |||||||||
| $ | 36,144 | $ | 20,572 | $ | 44,618 | |||||||
|
Total
assets:
|
||||||||||||
|
Americas
|
$ | 538,296 | $ | 849,640 | $ | 812,487 | ||||||
|
Asia
|
477,500 | 514,078 | 333,945 | |||||||||
|
Europe
|
182,603 | 140,948 | 89,003 | |||||||||
|
Corporate
and other
|
240,522 | 258,182 | 170,685 | |||||||||
| $ | 1,438,921 | $ | 1,762,848 | $ | 1,406,120 | |||||||
66
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.
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Geographic
net sales:
|
||||||||||||
|
United
States
|
$ | 1,953,537 | $ | 2,241,403 | $ | 2,221,435 | ||||||
|
Asia
|
207,172 | 178,888 | 112,055 | |||||||||
|
Europe
|
390,632 | 462,693 | 549,803 | |||||||||
|
Other
|
38,826 | 32,935 | 24,011 | |||||||||
| $ | 2,590,167 | $ | 2,915,919 | $ | 2,907,304 | |||||||
|
Long-lived
assets:
|
||||||||||||
|
United
States
|
$ | 74,993 | $ | 86,602 | $ | 66,491 | ||||||
|
Asia
|
70,916 | 69,062 | 45,287 | |||||||||
|
Europe
|
8,432 | 10,147 | 1,419 | |||||||||
|
Other
|
12,901 | 8,021 | 9,314 | |||||||||
| $ | 167,242 | $ | 173,832 | $ | 122,511 | |||||||
Note
14—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 2008,
2007 and 2006, the Company made contributions to the plans of approximately $3.4
million, $3.5 million and $2.8 million, respectively. The Company also has
defined contribution benefit plans for certain of its international employees
primarily dictated by the custom of the regions in which it operates. During
2008, 2007 and 2006, the Company made contributions to the international plans
of approximately $0.5 million, $0.5 million and $0.3 million,
respectively.
67
Note
15—Contingencies
The
Company is involved in various 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.
The
Company is subject to examination by tax authorities for varying periods in
various U.S. and foreign tax jurisdictions. During the course of such
examinations disputes occur as to matters of fact and/or law. Also, in most tax
jurisdictions the passage of time without examination will result in the
expiration of applicable statutes of limitations thereby precluding the taxing
authority from conducting an examination of the tax period(s) for which such
statute of limitation has expired. The Company believes that it has adequately
provided for its tax liabilities.
Note
16—Restructuring Charges and Integration Costs
The
Company has undertaken initiatives to restructure its business operations with
the intention of improving utilization and realizing cost savings in the future.
These initiatives have included changing the number and location of production
facilities, largely to align capacity and infrastructure with current and
anticipated customer demand. This alignment includes transferring programs from
higher cost geographies to lower cost geographies. The process of restructuring
entails, among other activities, moving production between facilities, reducing
staff levels, realigning our business processes and reorganizing our
management.
The
Company recognized restructuring charges during 2006 related to reductions in
workforce and the re-sizing and closure of certain facilities. These charges
were recorded pursuant to plans developed and approved by management.
Restructuring charges associated with these realignment efforts, primarily
related to the closure of the Company’s Leicester, England and Loveland,
Colorado facilities, were approximately $4.7 million ($4.0 million net of
tax) during the year ended December 31, 2006. The components of the
restructuring charges during 2006 were as follows:
|
Americas
|
Europe
|
Total
|
||||||||||
|
Severance
costs
|
$ | 861 | $ | 1,455 | $ | 2,316 | ||||||
|
Facility
lease costs
|
321 | 418 | 739 | |||||||||
|
Other
exit costs
|
607 | 1,061 | 1,668 | |||||||||
| $ | 1,789 | $ | 2,934 | $ | 4,723 | |||||||
During
2006, the Company recorded approximately $2.3 million of employee termination
costs associated with the involuntary terminations of 266 identified employees
in connection with the various facility closures and consolidations. The
identified involuntary employee terminations by reportable geographic region
amounted to approximately 166 and 100 for the Americas and Europe,
respectively.
During
2006, the Company recorded approximately $0.7 million for facility lease
costs, including $0.4 million for facility lease obligations and $0.3 million
for facility abandonment and refurbishment costs. The restructuring charges
recorded during 2006 also included approximately $1.7 million for other
exit costs.
68
The
following table summarizes the provisions, the respective payments, activity and
the remaining accrued balance as of December 31, 2008 for estimated
restructuring charges incurred in 2006:
|
Facility
|
Other
|
|
||||||||||||||
|
Lease
|
Exit
|
Total
|
||||||||||||||
|
Severance
|
Costs
|
Costs
|
Costs
|
|||||||||||||
|
Balance
as of December 31, 2005
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Provision
for charges incurred
|
2,316 | 739 | 1,668 | 4,723 | ||||||||||||
|
Payments
|
(2,133 | ) | (724 | ) | (904 | ) | (3,761 | ) | ||||||||
|
Non-cash
charges incurred
|
— | — | (672 | ) | (672 | ) | ||||||||||
|
Foreign
exchange adjustments
|
17 | 42 | 50 | 109 | ||||||||||||
|
Balance
as of December 31, 2006
|
200 | 57 | 142 | 399 | ||||||||||||
|
Provision
for charges incurred
|
(11 | ) | (40 | ) | — | (51 | ) | |||||||||
|
Payments
|
(152 | ) | (17 | ) | (142 | ) | (311 | ) | ||||||||
|
Foreign
exchange adjustments
|
2 | — | — | 2 | ||||||||||||
|
Balance
as of December 31, 2007
|
39 | — | — | 39 | ||||||||||||
|
Provision
for charges incurred
|
(36 | ) | — | — | (36 | ) | ||||||||||
|
Foreign
exchange adjustments
|
(3 | ) | — | — | (3 | ) | ||||||||||
|
Balance
as of December 31, 2008
|
$ | — | $ | — | $ | — | $ | — | ||||||||
The
Company recognized restructuring charges during 2007 related to reductions in
workforce and the re-sizing of certain facilities. These charges were recorded
pursuant to plans developed and approved by management. Restructuring charges
associated with these realignment efforts, primarily related to the closure of
our Redmond, Washington facility, the transfer of the Company’s printed circuit
board assembly (PCBA) operations in Dublin, Ireland to Brasov, Romania and the
consolidation and resizing of certain other facilities, were approximately
$4.7 million ($3.2 million net of tax) during the year ended December 31,
2007.
The
following table summarizes the provisions, the respective payments, activity and
the remaining accrued balance as of December 31, 2008 for estimated
restructuring charges incurred in 2007:
|
Facility
|
Other
|
|
||||||||||||||
|
Lease
|
Exit
|
Total
|
||||||||||||||
|
Severance
|
Costs
|
Costs
|
Costs
|
|||||||||||||
|
Balance
as of December 31, 2006
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Provision
for charges incurred
|
1,375 | 1,211 | 2,091 | 4,677 | ||||||||||||
|
Payments
|
(1,205 | ) | (200 | ) | (97 | ) | (1,502 | ) | ||||||||
|
Non-cash
charges incurred
|
— | — | (1,453 | ) | (1,453 | ) | ||||||||||
|
Foreign
exchange adjustments
|
1 | — | — | 1 | ||||||||||||
|
Balance
as of December 31, 2007
|
171 | 1,011 | 541 | 1,723 | ||||||||||||
|
Provision
for charges incurred
|
— | (143 | ) | (57 | ) | (200 | ) | |||||||||
|
Payments
|
(171 | ) | (634 | ) | (484 | ) | (1,289 | ) | ||||||||
|
Balance
as of December 31, 2008
|
$ | — | $ | 234 | $ | — | $ | 234 | ||||||||
69
The
components of the restructuring charges during 2007 were as
follows:
|
Americas
|
Europe
|
Asia
|
Total
|
|||||||||||||
|
Severance
costs
|
$ | 759 | $ | 427 | $ | 189 | $ | 1,375 | ||||||||
|
Facility
lease costs
|
1,211 | — | — | 1,211 | ||||||||||||
|
Other
exit costs
|
1,846 | 245 | — | 2,091 | ||||||||||||
| $ | 3,816 | $ | 672 | $ | 189 | $ | 4,677 | |||||||||
During
the year ended December 31, 2007, the Company recorded approximately $1.4
million ($1.1 million net of tax) of employee termination costs associated
with the involuntary terminations of 192 identified employees in connection with
various facility closures, consolidations and resizing of certain facilities.
The identified involuntary employee terminations by reportable geographic region
amounted to approximately 138, 16 and 38 for the Americas, Asia and Europe,
respectively.
During
the year ended December 31, 2007, the Company recorded approximately
$1.2 million ($0.8 million net of tax) for facility lease obligations.
The restructuring charges recorded during 2007 also included approximately
$2.1 million ($1.4 million net of tax) for other exit costs, including $1.5
million of asset impairments associated with the closure of certain leased
facilities.
In
connection with acquisitions in 2007, a total of $7.0 million ($5.1 million net
of tax) in integration costs were incurred during the year ended December 31,
2007. These costs included redundant operating costs that have been
eliminated.
The
Company also recorded an assumed liability for expected involuntary employee
termination costs and facility closures in connection with the Merger. Costs
associated with restructuring activities related to a purchase business
combination are accounted for in accordance with Emerging Issue Task Force Issue
(EITF) No. 95-3, “Recognition of Liabilities in Connection with a Purchase
Business Combination”. Accordingly, costs associated with such plans are
recorded as a liability assumed as of the consummation date of the purchase
business combination and included in the cost of the acquired entity. The
following table summarizes the provisions, the respective payments, activity and
remaining accrued balance as of December 31, 2008 related to restructuring costs
recorded pursuant to EITF No. 95-3 during 2007:
|
Facility
|
Other
|
|
||||||||||||||
|
Lease
|
Exit
|
Total
|
||||||||||||||
|
Severance
|
Costs
|
Costs
|
Costs
|
|||||||||||||
|
Balance
as of December 31, 2006
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Liability
assumed in the Merger
|
344 | 1,057 | 1,644 | 3,045 | ||||||||||||
|
Payments
|
(352 | ) | (325 | ) | (172 | ) | (849 | ) | ||||||||
|
Foreign
exchange adjustments
|
8 | 76 | 145 | 229 | ||||||||||||
|
Balance
as of December 31, 2007
|
— | 808 | 1,617 | 2,425 | ||||||||||||
|
Provision
for charges incurred
|
— | (1 | ) | (511 | ) | (512 | ) | |||||||||
|
Payments
|
— | (172 | ) | (333 | ) | (505 | ) | |||||||||
|
Non-cash
charges incurred
|
— | — | (452 | ) | (452 | ) | ||||||||||
|
Foreign
exchange adjustments
|
— | (124 | ) | 126 | 2 | |||||||||||
|
Balance
as of December 31, 2008
|
$ | — | $ | 511 | $ | 447 | $ | 958 | ||||||||
70
The
components of the liabilities assumed during 2007 for estimated restructuring
charges incurred in connection with the Merger were as follows:
|
Americas
|
Europe
|
Asia
|
Total
|
|||||||||||||
|
Severance
costs
|
$ | — | $ | 235 | $ | 109 | $ | 344 | ||||||||
|
Facility
lease costs
|
— | 722 | 335 | 1,057 | ||||||||||||
|
Other
exit costs
|
— | 1,112 | 532 | 1,644 | ||||||||||||
| $ | — | $ | 2,069 | $ | 976 | $ | 3,045 | |||||||||
In
addition, the Company recognized restructuring charges during 2008 primarily
related to reductions in workforce in certain facilities. These charges were
recorded pursuant to plans developed and approved by management.
The
following table summarizes the provisions, the respective payments and the
remaining accrued balance as of December 31, 2008 for estimated
restructuring charges incurred in 2008:
|
Other
|
||||||||||||
|
Exit
|
Total
|
|||||||||||
|
Severance
|
Costs
|
Costs
|
||||||||||
|
Balance
as of December 31, 2007
|
$ | — | $ | — | $ | — | ||||||
|
Provision
for charges incurred
|
3,205 | 270 | 3,475 | |||||||||
|
Payments
|
(2,791 | ) | (42 | ) | (2,833 | ) | ||||||
|
Balance
as of December 31, 2008
|
$ | 414 | $ | 228 | $ | 642 | ||||||
The
components of the restructuring charges during 2008 were as
follows:
|
Americas
|
Europe
|
Asia
|
Total
|
|||||||||||||
|
Severance
costs
|
$ | 628 | $ | 1,181 | $ | 1,396 | $ | 3,205 | ||||||||
|
Other
exit costs
|
— | — | 270 | 270 | ||||||||||||
| $ | 628 | $ | 1,181 | $ | 1,666 | $ | 3,475 | |||||||||
During
the year ended December 31, 2008, the Company recognized $3.2 million ($2.9
million net of tax) of employee termination costs associated with the
involuntary terminations of 377 employees in connection with reductions in
workforce of certain facilities. The identified involuntary employee
terminations by reportable geographic region amounted to approximately 149, 201
and 27 for the Americas, Asia and Europe, respectively.
Accruals
related to restructuring activities are recorded in accrued liabilities in the
accompanying consolidated balance sheets.
71
Note
17—Quarterly Financial Data (Unaudited)
The
following table sets forth certain unaudited quarterly information with respect
to the Company’s results of operations for the years 2008, 2007 and 2006. The
information presented herein reflects an immaterial correction of the Company’s
prior period financial statements related to stock-based compensation expense.
See note 1(r). Earnings (loss) per share are computed independently for each of
the quarters presented. Therefore, the sum of the quarterly earnings (loss) per
share may not equal the total earnings (loss) per share amounts for the fiscal
year.
|
2008
Quarter
|
||||||||||||||||
|
1st(1)
|
2nd(1)
|
3rd(1)
|
4th
|
|||||||||||||
|
Sales
|
$ | 684,309 | $ | 682,416 | $ | 641,672 | $ | 581,770 | ||||||||
|
Gross
profit
|
45,088 | 45,900 | 44,169 | 40,781 | ||||||||||||
|
Net
income (loss)
|
22,329 | 22,142 | 23,635 | (203,738 | ) | |||||||||||
|
Earnings
(loss) per common share:
|
||||||||||||||||
|
Basic
|
0.32 | 0.33 | 0.36 | (3.13 | ) | |||||||||||
|
Diluted
|
0.32 | 0.33 | 0.35 | (3.13 | ) | |||||||||||
|
2007
Quarter
|
||||||||||||||||
|
1st(1)
|
2nd(1)
|
3rd(1)
|
4th(1)
|
|||||||||||||
|
Sales
|
$ | 752,482 | $ | 756,295 | $ | 672,595 | $ | 734,547 | ||||||||
|
Gross
profit
|
54,380 | 54,387 | 38,669 | 51,057 | ||||||||||||
|
Net
income
|
24,249 | 25,694 | 21,783 | 20,630 | ||||||||||||
|
Earnings
per common share:
|
||||||||||||||||
|
Basic
|
0.34 | 0.35 | 0.30 | 0.29 | ||||||||||||
|
Diluted
|
0.34 | 0.35 | 0.30 | 0.29 | ||||||||||||
|
2006
Quarter
|
||||||||||||||||
|
1st(1)
|
2nd(1)
|
3rd(1)
|
4th(1)
|
|||||||||||||
|
Sales
|
$ | 651,244 | $ | 749,171 | $ | 769,549 | $ | 737,340 | ||||||||
|
Gross
profit
|
45,284 | 52,216 | 52,175 | 49,485 | ||||||||||||
|
Net
income
|
26,328 | 27,327 | 29,138 | 28,029 | ||||||||||||
|
Earnings
per common share:
|
||||||||||||||||
|
Basic
|
0.41 | 0.42 | 0.45 | 0.43 | ||||||||||||
|
Diluted
|
0.41 | 0.42 | 0.44 | 0.43 | ||||||||||||
(1)
See Note
1(r) for a discussion of the correction of an immaterial error related to
stock-based compensation expense.
Note
18—Supplemental Cash Flow Information
The
following is additional information concerning supplemental disclosures of cash
payments.
|
Year
ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Income
taxes paid, net
|
$ | 4,573 | $ | 1,414 | $ | 19,104 | ||||||
|
Interest
paid
|
$ | 1,420 | $ | 1,744 | $ | 267 | ||||||
72
Report
of Independent Registered Public Accounting Firm
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, 2008 and 2007, and the related
consolidated statements of income (loss), comprehensive income (loss),
shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2008. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 9 to the consolidated financial statements, effective
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109”.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Benchmark Electronics, Inc.’s internal control
over financial reporting as of December 31, 2008, based on criteria established
in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated
February 27, 2009, expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
(signed)
KPMG LLP
Houston,
Texas
February
27, 2009
73
Management’s
Report
The
management of Benchmark Electronics, Inc. has prepared and is responsible for
the consolidated financial statements and related financial data contained in
this report. The consolidated financial statements were prepared in accordance
with U.S. generally accepted accounting principles and necessarily include
certain amounts based upon management’s best estimates and judgments. The
financial information contained elsewhere in this annual report is consistent
with that in the consolidated financial statements.
The
Company maintains internal accounting control systems that are adequate to
prepare financial records and to provide reasonable assurance that the assets
are safe-guarded from loss or unauthorized use. We believe these systems are
effective, and the cost of the systems does not exceed the benefits
obtained.
The Audit
Committee, composed exclusively of independent, outside directors, has reviewed
all financial data included in this report. The committee meets periodically
with the Company’s management and independent registered public accountants on
financial reporting matters. The independent registered public accountants have
complete access to the Audit Committee and may meet with the committee, without
management present, to discuss their audit results and opinions on the quality
of financial reporting.
The role
of independent registered public accountants is to render a professional,
independent opinion on management’s financial statements to the extent required
by the standards of the Public Company Accounting Oversight Board (United
States). Benchmark’s responsibility is to conduct its affairs according to the
highest standards of personal and corporate conduct.
74
None.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
As of the
end of the period covered by this report, the Company’s management (with the
participation of its chief executive officer and chief financial officer),
conducted an evaluation pursuant to Rule 13a-15 promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act), of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures. Based
on this evaluation, the Company’s chief executive officer and chief financial
officer concluded that as of the end of the period covered by this report such
disclosure controls and procedures were effective to provide reasonable
assurance that information required to be disclosed by the Company in reports it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and include controls and procedures designed
to ensure that information required to be disclosed by the Company in such
reports is accumulated and communicated to the Company’s management, including
the Company’s chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
There has
been no change in our internal control over financial reporting that occurred
during the period covered by this Annual Report on Form 10-K that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Our
management, including our chief executive officer and chief financial officer,
does not expect that our disclosure controls and internal controls will prevent
all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, a control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
75
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in “Internal Control—Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in “Internal
Control—Integrated Framework”, our management concluded that our internal
control over financial reporting was effective as of December 31,
2008.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008 has been audited by KPMG LLP, an independent registered public
accounting firm, as stated in their report which is included below.
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
The Board
of Directors and Shareholders
Benchmark
Electronics, Inc.:
We have
audited Benchmark Electronics, Inc.’s internal control over financial reporting
as of December 31, 2008, based on criteria established in “Internal
Control—Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Benchmark Electronics, Inc.’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
76
In our
opinion, Benchmark Electronics, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in “Internal Control—Integrated Framework” issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Benchmark
Electronics, Inc. and subsidiaries as of December 31, 2008 and 2007, and
the related consolidated statements of income (loss), comprehensive income
(loss), shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2008, and our report dated February 27,
2009, expressed an unqualified opinion on those consolidated financial
statements.
(signed)
KPMG LLP
Houston,
Texas
February
27, 2009
Not
applicable.
The
information under the captions “Election of Directors,” “Executive Officers” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy
Statement for the 2009 Annual Meeting of Shareholders (the 2009 Proxy
Statement), to be filed not later than 120 days after the close of the Company’s
fiscal year, is incorporated herein by reference in response to this
item.
The
information under the captions “Compensation Discussion and Analysis” and
“Report of Compensation Committee” in the 2009 Proxy Statement, to be filed not
later than 120 days after the close of the Company’s fiscal year, is
incorporated herein by reference in response to this item.
77
The
information under the caption “Common Share Ownership of Certain Beneficial
Owners and Management” in the 2009 Proxy Statement, to be filed not later than
120 days after the close of the Company’s fiscal year, is incorporated herein by
reference in response to this item.
The
following table sets forth certain information relating to our equity
compensation plans as of December 31, 2008.
|
Number
of
|
||||||||||||
|
securities to be
|
Weighted-
|
Number of
|
||||||||||
|
issued
upon
|
average
exercise
|
securities
|
||||||||||
|
exercise
of
|
price
of
|
remaining
|
||||||||||
|
outstanding
|
outstanding
|
available
|
||||||||||
|
options, warrants
|
options, warrants
|
for future
|
||||||||||
|
Plan Category
|
and rights
|
and rights
|
issuance
|
|||||||||
|
Equity
compensation plans approved by security holders
|
5,838,711 |
(1)
|
$ | 18.46 |
(1)
|
4,466,512 | ||||||
|
Equity
compensation plans not approved by security holders (2)
|
33,750 | $ | 13.85 | — | ||||||||
|
Total
|
5,872,461 | 4,466,512 | ||||||||||
(1) Includes 34,416 phantom
stock awards. The weighted-average exercise price does not take these awards
into account.
(2) In
December of 1994, the Board of Directors adopted the Benchmark Electronics, Inc.
1994 Stock Option Plan for Non-Employee Directors (the 1994 Plan) for the
benefit of members of the Board of Directors of Benchmark or its affiliates who
are not employees of Benchmark or its affiliates (as defined in the 1994 Plan).
The 1994 Plan was not required to be approved by our shareholders. All awards
under the 1994 Plan were fully vested upon the date of grant. The exercise price
per common share of options granted under the 1994 Plan was the fair market
value of a Common Share on the date such option was granted. As of December 31,
2008, the Company has outstanding options with respect to 33,750 Common Shares
under the 1994 Plan. The 1994 Plan was replaced in 2002, and no additional
grants may be made under that plan.
The
information under the caption “Election of Directors” in the 2009 Proxy
Statement, to be filed not later than 120 days after the close of the Company’s
fiscal year, is incorporated herein by reference in response to this
item.
The
information under the caption “Audit Committee Report to Shareholders” in the
2009 Proxy Statement, to be filed not later than 120 days after the close of the
Company’s fiscal year, is incorporated herein by reference in response to this
item.
78
(a)
(1) Financial statements of the Company filed as part of this
report:
See Item
8 - Financial Statements and Supplementary Data.
(2) Financial
statement schedule filed as part of this report:
Schedule
II - Valuation Accounts
|
Additions
|
||||||||||||||||||||
|
Balance
at
|
Balance
at
|
|||||||||||||||||||
|
Beginning
|
Charges
to
|
End
of
|
||||||||||||||||||
|
(in
thousands)
|
of
Period
|
Operations
|
Other
|
Deductions
|
Period
|
|||||||||||||||
|
Year
ended December 31, 2008:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts (1)
|
$ | 1,406 | 405 | (10 | ) | 729 | 1,072 | |||||||||||||
|
Inventory
obsolescence reserve (2)
|
$ | 10,831 | 928 | (12 | ) | 3,722 | 8,025 | |||||||||||||
|
Year
ended December 31, 2007:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts (1)
|
$ | 1,430 | 91 | 5 | 120 | 1,406 | ||||||||||||||
|
Inventory
obsolescence reserve (2)
|
$ | 12,549 | 1,343 | — | 3,061 | 10,831 | ||||||||||||||
|
Year
ended December 31, 2006:
|
||||||||||||||||||||
| $ | 5,318 | (837 | ) | 78 | 3,129 | 1,430 | ||||||||||||||
|
Inventory
obsolescence reserve (2)
|
$ | 12,524 | 2,476 | 33 | 2,484 | 12,549 | ||||||||||||||
|
(1)
|
Deductions
in the allowance for doubtful accounts represent write-offs, net of
recoveries, of amounts determined to be
uncollectible.
|
|
(2)
|
Deductions
in the inventory obsolescence reserve represent disposals of inventory
determined to be obsolete.
|
Report
of Independent Registered Public Accounting Firm on Schedule
The Board
of Directors and Shareholders
Benchmark
Electronics, Inc.:
Under
date of February 27, 2009, we reported on the consolidated balance sheets of
Benchmark Electronics, Inc. and subsidiaries as of December 31, 2008 and 2007,
and the related consolidated statements of income (loss), comprehensive income
(loss), shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2008, in this annual report on Form 10-K
for the year 2008. In connection with the audits of the aforementioned
consolidated financial statements, we also have audited the related consolidated
financial statement schedule included in Item 15(a)2. This financial statement
schedule is the responsibility of the Company’s management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
(signed)
KPMG LLP
Houston,
Texas
February
27, 2009
79
(3) Exhibits
Each exhibit marked with an asterisk
is filed with this Annual Report on Form 10-K.
|
Exhibit
|
||
|
Number
|
Description
|
|
|
2.1
|
—
|
Agreement
and Plan of Merger dated October 16, 2006 among the Company, Autobahn
Acquisition Corp. and Pemstar Inc. (incorporated by reference to Exhibit
2.1 to the Company’s Form 8-K dated October 16, 2006 and filed on October
18, 2006 (Commission file number 1-10560)).
|
|
3.1
|
—
|
Restated
Articles of Incorporation of the Company dated May 10, 1990 (incorporated
by reference to Exhibit 3.1 to the Company’s Registration Statement on
Form S-1 (Registration Number 33-46316) (the “Registration
Statement”)).
|
|
3.2
|
—
|
Amendment
to the Restated Articles of Incorporation of the Company adopted by the
shareholders of the Company on May 20, 1997 (incorporated by reference to
Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file number 1-10560)).
|
|
3.3
|
—
|
Amendment
to the Restated Articles of Incorporation of the Company approved by the
shareholders of the Company on August 13, 2002 (incorporated by reference
to Exhibit 4.7 to the Company’s Form S-8 (Registration Number
333-103183)).
|
|
3.4
|
—
|
Amended
and Restated Bylaws of the Company dated May 18, 2006 (incorporated by
reference to Exhibit 99.2 to the Company’s Form 8-K dated May 18, 2006 and
filed on May 19, 2006 (Commission file number
1-10560)).
|
|
3.5
|
—
|
Amendment
to the Restated Articles of Incorporation of the Company approved by the
shareholders of the Company on May 10, 2006 (incorporated by reference to
Exhibit 99.1 to the Company’s Form 8-K dated October 16, 2006 and filed on
October 16, 2006 (Commission file number 1-10560)).
|
|
4.1
|
—
|
Restated
Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Registration Statement).
|
|
4.2
|
—
|
Amendment
to the Restated Articles of Incorporation of the Company adopted by the
shareholders of the Company on May 20, 1997 (incorporated by reference to
Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission file number 1-10560)).
|
|
4.3
|
—
|
Specimen
form of certificate evidencing the Common Share (incorporated by reference
to Exhibit 4.3 to the Registration Statement).
|
|
4.4
|
—
|
Rights
Agreement dated December 11, 1998 between the Company and Harris Trust
Savings Bank, as Rights Agent, together with the following exhibits
thereto: Exhibit A — Form of Statement of Resolution Establishing Series A
Cumulative Junior Participating Preferred Stock of Benchmark Electronics,
Inc.; Exhibit B — Form of Right Certificate; and Exhibit C — Summary of
Rights to Purchase Preferred Stock of Benchmark Electronics, Inc.
(incorporated by reference to Exhibit 1 to the Company’s Form 8A12B filed
December 11, 1998 (Commission file number
1-10560)).
|
80
|
4.5
|
—
|
Statement
of Resolution Establishing Series A Cumulative Junior Participating
Preferred Stock of the Company (incorporated by reference to Exhibit B of
the Rights Agreement dated December 11, 1998 between the Company and
Harris Trust Savings Bank, as Rights Agent, included as Exhibit 1 to the
Company’s Form 8A12B filed December 11, 1998 (Commission file number
1-10560)).
|
|
4.6
|
—
|
Summary
of Rights to Purchase Preferred Stock of the Company (incorporated by
reference to Exhibit 3 to the Company’s Form 8A12B/A filed December 22,
1998 (Commission file number 1-10560)).
|
|
4.7
|
—
|
Amendment
to the Restated Articles of Incorporation of the Company approved by the
shareholders of the Company on August 13, 2002 (incorporated by reference
to Exhibit 4.7 to the Company’s Form S-8 (Registration Number
333-103183)).
|
|
4.8
|
—
|
Amended
and Restated Bylaws of the Company (incorporated by reference to Exhibit
99.2 to the Company’s Form 8-K dated May 18, 2006 and filed on May 19,
2006 (Commission file number 1-10560)).
|
|
4.9
|
—
|
Amendment
to the Restated Articles of Incorporation of the Company approved by the
shareholders of the Company on May 10, 2006 (incorporated by reference to
Exhibit 99.1 to the Company’s Form 8-K dated October 16, 2006 and filed on
October 16, 2006 (Commission file number 1-10560)).
|
|
4.10
|
—
|
Amendment
No. 1 dated as of December 10, 2008, to the Rights Agreement dated as of
December 11, 1998 (incorporated by reference to Exhibit 4.1 to the
Company’s Form 8-K dated December 10, 2008 and filed on December 11, 2008
(Commission file number 1-10560)).
|
|
10.1
|
—
|
Form
of Indemnity Agreement between the Company and its directors and executive
officers (incorporated by reference to Exhibit 10.1 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2003
(Commission file number 1-10560)).
|
|
10.2
|
—
|
Benchmark
Electronics, Inc. Stock Option Plan dated May 11, 1990 (incorporated by
reference to Exhibit 10.12 to the Registration
Statement).
|
|
10.3
|
—
|
Benchmark
Electronics, Inc. Incentive Stock Option Agreement used under the 1990
Stock Option Plan between the Company and the optionee (incorporated by
reference to Exhibit 10.13 to the Registration
Statement).
|
|
10.4
|
—
|
Form
of Benchmark Electronics, Inc. Nonqualified Stock Option Agreement used
under the 1990 Stock Option Plan between the Company and the optionee
(incorporated by reference to Exhibit 10.14 to the Registration
Statement).
|
|
10.5
|
—
|
Benchmark
Electronics, Inc. 1994 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.21 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 1994 (Commission file number
1-10560)).
|
|
10.6
|
—
|
First
Amendment to the Benchmark Electronics, Inc. 1994 Stock Option Plan for
Non-Employee Directors (incorporated by reference to Exhibit 99.2 to the
Company’s Form S-8 (Registration Number
333-103183)).
|
81
|
10.7
|
—
|
Benchmark
Electronics, Inc. 2000 Stock Awards Plan (incorporated by reference to
Exhibit 4.8 to the Company’s Registration Statement on Form S-8
(Registration Number 333-54186)).
|
|
10.8
|
—
|
Form
of incentive stock option agreement for use under the 2000 Stock Awards
Plan (incorporated by reference to Exhibit 4.8 to the Company’s
Registration Statement on Form S-8 (Registration Number
333-54186)).
|
|
10.9*
|
—
|
Form
of phantom stock agreement for use under the 2000 Stock Awards
Plan.
|
|
10.10*
|
—
|
Form
of nonqualified stock option agreement for use under the 2000 Stock Awards
Plan.
|
|
10.11
|
—
|
Form
of restricted stock agreement for use under the 2000 Stock Awards Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated
March 17, 2008 (Commission file number 1-10560)).
|
|
10.12
|
—
|
Benchmark
Electronics, Inc. Deferred Compensation Plan dated as of December 16, 2008
(incorporated by reference to Exhibit 99.1 to the Company’s Form S-8
(Registration Number 333-156202)).
|
|
10.13
|
—
|
Lease
Agreement dated June 1, 2000 between Industrial Properties of the South
and the Company (incorporated by reference to Exhibit 10.12 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2000
(Commission file number 1-10560)).
|
|
10.14
|
—
|
Lease
Agreement dated February 29, 2000 between Millikan Properties, LLC and the
Company (incorporated by reference to Exhibit 10.12 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999
(Commission file number 1-10560)).
|
|
10.15
|
—
|
Lease
Agreement dated February 12, 2003 by and between the Company and BAE
SYSTEMS Information and Electronic Systems Integration Inc. (incorporate
by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2002 (Commission file number
1-10560)).
|
|
10.16
|
—
|
Sublease
Agreement dated February 12, 2003 by and between the Company and BAE
SYSTEMS Information and Electronic Systems Integration Inc. (incorporate
by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2002 (Commission file number
1-10560)).
|
|
10.17
|
—
|
Lease
Agreement dated March 13, 2000 by and between Laguna South Exchange LLC
and Advanced Digital Information Corporation (incorporated by reference to
Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2003 (Commission file number
1-10560)).
|
|
10.18
|
—
|
Assignment
of Lease dated October 31, 2003 by and between Advanced Digital
Information Corporation, Diversified Assets LLC and the Company
(incorporated by reference to Exhibit 10.23 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2003 (Commission file number
1-10560)).
|
|
10.19
|
—
|
Guarantee
dated September 10, 1998 by the Company in favor of Kilmore Developments
Limited (incorporated by reference to Exhibit 10.14 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1998
(Commission file number
1-10560)).
|
82
|
10.20
|
—
|
Lease
Agreement dated March 9, 2001 by and between BEI Electronics Ireland
Limited and Canada Life Assurance (Ireland) Limited (incorporated by
reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2000 (Commission file number
1-10560)).
|
|
10.21
|
—
|
Third
Amended and Restated Credit Agreement dated as of December 21, 2007 among
the Company; the borrowing subsidiaries; the lenders party thereto;
JPMorgan Chase Bank, N.A. as administrative agent, collateral agent and
issuing lender; Bank of America, N.A., Wells Fargo Bank, N.A. and Comerica
Bank as co-documentation agents; and J.P. Morgan Securities Inc. as lead
arranger (incorporated by reference from Exhibit 10.1 to the Company’s
Form 8-K dated December 21, 2007 and filed on December 27, 2007
(Commission file number 1-10560)).
|
|
10.22
|
—
|
Registration
Rights Agreement dated as of August 24, 1999 by and between the Company
and J. M. Huber Corporation (incorporated by reference from Exhibit 99.2
to the Company’s Form 8-K dated August 24, 1999 and filed on September 8,
1999 (Commission file number 1-10560)).
|
|
10.23
|
—
|
Employment
Agreement between the Company and its President and Chief Executive
Officer effective December 1, 2005 (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K dated November 11, 2005 and filed on
November 15, 2005 (Commission file number 1-10560)).
|
|
10.24
|
—
|
Employment
Agreement between the Company and its Executive Vice President and Chief
Financial Officer effective December 1, 2005 (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K dated November 11, 2005 and filed
on November 15, 2005 (Commission file number 1-10560)).
|
|
10.25
|
—
|
ACT
Manufacturing (Thailand) Public Company Limited Credit Facilities
Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form
10-Q dated September 30, 2002 and filed on November 14, 2002 (Commission
file number 1-10560)).
|
|
10.26
|
—
|
Benchmark
Electronics, Inc. 2002 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Appendix A to the Company’s Definitive Proxy
Statement on Schedule 14A filed April 15, 2002 (Commission file number
1-10560)).
|
|
10.27
|
—
|
Employment
Agreement between the Company and its Chairman of the Board of Directors
effective January 1, 2006 (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K dated November 30, 2005 and filed on December 2,
2005 (Commission file number 1-10560)).
|
|
10.28
|
—
|
Employment
Agreement between the Company and its Executive Vice President effective
December 1, 2005 (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K dated December 1, 2005 and filed on December 2, 2005
(Commission file number 1-10560)).
|
|
10.29
|
—
|
Code
of Conduct (incorporated by reference to Exhibit 10.28 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2005
(Commission file number 1-10560)).
|
|
10.30
|
—
|
Amendment
No. 1 to the Benchmark Electronics, Inc. 2002 Stock Option Plan for
Non-Employee Directors (incorporated by reference to Exhibit 99.3 to the
Company’s Form 8-K dated May 18, 2006 filed on May 19, 2006 (Commission
file number 1-10560)).
|
83
|
10.31
|
—
|
Key
Contributor Severance Agreement between Benchmark Electronics, Inc. and
Don Adam dated August 27, 2002 (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K dated December 21, 2006 and filed on December
22, 2006 (Commission file number 1-10560)).
|
|
10.32
|
—
|
Form
of Termination Agreements dated November 4, 2008 between the Company and
Steven A. Barton and Donald E. Nigbor (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K dated November 4, 2008 (Commission
file number 1-10560)).
|
|
10.33
|
—
|
Form
of Consulting Agreements dated November 4, 2008 between the Company and
Steven A. Barton and Donald E. Nigbor (incorporated by reference to
Exhibit 10.2 to the Company’s Form 8-K dated November 4, 2008 (Commission
file number 1-10560)).
|
|
11
|
—
|
Statement
regarding Computation of Per-Share Earnings (incorporated by reference to
“Notes to Consolidated Financial Statements, Note 1(j) – Earnings Per
Share” in Item 8 of this report).
|
|
21*
|
—
|
Subsidiaries
of Benchmark Electronics, Inc.
|
|
23*
|
—
|
Consent
of Independent Registered Public Accounting Firm concerning incorporation
by reference in the Company’s Registration Statements on Form S-8
(Registration No. 33-61660, No. 333-26805, No. 333-28997, No. 333-54186,
No. 333-66889, No. 333-103183, No. 333-101744, No. 333-136798 and No.
333-156202).
|
|
31.1*
|
—
|
Section
302 Certification of Chief Executive Officer
|
|
31.2*
|
—
|
Section
302 Certification of Chief Financial Officer
|
|
32.1*
|
—
|
Section
1350 Certification of Chief Executive Officer
|
|
32.2*
|
—
|
Section
1350 Certification of Chief Financial
Officer
|
* Filed
herewith.
84
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
BENCHMARK
ELECTRONICS, INC.
|
|||
|
By:
/s/
|
Cary T. Fu
|
||
|
Cary
T. Fu
|
|||
|
Chief
Executive Officer
|
|||
|
Date:
February 27, 2009
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated and on the dates indicated.
|
Name
|
Position
|
Date
|
|||
|
/s/ Cary T. Fu
|
Chief
Executive Officer
|
February 27, 2009
|
|||
|
Cary
T. Fu
|
(principal
executive officer)
|
||||
|
/s/ Donald F. Adam
|
Chief
Financial Officer
|
February 27, 2009
|
|||
|
Donald
F. Adam
|
(principal
financial and accounting officer)
|
||||
|
/s/ Donald E. Nigbor
|
Chairman
of the Board
|
February 27, 2009
|
|||
|
Donald
E. Nigbor
|
of
Directors
|
||||
|
/s/ Steven A. Barton
|
Director
|
February 27, 2009
|
|||
|
Steven
A. Barton
|
|||||
|
/s/ Michael R. Dawson
|
Director
|
February 27, 2009
|
|||
|
Michael
R. Dawson
|
|||||
|
/s/ Peter G. Dorflinger
|
Director
|
February 27, 2009
|
|||
|
Peter
G. Dorflinger
|
|||||
|
/s/ Douglas G. Duncan
|
Director
|
February 27, 2009
|
|||
|
Douglas
G. Duncan
|
|||||
|
/s/ Laura W. Lang
|
Director
|
February 27, 2009
|
|||
|
Laura
W. Lang
|
|||||
|
/s/ Bernee D.L. Strom
|
Director
|
February 27, 2009
|
|||
|
Bernee
D.L. Strom
|
|||||
|
/s/ Clay C. Williams
|
Director
|
February 27, 2009
|
|||
|
Clay
C. Williams
|