2019
annual
report
dear
shareholders
It is hard to believe I have just passed my one-
2019. Our sector strategies are driving disciplined
year anniversary of assuming the role of CEO and
customer and program selection, and our new key
President of Benchmark. I have been incredibly
wins reflect customers engaging with Benchmark for
appreciative of the support and feedback from
the full breadth of our capabilities.
customers, employees, suppliers and shareholders
on our efforts to create a better Benchmark. Before
reflecting on 2019, I want to acknowledge the rapidly
evolving global events related to the novel coronavirus
(COVID-19). We are committed to protecting our
employees and supporting our entire ecosystem as
we manage through this unprecedented event.
An additional focus area was to accelerate our
engineering and solutions capabilities to provide a
differentiated value proposition for our customers.
In addition to adding some incredibly talented
engineering skills into our global team, we reached a
pivotal milestone in the fourth quarter of 2019 as we
delivered the first production microelectronics units
As I reflect on my decision to join Benchmark, I was
from our new Benchmark Lark facility in Phoenix. As
excited about the incredible depth and breadth of
we have discussed, this is a greenfield location with
skills and capabilities in the organization. Shortly after
critical expertise in liquid crystal polymer substrates,
arrival, I began observing firsthand the Benchmark
RF and Micro-E. These capabilities, combined with
solutions to some of the most complex design,
our advanced SMT manufacturing and assembly
engineering and manufacturing challenges I have ever
capability on site, provide an unmatched value
encountered; and I became ever more excited about
proposition to the market. We look forward to the
the potential! The missing ingredient for me was the
continued scale of production in this location in the
lack of an integrated and customer-centric go-to-
coming year.
market approach that would allow us to sell the entire
capabilities of the organization.
Throughout 2019, we focused on operational efficiency
projects which lead to a strong year for free cash
As a priority, I created and hired Benchmark’s first
flow generation. We also returned over $140 million
Chief Revenue Officer (CRO) to lead a unified selling
in capital to shareholders through share repurchases
process across a merged sales and marketing
and our quarterly dividends. We delivered these
organization. Throughout the year, we continued to
results despite an unfortunate ransomware event that
see momentum in our targeted higher-value markets
disrupted our operations in the fourth quarter.
as we built out and enhanced this go-to-market
organization: Medical revenues were up 14% and
Aerospace and Defense revenues were up over 6%
from 2018. Semi-cap also began a rebound late in
Looking ahead, we are focused on four strategic
themes in 2020 which underpin where we will spend
our time this year to build a better Benchmark. First and
foremost, it all starts with our focus on the customer.
We are changing our relationships with our customers
Finally, we’re working to better engage our talent and
from a more transactional mindset to that of a
shift the culture of Benchmark. We have great people
relationship where we become a stronger, trusted
and are putting in place the infrastructure and tools
partner by delivering incremental value through
to drive empowerment, accountability and ownership
our expanded set of services and differentiated
across the organization to support a high-functioning
technology. The result for us is revenue growth at the
team and make Benchmark an even better place
right target margin profile in alignment with customers,
to work. We believe these are the right priorities for
who recognize and reward us for the value we bring to
where we are as an organization, and our senior
their business.
leadership team is aligned and engaged in driving
Second, we are driving enterprise efficiencies
these initiatives throughout the year.
across the entire organization and have kicked off
In closing, the year 2020 is beginning with uncertainty
several project teams to drive a specific set of actions
related to the global impacts from the coronavirus.
aimed at further streamlining our business. Our aim
However, Benchmark is operationally and financially
is process standardization and consistency across
strong, and we remain steadfast to adhering to health
our operations to offer a One Benchmark experience
and safety guidelines to support our teams as we
to our customers and allow them to work seamlessly
navigate near-term choppy waters. I want to thank
across our network. Ultimately, the objective of this
our dedicated employees for their hard work and
initiative is to ensure best utilization of the assets of
commitment this past year and their continued efforts
the company and to expand operating margins.
to drive innovation and excellence in support of our
customers. We also greatly appreciate our
customers, suppliers, and shareholders for their
ongoing commitment and support of us during this
incredible journey.
Jeff Benck
President and
Chief Executive Officer
Next, we remain focused on investing in people,
process and solutions to accelerate the growth in
our business. As we have discussed over the past
several quarters, we have continued to invest in rich
technical capabilities across our network to solve
our customers’ most complex challenges. With our
new facility ramping to production here in Phoenix,
Arizona, we are bringing to market cutting-edge
technology that can enable our customers to reduce
the size, weight and power of their sophisticated
designs in the most challenging applications, such
as RF in the Aerospace and Defense markets or 3D
hybrid integration (3DHI) for shrinking medical device
designs. We are further investing in microelectronics
assembly capability, both in the U.S. and in our Asia
facilities. These technology investments are critical to
increasing value to our customers and accelerating
future revenue and margin expansion for Benchmark.
Non-GAAP Financial Measures
This shareholder letter includes certain financial measures
measures that exclude certain items in order to better
that exclude items and therefore are not in accordance with
assess operating performance. The Company’s
U.S. generally accepted accounting principles (“GAAP”).
non‐GAAP information is not necessarily comparable to
These non-GAAP measures include non-GAAP “free cash
the non‐GAAP information used by other companies.
flow”, which the Company defines as cash flow from
Non‐GAAP information should not be viewed as a
operations less additions to property, plant and equipment
substitute for, or superior to, net income or other data
and purchased software. Management discloses non‐
prepared in accordance with GAAP as a measure of
GAAP information to provide investors with additional
the Company’s profitability or liquidity. Readers should
information to analyze the Company’s performance and
consider the types of events and transactions for which
underlying trends. Management uses non‐GAAP
adjustments have been made.
(Mark One)
(cid:4338)(cid:4338)
(cid:4337)(cid:4337)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
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)
56 South Rockford Drive
Tempe, Arizona 85281
(623) 300-7000
(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
Trading Symbol
BHE
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:4338) No (cid:4337)
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 (cid:4337) No (cid:4338)
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:4338) No (cid:4337)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes
(cid:4338) No (cid:4337)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:4338)
Non-accelerated filer (cid:4337)
Accelerated filer (cid:4337)
Smaller reporting company (cid:4337)
Emerging growth company (cid:4337)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4337)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act). Yes (cid:4337) No (cid:4338)
As of June 28, 2019, the number of outstanding common shares was 37,679,265. 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 $0.9 billion.
As of February 28, 2020, there were 36,755,144 common shares of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.
Documents Incorporated by Reference:
Portions of the Company’s Proxy Statement for the 2020 Annual Shareholders Meeting are incorporated herein by reference (Part III, Items
10-14).
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A.
Item 8.
Item 9.
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A.
Item 9B.
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
SIGNATURES
Exhibits, Financial Statement Schedules
Form 10-K Summary
Page
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Item 1. Business.
PART I
This Annual Report on Form 10-K (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
(Exchange Act). These forward-looking statements are identified as any statement that does not relate strictly to
historical or current facts and may include words such as “anticipate,” “believe,” “intend,” “plan,” “projection,”
“forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” “could,” “predict,” and
similar expressions or the negative or other variations thereof. In particular, statements, express or implied,
concerning future operating results or margins, expected revenue mix, 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. Although Benchmark believes these statements are
based on reasonable assumptions, they involve risks, uncertainties and assumptions that are beyond our ability to
control or predict, including those discussed under Item 1A of this Report and in any of our subsequent reports filed
with the Securities and Exchange Commission (SEC). 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. All forward-looking statements included in this document are based upon
information available to the Company as of the date of this document, and it assumes no duty to update them.
The Company’s fiscal year ends on December 31. Consequently, references to 2019 relate to the calendar year
ended December 31, 2019; references to 2018 relate to the calendar year ended December 31, 2018, etc.
General
Benchmark Electronics, Inc. (Benchmark) is a Texas corporation that began operations in 1979 and is today a
worldwide provider of innovative product design, engineering services, technology solutions and advanced
manufacturing services (both electronic manufacturing services (EMS) and precision technology services). In this
Report, references to Benchmark, the Company or use of the words “we”, “our” and “us” include Benchmark’s
subsidiaries unless otherwise noted.
From initial product concept to volume production, including direct order fulfillment and aftermarket services,
Benchmark has been providing integrated services and solutions to original equipment manufacturers (OEMs) since
1979. Today, Benchmark proudly serves the following industries: aerospace and defense (A&D), medical
technologies, complex industrials, semiconductor capital equipment (semi-cap), next-generation telecommunications
and high-end computing. Before the second quarter of 2019, results in the semi-cap sector were reported under test
and instrumentation.
Our customer engagement focuses on three principal areas:
• Engineering Services, which include design for manufacturability, manufacturing process and test development,
concurrent and sustaining engineering, turnkey product design and regulatory services. Our engineering services
may be for systems, sub-systems, printed circuit boards and assemblies, and components. We provide these
services across all the industries we serve, but focus primarily in regulated industries such as medical, complex
industrials, A&D, and next-generation telecommunications.
• Technology Solutions, which involve developing a library of building blocks or reference designs primarily in
defense solutions, surveillance systems, radio frequency and high-speed design, and front-end managed
connectivity data collection systems. We often merge these technology solutions with engineering services in
order to support manufacturing services. Our reference designs can be utilized across a variety of industries but
we have significant capabilities in the A&D and next generation telecommunication markets. We have also
developed differentiated capabilities in radio frequency (RF) and high speed design for both components and
1
substrates. The need to reduce size, weight, and power (SWaP) to accommodate high frequency electronics
communications is important to customers in the A&D, medical and next generation telecommunications
markets.
• Manufacturing Services, which include printed circuit board assemblies (PCBAs) using both traditional surface
mount technologies (SMT) and microelectronics, subsystem assembly, box build and systems integration.
Systems integration often involves building a finished assembly that includes PCBAs, complex subsystem
assemblies, mechatronics, displays, optics, and other components. These final products may be configured to
order and delivered directly to the end-customer across all the industries we serve. Manufacturing services also
includes precision technology services comprised of precision machining, advanced metal joining, assembly
and functional testing primarily for semi-cap market (serving semiconductor capital equipment customers) as
well as the medical and A&D markets.
Our core strength lies in our ability to provide concept-to-production solutions in support of our customers. 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 – especially for complex products with
lower volume and higher mix in regulated markets. These capabilities enable us to build strong strategic
relationships with our customers and to become an integral part of their business.
We believe our primary competitive advantages are our engineering services (including product design), technology
solutions, and manufacturing services (including electronics and precision technology capabilities) provided by
highly skilled personnel. We continue to invest in our business to expand our skills and service offerings from direct
customer inputs. We utilize customer feedback to enhance our future flexible design and manufacturing solutions in
support of the full life cycle of customers’ products. These solutions provide accelerated time-to-market, faster time-
to-volume production, and reduced product development costs. Working closely with our customers and responding
promptly to their needs, we become an integral part of their process to bring products to market faster and more
economically.
In addition, we believe that a strong focus on human capital through the talent we hire and retain is critical to
maintaining our competitiveness. We are driving a customer-centric organization with a high degree of
accountability and ownership to develop processes necessary to exceed customer expectations and deliver financial
performance aligned to our goals. Through our employee feedback process, we solicit and act upon information to
improve our company and better support our customers and business processes in the future. We have taken steps to
attract the best leaders and are accelerating our efforts to mentor and develop key leaders for the future.
Our Industry
Outsourcing engineering and manufacturing services enable OEMs to concentrate on their core strengths, such as
research and development, branding, and marketing and sales. In an outsourcing model, OEMs also benefit from
improved efficiencies and reduced production costs, reduced fixed capital investments, improved inventory
management, and access to global engineering and manufacturing resources. OEMs continue to turn to outsourcing
to reduce time-to-market and time-to-volume production through utilization of their service providers’ product
design and engineering services, technology solutions and manufacturing services.
Outsourcing rates fluctuate periodically, and not all industries we serve are experiencing high outsourcing growth
rates. The traditional markets of computing and telecommunications have used the outsourcing model for a number
of years and have a lower outsourcing growth potential than the under-penetrated medical, complex industrials,
A&D, and semi-cap markets, which we identify as our higher-value markets. The higher-value markets typically
provide the opportunity for higher profitability than the traditional markets and in some cases provide the potential
for stable growth. The higher-value markets also align well with Benchmark’s expertise in more complex and highly
regulated products, and we believe we are well-positioned to capitalize on increased outsourcing in these markets.
2
Our Strategy
Our goal is to be the solutions provider of choice to leading OEMs that we believe offer the greatest potential for
profitable growth. To meet this goal, we have implemented the following strategies:
(cid:120) Focus on More Complex Products for Customers. EMS providers serve 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 products.
Higher-volume manufacturing customers in the more traditional markets of computing and
telecommunications often compete on price with short product life cycles and require less value-add
from EMS providers. Lower-volume manufacturing customers in the A&D, medical, and industrial
markets are often in highly regulated industries where they are increasingly outsourcing higher value-
added services to their EMS providers to meet stringent regulatory and time-to-market requirements. In
the traditional markets, we focus on customers with more complex requirements such as high-
performance computing and next generation telecommunications. In the higher-value markets where
outsourcing growth rates are increasing and product life cycles are longer, we focus on customers where
there is a strong match between our capabilities and their needs. We expect to achieve our goal of
generating over 75% of our sales from higher-value market customers in the near future.
(cid:120) Lead with Design & Engineering Services and Leverage Advanced Technology Solutions. In addition to
strength in manufacturing complex high-density PCBAs, complex mechanical systems, and full systems
integration, we offer customers specialized and tailored advanced design solutions, including technology
building blocks and engineering services. We provide this engineering expertise through our design
capabilities in our design centers in the Americas, Europe and Asia. Leading with engineering is
important to our strategy to increase sales to customers in our targeted higher-value markets where
products require high quality, extreme reliability and low product failure rates. Through leveraging our
advanced technology and engineering solutions, customers can focus on core branding and marketing
initiatives while we focus on bringing their products to market faster and more efficiently.
(cid:120) Maintain and Develop Close, Long-Term Relationships with our Customers. Our strategy is focused on
establishing long-term relationships with leading OEMs in growth industries by becoming an integral
part of their concept-to-production and full product life cycle requirements. To accomplish this, we rely
on our account managers, site program managers and general management teams to respond with speed
and flexibility to frequently changing customer design specifications and production requirements. We
focus on caring for our customers and ensuring that their needs are consistently met and exceeded.
(cid:120) Deliver Complete High- and Low-Volume Manufacturing Solutions Globally. OEMs increasingly require
a wide range of specialized design 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 precision technology services and
complex mechanical manufacturing, along with our systems integration assembly and direct order
fulfillment services, allow our customers the potential 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 and allow us to offer customers the flexibility to move
quickly from design and initial product introduction to production and distribution. We also offer our
customers the opportunity to combine the benefits of low-cost manufacturing with the benefits and
capabilities of our higher complexity support in Asia, Europe and the Americas.
(cid:120) Continue to Seek Cost Savings and Operational Excellence. We seek to optimize our network of facilities
to provide cost-efficient services for our customers. We have a global culture of continuous improvement,
3
sharing best practices and implementing lean principles. We will continue to drive lean and operational
excellence initiatives with common global processes that allow us to optimize our cost structure and
capacity. In support of our financial goals, we will continue a strong focus on cash conversion.
(cid:120) Optimize our Global Footprint. We will continue to evaluate our global footprint to insure we are
improving the utilization of our facilities, expanding in the regional locations where customers would like
to do business with us, and investing capital in new capabilities that match identified market needs. This
effort has led to some site closures and site expansion across our network as appropriate.
(cid:120) Pursue Strategic Acquisitions. Our capabilities have continued to expand through acquisitions and we will
continue to selectively seek close-to-core bolt-on acquisitions which expand our technical capabilities.
We enhanced our capabilities through the following acquisitions:
(cid:16)
(cid:16)
(cid:16)
In June 2013, we acquired Suntron Corporation (the Suntron Acquisition) to better serve
customers in the A&D markets and expand our capabilities in Mexico.
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 November 2015, we acquired Secure Communication Systems, Inc. and its subsidiaries
(collectively, Secure Technology or Secure) (the Secure Acquisition), a leading provider of
customized high-performance electronics, sub-systems, and component solutions for mission
critical applications in the highly regulated industrial and A&D markets.
In addition to expanding our global footprint, these acquisitions have enhanced our business in the
following ways:
improved customer growth opportunities;
(cid:16)
(cid:16) developed strategic relationships;
(cid:16) broadened service and solution offerings;
(cid:16) provided vertical solutions;
(cid:16) diversified our market sectors; and
(cid:16)
added experienced management teams.
(cid:120) Capital Allocation. We continue to be focused on effective capital deployment balancing appropriate
investments in our business while providing returns to our shareholders. Future investments may include
organic growth through targeted investments, close-to-core acquisitions with strong technical capabilities,
and a balance between managing our level of outstanding debt and returning capital to shareholders through
share repurchases and dividends.
Services We Provide
Through the Benchmark network, we offer a wide range of design, engineering, automation, test, manufacturing and
fulfillment solutions that support our customers’ products from initial concept and design through prototyping,
design validation, testing, ramp-to-volume production, worldwide distribution and aftermarket support. With our
balanced footprint, we have the ability to serve global and regional customers. We support all of our service
offerings with supply chain management systems, superior quality program management and integrated information
technology systems. Our comprehensive service offerings enable us to provide a complete solution for our
customers’ outsourcing requirements. All of our services are supported through a strong quality management system
designed to globally provide the process discipline to reliably deliver high quality services, solutions and products to
our customers.
4
Design & Engineering Services and Technology Solutions:
Our approach is to coordinate and integrate our concept, design, prototype and other engineering capabilities in
support of our customers’ go-to-market and product life cycle requirements. These services strengthen our
relationships with our manufacturing customers and help attract new customers that require specialized design and
engineering services. Early engagement with engineering-led solutions is key to our strategy of focusing on products
with greater complexity in our targeted verticals.
(cid:120) New Product Design, Prototype, Testing and Related Engineering Services. We offer a full spectrum of
new product design, automation, test development, prototype and related engineering for projects
contracted by our customers who pay for and own the resulting designs in our contract design services
business. We employ a proven seven-step process for concept-to-production in our design services model
that enables a shorter product development cycle 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 volume manufacturing.
(cid:120) Custom Testing and Automation Equipment Design and Build Services. We provide our customers a
comprehensive range of custom automated test equipment, functional test equipment, process automation
and replication solutions. We have expertise in tooling, testers, equipment control, systems planning,
automation, floor control, systems integration, replication and programming. Our custom functional test
equipment, process automation and replication solutions are available to our customers as part of our full-
service product design and manufacturing solutions package or on a stand-alone basis for products
designed elsewhere. We also provide custom test equipment and automation system solutions to OEMs,
which pay for and own the designs. 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.
(cid:120) Technology Solutions. We are investing in building blocks and solutions such as secure defense turnkey
design and reference platforms in avionics, ground vehicle electronics, munitions, and soldier platforms
that require ruggedization for harsh environments and secure communications. We are developing
advanced manufacturing capabilities for high density interconnect circuits using advanced substrates
including liquid crystal polymer, high-frequency filters and a data collection network that integrates
sensors, radios, and gateways for data analytics.
Manufacturing Services (Electronics Manufacturing and Testing Services):
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 but are not
limited to:
(cid:120) Printed Circuit Board Assembly (PCBA) & Test. We offer our customers expertise in a wide variety of
traditional and advanced manufacturing technologies. Our technical expertise supports complex, printed
circuit board assembly and test solutions, assembly of subsystems, circuitry and functionality testing of
printed assemblies, environmental and stress testing and component reliability testing.
We provide our customers with a comprehensive set of PCBA manufacturing technologies and solutions,
which include:
(cid:120) Surface mount technology
- Micro-Ball Grid Array
5
- Land Grid Array
- Quad Flat No-Leads
- Package-on-Package
- 01005 Chip Components
- Circuit Design and Fabrication of Hybrid interconnect and CCDs
(cid:120) Substrate Technology; Rigid Epoxy, Flex, Ceramic, Glass, Rigid-Flex;
(cid:120) Plated through hole technology;
(cid:120) Pin-in-Paste Technology;
(cid:120) Hybrid RoHS soldering processes;
(cid:120) Wafer-Level CSP (WLCSP);
(cid:120) Flip Chip;
(cid:120) Chip-on-Board and Wire-Bonding;
In-Circuit Test;
(cid:120)
(cid:120) Microelectronics, and
- Mixed SMT and Microelectronics assembly
(cid:120)
Inspection and Test solutions
- Automated optical inspection (2D & 3D)
- Automated x-ray inspection
- Flying Probe
- Boundary Scan Test
- In-Circuit Test;
- Board Level Functional Testing
- Device/System Integration Functional Test
- Electrical Safety Test
- Microelectronics Test
- Vibration, ESS, HASS and HALT
We also provide specialized solutions in support of our customers’ components, products and systems,
which include:
(cid:120) Conformal Coating and Potting;
(cid:120) Underfill and Encapsulation;
(cid:120) Ultrasonic Welding;
(cid:120) Automation Solutions;
(cid:120) Complex Final Assembly;
(cid:120) Configure | Build to Order;
(cid:120) Fluidics Assembly;
(cid:120) Splicing and Connectorization for Optical Applications;
(cid:120) Hybrid Optical/Electrical Printed Circuit Board Assembly and Testing; and
(cid:120) Sub-Micron Alignment of Optical Sub-Assemblies.
(cid:120)(cid:3) Component Engineering Services. We provide support to our customers to understand the 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/EC on
Restriction of certain Hazardous Substances); “WEEE” (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 Europe regions are experienced with both
water soluble and no-clean processes.
(cid:120)
Systems Assembly & Test. We offer a full spectrum of subsystem and system integration services. These
include assembly, configuration and testing for all industries we service. We design, develop and build
6
product-specific manufacturing processes utilizing manual, mechanized or fully automated lines to meet
our customers’ product volume and quality requirements. We work with our customers to develop product-
specific test strategies. Our test capabilities include manufacturing defect analysis, in-circuit tests to check
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 greater cost savings and flexibility, and provide
environmental stress tests of assemblies of boards or systems. We also provide product life cycle testing
services, such as ongoing reliability testing where units are continuously cycled for extended testing while
monitoring for early-life failures.
(cid:120) Failure Analysis. We offer an array of analytical solutions and expertise to help our customers address their
most challenging engineering and business issues. 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 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 an understanding of potential failure mechanisms, positions
us to exceed customer expectations and maintain our technological diversity.
Precision Technology Services (Precision Machining and Complex Vertically Integrated Assemblies):
In addition to traditional EMS, we offer complex precision technology services including full electromechanical
assembly and testing services.
(cid:120) Precision Technologies Group. We provide vertically integrated precision mechanical components and
complex electromechanical assemblies. The processes supporting these include:
(cid:120) Complex Small / Medium / Large Precision Machining;
(cid:120) Advanced metal joining including vacuum chamber welding, electron beam laser and brazing;
(cid:120) Multi-Axis Robotic Grinding for demanding applications such as turbine blades and scientific
instruments;
(cid:120) Complex Clean Room Assembly and Functional Test;
(cid:120) Major Electromechanical Assemblies;
(cid:120)(cid:3) Large precision and industrial frames; and
(cid:120) Sheet metal and paint.
Our global network of operations includes manufacturing facilities in seven countries, which are strategically
located to support full product life cycle services for our customers. We have domestic facilities in Alabama,
Arizona, California, Minnesota, New Hampshire and Texas and international facilities in China, Malaysia, Mexico,
the Netherlands, Romania and Thailand. Our network also includes engineering centers that lead customer
engagements and provide solutions to customers in the Americas, Europe and Asia. Additionally, we are compliant
with and/or hold the following certifications and registrations by geography:
7
Americas Europe
ISO 13485 – Medical
FDA/QSR Compliant – Medical
ISO 14971 – Medical Risk Management
MedAccred
AS9100 – Aerospace
ITAR (International Traffic and Arms)
Nadcap (National Aerospace & Defense Assoc. Program)
FAA Approved Parts Manufacturer - Aviation
IATF 16949 – Automotive
TL9000 – Telecommunications
ANSI ESD S20:20
ISO 9001 - Quality
ISO 14001 – Environmental Health and Safety
OHSAS 18001/ISO 45001 – Occupational Health and Safety
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
Asia
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
(cid:151)
Supply Chain, Order Fulfillment, and Aftermarket Support Services:
Our customers often face challenges in designing supply chains, demand planning, procuring materials 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 and lean manufacturing principles to manage 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. Because we are a significant purchaser of electronic components and other
raw materials, we are able to 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 agility and 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.
In support of our engineering services, technology solutions and manufacturing services, we offer our customers a
wide array of capabilities from early supply chain design, to order fulfillment, to aftermarket services.
(cid:120) 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 a web-based
information technology system that enables us to collaborate with our customers throughout all stages of
the engineering, manufacturing and order-fulfillment processes.
(cid:120)
Supply Chain Management. We offer full end-to-end supply chain design, inventory-management and
volume-procurement capabilities to provide assurance of supply, optimized cost, and reduce total cycle
time. Our materials strategy focuses on leveraging our procurement volume company-wide while providing
local execution for maximum flexibility. We employ 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
8
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.
(cid:120) 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.
(cid:120) 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.
Marketing and Customers
We market our services and solutions primarily through a direct sales force organized by market sector. In addition,
our engineering, operational, and executive management teams are an integral part of our sales and marketing
approach. We generally enter into master supply agreements with our customers. These arrangements generally
govern the conduct of our business with customers relating to, among other things, the design and manufacturing of
products that in some cases were previously produced by the customer. The arrangements also generally identify the
specific products to be designed and manufactured, quality and production requirements, product pricing and
materials management. There can be no assurance that these arrangements will remain in effect or be renewed, but
we focus intently on customer care in an effort to anticipate and meet the current and future needs of our customers.
Our key customer accounts are supported by dedicated teams directly responsible for account management. These
teams coordinate activities across the Benchmark global network to effectively satisfy customer requirements and
have direct access to leadership and executive management to quickly address customer concerns. Local program
managers and 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.
9
The following table sets forth the percentages of our sales by sector for 2019, 2018 and 2017.
Higher-Value Markets
Industrials
A&D
Medical
Semi-Cap
Traditional Markets
Computing
Telecommunications
2019
2018
2017
20 %
19
20
12
71 %
19 %
16
15
14
64 %
20 %
16
15
14
65 %
2019
2018
2017
16 %
13
29 %
100 %
23 %
13
36 %
100 %
22 %
13
35 %
100 %
A substantial percentage of our sales are made to a small number of customers, and the loss of a major customer, if
not replaced, would adversely affect us. Sales to our ten largest customers represented 38%, 44% and 46% of our
sales in 2019, 2018 and 2017, respectively. In 2019, no single customer represented 10% or more of our sales. In
2018, sales to International Business Machines Corporation represented 13% of our sales. In 2017, sales to
International Business Machines Corporation and Applied Materials, Inc. represented 12% and 10%, respectively, of
our sales.
During the first quarter of 2019, we indicated we would not renew a legacy computing contract with a long-standing
customer that represented $324 million and $285 million in revenue in 2018 and 2017, respectively. When this
contract was last renewed in early 2016, it was assumed that the related product line would go end-of-life or decline
substantially over time. The opposite happened and business performance on this contract deteriorated due to model
mix and supply chain changes. We notified the customer that we would not renew the contract past the expiration
date at the end of 2019. We coordinated a transition plan with the customer and completely exited the contract fully
in the third quarter of 2019. For additional information, see “Risk Factors—The loss of a major customer would
adversely affect us” in Item 1A of this Report and “2019 Highlights” in Item 7 of this Report.
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. For additional information, see
“Risk Factors—Shortages or price increases of components specified by our customers would delay shipments and
adversely affect our profitability” in Item 1A of this Report. Although we occasionally experience component
shortages and longer lead times for various components, we have generally been able to reduce the impact of
component shortages by working with customers to reschedule deliveries and with suppliers to provide the needed
components using just-in-time inventory programs, or by purchasing components at slightly higher prices from
distributors rather than directly from manufacturers. In addition, by developing long-term relationships with
10
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 $1.8 billion at December 31, 2019, as compared to the 2018 year-end
backlog of $2.1 billion. Backlog consists of purchase orders received, and other forecast requirements under
customer contracts which can be subject to change. Although we expect to fill substantially all of our year-end
backlog during 2020, 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 are there any assurances that any of our current customers will continue
to utilize our services. Because of these factors, our backlog is not a meaningful indicator of future financial results.
Competition
The 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., Flex Ltd., Hon Hai Precision
Industry Co., Ltd., Jabil Circuit, Inc., Plexus Corp and Sanmina Corporation, some of whom have greater financial,
manufacturing or marketing resources than we do. We believe that the principal competitive factors in our targeted
markets are engineering solutions 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, 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 traditional markets,
such as computing and telecommunication. 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 “sustainable”. Being sustainable describes our long-term approach to industry best
practices and emerging norms in the areas of environmental consciousness, social responsibility, ethics and
corporate governance, and supply chain ecosystem responsibility. Our goal is to do our part in contributing to a
more sustainable world, while providing value to our shareholders consistent with our business objectives. Our
sustainability priorities include:
Environmental Sustainability:
• We are committed to protecting the natural environment and our community by complying with all
applicable legal and regulatory requirements.
• We engage our employees to accomplish this by conserving energy; reducing consumption of natural
resources; preserving air, soil, and water quality, managing waste properly and encouraging reuse or
recycling; reducing use of toxic substances and applying an ethical approach to source reduction and
disposal efforts.
• All Benchmark manufacturing facilities are either currently certified or undergoing certification to ISO
14001, which is a set of standards related to environmental management and systems. The ISO 14001
standards help organizations minimize adverse impacts to the environment, comply with applicable laws,
regulations and other requirements, and achieve continual improvement in these areas.
• Benchmark has launched a number of global initiatives designed to reduce energy consumption in our
facilities, including upgrades and or retrofits in LED and motion detector lighting, cooling towers,
compressed air and vacuum systems, and exhaust fans.
Care for People:
11
• We believe in upholding the principle of human rights, worker safety and observing fair labor practices
within our organization and our supply chain.
• We are committed to ensuring proper working conditions exist for the safety of our employees, such as the
implementation of 5S and visual management practices, developing, implementing and continuously
improving our Occupational Health and Safety Management System, and providing appropriate education,
reporting and controls.
• We are committed to participating in the development of our surrounding communities and supporting
•
diversity.
In the fall of 2019, a strategic customer presented a Benchmark operation with a “Supplier ESG Excellence
Award” for their “participation, leadership and superiority during the Forced and Bonded Labor Prevention
Program.”
Ethics & Corporate Responsibility:
• We are committed to ensuring ethical organizational governance, promoting business ethics and integrity,
and embracing diversity and inclusion in the board room and throughout the organization.
• We are committed to observing fair, transparent and accountable operating practices.
• Benchmark believes that its ultimate responsibility is to help create and foster the best possible work
environment for everyone in our organization. To this end, we implemented a “Speak Up!” campaign
designed to promote a positive and ethical organizational culture. We believe that each team member,
regardless of position, shares in this responsibility, and we encourage all of them to “Speak Up!” with
questions or concerns about actual or potential ethical issues, questions about company policies,
suggestions about how we can make our organization better and to address any other concerns.
• To facilitate open and honest communication, in 2018 we upgraded our Helpline to include global local
phone numbers together with language support that allows reporters to “Speak Up!” in over 150 native
languages. In addition, we added a web portal that allows online reporting of concerns, a place to ask
questions, or quickly access ethics and compliance policies.
• We believe these efforts strengthen our enterprise ethics and compliance efforts and foster the environment
where stakeholders can express and have concerns resolved.
Supply Chain Responsibility:
(cid:120) We are committed to sourcing with suppliers willing to support our sustainability initiatives.
(cid:120) Benchmark endorses the Responsible Business Alliance (RBA)(formerly the Electronics Industry
Citizenship Coalition or EICC) Code of Conduct, which provides guidance in five critical areas of
corporate social responsibility (CSR) performance, including labor, health and safety, environment,
management systems, and ethics. Benchmark also seeks the same endorsement from our business partners,
requesting that each business partner adhere to the RBA Code of Conduct or its equivalent at initial
engagement and flowing these requirements through our commercial contracts to our business partners and
supply chain. Benchmark also conducts a supply chain monitoring system to assess adherence in these
areas with regard to our supply chain partners.
(cid:120) Benchmark also supports Rule 13p-1 under the Securities Exchange Act (Conflict Minerals Law) and
efforts to avoid sourcing Conflict Minerals directly or indirectly financing armed groups in the Democratic
Republic of Congo (DRC) and in adjoining countries. Consistent with the Conflict Minerals Law and the
OECD Due Diligence Guidance concerning Conflict Minerals, Benchmark adopted the Conflict Free
Sourcing Initiative Due Diligence reporting process and seeks to obtain Conflict Minerals content
declarations from its suppliers, all in an effort to promote supply chain transparency. Benchmark does not
directly source tin, tantalum, tungsten or gold (3TG) from mines, smelters or refiners, and is in most cases
several or more levels removed from these supply chain participants. Benchmark therefore expects:
12
‒ our suppliers to source 3TG only from smelters and refiners validated as being conflict free and
that do not directly or indirectly benefit or finance armed groups in the DRC or other covered
country;
‒ our suppliers to fully-comply with the Conflict Minerals Law and provide all necessary
declarations;
‒ our suppliers to pass these requirements through to their supply chain and determine the source
and chain of custody of specified minerals, including 3TG; and any suppliers not willing to
comply with these requirements shall be reviewed by global procurement with regard to future
business and sourcing declarations. This conflict minerals policy encourages our suppliers to
respect and protect human rights throughout the world.
Governmental Regulation
Our operations, and the operations of businesses that we acquire, are subject to foreign, federal, state and local
regulatory requirements relating to security clearance, trade compliance, anticorruption, environmental, waste
management, and health and safety matters. We are committed to operating in compliance with all applicable
requirements. 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. For additional information, see “Risk Factors—
Compliance or the failure to comply with environmental regulations could cause us significant expense” in Item 1A
of this Report.
Employees
As of December 31, 2019, we employed approximately 10,600 people, approximately 370 of whom were engaged in
design and development engineering. None of our domestic employees are represented by a labor union. In certain
international locations, our employees are represented by labor unions and by works councils. Some European
countries also often have mandatory legal provisions regarding terms of employment, severance compensation and
other conditions of employment that are more restrictive than U.S. laws. We have never experienced a strike or
similar work stoppage, and we believe that our employee and labor relations are good.
Segments and International Operations
We have manufacturing facilities in the Americas, Asia and Europe 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 2019, 2018 and 2017, 47%, 45% and 47%, respectively, of our sales were from our international operations.
See Note 10 and Note 15 of Notes to Consolidated Financial Statements in Item 8 of this Report for segment and
geographical information.
Available Information
Our website may be viewed at http://www.bench.com. Reference to our website is for informational purposes only
and the information contained therein is not incorporated by reference into this annual report. We make available
free of charge through our internet website our filings with the 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
13
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.
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.
We are exposed to general economic and market conditions that could have a material adverse impact on our
business, operating results and financial condition.
Uncertainty over the erosion of global consumer confidence, geopolitical issues, the availability and cost of credit,
concerns about volatile energy costs, declining asset values, inflation, rising unemployment, and the stability and
solvency of financial institutions, financial markets, businesses, and sovereign nations can slow global economic
growth and result in recessionary conditions. Any of these potential negative economic conditions may reduce
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.
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. 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. 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 products
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 and the markets in which they operate. When our
customers or the markets in which they operate experience declines or grow at a significantly slower pace
than anticipated, we may be adversely affected.
14
We are dependent on the continued growth, viability and financial stability of our customers. Our customers are
OEMs of:
industrial equipment,
equipment for the A&D industries;
telecommunication equipment;
computers and related products for business enterprises;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120) medical devices; and
semi-cap equipment.
(cid:120)
These markets 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. For example, the declines in demand throughout the broader semi-capital equipment market in 2018 and
2019 have had a significant impact on us.
The loss of a major customer would adversely affect us.
Our sales are dependent on the success of our customers, some of which operate in businesses associated with rapid
technological change and consequent product obsolescence. Developments adverse to our major customers or their
products, or the failure of a major customer to pay for components or services, could have an adverse effect on us. A
substantial percentage of our sales are made to a small number of customers, and the loss of a major customer, if not
replaced, would adversely affect us. Sales to our ten largest customers represented 38%, 44% and 46% of our sales
in 2019, 2018 and 2017, respectively. Further, as part of our ongoing process to review marginal and dilutive
contracts, we made the decision to not renew the legacy contract with a large computing customer that expired at the
end of 2019. During the second quarter of 2019, we completed the final buildout of this legacy contract and in the
third quarter had an immaterial amount of revenue from this contract.
We expect to continue to depend on 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 services to our
customers. If one or more of our customers were to become insolvent or otherwise unable to pay for the 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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
changes in demand for their products;
their attempts to manage their inventory;
design changes;
changes in their 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
15
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.
Winning business is subject to lengthy, competitive bid selection processes that often require us to incur
significant expense, from which we may ultimately generate no revenue.
Our business is dependent on us winning competitive bid selection processes. These selection processes are typically
lengthy and can require us to dedicate significant development expenditures and scarce engineering resources in
pursuit of a single customer opportunity. Failure to obtain a particular design win may prevent us from obtaining
design wins in subsequent generations of a particular product. This can result in lost revenue and could weaken our
position in future competitive bid selection processes.
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. 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.
The degree of success or failure of our customers’ products in the market also affects our business. 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 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.
Government contracts are subject to significant regulation, including rules related to bidding, billing,
kickbacks and false claims, and any non-compliance could subject us to fines and penalties or debarment.
Like all government contractors, we are subject to risks associated with this contracting. These risks include
substantial civil and criminal fines and penalties if we were to fail to follow procurement integrity and bidding rules
or cost accounting standards, employ improper billing practices, receive or pay kickbacks or file false claims. We
have been, and expect to continue to be, subjected to audits and investigations by U.S. and foreign government
agencies and authorities. The failure to comply with the terms of our government contracts could result in progress
payments being withheld, our suspension or debarment from future government contracts or harm to our business
16
reputation.
Our financial results depend, in part, on our ability to perform on our U.S. government contracts, which are
subject to uncertain levels of funding, timing and termination.
We provide services both as a prime contractor and subcontractor for the U.S. government. Consequently, a portion
of our financial results depends on our performance under these contracts. Delays, cost overruns or product failures
in connection with one or more contracts, could lead to their termination and negatively impact our results of
operations, financial condition or liquidity. We can give no assurance that we would be awarded new contracts to
offset the revenues lost as a result of such a termination.
U.S. government programs require congressional appropriations, which are typically made for a single fiscal year
even though a program may extend over several years. Programs often are only partially funded, and additional
funding requires further congressional appropriations. The programs in which we participate compete with other
programs for consideration and funding during the budget and appropriations process, which can be impacted by
shifting and often competing political priorities.
Our government contracts often involve the development, application and manufacture of advanced defense and
technology systems and products aimed at achieving challenging goals. New technologies used for these contracts
may be untested or unproven and product requirements and specifications may be modified. Consequently,
technological and other performance difficulties may cause delays, cost overruns or product failures. Moreover,
there can be no assurance that the amounts we spend to develop new products or solutions to compete for a
government contract will be recovered since we may not be awarded the contract.
Our international operations are subject to certain risks.
During 2019, 2018 and 2017, 47%, 45% and 47%, respectively, of our sales were from our international operations.
These international operations are subject to a number of risks, including:
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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 foreign or domestic 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 and border taxes);
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 foreign taxes due, component costs, local
payroll, utility and other expenses; and
inability to utilize net operating losses incurred by our foreign operations which would increase our
overall effective tax rate.
Changes made that impact the way we operate internally could have a negative impact on us and reduce the demand
for our foreign manufacturing facilities. Moreover, any retaliatory actions by other countries where we operate could
also negatively impact our financial performance. In addition, changes in policies by the U.S. or other governments
could negatively affect our operating results due to trade wars, changes in duties, tariffs or taxes, currency exchange
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rate fluctuations, or limitations on currency or fund transfers, as well as government-imposed restrictions on
producing certain products in, or shipping them to, specific countries. Also, our current facilities in Mexico operate
under the Mexican Maquiladora (IMMEX) program. This program provides for reduced tariffs and eased import
regulations. We could be adversely affected by changes in the IMMEX program or our failure to comply with its
requirements. Additionally, increasing tariffs and other trade protection measures between the U.S. and China may
affect the cost of our products originating in China as well as the demand for our products manufactured in China in
the event our customers reduce operations in China as a result of such tariffs or trade protection measures. These
actions could also affect the cost and/or availability of components that we procure from suppliers in China.
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. 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.
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 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 have significant international sales and operations and face risks related to health epidemics such as the
coronavirus.
Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate
could have a material and adverse effect on our business, financial condition and results of operations. For example,
the recent outbreak of a novel strain of coronavirus first identified in Wuhan, Hubei Province, China, has resulted in
significant governmental measures being implemented to control the spread of the virus, including restrictions on
manufacturing and the movement of employees in many regions of the country. This has affected our manufacturing
facilities in China as well as the facilities of our suppliers, customers and our customers’ contract manufacturers.
The extent to which the coronavirus will impact our business and our financial results will depend on future
developments, which are highly uncertain and cannot be predicted. In addition, the coronavirus may result in a
widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting
in an economic downturn that could affect demand for our end customers’ products. Any of these events, including a
prolonged disruption to our manufacturing facilities in China, could materially and adversely affect our business and
our financial results. The extent of the impact will depend on future developments, which are highly uncertain and
cannot be predicted. As a result, at the time of this filing, it is impossible to predict the overall impact of the
coronavirus on our business and financial results.
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Regulatory, legislative or self-regulatory/standard developments regarding privacy and data security matters
could adversely affect our ability to conduct our business.
U.S. privacy and data security laws apply to our various businesses. We also do business globally in countries that
have more stringent data protection laws than those in the United States that may be inconsistent across jurisdictions
and are subject to evolving and differing interpretations. Governments, privacy advocates and class action attorneys
are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. In Europe,
the General Data Protection Regulation (GDPR) requires us to protect the privacy of certain personal data of
European Union (EU) citizens. The California Consumer Privacy Act (CCPA), which recently went into effect, has
similar protections. While we have implemented processes and controls to comply with GDPR and CCPA
requirements, we could incur significant fines, individual damages and reputational risks if our controls and
processes are ineffective and we fail to comply.
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 Celestica Inc., Flex Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Plexus Corp
and Sanmina Corporation, some of whom have greater financial, manufacturing or marketing resources than we do.
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. 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,
deliver products globally on a reliable basis at competitive prices and seek to create enhanced relationships with our
customers with our advanced technology and engineering solutions. Our inability to do so could have an adverse
effect on us.
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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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 tax laws in the jurisdictions in which we operate;
changes in tariffs, trade agreements and other trade protection measures;
fluctuations in currency exchange rates;
changes in political and economic conditions;
disruptions caused by computer malfunctions or cybersecurity incidents; and
local factors and events that may affect our production volume, such as local holidays, pandemics 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 projected and reported results.
Acquisitions may pose difficulties for us.
Our capabilities have historically grown through acquisitions, and we may pursue additional acquisitions in the
future. Our projections of results and successful integration of acquired operations into our network involve risks,
including:
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integration and management of the operations;
as noted above, demand can vary, and our projections of results may be wrong due to deferred or
reduced demand;
retention of key personnel;
integration of purchasing operations and information systems;
retention of the customer base of acquired businesses;
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the possibility that past transactions or practices may lead to future commercial or regulatory risks;
diversion of management’s attention from other ongoing business concerns, and
inadequate internal control over financial reporting and our ability to bring such controls into compliance
with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner.
Our profitability will suffer if we are unable to successfully integrate an acquisition, if the acquisition does not
further our business strategy as we expected or if we do not achieve sufficient revenue to offset the increased
expenses associated with these acquisitions. We may overpay for, or otherwise not realize the expected return on,
our investments, which could adversely affect our operating results and potentially cause impairments to assets that
we record as a part of an acquisition including intangible assets and goodwill.
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.
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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.
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 a decrease in manufacturing capacity as companies seek to
close plants or take other steps to increase efficiencies and realize synergies of mergers, creating 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.
Unanticipated changes in our tax position, the adoption of new tax legislation or exposure to additional tax
liabilities could adversely affect our financial results.
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 were retracted, or if they were not renewed upon expiration, or tax rates applicable to us in
such jurisdictions were otherwise increased, such as the nonrenewal of our tax holiday in China in 2019. In addition,
further acquisitions may cause our effective tax rate to increase. Given the scope of our international operations and
our international tax arrangements, 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.
As a result of the U.S. Tax Cuts and Jobs Act (U.S. Tax Reform) enacted in December 2017, we incurred a net
estimated tax expense of $93.3 million due to the one-time mandatory transition tax on the deemed repatriation of
undistributed foreign earnings and the re-measurement of U.S. deferred tax assets and liabilities. See Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—
Income taxes and Note 10 to the Consolidated Financial Statements of this Report for additional information.
We are exposed to intangible asset risk; our goodwill may become 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, 2019, we had $192.1 million in
goodwill and $75.8 million of identifiable intangible assets. See Note 1(h) 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.
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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.
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. See Part
I, Item 3. Legal Proceedings.
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, or the failure to attract and retain new 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 and engineering 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 that 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 operations are subject to cyberattacks that could have a material adverse effect on our business.
We are increasingly dependent on digital technologies and services to conduct our business. We use these
technologies for internal purposes, including data storage, processing and transmissions, as well as in our
interactions with customers and suppliers. Examples of these digital technologies include ERP, shop floor control
and other similar business applications, our global infrastructure and networks as well as external systems, analytics,
automation, and cloud services. Digital technologies and services are subject to the risk of cyberattacks and, given
the nature of such attacks, some incidents can remain undetected for a period of time despite our efforts to detect and
respond to them in a timely manner. In particular, as discussed further below, our operations have been, and may in
the future be, subject to ransomware or cyber-extortion attacks, which could significantly disrupt our operations.
Generally, such attacks involve restricting access to computer systems or vital data.
We routinely monitor our systems for cyber threats and have processes in place to detect and remediate
vulnerabilities. Nevertheless, we have experienced cyberattacks and attempted breaches, including phishing emails
and other targeted attacks. In addition, in the fourth quarter of fiscal 2019, some of our systems were affected by a
ransomware incident that encrypted information on our systems and disrupted customer and employee access to our
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systems and services. The Company incurred, and could continue to incur, costs relating to this event, including to
retain third party consultants and forensic experts to assist with the restoration and remediation of systems and, with
the assistance of law enforcement, to investigate the attack, as well as increased expenditures for our information
technology (IT) infrastructure, systems and network. The Company has found no evidence that customer or
employee data was exfiltrated from its network. The Company carries insurance, including cyber insurance. The
availability of insurance to offset the full scope of the costs and related impacts of the 2019 ransomware incident has
not been fully determined.
Future cybersecurity incidents could result in the misappropriation of confidential information of the Company or
that of its customers, employees, business partners or others; litigation and potential liability; enforcement actions
and investigations by regulatory authorities; loss of customers and contracts; damage to the Company’s reputation
and/or otherwise harm its business. We also expect to incur substantial costs in the future to mitigate against
cybersecurity attacks as threats are expected to continue to become more persistent and sophisticated. If our systems
for protecting against cybersecurity risks prove not to be sufficient, we could be adversely affected by, among other
things: loss of or damage to intellectual property, proprietary or confidential information, or customer, supplier, or
employee data; interruption of our business operations; and increased costs required to prevent, respond to, or
mitigate cybersecurity attacks. These risks could harm our reputation and our relationships with customers,
suppliers, employees and other third parties, and may result in claims against us. These risks could have a material
adverse effect on our business, consolidated results of operations and consolidated financial condition.
Any delay in the upgrade of our information systems could disrupt our operations and cause unanticipated
increases in our costs.
We are currently upgrading our IT infrastructure and enterprise resource planning system, which we anticipate
taking several years. Failure to complete the upgrade could leave us with sites without the systems capability to
flexibly support future customer requirements for manufacturing capabilities and data driven analytics, as well as
result in unanticipated increases in costs.
Our stock price is volatile.
Our common shares have experienced significant price volatility, which may continue in the future. The price of our
shares can 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 the
Company.
Certain provisions of our governing documents and the Texas Business Organizations Code may delay, inhibit or
prevent someone from gaining control of the 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
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a statutory restriction on business combinations with some types of interested shareholders.
Our business or stock price could be negatively affected by the actions of activist shareholders or others.
Responding to actions by activist shareholders or others can be costly and time-consuming, disrupt our operations
and divert the attention of management and our employees. Our ability to execute our strategic plan could also be
impaired. In addition, a proxy contest for the election of directors would require us to incur significant fees and
expenses, as well as requiring significant time and attention by management and our Board of Directors. Perceived
uncertainties as to our future direction also could affect the market price and volatility of our common shares, our
ability to attract and retain qualified personnel and business partners and may affect our relationships with vendors,
customers or others.
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 concerns become more prevalent, the U.S. and foreign governments have sought to
limit the effects of any such changes. 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. For example, our facilities in Thailand experienced extensive flooding in 2011. Our
insurance coverage for natural disasters is limited and is subject to deductibles and coverage limits. This coverage
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may not be adequate, or may not continue to be available at commercially reasonable rates and terms. See “We bear
the risk of uninsured losses.”
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 with specialized certifications could adversely affect our ability to provide products and services to our
customers, and thus negatively affect our relationships and financial results.
We bear the risk of uninsured losses.
As a result of extensive 2011 flooding in Thailand, we have been unable to 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 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
experience a significant uninsured loss, it could have a material adverse effect on our business, financial condition
and results of operations.
Our level of indebtedness may limit our flexibility in operating our business and reacting to changes in our
business or industry, or prevent us from making payments on our debt or obtaining additional financing.
As of December 31, 2019, our total outstanding debt (excluding unamortized debt issuance costs and finance leases)
was $144.4 million, all of which represented borrowings under our term loan facility (the Term Loan). Our level of
indebtedness could have important consequences. For example, it could:
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increase our vulnerability to general adverse economic and industry conditions;
impair our ability to obtain additional debt or equity financing in the future for working capital, capital
expenditures, acquisitions or other purposes;
require us to dedicate a material portion of our cash flows from operations to the payment of principal and
interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital
needs, capital expenditures, acquisitions and other purposes;
expose us to the risk of increased interest rates since the Term Loan has a variable rate;
limit our flexibility in planning for, or reacting to, changes in our business or industry;
place us at a disadvantage compared to our competitors that have less debt; and
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Any of these risks could materially impact our ability to fund our operations or limit our ability to expand our
business, which could have a material adverse effect on our business, financial condition and results of operations.
We may be exposed to interest rate fluctuations.
We have exposure to interest rate risk on our outstanding borrowings under our variable rate credit agreement.
These borrowings’ interest rates are based on the spread, at our option, over the London interbank offered rate
(LIBOR), the bank’s prime rate or the federal funds rate. 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
could increase our operating costs.
We prepare our financial statements in conformity with U.S. GAAP. These principles are subject to interpretation by
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the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants, the SEC
and various bodies formed to interpret and create appropriate accounting policies. A change in these 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 questions as to how we interpret or implement them may
have a material adverse effect on our reported financial results or on the way we conduct business. For example, in
May 2014 the FASB issued a new standard (commonly referred to as ASC 606) which changed the way we
recognize revenue and significantly expanded the disclosures requirements for revenue arrangements. We adopted
the requirements of this new standard on January 1, 2018. Under ASC 606, we recognize revenue as the customer
takes control of the products. Under the majority of our manufacturing contracts with customers, the customer
controls all of the work-in-progress as products are being built. Revenues under these contracts are recognized
progressively based on the cost-to-cost method. Accordingly, we now recognize revenue under these contracts
earlier than under the previous accounting rules. In addition, in February 2016, the FASB established Topic 842
(ASC 842), Leases, and issued a new accounting standards update which requires lessees to recognize leases on-
balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use
model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases
with a term longer than 12 months. We adopted the requirements of this new standard on January 1, 2019. Under
ASC 842, leases will be classified as finance or operating, with classification affecting the pattern and classification
of expense recognition in the income statement. The most significant effects of adoption related to (1) the
recognition of new ROU assets and lease liabilities on the Company’s balance sheet for its real estate and equipment
operating leases; and (2) providing significant new disclosures about our leasing activities. See Note 1(q) of the
Notes to the Consolidated Financial Statements in Item 8 of this Report for additional information relating to our
2018 adoption of the new revenue recognition standard and our 2019 adoption of the new leases standard.
We review our internal controls over financial reporting annually. In doing so, we may identify deficiencies in those
controls. A material weakness or deficiency in our internal controls could increase the likelihood that a material
misstatement or lack of disclosure within the annual or interim financial statements will not be prevented or
detected. 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.
Corporate governance, public disclosure and compliance practices continue to evolve based upon government action
and the policies of stockholder advisory groups. 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 instituted 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 benefit armed groups. These disclosure 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. The compliance process is time-consuming and costly. Failure to comply with applicable new
regulations could result in additional costs (including fines and 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.
Some 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 exists about the future levels of energy prices, a significant increase is possible.
Increased energy prices could cause an increase in our raw material and transportation costs. In addition, increased
costs of our suppliers or customers could be passed along to us, and we may not be able to increase our product
prices enough to offset them. Moreover, any increase in our product prices may reduce our future customer orders
26
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 or inability to reflect the anticipated costs, risks and
rewards of such an opportunity in our customer contracts 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; in some cases, our processes and facilities
must 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 or non-U.S. counterparts of this agency. Similarly, items we manufacture for customers in
the A&D 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 noncompliant 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 were significant,
our business reputation could also be damaged. The failure of our products, manufacturing processes or facilities to
comply with applicable statutory and regulatory requirements could subject us to fines or penalties and, in some
cases, require us to shut down or incur considerable expense to correct a product, 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 any such claim may increase as we expand our medical and aerospace and defense manufacturing
services, as defects in medical, aerospace or defense devices or 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 start-up or emerging companies may present more risks than with established
companies.
Customer relationships with start-up or emerging companies present special risks because these 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, funding
for such companies may be more difficult to obtain and these customer relationships may not continue or materialize
to the extent we plan or 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 all customers, including start-up customers and emerging
27
companies, based on the information available, these allowances may not be adequate. This risk may exist for any
new start-up or emerging company customers in the future.
Item 1B. Unresolved Staff Comments.
None.
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 service 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.
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.
195,000
199,000
388,000
459,000
171,000
155,000
326,000
347,000
524,000
159,000
142,000
756,000
3,821,000
Our principal manufacturing facilities consist of 1.9 million square feet in facilities that we own, with the remaining
1.9 million square feet in leased facilities whose terms expire between 2020 and 2036. We currently lease our
corporate headquarters in Tempe, Arizona. This lease consists of approximately 64,000 square feet. We lease other
facilities with a total of 40,000 square feet dedicated to engineering, sales and procurement services.
Item 3. Legal Proceedings.
We are involved in various legal actions arising in the ordinary course of business. Information about our legal
proceedings is included in Note 18 to the Consolidated Financial Statements in Item 8 of this Report and is
incorporated by reference herein. 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.
28
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
Our common shares are listed on the New York Stock Exchange under the symbol “BHE.”
The last reported sale price of our common shares on February 28, 2020, as reported by the New York Stock
Exchange, was $27.18. There were approximately 500 record holders of our common shares as of
February 28, 2020. Because many of our common shares are held by brokers and other institutions on behalf of
shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
Dividends
We began declaring and paying quarterly dividends of $0.15 per share during the first quarter of 2018. During 2019,
cash dividends paid totaled $23.3 million. The Board of Directors currently intends to continue paying quarterly
dividends and on February 3, 2020, the Company announced its intention to increase its quarterly dividend from
$0.15 to $0.16 per share. However, the Company’s future dividend policy is subject to its compliance with
applicable law, and depending on, among other things, our results of operations, financial condition, level of
indebtedness, capital requirements, contractual restrictions, restrictions in the our debt agreements, and other factors
that the Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed; there can be no
assurance that we will continue to pay a dividend in the future.
29
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, 2019, at a total cost of
$3.8 million:
(d)
Maximum
Number (or
Approximate
(c)
Total Number of
Dollar Value)
Shares (or Units)
of Shares (or
Purchased as
Units) that
(a)
Total Number of
(b)
Part of
Publicly
Shares (or
Average Price
Announced
Units)
Purchased(1)
128,855
—
—
128,855
Paid per Share
(or Unit)(2)
$29.15
—
—
$29.15
Plans or
Programs
128,855
—
—
128,855
May Yet Be
Purchased
Under the
Plans or
Programs(3)
$79.5 million
$79.5 million
$79.5 million
Period
October 1 to 31, 2019
November 1 to 30, 2019
December 1 to 31, 2019
Total
(1) All share repurchases were made on the open market.
(2) Average price paid per share is calculated on a settlement basis and excludes commissions.
(3) On March 6, 2018, the Board of Directors approved an expanded stock repurchase authorization granting the
Company authority to repurchase up to $250 million in common stock in addition to the $100 million previously
approved on December 7, 2015. On October 26, 2018, the Board of Directors authorized the repurchase of an
additional $100 million of the Company’s common stock. Net of shares repurchased to date, the total remaining
authorization as of December 31, 2019 is $79.5 million. On February 19, 2020, the Board of Directors authorized
the repurchase of an additional $150 million of the Company’s common stock. Stock 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 are funded from available cash and may be
commenced, suspended or discontinued at any time without prior notice. Shares of stock repurchased under the
program are retired.
During 2019, the Company repurchased a total of 4.7 million common shares for an aggregate of $122.1 million at
an average price of $25.86 per share. Since 2015, the Company has repurchased a total of 18.9 million common
shares for $473.6 million at an average price of $24.98 per share.
30
Performance Graph
The following graph compares the cumulative total shareholder return on our common shares for the five-year
period commencing December 31, 2014 and ending December 31, 2019, 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., Flex Ltd., Jabil Circuit, Inc., Plexus Corp and Sanmina Corporation. Dividend
reinvestment has been assumed.
$180.00
$140.00
$100.00
$60.00
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Benchmark Electronics, Inc.
Peer Group
S&P 500
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Benchmark Electronics, Inc.
Peer Group
S&P 500
$
$
$
100.00 $
100.00 $
100.00 $
81.30 $
98.20 $
99.30 $
119.90 $
124.40 $
108.70 $
114.40 $
139.60 $
129.90 $
83.30 $
89.60 $
121.80 $
135.10
138.70
156.90
31
Item 6. Selected Financial Data.
(in thousands, except per share data)
2019
Year Ended December 31,
2017
2018
2016
2015
Selected Statements of Income Data
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Restructuring charges and other costs(1)
Ransomware related incident costs, net(2)
Income from operations
Interest expense
Interest income
Other expense
Income tax expense (benefit)(3)
Net income (loss)
Earnings (loss) per share:(4)
Basic
Diluted
$ 2,268,095 $ 2,566,465 $ 2,454,479 $ 2,322,285 $ 2,540,873
2,321,619
219,254
107,462
4,962
13,861
—
92,969
(2,996)
1,207
(1,141)
(5,362)
95,401
2,345,872
220,593
143,205
9,485
9,365
—
58,538
(10,473)
6,848
628
32,724
22,817 $
2,228,559
225,920
130,401
10,065
8,628
—
76,826
(9,405)
5,370
(1,786)
102,906
(31,901) $
2,067,689
200,406
141,618
9,461
13,101
7,681
28,545
(6,664)
3,829
1,559
3,844
23,425 $
2,107,600
214,685
113,448
11,838
12,539
—
76,860
(9,304)
2,136
(282)
5,477
63,933 $
$
$ 0.61
$ 0.60
$ 0.49
$ 0.49
$ (0.64)
$ (0.64)
$ 1.30
$ 1.28
$ 1.85
$ 1.83
Weighted-average number of shares outstanding:
Basic
Diluted
38,338
38,763
46,332
46,655
49,680
49,680
49,298
49,825
51,573
52,088
Cash dividends per common share
$ 0.60
$ 0.60
—
—
—
(in thousands)
2019
2018
December 31,
2017
2016
2015
Selected Balance Sheet Data
Working capital
Total assets
Total debt
Shareholders’ equity
$
735,837 $
866,391 $ 1,152,340 $
1,759,874
147,737
1,899,783
154,070
2,109,304
211,680
$ 1,014,832 $ 1,132,225 $ 1,339,138 $
1,133,043 $
2,008,925
223,648
1,375,720 $
1,068,075
1,904,247
235,193
1,332,273
(1) See Note 19 to the Consolidated Financial Statements for a discussion of the restructuring charges occurring in 2019, 2018
and 2017. Also in 2019, we incurred $4.6 million in charges primarily related to our Chief Executive Officer (CEO)
transition and our 2019 proxy activity. During 2018 and 2017, we incurred $2.8 million and $3.7 million, respectively, in
costs related to the relocation and transition of our corporate headquarters to Arizona. In 2018, we recognized $1.4 million
related to a litigation arbitration decision against the Company. In 2016, we also recognized $4.3 million of costs in
connection with a proxy contest relating to our 2016 annual shareholders meeting, $3.0 million in connection with the
separation of our former CEO in September 2016 and $0.4 million in other charges. During 2015, the Company recognized
restructuring charges totaling $13.9 million, related to reductions in workforce and the resizing and closure of certain
facilities.
(2) See Note 20 to the Consolidated Financial Statements for a discussion of the ransomware incident related costs, net
occurring in 2019.
(3) See Note 10 to the Consolidated Financial Statements for a discussion of income taxes. During the first quarter of 2018, we
changed our historical repatriation strategy. We have historically asserted our intention to indefinitely reinvest
undistributed foreign earnings. We no longer consider these earnings to be indefinitely reinvested in our foreign
subsidiaries. As a result of this change in assertion for undistributed earnings prior to December 31, 2017, we recorded a
$30.8 million deferred tax expense for foreign withholding tax from Asia and $9.4 million for deferred U.S. state income
tax expense in the first quarter of 2018. During the fourth quarter of 2018, we recorded estimated foreign tax credits
totaling $9.2 million associated with the foreign withholding taxes. During the fourth quarter of 2017, the Company
recorded the estimated impact of the U.S. Tax Reform totaling $97.7 million. During the fourth quarter of 2016, the
Company reduced its unrecognized tax benefits reserve by $8.3 million (including penalties and interest). During the fourth
quarter of 2015, the Company reduced its deferred tax valuation allowance by $19.5 million and reduced its unrecognized
tax benefits reserve by $1.7 million.
(4) See Note 1(i) to the Consolidated Financial Statements for the basis of computing earnings per share.
32
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.
In March 2019, the SEC amended its rules to modernize and simplify certain reporting requirements for public
companies. As part of this change, registrants may exclude discussion of the earliest of the three years in
Management’s Discussion and Analysis (MD&A). For further discussion regarding our results of operations for the
year ended December 31, 2018 as compared to the year ended December 31, 2017, refer to Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2018.
Ransomware Incident
During the fourth quarter ended December 31, 2019, some of the Company’s systems were affected by a
ransomware incident that encrypted information on its systems and disrupted customer and employee access to its
applications and services. The Company immediately took steps to isolate the impact and implemented measures to
prevent additional systems from being affected, including taking its network offline as a precaution. In connection
with this incident, third party consultants and forensic experts were engaged to assist with the restoration and
remediation of the Company’s systems and, with the assistance of law enforcement, to investigate the incident. The
Company has found no evidence that customer or employee data was exfiltrated from its network.
The Company restored connectivity and resumed operations quickly following the ransomware incident. However,
fourth quarter 2019 operations were adversely affected by the inefficiencies caused by taking the network offline for
a period of time. As a result, the Company’s fourth quarter 2019 revenue was also adversely affected as the
Company was unable to fulfill a portion of customer demand during the quarter.
We do have insurance coverage, including cyber insurance, and are working diligently with our insurance carriers
on claims to recover costs incurred. We expect that the insurance recovery process will be ongoing throughout 2020.
In 2019, ransomware incident related costs incurred totaled $7.7 million, net of estimated insurance recoveries of
$5.0 million. These costs were primarily comprised of the certain employee related expenses and various third party
consulting services, including forensic experts, legal counsel and other IT professional expenses.
We expect to incur additional costs related to the ransomware event in 2020, but these are not expected to be
significant. Further insurance recoveries will be recorded when considered probable for recovery.
2019 OVERVIEW
Sales for 2019 were $2.3 billion, a 12% decrease from sales of $2.6 billion in 2018. During 2019, sales to customers
in our various industry sectors fluctuated from 2018 as follows:
Industrials decreased by 8%,
(cid:3)
(cid:120)(cid:3)
(cid:120)(cid:3) A&D increased by 6%,
(cid:120)(cid:3) Medical increased by 14%,
(cid:120)(cid:3) Semi-cap decreased by 22%,
(cid:120)(cid:3) Computing decreased by 38%, and
(cid:120)(cid:3) Telecommunications decreased by 12%.
The overall revenue decrease was due primarily to our planned exit of a legacy Computing contract which was
completed in 2019 (as discussed below), in addition to the decline in the overall semi-cap market, reduced revenues
33
from other Computing and Telecommunications customers and the impact of the ransomware incident (as discussed
below).
Our sales depend on the success of our customers, some of which operate in businesses associated with rapid
technological change and consequent product obsolescence. Developments adverse to our major customers or their
products, or the failure of a major customer to pay for components or services, can adversely affect us. A substantial
percentage of our sales are made to a small number of customers, and the loss of a major customer, if not replaced,
would adversely affect us. Sales to our ten largest customers represented 38% and 44% of our sales in 2019 and
2018, respectively. In 2019, there was no single customer with sales over 10% of our sales. In 2018, sales to
International Business Machines Corporation (IBM) represented 13% of our sales.
As part of our ongoing process to review contracts that are marginal and dilutive to our gross margin, we made the
decision to not renew the contract with a large Computing customer that was to expire at the end of 2019. During the
second quarter of 2019, we completed the final build out of this legacy contract and in the third quarter had an
immaterial amount of revenue from this contract as the transition was completed.
During 2019, we incurred an $11.0 million charge for the write-down of inventory and a provision for accounts
receivable associated with the insolvency of a customer. These charges increased cost of sales by $0.9 million and
selling, general and administrative expenses by $10.1 million. In 2019, we also recovered $1.7 million of amounts
written down in 2018 associated with the insolvency of another customer.
We experience fluctuations in gross profit from period to period. Different programs contribute different gross
profits depending on the type 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 can exert downward pressure on our margins. During
periods of low production volume, we generally have idle capacity and reduced gross profit. Gross profit can also be
impacted by other situations, such as the ransomware incident experienced in 2019.
We have undertaken initiatives to restructure our business operations with the intention of improving utilization and
reducing costs. During 2019, we recognized $8.5 million of restructuring charges in connection with the announced
closure of two facilities and other reductions in workforce of certain facilities primarily in the Americas. In addition,
we incurred $4.6 million in charges primarily related to our CEO transition and our 2019 proxy activity.
During 2019, we incurred $7.7 million in ransomware incident related costs, net of estimated insurance recoveries.
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.
34
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Restructuring charges and other costs
Ransomware related incident costs, net
Income from operations
Other expense, net
Income before income taxes
Income tax expense
Net income (loss)
2019 Compared With 2018
Sales
Year ended December 31,
2019
100.0 %
91.2
8.8
6.2
0.4
0.6
0.3
1.3
(0.1)
1.2
0.2
1.0 %
2018
100.0 %
91.4
8.6
5.6
0.4
0.4
—
2.3
(0.1)
2.2
1.3
0.9 %
2017
100.0 %
90.8
9.2
5.3
0.4
0.4
—
3.1
(0.2)
2.9
4.2
(1.3)%
As noted above, sales decreased 12% in 2019. The percentages of our sales by sector were as follows:
Higher-Value Markets
Industrials
A&D
Medical
Semi-Cap
Traditional Markets
Computing
Telecommunications
Total
2019
2018
20 %
19
20
12
71
16
13
29
100 %
19 %
16
15
14
64
23
13
36
100 %
Industrials. 2019 sales decreased 8% to $453.6 million from $493.1 million in 2018. The decreases were primarily
from softer demand from customers in the industrial transportation market and the ramp delays from previously
booked new programs.
Aerospace and Defense. 2019 sales increased 6% to $431.9 million from $406.4 million in 2018 primarily due to
increased demand from our defense customers.
Medical. 2019 sales increased 14% to $448.2 million from $394.0 million in 2018 from higher demand and program
ramps from new and existing customers.
Semiconductor Capital Equipment. 2019 sales decreased 22% to $277.8 million from $355.0 million in 2018. The
decrease reflected is due to declines in demand throughout the broader semi-capital equipment market.
Computing. 2019 sales decreased 38% to $361.2 million from $580.8 million in 2018. The decrease is primarily
due from our planned exit of a legacy Computing contract that was completed in 2019.
35
Telecommunications. 2019 sales decreased 12% to $295.4 million from $337.2 million in 2018. The decrease is
primarily due to decreased demand from existing customers.
Our international operations are subject to the risks of doing business abroad. See Item 1A for factors pertaining to
international sales, fluctuations in foreign currency exchange rates and a discussion of potential adverse effects in
operating results associated with the risks of doing business abroad. During 2019 and 2018, 47% and 45%,
respectively, of our sales were from international operations.
Gross Profit
Gross profit decreased 9.2% to $200.4 million for 2019 from $220.6 million in 2018. Gross margin increased to
8.8% in 2019 from 8.6% in 2018 primarily due to the exit from a legacy Computing contract which was dilutive to
our margin.
Selling, General and Administrative Expenses
SG&A decreased to $141.6 million in 2019 from $143.2 million in 2018. The decrease was primarily due to the
decrease in variable and stock-based compensation, partially offset by an increase in the provision to accounts
receivable for doubtful accounts. During 2019 and 2018, we had $8.6 million and $1.7 million, respectively, in
charges (net of recoveries) for this provision to accounts receivable. Including this provision to accounts receivable,
SG&A, as a percentage of sales, increased to 6.2% in 2019 from 5.6% in 2018. Excluding this provision to accounts
receivable, SG&A as a percentage of sales increased to 5.9% in 2019 from 5.5% in 2018, primarily due to lower
sales.
Amortization of Intangible Assets
Amortization of intangible assets was $9.5 million in each of 2019 and 2018.
Restructuring Charges and Other Costs
During 2019, we recognized $8.5 million of restructuring charges in connection with the announced closure of two
facilities and other reductions in workforce of certain facilities primarily in the Americas. In addition, we incurred
$4.6 million in charges primarily related to our CEO transition and our 2019 proxy activity. During 2018, we
recognized $5.2 million of restructuring charges in connection with reductions in workforce of certain facilities
primarily in the Americas. In addition, we incurred $2.8 million in costs related to the relocation and transition of
our corporate headquarters to Arizona and $1.4 million related to a litigation arbitration decision against the
Company. See Note 19 to the Consolidated Financial Statements in Item 8 of this Report for additional information
on our restructuring charges.
Ransomware Incident Related Costs, Net
During 2019, we incurred $7.7 million in ransomware incident related costs, net of $5 million estimated insurance
recoveries. These costs were primarily comprised of certain employee related expenses and various third party
professional fees for consulting activities, forensic experts, legal counsel and other IT professional expenses.
Interest Expense
Interest expense decreased to $6.7 million during 2019 from $10.5 million in 2018 period due to lower debt levels in
2019 and the 2018 $2.0 million write-off of deferred financing costs in connection with the refinancing of our credit
facilities.
36
Interest Income
Interest income decreased to $3.8 million in 2019 from $6.8 million in 2018 due lower invested cash equivalents.
Income Tax Expense.
Income tax expense of $3.8 million in 2019 represented a 14.1% effective tax rate for 2019, compared with $32.7
million for 2018 representing an effective tax rate of 58.9%. The higher tax rate in 2018 is the result of changing our
historical repatriation strategy. We have historically asserted our intention to indefinitely reinvest undistributed
foreign earnings. We no longer consider all these earnings to be indefinitely reinvested in our foreign subsidiaries.
As a result of this change in assertion for undistributed earnings prior to December 31, 2017, we recorded during
2018 a net tax expense of $21.6 million consisting of $30.8 million relating to foreign withholding taxes from Asia
and a net benefit of $9.2 million for U.S. foreign tax credits to offset the foreign taxes paid during 2018. In addition,
we also recorded applicable U.S. state income tax expense net of federal benefits related to the cash repatriation and
we incurred a net $4.4 million benefit associated with finalizing the provisional impact of the U.S. Tax Reform as
required by SAB 118. Excluding these tax items, the effective tax rate would have been 13.1% in 2018 compared to
14.1% in 2019.
We have been granted certain tax incentives, including tax holidays, for our subsidiaries in Malaysia and Thailand
that will expire at various dates, unless extended or otherwise renegotiated, through 2021 in Malaysia and 2028 in
Thailand. See Note 10 to the Consolidated Financial Statements in Item 8 of this Report.
Net Income
We reported a net income of $23.4 million, or $0.60 per diluted share for 2019, compared with a net income of
$22.8 million, or $0.49 per diluted share, for 2018. The net increase of $0.6 million in 2019 is primarily the result of
items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our organic growth and operations through funds generated from operations and
occasional borrowings under our revolving credit facility. Cash and cash equivalents and restricted cash totaled
$364.0 million at December 31, 2019 and $458.1 million at December 31, 2018, of which $197.8 million and $154.4
million, respectively, were held outside the U.S. in various foreign subsidiaries. During 2019 and 2018, we
repatriated $52.1 million and $560.6 million, respectively, of foreign earnings to the U.S.
Cash provided by operating activities was $93.1 million in 2019. The cash provided by operations during 2019
consisted primarily of $23.4 million of net income, adjusted for $48.4 million of depreciation and amortization, a
$134.9 million decrease in accounts receivable, a $5.2 million increase in inventories, a $10.3 million decrease in
income tax liabilities, net and a $121.9 million decrease in accounts payable. The decrease in accounts receivable
and accounts payable was primarily a result of the impact of our exit from a legacy Computing contract described
above. Working capital was $0.7 billion at December 31, 2019 and $0.9 billion at December 31, 2018.
We purchase 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 can increase backorders and
impact cash flows.
Cash used in investing activities was $34.9 million in 2019 primarily due to purchases of additional property, plant
and equipment totaling $32.6 million. The purchases of property, plant and equipment were primarily for machinery
37
and equipment in the Americas and Asia.
Cash used in financing activities was $152.8 million in 2019. Share repurchases totaled $122.1 million, principal
payments on long-term debt and finance lease obligations totaled $6.8 million, dividends paid totaled $23.3 million,
and we received $1.6 million from the exercise of stock options.
Under the terms of our $650.0 million credit agreement (Credit Agreement), in addition to the $150.0 million Term
Loan facility, we have a $500.0 million five-year revolving credit facility to be used for general corporate purposes,
both with a maturity date of July 20, 2023. The Credit Agreement includes an accordion feature pursuant to which
total commitments under the facility may be increased by an additional $275.0 million, subject to satisfaction of
certain conditions. As of December 31, 2019, we had $144.4 million in borrowings outstanding under the Term
Loan facility and $3.0 million in letters of credit outstanding under our revolving credit facility. During 2019, the
Company did not borrow under the revolving credit facility. $497.0 million remains available for future borrowings
under the revolving credit facility. See Note 7 to the Consolidated Financial Statements in Item 8 of this Report for
more information regarding the terms of the Credit Agreement.
The Credit Agreement contains certain financial covenants as to interest coverage and debt leverage, and certain
customary affirmative and negative covenants, including restrictions on our ability to incur additional debt and liens,
pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. Amounts due under the
Credit Agreement could be accelerated upon specified events of default, including a failure to pay amounts due,
breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject, in
some cases, to cure periods. As of December 31, 2019, we were in compliance with all of these covenants and
restrictions.
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, 2019, we had cash and cash equivalents totaling $364.0 million and $497.0 million available for
borrowings under the Credit Agreement. During the next 12 months, we believe our capital expenditures will
approximate $50 to $55 million, principally for machinery and equipment to support our ongoing business around
the globe.
On March 6, 2018, our Board of Directors approved an expanded stock repurchase program granting us the authority
to repurchase up to $250 million in common stock in addition to the $100 million approved on December 7, 2015.
On October 26, 2018, the Board of Directors authorized an additional $100 million shares for repurchase above our
existing program. As of December 31, 2019, we had $79.5 million remaining under the share repurchase
authorization to purchase additional shares. On February 19, 2020, the Board of Directors authorized the repurchase
of an additional $150 million of the Company’s common stock. We are under no commitment or obligation to
repurchase any particular amount of common stock.
The Company began declaring and paying quarterly dividends during the first quarter of 2018. During 2019 and
2018, cash dividends paid totaled $23.3 million and $21.0 million, respectively. On December 16, 2019, the
Company declared a quarterly cash dividend of $0.15 per share of the Company’s common stock to shareholders of
record as of December 30, 2019. The dividend of $5.5 million was paid on January 13, 2020. In February 2020, the
Board of Directors approved a quarterly dividend increase, raising the quarterly dividend from $0.15 to $0.16 per
38
common share. The Board of Directors currently intends to continue paying quarterly dividends. However, the
Company’s future dividend policy is subject to the Company’s compliance with applicable law, and depending on,
among other things, the Company’s results of operations, financial condition, level of indebtedness, capital
requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the
Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed; there can be no
assurance that the Company will continue to pay a dividend in the future.
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 12 months. Management further believes that our ongoing
cash flows from operations and any borrowings we may incur under our revolving credit facility will enable us to
meet operating cash requirements in future years. If we consummated significant acquisitions in the future, 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 acceptable terms.
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 U.S. GAAP. 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, revenue
recognition, 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 their collectability
based on a combination of factors, including a particular customer’s ability to pay as well as the age of the
receivables. To evaluate a specific customer’s ability to pay, we analyze financial statements, payment history 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 net realizable value.
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 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 exceed 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
39
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.
Revenue Recognition
Our revenue is recognized when a contract exists and when, or as, we satisfy a performance obligation by
transferring control of a product or service to the customer. A contract exists when it has approval and commitment
from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial
substance and collectability of consideration is probable. A performance obligation is a promise in a contract to
transfer a distinct good or service to the customer. For the Company, the arrangement with the customer is generally
documented through a master agreement which outlines the general terms and conditions of the arrangement and a
specific purchase commitment from the customer.
Our performance obligations are satisfied over time as work progresses or at a point in time. The determination of
how our performance obligations are satisfied requires judgment and is assessed on a contract by contract basis.
Under the majority of our contracts, our performance obligations are satisfied over time as work progresses since the
customer controls all of the work-in-progress as products are being built. For these contracts, the selection of the
method to measure progress towards completion requires judgment and is based on the nature of the products or
services to be provided. We use a cost-based input measurement of progress because is best represents the transfer
of assets to the customer. For our other contracts, revenue is recognized upon transfer of control of the product or
service, which is generally upon shipment or delivery pending on the terms of the underlying contract. Revenue
from design, development and engineering services is generally recognized over time as the services are performed.
Generally, there are no subjective customer acceptance requirements or further obligations related to goods of
services provided. Our contracts with customer do not allow for a general right of return.
Income Taxes
We estimate our income tax provision in each of the jurisdictions where we operate, including estimating exposures
related to uncertain tax positions. We must also make judgments regarding the ability to realize our deferred tax
assets. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more
likely than not to be realized. Our valuation allowance as of December 31, 2019 of $16.0 million primarily relates to
deferred tax assets from our foreign and U.S. state net operating loss tax carryforwards of $15.4 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.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides
guidance on accounting for the tax effects of the U.S. Tax Reform. SAB 118 provided a measurement period that
would not extend beyond one year from the U.S. Tax Reform enactment date for companies to complete their
accounting of the impact on income taxes. Until the accounting was complete, companies could record provisional
estimates. As a result of the U.S. Tax Reform, we recorded provisional amounts in relation to the accounting of the
transition tax in 2017. We have finalized our accounting for SAB 118 as of December 31, 2018 within the
measurement period. See Note 10 to the Consolidated Financial Statements in Item 8 of this Report.
40
We are subject to examination by tax authorities for different 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 examining the relevant tax period(s). We believe that we
have adequately provided for our tax liabilities.
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 is
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
indicate that the carrying amount may be impaired. Circumstances that may lead to impairment 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 not to 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 15 to the Consolidated Financial Statements in Item 8 of this Report. As of December
31, 2019 and 2018, we had goodwill of approximately $192.1 million, respectively, associated with our Americas
and Asia business segments.
Based on our qualitative assessments of goodwill as of December 31, 2019, 2018 and 2017, 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. 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 measurement period. If it becomes probable, based on
our expectation of performance during that 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. If actual results or future changes in estimates differ significantly from our current estimates,
stock-based compensation could increase or decrease. See Note 1(l) to the Consolidated Financial Statements in
Item 8 of this Report.
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.
41
CONTRACTUAL OBLIGATIONS
We have certain contractual obligations that extend beyond 2020 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 use 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, 2019
due pursuant to contractual commitments are:
(in thousands)
Less than
Total
1 year
1-3
years
3-5
years
More than
5 years
Payments due by period
Operating lease obligations
Finance lease obligations
Long-term debt obligations
Deemed repatriation tax (1)
$ 101,471
5,915
144,375
57,506
$ 14,552
1,781
7,500
6,439
$ 22,567
3,669
15,000
12,878
$
18,336
465
121,875
28,170
$
46,016
—
—
10,019
Total obligations
$ 309,267
$ 30,272
$ 54,114
$ 168,846
$
56,035
(1) U.S federal income tax on deemed mandatory repatriation is payable over 7 years pursuant to the U.S. Tax
Reform. See Note 10 to the Consolidated Financial Statements in Item 8 of this Report.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2019, we did not have any significant off-balance sheet arrangements. See Note 12 to the
Consolidated Financial Statements in Item 8 of this Report.
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 transact business in various foreign countries and are subject to foreign currency fluctuation risks. We use
natural hedging and forward contracts to economically hedge transactional exposure primarily associated with trade
accounts receivable, other receivables and trade accounts payable that are denominated in a currency other than the
functional currency of the respective operating entity. We do not use derivative financial instruments for speculative
purposes. The forward contract in place as of December 31, 2019 has not been designated as an accounting hedge
and, therefore, changes in fair value are recorded within our Consolidated Statements of Income.
Our sales are substantially denominated in U.S. dollars. Our foreign currency cash flows are generated in certain
European and Asian countries and Mexico.
42
We are also exposed to market risk for changes in interest rates on our financial instruments, 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.
We are also exposed to interest rate risk on borrowings under our Credit Agreement. As of December 31, 2019, we
had $144.4 million outstanding on the floating rate term loan facility, and we have an interest rate swap agreement
with a notional amount of $144.4 million. Under this swap agreement, we receive variable rate interest rate
payments and pay fixed rate interest payments. The effect of this swap is to convert our floating rate interest expense
to fixed interest rate expense. The interest rate swap is designated as a cash flow hedge.
For additional information, see Note 12 to the Notes to Consolidated Financial Statements in Item 8 of this Report.
43
Item 8. Financial Statements and Supplementary Data.
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except par value)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts of $10,085
and $1,733, respectively
Contract assets
Inventories
Prepaid expenses and other assets
Income taxes receivable
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Deferred income taxes
Other, net
Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt
Accounts payable
Income taxes payable
Accrued liabilities
Total current liabilities
Long-term debt, less current installments
Operating lease liabilities
Other long-term liabilities
Deferred income taxes
Shareholders’ equity:
Preferred stock, $0.10 par value; 5,000 shares authorized, none issued
Common stock, $0.10 par value; 145,000 shares authorized;
issued and outstanding – 36,957 and 41,357, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Commitments and contingencies
December 31,
2019
2018
$
347,558
16,398
$
458,102
—
324,424
161,061
314,956
29,566
1,119
1,195,082
205,819
76,859
192,116
5,274
84,724
$ 1,759,874
468,161
140,082
309,975
27,024
206
1,403,550
210,954
—
192,116
2,478
90,685
$ 1,899,783
$
$
8,825
302,994
7,895
139,531
459,245
138,912
67,898
65,483
13,504
6,793
422,053
10,435
97,878
537,159
147,277
—
68,799
14,323
—
—
3,696
512,019
515,876
(16,759)
1,014,832
4,136
554,939
584,274
(11,124)
1,132,225
$ 1,759,874
$ 1,899,783
See accompanying notes to consolidated financial statements.
44
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
(in thousands, except per share data)
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Restructuring charges and other costs
Ransomware related incident costs, net
Income from operations
Interest expense
Interest income
Other income (expense)
Income before income taxes
Income tax expense
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted-average number of shares outstanding:
Basic
Diluted
Year ended December 31,
2018
2017
2019
$ 2,268,095
2,067,689
200,406
141,618
9,461
13,101
7,681
28,545
(6,664)
3,829
1,559
27,269
3,844
23,425
$
$ 2,566,465
2,345,872
220,593
143,205
9,485
9,365
—
58,538
(10,473)
6,848
628
55,541
32,724
22,817
$
$ 2,454,479
2,228,559
225,920
130,401
10,065
8,628
—
76,826
(9,405)
5,370
(1,786)
71,005
102,906
(31,901)
$
$ 0.61
$ 0.60
$ 0.49
$ 0.49
$ (0.64)
$ (0.64)
38,338
38,763
46,332
46,655
49,680
49,680
See accompanying notes to consolidated financial statements.
45
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Unrealized gain on investments, net of tax
Unrealized gain (loss) on derivative, net of tax
Other
Other comprehensive gain (loss)
Comprehensive income (loss)
Year ended December 31,
2018
2017
2019
$
23,425
$
22,817
$
(31,901)
(585)
—
(3,716)
(1,334)
(5,635)
17,790
$
(2,273)
41
(1,362)
619
(2,975)
19,842
$
4,977
33
1,192
(175)
6,027
(25,874)
$
See accompanying notes to consolidated financial statements.
46
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(in thousands)
Shares
stock
capital
earnings
loss
equity
Additional
other
Total
Common
paid-in
Retained
comprehensive
shareholders’
Accumulated
Balances, December 31, 2016
Cumulative effect of accounting change
Stock-based compensation expense
Shares repurchased and retired
Stock options exercised
Vesting of restricted stock units, net
of restricted share forfeitures
Shares withheld for taxes
Net loss
Other comprehensive income
Balances, December 31, 2017
Stock-based compensation expense
Shares repurchased and retired
Stock options exercised
Vesting of restricted stock units
Shares withheld for taxes
Dividends declared
Net income
Other comprehensive loss
Balances, December 31, 2018
Stock-based compensation expense
Shares repurchased and retired
Stock options exercised
Vesting of restricted stock units
Shares withheld for taxes
Dividends declared
Net income
Other comprehensive loss
Balances, December 31, 2019
49,330
—
—
(963)
582
206
(12)
—
—
49,143
—
(8,236)
200
306
(56)
—
—
—
41,357
—
(4,719)
82
311
(74)
—
—
—
36,957
$ 4,933
—
—
(97)
58
$ 626,093
213
7,815
(10,676)
11,150
$ 758,870
(213)
—
(18,575)
—
21
(1)
—
—
4,914
—
(823)
20
31
(6)
—
—
—
4,136
—
(472)
8
31
(7)
—
—
—
$ 3,696
(21)
(382)
—
—
634,192
10,089
(91,520)
3,611
(31)
(1,402)
—
—
—
554,939
10,194
(52,436)
1,577
(31)
(2,224)
—
—
—
$ 512,019
—
—
(31,901)
—
708,181
—
(119,515)
—
—
—
(27,209)
22,817
—
584,274
—
(69,202)
—
—
—
(22,621)
23,425
—
$ 515,876
$ (14,176)
—
—
—
—
—
—
—
6,027
(8,149)
—
—
—
—
—
—
—
(2,975)
(11,124)
—
—
—
—
—
—
—
(5,635)
$ (16,759)
$ 1,375,720
—
7,815
(29,348)
11,208
—
(383)
(31,901)
6,027
1,339,138
10,089
(211,858)
3,631
—
(1,408)
(27,209)
22,817
(2,975)
1,132,225
10,194
(122,110)
1,585
—
(2,231)
(22,621)
23,425
(5,635)
$ 1,014,832
See accompanying notes to consolidated financial statements.
47
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation
Amortization
Provision for doubtful accounts
Deferred income taxes
Asset impairments
Insurance recoveries
Gain on the sale of property, plant and equipment
Stock-based compensation expense
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable
Contract assets
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
Operating leases
Income taxes
Net cash provided by operations
Cash flows from investing activities:
Proceeds from sales of investments at par
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
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from stock options exercised
Employee taxes paid for shares withheld
Dividends paid
Borrowings under credit agreement
Principal payments on long-term debt and 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 and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Year Ended December 31,
2018
2017
2019
$
23,425 $
22,817 $
(31,901)
37,112
11,315
8,608
(2,367)
834
(5,000)
53
10,194
134,926
(20,979)
(5,238)
2,494
(121,860)
28,877
1,029
(10,287)
93,136
50
(32,576)
259
(2,542)
—
(54)
(34,863)
38,439
13,400
1,712
7,628
96
—
(262)
10,089
(33,952)
6,414
(43,264)
10,238
61,391
5,778
—
(23,837)
76,687
522
(62,808)
239
(3,924)
(2,731)
(147)
(68,849)
36,668
12,004
1,697
7,422
42
—
(202)
7,815
4,657
9,710
(24,570)
(7,812)
29,542
13,519
—
87,251
145,842
250
(50,786)
280
(3,720)
—
(2,145)
(56,121)
1,585
(2,231)
(23,287)
—
(6,794)
(122,110)
—
(152,837)
418
(94,146)
458,102
11,208
(383)
—
100,000
(112,396)
(29,348)
(433)
(31,352)
2,744
61,113
681,433
$ 363,956 $ 458,102 $ 742,546
3,631
(1,408)
(21,005)
50,000
(108,024)
(211,858)
(2,303)
(290,967)
(1,315)
(284,444)
742,546
See accompanying notes to consolidated financial statements.
48
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 innovative product design,
engineering services, technology solutions and advanced manufacturing services. From initial product concept to
volume production, including direct order fulfillment and aftermarket services, the Company has been providing
integrated services and solutions to original equipment manufacturers (OEMs) since 1979. The Company serves the
following industries: aerospace and defense (A&D), medical technologies, complex industrials, semi-cap, next-
generation telecommunications and high-end computing. The Company has manufacturing operations located in the
United States and Mexico (the Americas), Asia and Europe.
(b) Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) and 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 and Restricted Cash
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 $154.4 million and $265.4 million at December 31, 2019
and 2018, respectively, consisted primarily of money-market funds and time deposits with an initial term of less than
three months. Restricted cash represents cash received from customers to settle invoices sold under accounts
receivable purchase agreements that is contractually required to be set aside until the cash is remitted to the
purchaser.
(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
against the allowance after all reasonable efforts to collect the full amount (including litigation, where appropriate)
have been exhausted. During 2019, 2018 and 2017, the Company recorded $8.6 million, $1.7 million and $1.7
million in charges for a provision to accounts receivable, net of recoveries.
(e) Inventories
Inventories include material, labor and overhead and are stated at the lower of cost (principally first-in, first-out
method) or net realizable value.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated on the straight-line method over the
useful lives of the assets – 5 to 40 years for buildings and building improvements, 2 to 15 years for machinery and
equipment, 2 to 12 years for furniture and fixtures and 2 to 8 years for vehicles. Leasehold improvements are
49
amortized on the straight-line method over the shorter of the useful life of the improvement or the remainder of the
lease term.
(g) Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of net assets acquired. 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, including those acquired in a business
combination, with estimable useful lives are amortized over their respective estimated useful lives to their estimated
residual values.
(h) 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 consolidated balance sheet.
Goodwill is tested for impairment on an annual basis, during the fourth quarter, 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 qualitative goodwill
impairment assessments as of December 31, 2019, 2018 and 2017, the Company concluded that goodwill was not
impaired.
(i) Earnings (Loss) 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 are assumed to be used to repurchase shares in the current period.
50
The following table sets forth the calculation of basic and diluted earnings (loss) per share.
(in thousands, except per share data)
Year Ended December 31,
2019
2018
2017
Net income (loss)
$ 23,425
$
22,817
$ (31,901)
Denominator for basic earnings per share – weighted-average number of
common shares outstanding during the period
Incremental common shares attributable to exercise of dilutive options
Incremental common shares attributable to outstanding
restricted stock units
Denominator for diluted earnings per share
Basic earnings (loss) per share
Diluted earnings (loss) per share
38,338
90
335
38,763
$ 0.61
$ 0.60
46,332
104
219
46,655
$ 0.49
$ 0.49
49,680
—
—
49,680
$ (0.64)
$ (0.64)
Potentially dilutive securities totaling less than 0.1 million and 0.1 million common shares in 2019 and 2018,
respectively, were not included in the computation of diluted earnings per share because their effect would have
been anti-dilutive. Potentially dilutive securities totaling 0.6 million common shares in 2017 were not included in
the computation of diluted loss per share because their effect would have decreased the loss per share.
(j) Revenue Recognition
The Company recognizes revenue as the customer takes control of the manufactured products built to customer
specifications. Under the majority of the Company’s manufacturing contracts with customers, the customer controls
all of the work-in-progress as products are being built. Revenues under these contracts are recognized over time
based on the cost-to-cost method. Under other manufacturing contracts, the customer does not take control of the
product until it is completed. Under these contracts, the Company recognizes revenue upon transfer of control of
product to the customer, which is generally when the goods are shipped. Revenue from design, development and
engineering services is recognized over time as the services are performed.
The Company’s performance obligations generally have an expected duration of one year or less. The Company
applies the practical expedients and does not disclose information about remaining performance obligations that
have original expected durations of one year or less or any significant financing components in the contracts.
The Company recognizes the incremental costs, if any, of obtaining contracts as an expense when incurred since the
amortization period of the assets that the Company otherwise would have recognized is one year less.
(k) 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.
51
(l) Stock-Based Compensation
All share-based payments to employees, including grants of employee stock options (which have not been awarded
since 2015), are recognized in the financial statements based on their grant date fair values. The total compensation
cost recognized for stock-based awards was $10.2 million, $10.1 million and $7.8 million for 2019, 2018 and 2017,
respectively. The total income tax benefit recognized in the income statement for stock-based awards was $2.4
million, $2.4 million and $2.8 million for 2019, 2018 and 2017, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model. Awards of restricted stock units and
performance-based restricted stock units are valued at the closing market price of the Company’s common stock 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. When 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 is recognized as a change in accounting estimate.
As of December 31, 2019, the unrecognized compensation cost and remaining weighted-average amortization period
related to stock-based awards were as follows:
(in thousands)
Unrecognized compensation cost
Remaining weighted-average amortization period
Performance-
based
Restricted
Restricted
Stock
Units
$ 17,621
2.5 years
Stock
Units(1)
$ 2,834
1 years
(1) Based on the probable achievement of the performance goals identified in each award.
The total cash received as a result of stock option exercises in 2019, 2018 and 2017 was approximately $ 1.6
million, $3.6 million and $11.2 million, respectively. The actual tax benefit realized as a result of stock option
exercises and the vesting of other share-based awards during 2019, 2018 and 2017 was $2.3 million, $2.5 million
and $5.0 million, respectively. For 2019, 2018 and 2017, the total intrinsic value of stock options exercised was $
0.7 million, $2.3 million and $7.7 million, respectively.
The Company awarded performance-based restricted stock units to employees during 2019, 2018 and 2017. 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 2.5 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 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, operating income margin, 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 2019 Omnibus Incentive Compensation Plan (the 2019 Plan).
(m) 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 U.S. GAAP. On an ongoing basis, management evaluates these estimates, including those related to
52
accounts receivable, inventories, income taxes, long-lived assets, leases, goodwill, stock-based compensation and
contingencies and litigation. Actual results could differ from those estimates.
(n) Fair Values of Financial Instruments
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.
(cid:120) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities.
(cid:120) 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.
(cid:120) 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.
The Company’s financial instruments include cash equivalents, accounts and other receivables, accounts payable,
accrued liabilities and long-term debt and financing lease obligations. The Company believes that the carrying
values of these instruments approximate their fair value. As of December 31, 2019, all of the Company’s derivative
instruments were recorded at fair value using Level 3 inputs. See Note 12.
(o) Foreign Currency
For foreign subsidiaries using the local currency as their functional currency, assets and liabilities are translated at
exchange rates in effect at the balance sheet date and income and expenses are translated at average exchange rates.
The effects of these translation adjustments are reported in other comprehensive income. Exchange 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 $1.7 million, $1.0 million and $2.1 million in 2019, 2018 and 2017,
respectively. These amounts include the amount of gain (loss) recognized in income due to forward currency
exchange contracts.
(p) Derivative Instruments
All derivative instruments are recorded on the balance sheet at fair value. The Company uses derivative instruments
to manage the variability of foreign currency obligations and interest rates. The Company does not enter into
derivative arrangements for speculative purposes. Generally, if a derivative instrument is designated as a cash flow
hedge, the change in the fair value of the derivative is recorded in other comprehensive income to the extent the
derivative is effective and recognized in the consolidated statement of income when the hedged item affects
earnings. Changes in fair value of derivatives that are not designated as hedges are recorded in earnings. Cash
receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows
from the items being hedged on the consolidated statements of cash flows.
(q) New Accounting Pronouncements
Adopted in 2019
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-02, Leases (Topic 842), amended by ASU No. 2018-01, Land Easement Practical Expedient for
Transition to Topic 842, ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11,
53
Targeted Improvements. The new standard established a right-of-use model (ROU) that requires a lessee to
recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The Company adopted this standard on its effective date of January 1, 2019 using the effective date as its date of
initial application under the modified retrospective approach. Therefore, financial information for prior periods were
not restated. Management elected the package of practical expedients in transition for leases that commenced prior
to January 1, 2019, which permits the Company to carry forward its original assessment about lease identification,
lease classification and initial directs costs. For all new and modified leases after adoption, management elected the
short-term lease recognition exemption for all of the Company’s leases that qualify, in addition to the practical
expedient to not separate lease and nonlease components.
Lease assets and liabilities are initially recognized based on the present value of lease payments over the lease term
calculated using the Company’s incremental borrowing rate, unless the implicit rate is readily determinable. Our
incremental borrowing rate represents the rate of interest that we would have to pay to borrow on a collateralized
basis over a similar term in a similar economic environment. Lease assets also include any upfront lease payments
made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is
reasonably certain that those options will be exercised. Leases are classified as finance or operating, with
classification affecting the pattern and classification of expense recognition in the income statement. See Note 8.
Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which
replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and supportable information to inform credit loss
estimates. This update is effective for annual reporting periods beginning after December 15, 2019. The Company
does not expect the implementation of this update to have a material impact on its consolidated financial position,
results of operations or cash flows, and will adopt this update effective January 1, 2020.
The Company has determined that other recently issued accounting standards will either have no material impact on
its consolidated financial position, results of operations or cash flows, or will not apply to its operations.
Note 2—Acquisition
During 2018, the Company completed an individually immaterial business acquisition for $2.7 million. The
allocation of the net purchase price resulted in $0.5 million of goodwill. The goodwill recognized in connection with
the acquisition represents the future economic benefit arising from assets acquired that could not be individually
identified and separately recognized, and is attributable to the general reputation, acquisition synergies and expected
future cash flows of the acquisition.
Note 3 – Contract Assets
As of December 31, 2019 and 2018, the Company had $161.1 million and $140.1 million, respectively, in contract
assets from contracts with customers. The contract assets primarily relate to the Company’s right to consideration
for work completed but not billed at the reporting date. The contract assets are transferred to accounts receivable
when the rights become unconditional.
54
Significant changes in the contract asset balance during the period are as follows:
December 31,
(in thousands)
Beginning balance as of December 31
Revenue recognized
Amounts collected or invoiced
Ending balance as of December 31
Note 4—Inventories
Inventory costs are summarized as follows:
(in thousands)
Raw materials
Work in process
Finished goods
Note 5—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
2019
140,082
2,076,680
(2,055,701)
161,061
$
$
2018
146,496
2,387,333
(2,393,747)
140,082
$
$
December 31,
2019
2018
$ 304,069 $ 300,439
7,321
2,215
$ 314,956 $ 309,975
8,282
2,605
December 31,
$
2019
6,169 $
2018
6,169
97,103
514,450
9,343
1,341
30,122
13,134
671,662
(460,708)
$ 205,819 $ 210,954
87,605
538,037
10,558
1,268
35,366
5,504
684,507
(478,688)
Note 6—Goodwill and Other Intangible Assets
The changes each year in goodwill allocated to the Company’s reportable segments were as follows:
(in thousands)
Goodwill as of December 31, 2016
Goodwill as of December 31, 2017
Acquisition
Goodwill as of December 31, 2018
Goodwill as of December 31, 2019
Americas
$ 153,514 $
$ 153,514 $
500
$ 154,014 $
$ 154,014 $
Total
Asia
38,102 $ 191,616
38,102 $ 191,616
500
38,102 $ 192,116
38,102 $ 192,116
—
During 2018, the Company completed an individually immaterial business acquisition for $2.7 million. See Note 2.
55
Other assets consist primarily of acquired identifiable intangible assets and capitalized purchased software costs.
Acquired identifiable intangible assets as of December 31, 2019 and 2018 were as follows:
Gross
Net
Carrying
Accumulated
Carrying
(in thousands)
Customer relationships
Purchased software costs
Technology licenses
Trade names and trademarks
Other
Intangible assets, December 31, 2019
(in thousands)
Customer relationships
Purchased software costs
Technology licenses
Trade names and trademarks
Other
Intangible assets, December 31, 2018
Amount
$ 100,123
41,604
28,800
7,800
868
$ 179,195
Amortization
$ (46,981) $
(32,012)
(24,100)
—
(309)
$ (103,402) $
Amount
53,142
9,592
4,700
7,800
559
75,793
Gross
Net
Carrying
Accumulated
Carrying
Amount
$ 100,146
39,069
28,800
7,800
868
$ 176,683
Amortization
$ (40,661) $
(30,626)
(21,006)
—
(285)
$ (92,578) $
Amount
59,485
8,443
7,794
7,800
583
84,105
Customer relationships are being amortized on a straight-line basis over a period of 10 to 14 years. Capitalized
purchased software costs are amortized straight-line over the estimated useful life of the related software, which
ranges from 2 to 10 years. Technology licenses are being amortized over their estimated useful lives in proportion to
the economic benefits consumed. During 2019, 2018 and 2017, $2.5 million, $3.9 million and $3.7 million,
respectively, of purchased software costs were capitalized. Amortization on the statements of cash flow for 2019,
2018 and 2017 was as follows:
(in thousands)
Amortization of intangible assets
Amortization of capitalized purchased software costs
Amortization of debt costs
$
$
2019
9,461 $
1,393
461
11,315 $
9,485
1,198
2,717
13,400
$
$
2017
10,065
1,078
861
12,004
Year Ended December 31,
2018
The estimated future amortization expense of acquired intangible assets for each of the next five years is as follows
(in thousands):
Year ending December 31,
2020
2021
2022
2023
2024
56
Amount
$ 10,695
8,098
7,946
6,718
5,555
Note 7—Borrowing Facilities
Long-term debt outstanding as of December 31, 2019 and 2018 consists of the following:
(in thousands)
Term loan, due 2023
Less unamortized debt issuance costs
Long-term debt
December 31,
2019
144,375
(1,616)
142,759
2018
$ 150,000
(2,077)
$ 147,923
$
$
On July 20, 2018, the Company entered into a $650 million credit agreement (the Credit Agreement) by and among
the Company, certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative
Agent, Swingline Lender and a L/C Issuer. The Credit Agreement is comprised of a five-year $500 million
revolving credit facility (the Revolving Credit Facility) and a five-year $150 million term loan facility (the Term
Loan Facility), both with a maturity date of July 20, 2023. The Term Loan Facility proceeds were used to (i)
refinance a portion of existing indebtedness and terminate all commitments under the Company’s prior $430 million
credit agreement and (ii) pay the fees, costs and expenses associated with the foregoing and the negotiation,
execution and delivery of the Credit Agreement.
The Revolving Credit Facility is available for general corporate purposes. The Credit Agreement includes an
accordion feature pursuant to which the Company is permitted to add one or more incremental term loan and/or
increase commitments under the Revolving Credit Facility in an aggregate amount not exceeding $275 million,
subject to the satisfaction of certain conditions.
The Term Loan Facility is payable in quarterly principal installments of $1.9 million commencing June 30, 2019,
with the balance payable on July 20, 2023.
Interest on outstanding borrowings under the Credit Agreement (other than swingline loans) accrues, at the
Company’s option, at (a) the London Interbank Offered Rate (LIBOR) plus 1.0% to 2.0% or (b) the base rate plus
0.0% to 1.0%.
As of December 31, 2019, $144.4 million of the outstanding debt under the Credit Agreement is effectively at a
fixed interest rate of 2.928% as a result of a $144.4 million notional interest rate swap contract discussed in Note 12.
A commitment fee of 0.20% to 0.30% per annum (based on the debt to EBITDA ratio) on the unused portion of the
revolving credit line is payable quarterly in arrears.
The Credit Agreement is generally secured by a pledge of (a) all the capital stock of the Company’s domestic
subsidiaries and 65% of the capital stock of its directly owned foreign subsidiaries, (b) all or substantially all other
personal property of Benchmark and its domestic subsidiaries (including, but not limited to, accounts receivable,
contract assets, inventory, intellectual property and fixed assets of Benchmark and its domestic subsidiaries), in each
case, subject to customary exceptions and limitations, and (c) all proceeds and products of the property and assets
described in (a) and (b) above.
The Credit Agreement contains certain financial covenants as to interest coverage and debt leverage, and certain
customary affirmative and negative covenants, including restrictions on the Company’s ability to incur additional
debt and liens, pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. Amounts
due under the Credit Agreement could be accelerated upon specified events of default, including a failure to pay
amounts due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or
insolvency, subject, in some cases, to cure periods. As of December 31, 2019, the Company was in compliance with
all of these covenants and restrictions.
57
As of December 31, 2019, the Company had $144.4 million in borrowings outstanding under the Term Loan Facility
and $3.0 million in letters of credit outstanding under the Revolving Credit Facility. The Company had $497.0
million available for future borrowings under the Revolving Credit Facility.
As of December 31, 2018, the Company’s Thailand subsidiary had a multi-purpose credit facility with Kasikornbank
Public Company Limited (the Thai Credit Facility) that provided for 350 million Thai baht (approximately $11.7
million) working capital availability. The Thai Credit Facility was secured by land and buildings in Thailand owned
by the Company’s Thailand subsidiary. This Thai Credit Facility expired in October 2019 and was not renewed. As
of December 31, 2018, there were no working capital borrowings outstanding under the facility.
The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2019 are as
follows: 2020, $7.5 million; 2021, $7.5 million; 2022, $7.5 million; and 2023, $121.9 million.
Note 8 – Leases
The Company determines if a contract is or contains a lease at inception. The Company has entered into leases for
certain facilities, vehicles and other equipment. The Company’s leases consist mainly of operating leases which
expire at various dates through 2036. Variable lease payments are generally expensed as incurred and include certain
index-based changes in rent, certain nonlease components, such as maintenance and other services provided by the
lessor, and other charges included in the lease.
The components of lease expense were as follows:
(in thousands)
Finance lease cost:
Amortization of right-of-use assets (included in depreciation expense)
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for finance lease
Operating cash flows used for operating leases
Financing cash flows used for finance lease
Right-of-use assets obtained in exchange for new operating lease liabilities
Year Ended
December 31, 2019
$
711
548
17,014
566
1,899
$ 20,738
$
578
$ 15,169
1,168
$
$ 15,501
58
The lease assets and liabilities as of December 31, 2019 were as follows (in thousands):
Finance lease right-of-assets (included in other assets)
Operating lease right-of-use assets
Finance liability, current (included in current installments of long-term debt)
Finance lease liability, noncurrent (included in long-term debt)
Operating lease liabilities, current (included in accrued liabilities)
Operating lease liabilities, noncurrent
Weighted average remaining lease term – finance leases
Weighted average remaining lease term – operating leases
Weighted average discount rate – finance leases
Weighted average discount rate – operating leases
December 31,
$
$
$
$
$
$
2019
2,311
76,859
1,325
3,654
11,043
67,898
3.5 years
10.2 years
10.1%
4.7%
Future annual minimum lease payments and finance lease commitments as of December 31, 2019 were as follows
(in thousands):
Operating
Finance
Year ending December 31,
2020
2021
2022
2023
2024
2025 and thereafter
Total minimum lease payments
Less: imputed interest
Present value of lease liabilities
Leases
Leases
$ 14,552 $
12,168
10,399
9,751
8,585
46,016
$ 101,471 $
(22,530)
$
78,941 $
1,781
1,816
1,853
465
—
—
5,915
(936)
4,979
As of December 31, 2019, the Company’s future operating leases that have not yet commenced are immaterial.
Future annual minimum lease payments and capital lease commitments in effect as of December 31, 2018 having a
noncancelable term in excess of one year as determined prior to the adoption of ASU 842 were as follows (in
thousands):
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Less: amount representing interest
Present value of minimum lease payments
Less: current installments
Capital lease obligations, less current installments
59
Operating
Capital
Leases
Leases
$
15,272 $
14,518
12,203
10,466
9,890
47,868
$ 110,217 $
$
1,746
1,781
1,816
1,853
465
—
7,661
(1,514)
6,147
(1,168)
4,979
Note 9—Common Stock and Stock-Based Awards Plans
On March 6, 2018, the Board of Directors approved an expanded stock repurchase authorization granting the
Company authority to repurchase up to $250 million in common stock in addition to the $100 million previously
approved on December 7, 2015. On October 26, 2018, the Board of Directors authorized the repurchase of an
additional $100 million of the Company’s common stock. As of December 31, 2019, the Company had $79.5
million remaining under the stock repurchase authorization. On February 19, 2020, the Board of Directors
authorized the repurchase of an additional $150 million of the Company’s common stock.
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 are retired. During 2019, the Company repurchased a total of 4.7 million common
shares for an aggregate of $122.1 million at an average price of $25.86 per share. During 2018, the Company
repurchased a total of 8.2 million common shares for an aggregate of $211.9 million at an average price of $25.71
per share. During 2017, the Company repurchased a total of 1.0 million common shares for an aggregate of $29.3
million at an average price of $30.46 per share.
The Company began declaring and paying quarterly dividends during the first quarter of 2018. During 2019 and
2018, cash dividends paid totaled $23.3 million and $21.0 million, respectively. On December 16, 2019, the
Company declared a quarterly cash dividend of $0.15 per share of the Company’s common stock to shareholders of
record as of December 30, 2019. The dividend of $5.5 million was paid on January 13, 2020. In February 2020, the
Board of Directors approved a quarterly dividend increase, raising the quarterly dividend from $0.15 to $0.16 per
common share. The Board of Directors currently intends to continue paying quarterly dividends. However, the
Company’s future dividend policy is subject to the Company’s compliance with applicable law, and depending on,
among other things, the Company’s results of operations, financial condition, level of indebtedness, capital
requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the
Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed; there can be no
assurance that the Company will continue to pay a dividend in the future.
The Company’s 2019 Omnibus Incentive Compensation Plan (the 2019 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 and restricted stock units (both time-based and performance-based) and other forms of
equity awards, or any combination thereof, to any director, officer, employee or consultant (including any
prospective director, officer, employee or consultant) of the Company. Stock options (which have not been awarded
since 2015) are granted to employees with an exercise price equal to the market price of the Company’s common
stock on the date of grant, generally vest over a four-year period from the date of grant and have a term of 10 years.
Time-based 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. Performance-based restricted stock units
generally vest over a three-year performance cycle, which includes the year of the grant, and are based upon the
Company’s achievement of specified performance metrics. Awards under the 2019 Plan to non-employee directors
have been in the form of restricted stock units, which vest in annually, starting on the grant date.
As of December 31, 2019, 3.3 million additional common shares were available for issuance under the Company’s
2019 Plan.
60
The following table summarizes activities related to the Company’s stock options:
Weighted-
Weighted-
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
(in thousands, except per share data)
Outstanding as of December 31, 2016
Exercised
Forfeited or expired
Outstanding as of December 31, 2017
Exercised
Forfeited or expired
Outstanding as of December 31, 2018
Exercised
Forfeited or expired
Outstanding as of December 31, 2019
Options
1,197
(582)
(19)
596
(200)
(22)
374
(100)
(4)
270
Price
$ 19.51
19.28
19.76
19.72
18.21
22.99
20.35
21.21
21.29
$ 20.02
Exercisable as of December 31, 2019
270
$ 20.02
Term (Years) Value
3.49
3.49
$
$
3,878
3,878
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
2019 for options that had exercise prices that were below the closing price.
As of December 31, 2019, 2018 and 2017, the number of options exercisable was 0.3 million, 0.3 million and
0.4 million, respectively, and the weighted-average exercise price of those options was $20.02, $20.07 and $18.56,
respectively.
Restricted stock units, time-based and performance-based, remain outstanding as detailed below.
61
The following table summarizes the activities related to the Company’s time-based restricted stock units:
(in thousands, except per share data)
Non-vested awards outstanding as of December 31, 2016
Granted
Vested
Forfeited
Non-vested awards outstanding as of December 31, 2017
Granted
Vested
Forfeited
Non-vested awards outstanding as of December 31, 2018
Granted
Vested
Forfeited
Non-vested awards outstanding as of December 31, 2019
Weighted-
Average
Number of
Grant Date
Units
525
314
(206)
(40)
593
407
(306)
(99)
595
632
(254)
(80)
893
Fair Value
$ 22.57
31.56
21.84
24.21
27.47
29.44
27.25
27.52
$ 28.93
27.36
28.09
28.97
$ 28.06
The following table summarizes the activities related to the Company’s performance-based restricted stock units:
(in thousands, except per share data)
Non-vested units outstanding as of December 31, 2016
Granted(1)
Forfeited
Non-vested units outstanding as of December 31, 2017
Granted(1)
Forfeited
Non-vested units outstanding as of December 31, 2018
Granted(1)
Vested
Forfeited
Non-vested units outstanding as of December 31, 2019
Weighted-
Average
Number of
Grant Date
Units
227
172
(53)
346
120
(147)
319
198
(57)
(76)
384
Fair Value
$ 21.43
31.60
18.81
26.88
29.60
24.06
$ 29.19
27.45
31.40
21.23
$ 28.89
(1) Represents target number of units that can vest based on the achievement of the performance goals.
62
Note 10—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,
2019
2018
2017
$
$
(1,697)
(3,567)
11,474
6,210
1,815
1,409
(5,590)
(2,366)
3,844
$
$
(14,831) $
10,110
29,817
25,096
(249)
(550)
8,427
7,628
32,724
$
85,633
804
9,047
95,484
8,337
(213)
(702)
7,422
102,906
Worldwide income (loss) before income taxes consisted of the following:
(in thousands)
United States
Foreign
Year Ended December 31,
2019
2018
2017
$
$
(13,756) $
41,025
27,269 $
(23,645) $
79,186
55,541 $
(14,984)
85,989
71,005
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:
(in thousands)
Tax at statutory rate
State taxes, net of federal tax effect
Effect of foreign operations and tax incentives
Change in valuation allowance
Stock-based compensation
Provisional impact of U.S. Tax Reform
Impact of cash repatriation
GILTI
Losses in foreign jurisdictions for which no benefit has
been provided
Change in uncertain tax benefits reserve
Other
Total income tax expense
Year Ended December 31,
2019
2018
2017
$
$
5,727
(1,705)
(5,870)
(2,283)
118
—
—
955
4,379
200
2,323
3,844
$
$
$
11,664
7,553
(11,945)
2,114
(143)
(4,353)
21,612
3,206
1,423
(317)
1,910
32,724
$
24,852
384
(20,703)
(203)
(1,658)
97,707
—
—
106
—
2,421
102,906
The U.S. Tax Cuts and Jobs Act (U.S. Tax Reform), which was signed into law on December 22, 2017, significantly
changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax
system, adding a global intangible taxation regime and imposing a transition (Transition Tax) tax on deemed
63
repatriated cumulative earnings of foreign subsidiaries. The U.S. Tax Reform reduced the U.S. corporate income tax
rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Company recorded the effects of the
changes in the tax rate in the Company’s deferred tax assets and liabilities as of December 31, 2017.
To minimize tax base erosion with a territorial tax system, the U.S. Tax Reform enacted a new global intangible
low-taxed income (GILTI) provision that requires the Company to include in its U.S. income tax return foreign
subsidiary earnings in excess of an allowable return on the foreign subsidiaries tangible assets. The taxable earnings
can be offset by a limited deemed paid foreign tax credit with no carrybacks or carryforwards available. The
Company is subject to the GILTI provisions. The Company elected to account for the GILTI as a period cost and
include the effect in the period in which it is incurred and not include it as a factor in the determination of deferred
taxes.
On December 22, 2017, additional guidance was issued on accounting for the tax effects of the U.S. Tax Reform
(Staff Accounting Bulletin No. 118 (SAB 118)). SAB 118 provided a measurement period that should not extend
beyond one year from the U.S. Tax Reform enactment date for companies to complete their accounting. The
Company recorded a provisional tax expense of $101.6 million for the Transition Tax, and recognized a provisional
deferred tax benefit of $3.9 million for a total net expense of $97.7 million as of December 31, 2017. As of
December 31, 2018, the Company completed the accounting for the tax effects of U.S. Tax Reform within the
period required from the enactment date. The Company recognized during the fourth quarter of 2018 after filing its
U.S. income tax return, a discrete tax benefit adjustment of $6.4 million for the Transition Tax, and recorded a
discrete tax expense adjustment of $2.0 million for the finalization of the deferred tax assets and liabilities for a net
total adjustment of $4.4 million. These adjustments were based on additional analysis of undistributed cumulative
foreign earnings, cumulative foreign taxes, changes in interpretations, and additional regulatory guidance that was
issued during 2018 by the Internal Revenue Service (IRS).
As a result of the completed accounting for the Transition Tax, the Company determined that its total Transition Tax
liability as of December 31, 2019 is currently $57.5 million after reduction for U.S. tax carryforward losses, U.S. tax
credit carryforwards, and foreign tax credit carrybacks that are allowed to be utilized against the total liability. The
Company intends to pay this liability over the remaining seven year payment period as prescribed by the U.S. Tax
Reform and regulatory guidance issued by the IRS. $51.0 million of the Transition Tax liability is included in other
long term liabilities.
During 2019 and 2018, the Company repatriated $52.1 million and $560.6 million, respectively, of foreign earnings
to the U.S. As of December 31, 2019, the Company has approximately $313.9 million in cumulative undistributed
foreign earnings of its foreign subsidiaries. These earnings would not be subject to U.S. income tax, if distributed to
the Company. The Company changed its assertion during 2018 on its foreign subsidiaries earnings that are
permanently reinvested. A certain amount of earnings from specific foreign subsidiaries are permanently reinvested,
and certain foreign earnings from other specific foreign subsidiaries is considered to be non-permanently reinvested
and is available for immediate distribution to the Company. Income taxes have been accrued on the non-
permanently reinvested foreign earnings including the 2017 Transition Tax, the U.S. tax on GILTI, and any
applicable local withholding taxes. The Company estimates that it has approximately $1.7 million of unrecognized
deferred tax liability related to any remaining undistributed foreign earnings that have not already been subject to the
2017 Transition Tax, the U.S. tax on GILTI, and any applicable foreign income tax or local withholding taxes on
cash distributions.
As a result of this change in assertion during 2018, in relation to undistributed earnings prior to December 31, 2017,
the Company recorded a net tax expense of $21.6 million consisting of tax expense of $30.8 million relating to
foreign withholding tax from Asia and a net benefit of $9.2 million for U.S. foreign tax credits to offset the foreign
taxes paid during 2018. In addition, the Company recorded applicable U.S. state income tax expense net of federal
benefits related to the cash repatriation. Also during 2018, the Company incurred a net $4.4 million benefit
associated with finalizing the provisional impact of the U.S. Tax Reform described above as required by SAB 118,
and incurred a $3.2 million tax expense as a result of GILTI.
64
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
Operating right-of-use lease liabilities
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
Operating right-of-use lease assets
Intangible assets, due to differences in amortization
Foreign withholding tax
Other
Gross deferred tax liability
Net deferred tax liability
The net deferred tax liability is classified as follows:
Long-term asset
Long-term liability
Total
$
$
$
December 31,
2019
2018
3,212 $
8,945
1,976
2,500
19,087
19,493
2,421
5,148
62,782
(15,992)
46,790
2,787
6,108
2,351
2,347
—
20,028
1,923
4,373
39,917
(13,709)
26,208
(10,428)
(18,826)
(16,302)
(7,181)
(2,283)
(55,020)
(7,617)
—
(18,593)
(9,212)
(2,631)
(38,053)
(8,230) $ (11,845)
(13,504)
5,274 $
2,478
(14,323)
(8,230) $ (11,845)
All deferred taxes are classified as non-current on the balance sheet as of December 31, 2019 and 2018. All deferred
tax assets and liabilities are offset and presented as a single net noncurrent amount by each tax jurisdiction.
The net change in the total valuation allowance for 2019, 2018 and 2017 was a $2.3 million decrease, a $2.1 million
increase and a $0.2 million decrease, 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
benefits of these deductible differences, net of the existing valuation allowances as of December 31, 2019.
As of December 31, 2019, the Company had $16.5 million in U.S. Federal operating loss carryforwards which will
expire from 2027 to 2036; state operating loss carryforwards of approximately $44.5 million which will expire from
65
2020 to 2031; foreign operating loss carryforwards of approximately $24.8 million with indefinite carryforward
periods; and foreign operating loss carryforwards of approximately $27.5 million which will expire at varying dates
through 2029. 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 state tax credit carryforwards
of $1.9 million which will expire at varying dates through 2026.
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 2018 in China,
2021 in Malaysia and 2028 in Thailand, and are subject to certain conditions with which the Company expects to
comply. The net impact of these tax incentives was to lower income tax expense for 2019, 2018, and 2017 by
approximately $5.0 million (approximately $0.13 per diluted share), $7.9 million (approximately $0.17 per diluted
share) and $7.2 million (approximately $0.15 per diluted share), respectively, as follows:
(in thousands)
China
Malaysia
Thailand
Year Ended December 31,
2019
—
3,010
2,025
5,035
$
$
$
$
2018
1,884
3,287
2,715
7,886
$
$
2017
1,398
4,295
1,545
7,238
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, 2019, the
total amount of the reserve for uncertain tax benefits including interest and penalties was $0.6 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
December 31,
2019
2018
$
$
313
—
200
—
513
$
$
708
137
—
(532)
313
$
$
2017
7,791
220
894
(8,197)
708
During 2019, the Company recorded $0.2 million of uncertain tax benefits related to prior year tax positions. During
2018, the Company released $0.5 million of uncertain tax benefits from an IRS audit related to the Secure
Communication Systems, Inc. acquisition. Also during the first quarter of 2018, the IRS indicated that this
examination of years 2013 to 2015 was closed. In addition, the IRS also notified the Company that the examination
of the Company’s consolidated U.S. income tax return filings for 2014 was also closed with no additional tax costs.
During 2017, the Company released $0.9 million of uncertain tax benefits related to the liquidation of a foreign
subsidiary company. Also during 2017, the Company received a denial of its appeal to the local tax authorities
related to an examination for a subsidiary in Thailand for the years 2004 to 2005. Consequently, the Company
recorded $0.9 million of additional accruals for uncertain tax benefits. The Company decided not to challenge this
decision and therefore, the $7.3 million reserve for uncertain tax benefits was written off. This decrease in the
unrecognized tax benefit reserve did not impact the Company’s effective tax rate.
The reserve is classified as a current or long-term liability in the consolidated balance sheet based on the Company’s
66
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 on unrecognized tax benefits included in the reserve as of December 31, 2019 is $0.1 million. The
reserve for potential penalties is $17.0 thousand. The Company did not record any interest and penalties during
2019. The total amount of interest and penalties included in income tax expense was $0.1 million during 2018. The
Company did not incur any interest and penalties in 2017.
The Company and its subsidiaries in Brazil, China, Ireland, 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 2011 to 2019. Currently, the Company does not have any ongoing income tax
examinations by any jurisdiction. During the course of such income tax 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.
Note 11—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 38%, 44% and 46% of total sales for 2019, 2018 and 2017,
respectively. Sales to our largest customers were as follows for the indicated periods:
Year ended December 31,
(in thousands)
International Business Machines Corporation
Applied Materials, Inc.
* amount is less than 10% of total sales.
2019
*
*
$
$
Note 12—Financial Instruments and Concentration of Credit Risk
2018
2017
$ 323,795 $ 284,636
$ 248,183
*
$
The Company’s financial instruments include cash equivalents, accounts and other receivables, accounts payable,
accrued liabilities and long-term debt and finance lease obligations. The Company believes that the carrying values
of these instruments approximate fair value. As of December 31, 2019, the Company’s long-term investments and
derivative instruments were recorded at fair value using Level 3 inputs. The Company uses derivative instruments to
manage the variability of foreign currency obligations and interest rates. The Company does not enter into derivative
arrangements for speculative purposes.
The forward currency exchange contract in place as of December 31, 2019 has not been designated as accounting
hedge and, therefore, changes in fair value are recorded within the Consolidated Statements of Income.
The Company has an interest rate swap agreement with a notional amount of $144.4 million and $150.0 million as
of December 31, 2019 and 2018, respectively, to hedge a portion of its interest rate exposure on outstanding
borrowings under the Credit Agreement. Under this interest rate swap agreement, the Company receives variable
rate interest payments based on the one-month LIBOR rate and pays fixed rate interest payments. The fixed interest
67
rate for the contract is 2.928%. The effect of this swap is to convert all of the floating rate interest expense to fixed
interest rate expense. Based on the terms of the interest rate swap contract and the underlying borrowings
outstanding under the Credit Agreement, the interest rate contract was determined to be highly effective, and thus
qualifies and has been designated as a cash flow hedge. As such, changes in the fair value of the interest rate swap
are recorded in other comprehensive income on the accompanying Consolidated Balance Sheets until earnings are
affected by the variability of cash flows. As of December 31, 2017, the Company had an interest rate swap
agreement with a notional amount of $155.3 million with a fixed interest rate of 1.4935%. During 2018, the
Company terminated this agreement for $3.5 million and the gain is being amortized to offset interest expense over
the original term of the swap agreement.
The fair value of the interest rate swap agreements was a $6.3 million liability as of December 31, 2019 and a $3.0
million liability as of December 31, 2018. During the year ended December 31, 2019, the Company recorded
unrealized losses of $3.3 million ($2.5 million net of tax) on the swaps in other comprehensive income and
transferred unrealized gains of $1.7 million ($1.2 million net of tax) on the swaps to interest expense. During the
year ended December 31, 2018, the Company recorded unrealized gains of $1.5 million ($1.1 million net of tax) on
the swap in other comprehensive income and transferred unrealized gains of $0.3 million ($0.2 million net of tax) on
the swaps to interest expense. During the year ended December 31, 2017, the Company recorded unrealized gains of
$1.5 million ($0.9 million net of tax) on the swap in other comprehensive income. See Note 22.
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 one customer whose gross
accounts receivable exceeded 10% of total gross accounts receivable as of December 31, 2019. Our largest customer
represented 12.1% of our total gross accounts receivable.
Note 13—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.
Note 14—Accounts Receivable Sale Program
As of December 31, 2019, in connection with a trade accounts receivable sale program with unaffiliated financial
institutions, the Company may elect to sell, at a discount, on an ongoing basis, up to a maximum of $120.0 million
of specific accounts receivable at any one time.
During the years ended December 31, 2019 and 2018, the Company sold $284.0 million and $160.0 million,
respectively, of accounts receivable under this program, and in exchange, the Company received cash proceeds of
$283.2 million and $159.5 million, respectively, net of the discount. The loss on the sale resulting from the discount
was recorded to other expense within the Consolidated Statements of Income.
68
Note 15—Segment and Geographic Information
The Company currently has manufacturing facilities in the Americas, 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: Americas, Asia, and Europe. Information about operating
segments is as follows:
(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
Interest expense
Interest income
Other income (expense)
Income before income taxes
Capital expenditures:
Americas
Asia
Europe
Corporate
Total assets:
Americas
Asia
Europe
Corporate and other
Year Ended December 31,
2019
2018
2017
$ 1,428,795
741,630
176,384
(78,714)
$ 2,268,095
$ 1,647,402
801,312
186,517
(68,766)
$ 2,566,465
$ 1,584,729
777,616
176,954
(84,820)
$ 2,454,479
$
$
$
$
$
$
21,784
11,108
3,035
12,500
48,427
55,749
47,862
6,983
(82,049)
28,545
(6,664)
3,829
1,559
27,269
15,822
9,493
3,702
6,101
35,118
$
$
$
$
$
$
22,668
11,496
3,498
14,177
51,839
61,731
72,442
10,229
(85,864)
58,538
(10,473)
6,848
628
55,541
44,204
14,400
2,388
5,740
66,732
$
$
$
$
$
$
21,972
11,849
2,891
11,960
48,672
68,433
74,701
10,805
(77,113)
76,826
(9,405)
5,370
(1,786)
71,005
27,139
18,115
4,915
4,337
54,506
$ 792,180
533,508
139,977
294,209
$ 1,759,874
$ 852,776
540,094
113,165
393,748
$ 1,899,783
$ 812,187
674,783
470,786
151,548
$ 2,109,304
69
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
Year Ended December 31,
2019
2018
2017
$ 1,508,966 $ 1,741,321 $ 1,650,791
432,530
423,245
291,006
299,676
80,152
102,223
$ 2,268,095 $ 2,566,465 $ 2,454,479
391,029
266,216
101,884
$ 247,073 $ 190,056 $ 167,858
77,750
11,042
25,830
$ 367,402 $ 301,589 $ 282,480
79,051
9,537
22,945
76,507
20,258
23,563
Note 16 – Revenue
The Company’s revenues are generated primarily from the sale of manufactured products built to customer
specifications. The Company also generates revenue from design, development and engineering services, in addition
to the sale of other inventory.
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes
revenue when it satisfies a performance obligation by transferring control over a manufactured product to a
customer. The Company’s contracts with customers are generally short-term in nature. Customers are generally
billed when the product is shipped or as services are performed. Under the majority of the Company’s
manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being
built. Revenues under these contracts are recognized progressively based on the cost-to-cost method. For other
manufacturing contracts, the customer does not take control of the product until it is completed. Under these
contracts, the Company recognizes revenue upon transfer of control of the product to the customer. Revenue from
design, development and engineering services is recognized over time as the services are performed. The Company
assumes no significant obligations after shipment as it typically warrants workmanship only. Therefore, the warranty
provisions are generally not significant.
If the Company records revenue, but does not issue an invoice, a contract asset is recognized. The contract asset is
transferred to accounts receivable when the entitlement to payment becomes unconditional.
Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-
producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a
customer are accounted for as fulfillment costs and are included in cost of sales.
70
Disaggregation of revenue
In the following tables, revenue is disaggregated by market sector. The tables also include a reconciliation of the
disaggregated revenue with the reportable operating segments.
(in thousands)
Market Sector:
Industrials
A&D
Medical
Semi-Cap
Computing
Telecommunications
External revenue
Elimination of intersegment sales
Segment revenue
Market Sector:
Industrials
A&D
Medical
Semi-Cap
Computing
Telecommunications
External revenue
Elimination of intersegment sales
Segment revenue
(in thousands)
Market Sector:
Industrials
A&D
Medical
Semi-Cap
Computing
Telecommunications
External revenue
Elimination of intersegment sales
Segment revenue
Reportable Operating Segments
Year Ended December 31, 2019
Americas
Asia
Europe
Total
$
165,163 $
400,326
263,688
102,908
308,077
143,686
1,383,848
44,947
$ 1,428,795 $
214,575 $
—
167,296
123,764
53,051
149,890
708,576
33,054
741,630 $
73,838 $
31,597
17,218
51,093
85
1,840
175,671
713
453,576
431,923
448,202
277,765
361,213
295,416
2,268,095
78,714
176,384 $ 2,346,809
Year Ended December 31, 2018
Americas
Asia
Europe
Total
$
184,500 $
374,852
235,287
155,687
504,391
162,813
1,617,530
29,872
$ 1,647,402 $
241,765 $
—
144,528
135,299
69,657
171,520
762,769
38,543
801,312 $
66,798 $
31,550
14,152
63,992
6,797
2,877
186,166
351
493,063
406,402
393,967
354,978
580,845
337,210
2,566,465
68,766
186,517 $ 2,635,231
Year Ended December 31, 2017 (as adjusted)
Americas
Asia
Europe
Total
$
213,699 $
361,200
204,677
158,151
444,401
172,122
1,554,250
30,479
$ 1,584,729 $
213,504 $
2,430
149,650
140,967
85,988
130,954
723,493
54,123
777,616 $
69,233 $
28,060
19,458
47,223
9,971
2,791
176,736
218
496,436
391,690
373,785
346,341
540,360
305,867
2,454,479
84,820
176,954 $ 2,539,299
During 2019, 2018 and 2017, 91.5%, 93.0% and 93.4%, respectively, of the Company’s revenue was recognized as
products and services are transferred over time.
71
Note 17—Employee Benefit Plans
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 2019, 2018 and 2017, the Company made contributions to the plans of approximately $6.2
million, $5.6 million and $5.2 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
2019, 2018 and 2017, the Company made contributions to the international plans of approximately $0.1 million,
$0.1 million and $0.1 million, respectively.
Note 18—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 19—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 moving
production between facilities, reducing staff levels, realigning our business processes, reorganizing our management
and other activities.
The Company recognized restructuring charges during 2019, 2018 and 2017 primarily related to the closure of
facilities in the Americas, capacity reduction and reductions in workforce in certain facilities across various regions.
72
The following table summarizes the 2019 activity in the accrued restructuring balances related to the various
restructuring activities initiated prior to December 31, 2019:
(in thousands)
2019 Restructuring:
Severance
Other exit costs
2018 Restructuring:
Severance
Other exit costs
2017 Restructuring:
Severance
Other exit costs
Balance as of
Foreign
Balance as of
December 31,
Restructuring
Cash
Non-Cash
Exchange
December 31,
2018
Charges
Payment
Activity
Adjustments
2019
$
— $
—
—
6,449 $
1,597
8,046
(2,493) $
(653)
(3,146)
— $
(944)
(944)
— $
—
—
3,956
—
3,956
282
918
1,200
—
135
135
—
461
461
—
—
—
(282)
(1,379)
(1,661)
—
(124)
(124)
—
—
—
—
—
—
—
—
—
—
(11)
(11)
—
—
—
—
—
—
Total
$
1,335 $
8,507 $
(4,931) $
(944) $
(11) $
3,956
The components of the restructuring charges initiated during 2019 were as follows:
(in thousands)
Severance costs
Other exit costs
Americas
$
4,499 $
1,561
6,060 $
$
Asia
1,950 $
36
1,986 $
$
Europe
—
—
— $
Total
6,449
1,597
8,046
During 2019, the Company recognized $6.4 million of employee termination costs associated with the involuntary
terminations (both executed and planned) of 468 employees in connection with reductions in workforce worldwide.
The identified involuntary employee terminations by reportable geographic region amounted to approximately 386,
81 and 1 for the Americas, Asia and Europe, respectively.
73
The following table summarizes the 2018 activity in the accrued restructuring balances related to the various
restructuring activities initiated prior to December 31, 2018:
(in thousands)
2018 Restructuring:
Severance
Other exit costs
2017 Restructuring:
Severance
Lease facility costs
Other exit costs
2016 Restructuring:
Severance
Other exit costs
Balance as of
Foreign
Balance as of
December 31,
Restructuring
Cash
Non-Cash
Exchange
December 31,
2017
Charges
Payment
Activity
Adjustments
2018
$
— $
—
—
2,815 $
1,773
4,588
(2,533) $
(855)
(3,388)
47
—
198
245
29
16
45
3
96
270
369
(6)
246
240
(50)
(96)
(309)
(455)
(23)
(146)
(169)
— $
—
—
—
—
—
—
—
(116)
(116)
— $
—
—
282
918
1,200
—
—
(24)
(24)
—
—
—
—
—
135
135
—
—
—
Total
$
290 $
5,197
$
(4,012) $
(116) $
(24)
$
1,335
The components of the restructuring charges initiated during 2018 were as follows:
(in thousands)
Severance costs
Other exit costs
Americas
$ 2,496 $
1,773
274 $
—
Asia
Europe
$ 4,269 $
274 $
45 $
—
45 $
Total
2,815
1,773
4,588
During 2018, the Company recognized $2.8 million of employee termination costs associated with the involuntary
terminations (both executed and planned) of 490 employees in connection with reductions in workforce worldwide.
The identified involuntary employee terminations by reportable geographic region amounted to approximately 432,
23 and 35 for the Americas, Asia and Europe, respectively.
The components of the restructuring charges initiated during 2017 were as follows:
(in thousands)
Severance costs
Lease facility costs
Other exit costs
Americas
$ 1,985 $
264
531
$ 2,780 $
Asia
Total
187 $ 2,172
264
531
2,967
—
—
187
During 2017, the Company recognized $2.2 million of employee termination costs associated with the involuntary
terminations (both executed and planned) of 163 employees in connection with reductions in workforce worldwide.
The identified involuntary employee terminations by reportable geographic region amounted to approximately 160
and 3 for the Americas and Asia, respectively.
74
Note 20—Ransomware Incident
During the fourth quarter ended December 31, 2019, some of the Company’s systems were affected by a
ransomware incident that encrypted information on its systems and disrupted customer and employee access to its
applications and services. The Company immediately took steps to isolate the impact and implemented measures to
prevent additional systems from being affected, including taking its network offline as a precaution. In connection
with this incident, third party consultants and forensic experts were engaged to assist with the restoration and
remediation of the Company’s systems and, with the assistance of law enforcement, to investigate the incident. The
Company has found no evidence that customer or employee data was exfiltrated from its network.
The Company restored connectivity and resumed operations quickly following the ransomware incident. However,
fourth quarter 2019 operations were adversely affected by the inefficiencies caused by taking the network offline for
a period of time. As a result, the Company’s fourth quarter 2019 revenue was also adversely affected as the
Company was unable to fulfill a portion of customer demand during the quarter.
We do have insurance coverage, including cyber insurance, and are working diligently with our insurance carriers
on claims to recover costs incurred. We expect that the insurance recovery process will be ongoing throughout 2020.
In 2019, ransomware incident related costs incurred totaled $7.7 million, net of estimated insurance recoveries of
$5.0 million. These costs were primarily comprised of certain employee related expenses and various third party
consulting services including forensic experts, legal counsel and other IT professional expenses.
We expect to incur additional costs related to the ransomware event in 2020, but these are not expected to be
significant. Further insurance recoveries will be recorded when considered probable for recovery.
75
Note 21—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 2019, 2018 and 2017. 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 (loss)
Earnings (loss) per share:
Basic
Diluted
(in thousands, except per share data)
Sales
Gross profit
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
(in thousands, except per share data)
Sales
Gross profit
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
2019 Quarter
1st
2nd
3rd
4th
$ 602,820 $601,602 $ 555,229 $ 508,444
40,725
(6,931)
53,800
13,773
52,883
7,136
52,998
9,447
0.34
0.34
0.25
0.24
0.19
0.19
(0.19)
(0.19)
2018 Quarter
1st
2nd
3rd
4th
$ 608,136 $660,591 $ 640,688 $ 657,050
55,199
27,716
58,318
(23,641)
52,777
7,799
54,299
10,943
(0.49)
(0.49)
0.23
0.23
0.17
0.17
0.64
0.64
2017 Quarter
1st
2nd
3rd
4th
$ 557,903 $619,611 $ 610,929 $ 666,036
60,661
(76,361)
47,532
8,555
58,243
17,831
59,484
18,074
0.17
0.17
0.36
0.36
0.36
0.35
(1.54)
(1.54)
76
Note 22—Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component were as follows:
Foreign
currency
Unrealized
Derivative
loss on
translation
instruments,
investments,
(in thousands)
adjustments
net of tax
net of tax
Other
Total
Balances, December 31, 2016
$
(14,544)
Other comprehensive gain (loss) before reclassifications
Net current period other comprehensive loss
Balances, December 31, 2017
Other comprehensive gain (loss) before reclassifications
Amounts reclassified from accumulated
other comprehensive loss
Net current period other comprehensive gain (loss)
Balances, December 31, 2018
Other comprehensive gain (loss) before reclassifications
Amounts reclassified from accumulated
other comprehensive loss
Net current period other comprehensive gain (loss)
4,977
4,977
(9,567)
(2,273)
—
(2,273)
(11,840)
(585)
—
(585)
286
1,192
1,192
1,478
(1,126)
(236)
(1,362)
116
(2,474)
(1,242)
(3,716)
(74)
33
33
(41)
41
—
41
—
156 $ (14,176)
(175)
(175)
(19)
619
6,027
6,027
(8,149)
(2,739)
—
(236)
619
(2,975)
600
(11,124)
—
(1,334)
(4,393)
—
—
(1,242)
—
(1,334)
(5,635)
Balances, December 31, 2019
$
(12,425) $
(3,600) $
— $
(734) $ (16,759)
See Note 12 for further explanation of the change in derivative instruments that is recorded to Accumulated Other
Comprehensive Loss. Amounts reclassified from accumulated other comprehensive loss during 2019 and 2018
primarily affected interest expense and selling, general and administrative expenses, respectively.
Note 23—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,
2019
16,895 $
8,347 $
2018
48,918 $
7,868 $
2017
6,453
8,698
$
$
Non-cash investing activity:
Additions to property, plant and equipment in accounts payable
$
9,119 $
6,148 $
7,761
77
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Benchmark Electronics, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Benchmark Electronics, Inc. and subsidiaries (the
Company) as of December 31, 2019 and 2018, the related consolidated statements of income (loss), comprehensive
income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes and financial statement Schedule II – Valuation Accounts listed in Item
15(a)(2) (collectively, the consolidated financial statements). We also have audited the Company’s internal control
over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Notes 1 and 8 to the consolidated financial statements, the Company has changed its method of
accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-
02, Leases (Topic 842), amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic
842, ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Targeted
Improvements.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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 consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting 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
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
78
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Evaluation of income tax expense
As discussed in Notes 1 and 10 to the consolidated financial statements, the Company has recorded income tax
expense of $3.8 million for the year ended December 31, 2019. The Company serves international markets and
is subject to income taxes in the United States and foreign jurisdictions, which affect the Company’s income tax
expense. Income tax expense is an estimate based on the Company’s understanding of current enacted tax laws
and tax rates of each tax jurisdiction.
We identified the evaluation of income tax expense as a critical audit matter. Complex auditor judgment was
required in evaluating the Company’s interpretation and application of tax laws and the related impacts to
income tax expense. There is complexity in the evaluation of the U.S. income tax expense due to the impact of
U.S. tax reform on multinational operations such as the U.S. tax on global intangible low-taxed income (GILTI)
and foreign tax credits. There is also complexity in evaluating the impact of changing foreign tax laws on
income tax expense.
The primary procedures we performed to address this critical audit matter included the following. We tested
certain internal controls over the Company’s income tax expense process, including controls over the
identification of changes to tax laws in the jurisdictions in which the Company operates and the Company’s
evaluation of the determination of GILTI and foreign tax credits. We involved tax professionals with
specialized skills and knowledge who assisted in evaluating the application of the relevant tax laws and
regulations in the determination of the Company’s tax expense. In addition, we evaluated the Company’s
methodology used in the determination of GILTI and foreign tax credits.
We have served as the Company’s auditor since 1986.
Houston, Texas
March 2, 2020
79
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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 Exchange Act, of the effectiveness of the design and operation of the Company’s disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). 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 SEC,
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.
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 Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act). 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 (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our evaluation under the framework, our management concluded that our
80
internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been
audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included in Item 8
of this Report.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter
covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Limitations on Effectiveness of Controls and Procedures
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.
Item 9B. Other Information.
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information under the captions “Election of Directors,” “Executive Officers” and “Delinquent Section 16(a)
Reports” in the Company’s Proxy Statement for the 2020 Annual Shareholders Meeting (the 2020 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,” “Compensation Tables and
Narratives” and “Compensation Committee Report” in the 2020 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.
81
The information under the caption “Common Share Ownership of Certain Beneficial Owners and Management” in
the 2020 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,
2019:
Plan Category
Number of
securities to be
Weighted-
Number of
issued upon
average exercise
securities
exercise of
outstanding
price of
outstanding
remaining
available
options, warrants
options, warrants
for future
and rights
and rights
issuance
Equity compensation plans approved by security holders
1,547,361(1)
$20.02(1)
3,321,635
(1) Includes 1,276,992 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 2020 Proxy Statement is incorporated herein by
reference in response to this item.
82
Item 14. Principal Accounting Fees and Services.
The information under the caption “Audit Committee Report” in the 2020 Proxy Statement is incorporated herein by
reference in response to this item.
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
Additions
Balance at
Beginning
Charges to
(in thousands)
Year ended December 31, 2019:
of Period
Operations
Other
Deductions
Balance at
End of
Period
Allowance for doubtful accounts(1)
$ 1,733
10,323
Year ended December 31, 2018:
Allowance for doubtful accounts(1)
$ 105
1,718
Year ended December 31, 2017:
Allowance for doubtful accounts(1)
$ 2,838
1,697
—
—
—
1,971
10,085
90
1,733
4,430
105
(1) Deductions in the allowance for doubtful accounts represent write-offs, net of recoveries, of amounts
determined to be uncollectible.
See accompanying Report of Independent Registered Public Accounting Firm incorporated herein by reference.
(b) Exhibits
83
Exhibit
Number
Description of Exhibit
2.1
3.1
3.2
4.1
4.2(2)
10.1
10.2 (1)
10.3 (1)
10.4 (1)
10.5 (1)
10.6 (1)
10.7 (1)
10.8 (1)
10.9 (1)
Purchase Agreement dated October 20, 2015 (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated November 12, 2015 (Commission file number 1-
10560))
Restated Certificate of Formation dated May 17, 2016 (incorporated by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K dated May 17, 2016) (the 8-K) (Commission file
number 1-10560)
Amended and Restated Bylaws of the Company dated May 11, 2016 (incorporated by reference
to Exhibit 3.2 to the 8-K)
Specimen form of certificate evidencing the Common Shares (incorporated by reference to
Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2014) (the 10-Q) (Commission file number 1-10560)
Description of Company’s securities
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
Current Report on Form 8-K dated 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 333-168427))
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-
168427))
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-
168427))
10.10 (1)
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 333-168427))
84
Exhibit
Number
10.11 (1)
10.12 (1)
10.13 (1)
10.14 (1)
10.15 (1)
10.16 (1)
10.17 (1)
10.18 (1)
10.19
10.20 (1)
10.21
10.22 (1)
10.23
Description of Exhibit
Amended form of restricted stock unit award agreement for use under the 2010 Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2017 (Commission file number 1-10560))
Form of performance-based restricted stock unit award agreement for use under the 2010 Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed on May 10, 2016 (Commission file number 1-10560))
Amended form of performance-based restricted stock unit award agreement for use under the
2010 Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2017 (Commission file number 1-10560))
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))
Employment Agreement dated December 1, 2016 between the Company and Paul J. Tufano
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
December 1, 2016 (Commission file number 1-10560))
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 Current Report on Form 8-K dated
March 10, 2009 (Commission file number 1-10560))
Agreement between the Company and Jon J. King dated as of May 15, 2017 (incorporated by
reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q filed for the quarter
ended June 30, 2017 (Commission file number 1-10560))
Form of Executive Severance Agreement (incorporated by referent to Exhibit 10.15 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (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))
Amendment to Employment Agreement, dated as of February 22, 2018, between the Company
and Paul J. Tufano (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated February 23, 2018 (Commission file number 1-10560))
Credit Agreement, dated July 20, 2018, by and among the Company, certain of its subsidiaries,
the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender
and a L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated July 23, 2018 (Commission file number 1-10560))
Separation Agreement dated September 15, 2016 between the Company and Gayla J. Delly
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report Form 8-K dated
September 15, 2016 (Commission file number 1-10560))
Cooperation Agreement, dated as of December 19, 2016, by and among the Company and
Engaged Capital, LLC, Engaged Capital Flagship Master Fund, LP, Engaged Capital Flagship
Fund, LP, Engaged Capital Flagship Fund, Ltd. and Engaged Capital Holdings, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
December 19, 2016 (Commission file number 1-10560))
10.24 (1)
Form of Key Management Severance Agreement (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K dated December 11, 2017 (Commission file number
1-10560))
85
Exhibit
Number
10.25 (1)
10.26 (1)
Description of Exhibit
Transition Agreement and Release of All Claims by and between Scott Peterson and the
Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K dated December 11, 2017 (Commission file number 1-10560))
Transition Agreement and Release of All Claims by and between Donald F. Adam and the
Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K dated December 20, 2017 (Commission file number 1-10560))
10.27 (1) Employment Agreement, dated February 26, 2019, between the Company and Jeffrey W. Benck
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
February 28, 2019 (Commission file number 1-10560))
10.28 (1)
10.29
21 (2)
23 (2)
31.1 (2)
31.2 (2)
32.1 (2)
32.2 (2)
Benchmark Electronics, Inc. 2019 Omnibus Incentive Compensation Plan (incorporated by
reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A filed April
5, 2019) (Commission file number 1-10560)
Amendment No. 1 to the Credit Agreement, dated May 17, 2019, by and among the Company,
certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative
Agent, Swingline Lender and a L/C Issuer (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019) (Commission
file number 1-10560)
Subsidiaries of Benchmark Electronics, Inc.
Consent of Independent Registered Public Accounting Firm concerning incorporation by
reference in the Company’s Registration Statements on Form S-8 (Registration No. 333-101744,
No. 333-156202, No. 333-168427, No. 333-198404 and No. 333-231524)
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer
101.INS (2)
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data
File because its XBRL tags are embedded within the Inline XBRL document
101.SCH (2)
Inline XBRL Taxonomy Extension Schema Document
101.CAL (2)
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB (2)
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE (2)
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF (2)
Inline XBRL Taxonomy Extension Definition Linkbase Document
104 (2)
Cover Page Interactive Data File - the cover page interactive data file does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
(1) Indicates management contract or compensatory plan or arrangement.
(2) Filed/furnished herewith.
86
Item 16. Form 10-K Summary.
None.
87
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/ Jeffrey W. Benck
Jeffrey W. Benck
Chief Executive Officer
Date: March 2, 2020
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
Position
Date
/s/ David W. Scheible
Chairman of the Board
March 2, 2020
David W. Scheible
/s/ Jeffrey W. Benck
President, Chief Executive Officer and Director
March 2, 2020
Jeffrey W. Benck
(principal executive officer)
/s/ Roop K. Lakkaraju
Chief Financial Officer
March 2, 2020
Roop K. Lakkaraju
(principal financial and accounting officer)
/s/ Bruce A. Carlson
Bruce A. Carlson
/s/ Anne De Greef-Safft
Anne De Greef-Safft
/s/ Douglas G. Duncan
Douglas G. Duncan
/s/ Robert K. Gifford
Robert K. Gifford
/s/ Kenneth T. Lamneck
Kenneth T. Lamneck
/s/ Jeffrey S. McCreary
Jeffrey S. McCreary
/s/ Merilee Raines
Merilee Raines
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
Director
March 2, 2020
88
Corporate and Shareholder Data
Executive Officers
Directors
Jeffrey W. Benck (4)
President and
Chief Executive Officer
Roop K. Lakkaraju (4)
Executive Vice President and
Chief Financial Officer
Stephen J. Beaver (4)
Vice President, General Counsel
and Secretary
Michael D. Buseman (4)
Executive Vice President
of Global Operations
Scott M. Hicar
Vice President of Business
Process Improvements and
Chief Information Officer
Jan M. Janick (4)
Chief Technology Officer
Lisa K. Weeks
Vice President of Strategy
and Investor Relations
Robert Crawford
Chief Revenue Officer
Rhonda Turner
Chief Human Resources Officer
Legal Counsel
Snell & Wilmer L.L.P.
Phoenix, Arizona
Independent Registered
Public Accountants
KPMG LLP
Houston, Texas
David W. Scheible (1) (3) (5)
Chairman of the Board
Retired Chairman and
Chief Executive Officer
Graphic Packaging
Holding Company
Bruce A. Carlson (2)
Retired General
United States Air Force
Douglas G. Duncan (2) (5)
Retired President and
Chief Executive Officer
FedEx Freight Corporation
Robert K. Gifford (3)
President and
Chief Operating Officer
BeachBody LLC
Kenneth T. Lamneck (2) (5)
President and
Chief Executive Officer
Insight Enterprises, Inc.
Jeffrey S. McCreary (3) (5)
Retired Interim President and
Chief Executive Officer
Isola Group
Merilee Raines (2)
Retired Chief Financial Officer
IDEXX Laboratories, Inc.
Jeffrey W. Benck (4)
President and
Chief Executive Officer
Benchmark Electronics, Inc.
Anne de Greef-Safft (2) (5)
Strategic Consultant
Windjammer Capital Investors
(1) Chairman of the Board
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Named Executive Officer
(5) Member of Nominating/Governance Committee
Stock Trading
The common shares of Benchmark
Electronics, Inc. trade on the New York
Stock Exchange under the symbol BHE.
Stock Transfer Agent and Registrar
Communications concerning stock transfer
requirements, lost certificates or changes of
address should be directed to:
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233
800-962-4284
SEC Form 10-K
Our annual report on Form 10-K that has
been filed with the Securities and Exchange
Commission (excluding exhibits) is included
as part of this Annual Report. A copy of
exhibits will be provided without charge
upon written request to:
Investor Relations
Benchmark Electronics, Inc.
56 S Rockford Dr
Tempe, AZ 85281
Available Information
We make available free of charge through
our internet web site (www.bench.com)
our annual report 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 Securities Exchange Act of
1934 as soon as reasonably practicable
after we electronically file them with,
or furnish them to, the Securities and
Exchange Commission.
Financial Mailing List
Shareholders whose stock is held in trust
or by a brokerage firm may receive timely
financial mailings directly from Benchmark
by writing to Investor Relations at the
above address.
Annual Meeting
Shareholders are invited to attend the
Benchmark Electronics, Inc. annual
meeting, which will be held at the
Company headquarters located 56 S.
Rockford Drive, Tempe, Arizona 85281,
on Wednesday, May 13, 2020, beginning
at 8:00 a.m. Arizona time.
Corporate Headquarters
Benchmark Electronics, Inc.
56 S Rockford Dr
Tempe, AZ 85281
USA
833-BENCH-00 (833.236.2400)
info@bench.com
www.bench.com