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, 2014
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
(State or other jurisdiction of
incorporation or organization)
74-2211011
(I.R.S. Employer
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
Common Stock, par value $0.10 per share
Name of each exchange on which registered
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 [(cid:151)] 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 [(cid:151)]
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 [(cid:151)] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter periods that the registrant was required to submit and post such files).
Yes [(cid:151)] 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. [(cid:151)]
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 [(cid:151)]
Smaller Reporting Company [ ]
Non-accelerated filer [ ]
Accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act).
Yes [ ] No [(cid:151)]
As of June 30, 2014, the number of outstanding Common Shares was 53,958,612. 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 $1.4 billion.
As of February 25, 2015, there were 52,658,067 Common Shares of Benchmark Electronics, Inc., par value
$0.10 per share, outstanding.
Portions of the Company’s Proxy Statement for the 2015 Annual Meeting of Shareholders (Part III, Items 10-14).
Documents Incorporated by Reference:
(cid:3)
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
SIGNATURES
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 1. Business.
PART I
This annual report (the Report) contains 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
and include words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,”
“position,” “continue,” “estimate,” “expect,” “may,” “will,” or the negative or other variations thereof them. In
particular, statements, whether express or implied, concerning future operating results or the ability to generate
sales, income or cash flow are forward-looking statements. Undue reliance should not be placed on any forward-
looking statements. Forward-looking statements are not guarantees of performance. They involve risks,
uncertainties and assumptions that are beyond our ability to control or predict, including those discussed under
Item 1A of this Report. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes, including the future results of our operations, may vary materially
from those indicated.
The Company’s fiscal year ends on December 31. Consequently, references to 2014 relate to the calendar year
ended December 31, 2014; references to 2013 relate to the year ended December 31, 2013, etc.
General
Benchmark Electronics, Inc. (Benchmark), a Texas corporation, began operations in 1979 and has become a
worldwide provider of integrated electronic manufacturing services. In this Report, references to Benchmark, the
Company or use of the words “we”, “our” and “us” include the subsidiaries of Benchmark unless otherwise noted.
We provide our services to original equipment manufacturers (OEMs) of industrial control equipment (including
equipment for the aerospace and defense industry), telecommunication equipment, computers and related products
for business enterprises, medical devices, and testing and instrumentation products. Our services 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 including direct order fulfillment and post-deployment services. Our operations
comprise three principal areas:
(cid:120)
(cid:120) Manufacturing and assembly operations, which 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.
Precision technology manufacturing, which complements our proven electronic manufacturing expertise by
providing further vertical integration of critical mechanical components. These capabilities include
precision machining, advanced metal joining, assembly and functional testing for multiple industries
including medical, instrumentation, aerospace and semiconductor capital equipment.
Specialized engineering services, which include product design, printed circuit board layout, prototyping,
automation and test development.
(cid:120)
Our core strength lies 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 China, Malaysia, Mexico,
Romania and Thailand. Our global manufacturing presence increases our ability to respond to our customers’ needs
by providing accelerated time-to-market and time-to-volume production of high-quality products.
These capabilities enable us to build strong strategic relationships with our customers and to become an integral part
of their operations.
1
Our customers face challenges in planning, procuring and managing their inventories efficiently due to fluctuations
in their customer demand, product design changes, short product life cycles and component price fluctuations. We
employ enterprise resource planning (ERP) systems to manage the 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 help reduce our
customers’ cost of goods sold and inventory exposure.
Benchmark’s worldwide facilities include 1.6 million square feet in our domestic facilities in Alabama, Arizona,
California, Minnesota, New Hampshire, North Dakota and Texas; and 2.2 million square feet in our international
facilities in China, Malaysia, Mexico, the Netherlands, Romania and Thailand.
We have enhanced our capabilities through acquisitions and through internal expansion:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
In June 2013, we acquired Suntron Corporation (the Suntron Acquisition) to better serve customers in the
aerospace and defense industries.
In October 2013, we acquired the full-service EMS segment of CTS Corporation (the CTS Acquisition).
The CTS Acquisition expanded our portfolio of customers in non-traditional and highly regulated markets
and strengthened the depth and scope of our new product express capabilities on the West Coast.
In 2011, we acquired facilities and other assets to expand our precision technology capabilities in Penang,
Malaysia.
In 2009, we added precision machining assets and capabilities in Arizona, California and Mexico through a
business acquisition, and leased a larger facility in Brasov, Romania that expanded our manufacturing
capacity in Eastern Europe.
Our global operations currently include manufacturing facilities in seven countries.
We believe our primary competitive advantages are our design, manufacturing, testing and supply chain
management capabilities provided by a highly skilled team of personnel. 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. Working closely with our customers and
responding promptly to their needs, we become an integral part of their operations.
Our Industry
Outsourcing enables OEMs to concentrate on what they believe to be their core strengths, such as new product
definition, marketing and sales. Beginning in the 1990s, the EMS industry changed rapidly as an increasing number
of OEMs outsourced their manufacturing requirements. In recent years, the number of industries served by EMS
providers and their market penetration in certain industries has increased, and we believe further growth
opportunities exist for EMS providers to penetrate the worldwide electronics markets. In 2001 and again in 2008, the
industry’s revenue declined as a result of significant cutbacks in customers’ production requirements, consistent
with overall global economic downturns; however, OEMs have continued to turn to outsourcing 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.
2
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:
(cid:120)
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.
(cid:120) Maintain and Develop Close, Long-Term Relationships with Customers. Our core strategy is to establish
long-term relationships with leading OEMs in expanding industries by becoming an integral part of their
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 rely on our local
management teams to respond to frequently changing customer design specifications and production
requirements, which develops stronger customer relationships.
(cid:120) Deliver Complete High- and Low-Volume Manufacturing Solutions Globally. OEMs increasingly require 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. In 2009, we added precision machining assets and capabilities to provide
precision machining, metal joining and complex electromechanical manufacturing services in Arizona,
California and Mexico. In 2011, we acquired facilities and other assets to expand our precision
technologies capabilities in Penang, Malaysia. This expansion added sheet metal and frames fabrication
services, advanced metal joining and grinding services, along with complex mechanical assembly and
machining services to our Asia service offerings. All of 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 and the
United States.
(cid:120)
Leverage Advanced Technological Capabilities. In addition to traditional strengths in manufacturing large,
complex high-density printed circuit boards and systems, we offer customers specialized and tailored
advanced design, technology and manufacturing solutions for their primary products. We provide this
engineering expertise through our design capabilities at our design centers and our advanced technology
process development in each of our facilities. We believe our capabilities help our customers utilize
cutting-edge technologies to improve product performance and reduce costs.
3
(cid:120) Continue to Seek Cost Savings and Operational Excellence. We seek to optimize all of our facilities to
provide cost-efficient services for our customers. This is done through our culture of continuous
improvement, sharing best practices and implementing lean principles. We also provide operations in
lower-cost locations to further offer cost saving solutions to our customers. These sites include China,
Malaysia, Mexico, Romania and Thailand.
(cid:120) Continue Our Global Focus. A network of strategically positioned facilities can reduce costs, simplify and
shorten an OEM’s supply chain and provide regional solutions, thus reducing the time it takes to bring
products to market. We are committed to maintaining our global focus in order to support our customers
with cost-effective and timely delivery of quality products and services worldwide.
(cid:120)
Pursue Strategic Acquisitions. Our capabilities have continued to grow through acquisitions and we will
continue to selectively seek acquisition opportunities. In addition to expanding our global footprint, our
acquisitions have enhanced our business in the following ways:
(cid:16) enhanced customer growth opportunities;
(cid:16) developed strategic relationships;
(cid:16) broadened service offerings;
(cid:16) provided vertical solutions;
(cid:16) diversified into new market sectors; and
(cid:16) 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.
(cid:120)(cid:3) New Product Design, Prototype, Test and Related Engineering Solutions. We offer a full spectrum of new
product design, automation, test development, prototype 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.
(cid:120)(cid:3) Custom Test and Automation Equipment Design and Build Solutions. We provide our customers a
comprehensive range of custom automated test equipment, functional test equipment, process automation
4
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.
Manufacturing and Fulfillment Solutions
As OEMs seek to provide greater functionality in smaller products, they increasingly require sophisticated
manufacturing technologies and processes. Our investment in advanced manufacturing equipment and process
development, as well as our experience in innovative packaging and interconnect technologies, enable us to offer a
variety of advanced manufacturing solutions. These packaging and interconnect technologies include:
(cid:120)(cid:3) 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.
(cid:3)
(cid:120)(cid:3) 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.
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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. We also offer our own internally designed functional
test solutions for cost effective and flexible test solutions, and provide environmental stress tests of
assemblies of boards or systems.
We also have expertise in advanced precision and electromechanical technologies, micro-electronics 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 testing of industrial control equipment
(which includes equipment for the aerospace and defense industry), telecommunication equipment, complex
computers and related products for business enterprises, medical devices, and testing and instrumentation products.
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.
Failure Analysis. We offer an array of analytical solutions and expertise to challenging issues that face our
customers. This includes focused techniques for failure mode, failure mechanism, and root cause determination.
Specialized analytical skill sets associated with electrical, mechanical, and metallurgical disciplines are used in
conjunction with a vast array of equipment such as ion chromatography, x-ray florescence, and scanning electron
5
microscopy. Our state-of-the-art lab facilities provide customers with detailed reporting and support in an unbiased,
timely and cost-effective manner. Mastering emerging technologies coupled with a complete understanding of
potential failure mechanisms positions us to exceed customer expectations and maintain our technological diversity.
Direct Order Fulfillment. We provide direct order fulfillment for some 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’s end 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 turnaround 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.
Aftermarket Non-Warranty Services. We provide our customers a range of aftermarket non-warranty services,
including repair, replacement, refurbishment, remanufacturing, exchange, systems upgrade and spare part
manufacturing throughout a product’s 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. Our value-
added support services are primarily 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
assurance of supply and 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, and 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 include a proprietary module that controls serialization, production and
quality data for all of our facilities around the world using 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, which allow 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.
6
We also provide our customers with a comprehensive set of manufacturing technologies and solutions, which
include:
(cid:120)(cid:3) Pin Thru Hole;
(cid:120)(cid:3) Surface Mount Technology;
(cid:120)(cid:3) Fine Pitch;
(cid:120)(cid:3) Ball Grid Array and Land Grid Array;
(cid:120)(cid:3) Part on Part;
(cid:120)(cid:3) Flip Chip;
(cid:120)(cid:3) Chip On Board/Wire Bonding;
(cid:120)(cid:3)
(cid:120)(cid:3) Board Level Functional Test; and
(cid:120)(cid:3) Stress Testing.
In-Circuit Test;
We also provide specialized solutions in support of our customers’ components, products and systems, which
include:
(cid:120)(cid:3) Adhesives;
(cid:120)(cid:3) Conformal Coating;
(cid:120)(cid:3) Ultrasonic Welding;
(cid:120)(cid:3) Splicing and Connectorization for Optical Applications;
(cid:120)(cid:3) Hybrid Optical/Electrical Printed Circuit Board Assembly and Testing; and
(cid:120)(cid:3) Sub-Micron Alignment of Optical Sub-Assemblies.
Through our Component Engineering Services, we help customers deal with evolving international environmental
laws and regulations on content, packaging, labeling and similar issues concerning the environmental impact of their
products including: “RoHS” (EU Directive 2011/65/EUC on Restriction of certain Hazardous Substances); “WEE”
(EU Directive 2002/96/EC on Waste Electrical and Electronic Equipment); “REACH” (EC Regulation No
1907/2006 on Registration, Evaluation and Authorization of Chemicals); EU Member States’ Implementation of the
foregoing; and the People’s Republic of China (PRC) Measures for Administration of the Pollution Control of
Electronic Information Products of 2006. 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 compliant with
these environmental laws and regulations.
Precision Technologies. We provide precision machining, metal joining and complex electromechanical
manufacturing services and utilize the following precision technologies:
(cid:120)(cid:3) Complex Small / Medium / Large Computer Numerical Controlled Machining;
(cid:120)(cid:3) Precision Multi-Axis Grinding of Aerospace Engine Blades, Vanes and Nozzles;
(cid:120)(cid:3) Precision Grinding of Mass Spectrometer Components;
(cid:120)(cid:3) Sinker Electrical Discharge Machining;
(cid:120)(cid:3) Turnkey Precision Clean Room Module Assembly and Functional Test;
(cid:120)(cid:3) Major Electromechanical Sub Assembly;
(cid:120)(cid:3) Laser Welding; and
(cid:120)(cid:3) Advanced Metal Joining.
Marketing and Customers
We market our services primarily through a direct sales force and, in select markets, 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 our business with customers relating to, among other things, the
manufacture of products which in many cases were previously produced by the customer. Such arrangements
generally identify the specific products to be manufactured, quality and production requirements, product pricing
7
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 is heavily
involved in customer relations and devotes significant attention to broadening existing and developing new customer
relationships.
The following table sets forth the percentages of our sales by industry for 2014, 2013 and 2012.
Industrial control equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunication equipment . . . . . . . . . . . . . . . . . . . . . . .
Computers and related products for business enterprises . . . . .
Medical devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (cid:3)
Testing and instrumentation products . . . . . . . . . . . . . . . . . .
30 %
29
21
11
9
28 %
23
30
11
8
26 %
26
31
10
7
2014
2013
2012
Seasonality
Seasonality in our business has historically been driven by customer and product mix, particularly the industries that
our customers serve. Although we have historically experienced higher sales during the fourth quarter, this pattern
does not repeat itself every year. In addition, we typically experience our lowest sales volume in the first quarter of
each year.
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
unable to provide these materials, a shortage of components could temporarily interrupt our operations and lower
our profits until 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 component shortages by working with customers to reschedule deliveries, 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. The goal of these procedures is to reduce our inventory risk.
Backlog
We had sales backlog of approximately $1.6 billion at December 31, 2014, as compared to the 2013 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 2015, we do not currently have long-term agreements with all of our customers, and
customer orders can be canceled, changed or delayed. 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.
8
Competition
The 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., Plexus Corp and Sanmina 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.
Sustainability
Benchmark is committed to being a responsible corporate citizen. We use the term “sustainability” to describe our
long-term approach to social, economic and environmental responsibilities that achieve our business objectives and
contribute to a more sustained world. Our sustainability priorities include:
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upholding the principle of human rights and observing fair labor practices within our organization and our
supply chain;(cid:3)
protecting the environment by conserving energy and natural resources and preventing pollution through
appropriate management technology and practices;(cid:3)
ensuring ethical organizational governance; and(cid:3)
applying fair, transparent and accountable operating practices.(cid:3)
All Benchmark manufacturing facilities are either currently certified or undergoing certification to ISO 14001. We
have endorsed the Electronics Industry Citizenship Coalition Code of Conduct, and flowed specific requirements to
our supply chain through our contracts, Purchase Order Terms and Conditions, Supplier Assurance Manual, and
Supplier Code of Conduct.(cid:3)
(cid:3)
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, trade compliance, anticorruption, environmental, waste
management, and health and safety matters. We seek to operate in compliance with all applicable requirements.
However, significant 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, 2014, we employed 10,940 people, of whom 7,919 were engaged in manufacturing and
operations, 1,612 in materials control and procurement, 538 in design and development, 291 in marketing and sales,
and 580 in administration. None of our domestic employees are represented by a labor union. In certain international
9
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 and labor relations are good.
Segments and International Operations
We have manufacturing facilities in the Americas, Asia and Europe regions to serve our customers. Benchmark is
operated and managed geographically, and management evaluates performance and allocates resources on a
geographic basis. We currently operate outside the United States in China, Malaysia, Mexico, the Netherlands,
Romania and Thailand. During 2014, 2013 and 2012, 53%, 51% and 50%, respectively, of our sales were from our
international operations. 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 NE, Washington, DC 20549. Information can be obtained on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330.
Item 1A. Risk Factors.
The following risk factors should be read carefully when reviewing the Company’s business, the forward-looking
statements contained in this Report, and the other statements the Company or its representatives make from time to
time. Any of the following factors could materially and adversely affect the Company’s business, operating results,
financial condition and the actual results of the matters addressed by the forward-looking statements.
Adverse market conditions in the electronics industry could reduce our future sales and earnings per share.
Uncertainty over the erosion of global consumer confidence amidst concerns about declining asset values, inflation,
volatile energy costs, geopolitical issues, the availability and cost of credit, rising unemployment, and the stability
and solvency of financial institutions, financial markets, businesses, and sovereign nations has slowed global
economic growth and resulted in recessions in many countries, including in the United States, Europe and certain
countries in Asia over the past several years. Even though we have seen signs of an overall economic recovery, such
recovery may be weak and/or short-lived and recessionary conditions may return. If any of these potential negative
economic conditions occur, they may result in lower spending by businesses in the future, which may affect demand
for our customers’ products and adversely affect our sales. Consequently, our past operating results, earnings and
cash flows may not be indicative of our future operating results, earnings and cash flows.
In addition to our customers or potential customers reducing or delaying orders, a number of other negative effects
on our business could materialize, including the insolvency of key suppliers, which could result in production
delays, shorter payment terms from suppliers due to reduced availability of credit default insurance in the market,
the inability of customers to obtain credit, and the insolvency of one or more customers. Any of these effects could
impact our ability to effectively manage inventory levels and collect receivables, increase our need for cash, and
decrease our net revenue and profitability.
10
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 economic conditions or 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 establish reserves
in an amount we determine appropriate for the perceived risk. There can be no assurance that our reserves will be
adequate. 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 and restructuring charges may be
incurred.
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 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 and industry-wide shortages of electronic components, particularly of memory and logic
devices, have occurred. For example, the 2011 earthquake and tsunami in Japan disrupted the global supply chain
for certain components manufactured in Japan that were incorporated in the products we manufactured, and the 2011
Thailand flood had a similar impact. Any such component shortages may result in delayed shipments, which could
have an adverse effect on our profit margins. Also, 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 may bear the risk of component price increases that occur between periodic re-pricings of product
during the term of a customer contract. Accordingly, certain component price increases could adversely affect our
gross profit margins.
We are dependent on the success of our customers. When our customers experience a downturn in their
business, we may be similarly affected.
We are dependent on the continued growth, viability and financial stability of our customers. Our customers are
OEMs of:
industrial control equipment;
telecommunication equipment;
computers and related products for business enterprises;
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(cid:120)
(cid:120)
(cid:120) medical devices; and
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testing and instrumentation products.
These industries are subject to rapid technological change, vigorous competition, short product life cycles and
consequent product obsolescence. 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. Sales to our ten largest customers represented 50%, 53%
and 56% of our sales in 2014, 2013 and 2012, respectively. In 2014, sales to Arris Group, Inc. and International
Business Machines Corporation each represented 11% 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
11
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 receivable 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.
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 vary due to:
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changes in demand for our customers’ products;
our customers’ attempts to manage their inventory;
design changes;
changes in our customers’ manufacturing strategies; 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 may again 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 strategies.
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 degree of success or failure of our customers’ products in the market
affects our business. Cancellations, reductions, delays or changes in the 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, capital expenditures 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 impede our ability to accurately
estimate the future requirements of those customers.
On occasion, customers 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
12
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.
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.
Our international operations may be subject to certain risks.
During 2014, 2013 and 2012, 53%, 51% and 50%, respectively, of our sales were from our international operations.
These international operations are subject to a number of risks, including:
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(cid:120)
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(cid:120)
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difficulties in staffing and managing foreign operations;
coordinating communications and logistics across geographic distances and multiple time zones;
less flexible employee relationships, which complicate meeting demand fluctuations and can be difficult
and expensive to terminate;
political and economic instability (including acts of terrorism and outbreaks of war), which could impact
our ability to ship and/or receive product;
changes in government policies, regulatory requirements and laws, which could impact our business;
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;
risk of governmental expropriation of our property;
burdens of complying with a wide variety of foreign laws and labor practices, including various and
changing minimum wage regulations;
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. Additionally, some of our operations are in developing countries. Certain events, including natural
disasters, can impact the infrastructure of a developing country more severely than they would impact the
infrastructure of a developed country. A developing country can also take longer to recover from such events, which
could lead to delays in our ability to resume full operations. 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.
13
Additionally, certain foreign jurisdictions, as well as the U.S. government, restrict the amount of cash that can be
transferred to the U.S or impose taxes and penalties on such transfers of cash. To the extent we have excess cash in
foreign locations that could be used in, or is needed by, our operations in the United States, we may incur significant
penalties and/or taxes to repatriate these funds.
Another significant legal risk resulting from our international operations is compliance with the U.S. Foreign
Corrupt Practices Act (FCPA). In many foreign countries, particularly in those with developing economies, it may
be a local custom that businesses operating in such countries engage in business practices that are prohibited by the
FCPA, other U.S. laws and regulations, or similar laws of host countries and related anti-bribery conventions.
Although we have implemented policies and procedures designed to comply with the FCPA and similar laws, there
can be no assurance that all of our employees, agents, or those companies to which we outsource certain of our
business operations, will not take actions in violation of our policies. Any such violation, even if prohibited by our
policies, could have a material adverse effect on our business.
We operate in a highly competitive industry; if we are not able to compete effectively in the EMS industry,
our business could be adversely affected.
We compete against many providers of electronics manufacturing services. Some 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., Plexus Corp and Sanmina 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 EMS
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.
14
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;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120) management of an increasingly larger and more geographically disparate business;
(cid:120)
(cid:120)
the possibility that past transactions or practices may lead to future commercial or regulatory risks; and
diversion of management’s attention from other ongoing business concerns.
Our profitability will suffer if we are unable to successfully integrate an acquisition, or if we do not achieve
sufficient revenue to offset the increased expenses associated with these acquisitions.
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:
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(cid:120)
the volume of customer orders relative to our capacity;
customer introduction and market acceptance of new products;
changes in demand for customer products;
seasonality 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 or natural
disasters.
Additionally, as is the case with many high technology companies, a significant portion of our shipments typically
occur in the last few weeks of a given quarter. Accordingly, sales shifts from quarter to quarter may not be readily
apparent until the end of a given quarter, and may have a significant effect on reported results.
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 the 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.
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.
15
We may be affected by consolidation in the electronics industry, which could create increased pricing and
competitive pressures on our business.
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 EMS 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 may need to increase
our efficiencies to compete and may incur additional restructuring charges.
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 where we operate 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.
Given the scope of our international operations and our international tax arrangements, proposed changes to the
manner in which U.S. based multinational companies are taxed in the U.S. could have a material impact on our
financial results and competitiveness.
We are exposed to intangible asset risk; our goodwill may become further impaired.
We have recorded intangible assets, including goodwill, in connection with business acquisitions. We are required to
assess goodwill and intangible assets for impairment 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. A
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, 2014, we had $46.0 million in
goodwill and $19.6 million of identifiable intangible assets. See Note 1(i) to the Consolidated Financial Statements
in Item 8 of this Report.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of
financial statements in accordance with U.S. GAAP. Any changes in estimates, judgments and assumptions
could have a material adverse effect on our 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 (U.S. GAAP). The preparation of
financial statements in accordance with U.S. 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.
16
Any litigation, even where a claim is without merit, could result in substantial costs and diversion of
resources.
In the past, we have been notified of claims relating to various matters including intellectual property rights,
contractual matters, labor issues or other matters arising in the ordinary course of business. In the event of any such
claim, we may be required to spend a significant amount of money and resources, even where the claim is without
merit. Accordingly, the resolution 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.
Our success will continue to depend to a significant extent on our key personnel.
We depend significantly on our executive officers and other key personnel. The unexpected loss of the services of
any one of these executive officers or other key personnel could have an adverse effect on us.
If we are unable to maintain our technological and manufacturing process expertise, our business could be
adversely affected.
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.
Our stock price is volatile.
Our common shares have experienced significant price volatility, which may continue in the future. The price of our
shares could fluctuate widely in response to a range of factors, including our financial results and changing
conditions in the economy generally 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 shares for reasons
unrelated to our performance.
Provisions in our governing documents and state law may make it harder for others to obtain control of our
company.
Certain provisions of our governing documents and the Texas Business Organizations Code may delay, inhibit or
prevent someone from gaining control of our company through a tender offer, business combination, proxy contest
or some other method, even if shareholders might consider such a development beneficial. These provisions include:
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a provision in our certificate of formation granting the Board of Directors authority to issue preferred stock
in one or more series and to fix the relative rights and preferences of such preferred stock;
provisions in our bylaws restricting shareholders from acting by less than unanimous written consent and
requiring advance notification of shareholder nominations and proposals;
a provision in our bylaws restricting anyone, other than the Chief Executive Officer, the President, the
Board of Directors or the holders of at least 10% of all outstanding shares entitled to vote, from calling a
special meeting of the shareholders;
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.
17
Compliance or the failure to comply with environmental regulations could cause us significant expense.
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 the RoHS directive and the Waste Electrical and Electronic Equipment Directive. These directives restrict
the distribution of products containing certain substances, including lead, within applicable geographies and require
a manufacturer or importer to recycle products containing those substances.
These 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 climate change issues become more prevalent, the U.S. and foreign governments are beginning to
respond to these issues. This increasing governmental focus on climate change 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 or obligations 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.
Our business may be adversely impacted by geopolitical events.
As a global business, we operate and have customers located in many countries. Geopolitical events such as terrorist
acts may affect the overall economic environment and negatively impact the demand for our customers’ products or
our ability to ship or receive products. As a result, customer orders may be lower and our financial results may be
adversely affected.
Our business may be adversely impacted by natural disasters.
Some of our facilities, including our corporate headquarters, are located in areas that 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. For example, we have been unable to renew or otherwise obtain adequate
cost-effective flood insurance to cover assets at our facilities in Thailand as a result of the flooding that occurred in
2011. We continue to monitor the insurance market in Thailand. In the event we were to experience a significant
uninsured loss in Thailand or elsewhere, it could have a material adverse effect on our business, financial condition
and results of operations.
In addition, some of our facilities possess certifications necessary to work on specialized products that our other
locations lack. If work is disrupted at one of these facilities, it may be impractical, or we may be unable, to transfer
such specialized work to another facility without significant costs and delays. Thus, any disruption in operations at a
facility possessing specialized certifications could adversely affect our ability to provide products and services to our
customers, and thus negatively affect our relationships and financial results.
18
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 prime rate
or LIBOR. We are also exposed to interest rate risk on our invested cash balances.
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 U.S. 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 that
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 from U.S. 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. 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.
Finally, corporate governance, public disclosure and compliance practices continue to evolve based upon continuing
legislative action, agency rulemaking and stockholder advisory group policies. As a result, the number of rules and
regulations applicable to us may increase, which would also increase our legal and financial compliance costs and
the amount of time management must devote to compliance activities. For example, the Dodd-Frank Wall Street
Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning
the supply of certain minerals originating from the Democratic Republic of Congo (DRC) and adjoining countries
that are believed to be benefitting armed groups. As a result, the SEC adopted new due diligence, disclosure and
reporting requirements for companies which manufacture products that include components containing such
minerals, regardless of whether the minerals are mined in the DRC or adjoining countries. These requirements may
decrease the acceptable sources of supply of such minerals, increase their cost and disrupt our supply chain if we
need to obtain components from different suppliers. Since we manufacture products containing such minerals for
our customers, we are required to comply with these rules. As the method of complying with the new regulation is
unclear, the compliance process may become time-consuming and costly. Failure to comply with this new regulation
could result in additional costs (including but not limited to, fines or penalties) as well as affect our reputation.
Increasing regulatory burdens could also make it more difficult for us to attract and retain members of our board of
directors, particularly to serve on our audit committee, and executive officers in light of an increase in actual or
perceived workload and liability for serving in such positions.
Energy price increases may negatively impact our results of operations.
Certain of the components that we use in our manufacturing activities are petroleum-based. In addition, we, along
with our suppliers and customers, rely on various energy sources (including oil) in our transportation activities.
While significant uncertainty currently exists about the future levels of energy prices, a significant increase is
possible. Increased energy prices could cause an increase to our raw material costs and transportation costs. In
addition, increased transportation costs of certain of our suppliers and customers could be passed along to us. We
may not be able to increase our product prices enough to offset these increased costs. In addition, any increase in our
19
product prices may reduce our future customer orders and profitability.
Introducing programs requiring implementation of new competencies, including new process technology
within our mechanical operations, could affect our operations and financial results.
The introduction of programs requiring implementation of new competencies, including new process technology
within our mechanical operations, presents challenges in addition to opportunities. Deployment of such programs
may require us to invest significant resources and capital in facilities, equipment and/or personnel. We may not meet
our customers’ expectations or otherwise execute properly or in a cost-efficient manner, which could damage our
customer relationships and result in remedial costs or the loss of our invested capital and anticipated revenues and
profits. In addition, there are risks of market acceptance and product performance that could result in less demand
than anticipated and our having excess capacity. The failure to ensure that our agreed terms appropriately reflect the
anticipated costs, risks, and rewards of such an opportunity could adversely affect our profitability. If we do not
meet one or more of these challenges, our operations and financial results could be adversely affected.
If our manufacturing processes and services do not comply with applicable regulatory requirements, or if we
manufacture products containing design or manufacturing defects, demand for our services may decline and
we may be subject to liability claims.
We manufacture and design products to our customers’ specifications, and, in some cases, our manufacturing
processes and facilities may need to comply with applicable regulatory requirements. For example, medical devices
that we manufacture or design, as well as the facilities and manufacturing processes that we use to produce them, are
regulated by the U.S. Food and Drug Administration and non-U.S. counterparts of this agency. Similarly, items we
manufacture for customers in the defense and aerospace industries, as well as the processes we use to produce them,
are regulated by the Department of Defense and the Federal Aviation Authority, which have increased their focus
and penalties related to counterfeit materials. In addition, our customers’ products and the manufacturing processes
or documentation that we use to produce them often are highly complex. As a result, products that we manufacture
may at times contain manufacturing or design defects, and our manufacturing processes may be subject to errors or
not be in compliance with applicable statutory and regulatory requirements. Defects in the products we manufacture
or design, whether caused by a design, manufacturing or component failure or error, or deficiencies in our
manufacturing processes, may result in delayed shipments to customers or reduced or cancelled customer orders. If
these defects or deficiencies are significant, our business reputation may also be damaged. The failure of the
products that we manufacture or our manufacturing processes and facilities to comply with applicable statutory and
regulatory requirements may subject us to legal fines or penalties and, in some cases, require us to shut down or
incur considerable expense to correct a manufacturing process or facility. In addition, these defects may result in
liability claims against us or expose us to liability to pay for the recall of a product. The magnitude of such claims
may increase as we expand our medical and aerospace and defense manufacturing services, as defects in medical
devices and aerospace and defense systems could seriously harm or kill users of these products and others. Even if
our customers are responsible for the defects, they may not, or may not have resources to, assume responsibility for
any costs or liabilities arising from these defects, which could expose us to additional liability claims.
Customer relationships with emerging companies may present more risks than with established companies.
Customer relationships with emerging companies present special risks because such companies do not have an
extensive product history. As a result, there is less demonstration of market acceptance of their products, making it
harder for us to anticipate needs and requirements than with established customers. In addition, due to the current
economic environment, additional funding for such companies may be more difficult to obtain and these customer
relationships may not continue or materialize to the extent we planned or we previously experienced. This tightening
of financing for start-up customers, together with many start-up customers’ lack of prior operations and unproven
product markets increase our credit risk, especially in trade accounts receivable and inventories. Although we
perform ongoing credit evaluations of our customers and adjust our allowance for doubtful accounts receivable for
20
all customers, including start-up customers, based on the information available, these allowances may not be
adequate. This risk may exist for any new emerging company customers in the future.
We are subject to breach of our security systems.
We have implemented security systems to secure our physical facilities and protect our confidential information, as
well as that of our customers and suppliers. Information technology plays an ever-increasing role in today’s
business; we maintain some of our information systems, but also rely on third parties for a portion of our needs. The
recent successes of sophisticated hackers have been well publicized and, despite our efforts, we are subject to breach
of security systems, which could result in unauthorized access to our facilities and the information we are trying to
protect. If unauthorized parties gain physical access to one of our facilities or electronic access to our information
systems, or if information is misdirected, lost or stolen during transmission or transport, any theft or misuse of such
information could result, among other things, in unfavorable publicity, governmental inquiry and oversight,
difficulty in marketing our services, allegations of contractual breach, litigation by affected parties and possible
financial obligations for damages related to the theft or misuse of the information, any of which could have a
material adverse effect on our profitability and cash flow. In addition, we rely on our information systems to run our
business; despite our efforts to create appropriate redundancies and ensure continuous information flow, even simple
failures in these systems resulting from natural disasters or facility damage can lead to supply or production
interruptions that result in lost profits, contractual penalties and reputational damage.
The risk of uninsured losses will be borne by Benchmark.
As a result of the massive flooding in the Fall of 2011, we have been unable to renew or otherwise obtain cost-
effective flood insurance to adequately cover assets at our facilities in Thailand. We continue to monitor the
insurance market in Thailand. We maintain insurance on all our properties and operations—including our assets in
Thailand—for risks and in amounts customary in the industry. While such insurance includes general liability,
property & casualty, and directors & officers liability coverage, not all losses are insured, and we retain certain risks
of loss through deductibles, limits and self-retentions. In the event we were to experience a significant uninsured
loss in Thailand or elsewhere, it could have a material adverse effect on our business, financial condition and results
of operations.
Item 1B. Unresolved Staff Comments.
None.
21
Item 2. Properties.
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 the approximate square footage of our principal manufacturing facilities by
country:
Location
United States:
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Romania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sq. Ft.
233,000
48,000
323,000
431,000
161,000
155,000
326,000
293,000
554,000
132,000
131,000
758,000
3,545,000
Our principal manufacturing facilities consist of 1,901,000 square feet in facilities that we own, with the remaining
1,644,000 square feet in leased facilities whose terms expire between 2015 and 2021.We lease other facilities with a
total of 15,000 square feet dedicated to engineering and procurement services. We also have 264,000 square feet of
space in leased facilities and 45,000 square feet in owned facilities that we plan to exit in 2015. We are currently
attempting to sublease or terminate leases for these facilities.
Item 3. Legal Proceedings.
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.
Item 4. Mine Safety Disclosures.
Not applicable.(cid:3)
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
(cid:3)
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.
2015
First quarter (through February 25, 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$25.63
$22.32
$25.92
$26.06
$25.53
$24.64
$23.63
$23.22
$20.57
$18.44
$20.37
$22.20
$21.66
$22.01
$21.73
$19.90
$16.08
$16.46
The last reported sale price of our common shares on February 25, 2015, as reported by the New York Stock
Exchange, was $23.59. There were approximately 735 record holders of our common shares as of
February 25, 2015.
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. We currently expect to retain future earnings
for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable
future.
23
Issuer Purchases of Equity Securities
The following table provides information about the Company’s repurchase of its equity securities that are registered
pursuant to Section 12 of the Exchange Act during the quarter ending December 31, 2014, at a total cost of $18.8
million:
(a)
Total Number of
Shares (or
Units)
Purchased(1)
345,000
222,500
240,000
807,500
(b)
Average Price
Paid per Share
(or Unit)(2)
$21.88
$23.92
$24.44
$23.20
Period
October 1 to 31, 2014. . . . .
November 1 to 30, 2014. . .
December 1 to 31, 2014. . .
Total. . . . . . . . . . . . . . . . .
(d)
Maximum
Number (or
Approximate
Dollar Value)
of Shares (or
Units) that
May Yet Be
Purchased
Under the
Plans or
Programs(3)
$14.3 million
$8.9 million
$103.1 million
(c)
Total Number of
Shares (or Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
345,000
222,500
240,000
807,500
(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 June 13, 2012, and again on December 4, 2014, the Board of Directors approved the repurchase of up to $100
million of the Company’s outstanding common shares (the 2012 Repurchase Program and the 2014 Repurchase
Program, respectively). 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 2014, the Company repurchased a total of 1.9 million common shares for $43.8 million at an average price
of $23.51 per share. All share purchases were made in the open market and the shares repurchased in 2014 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, 2009 and ending December 31, 2014, 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., Flextronics International, Ltd., Jabil Circuit, Inc., Plexus Corp and Sanmina
Corporation. Dividend reinvestment has been assumed.
Dec-09
$100.00
Benchmark Electronics, Inc. . . . .
Peer Group . . . . . . . . . . . . . . . . $100.00
S&P 500 . . . . . . . . . . . . . . . . . . $100.00
Dec-10
$96.00
$109.70
$115.10
Dec-11
$71.20
$91.70
$117.50
Dec-12
$87.90
$96.50
$136.30
Dec-13
$122.10
$115.30
$180.40
Dec-14
$134.50
$148.80
$205.10
NOTES: Assumes $100 invested on December 31, 2009 in Benchmark Electronics, Inc. Common Shares, in the
S&P 500, and in the Peer Group Index. Reflects month-end dividend reinvestment.
25
Item 6. Selected Financial Data.
(in thousands, except per share data)
Selected Statements of Income Data
Sales . . . . . . . . . . . . . . . . . . . . . . . . $ 2,797,061 $ 2,506,467 $ 2,468,150 $ 2,253,030 $ 2,402,143
2,214,728
Cost of sales . . . . . . . . . . . . . . . . . .
187,415
Gross profit . . . . . . . . . . . . . .
2,291,412
176,738
2,319,983
186,484
2,114,195
138,835
2,577,204
219,857
2010
2014
Year Ended December 31,
2012
2013
2011
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . . .
Restructuring charges and integration
and acquisition-related charges(1) . .
Thailand flood-related items, net
of insurance(2) . . . . . . . . . . . . . . . .
Asset impairment charge and other(3) .
Income from operations . . . . .
Interest expense . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . .
Income tax expense (benefit)(4) . . . . .
Net income . . . . . . . . . . . . . . $
Earnings per share:(5)
Basic . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . $
115,700
99,331
89,951
89,665
92,245
7,131
9,348
2,200
4,515
6,724
(1,571)
(1,547)
100,144
(41,325)
2,606
116,524
(1,934)
1,688
(101)
5,018
(1,890)
2,048
(452)
17,408
82,442 $ 111,159 $
9,028
—
75,559
(1,580)
1,306
154
18,832
56,607 $
3,362
—
41,293
(1,327)
1,768
(602)
(10,827)
51,959 $
—
—
88,446
(1,362)
1,621
(1,689)
7,258
79,758
1.54 $
1.52 $
2.05 $
2.03 $
1.01 $
1.00 $
0.88 $
0.87 $
1.28
1.27
Weighted-average number of
shares outstanding:
Basic . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . .
53,538
54,222
54,213
54,779
56,320
56,634
59,284
59,773
62,141
62,692
(in thousands)
Selected Balance Sheet Data
Working capital . . . . . . . . . . . . . . . . $ 1,029,455 $ 944,456 $ 883,676 $ 849,051 $ 891,637
1,477,068
Total assets . . . . . . . . . . . . . . . . . . .
11,381
Total debt . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . $ 1,291,040 $ 1,227,033 $ 1,139,525 $ 1,115,748 $ 1,119,225
1,678,889
9,521
1,657,371
10,103
1,499,998
11,019
1,501,477
10,600
2011
2013
2010
2014
December 31,
2012
(1) See Note 16 to the Consolidated Financial Statements for a discussion of the restructuring charges and
integration and acquisition-related charges occurring in 2014, 2013 and 2012. During 2011 and 2010, the
Company recognized restructuring totaling $4.5 million and $6.7 million related to reductions in workforce
and the resizing and closure of certain facilities.
(2) See Note 17 to the Consolidated Financial Statements for a discussion of Thailand flood-related items, net of
insurance.
(3) During the fourth quarter of 2014, the Company recorded a $1.5 million gain on the sale of its Tianjin, China
subsidiary, including its manufacturing facility which had been held for sale since 2008. During the second
quarter of 2013, the Company recorded a non-cash impairment charge of $3.8 million related to this facility.
Also during the second quarter of 2013, the Company disposed a non-manufacturing facility in Thailand for
$1.6 million resulting in a gain of $1.2 million.
(4) See Note 9 to the Consolidated Financial Statements for a discussion of income taxes. During the third quarter
of 2011, the Company reduced its deferred tax valuation allowance by $17.5 million in the U.S. and, at the
same time, increased its valuation allowance by $1.2 million in foreign jurisdictions.
(5) See Note 1(j) to the Consolidated Financial Statements for the basis of computing earnings per share.
26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes
thereto in Item 8 of this Report. You should also bear in mind the Risk Factors set forth in Item 1A, any of which
could materially and adversely affect the Company’s business, operating results, financial condition and the actual
results of the matters addressed by the forward-looking statements contained in the following discussion.
2014 HIGHLIGHTS
Sales for 2014 were $2.8 billion, a 12% increase from sales of $2.5 billion in 2013. The overall increase in sales
related primarily to increased demand from existing customers, including new programs, new customers and the
impact of the Suntron and CTS Acquisitions.
Our gross profit as a percentage of sales increased to 7.9% for 2014 from 7.4% in the same period of 2013, primarily
due to higher sales volumes, changes in the mix of programs and the impact of our acquisitions. 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.
We have undertaken initiatives to restructure our business operations with the intention of improving utilization and
realizing cost savings in the future. During 2014, the Company recognized $6.1 million (pre-tax) of integration and
acquisition-related costs, primarily related to integration costs of the CTS Acquisition, and $1.0 million (pre-tax) of
restructuring charges in connection with reductions in workforce of certain facilities primarily in the Americas.
RESULTS OF OPERATIONS
The following table presents the percentage relationship that certain items in our Consolidated Statements of Income
bear to sales for the periods indicated. The financial information and the discussion below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto in Item 8 of this Report.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . .
Restructuring charges and integration and acquisition-related costs .
Thailand flood related items, net of insurance . . . . . . . . . . . . . . . .
Asset impairment charge and other . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2013
100.0%
92.6
7.4
4.0
0.4
(1.6)
0.1
4.6
(0.0)
4.6
0.2
4.4%
2014
100.0%
92.1
7.9
4.1
0.3
(0.0)
(0.0)
3.6
(0.0)
3.6
0.6
2.9%
2012
100.0%
92.8
7.2
3.6
0.1
0.4
—
3.1
(0.0)
3.1
0.8
2.3%
27
2014 Compared With 2013
Sales
As noted above, sales increased 12% in 2014. The percentages of our sales by industry was as follows:
Industrial control equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunication equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and related products for business enterprises . . . . . . . . . . . . . . . . .
Medical devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Testing and instrumentation products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
30%
29
21
11
9
100%
2013
28%
23
30
11
8
100%
Industrial Control Equipment. 2014 sales increased 19% to $845.9 million from $712.4 million in 2013 primarily
as a result of increased demand from existing customers, including new programs, and the impact of the Suntron and
CTS Acquisitions.
Telecommunication Equipment. 2014 sales increased 39% to $807.2 million from $579.8 million in 2013. The
increase was primarily due to new programs, increased demand from existing customers and the impact of the CTS
Acquisition.
Computers and Related Products for Business Enterprises. 2014 sales decreased 22% to $577.1 million from
$737.4 million in 2013. The decrease was primarily due to the timing of program transitions as well as lower
demand from our customers.
Medical Devices. 2014 sales increased 10% to $310.7 million from $281.7 million in 2013 primarily as a result of
new programs, and, to a lesser extent, the impact of the CTS Acquisition.
Testing and Instrumentation Products. 2014 sales increased 31% to $256.2 million from $195.2 million in 2013
primarily due to new programs, improvement in the semiconductor industry, and the impact of the Suntron
Acquisition.
Sales to our ten largest customers represented 50% and 53% of our sales in 2014 and 2013, respectively. In 2014,
sales to Arris Group, Inc. and International Business Machines Corporation each represented 11% of our sales. In
2013, sales to International Business Machines Corporation, the only customer to account for more than 10% of our
net sales, represented 17% of our sales. Sales to this customer decreased to $312.6 million in 2014 compared to
$430.2 million in 2013 primarily due to the timing of new program ramps and product transitions, as well as market
uncertainty in the global economy, which reduced demand.
Our international operations are subject to the risks of doing business abroad. 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 2014 and
2013, 53% and 51%, respectively, of our sales were from our international operations.
We had a backlog of approximately $1.6 billion at December 31, 2014, as compared to the 2013 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, 2014 during 2015, 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
28
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 increased 18% to $219.9 million for 2014 from $186.5 million in 2013 due primarily to an increase in
sales. Our 2014 gross profit as a percentage of sales increased to 7.9% from 7.4% in 2013 primarily due to higher
sales volume, changes in the mix of programs and the impact of the acquisitions. 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 increased to $115.7 million in 2014 from $99.3 million in 2013. The
increase in selling, general and administrative expenses is primarily associated with the Suntron and CTS
acquisitions,(cid:3)support of increased sales volumes and a $2.7 million charge for provisions to accounts receivable
associated with the bankruptcy filing of our former customer, GT Advance Technologies, on October 6, 2014.
Selling, general and administrative expenses, as a percentage of sales, were 4.1% and 4.0%, respectively, for 2014
and 2013. Excluding the provisions to accounts receivable associated with the referenced bankruptcy, SG&A, as a
percentage of sales, was 4.0% in both 2014 and 2013.
Restructuring Charges and Integration and Acquisition-Related Costs
During 2014, we recognized $7.1 million of restructuring charges and integration and acquisition-related costs
primarily related to integration costs of the CTS Acquisition. In 2013, we recognized $9.3 million in restructuring
charges and integration and acquisition-related costs primarily related to the closure of our Brazil and Singapore
facilities and the acquisitions of Suntron and CTS. See Notes 2 and 16 to the Consolidated Financial Statements in
Item 8 of this Report.
Thailand Flood-Related Items
Our facilities in Ayudhaya, Thailand flooded and remained closed from October 13, 2011 to December 20, 2011. As
a result of the flooding and temporary closing of these facilities, we incurred property losses and flood related costs
during 2012 and 2011, which were partially offset by insurance recoveries. During 2014, Thailand flood-related
items resulted in a gain of $1.6 million of insurance proceeds. The recovery process with our insurance carriers is
complete. During 2013, Thailand flood-related items resulted in a gain of $41.3 million. See Note 17 to the
Consolidated Financial Statements in Item 8 of this Report.
Asset Impairment Charge and Other
We disposed of our Tianjin, China subsidiary in 2014, which included a non-manufacturing facility, for $5.7
million, resulting in a gain of $1.5 million.(cid:3)In 2013, we had recognized a non-cash asset impairment charge of $3.8
million related to the Tianjin facility and disposed of a non-manufacturing facility in Thailand for $1.6 million
resulting in a gain of $1.2 million.
29
Income Tax Expense
Income tax expense of $17.4 million represented an effective tax rate of 17.4% for 2014, compared with $5.0
million that represented an effective tax rate of 4.3% for 2013. We had a tax incentive in China that expired at the
end of 2012, but was extended in the first quarter of 2014 until 2015 and retroactively applied to the 2013 calendar
year. The tax adjustment for the $1.2 million retroactive incentive for 2013 was recorded as a discrete tax benefit as
of March 31, 2014. In 2013, we recorded a discrete U.S. tax benefit of $17.5 million related to reduced valuation
allowance on U.S. net operating losses and other deferred tax assets and a discrete tax benefit of approximately $0.8
million related to the American Taxpayer Relief Act of 2012 (ATRA) consisting of research and experimentation
credits and decreases in U.S. taxable income related to previously taxed foreign transactions. The ATRA
retroactively restored the research and experimentation credit and other U.S. income tax benefits for 2012 and
extends these provisions through the end of 2013. Excluding these tax items, the effective tax rate would have been
18.7% in 2014 compared to 19.1% in 2013. The decrease in the effective tax rate results primarily from higher
taxable income in geographies with lower tax rates.
We have been granted certain tax incentives, including tax holidays, for our subsidiaries in China, Malaysia and
Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2015 in China, 2016 in
Malaysia, and 2026 in Thailand. See Note 9 to the Consolidated Financial Statements in Item 8 of this Report.
The Tax Increase Prevention Act of 2014 was enacted on December 19, 2014 and retroactively extended the
research and experimentation (R&E) tax credit for 2014. As a result, our income tax provision for the fourth quarter
of 2014 includes a tax benefit of approximately $0.9 million. This R&E tax credit has not been extended for 2015
and may increase the effective tax rate in future years by a similar amount if not extended.
Net Income
We reported net income of $82.4 million, or $1.52 per diluted share for 2014, compared with net income of $111.2
million, or $2.03 per diluted share for 2013. The net decrease of $28.7 million in 2014 was due to the factors
discussed above.
2013 Compared With 2012
Sales
Sales in both 2013 and 2012 were $2.5 billion. The following table sets forth the percentages of our sales by
industry.
Computers and related products for business enterprises . . . . . . . . . . . . . . . . .
Industrial control equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunication equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Testing and instrumentation products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
30%
28
23
11
8
100%
2012
31%
26
26
10
7
100%
Computers and Related Products for Business Enterprises. Sales in 2013 decreased 4% to $737.4 million from
$771.5 million in 2012. The decrease was primarily due to the timing of program ramps and product transitions as
well as market uncertainty in the global economy, which led to lower demand from our existing customers.
Industrial Control Equipment. Sales in 2013 increased 10% to $712.4 million from $648.4 million in 2012
primarily as a result of new customers, new programs and the impact of the acquisitions of Suntron and CTS.
30
Telecommunication Equipment. Sales in 2013 decreased 9% to $579.8 million from $637.9 million in 2012. The
decrease was primarily due to lower demand from our customers and timing of program ramps and transitions
somewhat offset by the impact of the CTS acquisition. In addition, in 2012, our telecommunication sector had a
strong rebound as a result of the recovery from the Thailand flooding.
Medical Devices. Sales in 2013 increased 15% to $281.7 million from $244.1 million in 2012 primarily as a result
of new programs and the impact of the Suntron and CTS acquisitions.
Testing and Instrumentation Products. Sales in 2013 increased 17% to $195.2 million from $166.2 million in
2012 as a result of improvement in the semiconductor industry and the impact of the Suntron and CTS acquisitions.
During 2013 and 2012, 51% and 50%, respectively, of our sales were from our international operations.
We had a backlog of approximately $1.7 billion at December 31, 2013, as compared to the 2012 year-end backlog of
$1.5 billion.
Gross Profit
Gross profit increased 6% to $186.5 million for 2013 from $176.7 million in 2012 due primarily to an increase in
sales. Our 2013 gross profit as a percentage of sales increased to 7.4% from 7.2% in 2012 primarily due to changes
in the mix of programs and the impact of the acquisitions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $99.3 million in 2013 from $90.0 million in 2012. Selling,
general and administrative expenses, as a percentage of sales, were 4.0% and 3.6%, respectively, for 2013 and 2012.
The increase in selling, general and administrative expenses is primarily associated with the Suntron and CTS
acquisitions.
Restructuring Charges
We recognized $9.3 million in restructuring charges and integration and acquisition-related costs during 2013
primarily related to the closure of our Brazil and Singapore facilities and the acquisitions of Suntron and CTS.
Thailand Flood-Related Items
During 2013, Thailand flood related items resulted in a gain of $41.3 million including $41.2 million of insurance
proceeds.
Asset Impairment Charge and Other
We recognized a non-cash asset impairment charge of $3.8 million related to our facility in Tianjin, China in 2013.
Also in 2013, we disposed of a non-manufacturing facility in Thailand for $1.6 million resulting in a gain of $1.2
million.
Income Tax Expense
Income tax expense of $5.0 million represented an effective tax rate of 4.3% for 2013, compared with $18.8 million
that represented an effective tax rate of 25.0% for 2012. In 2013, we recorded a discrete U.S. tax benefit of $17.5
million related to reduced valuation allowance on U.S. net operating losses and other deferred tax assets and a
discrete tax benefit of approximately $0.8 million related to the American Taxpayer Relief Act of 2012 (ATRA)
consisting of research and experimentation credits and decreases in U.S. taxable income related to previously taxed
31
foreign transactions. The ATRA retroactively restored the research and experimentation credit and other U.S.
income tax benefits for 2012 and extends these provisions through the end of 2013. In 2012, we recorded a $0.5
million tax expense related to changes in tax rates in foreign jurisdictions. Excluding these tax items, the effective
tax rate would have been 20.1% in 2013 compared to 24.3% in 2012. The decrease in the effective tax rate is
primarily a result of higher taxable income in Thailand as a result of the flood related items. See Note 9 to the
Consolidated Financial Statements in Item 8 of this Report.
Net Income
We reported net income of $111.2 million, or $2.03 per diluted share for 2013, compared with net income of $56.6
million, or $1.00 per diluted share for 2012. The net increase of $54.6 million in 2013 was due to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our growth and operations through funds generated from operations and proceeds
from the sale and maturity of our investments. Cash and cash equivalents totaled $427.4 million at December 31,
2014 and $345.6 million at December 31, 2013, of which $333.3 million at December 31, 2014 and $307.3 million
at December 31, 2013 was held outside the U.S. in various foreign subsidiaries. Substantially all of the amounts held
outside of the U.S. are intended to be permanently reinvested in foreign operations. Under current tax laws and
regulations, if cash and cash equivalents held outside the U.S. were to be distributed to the U.S. in the form of
dividends or otherwise, we would be subject to additional U.S. income taxes and foreign withholding taxes.
Cash provided by operating activities was $136.7 million in 2014, which included $1.1 million of Thailand flood
insurance recoveries. The cash provided by operations during 2014 consisted primarily of $82.4 million of net
income adjusted for $46.4 million of depreciation and amortization, and a $37.9 million decrease in accounts
receivable, offset by a $36.6 million decrease in accounts payable. The decrease in accounts receivable was
primarily driven by the decline in fourth quarter sales from 2013 to 2014. The decrease in accounts payable in 2014
is a result of lower fourth quarter activity in 2014 compared to 2013. Working capital was $1.0 billion at December
31, 2014 and $0.9 billion at December 31, 2013.
We are continuing the practice of purchasing components only after customer orders or forecasts 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. 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 and therefore impact cash flows.
Cash used in investing activities was $27.5 million in 2014 primarily due to the purchases of additional property,
plant and equipment totaling $44.2 million offset by $10.3 million from the redemption of investments. Purchases of
additional property, plant and equipment were primarily of machinery and equipment in the Americas.
Cash used in financing activities was $24.9 million in 2014. Share repurchases totaled $43.8 million, and we
received $18.9 million from the exercise of stock options.
Under the terms of a credit agreement (the Credit Agreement), we have a $200.0 million five-year revolving credit
facility to be used for general corporate purposes with a maturity date of July 30, 2017. 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. As of December 31, 2014 and 2013,
we had no borrowings outstanding under the Credit Agreement, $1.2 million and $0.8 million, respectively, in
outstanding letters of credit and $198.8 million and $199.2 million, respectively, was available for future
32
borrowings. See Note 6 to the Consolidated Financial Statements in Item 8 of this Report for more information
regarding the terms of the Credit Agreement.
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.
As of December 31, 2014, we had cash and cash equivalents totaling $427.4 million and $198.8 million available for
borrowings under the Credit Agreement. During the next twelve months, we believe our capital expenditures will be
approximately $45 million to $55 million, principally for machinery and equipment to support our ongoing business
around the globe.
On both December 4, 2014 and June 13, 2012, our Board of Directors approved the repurchase of up to $100 million
of our outstanding common shares (the 2014 Repurchase Program and the 2012 Repurchase Program, respectively).
As of December 31, 2014, we have $100.0 million and $3.1 million, respectively, remaining under the 2014 and
2012 Repurchase Programs to repurchase additional shares. We are under no commitment or obligation to
repurchase any particular amount of common shares. 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 Credit Agreement 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our
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 ongoing basis, we evaluate our estimates, including
those related to accounts receivable, inventories, income taxes, long-lived assets, stock-based compensation 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
33
the receivables. To evaluate a specific customer’s ability to pay, we analyze financial statements, payment history
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 establish 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.
Inventory obsolescence
We purchase inventory based on forecasted demand and record inventory at the lower of cost or market. We write
down inventory 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,
which requires 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 customers’ revised needs, or parts that
become obsolete before use in production. We write down excess and obsolete inventory when we determine that
our customers are not responsible for it, or if we believe our customers will be unable to fulfill their obligation to
ultimately purchase it. 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 uncertain tax positions. 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. Our valuation allowance as of December 31, 2014 of $36.7 million primarily relates to
deferred tax assets from our United States federal and state net operating loss tax carryforwards of $30.4 million
(federal losses are primarily acquired and subject to Internal Revenue Code Section 382 limitations), foreign net
operating loss tax carryforwards of $9.9 million, and United States federal and state tax credit carryforwards of $7.1
million.
Differences in our future operating results as compared to the estimates utilized in the determination of the valuation
allowances could result in adjustments in valuation allowances in future periods. For example, a significant increase
in our operations in the United States, future accretive acquisitions in the United States and any movement in the
mix of profits from our international operations to the United States would result in a reduction in the valuation
allowance and would increase income in the period such determination was made. Alternatively, significant
economic downturns in the United States generating additional operating loss carryforwards and potential
movements in the mix of profits to international locations would result in an increase in the valuation allowance and
would decrease income in the period such determination was made.
During 2013 and 2011, we evaluated the recoverability of our deferred tax assets using the criteria described above
and concluded that our projected future taxable income in the U.S. is sufficient to utilize additional net operating
loss carryforwards and other deferred tax assets. As a result, we reduced our U.S. valuation allowance by $17.5
million and $19.1 million, respectively, in 2013 and 2011.
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 may occur as to matters of fact and/or law. 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.
34
Our subsidiary in Thailand has filed for a refund of $7.9 million of previously paid income taxes for years 2004 and
2005, which is included in other assets. The Thai tax authorities conducted an initial examination of the applicable
refund filings, and in 2011, we recorded a reserve for uncertain tax benefits of $7.1 million against this refund claim.
In 2012, we received official notification that the tax authorities had rejected our refund claim. We have appealed
the rejected claim and are awaiting the tax authorities’ decision.
Impairment of Long-Lived Assets and Goodwill
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 for impairment on an annual basis, at a minimum, and whenever events and circumstances that
the carrying amount may be impaired. Circumstances that may lead to the impairment of goodwill include
unforeseen decreases in future performance or industry demand or the restructuring of our operations as a result of a
change in our business strategy. We perform a qualitative assessment to determine if goodwill is potentially
impaired. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount, or if we elect to not perform a qualitative assessment, then we would be required to
perform a quantitative impairment test for goodwill. This two-step process involves determining the fair values of
the reporting units and comparing those fair values to the carrying values, including goodwill, of the reporting unit.
An impairment loss would be recognized to the extent that the carrying amount exceeds the asset’s fair value. For
purposes of performing our goodwill impairment assessment, our reporting units are the same as our operating
segments as defined in Note 13 to the Consolidated Financial Statements in Item 8 of this Report. As of December
31, 2014 and 2013, we had goodwill of approximately $46.0 million and $44.7 million, respectively, associated with
our Americas and Asia business segments.
Based on our qualitative assessment of goodwill as of December 31, 2014, 2013 and 2012, we concluded that it was
more likely than not that the fair value of our Americas and Asia business segments were greater than their carrying
amounts, and therefore no further testing was required.
Changes in economic and operating conditions that occur after the annual impairment analysis or an interim
impairment analysis, and that impact these assumptions, may result in a future goodwill impairment charge.
Stock-Based Compensation
We recognize stock-based compensation expense in our consolidated statements of income. 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 stock-based 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. For performance-
based restricted stock unit awards, compensation expense is based on the probability that the performance goals will
be achieved, which is monitored by management throughout the requisite service period. If it becomes probable,
based on our expectation of performance during the measurement period, that more or less than the previous
estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a
change in accounting estimate. See Note 1(m) to the Consolidated Financial Statements in Item 8 of this Report.
35
Recently Enacted Accounting Principles
See Note 1(q) to the Consolidated Financial Statements in Item 8 of this Report for a discussion of recently enacted
accounting principles.
CONTRACTUAL OBLIGATIONS
We have certain contractual obligations that extend out beyond 2015 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, 2014 due
pursuant to contractual commitments are:
(in thousands)
Total
Operating lease obligations . . .
Capital lease obligations . . . . .
Total obligations . . . . . . . . . .
$ 41,283
14,309
$ 55,592
Payments due by period
Less than
1 year
$ 14,577
1,613
$ 16,190
1-3
years
$ 13,372
3,323
$ 16,695
3-5
years
$ 6,643
3,458
$ 10,101
More than
5 years
$ 6,691
5,915
$ 12,606
The amount of unrecognized tax benefits as of December 31, 2014 including interest and penalties was
$18.0 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 may become due. See
Note 9 to the Consolidated Financial Statements in Item 8 of this Report.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2014, we did not have any significant off-balance sheet arrangements. See Note 11 to the
Consolidated Financial Statements in Item 8 of this Report.
36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our international sales comprise a significant portion of our net sales. We are exposed to risks associated with
operating internationally, including:
Foreign currency exchange risk;
Import and export duties, taxes and regulatory changes;
Inflationary economies or currencies; and
•
•
•
• Economic and political instability.
Additionally, some of our operations are in developing countries. Certain events, including natural disasters, can
impact the infrastructure of a developing country more severely than they would impact the infrastructure of a
developed country. A developing country can also take longer to recover from such events, which could lead to
delays in our ability to resume full operations.
We do not use derivative financial instruments for speculative purposes. As of December 31, 2014, 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 relate primarily to vendor payments and customer receivable balances in currencies
other than the primary currency generated and used by our foreign operations and our net investment in foreign
operations. Some of our international operations 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 and Mexico.
We are also exposed to market risk for changes in interest rates, a portion of which relates to our invested cash
balances. We do not use derivative financial instruments in our investing activities. 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.
37
Item 8. Financial Statements and Supplementary Data.
(cid:3)
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except par value)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $2,943
and $338, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, less current installments . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 – 52,994 and 53,936, respectively; outstanding – 52,994 and
53,825, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less treasury shares, at cost; 0 and 111 shares, respectively . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
December 31,
2014
2013
$ 427,376
$ 345,555
520,389
401,261
30,453
572
8,502
1,388,553
1,008
190,180
45,970
25,017
28,161
$ 1,678,889
676
289,786
5,470
63,166
359,098
8,845
17,800
2,106
559,763
396,699
26,283
3,231
11,302
1,342,833
9,921
185,319
44,691
33,856
40,751
$ 1,657,371
582
320,953
9,570
67,272
398,377
9,521
20,369
2,071
—
—
5,300
649,715
645,500
(9,475)
—
1,291,040
5,383
644,594
586,422
(9,094)
(272)
1,227,033
$ 1,678,889
$ 1,657,371
See accompanying notes to consolidated financial statements.
38
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . .
Restructuring charges and integration and
acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand flood-related items, net of insurance . . . . . . . . . . . . .
Asset impairment charge and other . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense)
Income before income taxes . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
Year ended December 31,
2013
2012
$ 2,797,061
2,577,204
219,857
115,700
7,131
(1,571)
(1,547)
100,144
(1,890)
2,048
(452)
99,850
17,408
$ $$82,442
$ 1.54
$ 1.52
53,538
54,222
$ 2,506,467
2,319,983
186,484
99,331
9,348
(41,325)
2,606
116,524
(1,934)
1,688
(101)
116,177
5,018
$ $$111,159
$ 2.05
$ 2.03
54,213
54,779
$ 2,468,150
2,291,412
176,738
89,951
2,200
9,028
—
75,559
(1,580)
1,306
154
75,439
18,832
$ $$$56,607
$ 1.01
$ 1.00
56,320
56,634
See accompanying notes to consolidated financial statements.
39
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
2014
Year ended December 31,
2013
2012
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation adjustments . . . . . . . . . . . . . . . .
Unrealized gain on investments, net of tax . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
$ 82,442
$ 111,159
$ 56,607
(1,598)
1,369
(152)
(381)
$ 82,061
591
418
433
1,442
$ 112,601
993
1,476
445
2,914
$ 59,521
See accompanying notes to consolidated financial statements.
40
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(in thousands)
Balances, December 31, 2011 . . . . .
Stock-based compensation expense . .
Shares repurchased and retired . . . . .
Stock options exercised . . . . . . . . . .
Issuance of restricted shares, net
Shares
57,791
—
(3,224)
375
Common
shares
$ 5,779
—
(322)
38
Additional
paid-in
capital
$ 674,498
6,270
(34,650)
4,619
Retained
earnings
$ 449,193
—
(12,134)
—
Accumulated
other
comprehensive
loss
$ (13,450)
—
—
—
Treasury
shares
$ (272)
—
—
—
Total
shareholders’
equity
$ 1,115,748
6,270
(47,106)
4,657
of forfeitures . . . . . . . . . . . . . . .
244
24
(24)
—
—
—
—
Excess tax benefit of
stock-based compensation . . . . . .
Comprehensive income . . . . . . . . . .
Balances, December 31, 2012 . . . . .
Stock-based compensation expense . .
Shares repurchased and retired . . . . .
Stock options exercised . . . . . . . . . .
Issuance of restricted shares, net
—
—
55,186
—
(2,093)
713
of forfeitures . . . . . . . . . . . . . . .
27
Restricted shares withheld
for taxes . . . . . . . . . . . . . . . . . .
(8)
Excess tax shortfall of
stock-based compensation . . . . . .
Comprehensive income . . . . . . . . . .
Balances, December 31, 2013 . . . . .
Stock-based compensation expense . .
Shares repurchased and retired . . . . .
Stock options exercised . . . . . . . . . .
Issuance of restricted shares, net
—
—
53,825
—
(1,861)
940
of forfeitures . . . . . . . . . . . . . . .
103
Restricted shares withheld
for taxes . . . . . . . . . . . . . . . . . .
(13)
Excess tax shortfall of
—
—
5,519
—
(209)
71
3
(1)
—
—
5,383
—
(186)
94
10
(1)
435
—
651,148
6,267
(22,556)
11,132
(3)
(141)
(1,253)
—
644,594
7,213
(20,250)
18,773
(10)
(308)
—
56,607
493,666
—
(18,403)
—
—
—
—
111,159
586,422
—
(23,364)
—
—
—
—
2,914
(10,536)
—
—
—
—
—
—
1,442
(9,094)
—
—
—
—
—
—
—
(272)
—
—
—
—
—
—
—
(272)
—
—
—
—
—
435
59,521
1,139,525
6,267
(41,168)
11,203
—
(142)
(1,253)
112,601
1,227,033
7,213
(43,800)
18,867
—
(309)
stock-based compensation . . . . . .
Cancellation of treasury shares . . . . .
Comprehensive income . . . . . . . . . .
Balances, December 31, 2014 . . . . .
—
—
—
52,994
—
—
—
$ 5,300
(25)
(272)
—
$ 649,715
—
—
82,442
$ 645,500
—
—
(381)
$ (9,475)
—
272
—
$ —
(25)
—
82,061
$ 1,291,040
See accompanying notes to consolidated financial statements.
41
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand flood insurance recovery . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on the sale of property, plant and equipment . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . .
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operations . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Proceeds from sales and redemptions of investments . . . . . . . . . . . . .
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of property, plant and equipment . . . . . . . . . .
Additions to purchased software . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of subsidiary, net of cash disposed . . . . . . . . . . . .
Thailand flood property insurance proceeds . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . .
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . .
Share repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2012
2014
$ 82,442
$ 111,159
$ 56,607
41,259
5,190
12,027
802
(550)
(1,547)
(78)
6,427
(634)
37,862
(6,153)
(1,278)
(36,646)
(1,178)
(1,284)
136,661
10,282
(44,211)
452
(1,178)
750
5,512
550
367
(27,476)
18,867
634
(582)
(43,800)
—
(24,881)
(2,483)
81,821
345,555
$ 427,376
36,179
4,763
(5,786)
5,504
(10,748)
—
(1,161)
7,053
(354)
(56,633)
(17,832)
6,335
19,725
(9,305)
10,178
99,077
821
(26,829)
1,908
(1,908)
(94,271)
—
10,748
814
(108,717)
11,203
354
(497)
(41,168)
—
(30,108)
724
(39,024)
384,579
$ 345,555
31,757
3,956
9,064
—
—
—
(229)
6,270
(76)
(34,359)
66,089
32,375
(21,081)
3,176
(2,402)
151,147
15,825
(47,911)
346
(1,124)
—
—
23,372
—
(9,492)
4,657
76
(419)
(47,106)
(931)
(43,723)
2,727
100,659
283,920
$ 384,579
See accompanying notes to consolidated financial statements.
42
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 that provides worldwide integrated electronic
manufacturing services (EMS). The Company provides services to original equipment manufacturers (OEMs) of
industrial control equipment (which includes equipment for the aerospace and defense industry), telecommunication
equipment, computers and related products for business enterprises, medical devices, and testing and
instrumentation products. 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 $314.1 million and $247.0 million at December 31, 2014
and 2013, respectively, consist primarily of money-market funds and time deposits with an initial term of less than
three months.
(d) Allowance for Doubtful Accounts
Accounts receivable are recorded net of allowances for amounts not expected to be collected. In estimating the
allowance, management considers a specific customer’s financial condition, payment history, and various
information or disclosures by the customer or other publicly available information. Accounts receivable are charged
off against the allowance after all reasonable efforts to collect the full amount (including litigation, where
appropriate) have been exhausted. During 2014, the Company recorded a $2.7 million charge for provisions to
accounts receivable associated with the bankruptcy filing of a former customer, GT Advance Technologies, on
October 6, 2014.
(e) Investments
Fair value is defined 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. A three-tier fair value hierarchy of inputs is employed to determine fair value
measurements. 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 requires 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, 2014, $1.1 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. These securities are classified as
long-term investments and the contractual maturity of these securities is over ten years.
These long-term investments were valued using Level 3 inputs as of December 31, 2014 since the assets were
subject to valuation using significant unobservable inputs. The Company estimated the fair value of each security
with the assistance of an independent valuation firm using a discounted cash flow model to calculate the present
43
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.
As of December 31, 2014, the Company has recorded an unrealized loss of $0.1 million on the long-term
investments based upon this valuation. This unrealized loss reduced the fair value of the Company’s auction rate
securities as of December 31, 2014 to $1.0 million. These investments have been in an unrealized loss position for
greater than 12 months. During 2014, 2013 and 2012, the Company recorded unrealized gains of $1.4 million, $0.4
million and $1.5 million, respectively, on its long-term investments. The Company has determined that there was no
credit loss associated with its auction rate securities as of December 31, 2014 as shown by the cash flows expected
to be received over the remaining life of the securities.
The following table provides a reconciliation of the beginning and ending balance of the Company’s auction rate
securities classified as long-term investments measured at fair value using significant unobservable inputs (Level 3
inputs):
(in thousands)
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gains included in other comprehensive income . . . . . .
Sales of investments at par value . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
$ 9,921
1,369
(10,282)
$ 1,008
2013
$ 10,324
418
(821)
$ 9,921
Unrealized losses still held as of December 31 . . . . . . . . . . . . . . . . .
$ 64
$ 1,433
The cumulative unrealized loss is included as a component of accumulated other comprehensive loss within
shareholders’ equity in the accompanying consolidated balance sheet. As of December 31, 2014, there were no long-
term investments measured at fair value using Level 1 or Level 2 inputs. All income generated from these
investments is recorded as interest income.
(f) Inventories
Inventories include material, labor and overhead and are stated at the lower of cost (principally first-in, first-out
method) or market.
(g) 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 and 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.
(h) Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of net assets acquired. Goodwill and intangible
assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but
instead assessed for impairment at least annually. Intangible assets with estimable useful lives are amortized over
their respective estimated useful lives to their estimated residual values.
44
(i) Impairment of Long-Lived Assets and Goodwill
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 disclosed 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 disclosed separately in the appropriate asset and liability sections of the balance sheet.
Goodwill is tested for impairment on an annual basis, at a minimum, and whenever events and changes in
circumstances suggest that the carrying amount may be impaired. Circumstances that may lead to the impairment of
goodwill include unforeseen decreases in future performance or industry demand or the restructuring of our
operations as a result of a change in our business strategy. A qualitative assessment is allowed to determine if
goodwill is potentially impaired. Based on this qualitative assessment, if the Company determines that it is more
likely than not that the reporting unit’s fair value is less than its carrying value, then it performs a two-step goodwill
impairment test, otherwise no further analysis is required. In connection with its annual goodwill impairment
assessments as of December 31, 2014, 2013 and 2012, the Company concluded that goodwill was not impaired.
(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. Stock equivalents include common shares issuable upon the exercise of
stock options and other equity instruments, and are computed using the treasury stock method. 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 option is exercised or the share vests are assumed to be used to repurchase shares in the current
period.
The following table sets forth the calculation of basic and diluted earnings per share.
(in thousands, except per share data)
Year Ended December 31,
2013
2012
2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 82,442 $111,159
$ 56,607
Denominator for basic earnings per share – weighted-
average number of common shares outstanding
during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incremental common shares attributable to exercise of
53,538
54,213
56,320
dilutive options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450
324
150
Incremental common shares attributable to outstanding
restricted shares and restricted stock units . . . . . . . . . . . . .
Denominator for diluted earnings per share . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . .
234
54,222
$ 1.54
$ 1.52
242
54,779
$ 2.05
$ 2.03
164
56,634
$ 1.01
$ 1.00
Options to purchase 0.7 million, 1.2 million and 3.7 million common shares in 2014, 2013 and 2012, respectively,
were not included in the computation of diluted earnings per share because their effect would have been anti-
dilutive.
45
(k) Revenue Recognition
Revenue from the sale of manufactured products built to customer specifications and excess inventory is recognized
when title and risk of ownership have passed, the price to the buyer is fixed or determinable and recoverability is
reasonably assured, which generally is when the goods are shipped. 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. The
Company assumes no significant obligations after shipment as it typically warrants workmanship only. Therefore,
the warranty provisions are generally not significant.
(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. The Company records a valuation allowance to reduce its deferred tax assets to the
amounts that are more likely than not to be realized. The Company has considered the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies in assessing the need for the valuation
allowance.
(m) Stock-Based Compensation
All share-based payments to employees, including grants of employee stock options, are recognized in the financial
statements based on their fair values. The total compensation cost recognized for stock-based awards was $6.4
million, $7.1 million and $6.3 million for 2014, 2013 and 2012, respectively. The total income tax benefit
recognized in the income statement for stock-based awards was $2.6 million, $2.6 million and $2.1 million for 2014,
2013 and 2012, respectively. The compensation expense for stock-based awards includes an estimate for forfeitures
and is recognized over the vesting period of the awards using the straight-line method. Cash flows from the tax
benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess
tax benefits) are classified as cash flows from financing activities. Awards of restricted shares, restricted stock units
and performance-based restricted stock units are valued at the closing market price of the Company’s common
shares on the date of grant. For performance-based restricted stock units, compensation expense is based on the
probability that the performance goals will be achieved, which is monitored by management throughout the requisite
service period. If it becomes probable, based on the Company’s expectation of performance during the measurement
period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based
compensation expense will be recognized as a change in accounting estimate.
46
As of December 31, 2014, the unrecognized compensation cost and remaining weighted-average amortization
related to stock-based awards were as follows:
(in thousands)
Unrecognized compensation cost . . . . . .
Remaining weighted-average
amortization period . . . . . . . . . . . . . . .
(1) Based on the probable achievement of the performance goals identified in each award.
1.6 years
2.5 years
0.8 years
Stock
Options
$ 4,380
Restricted
Shares
$ 817
Restricted
Stock
Units
$ 5,996
Performance-
based
Restricted
Stock
Units(1)
$ 1,742
2.2 years
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 granted during 2014, 2013 and 2012 were as follows:
(in thousands)
Options granted . . . . . . . . . . . . . . . . . . . . .
Expected term of options . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
348
7.4 years
42%
1.396%
zero
2014
378
7.0 years
39%
2.081%
zero
2012
432
6.3 years
42%
1.305%
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 plan
participant behavior. Separate groups of plan participants 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 common shares. 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 and does not anticipate paying cash dividends in the foreseeable future.
The weighted-average fair value per option granted during 2014, 2013 and 2012 was $9.91, $7.87 and $6.83,
respectively. The total cash received as a result of stock option exercises in 2014, 2013 and 2012 was approximately
$18.9 million, $11.2 million and $4.7 million, respectively. The tax benefit realized as a result of stock option
exercises and the vesting of other share-based awards during 2014, 2013 and 2012 was $2.9 million, $2.2 million
and $1.3 million, respectively. For 2014, 2013 and 2012, the total intrinsic value of stock options exercised was
$3.7 million, $3.2 million and $1.4 million, respectively.
The Company awarded performance-based restricted stock units to employees during 2014, 2013 and 2012. The
number of performance-based restricted stock units that will ultimately be earned will not be determined until the
end of the corresponding performance periods, and may vary from as low as zero to as high as three times the target
number depending on the level of achievement of certain performance goals. The level of achievement of these
goals is based upon the audited financial results of the Company for the last full calendar year within the
performance period. The performance goals consist of certain levels of achievement using the following financial
metrics: revenue growth, operating income margin expansion, and return on invested capital. If the performance
goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units
will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be
available for issuance under the Company’s 2010 Omnibus Incentive Compensation Plan (the 2010 Plan).
47
(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, accounts receivable, accrued liabilities, accounts
payable and capital lease obligations. The Company believes that the carrying values of these instruments
approximate their fair value. As of December 31, 2014, the Company’s long-term investments are recorded at 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 $1.3 million, $0.9 million and $1.2 million in 2014, 2013 and 2012,
respectively.
(q) Recently Enacted Accounting Principles
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard that will supersede most of
the existing revenue recognition requirements in current U.S. GAAP. The new standard will require companies to
recognize revenue in an amount reflecting the consideration to which they expect to be entitled in exchange for
transferring goods or services to a customer. The new standard will also require significantly expanded disclosures
regarding the qualitative and quantitative information of the nature, amount, timing and uncertainty of revenue and
cash flows arising from contracts with customers. The new standard will be effective for reporting periods beginning
after December 15, 2016, and will permit the use of either the retrospective or cumulative effect transition method,
with early application not permitted. The Company will adopt the new standard effective January 1, 2017, and is
currently evaluating the impact the pronouncement will have on its consolidated financial statements and related
disclosures and has not yet selected a transition method. As the new standard will supersede all existing revenue
guidance affecting the Company under U.S. GAAP, it could impact revenue and cost recognition on contracts across
all its business segments, in addition to its business processes and information technology systems. As a result, the
Company’s evaluation of the effect of the new standard will likely extend over several future periods.
The Company has determined that all other recently issued accounting standards will not have a material impact on
its consolidated financial position, results of operations and cash flows, or do not apply to its operations.
(r) Reclassifications
Certain reclassifications of prior period amounts have been made to conform to the current year presentation.
48
Note 2—Acquisitions
On June 3, 2013, the Company acquired all of the outstanding common stock of Suntron Corporation (the Suntron
Acquisition) for $18.5 million in cash, as adjusted in accordance with the acquisition agreement. The Suntron
Acquisition strengthened the Company’s capabilities to better serve customers in the aerospace and defense
industries.
The allocation of the Suntron Acquisition net purchase price resulted in no goodwill. The final allocation of the
purchase price, which the Company completed in June 2014, reflects a $0.8 million purchase price adjustment
received during the quarter ended June 30, 2014.
The purchase price paid for Suntron has been allocated as follows (in thousands):
Purchase price paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase price, net of cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,582
(62)
$ 18,520
Integration and acquisition-related costs for 2014 . . . . . . . . . . . . . . . . . . . . . .
$ 72
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62
11,561
14,570
1,072
1,437
255
3,893
(13,987)
(281)
$ 18,582
On October 2, 2013, the Company acquired all of the outstanding common stock of CTS Electronics Manufacturing
Solutions, Inc. and CTS Electronics Corporation (Thailand) Ltd., the full-service EMS segment of CTS Corporation
(CTS), for $75 million (the CTS Acquisition). The CTS Acquisition expanded the Company’s portfolio of customers
in non-traditional and highly regulated markets and strengthened the depth and scope of the Company’s new product
express capabilities on the West Coast.
49
Based on management’s estimates resulting from reviews of information obtained after the acquisition date that
relates to facts and circumstances existing at the acquisition date, the purchase price allocation was adjusted
resulting in additional goodwill during 2014. See Note 5 for additional information. The final allocation of the CTS
Acquisition net purchase price resulted in $8.1 million of goodwill. The purchase price paid for CTS has been
allocated as follows (in thousands):
Purchase price paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase price, net of cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 75,982
(981)
$ 75,001
Integration and acquisition-related costs for 2014 . . . . . . . . . . . . . . . . . . . .
$ 6,010
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 981
32,480
40,494
1,472
15,175
8,058
15,500
129
(1,620)
(36,687)
$ 75,982
The following summary pro forma condensed consolidated financial information reflects the Suntron and CTS
Acquisitions as if they had occurred on January 1, 2012 for purposes of the statements of income. This summary pro
forma information is not necessarily representative of what the Company’s results of operations would have been
had these acquisitions in fact occurred on January 1, 2012 and is not intended to project the Company’s results of
operations for any future period.
Pro forma condensed consolidated financial information for 2013 and 2012 (unaudited):
(in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
$2,693,145
$ 45,485
2012
$2,804,757
$ 51,563
Note 3—Inventories
Inventory costs are summarized as follows:(cid:3)
(in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,(cid:3)
2014
$ 266,556
84,673
50,032
$ 401,261
2013
$ 245,455
84,710
66,534
$ 396,699
50
Note 4—Property, Plant and Equipment
Property, plant and equipment consists of the following:
(in thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and building improvements . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,(cid:3)
2014
$ 6,339
92,599
426,780
7,843
1,002
18,237
—
552,800
(362,620)
$ 190,180
2013
$ 6,359
92,267
410,183
7,934
174
14,767
135
531,819
(346,500)
$ 185,319
Note 5—Goodwill and Other Intangible Assets
The changes each year in goodwill allocated to the Company’s reportable segments were as follows:
(in thousands)
Goodwill at December 31, 2011 . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill at December 31, 2012 . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill at December 31, 2013 . . . . . . . . . . . . . . . . .
Purchase accounting adjustments . . . . . . . . . . . . . . . .
Goodwill at December 31, 2014 . . . . . . . . . . . . . . . . .
Americas
$ —
—
—
6,641
6,641
1,227
$ 7,868
Asia
$ 37,912
—
37,912
138
38,050
52
$ 38,102
Total
$ 37,912
—
37,912
6,779
44,691
1,279
$ 45,970
The purchase accounting adjustments related to the CTS Acquisition were based on management’s estimates
resulting from review of information obtained after the acquisition date that related to facts and circumstances that
existed at the acquisition date. See Note 2.
Other assets consist primarily of acquired identifiable intangible assets and capitalized purchased software costs.
Other intangible assets as of December 31, 2014 and 2013 were as follows:
(in thousands)
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .
Technology licenses . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, December 31, 2014 . . . . . . . .
(in thousands)
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .
Technology licenses . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, December 31, 2013 . . . . . . . .
Gross
Carrying
Amount
$ 33,188
11,300
868
$ 45,356
Gross
Carrying
Amount
$ 33,348
11,300
868
$ 45,516
Accumulated
Amortization
$ (16,099)
(9,434)
(190)
$ (25,723)
Accumulated
Amortization
$ (12,900)
(8,999)
(166)
$ (22,065)
Net
Carrying
Amount
$ 17,089
1,866
678
$ 19,633
Net
Carrying
Amount
$ 20,448
2,301
702
$ 23,451
Customer relationships are being amortized on a straight-line basis over a period of ten years. Technology licenses
are being amortized over their estimated useful lives in proportion to the economic benefits consumed. Amortization
of other intangible assets for 2014, 2013 and 2012 was $3.8 million, $3.3 million and $2.7 million, respectively.
51
The estimated future amortization expense of other intangible assets for each of the next five years is as follows (in
thousands):
Year ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$ 4,018
4,077
2,022
1,574
1,574
During 2014, 2013 and 2012, $1.2 million, $1.9 million and $1.1 million, respectively, of purchased software costs
were capitalized. As of December 31, 2014 and 2013, purchased software, net of accumulated amortization totaled
$2.7 million and $2.5 million, respectively. The accumulated amortization of purchased software costs at December
31, 2014 and 2013 was $26.6 million and $25.0 million, respectively. Capitalized purchased software costs are
amortized straight-line over the estimated useful life of the related software, which ranges from 3 to 7 years.
As of December 31, 2013, the Company had an asset held for sale in other assets with a net book value of $5.4
million. During 2014, the Company completed the sale of its Tianjin subsidiary which included this asset for $5.7
million resulting in a $1.5 million gain.
Note 6—Borrowing Facilities
Under the terms of a credit agreement (the Credit Agreement), the Company has a $200 million five-year revolving
credit facility for general corporate purposes with a maturity date of July 30, 2017. 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 1.75% to 2.75% or a prime rate plus 0.75% to 1.75%, based upon the Company’s leverage ratio
as specified in the Credit Agreement. A commitment fee of 0.30% to 0.40% per annum (based upon the Company’s
liquidity ratio as specified in the Credit Agreement) on the unused portion of the revolving credit line is payable
quarterly in arrears. As of December 31, 2014 and 2013, the Company had no borrowings outstanding under the
Credit Agreement, $1.2 million and $0.8 million, respectively, in outstanding letters of credit and $198.8 million and
$199.2 million, respectively, 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 and 65% of the voting capital stock of each direct foreign subsidiary and
substantially all of the other tangible and intangible assets of the Company and its domestic subsidiaries. The Credit
Agreement contains customary financial covenants as to debt leverage and fixed charges, and restricts the
Company’s ability to incur additional debt, pay dividends, repurchase shares, sell assets and merge or consolidate
with other persons. As of both December 31, 2014 and 2013, the Company was in compliance with all of these
covenants and restrictions.
The Company’s Thailand subsidiary has a multi-purpose credit facility with Kasikornbank Public Company Limited
(the Thai Credit Facility) that provides for 350 million Thai baht working capital availability. The Thai Credit
Facility is secured by land and buildings in Thailand owned by the Company’s Thailand subsidiary. Availability of
funds under the Thai Credit Facility is reviewed annually and is currently accessible through October 2015. As of
both December 31, 2014 and 2013, there were no working capital borrowings outstanding under the facility.
52
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 2021. Leases for office space and
manufacturing facilities generally contain renewal options. Rental expense for 2014, 2013 and 2012 was $14.6
million, $11.2 million and $9.1 million, respectively.
The Company is obligated under a capital lease that expires in 2023. As of December 31, 2014, property, plant and
equipment included the following amounts under capital leases (in thousands):
Buildings and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,207
(6,010)
$ 6,197
Capital lease obligations outstanding consist of the following:
(in thousands)
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current installments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, less current installments . . . . . . . . . .
December 31,
2014
$ 9,521
676
$ 8,845
2013
$ 10,103
582
$ 9,521
Future minimum lease payments under noncancelable operating leases and future minimum capital lease payments
are as follows (in thousands):
Year ending December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . .
Less: amount representing interest . . . . . . . . . . . . . . . . . . . . .
Present value of minimum lease payments . . . . . . . . . . . . . . .
Less: current installments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, less current installments . . . . . . . . . .
Operating
Leases
$ 14,577
9,097
4,275
3,622
3,021
6,691
$ 41,283
Capital
Leases
$ 1,613
1,645
1,678
1,712
1,746
5,915
$ 14,309
4,788
9,521
676
$ 8,845
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 performed or renegotiated such that
no material adverse financial impact on the Company’s financial position, results of operations or liquidity will
result from these commitments.
Note 8—Common Shares and Stock-Based Awards Plans
On both December 4, 2014 and June 13, 2012, the Board of Directors approved the repurchase of up to $100 million
of the Company’s outstanding common shares (the 2014 Repurchase Program and the 2012 Repurchase Program,
respectively). As of December 31, 2014, the Company had $100.0 million and $3.1 million, respectively, remaining
under the 2014 and 2012 Repurchase Programs to repurchase additional 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
53
repurchased under the program will be retired. During 2014, the Company repurchased a total of 1.9 million
common shares for $43.8 million at an average price of $23.51 per share. During 2013, the Company repurchased a
total of 2.1 million common shares for $41.2 million at an average price of $19.65 per share. During 2012, the
Company repurchased a total of 3.2 million common shares for $47.1 million at an average price of $14.59 per
share.
The Benchmark Electronics, Inc. 2000 Stock Awards Plan (the 2000 Plan) authorized, and the 2010 Plan authorizes,
the Company, upon approval of the compensation committee of the Board of Directors, to grant a variety of awards,
including stock options, restricted shares, restricted stock units, stock appreciation rights, performance compensation
awards, phantom stock awards and deferred share units, or any combination thereof, to any director, officer,
employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock
options are granted to employees with an exercise price equal to the market price of the Company’s common shares
on the date of grant, generally vest over a four-year period from the date of grant and have a term of ten years.
Restricted shares and restricted stock units granted to employees generally vest over a four-year period from the date
of grant, subject to the continued employment of the employee by the Company. The 2000 Plan expired in
February 2010, and no additional grants can be made under that plan. The 2010 Plan was approved by the
Company’s shareholders in May 2010 and amended in May 2014. Members of the Board of Directors who are not
employees of the Company hold awards under the Benchmark Electronics, Inc. 2002 Stock Option Plan for Non-
Employee Directors (the 2002 Plan) and the 2010 Plan. Stock options were granted pursuant to the 2002 Plan upon
the occurrence of the non-employee director’s election or re-election to the Board of Directors. All awards under the
2002 Plan were fully vested upon the date of grant and have a term of ten years. The 2002 Plan was approved by the
Company’s shareholders in May 2002 and expired in February 2012. No additional grants may be made under the
2002 Plan. Non-employee directors currently receive equity awards under the 2010 Plan. Since 2011, awards under
the 2010 Plan to non-employee directors have been in the form of restricted stock units, which vest in equal
quarterly installments over a one-year period, starting on the grant date.
As of December 31, 2014, 4.4 million additional common shares were available for issuance under the Company’s
existing plans.
The following table summarizes activities related to the Company’s stock options:
(in thousands, except per share data)
Outstanding at December 31, 2011 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . .
Outstanding at December 31, 2012 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . .
Outstanding at December 31, 2013 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . .
Outstanding at December 31, 2014 . . . . . .
Weighted-
Average
Exercise
Price
$ 19.69
15.77
12.42
20.42
19.88
17.37
15.72
22.88
19.79
22.94
20.06
22.61
$ 20.07
Number of
Options
4,525
432
(375)
(342)
4,240
348
(713)
(791)
3,084
378
(940)
(85)
2,437
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
5.04
$ 13,617
Exercisable at December 31, 2014 . . . . . .
1,616
$ 20.32
3.13
$ $8,819
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 as of the last business day of
2014 for options that had exercise prices that were below the closing price.
54
At December 31, 2014, 2013 and 2012, the number of options exercisable was 1.6 million, 2.4 million and
3.5 million, respectively, and the weighted-average exercise price of those options was $20.32, $20.63 and $20.46,
respectively.
The following table summarizes the activities related to the Company’s restricted shares:
(in thousands, except per share data)
Non-vested shares outstanding at December 31, 2011 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested shares outstanding at December 31, 2012 . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested shares outstanding at December 31, 2013 . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested shares outstanding at December 31, 2014 . . . . . . .
Weighted-
Average
Grant Date
Fair Value
$18.23
$15.56
$17.57
$17.49
$16.81
$17.42
$16.40
$16.56
$16.87
$16.85
$16.33
Number of
Shares
244
209
(87)
(26)
340
(106)
(40)
194
(76)
(9)
109
The following table summarizes the activities related to the Company’s time-based restrictive stock units:
(in thousands, except per share data)
Non-vested awards outstanding at December 31, 2011 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested awards outstanding at December 31, 2012 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested awards outstanding at December 31, 2013 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested awards outstanding at December 31, 2014 . . . . . . .
Weighted-
Average
Grant Date
Fair Value
$ 17.88
$ 15.50
$ 16.35
$ 17.07
$ 16.70
$ 17.66
$ 17.06
$ 17.36
$ 17.48
$ 22.92
$ 18.34
$ 19.99
$ 20.33
Number of
Units
83
95
(61)
(14)
103
277
(67)
(10)
303
246
(112)
(25)
412
55
The following table summarizes the activities related to the Company’s performance-based restricted stock units:
(in thousands, except per share data)
Non-vested awards outstanding at December 31, 2011 . . . . . . .
Granted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested awards outstanding at December 31, 2012 . . . . . . .
Granted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested awards outstanding at December 31, 2013 . . . . . .
Granted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested awards outstanding at December 31, 2014 . . . . . . .
Weighted-
Average
Grant Date
Fair Value
$ 18.57
$ 15.11
$ 18.57
$ 16.39
$ 17.37
$ 16.03
$ 16.78
$ 22.92
$ 18.52
$ 18.56
Number of
Units
68
103
(7)
164
76
(25)
215
88
(29)
274
(1) Represents target number of units that can vest based on the achievement of the performance goals.
Note 9—Income Taxes
Income tax expense (benefit) based on income before income taxes consisted of the following:
(in thousands)
Current:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2014
2012
$ (87)
822
4,646
5,381
8,999
1,663
1,365
12,027
$ 17,408
$ (358)
152
11,010
10,804
(11,069)
1,437
3,846
(5,786)
$ 5,018
$ 776
640
8,352
9,768
9,914
1,560
(2,410)
9,064
$ 18,832
Worldwide income before income taxes consisted of the following:
Year Ended December 31,
2013
$ 19,093
97,084
$ 116,177
2014
$ 24,260
75,590
$ 99,850
2012
$ 27,538
47,901
$ 75,439
(in thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to
income before income taxes as a result of the following:(cid:3)
(cid:3)
(in thousands)
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal tax effect . . . . . . . . . . . . .
Effect of foreign operations and tax incentives . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . .
Chinese retroactive tax incentive . . . . . . . . . . . . . . .
Losses in foreign jurisdictions for which no benefit
has been provided . . . . . . . . . . . . . . . . . . . . . . . .
American Taxpayer Relief Act of 2012 . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
$ 40,662
1,033
(19,138)
(17,880)
—
2014
$ 34,947
1,615
(24,737)
(118)
(1,227)
2012
$ 26,404
2,012
(11,710)
(44)
—
5,812
—
1,116
$ 17,408
1,013
(844)
172
$ 5,018
927
—
1,243
$ 18,832
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities are presented below:
(in thousands)
Deferred tax assets:
Carrying value of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and allowances deductible for tax purposes
on a cash basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation . . . . . . . . .
Intangible assets, due to differences in amortization . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2014
2013
$ 4,772
$ 6,241
5,620
8,433
6,583
40,217
7,148
8,977
81,750
(36,682)
45,068
5,383
13,346
7,169
40,915
5,970
7,394
86,418
(30,312)
56,106
(5,402)
(6,102)
(2,151)
(13,655)
$ 31,413
(5,063)
(6,117)
(1,839)
(13,019)
$ 43,087
Recorded as:
Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,502
25,017
(2,106)
$ 31,413
$ 11,302
33,856
(2,071)
$ 43,087
The net change in the total valuation allowance for 2014, 2013 and 2012 was an increase (decrease) of $6.4 million,
$(11.5) million and $(0.7) million, respectively. 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
57
benefits of these deductible differences, net of the existing valuation allowances as of December 31, 2014. During
2013, the Company evaluated the recoverability of its deferred tax assets using the criteria described above and
concluded that the Company’s projected future taxable income in the U.S. is sufficient to utilize additional net
operating loss carryforwards and other deferred tax assets. As a result, during 2013, the Company reduced its
valuation allowance by $17.5 million. In addition, the Company established valuation allowances totaling $4.6
million for acquired deferred tax assets during 2013.
As of December 31, 2014, the Company had $73.6 million in U.S. Federal operating loss carryforwards which will
expire from 2022 to 2034; state operating loss carryforwards of approximately $84.4 million which will expire from
2017 to 2031; foreign operating loss carryforwards of approximately $31.0 million with indefinite carryforward
periods; and foreign operating loss carryforwards of approximately $14.4 million which will expire at varying dates
through 2024. 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 $5.5 million, which will expire at varying dates through 2031. The Company has state tax credit
carryforwards of $1.6 million which will expire at varying dates through 2027.
Cumulative undistributed earnings of certain foreign subsidiaries amounted to approximately $717 million as of
December 31, 2014. 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 practicable.
The Company has been granted certain tax incentives, including tax holidays, for its subsidiaries in China, Malaysia
and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2015 in China,
2016 in Malaysia and 2026 in Thailand, and are subject to certain conditions with which the Company expects to
comply. The Company’s Chinese subsidiary had a tax incentive that expired at the end of 2012. During the first
quarter of 2014, this tax incentive was extended until 2015 and was retroactively applied to the 2013 calendar year.
The tax adjustment for the retroactive income tax incentive for 2013 totaling $1.2 million was recorded as of March
31, 2014. The net impact of these tax incentives was to lower income tax expense for 2014, 2013, and 2012 by
approximately $12.7 million (approximately $0.23 per diluted share), $8.8 million (approximately $0.16 per diluted
share) and $8.0 million (approximately $0.14 per diluted share), respectively, as follows:
(in thousands)
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,(cid:3)
2014
$ 2,800
2,299
7,622
$ 12,721
2013
$ —
1,559
7,283
$ 8,842
2012
$ 2,449
992
4,594
$ 8,035
58
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. As of December 31, 2014, the
total amount of the reserve for uncertain tax benefits including interest and penalties is $18.0 million. A
reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is
as follows:
(in thousands)
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . . .
Additions related to current year tax positions . . . . . .
Additions related to prior year tax positions . . . . . . .
Decreases related to prior year tax positions . . . . . . .
Balance as of December 31 . . . . . . . . . . . . . . . . . . .
2014
$ 18,174
968
—
(4,386)
$ 14,756
December 31,
2013
$ 18,070
—
104
—
$ 18,174
2012
$ 18,091
—
141
(162)
$ 18,070
The decrease in the total amount of unrecognized tax benefits reserve during 2014 was primarily the result of a
decrease in the unrecognized tax benefits reserve as a result of the disposal of the Tianjin subsidiary.
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 amount of accrued
potential interest and penalties, respectively, on unrecognized tax benefits included in the reserve as of December
31, 2014 is $1.7 million and $1.6 million. The total amount of interest and penalties included in income tax expense
during 2014 was $0.1 million. The Company did not incur any interest and penalties in 2013 or 2012.
The Company and its subsidiaries 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 2004 to 2014.
The Company is subject to examination by tax authorities for varying periods in various U.S. and foreign tax
jurisdictions. In the second quarter of 2014, the Internal Revenue Service (IRS) initiated a federal income tax audit
of the calendar year 2011 for the Company and its U.S. subsidiaries. During the fourth quarter of 2014, the IRS
determined that no adjustments were necessary for the Company and its U.S. subsidiaries. Currently, the Company
does not have any ongoing IRS income tax audits. During the course of such examinations, disputes may occur as to
matters of fact 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 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.
59
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 the ten largest customers represented 50%, 53% and 56% of total sales for 2014, 2013 and 2012,
respectively. Sales to our largest customers were as follows for the indicated periods:
(in thousands)
Arris Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
International Business Machines Corporation . . . . . . .
Year ended December 31,
2013
2014
$ 315,688
*
$ 312,611 $ 430,205 $ 506,126
2012
*
* amount is less than 10% of total.
Note 11—Financial Instruments and Concentration of Credit Risk
The carrying amounts of cash equivalents, accounts receivable, accrued liabilities, accounts payable and capital
lease obligations approximate fair value. As of December 31, 2014, the Company’s investments are recorded at fair
value. See Note 1(e). As of December 31, 2014, 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,
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 had two customers whose gross accounts receivable each
represented approximately 14% of total gross accounts receivable as of December 31, 2014.
Note 12—Concentrations of Business Risk
Substantially all of the Company’s sales are derived from 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.
60
Note 13—Segment and Geographic Information
The Company currently has manufacturing facilities in the United States, Mexico, Asia and Europe to serve its
customers. The Company is operated and managed geographically, and 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 from
operations. 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,
2013
2012
2014
$ 1,699,110 $ 1,490,954 $ 1,440,298
978,093
1,066,885
139,684
152,558
(89,925)
(121,492)
$ 2,797,061 $ 2,506,467 $ 2,468,150
957,162
142,508
(84,157)
$ $ $21,810 $ $ $17,142 $ $$14,755
15,180
2,544
3,234
$ $ $46,449 $ $ $40,942 $ $$35,713
17,351
2,739
4,549
17,270
2,732
3,798
$ $$58,813 $$ $ 55,147 $$ $ 60,320
51,978
1,117
(37,856)
$ $100,144 $ $116,524 $$ $75,559
93,463
8,517
(40,603)
78,643
9,535
(46,847)
$ $$33,968 $ $$19,256 $ $ $19,437
25,636
2,274
1,688
$ $$45,389 $ $ $28,737 $ $$49,035
6,633
3,932
856
5,110
2,316
2,055
$ $712,588 $ $ 702,378 $$ 569,212
636,481
200,563
95,221
$1,657,371 $ 1,501,477
666,717
239,274
60,310
$ 1,678,889
658,668
255,644
40,681
(in thousands)
Net sales:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination of intersegment sales . . . . . . . . . . . . .
Depreciation and amortization:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and intersegment eliminations . . . . . . .
Capital expenditures:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . .
61
Geographic net sales information provided below reflects the destination of the product shipped. Long-lived assets
information is based on the physical location of the asset.
(in thousands)
Geographic net sales:
United States . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-lived assets:
United States . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14—Employee Benefit Plans
Year Ended December 31,
2013
2012
2014
$ 2,038,544 $ 1,772,212 $ 1,739,794
398,890
273,560
55,906
$ 2,797,061 $ 2,506,467 $ 2,468,150
386,251
271,414
76,590
371,820
264,674
122,023
$ 93,679 $ 96,287 $ 76,216
107,151
10,948
15,200
$ 218,341 $ 226,070 $ 209,515
88,375
8,114
28,173
98,816
10,333
20,634
The Company has defined contribution plans qualified under Section 401(k) of the Internal Revenue Code for the
benefit of all its U.S. employees. The Company’s contributions to the plans are based on employee contributions and
compensation. During 2014, 2013 and 2012, the Company made contributions to the plans of approximately $4.7
million, $4.1 million and $3.5 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
2014, 2013 and 2012, the Company made contributions to the international plans of approximately $0.2 million,
$0.2 million and $0.1 million, respectively.
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.
Note 16—Restructuring Charges
The Company has undertaken initiatives to restructure its business operations to improve utilization and realize cost
savings. 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 2014, 2013 and 2012 primarily related to the closure of
facilities, capacity reduction and reductions in workforce in certain facilities across various regions.
62
The following table summarizes the 2014 activity in the accrued restructuring balances related to the various
restructuring activities initiated prior to December 31, 2014:
(in thousands)
2014 Restructuring:
Severance . . . . . . .
Other exit costs . . .
2013 Restructuring:
Severance . . . . . . .
Other exit costs . . .
2012 Restructuring:
Severance . . . . . . .
Other exit costs . . .
Total . . . . . . . . . . .
Balance as of
December 31,
2013
Restructuring
Charges
Cash
Payment
Non-Cash
Activity
Foreign
Exchange
Adjustments
Balance as of
December 31,
2014
$ $$ —
—
—
120
833
953
34
104
138
$ 1,091
$ 8,876
3
879
$$ (876)
(3)
(879)
$ $$ —
—
—
87
99
186
(193)
(627)
(820)
45
(61)
(16)
$ 1,049
(79)
(31)
(110)
$ (1,809)
—
(344)
(344)
—
—
—
$ (344)
$1, —
—
—
(14)
39
25
—
(12)
(12)
$ 13
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
The components of the restructuring charges initiated during 2014 were as follows:
(in thousands)
Severance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Other exit costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas
Asia
Total
$ 827
—
$ 827
$ 49
3
$ 52
$ 876
3
$ 879
During 2014, the Company recognized $0.9 million of employee termination costs associated with the involuntary
terminations of 104 employees in connection with reductions in workforce of certain facilities primarily in the
Americas.
The following table summarizes the 2013 activity in the accrued restructuring balances related to the various
restructuring activities initiated prior to December 31, 2013:
(in thousands)
2013 Restructuring:
Severance . . . . . . . .
Lease facility costs .
Other exit costs . . . .
2012 Restructuring:
Severance . . . . . . . .
Lease facility costs .
Other exit costs . . . .
2011 Restructuring:
Lease facility costs .
Total . . . . . . . . . . . . .
Balance as of
December 31,
2012
Restructuring
Charges
Cash
Payment
Non-Cash
Activity
Foreign
Exchange
Adjustments
Balance as of
December 31,
2013
$ 1, —
—
—
—
538
—
166
704
13
13
$ 1,717
$ 2,202
142
3,246
5,590
$ (2,003)
(139)
(1,245)
(3,387)
$ 1, —
—
(1,224)
(1,224)
660
798
138
1,596
(1,262)
(328)
(107)
(1,697)
—
(466)
—
(466)
$1, (79)
(3)
56
(26)
98
(4)
(93)
1
(102)
(102)
$ 7,084
87
87
$ (4,997)
—
—
$ (1,690)
2
2
$1, (23)
$1, 120
—
833
953
34
—
104
138
—
—
$ 1,091
63
The components of the restructuring charges initiated during 2013 were as follows:
(in thousands)
Severance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Facility lease costs . . . . . . . . . . . . . . . . . . . . . . . .
Other exit costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas
$ 2,202
142
2,118
$ 4,462
Asia
$$$$ —
—
1,128
$ 1,128
Total
$ 2,202
142
3,246
$ 5,590
During 2013, the Company recognized $2.2 million of employee termination costs associated with the involuntary
terminations of 144 employees in connection with reductions in workforce of certain facilities in the Americas. The
identified involuntary employee terminations were primarily in connection with the closure of the Campinas, Brazil
facility. The Company also reported $3.2 million for other exit costs, including $1.2 million of asset impairments,
associated with the closure of the Campinas facility, and $0.1 million for facility lease obligations.
The components of the restructuring charges initiated during 2012 were as follows:
(in thousands)
Severance costs . . . . . . . . . . . . . . . . .
Facility lease costs . . . . . . . . . . . . . . .
Other exit costs . . . . . . . . . . . . . . . . .
Americas
Europe
Asia
$ 494
—
—
$ 494
$ 531
—
176
$ 707
$ 504
55
33
$ 592
Total
$ 1,529
55
209
$ 1,793
During 2012, the Company recognized $1.5 million of employee termination costs associated with the involuntary
terminations of 139 employees in connection with reductions in workforce of certain facilities worldwide. The
identified involuntary employee terminations by reportable geographic region amounted to approximately 68, 61
and 10 for the Americas, Asia and Europe, respectively.
Note 17—Thailand Flood-Related Items, Net of Insurance
The Company’s facilities in Ayudhaya, Thailand were flooded and remained closed from October 13, 2011 to
December 20, 2011. As a result of the flooding and temporary closing of these facilities, the Company incurred
property losses and flood related costs during 2012 and 2011, which were partially offset by insurance recoveries.
During 2014, Thailand flood-related items resulted in a gain of $1.6 million of insurance proceeds. The recovery
process with the insurance carriers was completed in the first quarter of 2014. During 2013, Thailand flood-related
items resulted in a gain of $41.3 million.
As a result of the flooding, the Company has been unable to renew or otherwise obtain adequate cost-effective flood
insurance to cover assets at its facilities in Thailand. The Company continues to monitor the insurance market in
Thailand. In the event the Company was to experience a significant uninsured loss in Thailand or elsewhere, it could
have a material adverse effect on its business, financial condition and results of operations.
64
Note 18—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 2014, 2013 and 2012. Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total earnings per share
amounts for the fiscal year.
(in thousands, except per share data)
Sales . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .
(in thousands, except per share data)
Sales . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .
(in thousands, except per share data)
Sales . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .
2014 Quarter
1st
2nd
3rd
4th
$ 639,344 $ 716,868 $ 731,302 $ 709,547
55,689
24,011
57,751
22,150
51,123
19,125
55,294
17,156
0.36
0.35
0.41
0.41
0.32
0.32
0.45
0.45
2013 Quarter
1st
2nd
3rd
4th
$ 542,444 $ 607,522 $ 599,658 $ 756,843
59,843
67,489
44,367
8,457
36,834
11,487
45,440
23,726
0.21
0.21
0.16
0.16
0.44
0.43
1.26
1.24
1st
2012 Quarter
2nd
3rd
4th
$ 593,417 $ 630,031 $ 610,769 $ 633,933
45,459
18,115
40,508
5,598
44,780
19,314
45,991
13,580
0.10
0.10
0.24
0.24
0.35
0.34
0.33
0.33
65
Note 19—Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component were as follows:
(cid:3)
(in thousands)
Balances, December 31, 2011 . . . . . . . . . . . . . . . .
Other comprehensive gain (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive loss . . . . . . . . . . . . . . . .
Net current period other comprehensive gain . . . . .
Balances, December 31, 2012 . . . . . . . . . . . . . . . .
Other comprehensive gain before
reclassifications . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive gain . . . . .
Balances, December 31, 2013 . . . . . . . . . . . . . . . .
Other comprehensive gain (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive loss . . . . . . . . . . . . . . . .
Net current period other comprehensive gain (loss) .
Balances, December 31, 2014 . . . . . . . . . . . . . . . .
Foreign
currency
translation
adjustments
$ (9,674)
Unrealized
loss on
investments,
net of tax
$ (3,327)
Other
$ (449) $ (13,450)
Total
993
1,476
(87)
2,382
—
993
(8,681)
591
591
(8,090)
—
1,476
(1,851)
418
418
(1,433)
532
445
(4)
433
433
429
532
2,914
(10,536)
1,442
1,442
(9,094)
(4,528)
1,369
(122)
(3,281)
2,930
(1,598)
$ (9,688)
—
1,369
$ 3,(64)
(30)
(152)
$ 277
2,900
(381)
$ (9,475)
(cid:3)
Amounts reclassified from accumulated other comprehensive loss during 2012 primarily affected selling, general
and administrative expenses. There were no amounts reclassified from accumulated other comprehensive loss during
2013. The amounts reclassified from accumulated other comprehensive loss and the affected line item in the
consolidated statement of income during 2014 were as follows:
(in thousands)
Foreign currency translation adjustments
Year Ended
December 31,
2014
Affected line items on the
Consolidated Statement of Income
Disposal of Tianjin subsidiary . . . . . . .
Foreign currency translations . . . . . . . .
$ 2,979 Asset impairment charge and other
(49) Other income (expense)
$ 2,930 Net of tax
Other
Actuarial net gains . . . . . . . . . . . . . . . .
$2, (30) Selling, general and administrative expenses
$2, (30) Net of tax
Note 20—Supplemental Cash Flow and Non-Cash Information
The following is additional information concerning supplemental disclosures of cash payments.
(in thousands)
Income taxes paid, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2013
$1,7 62
$ 1,757
2014
$ 5,821
$ 1,717
2012
$ 11,975
$ $1,353
Non-cash investing activity:
Additions to property, plant and equipment in accounts payable .
$ 9,113
$ 3,170
$ $2,020
66
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, 2014 and 2013, and the related consolidated statements of income, comprehensive income,
shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014. 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, 2014 and 2013, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated February 27, 2015 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
Houston, Texas
February 27, 2015
67
Management’s Report
Benchmark’s management 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 Report is consistent with that in the
consolidated financial statements.
The Company maintains internal accounting control systems that are adequate to prepare financial records and to
provide reasonable assurance that the assets are safeguarded from loss or unauthorized use. We believe these
systems are effective, and the cost of the systems does not exceed the benefits obtained.
The Audit Committee, composed exclusively of independent, outside directors, has reviewed all financial data
included in this Report and recommended to the full Board inclusion of the audited financial statements contained in
the 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.
68
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.(cid:3)
Item 9A. Controls and Procedures.
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 last fiscal quarter
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.
69
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 (1992) (the 1992 Framework) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our evaluation under the 1992 Framework, our management concluded
that our internal control over financial reporting was effective as of December 31, 2014.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 has been
audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included
below.
On May 14, 2013, COSO issued an updated version of its Internal Control - Integrated Framework (the 2013
Framework) which officially superseded the 1992 Framework on December 15, 2014. Originally issued in 1992, the
framework helps organizations design, implement and evaluate the effectiveness of internal control concepts and
simplify their use and application. Neither COSO, the Securities and Exchange Commission or any other regulatory
body has mandated adoption of the 2013 Framework by a specified date. We are currently in the process of
performing an analysis to evaluate what changes to our control environment, if any, would be needed to successfully
implement the 2013 Framework. Until such time as our transition to the 2013 Framework is complete, we will
continue to use the 1992 Framework in connection with our assessment of internal control.
Report of Independent Registered Public Accounting Firm
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, 2014,
based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company’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 based 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
70
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.
In our opinion, Benchmark Electronics, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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, 2014
and 2013, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 27,
2015, expressed an unqualified opinion on those consolidated financial statements.
Houston, Texas
February 27, 2015
Item 9B. Other Information.
Not applicable.
71
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
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 2015 Annual Meeting of
Shareholders (the 2015 Proxy Statement), to be filed not later than 120 days after the close of the Company’s fiscal
year, is incorporated herein by reference in response to this item.
Item 11. Executive Compensation.
The information under the captions “Compensation Discussion and Analysis” and “Report of Compensation
Committee” in the 2015 Proxy Statement is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The information under the caption “Common Share Ownership of Certain Beneficial Owners and Management” in
the 2015 Proxy Statement 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,
2014:
Plan Category
Equity compensation plans approved by security holders. .
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
3,123,857(1)
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
$20.07(1)
Number of
securities
remaining
available
for future
issuance
4,416,455
(1)Includes 686,636 restricted share units and performance restricted share units. The weighted- average exercise
price does not take these awards into account.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information under the caption “Election of Directors” in the 2015 Proxy Statement is incorporated herein by
reference in response to this item.
Item 14. Principal Accounting Fees and Services.
The information under the caption “Audit Committee Report to Shareholders” in the 2015 Proxy Statement is
incorporated herein by reference in response to this item.
72
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(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
(in thousands)
Year ended December 31, 2014:
Allowance for doubtful accounts(1) . . .
Year ended December 31, 2013:
Allowance for doubtful accounts(1) . . .
Year ended December 31, 2012:
Allowance for doubtful accounts(1) . . .
Additions
Balance at
Beginning
of Period
Charges to
Operations
Other
Deductions
Balance at
End of
Period
$1, 338
2,639
—
34
2,943
$ 1,442
67
—
1,171
338
$ 1,094
407
13
72
1,442
(1) Deductions in the allowance for doubtful accounts represent write-offs, net of recoveries, of amounts
determined to be uncollectible.
Report of Independent Registered Public Accounting Firm on Schedule
The Board of Directors and Shareholders
Benchmark Electronics, Inc.:
Under date of February 27, 2015, we reported on the consolidated balance sheets of Benchmark Electronics, Inc. and
subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive
income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2014, included in this annual report on Form 10-K for the year 2014. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related consolidated financial statement
schedule II. 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.
Houston, Texas
February 27, 2015
73
(3) Exhibits
Exhibit
Number
13.1*
13.2*
14.1*
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
Description of Exhibit
Restated Certificate of Formation dated November 4, 2014 (incorporated by reference to Exhibit
3.1 to the Company’s quarterly report on Form 10-Q filed with the SEC on November 7, 2014)
(the 10-Q) (Commission file number 1-10560)
Amended and Restated Bylaws of the Company dated November 4, 2014 (incorporated by
reference to Exhibit 3.2 to the 10-Q)
Specimen form of certificate evidencing the Common Shares (incorporated by reference to
Exhibit 4.1 to the 10-Q)
Form of Indemnity Agreement between the Company and its directors and senior officers
(incorporated by reference to Exhibit 10.1 to the 10-Q)
Benchmark Electronics, Inc. 2000 Stock Awards Plan (2000 Plan) (incorporated by reference to
Exhibit 4.8 to the Company’s Registration Statement on Form S-8 (Registration Number 333-
54186))
Form of nonqualified stock option agreement for use under the 2000 Plan (incorporated by
reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008 (Commission file number 1-10560))
Benchmark Electronics, Inc. 2002 Stock Option Plan for Non-Employee Directors (2002 Plan)
(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))
Amendment No. 1 to the 2002 Plan (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))
Benchmark Electronics, Inc. 2010 Omnibus Incentive Compensation Plan (2010 Plan)
(incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8
(Registration Number 333-168426))
First Amendment to the 2010 Plan (incorporated by reference to Annex A to the Company's
Definitive Proxy Statement on Schedule 14A filed March 28, 2014 (Commission file number 1-
10560))
Form of option award agreement for use under the 2010 Plan (incorporated by reference to
Exhibit 4.10 to the Company’s Registration Statement on Form S-8 (Registration Number 333-
168426))
Form of restricted share award agreement for use under the 2010 Plan (incorporated by reference
to Exhibit 4.11 to the Company’s Registration Statement on Form S-8 (Registration Number
333-168426))
Form of restricted stock unit award agreement for use under the 2010 Plan (incorporated by
reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 (Registration
Number 333-168426))
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))
Amended and Restated Employment Agreement dated November 8, 2011 between the Company
and Gayla J. Delly (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated
November 8, 2011 (Commission file number 1-10560))
74
Exhibit
Number
10.13*
10.14
10.15
10.16
11.16
Description of Exhibit
Employment Agreement between the Company and Donald F. Adam dated as of March 10, 2009
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated March 10, 2009
(Commission file number 1-10560))
Code of Conduct (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009 (Commission file number 1-10560))
Fourth Amended and Restated Credit Agreement dated as of July 30, 2012 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
July 30, 2012 and filed on August 3, 2012 (Commission file number 1-10560))
First Amendment to the Fourth Amended and Restated Credit Agreement dated June 9, 2014
(incorporated by reference from Exhibit 10.1 to the Company's quarterly report on Form 10-Q
filed with the SEC on August 6, 2014 (Commission file number 1-10560))
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. 333-28997,
No. 333-101744, No. 333-156202, No. 333-168427 and No. 333-198404)
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
101.INS (1)
XBRL Instance Document
101.SCH (1) XBRL Taxonomy Extension Schema Document
101.CAL (1) XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB (1) XBRL Taxonomy Extension Label Linkbase Document
101.PRE (1) XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF (1) XBRL Taxonomy Extension Definition Linkbase Document
(1) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these
sections.
* Indicates management contract or compensatory plan or arrangement.
** Filed herewith.
75
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.
SIGNATURES
BENCHMARK ELECTRONICS, INC.
By: /s/ Gayla J. Delly
Gayla J. Delly
Chief Executive Officer
Date: February 27, 2015
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, in the capacities and on the dates indicated.
Name
/s/ Peter G. Dorflinger
Peter G. Dorflinger
Position
Chairman of the Board
Date
February 27, 2015
/s/ Gayla J. Delly
President, Chief Executive Officer and Director
February 27, 2015
Gayla J. Delly
(principal executive officer)
/s/ Donald F. Adam
Donald F. Adam
/s/ Michael R. Dawson
Michael R. Dawson
/s/ Douglas G. Duncan
Douglas G. Duncan
/s/ Kenneth T. Lamneck
Kenneth T. Lamneck
/s/ David W. Scheible
David W. Scheible
/s/ Bernee D. L. Strom
Bernee D. L. Strom
/s/ Clay C. Williams
Clay C. Williams
Chief Financial Officer
February 27, 2015
(principal financial and accounting officer)
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
Director
February 27, 2015
76