TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

					September 30,		December 31,							June 30,		December 31,
(in thousands, except par value)	(in thousands, except par value)					2018		2017	(in thousands, except par value)					2019		2018
							(as adjusted)
Assets	Assets								Assets
									Current assets:
	Current assets:									Cash and cash equivalents			$	396,613	$	458,102
		Cash and cash equivalents			$	475,713	$	742,546		Accounts receivable, net of allowance for doubtful accounts of $69
		Accounts receivable, net of allowance for doubtful accounts of $1,729									and $1,733, respectively			362,881		468,161
			and $105, respectively			455,971		436,560		Contract assets				155,546		140,082
		Contract assets				155,898		146,496		Inventories				316,237		309,975
		Inventories				321,194		268,917		Prepaid expenses and other assets				25,730		27,024
		Prepaid expenses and other assets				34,988		36,018		Income taxes receivable				803		206
		Income taxes receivable				38		120				Total current assets		1,257,810		1,403,550
				Total current assets		1,443,802		1,630,657	Property, plant and equipment, net of accumulated depreciation of
	Property, plant and equipment, net of accumulated depreciation of											$464,244 and $460,708, respectively		202,665		210,954
				$452,611 and $432,043, respectively		208,495		186,473	Operating lease right-of-use assets					83,985		—
	Goodwill					192,116		191,616	Goodwill					192,116		192,116
	Deferred income taxes					4,034		4,034	Deferred income taxes					2,269		2,478
	Other, net					92,324		96,524	Other, net					89,033		90,685
					$	1,940,771	$	2,109,304					$	1,827,878	$	1,899,783

Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity								Liabilities and Shareholders’ Equity
	Current liabilities:								Current liabilities:
		Current installments of long-term debt and capital lease obligations			$	4,880	$	18,274		Current installments of long-term debt			$	8,744	$	6,793
		Accounts payable				373,879		362,701		Accounts payable				372,106		422,053
		Income taxes payable				6,438		11,663		Income taxes payable				7,894		10,435
		Accrued liabilities				92,976		85,679		Accrued liabilities				98,916		97,878
				Total current liabilities		478,173		478,317				Total current liabilities		487,660		537,159
	Long-term debt and capital lease obligations, less current installments					149,341		193,406	Long-term debt, less current installments					143,115		147,277
	Other long-term liabilities					90,615		89,749	Operating lease liabilities					73,878		—
	Deferred income taxes					20,960		8,694	Other long-term liabilities					63,696		68,799
	Shareholders’ equity:								Deferred income taxes					14,479		14,323
		Preferred stock, $0.10 par value; 5,000 shares authorized, none issued				—		—	Shareholders’ equity:
		Common stock, $0.10 par value; 145,000 shares authorized; issued								Preferred stock, $5,000 shares authorized, none issued				—		—
			and outstanding – 45,130 and 49,143, respectively			4,513		4,914		Common stock, $145,000 shares authorized; issued
		Additional paid-in capital				596,110		634,192			and outstanding – 37,679 and 41,357, respectively			3,768		4,136
		Retained earnings				609,577		708,181		Additional paid-in capital				516,663		554,939
		Accumulated other comprehensive loss				(8,518)		(8,149)		Retained earnings				539,743		584,274
				Total shareholders’ equity		1,201,682		1,339,138		Accumulated other comprehensive loss				(15,124)		(11,124)
		Commitments and contingencies										Total shareholders’ equity		1,045,050		1,132,225
					$	1,940,771	$	2,109,304		Commitments and contingencies
													$	1,827,878	$	1,899,783

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss)

(unaudited)

		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
(in thousands, except per share data)	(in thousands, except per share data)		2018		2017		2018		2017	(in thousands, except per share data)		2019		2018		2019		2018
				(as adjusted)				(as adjusted)
Sales	Sales	$	640,688	$	610,929	$	1,909,415	$	1,788,443	Sales	$	601,602	$	660,591	$	1,204,422	$	1,268,727
Cost of sales	Cost of sales		587,911		552,686		1,744,021		1,623,184	Cost of sales		548,604		606,292		1,097,624		1,156,110
	Gross profit		52,777		58,243		165,394		165,259	Gross profit		52,998		54,299		106,798		112,617
Selling, general and administrative expenses	Selling, general and administrative expenses		37,607		32,093		109,182		97,079	Selling, general and administrative expenses		35,282		35,825		69,052		71,575
Amortization of intangible assets	Amortization of intangible assets		2,368		2,736		7,101		7,698	Amortization of intangible assets		2,361		2,367		4,728		4,733
Restructuring charges and other costs	Restructuring charges and other costs		1,845		2,511		5,838		5,566	Restructuring charges and other costs		3,414		1,758		4,990		3,993
	Income from operations		10,957		20,903		43,273		54,916	Income from operations		11,941		14,349		28,028		32,316
Interest expense	Interest expense		(3,822)		(2,324)		(8,543)		(6,861)	Interest expense		(1,718)		(2,293)		(3,327)		(4,721)
Interest income	Interest income		1,619		1,334		5,197		3,621	Interest income		1,053		1,645		2,350		3,578
Other income (expense)	Other income (expense)		1,139		(394)		827		(1,305)	Other income (expense)		808		(355)		2,412		(312)
	Income before income taxes		9,893		19,519		40,754		50,371	Income before income taxes		12,084		13,346		29,463		30,861
Income tax expense	Income tax expense		2,094		1,688		45,653		5,911	Income tax expense		2,637		2,403		6,243		43,559
	Net income (loss)	$	7,799	$	17,831	$	(4,899)	$	44,460	Net income (loss)	$	9,447	$	10,943	$	23,220	$	(12,698)

Earnings (loss) per share:	Earnings (loss) per share:									Earnings (loss) per share:
	Basic	$	0.17	$	0.36	$	(0.10)	$	0.89	Basic	$	0.25	$	0.23	$	0.59	$	(0.26)
	Diluted	$	0.17	$	0.35	$	(0.10)	$	0.88	Diluted	$	0.24	$	0.23	$	0.58	$	(0.26)

Weighted-average number of shares outstanding:	Weighted-average number of shares outstanding:									Weighted-average number of shares outstanding:
	Basic		46,301		49,865		47,415		49,716	Basic		38,426		47,451		39,522		47,981
	Diluted		46,455		50,330		47,415		50,292	Diluted		38,583		47,631		39,843		47,981

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

			Three Months Ended				Nine Months Ended							Three Months Ended				Six Months Ended
			September 30,				September 30,							June 30,				June 30,
(in thousands)	(in thousands)			2018		2017		2018			2017	(in thousands)			2019		2018		2019		2018
					(as adjusted)				(as adjusted)
Net income (loss)	Net income (loss)		$	7,799	$	17,831	$	(4,899)		$	44,460	Net income (loss)		$	9,447	$	10,943	$	23,220	$	(12,698)
Other comprehensive income (loss):	Other comprehensive income (loss):											Other comprehensive income (loss):
	Foreign currency translation adjustments			(249)		1,313		(1,569)			4,434	Foreign currency translation adjustments			585		(2,652)		(248)		(1,320)
	Unrealized gain on investments, net of tax			—		3		41			19	Unrealized gain on investments, net of tax			—		41		—		41
	Unrealized gain on derivative, net of tax			82		89		1,159			254	Unrealized gain (loss) on derivative, net of tax			(2,261)		244		(3,546)		1,077
	Other			—		—		—			(13)	Other			(191)		—		(206)		—
Other comprehensive income (loss)				(167)		1,405		(369)			4,694
Other comprehensive loss												Other comprehensive loss			(1,867)		(2,367)		(4,000)		(202)
		Comprehensive income (loss)	$	7,632	$	19,236	$	(5,268)		$	49,154		Comprehensive income (loss)	$	7,580	$	8,576	$	19,220	$	(12,900)

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity

(unaudited)

								Accumulated									Accumulated
			Common Stock		Additional			Other	Total			Common Stock		Additional			Other	Total
		Shares		Par	Paid-in	Retained	Comprehensive		Shareholders’		Shares		Par	Paid-in	Retained	Comprehensive		Shareholders’
(in thousands)	(in thousands)	Outstanding		Value	Capital	Earnings		Loss	Equity	(in thousands)	Outstanding		Value	Capital	Earnings		Loss	Equity

Balances, December 31, 2017 (as adjusted)			49,143	$ 4,914	$ 634,192	$ 708,181		$ (8,149)	$ 1,339,138
Balances, December 31, 2018										Balances, December 31, 2018		41,357	$ 4,136	$ 554,939	$ 584,274		$ (11,124)	$ 1,132,225
Stock-based compensation expense	Stock-based compensation expense		—	—	8,229	—		—	8,229	Stock-based compensation expense		—	—	5,720	—		—	5,720
Shares repurchased and retired	Shares repurchased and retired		(4,401)	(440)	(48,913)	(72,700)		—	(122,053)	Shares repurchased and retired		(3,908)	(391)	(43,424)	(56,224)		—	(100,039)
Stock options exercised	Stock options exercised		187	19	3,444	—		—	3,463	Stock options exercised		33	3	690	—		—	693
Vesting of restricted stock units	Vesting of restricted stock units		229	23	(23)	—		—	—	Vesting of restricted stock units		242	24	(24)	—		—	—
Shares withheld for taxes	Shares withheld for taxes		(28)	(3)	(819)	—		—	(822)	Shares withheld for taxes		(45)	(4)	(1,238)	—		—	(1,242)
Dividends declared	Dividends declared		—	—	—	(21,005)		—	(21,005)	Dividends declared		—	—	—	(11,527)		—	(11,527)
Net loss			—	—	—	(4,899)		—	(4,899)
Net income										Net income		—	—	—	23,220		—	23,220
Other comprehensive loss	Other comprehensive loss		—	—	—	—		(369)	(369)	Other comprehensive loss		—	—	—	—		(4,000)	(4,000)
Balances, September 30, 2018			45,130	$ 4,513	$ 596,110	$ 609,577		$ (8,518)	$ 1,201,682
Balances, June 30, 2019										Balances, June 30, 2019		37,679	$ 3,768	$ 516,663	$ 539,743		$ (15,124)	$ 1,045,050

Balances, March 31, 2019										Balances, March 31, 2019		39,169	$ 3,917	$ 530,261	$ 557,804		$ (13,257)	$ 1,078,725
Stock-based compensation expense										Stock-based compensation expense		—	—	2,948	—		—	2,948
Shares repurchased and retired										Shares repurchased and retired		(1,525)	(152)	(16,951)	(21,856)		—	(38,959)
Stock options exercised										Stock options exercised		20	2	412	—		—	414
Vesting of restricted stock units										Vesting of restricted stock units		15	1	(1)	—		—	—
Shares withheld for taxes										Shares withheld for taxes		—	—	(6)	—		—	(6)
Dividends declared										Dividends declared		—	—	—	(5,652)		—	(5,652)
Net income										Net income		—	—	—	9,447		—	9,447
Other comprehensive loss										Other comprehensive loss		—	—	—	—		(1,867)	(1,867)
Balances, June 30, 2019										Balances, June 30, 2019		37,679	$ 3,768	$ 516,663	$ 539,743		$ (15,124)	$ 1,045,050

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Cash Flows~~Shareholders’ Equity

(unaudited)

Nine Months Ended

September 30,
(in thousands)

2018

2017

(as adjusted)

Cash flows from operating activities:

Net income (loss)
$
(4,899)

$
44,460

Adjustments to reconcile net income (loss) to net cash provided by

(used in) operating activities:

Depreciation

29,104

27,452

Amortization

10,539

9,139

Provision for doubtful accounts

1,714

1,697

Deferred income taxes

11,863

581

Gain on the sale of property, plant and equipment

(215)

(194)

Asset impairments

96

42

Stock-based compensation expense

8,229

6,819

Changes in operating assets and liabilities, net of effects from

business acquisition:

Accounts receivable

(21,733)

29,229

Contract assets

(9,402)

(5,373)

Inventories

(54,342)

(36,747)

Prepaid expenses and other assets

2,493

(8,181)

Accounts payable

12,620

3,922

Accrued liabilities

2,170

15,637

Income taxes

(5,530)

1,407

Net cash provided by (used in) operations

(17,293)

89,890
Cash flows from investing activities:

Proceeds from sales of investments at par

522

250

Additions to property, plant and equipment

(50,437)

(35,033)

Proceeds from the sale of property, plant and equipment

237

270

Additions to purchased software

(2,496)

(2,703)

Business acquisition, net of cash acquired

(2,731)

—

Other

(130)

(156)

Net cash used in investing activities

(55,035)

(37,372)
Cash flows from financing activities:

Proceeds from stock options exercised

3,463

9,828

Employee taxes paid for shares withheld

(822)

(383)

Dividends paid

(14,235)

—

Borrowings under credit agreement

50,000

—

Principal payments on long-term debt and capital lease obligations

(107,758)

(9,288)

Share repurchases

(122,053)

(5,887)

Debt issuance costs

(2,303)

(433)

Net cash used in financing activities

(193,708)

(6,163)
Effect of exchange rate changes

(797)

2,358
Net increase (decrease) in cash and cash equivalents

(266,833)

48,713

Cash and cash equivalents at beginning of year

742,546

681,433

Cash and cash equivalents at end of period
$
475,713

$
730,146

							Accumulated
		Common Stock		Additional			Other	Total
	Shares		Par	Paid-in	Retained	Comprehensive		Shareholders’
(in thousands)	Outstanding		Value	Capital	Earnings		Loss	Equity

Balances, December 31, 2017		49,143	$ 4,914	$ 634,192	$ 708,181		$ (8,149)	$ 1,339,138
Stock-based compensation expense		—	—	5,405	—		—	5,405
Shares repurchased and retired		(2,174)	(217)	(34,183)	(41,468)		—	(75,868)
Stock options exercised		182	18	3,359	—		—	3,377
Vesting of restricted stock units		209	21	(21)	—		—	—
Shares withheld for taxes		(26)	(3)	(768)	—		—	(771)
Dividends declared		—	—	—	(14,236)		—	(14,236)
Net loss		—	—	—	(12,698)		—	(12,698)
Other comprehensive loss		—	—	—	—		(202)	(202)
Balances, June 30, 2018		47,334	$ 4,733	$ 607,984	$ 639,779		$ (8,351)	$ 1,244,145

Balances, March 31, 2018		47,572	$ 4,757	$ 608,092	$ 640,466		$ (5,984)	$ 1,247,331
Stock-based compensation expense		—	—	2,535	—		—	2,535
Shares repurchased and retired		(263)	(26)	(2,931)	(4,530)		—	(7,487)
Stock options exercised		14	1	297	—		—	298
Vesting of restricted stock units		11	1	(1)	—		—	—
Shares withheld for taxes		—	—	(8)	—		—	(8)
Dividends declared		—	—	—	(7,100)		—	(7,100)
Net income		—	—	—	10,943		—	10,943
Other comprehensive loss		—	—	—	—		(2,367)	(2,367)
Balances, June 30, 2018		47,334	$ 4,733	$ 607,984	$ 639,779		$ (8,351)	$ 1,244,145

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

Six Months Ended

June 30,
(in thousands)

2019

2018

Cash flows from operating activities:

Net income (loss)
$
23,220

$
(12,698)

Adjustments to reconcile net income (loss) to net cash provided by

operating activities:

Depreciation

18,420

19,373

Amortization

5,705

5,710

Provision for doubtful accounts

(1,462)

—

Deferred income taxes

1,555

10,936

Gain on the sale of property, plant and equipment

(25)

(116)

Asset impairments

834

96

Stock-based compensation expense

5,720

5,405

Leases

574

—

Changes in operating assets and liabilities:

Accounts receivable

106,749

(8,980)

Contract assets

(15,464)

(1,735)

Inventories

(6,327)

(52,063)

Prepaid expenses and other assets

1,559

1,966

Accounts payable

(49,428)

23,103

Accrued liabilities

(13,243)

(16,025)

Income taxes

(9,615)

8,846

Net cash provided by (used in) operations

68,772

(16,182)
Cash flows from investing activities:

Proceeds from sales of investments at par

50

522

Additions to property, plant and equipment

(14,163)

(36,708)

Proceeds from the sale of property, plant and equipment

28

137

Additions to purchased software

(1,332)

(1,655)

Business acquisition, net of cash acquired

—

(2,731)

Other

(29)

(129)

Net cash used in investing activities

(15,446)

(40,564)
Cash flows from financing activities:

Proceeds from stock options exercised

693

3,377

Employee taxes paid for shares withheld

(1,242)

(771)

Dividends paid

(12,079)

(7,136)

Borrowings under credit agreement

—

50,000

Principal payments on long-term debt

(2,441)

(59,121)

Share repurchases

(100,039)

(65,868)

Equity forward contract related to accelerated share repurchase

—

(10,000)

Net cash used in financing activities

(115,108)

(89,519)
Effect of exchange rate changes

293

(642)
Net decrease in cash and cash equivalents

(61,489)

(146,907)

Cash and cash equivalents at beginning of year

458,102

742,546

Cash and cash equivalents at end of period
$
396,613

$
595,639

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(amounts in thousands,except per share data, unless otherwise noted)

(unaudited)

Note 1 – Basis of Presentation

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, ~~test and instrumentation,~~semiconductor capital equipment (Semi-Cap), next-generation telecommunications and ~~high-end~~advanced computing. The Company has manufacturing operations located in the United States and Mexico (the Americas), Asia and Europe.

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The financial statements reflect all normal and recurring adjustments necessary in the opinion of management for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form ~~10‑K~~10-K for the year ended December 31, ~~2017~~2018 (the ~~2017~~2018 10-K).

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Actual results could differ from those estimates and assumptions.

Note 2 – New Accounting Pronouncements

Adopted in ~~2018~~2019

In ~~May 2017,~~February 2016, the Financial Accounting Standards Board (FASB)issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), amended by ASU 2018-01, Land Easement Practical Expedient for Transition to ASU 842, ASU No. 2018-10, Codification Improvements to ASU 842 and ASU No. 2018-11, Targeted Improvements. The new standard established a ~~new accounting standards update~~right-to-use model (ROU) that ~~provides guidance about which changes~~requires a lessee to ~~the terms or conditions of~~recognize a ~~share-based payment award require an entity to apply modification accounting. The Company adopted the new guidance effective January 1, 2018. The impact of adoption~~ROU asset and lease liability on the ~~Company's consolidated financial statements is dependent on future changes to stock-based compensation awards.~~balance sheet for all leases with a term longer than 12 months.

In August 2016, the FASB issued a new accounting standards update, which seeks to reduce the existing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this ~~new update~~standard on its effective ~~January 1, 2018. The adoption of this guidance had no impact on the consolidated financial statements of the Company.~~

In May 2014, the FASB issued a new standard (commonly referred to as ASC 606), which changed the way the Company recognizes revenue and significantly expanded the disclosure requirements for revenue arrangements. The Company adopted ASC 606 with a date ~~of the initial application~~ of January 1, ~~2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed below.~~

~~The Company applied ASC 606~~2019 using the ~~full~~effective date as its date of initial application under the modified retrospective ~~transition method. The Company~~approach. Therefore, financial information for prior periods were not restated. Management elected the ~~ASC 606~~package of practical ~~expedient and does not disclose the information about remaining performance obligations~~expedients in transition for leases that ~~have original expected durations of one year or less. Amounts~~commenced prior to January 1, ~~2018 that have been adjusted in accordance with ASC 606 as described herein are noted “as adjusted”.~~

~~Previously,~~2019, which permits the Company ~~recognized revenue from~~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 sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership passed, the price to the buyer was fixed or determinable and recoverability was reasonably assured, which was generally when the goods were shipped. Under ASC 606, the Company recognizes revenue as the customer takes control of the products. Under the majorityshort-term lease recognition exemption for all of the Company’s ~~manufacturing contracts with customers,~~leases that qualify, in addition to the ~~customer controls all of the work-in-progress as products~~practical expedient to not separate lease and nonlease components.

Lease assets and liabilities are ~~being built. Revenues under these contracts are~~initially recognized ~~progressively~~ based on the ~~cost-to-cost method. Accordingly,~~present value of lease payments over the ~~Company will recognize revenue under these contracts earlier than under~~lease term calculated using our incremental borrowing rate, unless the ~~previous accounting rules. Under other manufacturing contracts,~~implicit rate is readily determinable. Lease assets also include any upfront lease payments made and exclude lease incentives. Lease terms include options to extend or terminate the ~~customer does not take control of the product until~~lease when it is ~~completed. Under these contracts,~~reasonably certain that those options will be exercised. Leases are classified as finance or operating, with classification affecting the ~~Company continues to recognize revenue upon transfer~~pattern and

classification of ~~control of product to the customer. Revenue from design, development and engineering services also continues to be 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 componentsexpense recognition in the ~~contracts.~~income statement. See Note 19.

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.

~~The following tables summarize the impacts of ASC 606 adoption on the Company’s 2017 consolidated financial statements.~~

Condensed Consolidated Balance Sheet
December 31, 2017

Impact of changes in accounting policies

As previously

(in thousands)

reported

Adjustments

As adjusted

Contract assets
$
—

$
146,496

$
146,496

Inventories

397,181

(128,264)

268,917

Prepaid expenses and other assets

42,263

(6,245)

36,018

Total assets
$
2,097,317

$
11,987

$
2,109,304

Income taxes payable
$
11,662

$
1

$
11,663

Deferred income taxes

7,027

1,667

8,694

Total liabilities

768,498

1,668

770,166

Retained earnings

697,862

10,319

708,181

Total shareholders’ equity

1,328,819

10,319

1,339,138

Total liabilities and shareholders’ equity
$
2,097,317

$
11,987

$
2,109,304

Condensed Consolidated Statement of Income
Three Months Ended September 30, 2017

Impact of changes in accounting policies

As previously

(in thousands, except per share data)

reported

Adjustments

As adjusted

Sales
$
603,550

$
7,379

$
610,929
Cost of sales
$
545,395

$
7,291

$
552,686
Income tax expense
$
1,919

$
(231)

$
1,688
Net income
$
17,512

$
319

$
17,831

Earnings per share:

Basic
$
0.35

$
0.01

$
0.36

Diluted
$
0.35

$
—

$
0.35

Weighted-average number of shares outstanding:

Basic

49,865

49,865

49,865

Diluted

50,330

50,330

50,330

Condensed Consolidated Statement of Income
Nine Months Ended September 30, 2017

Impact of changes in accounting policies

As previously

(in thousands, except per share data)

reported

Adjustments

As adjusted

Sales
$
1,786,955

$
1,488

$
1,788,443
Cost of sales
$
1,621,153

$
2,031

$
1,623,184
Income tax expense
$
6,539

$
(628)

$
5,911
Net income
$
44,375

$
85

$
44,460

Earnings per share:

Basic
$
0.89

$
—

$
0.89

Diluted
$
0.88

$
—

$
0.88

Weighted-average number of shares outstanding:

Basic

49,716

49,716

49,716

Diluted

50,292

50,292

50,292

Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2017

Impact of changes in accounting policies

As previously

(in thousands)

reported

Adjustments

As adjusted

Net income
$
44,375

$
85

$
44,460

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation

27,452

—

27,452

Amortization

9,139

—

9,139

Provision for doubtful accounts

1,697

—

1,697

Deferred income taxes

1,505

(924)

581

Gain on the sale of property, plant and equipment

(194)

—

(194)

Asset impairments

42

—

42

Stock-based compensation expense

6,819

—

6,819

Changes in operating assets and liabilities:

Accounts receivable

29,229

—

29,229

Contract assets

—

(5,373)

(5,373)

Inventories

(38,778)

2,031

(36,747)

Prepaid expenses and other assets

(12,066)

3,885

(8,181)

Accounts payable

3,922

—

3,922

Accrued liabilities

15,637

—

15,637

Income taxes

1,111

296

1,407

Net cash provided by operations

89,890

—

89,890

Net cash used in investing activities

(37,372)

—

(37,372)

Net cash used in financing activities

(6,163)

—

(6,163)

Effect of exchange rate changes

2,358

—

2,358

Net increase in cash and cash equivalents

48,713

—

48,713

Cash and cash equivalents at beginning of year

681,433

—

681,433

Cash and cash equivalents at end of period
$
730,146

$
—

$
730,146

Not Yet Adopted

In February 2018, the FASB issued optional new accounting guidance that allows the reclassification of certain tax effects from accumulated other comprehensive income to retained earnings. This guidance is effective January 1, 2019, with early adoption permitted. The Company is evaluating whether it will adopt this new guidance along with any impacts on the Company’s financial position, results of operations and cash flows, none of which are expected to be material.

In June 2016, the FASB issued ~~a new~~an accounting standards update, 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;~~flows, and will adopt this update effective January 1, 2020.

In February 2016, the FASB issued a new accounting standards update changing the accounting for leases, including a requirement to record all leases on the consolidated balance sheets as assets (right-of-use) and

liabilities (for reasonably certain lease payments). This update is effective for fiscal years beginning after December 15, 2018. The Company will adopt this update effective January 1, 2019, which will impact its consolidated balance sheet. Originally, entities were required to adopt this update using a modified retrospective approach, which required prior periods to be presented under this new standard with various practical expedients allowed. However, in July 2018, the FASB issued additional guidance which allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption (January 1, 2019). The Company is currently evaluating the impact this standard will have on its consolidated financial statements and which transition approach will be used upon adoption.

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 3 – 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 ~~excess~~other inventory.

Revenue is measured based on a 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 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.

108

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.


			Reportable Operating Segments									Reportable Operating Segments
			Three Months Ended September 30, 2018									Three Months Ended June 30, 2019
(in thousands)	(in thousands)		Americas		Asia		Europe		Total	(in thousands)		Americas		Asia		Europe		Total
Market Sector:	Market Sector:									Market Sector:
	Industrials	$	45,334	$	67,969	$	15,001	$	128,304	Industrials	$	43,618	$	51,645	$	19,401	$	114,664
	A&D		97,141		—		7,847		104,988	A&D		98,523		—		8,442		106,965
	Medical		58,725		34,404		3,171		96,300	Medical		67,962		41,446		4,779		114,187
	Test and instrumentation		32,016		30,494		14,098		76,608	Semi-Cap		26,139		23,726		12,585		62,450
	Computing		125,110		18,018		2,258		145,386	Computing		119,907		12,731		52		132,690
	Telecommunication		37,846		50,716		540		89,102	Telecommunication		34,855		35,375		416		70,646
	External revenue		396,172		201,601		42,915		640,688	External revenue		391,004		164,923		45,675		601,602
	Elimination of intersegment sales		7,965		8,552		139		16,656	Elimination of intersegment sales		13,158		9,247		223		22,628
	Segment revenue	$	404,137	$	210,153	$	43,054	$	657,344	Segment revenue	$	404,162	$	174,170	$	45,898	$	624,230

			Nine Months Ended September 30, 2018									Six Months Ended June 30, 2019
			Americas		Asia		Europe		Total			Americas		Asia		Europe		Total
Market Sector:	Market Sector:									Market Sector:
	Industrials	$	141,966	$	180,195	$	49,887	$	372,048	Industrials	$	86,386	$	107,227	$	37,424	$	231,037
	A&D		278,191		—		23,093		301,284	A&D		194,860		—		15,994		210,854
	Medical		173,192		106,769		10,142		290,103	Medical		126,374		81,904		9,387		217,665
	Test and instrumentation		125,603		111,280		48,393		285,276	Semi-Cap		54,538		48,469		25,464		128,471
	Computing		352,747		50,446		6,368		409,561	Computing		230,174		26,741		85		257,000
	Telecommunication		123,386		125,708		2,049		251,143	Telecommunication		77,629		80,631		1,135		159,395
	External revenue		1,195,085		574,398		139,932		1,909,415	External revenue		769,961		344,972		89,489		1,204,422
	Elimination of intersegment sales		22,115		28,505		273		50,893	Elimination of intersegment sales		26,259		16,607		369		43,235
	Segment revenue	$	1,217,200	$	602,903	$	140,205	$	1,960,308	Segment revenue	$	796,220	$	361,579	$	89,858	$	1,247,657


			Reportable Operating Segments									Reportable Operating Segments
			Three Months Ended September 30, 2017 (as adjusted)									Three Months Ended June 30, 2018
(in thousands)	(in thousands)		Americas		Asia		Europe		Total	(in thousands)		Americas		Asia		Europe		Total
Market Sector:	Market Sector:									Market Sector:
	Industrials	$	50,644	$	58,488	$	16,809	$	125,941	Industrials	$	43,948	$	57,437	$	16,711	$	118,096
	A&D		89,261		871		6,163		96,295	A&D		93,254		—		6,923		100,177
	Medical		55,162		41,716		5,178		102,056	Medical		59,476		34,101		3,152		96,729
	Test and instrumentation		42,587		34,071		12,454		89,112	Semi-Cap		47,556		41,552		17,185		106,293
	Computing		96,688		26,257		2,396		125,341	Computing		141,417		17,528		1,692		160,637
	Telecommunication		37,555		33,857		772		72,184	Telecommunication		41,147		36,907		605		78,659
	External revenue		371,897		195,260		43,772		610,929	External revenue		426,798		187,525		46,268		660,591
	Elimination of intersegment sales		7,520		12,947		54		20,521	Elimination of intersegment sales		7,480		10,103		87		17,670
	Segment revenue	$	379,417	$	208,207	$	43,826	$	631,450	Segment revenue	$	434,278	$	197,628	$	46,355	$	678,261

			Nine Months Ended September 30, 2017 (as adjusted)									Six Months Ended June 30, 2018
			Americas		Asia		Europe		Total			Americas		Asia		Europe		Total
Market Sector:
	Industrials	$	160,794	$	156,373	$	50,714	$	367,881
	A&D		275,717		1,920		18,638		296,275
	Medical		150,902		108,015		14,899		273,816
	Test and instrumentation		113,007		107,420		33,251		253,678
	Computing		291,048		68,989		7,794		367,831
	Telecommunication		130,708		96,243		2,011		228,962
	External revenue		1,122,176		538,960		127,307		1,788,443
	Elimination of intersegment sales		23,995		43,031		173		67,199
	Segment revenue	$	1,146,171	$	581,991	$	127,480	$	1,855,642

119

Market Sector:
	Industrials	$	96,635	$	112,224	$	34,885	$	243,744
	A&D		181,049		—		15,247		196,296
	Medical		114,468		72,364		6,971		193,803
	Semi-Cap		93,586		80,785		34,297		208,668
	Computing		227,638		32,428		4,109		264,175
	Telecommunication		85,541		74,992		1,508		162,041
	External revenue		798,917		372,793		97,017		1,268,727
	Elimination of intersegment sales		14,146		19,957		134		34,237
	Segment revenue	$	813,063	$	392,750	$	97,151	$	1,302,964

For ~~both~~ the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, 92% and ~~2017, 93%~~95%, respectively, of the Company’s revenue was recognized as products and services ~~are~~ transferred over time.

Note 4 – Stock-Based Compensation

The Company’s 2019 Omnibus Incentive Compensation Plan (the 2019 Plan) was approved by shareholders on May 15, 2019 and replaced the Company’s 2010 Omnibus Incentive Compensation Plan (the 2010 Plan). The 2010 Plan terminated upon shareholder approval of the 2019 Plan and no further awards will be granted under the 2010 Plan. The 2010 Plan will continue to govern awards previously granted under the 2010 Plan. The Company’s 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~~share awards 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~~4-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~~4-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~~3-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 2010 Plan to non-employee directors were in the form of restricted stock units, which vested in equal quarterly installments over a 1-year period, starting on the grant date. Awards under the 2019 Plan to non-employee directors have been in the form of restricted stock units, which vest ~~in equal quarterly installments over a~~ one-year ~~period, starting on~~from the grant ~~date~~.date.

As of ~~September~~June 30, ~~2018~~2019, ~~2.7~~3.2 million additional shares of common stock were available for issuance under the Company’s ~~2010~~2019 Plan.

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. The total compensation cost recognized for stock-based awards was ~~$2.8~~ $2.9 million and ~~$8.2~~$5.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, and ~~$2.3~~$2.5 million and ~~$6.8~~$5.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. The total income tax benefit recognized in the condensed income statements for stock-based awards was $0.7 million and ~~$2.0~~$1.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, and ~~$0.8~~$0.6 million and ~~$2.5~~$1.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. The compensation expense for stock-based awards is recognized over the vesting period of the awards using the straight-line method. 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 ~~September~~June 30, ~~2018,~~2019, the unrecognized compensation cost and remaining weighted-average amortization related to stock-based awards were as follows:

Performance-

Time-based

based

Restricted

Restricted

Stock

Stock

Stock
(in thousands, except remaining period data)

Options

Units

Units⁽¹⁾
Unrecognized compensation cost

$ 112

$ 15,143

$ 4,315
Remaining weighted-average

amortization period

0.4 years

2.4 years

1.4 years

⁽¹⁾ Based on the probable achievement of the performance goals identified in each award.

		Performance-
	Time-based	based
	Restricted	Restricted
	Stock	Stock
(in thousands, except remaining period data)	Units	Units⁽¹⁾
Unrecognized compensation cost	$ 23,128	$ 5,925
Remaining weighted-average
amortization period	2.7 years	1.8 years

⁽¹⁾ Based on the probable achievement of the performance goals identified in each award.

The total cash received by the Company as a result of stock option exercises for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was approximately ~~$3.5~~$0.7 million and ~~$9.8~~$3.4 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 ~~and 2017~~ was ~~$2.1~~$1.6 million and ~~$4.4~~$1.9 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, the total intrinsic value of stock options exercised was $0.2 million and $2.2 million, ~~and $6.5 million,~~ respectively.

The Company awarded performance-based restricted stock units to employees during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018. 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 growth, operating margin expansion, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for issuance under the Company’s ~~2010~~2019 Plan.

The following table summarizes activities relating to the Company’s stock options:

Weighted-

Weighted-

Average

Aggregate

Number of

Average

Remaining

Intrinsic

Options

Exercise

Contractual

Value

(in thousands)

Price

Term (Years)

(in thousands)
Outstanding as of December 31, 2017

596

$19.72

Exercised

(187)

18.61

Forfeited or expired

(20)

22.98

Outstanding as of September 30, 2018

389

$20.09

4.48

$ 1,288
Exercisable as of September 30, 2018

354

$19.78

3.51

$ 1,279

			Weighted-
		Weighted-	Average	Aggregate
	Number of	Average	Remaining	Intrinsic
	Options	Exercise	Contractual	Value
	(in thousands)	Price	Term (Years)	(in thousands)
Outstanding as of December 31, 2018	374	$20.35
Exercised	(40)	22.03
Forfeited or expired	(2)	23.07
Outstanding as of June 30, 2019	332	$20.13	3.76	$ 1,657
Exercisable as of June 30, 2019	332	$20.13	3.76	$ 1,657

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 the period ended ~~September~~June 30, ~~2018~~2019 for options that had exercise prices that were below the closing price.

As of June 30, 2019 and December 31, 2018, the Company had no restricted shares outstanding. Restricted stock units, time-based and performance-based, remain outstanding as detailed below.

The following table summarizes the activities related to the Company’s time-based restricted stock units:

		Weighted-		Weighted-
	Number of	Average	Number of	Average
	Units	Grant Date	Units	Grant Date
	(in thousands)	Fair Value	(in thousands)	Fair Value
Non-vested units outstanding as of December 31, 2017	593	$27.47
Non-vested awards outstanding as of December 31, 2018			595	$28.93
Granted	402	29.52	585	27.41
Vested	(229)	26.79	(185)	27.74
Forfeited	(86)	27.35	(44)	29.51
Non-vested units outstanding as of September 30, 2018	680	$28.93
Non-vested awards outstanding as of June 30, 2019			951	$28.19

The following table summarizes the activities related to the Company’s performance-based restricted stock units:

		Weighted-		Weighted-
	Number of	Average	Number of	Average
	Units	Grant Date	Units	Grant Date
	(in thousands)	Fair Value	(in thousands)	Fair Value
Non-vested units outstanding as of December 31, 2017	346	$26.88
Non-vested awards outstanding as of December 31, 2018			319	$29.19
Granted ⁽¹⁾	120	29.60	188	27.51
Vested			(57)	31.40
Forfeited	(147)	24.06	(74)	21.01
Non-vested units outstanding as of September 30, 2018	319	$29.19
Non-vested awards outstanding as of June 30, 2019			376	$28.96

⁽¹⁾Represents target number of units that can vest based on the achievement of the performance goals.

1412

Note 5 – Earnings Per Share

Basic earnings per share is computed using the weighted-average number of shares outstanding. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for the incremental shares attributed to outstanding stock equivalents. Stock equivalents include common stock 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 and 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.

The following table sets forth the calculation of basic and diluted earnings per share:

Three Months Ended

Nine Months Ended

September 30,

September 30,
(in thousands, except per share data)

2018

2017

2018

2017

(as adjusted)

(as adjusted)
Net income (loss)

$
7,799

$
17,831

$
(4,899)

$
44,460

Denominator for basic earnings per share -

weighted-average number of common

shares outstanding during the period

46,301

49,865

47,415

49,716
Incremental common shares attributable to

exercise of dilutive options

90

268

—

319
Incremental common shares attributable

.

to outstanding restricted stock units

64

197

—

257
Denominator for diluted earnings per share

46,455

50,330

47,415

50,292

Basic earnings (loss) per share

$
0.17

$
0.36

$
(0.10)

$
0.89
Diluted earnings (loss) per share

$
0.17

$
0.35

$
(0.10)

$
0.88

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(in thousands, except per share data)			2019		2018		2019		2018

Net income (loss)		$	9,447	$	10,943	$	23,220	$	(12,698)

Denominator for basic earnings per share -
	weighted-average number of common
	shares outstanding during the period		38,426		47,451		39,522		47,981
Incremental common shares attributable to
	exercise of dilutive options		74		116		75		—
Incremental common shares attributable					.
	to outstanding restricted stock units		83		64		246		—
Denominator for diluted earnings per share			38,583		47,631		39,843		47,981

Basic earnings (loss) per share		$	0.25	$	0.23	$	0.59	$	(0.26)
Diluted earnings (loss) per share		$	0.24	$	0.23	$	0.58	$	(0.26)

Restricted stock units totaling 0.4 million and 0.1 million shares, respectively, for the three and six months ended June 30, 2019 were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. Potentially dilutive securities totaling 0.3 million common shares for the ~~nine~~six months ended ~~September~~June 30, 2018 were not included in the computation of diluted loss per share because their effect would have decreased the loss per share.

Note 6 – Goodwill and Other Intangible Assets

Goodwill allocated to the Company’s reportable segments was as follows:

(in thousands)

Americas

Asia

Total
Goodwill as of December 31, 2017
$
153,514
$
38,102
$
191,616
Acquisition

500

—

500
Goodwill as of September 30, 2018
$
154,014
$
38,102
$
192,116

During the nine months ended September 30, 2018, the Company completed a non-significant business acquisition for $2.7 million. The preliminary 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.~~The final allocation of the purchase price, which the Company expects to complete no later than one year from the acquisition date, may differ from the amounts included in these financial statements.~~

(in thousands)		Americas		Asia		Total
Goodwill as of December 31, 2018 and June 30, 2019	$	154,014	$	38,102	$	192,116

1513

Management does not expect additional adjustments, if any, resulting from changes to the purchase price allocation, to have a material effect on the Company’s financial position or results of operations.

Other assets consist primarily of acquired identifiable intangible assets and capitalized purchased software costs. Intangible assets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:

		As of September 30, 2018						As of June 30, 2019
		Gross				Net		Gross				Net
		Carrying	Accumulated			Carrying		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount		Amount	Amortization			Amount
Customer relationships	$	100,162	$	(39,091)	$	61,071	$	100,138	$	(43,825)	$	56,313
Purchased software costs		37,645		(30,268)		7,377		40,399		(31,371)		9,028
Technology licenses		28,800		(20,214)		8,586		28,800		(22,550)		6,250
Trade names and trademarks		7,800		—		7,800		7,800		—		7,800
Other		868		(279)		589		868		(297)		571
Total	$	175,275	$	(89,852)	$	85,423	$	178,005	$	(98,043)	$	79,962

		As of December 31, 2017						As of December 31, 2018
		Gross				Net		Gross				Net
		Carrying	Accumulated			Carrying		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount		Amount	Amortization			Amount
Customer relationships	$	100,200	$	(34,372)	$	65,828	$	100,146	$	(40,661)	$	59,485
Purchased software costs		35,328		(29,612)		5,716		39,069		(30,626)		8,443
Technology licenses		28,800		(17,887)		10,913		28,800		(21,006)		7,794
Trade names and trademarks		7,800		—		7,800		7,800		—		7,800
Other		868		(261)		607		868		(285)		583
Total	$	172,996	$	(82,132)	$	90,864	$	176,683	$	(92,578)	$	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 ~~being~~ amortized ~~on a~~ straight-line ~~basis~~ 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. The Company’s acquired trade names and trademarks have been determined to have an indefinite life. Amortization on the statements of cash flow for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:

	Nine Months Ended				Six Months Ended
	September 30,				June 30,
(in thousands)		2018		2017		2019		2018
Amortization of intangible assets	$	7,101	$	7,698	$	4,728	$	4,733
Amortization of capitalized purchased software costs		836		798		747		540
Amortization of debt costs		2,602		643		230		437
	$	10,539	$	9,139	$	5,705	$	5,710

1614

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,		Amount		Amount
2018 (remaining three months)	$	2,688
2019		10,653
2019 (remaining six months)			$	5,733
2020		9,912		10,706
2021		6,868		7,699
2022		6,762		7,621
2023				6,463

Note 7 – Borrowing Facilities

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~~5-year $500 million revolving credit facility (the Revolving Credit Facility) and a ~~five-year~~5-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~~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 ~~September~~June 30, ~~2018, $145.5~~2019, $148.1 million of the outstanding debt under the Credit Agreement is effectively at a fixed interest rate as a result of a ~~$145.5~~$148.1 million notional interest rate swap contract discussed in Note 16. 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

~~September~~June 30, ~~2018,~~2019, the Company was in compliance with all of these covenants and restrictions.

As of ~~September~~June 30, ~~2018,~~2019, the Company had ~~$150.0~~$148.1 million in borrowings outstanding under the Term Loan ~~facility~~Facility and ~~$2.8~~$3.0 million in letters of credit outstanding under the Revolving Credit Facility. The Company had ~~$497.2~~$497.0 million available for future borrowings under the Revolving Credit Facility.

The Company’s Thailand subsidiary has a multi-purpose credit facility with Kasikornbank Public Company Limited (the Thai Credit Facility) that provides for 350 million Thai baht (approximately ~~$10.8~~$11.4 million) working capital availability. The Thai Credit Facility is secured by land and buildings in Thailand owned by the Company’s Thailand subsidiary. Availability of funds under the Thai Credit Facility is reviewed annually and is currently accessible through October ~~2019.~~2020. As of both ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no working capital borrowings outstanding under the facility.

Note 8 – Contract Assets

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had ~~$155.9~~$155.5 million and ~~$146.5~~$140.1 million, respectively, in contract receivables from contracts with customers. The contract receivables primarily relate to the Company’s right to consideration for work completed but not billed at the reporting date. The contract receivables are transferred to accounts receivable when the rights become unconditional.

Significant changes in the contract asset balance during the period are as follows:

	Nine Months Ended				Six Months Ended
	September 30,				June 30,
(in thousands)		2018		2017		2019		2018
Beginning balance as of December 31, 2017	$	146,496	$	156,206
Beginning balance as of December 31,					$	140,082	$	146,496
Revenue recognized		1,774,620		1,667,090		1,109,396		1,179,105
Amounts collected or invoiced		(1,765,218)		(1,661,717)	(1,093,932)		(1,177,370)
Ending balance as of September 30, 2018	$	155,898	$	161,579
Ending balance as of June 30,					$	155,546	$	148,231

Note 9 – Inventories	Note 9 – Inventories				Note 9 – Inventories
Inventory costs are summarized as follows:	Inventory costs are summarized as follows:				Inventory costs are summarized as follows:
	September 30,		December 31,			June 30,	December 31,
(in thousands)		2018		2017		2019		2018
			(as adjusted)
Raw materials	$	311,190	$	258,228	$	305,235	$	300,439
Work in process		7,985		8,600		6,631		7,321
Finished goods		2,019		2,089		4,371		2,215
	$	321,194	$	268,917	$	316,237	$	309,975

Note 10 – Accounts Receivable Sale Program

As of ~~September~~June 30, ~~2018,~~2019, in connection with atwo trade accounts receivable sale ~~program~~programs with an unaffiliated financial ~~institution,~~institutions, the Company may elect to sell, at a discount, on an ongoing basis, up to a maximum of ~~$80.0~~$120.0 million of specific accounts receivable at any one time.

During ~~each of~~ the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, the Company sold $40.0 million of accounts receivable under this program, and in exchange, the Company received cash proceeds of $39.9 million, net of the discount. During the nine months ended September 30, 2018 and 2017, the Company sold $120.0$77.7 million and ~~$105.0~~$40.0 million, respectively, of accounts receivable under this program, and in exchange, the Company received cash proceeds of ~~$119.7~~$77.4 million and ~~$104.8~~$39.9 million, respectively, net of the discount. During the six months ended June 30, 2019 and 2018, the Company sold $130.6 million and $80.0 million, respectively, of accounts receivable under this program, and in exchange, the Company received cash proceeds of $130.2 million

1816

and $79.8 million, respectively, net of the discount. The loss on the sale resulting from the discount was recorded to other expense within the Condensed Consolidated Statements of Income.

Note 11 – Income Taxes
Income tax expense consists of the following:

Nine Months Ended

September 30,
(in thousands)

2018

2017

(as adjusted)
Federal – current
$
223

$
(984)
Foreign – current

25,894

6,039
State – current

7,673

275
Deferred

11,863

581

$
45,653

$
5,911

Note 11 – Income Taxes
Income tax expense consists of the following:
	Six Months Ended
	June 30,
(in thousands)		2019		2018

Federal – current	$	62	$	(81)
Foreign – current		3,747		24,992
State – current		879		7,712
Deferred		1,555		10,936
	$	6,243	$	43,559

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 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.~~

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. Under~~provision that requires the ~~GILTI provision, certain~~Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign ~~subsidiary’s depreciable~~subsidiaries tangible ~~assets are included in U.S.~~assets. The taxable ~~income~~earnings can be offset by a limited deemed paid foreign tax ~~credit.~~credit with no carrybacks or carryforwards available. The Company is subject to the GILTI ~~provisions due~~provisions. The Company elected to ~~its operations~~account for the GILTI as a period cost and include the effect in ~~foreign jurisdictions.~~the period in which it is incurred and not include it as a factor in the determination of deferred taxes.

As of December 31, ~~2017,~~2018, the Company had approximately ~~$928~~$330 million in cumulative undistributed foreign earnings ~~outside the U.S. Substantially all~~ of ~~these undistributed~~its foreign subsidiaries. These earnings ~~are~~would not be subject to ~~the~~ U.S. ~~mandatory repatriation~~income tax, ~~and are eligible to be repatriated~~if distributed to the ~~U.S. without additional U.S. tax under the U.S. Tax Reform.~~Company. The Company has ~~historically asserted~~changed its ~~intention to indefinitely reinvest undistributed~~assertion on its foreign ~~earnings. The Company no longer considers these~~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 ~~indefinitely~~non-permanently reinvested ~~in its~~and is available for immediate distribution to the Company. Income taxes have been accrued on the non-permanently reinvested foreign ~~subsidiaries.~~earnings including the 2017 Transition Tax, the U.S. tax on GILTI, and any applicable local withholding taxes. As a result of this change in assertion for undistributed earnings prior to December 31, 2017, the Company recorded $30.7 million of deferred tax expense for foreign withholding tax from Asia and $9.4 million of deferred U.S. state income tax expense in the first three months of 2018. During the nine months ended September 30, 2018, the Company repatriated $522.0 million of foreign earnings to the U.S. For future undistributed earnings earned after December 31, 2017, the Company intends to indefinitely reinvest certain future undistributed foreign earnings from certain jurisdictions, and repatriate future earnings from other specific jurisdictions as part of its foreign cash management strategy around the world.

Excluding the impact of these items, income tax expense differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes primarily due to the mix of taxable income by taxing jurisdiction, the impact of tax incentives and tax holidays in foreign locations, state income taxes (net of federal benefit) and the U.S. tax under GILTI.

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 the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 by approximately ~~$8.2~~$3.0 million (approximately ~~$0.17~~$0.08 per ~~diluted share)~~dilutedshare) and ~~$7.3~~$6.6 million (approximately ~~$0.15~~$0.14 per diluted share), respectively, as follows:

	Six Months Ended
	June 30,
(in thousands)		2019		2018
China	$	—	$	969
Malaysia		1,486		2,551
Thailand		1,542		3,070
	$	3,028	$	6,590

Nine Months Ended

September 30,
(in thousands)

2018

2017
China
$
1,449

$
888
Malaysia

3,219

3,151
Thailand

3,579

3,294

$
8,247

$
7,333

The Company’s Chinese subsidiary had a tax incentive that expired in 2018 and has submitted an application for a new tax incentive in China during the third quarter of 2019.

As of ~~September~~June 30, ~~2018,~~2019, the total amount of the reserve for uncertain tax benefits including interest and penalties was ~~$0.3~~$0.4 million. The reserve is classified as a current or long-term liability in the condensed consolidated balance sheets based on the Company’s expectation of when the items will be settled. The Company records interest expense and penalties accrued in relation to uncertain income tax benefits as a component of current income tax expense. The amount of accrued potential interest and penalties on unrecognized tax benefits included in the reserve as of ~~September~~June 30, ~~2018,~~2019 was $47.0 thousand. There was no reserve for potential penalties. During the nine months ended September 30, 2018, the Company released $0.5 million of uncertain tax benefits from a U.S. Internal Revenue Service (IRS) audit related to the Secure Communication Systems, Inc. acquisition. 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.$0.1 million.

The Company and its subsidiaries in Brazil, China, Ireland, ~~Luxembourg,~~ Malaysia, Mexico, the Netherlands, Romania, Singapore, Thailand and the United States remain open to examination by the various local taxing authorities, in total or in part, for fiscal years ~~2011~~2012 to ~~2017.~~2018. 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.

2018

Note 12 – 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.~~operations, which includes net sales to third parties, related cost of sales and operating expenses directly attributable to the segment. The operating margin of each segment reflects the cost structure of the segments and are not comparable. 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:

Three Months Ended

Nine Months Ended

September 30,

September 30,
(in thousands)

2018

2017

2018

2017

(as adjusted)

(as adjusted)
Net sales:

Americas
$
404,137
$
379,417

$
1,217,200

$
1,146,171

Asia

210,153

208,207

602,903

581,991

Europe

43,054

43,826

140,205

127,480

Elimination of intersegment sales

(16,656)

(20,521)

(50,893)

(67,199)

$
640,688
$
610,929

$
1,909,415

$
1,788,443

Depreciation and amortization:

Americas
$
5,746
$
5,679

$
17,171

$
16,599

Asia

2,967

2,882

8,660

9,021

Europe

860

705

2,644

2,041

Corporate

4,987

3,008

11,168

8,930

$
14,560
$
12,274

$
39,643

$
36,591

Income from operations:

Americas
$
9,586
$
15,046

$
41,845

$
46,823

Asia

18,963

21,477

53,441

55,314

Europe

2,242

2,551

7,437

7,430

Corporate and intersegment eliminations

(19,834)

(18,171)

(59,450)

(54,651)

$
10,957
$
20,903

$
43,273

$
54,916
Other income (expense):

Interest expense

(3,822)

(2,324)

(8,543)

(6,861)

Interest income

1,619

1,334

5,197

3,621

Other expense

1,139

(394)

827

(1,305)

Income before income taxes
$
9,893
$
19,519

$
40,754

$
50,371

Capital expenditures:

Americas
$
8,975
$
8,548

$
34,369

$
17,584

Asia

3,898

1,696

12,548

12,820

Europe

651

638

2,303

4,018

Corporate

1,046

475

3,713

3,314

$
14,570
$
11,357

$
52,933

$
37,736

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(in thousands)			2019		2018		2019		2018

Net sales:
	Americas	$	404,162	$	434,278	$	796,220	$	813,063
	Asia		174,170		197,628		361,579		392,750
	Europe		45,898		46,355		89,858		97,151
	Elimination of intersegment sales		(22,628)		(17,670)		(43,235)		(34,237)
		$	601,602	$	660,591	$	1,204,422	$	1,268,727

Depreciation and amortization:
	Americas	$	5,296	$	5,816	$	10,677	$	11,425
	Asia		2,732		2,871		5,543		5,693
	Europe		758		900		1,572		1,784
	Corporate		3,167		3,112		6,333		6,181
		$	11,953	$	12,699	$	24,125	$	25,083

Income from operations:
	Americas	$	17,332	$	15,522	$	37,560	$	32,259
	Asia		13,072		16,829		28,457		34,478
	Europe		2,284		2,200		3,224		5,195
	Corporate and intersegment eliminations		(20,747)		(20,202)		(41,213)		(39,616)
		$	11,941	$	14,349	$	28,028	$	32,316
Other income (expense):
	Interest expense		(1,718)		(2,293)		(3,327)		(4,721)
	Interest income		1,053		1,645		2,350		3,578
	Other income (expense)		808		(355)		2,412		(312)
	Income before income taxes	$	12,084	$	13,346	$	29,463	$	30,861

Capital expenditures:
	Americas	$	2,947	$	12,545	$	7,700	$	25,394
	Asia		1,098		2,937		3,936		8,650
	Europe		343		630		731		1,652
	Corporate		1,033		1,374		3,128		2,667
		$	5,421	$	17,486	$	15,495	$	38,363

2119

		September 30,		December 31,				June 30,	December 31,
(in thousands)	(in thousands)		2018		2017	(in thousands)		2019		2018
				(as adjusted)
Total assets:	Total assets:					Total assets:
	Americas	$	848,998	$	812,187	Americas	$	808,824	$	852,776
	Asia		548,571		674,783	Asia		543,801		540,094
	Europe		144,352		470,786	Europe		135,214		113,165
	Corporate and other		398,850		151,548	Corporate and other		340,039		393,748
		$	1,940,771	$	2,109,304		$	1,827,878	$	1,899,783

Geographic net sales information reflects the destination of the product shipped. Long-lived assets information is based upon the physical location of the asset.

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(in thousands)			2019		2018		2019		2018

Geographic net sales:
	United States	$	416,465	$	449,598	$	834,829	$	841,565
	Asia		91,745		115,914		178,369		222,905
	Europe		65,048		73,040		138,393		153,581
	Other Foreign		28,344		22,039		52,831		50,676
		$	601,602	$	660,591	$	1,204,422	$	1,268,727

						June 30,		December 31,
							2019		2018
Long-lived assets:
	United States					$	248,272	$	190,056
	Asia						79,193		79,051
	Europe						21,220		9,537
	Other						26,998		22,945
						$	375,683	$	301,589

Three Months Ended

Nine Months Ended

September 30,

September 30,
(in thousands)

2018

2017

2018

2017

(as adjusted)

(as adjusted)
Geographic net sales:

United States
$
438,461
$
403,233

$
1,280,026

$
1,187,333

Asia

105,422

114,302

328,327

324,224

Europe

69,289

71,718

222,870

218,338

Other Foreign

27,516

21,676

78,192

58,548

$
640,688
$
610,929

$
1,909,415

$
1,788,443

September 30,
December 31,

2018

2017
Long-lived assets:

United States

$
186,557

$
167,858

Asia

79,351

77,750

Europe

10,336

11,042

Other

24,525

25,830

$
300,769

$
282,480

Note 13 – Supplemental Cash Flow and Non-Cash Information
The following information concerns supplemental disclosures of cash payments.
Three Months Ended
~~Nine~~Six Months Ended
~~September~~June 30,
~~September~~June 30,
(in thousands)
~~2018~~2019
~~2017~~2018
~~2018~~2019
~~2017~~2018
Income taxes paid, net
$
~~15,544~~12,042
$
~~2,524~~22,336
$
~~39,296~~14,284
$
~~5,049~~23,752
Interest paid
~~1,845~~2,032
~~2,089~~2,062
~~6,163~~4,022
~~6,385~~4,318
Non-cash investing activity:
Additions to property, plant and equipment
in accounts payable
$
~~6,629~~5,660
$
~~6,024~~5,960
20
Note 14 – 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 15 – 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 and 2018 ~~and 2017~~ primarily related to facility ~~transition and closures~~transitions in the Americas, capacity reduction and reductions in workforce in certain facilities across various regions. The following table summarizes the ~~2018~~ 2019activity in the accrued restructuring balances related to the restructuring activities initiated prior to ~~September~~June 30, ~~2018:~~2019:

Balance as of

Foreign

Balance as of

Balance as of

Foreign

Balance as of

December 31,

Restructuring

Cash

Non-Cash

Exchange

September 30,

December 31,

Restructuring

Cash
Non-Cash

Exchange

June 30,
(in thousands)
(in thousands)

2017

Charges

Payment

Activity

Adjustments

2018
(in thousands)

2018

Charges

Payment
Activity

Adjustments

2019
2019 Restructuring:
2019 Restructuring:

Severance

$
—

$
579

$
(579)
—

$
—

$
—

Other exit costs

—

1,294

(425)
(834)

—

35

—

1,873

(1,004)
(834)

—

35

2018 Restructuring:
2018 Restructuring:

2018 Restructuring:

Severance

$
—

$
1,626

$
(1,626)
$
—

$
—

$
—
Severance

282

—

(282)
—

—

—

Other exit costs

—

1,323

(687)

—

—

636
Other exit costs

918

461

(1,379)
—

—

—

—

2,949

(2,313)

—

—

636

1,200

461

(1,661)
—

—

—
2017 Restructuring:
2017 Restructuring:

2017 Restructuring:

Severance

47

3

(50)

—

—

—
Other exit costs

135

—

(124)
—

(4)

7

Leased facilities and equipment

—

96

(96)

—

—

—

135

—

(124)
—

(4)

7

Other exit costs

198

270

(309)

—

(29)

130

245

369

(455)

—

(29)

130
2016 Restructuring:

Severance

29

(6)

(23)

—

—

—

Other exit costs

16

245

(145)

(116)

—

—

45

239

(168)

(116)

—

—
Total
Total

$
290

$
3,557

$
(2,936)
$
(116)

$
(29)

$
766
Total

$
1,335

$
2,334

$
(2,789)
(834)

$
(4)

$
42
23
Note 16 – Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-tier fair value hierarchy of inputs is employed to determine fair value measurements.
·Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities.
·Level 2 inputs are observable prices that are not quoted on active exchanges, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
·Level 3 inputs are unobservable inputs employed for measuring the fair value of assets or liabilities.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
21
The Company’s financial instruments include cash equivalents, accounts and other receivables, accounts payable, accrued liabilities and long-term ~~debt and capital lease obligations.~~debt. The Company believes that the carrying values of these instruments approximate fair value. ~~As of September 30, 2018, 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 derivatives for speculative purposes.
The forward currency exchange ~~contracts~~contract in place as of ~~September~~June 30, ~~2018 have~~2019 has not been designated as an accounting ~~hedges~~hedge and, therefore, changes in fair value are recorded within the Condensed Consolidated Statements of Income.
The Company has an interest rate swap agreement, with a notional ~~amounts~~amount of ~~$145.5 million and $155.3~~$148.1 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017, respectively,~~2018, 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 rate for the contract is ~~1.4935%~~2.928%. The effect of this swap is to convert a portion 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 Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.
The fair value of the interest rate swap was a ~~$3.5~~$7.0 million ~~asset~~liability as of ~~September~~June 30, ~~2018~~2019 and a ~~$2.0~~$3.0 million ~~asset~~liability as of December 31, ~~2017.~~2018.During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded unrealized ~~gain~~loss of ~~$1.5~~$4.0 million ($~~1.2~~3.0 million net of tax) on the swap in other comprehensive income.
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% which was terminated in October 2018 for $3.5 million. This gain is being amortized to offset interest expense over the original term of the swap agreement. During the six months ended June 30, 2019, the Company transferred unrealized gains of $0.8 million ($0.6 million net of tax) on the terminated swap to interest expense. See Note 17.
2422
Note 17 – Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component were as follows:

Foreign

Unrealized

currency

Derivative

loss on

translation

instruments,

investments,

(in thousands)

adjustments

net of tax

net of tax

Other

Total
Balances, December 31, 2017

$
(9,567)

$
1,478

$
(41)

$
(19)

$
(8,149)

Other comprehensive gain (loss)

before reclassifications

(1,569)

1,159

41

—

(369)
Net current period other comprehensive gain (loss)

(1,569)

1,159

41

—

(369)
Balances, September 30, 2018

$
(11,136)

$
2,637

$
—

$
(19)

$
(8,518)

Foreign

currency

Derivative

translation

instruments,

(in thousands)

adjustments

net of tax

Other

Total
Balances, December 31, 2018

$
(11,840)

$
116

$
600

$
(11,124)

Other comprehensive loss

before reclassifications

(248)

(2,971)

(176)

(3,395)

Amounts reclassified from accumulated

other comprehensive loss

—

(575)

(30)

(605)
Net current period other comprehensive loss

(248)

(3,546)

(206)

(4,000)
Balances, June 30, 2019

$
(12,088)

$
(3,430)

$
394

$
(15,124)
See Note 16 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 primarily affected interest expense and selling, general and administrative expenses.
Note 18 – Shareholders’ Equity
Dividends
The Company began declaring and paying quarterly dividends during the first quarter of 2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, cash dividends paid totaled ~~$14.2~~$12.1 million. On ~~September 17, 2018,~~June 13, 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 ~~September~~June 28, ~~2018.~~2019. The dividend in the aggregate amount of ~~$6.8~~$5.7 million was paid on ~~October 11, 2018.~~July 12, 2019. 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.
Share Repurchase Authorization
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. As of September 30, 2018, the Company had $191.4 million remaining under the stock repurchase authorization. On October 26, 2018, the Board of Directors authorized the repurchase of ~~an additional~~ $100 million of the Company’s common ~~stock.~~
~~During~~stock in addition to the ~~first quarter~~$250 million previously approved on March 6, 2018. As of ~~2018,~~June 30, 2019, the Company had $101.5 million remaining under the stock repurchase authorization.
Note 19 – Leases
The Company determines if a contract is or contains a lease at inception. The Company has entered into ~~an accelerated stock repurchase agreement (ASR) with a third party to repurchase an aggregate~~leases for certain facilities, vehicles and other equipment. The Company’s leases consist mainly of ~~$50.0 million~~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.
23
The components of lease expense were as follows:

Three Months Ended

Six Months Ended
(in thousands)

June 30, 2019
Finance lease cost:

Amortization of right-to-use assets (included in depreciation expense)
$
178

$
356

Interest on lease liabilities

141

287
Operating lease cost

4,232

8,680
Short-term lease cost

121

321
Variable lease cost

371

737

Total lease cost

$
5,043

$
10,381

Six Months Ended

June 30, 2019
Other information:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used for finance lease

$
303

Operating cash flows used for operating leases

$
7,447

Financing cash flows used for finance lease

$
566

Right-to-use assets obtained in exchange for new operating lease liabilities

$
15,206
The lease assets and liabilities as of June 30, 2019 were as follows (in thousands):

June 30,

2019
Finance lease right-of-assets (included in other assets)

$
2,667
Operating lease right-of-use assets

$
83,985
Finance liability, current (included in current installments of long-term debt)

$
1,244
Finance lease liability, noncurrent (included in long-term debt)

$
4,338
Operating lease liability, current (included in other accrued liabilities)

$
11,737
Operating lease liability, noncurrent

$
73,878
Weighted average remaining lease term – finance leases

3.8 years
Weighted average remaining lease term – operating leases

10.3 years
Weighted average discount rate – finance leases

10.1%
Weighted average discount rate – operating leases

4.7%
24
Future annual minimum lease payments and finance lease commitments as of June 30, 2019 were as follows (in thousands):

Operating

Finance
Year ending December 31,

Leases

Leases

2,019 (remaining six months)
$
7,785

$
877

2020

14,544

1,781

2021

12,236

1,816

2022

10,512

1,853

2023

9,892

465

2,024 and thereafter

55,185

—

Total minimum lease payments
$
110,154

$
6,792

Less: imputed interest

(24,539)

(1,210)

Present value of lease liabilities
$
85,615

$
5,582
As of June 30, 2019, the Company’s ~~common stock~~future operating leases that have not yet commenced are immaterial.
Future annual minimum lease payments and ~~received an initial delivery~~capital lease commitments in effect as of ~~1.3 million shares~~December 31, 2018 having a noncancelable term in excess of ~~common stock. On July 18, 2018,~~one year as determined prior to the ~~Company completed the ASR program and received delivery~~adoption of ~~the remaining shares totaling 0.4 million shares.~~ASU 842 were as follows (in thousands):

Operating

Capital
Year ending December 31,

Leases

Leases

2019
$
15,272

$
1,746

2020

14,518

1,781

2021

12,203

1,816

2022

10,466

1,853

2023

9,890

465

Thereafter

47,868

—

Total minimum lease payments
$
110,217

$
7,661

Less: amount representing interest

1,514

Present value of minimum lease payments

6,147

Less: current installments

1,168

Capital lease obligations, less current installments

$
4,979

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report (this 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,” or the negative or other variations thereof. In particular, statements, express or implied,
25
concerning future operating results or the ability to generate sales, income or cash flow are forward-looking statements. Undue reliance should not be placed on any forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those discussed in Part I, Item 1A of the ~~2017~~2018 10-K and any added underPart II, Item 1A of this Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including
25

the future results of our operations, may vary materially from those indicated. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes, and the ~~2017~~2018 10-K.
OVERVIEW
We are a worldwide provider of innovative product design, engineering services, technology solutions and advanced manufacturing services (both electronic manufacturing services (EMS) and precision technology ~~manufacturing~~ machining 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, ~~test and instrumentation,~~semiconductor capital equipment (Semi-Cap), next-generation telecommunications and ~~high-end~~advanced computing.
Our customer engagement focuses on three principal areas:
•Engineering Services, which ~~include~~includes turnkey product design, 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, aerospace and defense, and ~~next generation~~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 ~~Internet-of-things~~managed connectivity data collection systems. We often merge these technology solutions with engineering services in order to support of manufacturing services. Our reference designs can be utilized across a variety of industries but we have significant capabilities ~~for~~in the aerospace and defense and next-generation telecommunications markets. We have also developed stronger capabilities in radio frequency (RF) and high speed design for both components and substrates. The need to reduce Size, Weight, and Power (SWaP) to accommodate embedding high frequency electronic communications into specific designs is important to customers in the aerospace and defense, medical, and next-generation telecommunications markets.
•Manufacturing Services, which include producing printed circuit board assemblies (PCBAs) using both traditional surface mount technologies (SMT) and microelectronics are then often integrated into a subsystem assembly, or a box build ~~and~~as part of systems integration. Systems integration is 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 manufacturing comprised of precision machining, advanced metal joining, assembly and functional testing primarily for customers in the ~~test & instrumentation market (which includes~~ semiconductor capital ~~equipment)~~equipment as well as the medical and aerospace and defense 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
26
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 have a closed-loop feedback system in place to respond to customer ideas to enhance our future ~~flexible design~~designs and manufacturing solutions in support of the full life cycle of their products. These solutions offload the electronics design work from our customers so they can focus on product areas where they can provide ~~accelerated~~more value add and in the process accelerate their time-to-market ~~faster time-to-volume production,~~ and ~~reduced~~reduce their product development costs. Working closely with our customers and responding promptly to their needs, we become an integral part of their development process tohelping them 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 into our business and we are accelerating our efforts to mentor and develop key leaders for the future.
Our customers often face challenges in designing supply chains, demand planning, ~~demand,~~ 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 ~~the~~ procurement and manufacturing processes in an efficient and cost-effective manner so that, where possible, components arrive on a just-in-time, as-and-when-needed basis. 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.
We recognize revenue ~~from~~ as the ~~sale~~customer takes control of the manufactured products built to customer ~~specifications.~~specifications. We also generate revenue from our design, development and engineering services, in addition to the sale of ~~excess~~other inventory.
Revenue is measured based on athe consideration specified in a contract with a customer. We recognize revenue when we have satisfied a performance obligation by transferring control over a manufactured product to a customer. Our 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 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~~over time based on the cost-to-cost method. ~~For~~Under other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, we recognize revenue upon transfer of control of product to the ~~customer.~~customer, which is generally when the goods are shipped. Revenue from ~~design, development and~~ engineering services isthat include design and development elements also continues to be recognized over time as the services are performed. We assume no significant obligations after shipment as we typically warrant workmanship only. Therefore, the warranty provisions are generally not significant.
27
~~Third~~Second Quarter ~~2018~~2019 Highlights
Sales for the three months ended ~~September~~June 30, ~~2018 increased 5%~~2019 decreased 9% to ~~$640.7~~$601.6 million compared to ~~$610.9~~ $660.6
27
million during the comparable ~~2017~~2018 period. During the ~~third~~second quarter of ~~2018,~~2019, sales to customers in our various industry sectors fluctuated from the comparable ~~2017~~2018 period as follows:
·Higher-Value Markets
Industrials ~~increased~~decreased by 2%3%,
·A&D increased by 9%7%,
·Medical increased by 18%, and
Semi-Cap decreased by ~~6%,~~41%.
·~~Test & Instrumentation~~Traditional Markets
Computing decreased by ~~14%,~~
·~~Computing increased by 16%~~17%, and
·Telecommunications ~~increased~~decreased by ~~23%~~10%.
The overall revenue ~~increase~~decrease was driven primarily by softer demand ~~increases~~ in the ~~Computing sector for enterprise storage products,~~Semi-Cap market in addition to ~~increases~~lower revenue in ~~Telecommunication~~Computing due to our exit from a legacy Computing contract, as discussed further below. These decreases were somewhat offset by increased revenue in the Medical sector. Higher-value markets were down 5% primarily from lower Semi-Cap revenues and ~~A&D.~~traditional market revenues were down 15% year-over-year primarily from lower Computing revenues.
Our sales depend on the success of our customers, some of ~~whom~~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 isare made to a small number of customers, and the loss of a major customer, if not replaced, would adversely affect us. Sales to our 10 largest customers represented ~~44%~~41% and 45% of our sales in ~~both~~ the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, respectively.
As part of our ongoing process to review contracts that are marginal and ~~2017~~. dilutive to our gross margin, we are not renewing the legacy contract with a large Computing customer that expires at the end of 2019. During the second quarter of 2019, we completed the final build out of this legacy contract. We expect an immaterial amount of revenue in the third quarter from this contract and the transition will be completed.
During the three months ended ~~September~~June 30, ~~2018,~~2019, we ~~incurred~~recovered $1.1 million from a ~~$3.4~~favorable legal settlement that increased other income. In addition, we accrued $0.8 million ~~charge~~ for ~~the write-down of inventory and~~ a ~~provision to accounts receivable associated~~legal settlement with ~~the insolvency of~~ a ~~customer. These charges~~customer that increased cost of ~~sales by $1.7 million and SG&A by $1.7 million.~~sales.
We experience fluctuations in gross profit from period to period. Different programs contribute different gross ~~profits~~margins depending on ~~factors such as~~ 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 and slow new program ramps, we generally have idle capacity and reduced gross ~~profit.~~margin.
We have undertaken initiatives to restructure our business operations with the intention of improving utilization and reducing costs. During the first ~~nine~~six months of ~~2018,~~2019, we recognized ~~$3.5~~$5.0 million of restructuring charges ~~primarily~~and other costs due in part to expenses associated with various site restructuring activities and our go to market changes. We expect to incur $3 million to $5 million in additional restructuring and transition charges in the third quarter of 2019 related to the announced closure of ~~facilities~~two of our locations in addition to charges for our CEO transition and various other employee related activities. In July 2019, we announced that we have elected to close our San Jose, California and Guaymas, Mexico sites
28
with customer transitions expected into other locations in the Americas and reductions in workforce in certain facilities primarily in the Americas. In addition, we incurred $2.3 million in costs related to the transition of our corporate headquarters to Arizona and $2.0 million in costsBenchmark network by mid 2020. Restructuring charges associated with ~~the write-off of existing deferred financing charges~~these closures are expected to be between $6 million and $8 million during 2019 and 2020 in ~~connection with the refinancing of our credit facilities.~~total.
28
RESULTS OF OPERATIONS
The following table presents the percentage relationship that certain items in our Condensed 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 Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Report.

Three Months Ended
Nine Months Ended

Three Months Ended
Six Months Ended

September 30,
September 30,

June 30,
June 30,

2018

2017

2018

2017

2019

2018

2019

2018

(as adjusted)

(as adjusted)

Sales
Sales

100.0
%
100.0
%
100.0
%
100.0
%
Sales

100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
Cost of sales

91.8

90.5

91.3

90.8

Cost of sales

91.2

91.8

91.1

91.1

Gross profit

8.2

9.5

8.7

9.2

Gross profit

8.8

8.2

8.9

8.9

Selling, general and administrative expenses
Selling, general and administrative expenses

5.9

5.3

5.7

5.4

Selling, general and administrative expenses

5.9

5.4

5.7

5.6

Amortization of intangible assets
Amortization of intangible assets

0.4

0.4

0.4

0.4

Amortization of intangible assets

0.4

0.4

0.4

0.4

Restructuring charges and other costs
Restructuring charges and other costs

0.3

0.4

0.3

0.3

Restructuring charges and other costs

0.6

0.3

0.4

0.3

Income from operations

1.7

3.4

2.3

3.1

Income from operations

2.0

2.2

2.3

2.5

Other expenses, net

(0.2)

(0.2)

(0.1)

(0.3)

Other income (expenses), net
Other income (expenses), net

0.0

(0.2)

0.1

(0.1)

Income before income taxes

1.5

3.2

2.1

2.8

Income before income taxes

2.0

2.0

2.4

2.4

Income tax expense
Income tax expense

0.3

0.3

2.4

0.3

Income tax expense

0.4

0.4

0.5

3.4

Net income (loss)

1.2
%
2.9
%
(0.3)
%
2.5
%
Net income (loss)

1.6
%
1.7
%
1.9
%
(1.0)
%

Sales
Sales for the ~~third~~second quarter of ~~2018~~ 2019were ~~$640.7~~$601.6 million, a ~~5% increase~~9% decrease from sales of ~~$610.9~~$660.6 million for the same quarter in ~~2017~~2018. Sales for the first ~~nine~~six months of ~~2018~~ 2019were ~~$1.9~~$1.2 billion, a ~~7% increase~~5% decrease from sales of ~~$1.8~~$1.3 billion for the same period in ~~2017~~2018. ~~The following table sets forth, for the periods indicated, the percentages of our sales~~Sales by industry ~~sector.~~sector were as follows:

Three Months Ended
Nine Months Ended

Three Months Ended
Six Months Ended

September 30,
September 30,

June 30,
June 30,

2018

2017

2018

2017

(in thousands)
(in thousands)

2019

2018

2019

2018

Higher-Value Markets

(as adjusted)

(as adjusted)
Higher-Value Markets

Industrials
Industrials

20
%
21
%
20
%
21
%
Industrials
$
114,664
$
118,096
$
231,037
$
243,744

A&D
A&D

16

16

16

17

A&D

106,965

100,177

210,854

196,296

Medical
Medical

15

17

15

15

Medical

114,187

96,729

217,665

193,803

Test & Instrumentation

12

14

15

14

Semi-Cap
Semi-Cap

62,450

106,293

128,471

208,668

63

68

66

67

398,266

421,295

788,027

842,511

Traditional Markets

Traditional Markets

Computing
Computing

23

20

21

20

Computing

132,690

160,637

257,000

264,175

Telecommunications
Telecommunications

14

12

13

13

Telecommunications

70,646

78,659

159,395

162,041

37

32

34

33

203,336

239,296

416,395

426,216

Total

100
%
100
%
100
%
100
%
Total
$
601,602
$
660,591
$
1,204,422
$
1,268,727

29
Industrials. ~~Third~~Second quarter sales ~~increased 2%~~decreased 3% to ~~$128.3~~$114.7 million from ~~$125.9~~$118.1 million in ~~2017.~~2018. Sales during the first ~~nine~~six months of ~~2018~~ ~~increased 1%~~2019 decreased 5% to $~~372.0~~231.0 million from ~~$367.9~~$243.7 million in the same period of ~~2017.~~ 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. ~~Third~~ Second quarter sales increased 9%7% to ~~$105.0~~$107.0 million from ~~$96.3~~$100.2 million in ~~2017~~2018. Sales during the first ~~nine~~six months of ~~2018~~ 2019were ~~$301.3~~$210.8 million compared to ~~$296.3~~$196.3 million in the same period of ~~2017~~2018. The increases were primarily due to ~~greater~~overall demand strength for ~~communication equipment~~existing products for ground based and ~~security products.~~airborne vehicles.
Medical. ~~Third~~ Second quarter sales ~~decreased 6%~~increased 18% to ~~$96.3~~$114.2 million from ~~$102.1~~$96.7 million in ~~2017 primarily from the timing of new program transition~~s.2018. Sales increased 6%12% to ~~$290.1~~$217.7 million during the first ~~nine~~six months of ~~2018~~2019 from ~~$273.8~~$193.8 million in the same period of ~~2017~~2018. These increases were primarily due to ~~increased~~strong demand ~~and new programs~~. from emerging programs.
~~Test & Instrumentation.~~ ~~Third~~Semiconductor Capital Equipment. Second quarter sales decreased ~~14%~~41% to ~~$76.6~~$62.4 million from ~~$89.1~~$106.3 million in ~~2017.~~2018. Sales during the first ~~nine~~six months of ~~2018 increased~~ ~~12%~~2019 decreased 38% to ~~$285.3~~$128.5 million from ~~$253.7~~$208.7 million in the same period of ~~2017~~2018. ~~The nine month increase is~~These decreases were primarily ~~due to the strong~~from continued semi-cap softness. We had pockets of strengths in some areas but demand we saw in our precision manufacturing machining operations serving the semi-capital equipment market during the first half of 2018, partially offset by the slowdown experienced in the same market during the three months ended September 30, 2018.for overall semi-cap programs remains muted.
Computing. ~~Third~~ Second quarter sales ~~increased 16%~~decreased 17% to ~~$145.4~~$132.7 million from ~~$125.3~~$160.6 million in ~~2017~~2018, and ~~increased 11%~~decreased 3% to ~~$409.6~~$257.0 million during the first ~~nine~~six months of ~~2018~~2019 from ~~$367.8~~$264.2 million in the same period of ~~2017.~~ ~~The increase is~~2018. These decreases were primarily ~~due~~related to ~~strength~~our exit from a legacy computing contract as discussed above. We expect an immaterial amount of revenue in the ~~demand~~third quarter from ~~legacy storage products~~this contract and ~~data security customers.~~the transition will be completed.
Telecommunications. ~~Third~~ Second quarter sales ~~increased 23%~~decreased 10% to ~~$89.1~~$70.6 million from ~~$72.2~~$78.7 million in ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~increased 10%~~decreased 2% to ~~$251.1~~$159.4 million during the first ~~nine~~six months of ~~2018~~2019 from ~~$228.9~~$162.0 million in the same period of ~~2017~~2018 due to ~~increased~~softer demand from ~~existing customers~~legacy broadband products and aadvanced telecommunications program ramp ~~of a new satellite program~~delays.
Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our ~~2017~~2018 10-K for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated with the risks of doing business abroad. During the first ~~nine~~six months of ~~both~~2019 and 2018, 44% and ~~2017,~~ 46% ~~and 47%~~, respectively of our sales were from our international operations.
Gross Profit
Gross profit decreased 9%2% to ~~$52.8~~$53.0 million for the three months ended ~~September~~June 30, ~~2018~~2019 from ~~$58.2~~$54.3 million in the same quarter of ~~2017,~~2018, and ~~was $165.4~~decreased 5% to $106.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018 and $165.3~~2019 from $112.6 million in the same period of ~~2017.~~2018. For the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, gross profit included $1.0 million and $0.7 million, respectively, of recoveries associated with inventory charges from customer insolvencies in 2018 and ~~2017, we incurred $0.9 million and $1.2 million, respectively, in net charges~~2017. In addition, gross profit for the ~~write-down of inventory associated~~three and six months ended June 30, 2019 included a $0.8 million settlement accrual with ~~the insolvency of two customers.~~a customer. Including the ~~initial inventory charges~~partial recoveries and the ~~subsequent partial recoveries,~~settlement accrual, gross margin was ~~8.2%~~8.8% and ~~8.7%~~8.9%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~9.5%~~8.2% and ~~9.2%~~8.9%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Excluding these items, gross margin ~~decreased to 8.5%~~was 8.9% and ~~8.7%~~8.8%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 from 9.3%~~2019 compared to 8.2% and ~~9.3%~~8.8%, respectively, in the same periods of ~~2017 primarily due~~2018. The improvement in gross margin for the three months ended June 30, 2019 is attributable to ~~an increase in lower-margin Computing sector sales,~~operational improvements throughout our global network and a ~~decrease in higher-margin Test & Instrumentation sector sales and the impacts~~better mix from ~~Medical transitions, investments in engineering and solutions and new program ramp costs.~~higher-value market revenue.
30
Selling, General and Administrative Expenses
SG&A ~~increased~~decreased by ~~17%~~2% to ~~$37.6~~$35.3 million in the ~~third~~second quarter of ~~2018~~2019 compared to ~~$32.1~~$35.8 million in ~~2017,~~2018, and ~~increased~~decreased by ~~12%~~4% to ~~$109.2~~$69.1 million in the first ~~nine~~six months of ~~2018~~2019 compared to ~~$97.1~~$71.6 million in ~~2017.~~2018. During ~~both~~ the ~~third quarter of 2018 and the first quarter of 2017,~~six months ended June 30, 2019, we had a $1.7 million ~~in charges for~~recovery of a provision tofor accounts receivable associated with the insolvency of ~~two customers.~~a customer. Including this provision to accounts receivable, SG&A increased to 5.9% of sales for the ~~third~~second quarter of ~~2018~~2019 from ~~5.3%~~5.4% in ~~2017,~~2018, and increased to 5.7% of sales for the first ~~nine~~six months of ~~2018~~2019 from ~~5.4%~~5.6% in ~~2017.~~2018. Excluding this ~~provision to accounts receivable,~~recovery, SG&A increased to ~~5.6%~~5.9% of sales for the ~~third~~second quarter of ~~2018~~2019 from ~~5.3%~~5.4% in ~~2017,~~2018, and increased to ~~5.6%~~5.9% of sales for the first ~~nine~~six months of ~~2018~~2019 from ~~5.3%~~5.6% in ~~2017,~~2018, primarily due to ~~increased stock-based and variable compensation and the investment in our sales and marketing organization.~~lower sales.
Restructuring Charges and Other Costs
During the first ~~nine~~six months of 2019, we recognized $2.3 million of restructuring charges, primarily related to reductions in workforce in certain facilities in the Americas and Asia. In addition, during the first six months of 2019, we incurred $2.7 million in costs related to fees and costs incurred in reaching the cooperation agreement with Engaged Capital and other proxy related activities as well as our CEO transition. As discussed above, we expect to incur $3 million to $5 million in additional restructuring and transition charges in the third quarter of 2019 related to the announced closure of two of our locations in addition to charges for our CEO transition and various other employee related activities. Restructuring charges associated with these closures are expected to be between $6 million and $8 million during 2019 and 2020 in total.
In the first six months of 2018, we recognized ~~$3.5~~$2.2 million of restructuring charges, primarily related to facility ~~transitions~~transition and closures in the Americas and reductions in workforce in certain facilities primarily in the ~~Americas. In addition, during the first nine months of 2018 we incurred $2.3~~Americas, and $1.8 million in costs related to the transition of our corporate headquarters to Arizona. We expect to incur additional restructuring charges ranging from $2.0 million to $2.5 million in the fourth quarter of 2018. In the first nine months of 2017, we recognized $4.0 million of restructuring charges, primarily related to reductions in workforce in certain facilities across various regions, and $1.6 million in transition costs. See Note 15 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
Interest Expense
Interest expense ~~increased~~decreased to ~~$8.5~~$3.3 million during the first ~~nine~~six months of ~~2018~~2019 from ~~$6.9~~$4.7 million during the comparable ~~2017~~2018 period due to ~~the write-offof existing deferred financing charges in connection with the refinancing of our credit facilities offset by~~ lower debt levels.
Interest Income
Interest income ~~increased~~decreased to ~~$5.2~~$2.4 million during the first ~~nine~~six months of ~~2018~~2019 from $3.6 million during the comparable ~~2017~~2018 period due primarily to ~~higher interest rates on~~lower invested cash equivalents.
Income Tax Expense
Income tax expense of ~~$45.7~~$6.2 million represented an effective tax rate of ~~112.0%~~21.2% for the first ~~nine~~six months of ~~2018,~~2019, compared with ~~$5.9~~$43.6 million for the comparable ~~2017~~2018 period, which represented an effective tax rate of ~~11.7%~~141.1%. During the first quarter of 2018, we changed our historical repatriation strategy. ~~We have~~Previously, we had historically asserted our intention to indefinitely reinvest undistributed foreign earnings. WeAs of March 31, 2018, we no longer consider ~~these~~ the earnings prior to December 31, 2017 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 $30.7 million tax expense for foreign withholding tax from Asia and $9.4 million for U.S. state income tax ~~expense in the first quarter of 2018. In the second quarter of 2018 we recorded $0.4 million of additional U.S. tax for the distributions from our foreign subsidiaries.~~expense. In addition, during the period ended March 31, 2018, we released $0.5 million of uncertain tax benefits from a U.S. Internal Revenue Service (IRS) audit related to the Secure Communication Systems, Inc. ~~acquisition. During~~acquisition and we had additional tax benefits related to stock compensation and tax returns filed in the first quarter of ~~2018,~~2018. Excluding the ~~IRS indicated that this examination~~tax effects of ~~years 2013 to 2015 was closed. Excluding these~~the change in the assertion of undistributed foreign earnings and the various tax ~~items,~~benefits recorded in the period ended March 31, 2018, the effective tax rate in the first ~~nine~~six months of 2018 would have been ~~13.7%.~~16.7% compared to 21.2% in the first six months of 2019. The increase in the effective tax rate was primarily a result of higher taxable income in geographies with higher tax rate in 2019 and the expiration of a China tax incentive in December 2018.
31
We have been granted certain tax incentives, including tax holidays, for our subsidiaries in ~~China,~~ Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through ~~2018 in China,~~ 2021 in Malaysia, and 2028 in Thailand. Our Chinese subsidiary ~~is in the process of applying~~submitted an application for a
31
new tax incentive ~~for future years.~~in China during the third quarter of 2019. See Note 11 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
Net Income (Loss)
We reported a net ~~loss~~income of ~~$4.9~~$23.2 million, or ~~$0.10~~$0.58 per diluted share, for the first ~~nine~~six months of ~~2018,~~2019, compared with net ~~income~~a loss of ~~$44.5~~$12.7 million, or ~~$0.88~~$0.26 per diluted share, for the same period in ~~2017.~~2018. The net ~~decrease~~increase of ~~$49.4~~$35.9 million from ~~2017~~2018 was primarily the result of the tax expense related to the change in our historical repatriation strategy 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 totaled ~~$475.7~~$396.6 million at ~~September~~June 30, ~~2018~~2019 and ~~$742.5~~$458.1 million at December 31, ~~2017,~~2018, of which ~~$170.2~~$179.4 million and ~~$673.4~~$154.4 million, respectively, were held outside the U.S. in various foreign subsidiaries. ~~During the nine months ended September 30, 2018, we repatriated $522.0 million of foreign earnings to the U.S.~~
Cash ~~used in~~provided by operating activities during the first ~~nine~~six months was ~~$17.3~~$68.8 million for ~~2018~~2019 and consisted primarily of ~~$4.9~~$23.2 million of net ~~loss~~income adjusted for ~~$39.6~~$24.1 million of depreciation and amortization and ~~$11.9~~a $106.7 million decrease in ~~deferred income taxes,~~accounts receivable, offset by a ~~$20.0~~$15.5 million increase in ~~accounts receivable,~~contract assets, a ~~$54.3~~$6.3 million increase in inventories, a $49.4 million decrease in accounts payable and a ~~$12.6~~$13.2 million decrease in accrued liabilities. The decrease in accounts receivable was impacted by the $40 million increase in the sale of accounts ~~payable. The deferred income taxes are a result of the change in assertion related to undistributed foreign earnings.~~receivable as well as lower sales. The increase in contract assets and inventories is primarily related to ~~raw materials~~longer lead production times in support of ~~production.~~production for certain customers. The decrease in accounts payable was primarily a result of the level of inventory purchases. Working capital was ~~$1.0~~$0.8 billion at ~~September~~June 30, ~~2018~~2019 and ~~$1.2~~$0.9 billion at December 31, ~~2017.~~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, which may increase the timing of when we can begin the manufacturing processes.~~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 during the first ~~nine~~six months was ~~$55.0~~$15.4 million for ~~2018,~~2019, primarily due to purchases of additional property, plant and equipment totaling ~~$50.4~~$14.2 million. The purchases of property, plant and equipment were primarily for machinery and equipment in the Americas and Asia.
Cash used in financing activities during the first ~~nine~~six months of 2019 was ~~$193.7 million for 2018.~~$115.1 million. Share repurchases totaled ~~$122.1~~$100.0 million, net principal payments on long-term debt totaled ~~$57.8~~$2.4 million, dividends totaled ~~$14.2~~$12.1 million, and we received ~~$3.5~~$0.7 million from the exercise of stock options.
Under the terms of our $650.0 million Credit Agreement, in addition to the 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 ~~September~~June 30, ~~2018,~~2019, we had ~~$150.0~~$148.1 million in borrowings outstanding under the Term Loan facility ~~$2.8~~and $3.0 million in letters of credit outstanding under ~~the Revolving Credit Facility and $497.2 million was available for future borrowing under the Revolving Credit Facility.~~our revolving credit facility. See Note 7
32
to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report for more information regarding the terms of the Credit Agreement.
32
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 ~~September~~June 30, ~~2018,~~2019, we were in compliance with all of these covenants and restrictions.
During the next 12 months, we believe our capital expenditures will approximate $40 to $50 million, principally for machinery and equipment as well as expansion investments to support our ongoing business around the globe.
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 June 30, 2019, we had cash and cash equivalents totaling $396.6 million and $497.0 million available for borrowings under the Revolving Credit Facility. During the next 12 months, we believe our capital expenditures will approximate $40 million to $50 million, principally for machinery and equipment to support our ongoing business around the globe.
On ~~March 6,~~October 26, 2018, our Board of Directors approved an expanded stock repurchase program granting us the authority to repurchase up to ~~$250~~$100 million in common stock in addition to the ~~$100.0~~$250 million approved on ~~December 7, 2015.~~March 6, 2018. As of ~~September~~June 30, ~~2018,~~2019, we had ~~$191.4~~$101.5 million remaining under the share repurchase authorization to purchase additional shares. On October 26, 2018, the Board of Directors authorized an additional $100 million shares for repurchase above our existing program. As of November 7, 2018, we had $253 million remaining under the share repurchase authorization. We are under no commitment or obligation to repurchase any particular amount of common stock.
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~~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.
CONTRACTUAL OBLIGATIONS
We have certain contractual obligations for operating and capital leases that were summarized in a table of Contractual Obligations in our ~~2017~~2018 10-K. There have been no material changes to our contractual obligations, outside of the ordinary course of our business, since December 31, ~~2017.~~2018.
33

OFF-BALANCE SHEET ARRANGEMENTS
As of ~~September~~June 30, ~~2018,~~2019, we did not have any significant off-balance sheet arrangements. See Note 16 to the Condensed Consolidated Financial Statements.
33
CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND RECENTLY ENACTED ACCOUNTING PRINCIPLES
Management’s discussion and analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. ~~Our~~See Note 2 to the Condensed Consolidated Financial Statements in Item 1 of this Report for a discussion of recently enacted accounting principles. Also, our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our ~~2017~~2018 10-K. ~~Also, see Note~~ 2 ~~to the Condensed Consolidated Financial Statements above for a discussion of recently enacted accounting principles.~~
Item 3 – 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 ~~contracts~~contract in place as of ~~September~~June 30, ~~2018 have~~2019 has not been designated as an accounting ~~hedges~~hedge and, therefore, changes in fair value are recorded within our Condensed 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.
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 ~~September~~June 30, ~~2018~~2019, we had ~~$150.0~~$148.1 million outstanding on the floating rate ~~Term Loan~~term loan facility, and we have an interest rate swap agreement with a notional amount of ~~$145.5~~$148.1 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 a portion of our floating rate interest expense to fixed interest rate expense. The interest rate swap is designated as a
34
cash flow hedge. For additional information, see Note 16 to the Condensed Consolidated Financial Statements in Item 1 of this Report.
~~On October 26, 2018, the Company entered into a new swap agreement, which is effective October 31, 2018. Under the new swap agreement, the Company will receive variable rate payments based on the one-~~
34
month LIBOR rate and pay fixed rate interest payments. The fixed interest rate for the contract is 2.928%. Based on the terms of this agreement, the interest rate contract has been determined to be effective and has been designated a cash flow hedge. On October 30, 2018, the Company terminated its existing interest rate swap agreement and received $3.5 million, which represented the fair value of the agreement as of the termination date. This gain, which is included in accumulated other comprehensive loss, will be amortized over the original term of the agreement through November 2020 using the interest rate method and will be recorded against interest expense.
Item 4 –Controls and Procedures
As of the end of the period covered by this Report, the Company’s management (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)) conducted an evaluation pursuant to Rule 13a-15 under the Exchange Act, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based on this evaluation, the CEO and CFO 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 our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting (as defined in Rule13a-15(f) or 15d-15(f) of the Exchange Act) 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.
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 a 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 errors or mistakes. Additionally, controls can be circumvented by individuals’ acts, by collusion of two or more people, or by management overriding 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.
35
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal actions arising in the ordinary course of business. InOther than as described below, there have been no material changes to the legal proceedings previously reported under Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2018, and, 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.
We are plaintiffs in a multi-district class action filed in the US District Court for the District of Arizona on June 28, 2017, Case No. 2:17-cv-02058-DJH. The case was brought against eighteen worldwide manufacturers of aluminum, tantalum, and film capacitors. The plaintiffs, including the Company and several of its subsidiaries, allege that the manufacturers participated in a conspiracy to fix the prices of and allocate markets for the affected capacitors between 2001 and 2014. While the litigation is still ongoing, six of the eighteen defendant groups have settled out of court resulting in a net recovery of $2,938,500 by Benchmark during the first six months of 2019.
35
Item 1A.Risk Factors
There are no material changes to the risk factors set forth in Part I, Item 1A of our ~~2017~~2018 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table provides information for the quarter ended ~~September~~June 30, ~~2018~~2019 about the Company’s repurchases of its equity securities registered pursuant to Section 12 of the Exchange Act, at a total cost of ~~$46.2~~$39.0 million:
ISSUER PURCHASES OF EQUITY SECURITIES
ISSUER PURCHASES OF EQUITY SECURITIES
ISSUER PURCHASES OF EQUITY SECURITIES

(d) Maximum

(d) Maximum

(c) Total

Number (or

(c) Total

Number (or

Number of

Approximate

Number of

Approximate

Shares

Dollar Value)

Shares

Dollar Value)

(or Units)

of Shares

(or Units)

of Shares

Purchased as

(or Units) that

Purchased as

(or Units) that

(a) Total

Part of

May Yet Be

(a) Total

Part of

May Yet Be

Number of

Publicly

Purchased

Number of

Publicly

Purchased

Shares (or

(b) Average

Announced

Under the

Shares (or

(b) Average

Announced

Under the

Units)

Price Paid per Share

Plans or

Plans or

Units)
Price Paid per Share

Plans or

Plans or
Period
Period

Purchased⁽¹⁾

(or Unit)⁽²⁾

Programs

Programs⁽³⁾
Period

Purchased⁽¹⁾

(or Unit)⁽²⁾

Programs

Programs⁽³⁾
July 1 to 31, 2018

601,997

$24.43

601,997

$232.8 million
August 1 to 31, 2018

915,378

$25.55

915,378

$209.4 million
September 1 to 30, 2018

708,833

$25.47

708,833

$191.4 million
April 1 to 30, 2019
April 1 to 30, 2019

612,540

$28.25

612,540

$123.2 million
May 1 to 31, 2019
May 1 to 31, 2019

318,627

$24.06

318,627

$115.5 million
June 1 to 30, 2019
June 1 to 30, 2019

594,128

$23.49

594,128

$101.5 million
Total
Total

2,226,208

$25.22

2,226,208

Total

1,525,295

$25.52

1,525,295

⁽¹⁾ All stock repurchases were made on the open market.
⁽²⁾Average price paid per share is calculated on a settlement basis and excludes commission.
⁽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. As of September 30, 2018, the Company had $191.4 million remaining under the stock repurchase authorization. On October 26, 2018, the Board of Directors authorized the repurchase of ~~an additional~~ $100 million of the Company’s common ~~stock.~~ stock in addition to the $250 million previously approved on March 6, 2018. Net of shares repurchased to date, the total remaining authorization outstanding as of ~~November 7, 2018~~June 30, 2019 is ~~$253~~$101.5 million. 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 the first quarter of 2018, the Company entered into an accelerated stock repurchase agreement (ASR) with a third party to purchase shares of its common stock for a payment of $50.0 million and received an initial delivery of 1.3 million shares of common stock. See Note 18 to the Condensed Consolidated Financial Statements in Item 1 of this report. On July 18, 2018, the Company completed the ASR program and received delivery of the remaining shares totaling 0.4 million shares.
36
Item 6.Exhibits
Exhibit
Number
Description of Exhibit
3.1Restated 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)
3.2Amended and Restated Bylaws of the Company dated May 11, 2016 (incorporated by reference to Exhibit 3.2 to the 8-K)
4.1Specimen 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) (Commission file number 1-10560)
10.1 ⁽³⁾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)
10.2 ⁽¹⁾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
31.1 ⁽¹⁾Section 302 Certification of Chief Executive Officer
31.2 ⁽¹⁾Section 302 Certification of Chief Financial Officer
32.1 ⁽¹⁾⁽²⁾Section 1350 Certification of Chief Executive Officer
32.2 ⁽¹⁾⁽²⁾Section 1350 Certification of Chief Financial Officer
101.INS ⁽²⁾⁽⁴⁾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⁾⁽¹⁾Inline XBRL Taxonomy Extension Schema Document
101.CAL ⁽²⁾⁽¹⁾Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF ⁽¹⁾Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB ⁽²⁾⁽¹⁾Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE ⁽²⁾⁽¹⁾Inline XBRL Taxonomy Extension Presentation Linkbase Document
~~101.DEF~~ 104 ⁽¹⁾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⁾Filed herewith.
⁽²⁾ ~~XBRL Taxonomy Extension Definition Linkbase Document~~Furnished herewith
⁽³⁾ Indicates management contract or compensatory plan or arrangement.
37
SIGNATURES
⁽¹⁾~~Filed herewith.~~
⁽²⁾ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections.
37
~~SIGNATURES~~
Pursuant to the requirements 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 on ~~November~~August 8, ~~2018~~2019.
BENCHMARK ELECTRONICS, INC.
(Registrant)
By: /s/ ~~Paul J. Tufano~~Jeffrey W. Benck
~~Paul J. Tufano~~Jeffrey W. Benck
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Roop K. Lakkaraju
Roop K. Lakkaraju
Chief Financial Officer
(Principal Financial and Accounting Officer)
38

Texas	~~Texas~~	~~74‑2211011~~74-2211011
	(State or other jurisdiction	(I.R.S. Employer
	of incorporation or organization)	Identification No.)
~~4141 N. Scottsdale Road~~56 South Rockford Drive		~~85251~~85281
~~Scottsdale,~~Tempe, Arizona		(Zip Code)
(Address of principal executive offices)

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.10 per share	BHE	New York Stock Exchange, Inc.

~~Large accelerated filer [~~Ö]	~~Accelerated filer [ ]~~
Large accelerated filer☐	Accelerated filer ☐
Non-accelerated filer ~~[ ]~~☐	Smaller reporting company ~~[ ]~~☐
Emerging growth company ~~[ ]~~☐

		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income (Loss) ~~(Loss)~~	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) ~~(Loss)~~	3
	Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	56
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and	25
	Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3635
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37

SIGNATURES		38

Condensed Consolidated Balance Sheet
December 31, 2017

		Impact of changes in accounting policies
		As previously
(in thousands)			reported	Adjustments			As adjusted
	Contract assets	$	—	$	146,496	$	146,496
	Inventories		397,181		(128,264)		268,917
	Prepaid expenses and other assets		42,263		(6,245)		36,018
	Total assets	$	2,097,317	$	11,987	$	2,109,304

	Income taxes payable	$	11,662	$	1	$	11,663
	Deferred income taxes		7,027		1,667		8,694
	Total liabilities		768,498		1,668		770,166
	Retained earnings		697,862		10,319		708,181
	Total shareholders’ equity		1,328,819		10,319		1,339,138
	Total liabilities and shareholders’ equity	$	2,097,317	$	11,987	$	2,109,304

Condensed Consolidated Statement of Income
Three Months Ended September 30, 2017

		Impact of changes in accounting policies
		As previously
(in thousands, except per share data)			reported	Adjustments			As adjusted

Sales		$	603,550	$	7,379	$	610,929
Cost of sales		$	545,395	$	7,291	$	552,686
Income tax expense		$	1,919	$	(231)	$	1,688
Net income		$	17,512	$	319	$	17,831

Earnings per share:
	Basic	$	0.35	$	0.01	$	0.36
	Diluted	$	0.35	$	—	$	0.35

Weighted-average number of shares outstanding:
	Basic		49,865		49,865		49,865
	Diluted		50,330		50,330		50,330

Condensed Consolidated Statement of Income
Nine Months Ended September 30, 2017

		Impact of changes in accounting policies
		As previously
(in thousands, except per share data)			reported	Adjustments			As adjusted

Sales		$	1,786,955	$	1,488	$	1,788,443
Cost of sales		$	1,621,153	$	2,031	$	1,623,184
Income tax expense		$	6,539	$	(628)	$	5,911
Net income		$	44,375	$	85	$	44,460

Earnings per share:
	Basic	$	0.89	$	—	$	0.89
	Diluted	$	0.88	$	—	$	0.88

Weighted-average number of shares outstanding:
	Basic		49,716		49,716		49,716
	Diluted		50,292		50,292		50,292

			Performance-
		Time-based	based
		Restricted	Restricted
	Stock	Stock	Stock
(in thousands, except remaining period data)	Options	Units	Units⁽¹⁾
Unrecognized compensation cost	$ 112	$ 15,143	$ 4,315
Remaining weighted-average
amortization period	0.4 years	2.4 years	1.4 years

⁽¹⁾ Based on the probable achievement of the performance goals identified in each award.

Note 11 – Income Taxes
Income tax expense consists of the following:
	Nine Months Ended
	September 30,
(in thousands)		2018		2017
			(as adjusted)
Federal – current	$	223	$	(984)
Foreign – current		25,894		6,039
State – current		7,673		275
Deferred		11,863		581
	$	45,653	$	5,911