UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10‑Q10-Q
_______________
(Mark One)
X☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182019
or
__☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to________________
Commission File Number: 1‑105601-10560
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Texas |
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|
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
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| |
| (Zip Code) | |
(Address of principal executive offices) | ||
(623) 300-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [Ö]☑ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [Ö]☑ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
|
|
Large accelerated filer☐ | Accelerated filer ☐ |
Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act). Yes [ ]☐ No [Ö]☑
As of NovemberAugust 7, 20182019,there were 43,710,35637,627,463 shares of common stock of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.
TABLE OF CONTENTS
Page | ||
PART I—FINANCIAL INFORMATION | ||
1 | ||
1 | ||
2 | ||
Condensed Consolidated Statements of Comprehensive Income (Loss) | 3 | |
Condensed Consolidated | 4 | |
| ||
| ||
Management’s Discussion and Analysis of Financial Condition and | 25 | |
34 | ||
35 | ||
PART II—OTHER INFORMATION | ||
| ||
36 | ||
36 | ||
37 | ||
38 |
PART I - FINANCIAL INFORMATION
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 |
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| 2017 | (in thousands, except par value) |
| 2019 |
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| 2018 | ||||||
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| (as adjusted) |
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Assets | Assets |
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| Assets |
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| Current assets: |
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| Current assets: |
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| 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 |
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|
| ||||
|
| Accounts receivable, net of allowance for doubtful accounts of $1,729 |
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| 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 |
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| |||||
| Property, plant and equipment, net of accumulated depreciation of |
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| $464,244 and $460,708, respectively |
| 202,665 |
|
| 210,954 | |||||
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| $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 | ||||||
|
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| $ | 1,940,771 |
| $ | 2,109,304 |
|
| $ | 1,827,878 |
| $ | 1,899,783 | ||||
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Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity |
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| Liabilities and Shareholders’ Equity |
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| ||||||
| Current liabilities: |
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| Current liabilities: |
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| ||||||
|
| 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: |
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| Common stock, $0.10 par value; 145,000 shares authorized; issued |
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| 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 |
|
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|
|
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| Total shareholders’ equity |
| 1,045,050 |
|
| 1,132,225 | ||||
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| $ | 1,940,771 |
| $ | 2,109,304 |
| Commitments and contingencies |
|
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|
|
| ||||
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| $ | 1,827,878 |
| $ | 1,899,783 |
See accompanying notes to condensed consolidated financial statements.
1
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) |
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| ||||
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) |
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Earnings (loss) per share: | Earnings (loss) per share: |
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| Earnings (loss) per share: |
|
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|
|
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|
|
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| 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) |
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Weighted-average number of shares outstanding: | Weighted-average number of shares outstanding: |
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| 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.
2
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
|
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|
|
| Three Months Ended |
| Nine Months Ended |
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||||||||||
|
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|
| September 30, |
| September 30, |
|
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|
| June 30, |
| June 30, | ||||||||||||||||
(in thousands) | (in thousands) |
| 2018 |
| 2017 |
|
| 2018 |
| 2017 | (in thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 | ||||||||
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| (as adjusted) |
|
| (as adjusted) |
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| ||||||||
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): |
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| Other comprehensive income (loss): |
|
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| ||||||
| 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) | ||
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See accompanying notes to condensed consolidated financial statements.
3
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Shareholders’ Equity
(unaudited)
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| Accumulated |
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| Accumulated |
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| ||
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| Common Stock |
| Additional |
|
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| 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 | ||||||||
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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 | |||||||||||||||||
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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.
4
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsShareholders’ 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.
5
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
|
|
|
|
| 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.
6
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-endadvanced 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‑K10-K for the year ended December 31, 20172018 (the 20172018 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 20182019
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 updateright-to-use model (ROU) that provides guidance about which changesrequires a lessee to the terms or conditions ofrecognize 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 adoptionROU 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 updatestandard 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 6062019 using the fulleffective date as its date of initial application under the modified retrospective transition method. The Companyapproach. Therefore, financial information for prior periods were not restated. Management elected the ASC 606package of practical expedient and does not disclose the information about remaining performance obligationsexpedients in transition for leases that have original expected durations of one year or less. Amountscommenced prior to January 1, 2018 that have been adjusted in accordance with ASC 606 as described herein are noted “as adjusted”.
6
Previously,2019, which permits the Company recognized revenue fromto 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 productspractical expedient to not separate lease and nonlease components.
Lease assets and liabilities are being built. Revenues under these contracts areinitially 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 underlease 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 untillease 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 transferpattern and
7
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 |
7
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 |
8
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 |
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 newan 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
9
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.
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 excessother 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 ninesix months ended SeptemberJune 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 sharesshare 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-year4-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-year4-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-year3-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 onfrom the grant date.date.
As of SeptemberJune 30, 20182019, 2.73.2 million additional shares of common stock were available for issuance under the Company’s 20102019 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 ninesix months ended SeptemberJune 30, 2018,2019, respectively, and $2.3$2.5 million and $6.8$5.4 million for the three and ninesix months ended SeptemberJune 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 ninesix months ended SeptemberJune 30, 2018,2019, respectively, and $0.8$0.6 million and $2.5$1.3 million for the three and ninesix months ended SeptemberJune 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
10
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 SeptemberJune 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 ninesix months ended SeptemberJune 30, 20182019 and 20172018 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 ninesix months ended SeptemberJune 30, 2019 and 2018 and 2017 was $2.1$1.6 million and $4.4$1.9 million, respectively. For the ninesix months ended SeptemberJune 30, 20182019 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 ninesix months ended SeptemberJune 30, 20182019 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 20102019 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 |
11
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
13
business day of the period ended SeptemberJune 30, 20182019 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 ninesix months ended SeptemberJune 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 SeptemberJune 30, 20182019 and December 31, 20172018 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 ninesix months ended SeptemberJune 30, 20182019 and 20172018 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 |
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-year5-year $500 million revolving credit facility (the Revolving Credit Facility) and a five-year5-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 Agreementcredit 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 SeptemberJune 30, 2018, $145.52019, $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.
15
SeptemberJune 30, 2018,2019, the Company was in compliance with all of these covenants and restrictions.
As of SeptemberJune 30, 2018,2019, the Company had $150.0$148.1 million in borrowings outstanding under the Term Loan facilityFacility 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 SeptemberJune 30, 20182019 and December 31, 2017,2018, there were no working capital borrowings outstanding under the facility.
As of SeptemberJune 30, 20182019 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 SeptemberJune 30, 2018,2019, in connection with atwo trade accounts receivable sale programprograms 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 SeptemberJune 30, 20182019 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. Underprovision that requires the GILTI provision, certainCompany to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s depreciablesubsidiaries tangible assets are included in U.S.assets. The taxable incomeearnings 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 dueprovisions. The Company elected to its operationsaccount 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 undistributedits foreign subsidiaries. These earnings arewould not be subject to the U.S. mandatory repatriationincome tax, and are eligible to be repatriatedif distributed to the U.S. without additional U.S. tax under the U.S. Tax Reform.Company. The Company has historically assertedchanged its intention to indefinitely reinvest undistributedassertion on its foreign earnings. The Company no longer considers thesesubsidiaries 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 indefinitelynon-permanently reinvested in itsand 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
19
17
The net impact of these tax incentives was to lower income tax expense for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 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 SeptemberJune 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 SeptemberJune 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 20112012 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 |
|
|
|
|
|
|
|
|
|
|
|
|
22
20 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
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.
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 The forward currency exchange The Company has an interest rate swap agreement, with a notional The fair value of the interest rate swap was a 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.
Note 17 – Accumulated Other Comprehensive Loss The changes in accumulated other comprehensive loss by component were as follows:
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 Share Repurchase Authorization
Note 19 – Leases The Company determines if a contract is or contains a lease at inception. The Company has entered into 23 The components of lease expense were as follows:
The lease assets and liabilities as of June 30, 2019 were as follows (in thousands):
24 Future annual minimum lease payments and finance lease commitments as of June 30, 2019 were as follows (in thousands):
As of June 30, 2019, the Company’s Future annual minimum lease payments and
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,
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 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 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 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, Our customer engagement focuses on three principal areas: •Engineering Services, which •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 •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 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 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, We employ enterprise resource planning (ERP) systems and lean manufacturing principles to manage We recognize revenue Revenue is measured based on
Sales for the three months ended 27 million during the comparable
Industrials
Semi-Cap decreased by
Computing decreased by
The overall revenue Our sales depend on the success of our customers, some of As part of our ongoing process to review contracts that are marginal and During the three months ended We experience fluctuations in gross profit from period to period. Different programs contribute different gross We have undertaken initiatives to restructure our business operations with the intention of improving utilization and reducing costs. During the first 28 with customer transitions expected into other locations in the
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.
Sales Sales for the
29 Industrials. Aerospace and Defense. Medical.
Computing. Telecommunications. Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our Gross Profit Gross profit decreased 30 Selling, General and Administrative Expenses SG&A Restructuring Charges and Other Costs During the first In the first six months of 2018, we recognized Interest Expense Interest expense Interest Income Interest income Income Tax Expense Income tax expense of 31 We have been granted certain tax incentives, including tax holidays, for our subsidiaries in
new tax incentive Net Income (Loss) We reported 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 Cash 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 Cash used in investing activities during the first Cash used in financing activities during the first 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 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.
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
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 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 CONTRACTUAL OBLIGATIONS We have certain contractual obligations for operating and capital leases that were summarized in a table of Contractual Obligations in our 33 OFF-BALANCE SHEET ARRANGEMENTS As of
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. 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 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 34 cash flow hedge. For additional information, see Note 16 to the Condensed Consolidated Financial Statements in Item 1 of this Report.
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.
PART II—OTHER INFORMATION We are involved in various legal actions arising in the ordinary course of business. 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 There are no material changes to the risk factors set forth in Part I, Item 1A of our Item 2.Unregistered Sales of Equity Securities and Use of Proceeds (c) The following table provides information for the quarter ended
(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)
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31.1 (1)Section 302 Certification of Chief Executive Officer 31.2 (1)Section 302 Certification of Chief Financial Officer 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF (1)Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB 101.PRE
(1)Filed herewith. (2) (3) Indicates management contract or compensatory plan or arrangement. 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
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