TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

						March 31,		December 31,						March 31,		December 31,
(in thousands, except par value)	(in thousands, except par value)					2019		2018	(in thousands, except par value)					2020		2019

Assets	Assets								Assets
									Current assets:
	Current assets:									Cash and cash equivalents			$	411,786	$	347,558
		Cash and cash equivalents			$	395,316	$	458,102		Restricted cash				—		16,398
		Accounts receivable, net of allowance for doubtful accounts of $69								Accounts receivable, net of allowance for doubtful accounts of $10,085
			and $1,733, respectively			405,358		468,161			and $10,085, respectively			317,862		324,424
		Contract assets				157,025		140,082		Contract assets				159,962		161,061
		Inventories				315,563		309,975		Inventories				338,437		314,956
		Prepaid expenses and other assets				24,007		27,024		Prepaid expenses and other current assets				35,863		29,566
		Income taxes receivable				660		206		Income taxes receivable				1,092		1,119
				Total current assets		1,297,929		1,403,550				Total current assets		1,265,002		1,195,082
	Property, plant and equipment, net of accumulated depreciation of								Property, plant and equipment, net of accumulated depreciation of
				$459,222 and $460,708, respectively		203,796		210,954				$478,616 and $460,708, respectively		201,580		205,819
	Operating lease right-of-use assets					81,159		—	Operating lease right-of-use assets					77,033		76,859
	Goodwill					192,116		192,116	Goodwill					192,116		192,116
	Deferred income taxes					2,269		2,478	Deferred income taxes					5,274		5,274
	Other, net					91,661		90,685	Other assets, net					82,377		84,724
					$	1,868,930	$	1,899,783					$	1,823,382	$	1,759,874

Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity								Liabilities and Shareholders’ Equity
	Current liabilities:								Current liabilities:
		Current installments of long-term debt			$	8,706	$	6,793		Current installments of long-term debt			$	8,868	$	8,825
		Accounts payable				371,732		422,053		Accounts payable				315,729		302,994
		Income taxes payable				11,563		10,435		Income taxes payable				7,537		7,895
		Accrued liabilities				98,235		97,878		Accrued liabilities				127,205		139,531
				Total current liabilities		490,236		537,159				Total current liabilities		459,339		459,245
	Long-term debt, less current installments					145,205		147,277	Long-term debt, less current installments					231,798		138,912
	Operating lease liabilities					70,859		—	Operating lease liabilities					67,009		67,898
	Other long-term liabilities					69,537		68,799	Other long-term liabilities					64,367		65,483
	Deferred income taxes					14,368		14,323	Deferred income taxes					11,247		13,504
	Shareholders’ equity:								Shareholders’ equity:
		Preferred stock, $0.10 par value; 5,000 shares authorized, none issued				—		—		Preferred stock, $0.10 par value; 5,000 shares authorized, none issued				—		—
		Common stock, $0.10 par value; 145,000 shares authorized; issued								Common stock, $0.10 par value; 145,000 shares authorized; issued
			and outstanding – 39,169 and 41,357, respectively			3,917		4,136			and outstanding – 36,415 and 36,957, respectively			3,642		3,696
		Additional paid-in capital				530,261		554,939		Additional paid-in capital				505,283		512,019
		Retained earnings				557,804		584,274		Retained earnings				502,692		515,876
		Accumulated other comprehensive loss				(13,257)		(11,124)		Accumulated other comprehensive loss				(21,995)		(16,759)
				Total shareholders’ equity		1,078,725		1,132,225				Total shareholders’ equity		989,622		1,014,832
		Commitments and contingencies								Commitments and contingencies
					$	1,868,930	$	1,899,783					$	1,823,382	$	1,759,874

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income ~~(Loss)~~

(unaudited)

		Three Months Ended					Three Months Ended
		March 31,					March 31,
(in thousands, except per share data)	(in thousands, except per share data)		2019		2018	(in thousands, except per share data)		2020		2019


Sales	Sales	$	602,820	$	608,136	Sales	$	514,964	$	602,820
Cost of sales	Cost of sales		549,020		549,818	Cost of sales		471,603		552,783
	Gross profit		53,800		58,318	Gross profit		43,361		50,037
Selling, general and administrative expenses	Selling, general and administrative expenses		33,770		35,750	Selling, general and administrative expenses		31,575		30,007
Amortization of intangible assets	Amortization of intangible assets		2,367		2,366	Amortization of intangible assets		2,381		2,367
Restructuring charges and other costs	Restructuring charges and other costs		1,576		2,235	Restructuring charges and other costs		2,915		1,576
	Income from operations		16,087		17,967	Income from operations		6,490		16,087
Interest expense	Interest expense		(1,609)		(2,428)	Interest expense		(1,702)		(1,609)
Interest income	Interest income		1,297		1,933	Interest income		599		1,297
Other income, net			1,604		43
Other income (expense), net						Other income (expense), net		(662)		1,604
	Income before income taxes		17,379		17,515	Income before income taxes		4,725		17,379
Income tax expense	Income tax expense		3,606		41,156	Income tax expense		873		3,606
	Net income (loss)	$	13,773	$	(23,641)	Net income	$	3,852	$	13,773

Earnings (loss) per share:
Earnings per share:						Earnings per share:
	Basic	$	0.34	$	(0.49)	Basic	$	0.10	$	0.34
	Diluted	$	0.34	$	(0.49)	Diluted	$	0.10	$	0.34

Weighted-average number of shares outstanding:	Weighted-average number of shares outstanding:					Weighted-average number of shares outstanding:
	Basic		40,630		48,517	Basic		36,790		40,630
	Diluted		40,853		48,517	Diluted		37,071		40,853

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

Three Months Ended

March 31,
(in thousands)

2019

2018

Net income (loss)
$
13,773

$
(23,641)
Other comprehensive income (loss):

Foreign currency translation adjustments

(833)

1,332

Unrealized gain (loss) on derivative, net of tax

(1,285)

833

Other

(15)

—
Other comprehensive income (loss):

(2,133)

2,165

Comprehensive income (loss)
$
11,640

$
(21,476)

			Three Months Ended
			March 31,
(in thousands)				2020		2019


Net income			$	3,852	$	13,773
Other comprehensive income (loss):
	Foreign currency translation adjustments			(1,257)		(833)
	Unrealized loss on derivative, net of tax			(4,094)		(1,285)
	Other			115		(15)
Other comprehensive loss:				(5,236)		(2,133)
		Comprehensive income (loss)	$	(1,384)	$	11,640

~~BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Shareholders’ Equity~~

~~(unaudited)~~

Accumulated

Common Stock

Additional

Other

Total

Shares

Par

Paid-in

Retained

Comprehensive
Shareholders’
(in thousands)

Outstanding

Value

Capital

Earnings

Loss

Equity

Balances, December 31, 2018
41,357

$ 4,136

$ 554,939

$ 584,274

$ (11,124)

$ 1,132,225
Stock-based compensation expense

—

—

2,772

—

—

2,772
Shares repurchased and retired

(2,383)

(239)

(26,473)

(34,368)

—

(61,080)
Stock options exercised

13

1

278

—

—

279
Vesting of restricted stock units

227

23

(23)

—

—

—
Shares withheld for taxes

(45)

(4)

(1,232)

—

—

(1,236)
Dividends declared

—

—

—

(5,875)

—

(5,875)
Net income

—

—

—

13,773

—

13,773
Other comprehensive loss

—

—

—

—

(2,133)

(2,133)
Balances, March 31, 2019

39,169

$ 3,917

$ 530,261

$ 557,804

$ (13,257)

$ 1,078,725

Balances, December 31, 2017
49,143

$ 4,914

$ 634,192

$ 708,181

$ (8,149)

$ 1,339,138
Stock-based compensation expense

—

—

2,870

—

—

2,870
Shares repurchased and retired

(1,911)

(191)

(31,252)

(36,938)

—

(68,381)
Stock options exercised

168

17

3,062

—

—

3,079
Vesting of restricted stock units

198

20

(20)

—

—

—
Shares withheld for taxes

(26)

(3)

(760)

—

—

(763)
Dividends declared

—

—

—

(7,136)

—

(7,136)
Net loss

—

—

—

(23,641)

—

(23,641)
Other comprehensive income

—

—

—

—

2,165

2,165
Balances, March 31, 2018

47,572

$ 4,757

$ 608,092

$ 640,466

$ (5,984)

$ 1,247,331

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

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

(unaudited)

Three Months Ended

March 31,
(in thousands)

2019

2018

Cash flows from operating activities:

Net income (loss)
$
13,773

$
(23,641)

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

operating activities:

Depreciation

9,319

9,541

Amortization

2,853

2,843

Provision for doubtful accounts

(1,661)

—

Deferred income taxes

685

39,000

(Gain) loss on the sale of property, plant and equipment

2

(46)

Stock-based compensation expense

2,772

2,870

Leases

543

—

Changes in operating assets and liabilities:

Accounts receivable

64,176

33,419

Contract assets

(16,943)

(1,127)

Inventories

(5,862)

(38,210)

Prepaid expenses and other assets

3,056

5,944

Accounts payable

(45,914)

2,337

Accrued liabilities

(11,044)

(9,116)

Income taxes

659

716

Net cash provided by operations

16,414

24,530
Cash flows from investing activities:

Additions to property, plant and equipment

(9,326)

(20,059)

Proceeds from the sale of property, plant and equipment

1

57

Additions to purchased software

(748)

(818)

Other

(98)

(179)

Net cash used in investing activities

(10,171)

(20,999)
Cash flows from financing activities:

Proceeds from stock options exercised

279

3,079

Employee taxes paid for shares withheld

(1,236)

(763)

Dividends paid

(6,203)

—

Borrowings under credit agreement

—

50,000

Principal payments on long-term debt

(274)

(54,551)

Share repurchases

(61,080)

(58,381)

Equity forward contract related to accelerated share repurchase

—

(10,000)

Net cash used in financing activities

(68,514)

(70,616)
Effect of exchange rate changes

(515)

866
Net decrease in cash and cash equivalents

(62,786)

(66,219)

Cash and cash equivalents at beginning of year

458,102

742,546

Cash and cash equivalents at end of period
$
395,316

$
676,327

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

Balances, December 31, 2019		36,957	$ 3,696	$ 512,019	$ 515,876		$ (16,759)	$ 1,014,832
Stock-based compensation expense		—	—	2,739	—		—	2,739
Shares repurchased and retired		(724)	(73)	(8,048)	(11,208)		—	(19,329)
Stock options exercised		16	2	357	—		—	359
Vesting of restricted stock units		236	24	(24)	—		—	—
Shares withheld for taxes		(70)	(7)	(1,760)	—		—	(1,767)
Dividends declared		—	—	—	(5,828)		—	(5,828)
Net income		—	—	—	3,852		—	3,852
Other comprehensive loss		—	—	—	—		(5,236)	(5,236)
Balances, March 31, 2020		36,415	$ 3,642	$ 505,283	$ 502,692		$ (21,995)	$ 989,622

Balances, December 31, 2018		41,357	$ 4,136	$ 554,939	$ 584,274		$ (11,124)	$ 1,132,225
Stock-based compensation expense		—	—	2,772	—		—	2,772
Shares repurchased and retired		(2,383)	(239)	(26,473)	(34,368)		—	(61,080)
Stock options exercised		13	1	278	—		—	279
Vesting of restricted stock units		227	23	(23)	—		—	—
Shares withheld for taxes		(45)	(4)	(1,232)	—		—	(1,236)
Dividends declared		—	—	—	(5,875)		—	(5,875)
Net income		—	—	—	13,773		—	13,773
Other comprehensive loss		—	—	—	—		(2,133)	(2,133)
Balances, March 31, 2019		39,169	$ 3,917	$ 530,261	$ 557,804		$ (13,257)	$ 1,078,725

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

Three Months Ended

March 31,
(in thousands)

2020

2019

Cash flows from operating activities:

Net income
$
3,852

$
13,773

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

operating activities:

Depreciation

9,301

9,319

Amortization

2,891

2,853

Provision for doubtful accounts

—

(1,661)

Deferred income taxes

(885)

685

(Gain) loss on the sale of property, plant and equipment

(31)

2

Asset impairments

1,007

—

Stock-based compensation expense

2,739

2,772

Changes in operating assets and liabilities:

Accounts receivable

6,414

64,176

Contract assets

1,099

(16,943)

Inventories

(23,769)

(5,862)

Prepaid expenses and other assets

(3,110)

3,056

Accounts payable

14,882

(45,914)

Accrued liabilities

(17,166)

(11,044)

Operating leases

(83)

543

Income taxes

(250)

659

Net cash provided by (used in) operations

(3,109)

16,414
Cash flows from investing activities:

Additions to property, plant and equipment

(11,856)

(9,326)

Proceeds from the sale of property, plant and equipment

7

1

Additions to purchased software

(1,040)

(748)

Cash received from business divestitures

1,341

—

Other

57

(98)

Net cash used in investing activities

(11,491)

(10,171)
Cash flows from financing activities:

Proceeds from stock options exercised

359

279

Employee taxes paid for shares withheld

(1,767)

(1,236)

Dividends paid

(5,538)

(6,203)

Borrowings under credit agreement

110,000

—

Principal payments on long-term debt

(17,187)

(274)

Share repurchases

(19,329)

(61,080)

Net cash provided by (used in) financing activities

66,538

(68,514)
Effect of exchange rate changes

(4,108)

(515)
Net increase (decrease) in cash and cash equivalents and restricted cash

47,830

(62,786)

Cash and cash equivalents and restricted cash at beginning of year

363,956

458,102

Cash and cash equivalents and restricted cash at end of period
$
411,786

$
395,316

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

Note 1 – Basis of Presentation

Benchmark Electronics, Inc. (the Company) is a Texas corporation that provides innovative product design, engineering services, technology solutions and advanced manufacturing services. From initial product concept to volume production, including direct order fulfillment and aftermarket services, the Company has been providing integrated services and solutions to original equipment manufacturers (OEMs) since 1979. The Company serves the following industries: aerospace and defense (A&D), medical technologies, complex industrials, ~~test and instrumentation,~~semiconductor capital equipment (Semi-Cap), next-generation telecommunications and ~~high-end~~advanced computing. The Company has manufacturing operations located in the United States and Mexico (the Americas), Asia and Europe.

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The financial statements reflect all normal and recurring adjustments necessary in the opinion of management for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s ~~annual report~~Annual Report on Form ~~10‑K~~10-K for the year ended December 31, ~~2018~~2019 (the ~~2018~~2019 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~~ with consideration given to the potential impacts of the coronavirus disease 2019 (COVID-19) pandemic. However, actual results could differ materially from ~~those~~these estimates and ~~assumptions.~~be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that results from the pandemic.

For comparative purposes and based on ongoing evaluation of personnel roles involved in the production process, prior year expenses associated with certain personnel have been reclassified from selling, general and administrative expenses to cost of goods sold to conform to the current year presentation.

Note 2 – New Accounting Pronouncements

Adopted in ~~2019~~2020

In ~~February~~June 2016, the Financial Accounting Standards Board (FASB)issued Accounting Standards Update (ASU) No. ~~2016-02,~~ ~~Leases~~2016-13, Financial Instruments – Credit Losses (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 right-to-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability~~326): Measurement of Credit Losses on ~~the balance sheet for all leases with a term longer than 12 months.~~

The Company adopted this standard on its effective date of January 1, 2019 using the effective date as its date of initial application under the modified retrospective approach. Therefore, financial information for prior periods were not restated. Management elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, which permits the Company to carry forward its original assessment about lease identification, lease classification and initial directs costs.For all new and modified leases after adoption, management elected the short-term lease recognition exemption for all of the Company’s leases that qualify, in addition to the practical expedient to not separate lease and nonlease components.

Lease assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate, unless the 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 lease~~ ~~when it is reasonably certain that those options will be exercised.~~ ~~Leases are classified as finance or operating, with classification affecting the pattern and~~

~~classification of expense recognition in the income statement. See Note 19.~~

~~Not Yet Adopted~~

~~In June 2016, the FASB issued a new accounting standards update,~~Financial Instruments, 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~~adopted this update effective January 1, 2020 and the implementation of this update todid not have a material impact on its consolidated financial position, results of operations or cash ~~flows, and will adopt this update effective January 1, 2020.~~flows.

Not Yet Adopted

The Company has determined that other recently issued accounting standards will either have no material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations.

Note 3 – ~~Revenue~~Contract Assets

As of March 31, 2020 and December 31, 2019, the Company had $160.0 million and $161.1 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:

	Three Months Ended
	March 31,
(in thousands)		2020		2019
Beginning balance as of December 31,	$	161,061	$	140,082
Revenue recognized		464,727		564,889
Amounts collected or invoiced		(465,826)		(547,946)
Ending balance as of March 31,	$	159,962	$	157,025

Note 4 – Inventories
Inventory costs are summarized as follows:
	March 31,		December 31,
(in thousands)		2020		2019

Raw materials	$	326,924	$	304,069
Work in process		7,941		8,282
Finished goods		3,572		2,605
	$	338,437	$	314,956

Note 5 – Goodwill and Other Intangible AssetsGoodwill allocated to the Company’s reportable segments was as follows:

(in thousands)		Americas		Asia		Total
Goodwill as of December 31, 2019 and March 31, 2020	$	154,014	$	38,102	$	192,116

Other assets, net consist primarily of acquired identifiable intangible assets and capitalized purchased software costs. Intangible assets as of March 31, 2020 and December 31, 2019 were as follows:

		As of March 31, 2020
		Gross				Net
		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount
Customer relationships	$	100,102	$	(48,545)	$	51,557
Purchased software costs		42,569		(32,348)		10,221
Technology licenses		28,800		(24,890)		3,910
Trade names and trademarks		7,800		—		7,800
Other		868		(315)		553
Total	$	180,139	$	(106,098)	$	74,041





		As of December 31, 2019
		Gross				Net
		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount
Customer relationships	$	100,123	$	(46,981)	$	53,142
Purchased software costs		41,604		(32,012)		9,592
Technology licenses		28,800		(24,100)		4,700
Trade names and trademarks		7,800		—		7,800
Other		868		(309)		559
Total	$	179,195	$	(103,402)	$	75,793

Customer relationships are being amortized on a straight-line basis over a period of 10 to 14 years. Capitalized purchased software costs are amortized straight-line over the estimated useful life of the related software, which ranges from 2 to 10 years. Technology licenses are being amortized over their estimated useful lives in proportion to the economic benefits consumed. 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 three months ended March 31, 2020 and 2019 was as follows:

	Three Months Ended
	March 31,
(in thousands)		2020		2019
Amortization of intangible assets	$	2,381	$	2,367
Amortization of capitalized purchased software costs		395		371
Amortization of debt costs		115		115
	$	2,891	$	2,853

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
2020 (remaining nine months)	$	7,906
2021		8,091
2022		7,949
2023		6,719
2024		5,555

Note 6—Borrowing FacilitiesLong-term debt outstanding as of March 31, 2020 and December 31, 2019 consists of the following:

			March 31,	December 31,
(in thousands)			2020		2019
	Revolving credit facility, due 2023	$	95,000	$	—
	Term loan, due 2023		142,500		144,375
	Less unamortized debt issuance costs		(1,502)		(1,616)
	Long-term debt	$	235,998	$	142,759

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 5-year $500 million revolving credit facility (the Revolving Credit Facility) and a 5-year $150 million term loan facility (the Term Loan Facility), both with a maturity date of July 20, 2023. The Term Loan Facility proceeds were used to (i) refinance a portion of existing indebtedness and terminate all commitments under the Company’s prior $430 million credit agreement 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 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 March 31, 2020, $142.5 million of the outstanding debt under the Credit Agreement is effectively at a fixed interest rate of 2.928% (plus the applicable margin) as a result of a $142.5 million notional interest rate swap contract discussed in Note 16. A commitment fee of 0.20% to 0.30% per annum (based on the debt to EBITDA ratio) on the unused portion of the revolving credit line is payable quarterly in arrears.

The Credit Agreement is generally secured by a pledge of (a) all the capital stock of the Company’s domestic subsidiaries and 65% of the capital stock of its directly owned foreign subsidiaries, (b) all or substantially all other personal property of Benchmark and its domestic subsidiaries (including, but not limited to, accounts receivable, contract assets, inventory, intellectual property and fixed assets of Benchmark and its domestic subsidiaries), in each case, subject to customary exceptions and limitations, and (c) all proceeds and products of the property and assets described in (a) and (b) above.

The Credit Agreement contains certain financial covenants as to interest coverage and debt leverage, and certain customary affirmative and negative covenants, including restrictions on the Company’s ability to incur additional debt and liens, pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. Amounts due under the Credit Agreement could be accelerated upon specified events of default, including a failure to pay amounts due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject, in some cases, to cure periods.

As of March 31, 2020, the Company had $142.5 million in borrowings outstanding under the Term Loan Facility and $95.0 million in borrowings and $3.7 million in letters of credit outstanding under the Revolving Credit Facility, respectively. The Company had $401.3 million available for future borrowings under the Revolving Credit Facility subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions.

Note 7 – Leases

The Company determines if a contract is or contains a lease at inception. The Company has entered into leases for certain facilities, vehicles and other equipment. The Company’s leases consist mainly of operating leases which expire at various dates through 2036. Variable lease payments are generally expensed as incurred and include certain index-based changes in rent, certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease.

The components of lease expense were as follows:

		Three Months Ended
(in thousands)		March 31, 2020			March 31, 2019
Finance lease cost:
	Amortization of right-to-use assets (included in depreciation expense)		$	178		$	178
	Interest on lease liabilities			118			146
Operating lease cost				4,141			4,448
Short-term lease cost				241			200
Variable lease cost				510			366
	Total lease cost		$	5,188		$	5,338


		Three Months Ended
		March 31, 2020			March 31, 2019
Other information:
	Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows used for finance lease		$	127		$	157
	Operating cash flows used for operating leases		$	3,988		$	3,835
	Financing cash flows used for finance lease		$	312		$	273
	Right-to-use assets obtained in exchange for new operating lease liabilities		$	4,183		$	660

The lease assets and liabilities were as follows (in thousands):

	March 31,			December 31,
			2020			2019
Finance lease right-of-assets (included in other assets)		$	2,133		$	2,311
Operating lease right-of-use assets		$	77,033		$	76,859
Finance liability, current (included in current installments of long-term debt)		$	1,368		$	1,325
Finance lease liability, noncurrent (included in long-term debt)		$	3,300		$	3,654
Operating lease liabilities, current (included in accrued liabilities)		$	12,023		$	11,043
Operating lease liabilities, noncurrent		$	67,009		$	67,898
Weighted average remaining lease term – finance leases		3.3 years			3.5 years
Weighted average remaining lease term – operating leases		9.9 years			10.2 years
Weighted average discount rate – finance leases			10.1%			10.1%
Weighted average discount rate – operating leases			4.7%			4.7%

Future annual minimum lease payments and finance lease commitments as of March 31, 2020 were as follows (in thousands):

		Operating			Finance
Year ending December 31,			Leases		Leases
	2020 (remaining nine months)	$	15,374	$	1,342
	2021		12,658		1,816
	2022		10,655		1,853
	2023		9,590		465
	2024		8,556		—
	2025 and thereafter		43,802		—
	Total minimum lease payments	$	100,635	$	5,476
	Less: imputed interest		(21,603)		(808)
	Present value of lease liabilities	$	79,032	$	4,668

As of March 31, 2020, the Company’s future operating leases that have not yet commenced are immaterial.

Note 8 – Common Stock and Stock-Based Awards Plans

Dividends

The Company began declaring and paying quarterly dividends during the first quarter of 2018. For the three months ended March 31, 2020, cash dividends paid totaled $5.5 million. On March 16, 2020, the Company declared a quarterly cash dividend of $0.16 per share of the Company’s common stock to shareholders of record as of March 31, 2020. The dividend in the aggregate amount of $5.8 million was paid on April 14, 2020. The Company’s future dividend policy is subject to the Company’s compliance with applicable law, and depending on, among other things, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the Board of Directors may deem relevant, including the impact of the COVID-19 pandemic. Dividend payments are not mandatory or guaranteed; there can be no assurance that the Company will continue to pay a dividend in the future.

Share Repurchase Authorization

On February 19, 2020, the Board of Directors authorized a $150 million increase to its existing stock repurchase program. On October 26, 2018, the Board of Directors authorized the repurchase of $100 million of the Company’s common stock in addition to the $250 million previously approved on March 6, 2018. As of March 31, 2020, the Company had an aggregate $210.1 million remaining under its stock repurchase program.

Stock-Based Compensation

The Company’s 2019 Omnibus Incentive Compensation Plan (the 2019 Plan) authorizes the Company, upon approval of the Compensation Committee of the Board of Directors, to grant a variety of awards, including stock options, restricted shares and restricted stock units (both time-based and performance-based) and other forms of equity awards, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options (which have not been awarded since 2015) are granted to employees with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally vest over a four-year period from the date of grant and have a term of 10 years. Time-based restricted stock units granted to employees generally vest over a four-year period from the date of grant, subject to the continued employment of the employee by the Company. Performance-based restricted stock units generally vest over a three-year performance cycle, which includes the year of the grant, and are based upon the Company’s achievement of specified performance metrics. Awards under the 2019 Plan to non-employee directors

have been in the form of restricted stock units, which vest in equal annual installments over a one-year period, starting on the grant date.

As of March 31, 2020, 2.8 million additional common shares were available for issuance under the Company’s 2019 Plan.

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. The total compensation cost recognized for stock-based awards was $2.7 million and $2.8 million for the three months ended March 31, 2020 and 2019, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for stock-based awards was $0.7 million for each of the three months ended March 31, 2020 and 2019. Awards of restricted stock units and performance-based restricted stock units are valued at the closing market price of the Company’s common stock on the date of grant. For performance-based restricted stock units, compensation expense is based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on the Company’s expectation of performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a change in accounting estimate.

As of March 31, 2020, the unrecognized compensation cost and remaining weighted-average amortization period related to stock-based awards were as follows:

		Performance-
	Time-based	based
	Restricted	Restricted
	Stock	Stock
(in thousands, except remaining period data)	Units	Units⁽¹⁾
Unrecognized compensation cost	$ 27,462	$ 7,009
Remaining weighted-average
amortization period	3 years	2.2 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 three months ended March 31, 2020 and 2019 was approximately $0.4 million and $0.3 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during each of the three months ended March 31, 2020 and 2019 was $1.4 million. For each of the three months ended March 31, 2020 and 2019, the total intrinsic value of stock options exercised was $0.1 million.

The Company awarded performance-based restricted stock units to employees during the three months ended March 31, 2020 and 2019. The number of performance-based restricted stock units that will ultimately be earned will not be determined until the end of the corresponding performance periods, and may vary from as low as zero to as high as 2.5 times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue, operating income margin, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for issuance under the Company’s 2019 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, 2019	270	$20.02
Exercised	(19)	22.82
Outstanding and exercisable as of March 31, 2020	251	$19.80	3.16	$ 406

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company’s closing stock price as of the last business day of the period ended March 31, 2020 for options that had exercise prices that were below the closing price.

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

		Weighted-
	Number of	Average
	Units	Grant Date
	(in thousands)	Fair Value
Non-vested awards outstanding as of December 31, 2019	893	$28.06
Granted	456	27.76
Vested	(236)	27.98
Forfeited	(16)	28.63
Non-vested awards outstanding as of March 31, 2020	1,097	$27.94

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

		Weighted-
	Number of	Average
	Units	Grant Date
	(in thousands)	Fair Value
Non-vested awards outstanding as of December 31, 2019	384	$28.89
Granted ⁽¹⁾	165	28.02
Forfeited	(181)	30.04
Non-vested awards outstanding as of March 31, 2020	368	$27.93

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

Note 9 – Income Taxes
Income tax expense consists of the following:
	Three Months Ended
	March 31,
(in thousands)		2020		2019

Federal – current	$	617	$	675
Foreign – current		986		1,558
State – current		155		688
Deferred		(885)		685
	$	873	$	3,606

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 the global intangible low-taxed income (GILTI) provisions. GILTI requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiaries tangible fixed assets. The taxable earnings can be offset by a limited deemed paid foreign tax credit with no carrybacks or carryforwards available. The company accounts for the GILTI as a period cost and does not include it as a factor in the determination of deferred taxes.

As of December 31, 2019, the Company had approximately $313.9 million in cumulative undistributed foreign earnings of its foreign subsidiaries. These earnings would not be subject to U.S. income tax, if distributed to the Company. During 2018, the Company changed its assertion on its foreign subsidiaries earnings that are permanently reinvested. A certain amount of earnings from specific foreign subsidiaries are permanently reinvested, and certain foreign earnings from other specific foreign subsidiaries are considered to be non-permanently reinvested and are available for immediate distribution to the Company. Income taxes have been accrued on the non-permanently reinvested foreign earnings including any applicable local withholding taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in the United States in response to the COVID-19 pandemic. The CARES Act among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021, and contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The Company has evaluated the impact of these provisions and has determined these provisions did not have any impact on the three months ended March 31, 2020. In addition, the CARES Act allows for employee retention tax credits to be taken in future US payroll tax filings and allows for the deferral of certain future employer portion of social security tax with 50% to be paid at the end of calendar years 2021 and 2022, respectively. The Company is currently evaluating the benefits of these items for future periods.

The Company has been granted certain tax incentives, including tax holidays, for its subsidiaries in Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2021 in Malaysia and 2028 in Thailand, and are subject to certain conditions with which the Company expects to comply. The net impact of these tax incentives was to lower income tax expense for the three months ended March 31, 2020 and 2019 by approximately $0.8 million (approximately $0.02 per diluted share) and $1.7 million (approximately $0.04 per diluted share), respectively, as follows:

	Three Months Ended
	March 31,
(in thousands)		2020		2019
Malaysia		476		646
Thailand		318		1,030
	$	794	$	1,676

As of March 31, 2020, the total amount of the reserve for uncertain tax benefits including interest and penalties was $0.6 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 Company and its subsidiaries in Brazil, China, Ireland, Malaysia, Mexico, the Netherlands, Romania, Singapore, Thailand and the United States remain open to examination by the various local taxing authorities, in total or in part, for fiscal years 2012 to 2019. Currently, the Company does not have any ongoing income tax examinations by any jurisdiction. During the course of such income tax examinations, disputes may occur as to matters of fact or law. Also, in most tax jurisdictions, the passage of time without examination will result in the expiration of applicable statutes of limitations thereby precluding examination of the tax period(s) for which such statute of limitation has expired. The Company believes that it has adequately provided for its tax liabilities.

Note 10 – Revenue

The Company’s revenues are generated primarily from the sale of manufactured products built to customer specifications. The Company also generates revenue from design, development and engineering services, in addition to the sale of other inventory.

Revenue is measured based on 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.

715

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 March 31, 2019									Three Months Ended March 31, 2020
(in thousands)	(in thousands)		Americas		Asia		Europe		Total	(in thousands)		Americas		Asia		Europe		Total
Market Sector:	Market Sector:									Market Sector:
	Industrials	$	42,767	$	55,582	$	17,416	$	115,765	Industrials	$	33,945		48,225		20,656	$	102,826
	A&D		96,337		—		7,552		103,889	A&D		113,012		—		6,188		119,200
	Medical		58,411		40,459		4,608		103,478	Medical		69,379		44,203		4,394		117,976
	Test and instrumentation		28,400		24,743		12,878		66,021	Semi-Cap		30,449		37,292		14,979		82,720
	Computing		110,268		14,009		33		124,310	Computing		30,074		6,527		—		36,601
	Telecommunication		42,773		45,256		1,328		89,357	Telecommunication		26,649		28,659		333		55,641
	External revenue		378,956		180,049		43,815		602,820	External revenue		303,508		164,906		46,550		514,964
	Elimination of intersegment sales		13,102		7,360		145		20,607	Elimination of intersegment sales		10,888		6,703		450		18,041
	Segment revenue	$	392,058	$	187,409	$	43,960	$	623,427	Segment revenue	$	314,396	$	171,609	$	47,000	$	533,005


			Reportable Operating Segments									Reportable Operating Segments
			Three Months Ended March 31, 2018									Three Months Ended March 31, 2019
(in thousands)	(in thousands)		Americas		Asia		Europe		Total	(in thousands)		Americas		Asia		Europe		Total
Market Sector:	Market Sector:									Market Sector:
	Industrials	$	52,687	$	54,787	$	18,174	$	125,648	Industrials	$	42,767	$	55,582	$	18,024	$	116,373
	A&D		87,796		—		8,323		96,119	A&D		96,337		—		7,552		103,889
	Medical		54,992		38,263		3,819		97,074	Medical		58,411		40,459		4,608		103,478
	Test and instrumentation		46,030		39,233		17,112		102,375	Semi-Cap		28,400		24,743		12,878		66,021
	Computing		86,221		14,900		2,417		103,538	Computing		110,268		14,009		33		124,310
	Telecommunication		44,393		38,085		904		83,382	Telecommunication		42,773		45,256		720		88,749
	External revenue		372,119		185,268		50,749		608,136	External revenue		378,956		180,049		43,815		602,820
	Elimination of intersegment sales		6,666		9,854		47		16,567	Elimination of intersegment sales		13,102		7,360		145		20,607
	Segment revenue	$	378,785	$	195,122	$	50,796	$	624,703	Segment revenue	$	392,058	$	187,409	$	43,960	$	623,427

For ~~both~~ the three months ended March 31, 2020 and 2019, 90% and ~~2018,~~ 94%, respectively, of the Company’s revenue was recognized as products and services transferred over time.

Note 411 – ~~Stock-Based Compensation~~Accounts Receivable Sale Program

The Company’s 2010 Omnibus Incentive Compensation Plan (the 2010 Plan) authorizes the Company, upon approval of the Compensation Committee of the Board of Directors, to grant a variety of awards, including stock options, restricted shares and restricted stock units (both time-based and performance-based) and other forms of equity awards, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options (which have not been awarded since 2015) are granted to employees with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally vest over a four-year period from the date of grant and have a term of 10 years. Time-based restricted stock units granted to employees generally vest over a four-year period from the date of grant, subject to the continued employment of the employee by the Company. Performance-based restricted stock units generally vest over

a three-year performance cycle, which includes the year of the grant, and are based upon the Company’s achievement of specified performance metrics. Awards under the 2010 Plan to non-employee directors have been in the form of restricted stock units, which vest in equal quarterly installments over a one-year period, starting on the grant date.

As of March 31, ~~2019, 1.5~~2020, in connection with three trade accounts receivable sale programs with unaffiliated financial institutions, the Company may elect to sell, at a discount, on an ongoing basis, up to a maximum of $120.0 million ~~additional common shares were available for issuance under the Company’s 2010 Plan.~~of specific accounts receivable at any one time.

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 million and $2.9 million for~~During the three months ended March 31, ~~2019~~2020 and 2018, respectively. The total income tax benefit recognized in the condensed consolidated income statement for stock-based awards was $0.7 million for each of the three months ended March 31, 2019 and 2018. Awards of restricted stock units and performance-based restricted stock units are valued at the closing market price of the Company’s common stock on the date of grant. For performance-based restricted stock units, compensation expense is based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on the Company’s expectation of performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a change in accounting estimate.

~~As of March 31, 2019, the unrecognized compensation cost and remaining weighted-average amortization period related to stock-based awards were as follows:~~

Performance-

Time-based

based

Restricted

Restricted

Stock

Stock
(in thousands, except remaining period data)

Units

Units⁽¹⁾
Unrecognized compensation cost

$ 25,211

$ 6,964
Remaining weighted-average

amortization period

3.2 years

2.1 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 three months ended March 31, 2019 and 2018 was approximately $0.3 million and $3.1 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the three months ended March 31, 2019 and 2018 was $1.4 million and $1.8 million, respectively. For the three months ended March 31, 2019 and 2018, the total intrinsic value of stock options exercised was $0.1 million and $2.0 million, respectively.

The Company awarded performance-based restricted stock units to employees during the three months ended March 31, 2019 and 2018. The number of performance-based restricted stock units that will ultimately be earned will not be determined until the end of the corresponding performance periods, and may vary from as low as zero to as high as 2.5 times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue growth, operating margin expansion, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not

~~vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for issuance under the Company’s 2010 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, 2018

374

$20.35

Exercised

(13)

21.82

Outstanding as of March 31, 2019

361

$20.29

4.10

$ 2,150
Exercisable as of March 31, 2019

361

$20.29

4.10

$ 2,150

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company’s closing stock price as of the last business day of the period ended March 31, 2019 for options that had exercise prices that were below the closing price.

~~As of March 31, 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-

Number of

Average

Units

Grant Date

(in thousands)

Fair Value
Non-vested awards outstanding as of December 31, 2018

595

$28.93
Granted

537

27.63
Vested

(170)

27.70
Forfeited

(18)

30.42
Non-vested awards outstanding as of March 31, 2019

944

$28.38

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

Weighted-

Number of

Average

Units

Grant Date

(in thousands)

Fair Value
Non-vested awards outstanding as of December 31, 2018

319

$29.19
Granted ⁽¹⁾

188

27.51
Vested

(57)

31.40
Forfeited

(74)

21.01
Non-vested awards outstanding as of March 31, 2019

376

$28.96

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

~~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

March 31,
(in thousands, except per share data)

2019

2018
Net income (loss)

$
13,773

$
(23,641)

Denominator for basic earnings per share - weighted-average number of

common shares outstanding during the period

40,630

48,517
Incremental common shares attributable to exercise of dilutive options

76

—
Incremental common shares attributable to outstanding restricted

stock units

147

—
Denominator for diluted earnings per share

40,853

48,517

Basic earnings (loss) per share

$0.34

$(0.49)
Diluted earnings (loss) per share

$0.34

$(0.49)

~~Restricted stock units totaling 0.1 million shares for the three months ended March 31, 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 three months ended March 31, 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, 2018 and March 31, 2019
$
154,014
$
38,102
$
192,116

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

As of March 31, 2019

Gross

Net

Carrying

Accumulated

Carrying
(in thousands)

Amount

Amortization

Amount
Customer relationships
$
100,123

$
(42,224)

$
57,899
Purchased software costs

39,811

(30,991)

8,820
Technology licenses

28,800

(21,781)

7,019
Trade names and trademarks

7,800

—

7,800
Other

868

(291)

577
Total
$
177,402

$
(95,287)

$
82,115

As of December 31, 2018

Gross

Net

Carrying

Accumulated

Carrying
(in thousands)

Amount

Amortization

Amount
Customer relationships
$
100,146

$
(40,661)

$
59,485
Purchased software costs

39,069

(30,626)

8,443
Technology licenses

28,800

(21,006)

7,794
Trade names and trademarks

7,800

—

7,800
Other

868

(285)

583
Total
$
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 amortized straight-line over the estimated useful life of the related software, which ranges from 2 to 10 years. Technology licenses are being amortized over their estimated useful lives in proportion to the economic benefits consumed. 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 three months ended March 31, 2019 and 2018 was as follows:~~

Three Months Ended

March 31,
(in thousands)

2019

2018
Amortization of intangible assets
$
2,367

$
2,366
Amortization of capitalized purchased software costs

371

259
Amortization of debt costs

115

218

$
2,853

$
2,843

~~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
2019 (remaining nine months)
$
8,240
2020

10,215
2021

7,136
2022

6,943
2023

6,543

~~Note 7 – Borrowing Facilities~~

On July 20, 2018, the Company entered into a $650 million credit agreement (the Credit Agreement) by and among the Company, certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender and a L/C Issuer. The Credit Agreement is comprised of a five-year $500 million revolving credit facility (the Revolving Credit Facility) and a five-year $150 million term loan facility (the Term Loan Facility), both with a maturity date of July 20, 2023. The Term Loan Facility proceeds were used to (i) refinance a portion of existing indebtedness and terminate all commitments under the Company’s prior $430 million credit agreement and (ii) pay the fees, costs and expenses associated with the foregoing and the negotiation, execution and delivery of the Credit Agreement.

~~The 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.~~

As of March 31, 2019, $150.0 million of the outstanding debt under the Credit Agreement is effectively at a fixed interest rate as a result of a $150.0 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.

~~March 31,~~ 2019, the Company sold $76.4 million and $52.9 million, respectively, of accounts receivable under this program, and in exchange, the Company received cash proceeds of $76.3 million and $52.7 million, respectively, net of the discount. The loss on the sale resulting from the discount was recorded to other income (expense), net within the Condensed Consolidated Statements of Income.

Note 12 – Contingencies

The Company is involved in ~~compliance with all~~various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these ~~covenants and restrictions.~~matters will not have a material adverse effect on the

Company’s consolidated financial position or results of March 31, 2019, the Company had $150.0 million in borrowings outstanding under the Term Loan Facility and $2.8 million in letters of credit outstanding under the Revolving Credit Facility. The Company had $497.2 million available for future borrowings under the Revolving Credit Facility.operations.

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 $11.0 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 2020. As of both March 31, 2019 and December 31, 2018, there were no working capital borrowings outstanding under the facility.

~~Note 8 – Contract Assets~~

As of March 31, 2019 and December 31, 2018, the Company had $157.0 million and $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:~~

Three Months Ended

March 31,
(in thousands)

2019

2018
Beginning balance as of December 31,
$
140,082

$
146,496
Revenue recognized

564,889

561,998
Amounts collected or invoiced

(547,946)

(560,871)
Ending balance as of March 31,
$
157,025

$
147,623

Note 9 – Inventories
Inventory costs are summarized as follows:

March 31,

December 31,
(in thousands)

2019

2018

Raw materials
$
305,603

$
300,439
Work in process

7,524

7,321
Finished goods

2,436

2,215

$
315,563

$
309,975

Note 1013 – ~~Accounts Receivable Sale Program~~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 2020 and 2019 primarily related to facility transitions in the Americas, capacity reduction and reductions in workforce in certain facilities across various regions. The following table summarizes the 2020 activity in the accrued restructuring balances related to the restructuring activities initiated prior to March 31, 2020:

		Balance as of							Foreign			Balance as of
		December 31,		Restructuring			Cash	Non-Cash	Exchange			March 31,
(in thousands)			2019		Charges		Payment	Activity	Adjustments			2020
2020 Restructuring:
	Severance	$	—	$	517	$	(517)	—	$	—	$	—
			—		517		(517)	—		—		—

2019 Restructuring:
	Severance		3,956		(1,183)		(556)	—		—		2,217
	Leased facilities and equipment		—		1,319		(175)	(1,122)		—		22
	Other exit costs		—		1,084		(226)	(538)		—		320
			3,956		1,220		(957)	(1,660)		—		2,559
Total		$	3,956	$	1,737	$	(1,474)	(1,660)	$	—	$	2,559

In addition, during the three months ended March 31, 2020, we incurred $1.0 million in costs related to an asset impairment in Asia.

Note 14—Ransomware Incident

During the fourth quarter ended December 31, 2019, some of the Company’s systems were affected by a ransomware incident that encrypted information on its systems and disrupted customer and employee access to its applications and services. The Company immediately took steps to isolate the impact and implemented measures to prevent additional systems from being affected, including taking its network offline as a precaution. In connection with this incident, third party consultants and forensic experts were engaged to assist with the restoration and remediation of the Company’s systems and, with the assistance of law enforcement, to investigate the incident. The Company has found no evidence that customer or employee data was exfiltrated from its network.

The Company restored connectivity and resumed operations quickly following the ransomware incident. However, fourth quarter 2019 operations were adversely affected by the inefficiencies caused by taking the network offline for a period of time. As a result, the Company’s fourth quarter 2019 revenue was also adversely affected as the Company was unable to fulfill a portion of customer demand during the quarter.

We do have insurance coverage, including cyber insurance, and are working diligently with our insurance carriers on claims to recover costs incurred. We expect that the insurance recovery process will be ongoing throughout 2020.

In 2019, ransomware incident related costs incurred totaled $7.7 million, net of estimated insurance recoveries of $5.0 million. These costs were primarily comprised of certain employee related expenses and various third party consulting services including forensic experts, legal counsel and other IT professional expenses. Further insurance recoveries will be recorded when considered probable.

Note 15 – Earnings Per Share

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

		Three Months Ended
		March 31,
(in thousands, except per share data)			2020		2019
Net income		$	3,852	$	13,773

Denominator for basic earnings per share - weighted-average number of
	common shares outstanding during the period		36,790		40,630
Incremental common shares attributable to exercise of dilutive options			77		76
Incremental common shares attributable to outstanding restricted
	stock units		204		147
Denominator for diluted earnings per share			37,071		40,853

Basic earnings per share			$0.10		$0.34
Diluted earnings per share			$0.10		$0.34

Restricted stock units totaling 9 thousand shares and 0.1 million shares for the three months ended March 31, 2020 and 2019, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Note 16 – Financial Instruments

The Company’s financial instruments include cash equivalents, accounts receivable, other receivables, accounts payable, accrued liabilities and long-term debt. The Company believes that the carrying values of these instruments approximate fair value. The Company uses derivative instruments to manage the variability of foreign currency obligations and interest rates. The Company does not enter into derivatives for speculative purposes. As of March 31, ~~2019,~~2020, all of the Company’s derivative instruments were recorded at fair value using Level 3 inputs.

The forward currency exchange contract in ~~connection~~place as of March 31, 2020 has not been designated as an accounting hedge and, therefore, changes in fair value are recorded within the Condensed Consolidated Statements of Income.

The Company has an interest rate swap agreement, with a ~~trade accounts receivable sale program with an unaffiliated financial institution,~~ notional amount of $142.5 million and $144.4 million as of March 31, 2020 and December 31, 2019, respectively, to hedge a portion of its interest rate exposure on outstanding borrowings under the Credit Agreement. Under this interest rate swap agreement,

the Company ~~may elect~~receives variable rate interest payments based on the one-month LIBOR rate and pays fixed rate interest payments. The fixed interest rate for the contract is 2.928%. The effect of this swap is to ~~sell, at~~convert a ~~discount,~~portion of the floating rate interest expense to fixed interest rate expense. Based on ~~an ongoing basis, up~~the terms of the interest rate swap contract and the underlying borrowings outstanding under the Credit Agreement, the interest rate contract was determined to be highly effective, and thus qualifies and has been designated as a ~~maximum~~cash flow hedge. As such, changes in the fair value of ~~$80.0~~the interest rate swap are recorded in other comprehensive income (loss) on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.

The fair value of the interest rate swap was a $11.3 million liability as of ~~specific accounts receivable at any one time.~~

March 31, 2020 and a $6.3 million liability as of December 31, 2019 recorded in other long-term liabilities. During the three months ended March 31, ~~2019 and 2018,~~2020, the Company ~~sold $52.9~~recorded an unrealized loss of $5.0 million ~~and $40.0~~($3.7 million ~~respectively, of accounts receivable under this program, and in exchange, the Company received cash proceeds of $52.7 million and $39.9 million, respectively,~~ net of ~~the discount. The loss~~tax) on the ~~sale resulting from the discount was recorded to~~swap in other ~~expense within the Condensed Consolidated Statements of Income.~~

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

Three Months Ended

March 31,
(in thousands)

2019

2018

Federal – current
$
675

$
(304)
Foreign – current

1,558

2,154
State – current

688

306
Deferred

685

39,000

$
3,606

$
41,156

comprehensive income (loss).

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.

To minimize tax base erosion with a territorial tax system, the U.S. Tax Reform enacted a new global intangible low-taxed income (GILTI) provision that requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiaries tangible assets. The taxable earnings can be offset by a limited deemed paid foreign tax credit with no carrybacks or carryforwards available. The Company is subject to the GILTI provisions. The Company elected to account for the GILTI as a period cost and include the effect in the period in which it is incurred and not include it as a factor in the determination of deferred taxes.

As of ~~December 31, 2018, the Company had approximately $330 million in~~ ~~cumulative undistributed foreign earnings of its foreign subsidiaries. These earnings would not be subject to U.S. income tax, if distributed to the Company~~. The Company has changed its assertion on its foreign subsidiaries earnings that are permanently reinvested. A certain amount of earnings from specific foreign subsidiaries are permanently reinvested, and certain foreign earnings from other specific foreign subsidiaries is considered to be non-permanently reinvested and is available for immediate distribution to the Company. Income taxes have been accrued on the non-permanently reinvested foreign earnings including the 2017 Transition Tax, the U.S. tax on GILTI, and any applicable local withholding taxes. As a result of this change in assertion for undistributed earnings prior to December 31, 2017, the Company ~~recorded $30.7~~had an interest rate swap agreement with a notional amount of $155.3 million with a fixed interest rate of ~~deferred tax~~1.4935% which was terminated in October 2018 for $3.5 million. This gain is being amortized to offset interest expense ~~for foreign withholding tax from Asia and $9.4 million~~over the original term of ~~deferred U.S. state income tax expense in~~ the ~~first three months of 2018.~~

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 Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2021 in Malaysia and 2028 in Thailand, and are subject to certain conditions with which the Company expects to comply. ~~The net impact of these tax incentives was to lower income tax expense for~~swap agreement. During the three months ended March 31, ~~2019 and 2018~~2020, the Company transferred unrealized gains of $0.5 million ($0.3 million net of tax) on the terminated swap to interest expense. See Note 17.

Note 17 – Accumulated Other Comprehensive LossThe changes in accumulated other comprehensive loss by ~~approximately $1.7 million (approximately $0.04 per diluted share) and $2.9 million (approximately $0.06 per diluted share), respectively,~~component were as follows:

			Foreign
			currency		Derivative
			translation		instruments,
(in thousands)			adjustments		net of tax		Other		Total
Balances, December 31, 2019		$	(12,425)	$	(3,600)	$	(734)	$	(16,759)
	Other comprehensive loss
	before reclassifications		(1,257)		(3,750)		115		(4,892)
	Amounts reclassified from accumulated
	other comprehensive loss		—		(344)		—		(344)
Net current period other comprehensive loss			(1,257)		(4,094)		115		(5,236)
Balances, March 31, 2020		$	(13,682)	$	(7,694)	$	(619)	$	(21,995)

Three Months Ended

March 31,
(in thousands)

2019

2018
China
$
—

$
422
Malaysia

646

1,308
Thailand

1,030

1,144

$
1,676

$
2,874

~~The Company’s Chinese subsidiary had a tax incentive that expired in 2018 and expects to submit an application~~See Note 16 for ~~a new tax incentive in China during the second half of 2019.~~

~~As of March 31, 2019, the total amount~~further explanation of the ~~reserve for uncertain tax benefits including~~change in derivative instruments that is recorded to Accumulated Other Comprehensive Loss. Amounts reclassified from accumulated other comprehensive loss during 2020 primarily affected interest and penalties was $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 on unrecognized tax benefits included in the reserve as of March 31, 2019 was $0.1 million. The reserve for potential penalties was seventeen thousand dollars.~~

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

~~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, 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

March 31,
(in thousands)

2019

2018

Net sales:

Americas
$
392,058
$
378,785

Asia

187,409

195,122

Europe

43,960

50,796

Elimination of intersegment sales

(20,607)

(16,567)

$
602,820
$
608,136

Depreciation and amortization:

Americas
$
5,381
$
5,609

Asia

2,811

2,822

Europe

814

884

Corporate

3,166

3,069

$
12,172
$
12,384

Income from operations:

Americas
$
20,228
$
16,737

Asia

15,385

17,649

Europe

940

2,995

Corporate and intersegment eliminations

(20,466)

(19,414)

$
16,087
$
17,967
Other income (expense):

Interest expense

(1,609)

(2,428)

Interest income

1,297

1,933

Other income

1,604

43

Income before income taxes
$
17,379
$
17,515

Capital expenditures:

Americas
$
4,753
$
12,849

Asia

2,838

5,713

Europe

388

1,022

Corporate

2,095

1,293

$
10,074
$
20,877

1719

March 31,

December 31,
(in thousands)

2019

2018

Total assets:

Americas

$
853,218

$
852,776

Asia

550,169

540,094

Europe

127,687

113,165

Corporate and other

337,856

393,748

$
1,868,930

$
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

March 31,
(in thousands)

2019

2018

Geographic net sales:

United States
$
418,364
$
391,967

Asia

86,624

106,991

Europe

73,345

80,541

Other foreign

24,487

28,637

$
602,820
$
608,136

March 31,

December 31,

2019

2018
Long-lived assets:

United States
$
250,535
$
190,056

Asia

77,690

79,051

Europe

18,629

9,537

Other foreign

29,712

22,945

$
376,566
$
301,589

Note 1318 – ~~Supplemental Cash Flow~~Segment and ~~Non-Cash~~Geographic Information
The ~~following~~Company currently has manufacturing facilities in the Americas, Asia and Europe to serve its customers. The Company is ~~additional information concerning supplemental disclosures~~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 ~~cash payments.~~
~~Three Months Ended~~
~~March 31,~~
~~(in thousands)~~
~~2019~~
~~2018~~
~~Income taxes paid,~~profitability is based on income from operations, which includes net
$
~~2,242~~
$
~~1,416~~
~~Interest paid~~
~~1,990~~
~~2,256~~
~~Non-cash investing activity:~~
~~Additions~~ sales to ~~property, plant~~third parties, related cost of sales and ~~equipment in accounts payable~~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

March 31,
(in thousands)

2020

2019

Net sales:

Americas
$
314,396
$
392,058

Asia

171,609

187,409

Europe

47,000

43,960

Elimination of intersegment sales

(18,041)

(20,607)

$
514,964
$
602,820

Depreciation and amortization:

Americas
$
5,585
$
5,381

Asia

2,714

2,811

Europe

725

814

Corporate

3,168

3,166

$
12,192
$
12,172

Income from operations:

Americas
$
12,425
$
20,228

Asia

10,998

15,385

Europe

2,189

940

Corporate and intersegment eliminations

(19,122)

(20,466)

6,490

16,087

Interest expense

(1,702)

(1,609)

Interest income

599

1,297

Other income (expense)

(662)

1,604

Income before income taxes
$
4,725
$
17,379

Capital expenditures:

Americas
$
9,260
$
4,753

Asia

2,525

2,838

Europe

846

388

Corporate

265

2,095

$
12,896
$
10,074
~~1,945~~20

March 31,

December 31,
(in thousands)

2020

2019

Total assets:

Americas

$
820,673

$
792,180

Asia

534,810

533,508

Europe

133,359

139,977

Corporate and other

334,540

294,209

$
1,823,382

$
1,759,874
$
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

March 31,
(in thousands)

2020

2019

Geographic net sales:

United States
$
336,367
$
418,364

Singapore

54,621

42,717

Other Asia

38,319

43,907

Europe

66,523

73,345

Other foreign

19,134

24,487

$
514,964
$
602,820

March 31,
December 31,

2020

2019
Long-lived assets:

United States
$
242,210
$
247,074

Asia

73,948

76,507

Europe

19,890

20,258

Other foreign

24,942

23,563

$
360,990
$
367,402
~~11,035~~
Note 19 – Supplemental Cash Flow and Non-Cash Information
The following is additional information concerning supplemental disclosures of cash payments.

Three Months Ended

March 31,
(in thousands)

2020

2019
Income taxes paid, net
$
2,035

$
2,242
Interest paid

1,939

1,990

Non-cash investing activity:

Additions to property, plant and equipment in accounts payable
$
7,173

$
1,945

~~Note 14 – Contingencies~~

The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

~~Note 15 – Restructuring Charges~~

~~The Company recognized restructuring charges during~~ ~~2019 and 2018~~ ~~primarily related to facility transitions in the Americas, capacity reduction and reductions in workforce in certain facilities across various regions. The following table summarizes the~~ ~~2019~~ ~~activity in the accrued restructuring balances related to the restructuring activities initiated prior to March 31, 2019:~~

Balance as of

Foreign

Balance as of

December 31,

Restructuring

Cash

Exchange

March 31,
(in thousands)

2018

Charges

Payment

Adjustments

2019
2019 Restructuring:

Severance

$
—

$
236

$
(130)

$
—

$
106

Other exit costs

—

93

(31)

—

62

—

329

(161)

—

168

2018 Restructuring:

Severance

282

—

(282)

—

—

Other exit costs

918

228

(1,051)

—

95

1,200

228

(1,333)

—

95
2017 Restructuring:

Other exit costs

135

—

—

(1)

134

135

—

—

(1)

134
Total

$
1,335

$
557

$
(1,494)

$
(1)

$
397

~~Note 16 – Fair Value~~

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-tier fair value hierarchy of inputs is employed to determine fair value measurements.

·~~Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities.~~

·Level 2 inputs are observable prices that are not quoted on active exchanges, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

·~~Level 3 inputs are unobservable inputs employed for measuring the fair value of assets or liabilities.~~

~~This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.~~

The Company’s financial instruments include cash equivalents, accounts and other receivables, accounts payable, accrued liabilities and long-term debt. The Company believes that the carrying values of these instruments approximate fair value. As of March 31, 2019, the Company’s long-term investments and derivative instruments were recorded at fair value using Level 3 inputs. The Company uses derivative instruments to manage the variability of foreign currency obligations and interest rates. The Company does not enter into derivatives for speculative purposes.

The forward currency exchange contract in place as of March 31, 2019 has not been designated as an accounting hedge and, therefore, changes in fair value are recorded within the Condensed Consolidated Statements of Income.

The Company has an interest rate swap agreement, with a notional amount of $150.0 million as of March 31, 2019 and December 31, 2018, to hedge a portion of its interest rate exposure on outstanding borrowings under the Credit Agreement. Under this interest rate swap agreement, the Company receives variable rate interest payments based on the one-month LIBOR rate and pays fixed rate interest payments. The fixed interest rate for the contract is 2.928%. The effect of this swap is to convert a portion of the floating rate interest expense to fixed interest rate expense. Based on the terms of the interest rate swap contract and the underlying borrowings outstanding under the Credit Agreement, the interest rate contract was determined to be highly effective, and thus qualifies and has been designated as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.

~~The fair value of the interest rate swap was a $4.4 million liability as of March 31, 2019 and a $3.0 million liability as of December 31, 2018.During the three months ended March 31, 2019, the Company recorded unrealized loss of $1.4 million ($1.0 million net of tax) on the swap in other comprehensive income.~~

As of December 31, 2017, the Company had an interest rate swap agreement with a notional amount of $155.3 million with a fixed interest rate of 1.4935% which was terminated in October 2018 for $3.5 million. This gain is being amortized to offset interest expense over the original term of the swap agreement. During the three months ended March 31, 2019, the Company transferred unrealized gains of $0.4 million ($0.3 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:~~

Foreign

currency

Derivative

translation

instruments,

(in thousands)

adjustments

net of tax

Other

Total
Balances, December 31, 2018

$
(11,840)

$
116

$
600

$
(11,124)

Other comprehensive loss

before reclassifications

(833)

(1,017)

—

(1,850)

Amounts reclassified from accumulated

other comprehensive loss

—

(268)

(15)

(283)
Net current period other comprehensive loss

(833)

(1,285)

(15)

(2,133)
Balances, March 31, 2019

$
(12,673)

$
(1,169)

$
585

$
(13,257)

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 three months ended March 31, 2019, cash dividends paid totaled $6.2 million. On March 15, 2019, the Company declared a quarterly cash dividend of $0.15 per share of the Company’s common stock to shareholders of record as of March 29, 2019. The dividend of $5.9 million was paid on April 11, 2019. The Board of Directors currently intends to continue paying quarterly dividends. However, the Company’s future dividend policy is subject to the Company’s compliance with applicable law, and depending on, among other things, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed; there can be no assurance that the Company will continue to pay a dividend in the future.

~~Share Repurchase Authorization~~

On October 26, 2018, the Board of Directors authorized the repurchase of $100 million of the Company’s common stock in addition to the $250 million previously approved on March 6, 2018. As of March 31, 2019, the Company had $140.5 million remaining under the stock repurchase authorization.

~~Note 19 – Leases~~

The Company determines if a contract is or contains a lease at inception. The Company has entered into leases for certain facilities, vehicles and other equipment. The Company’s leases consist mainly of operating leases which expire at various dates through 2036 . Variable lease payments are generally expensed as incurred and include certain index-based changes in rent, certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease.

~~The components of lease expense for the three months ended March 31, 2019 were as follows (in thousands):~~

Finance lease cost:

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

$
178

Interest on lease liabilities

146
Operating lease cost

4,448
Short-term lease cost

200
Variable lease cost

366

Total lease cost

$
5,338

Other information:

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

   Operating cash flows used for finance lease

$
157

   Operating cash flows used for operating leases

$
3,835

   Financing cash flows used for finance lease

$
273

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

$
660

~~The lease assets and liabilities as of March 31, 2019 were as follows (in thousands):~~

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

$
2,845
Operating lease right-of-use assets

$
81,159
Finance liability, current (included in current installments of long-term debt)

$
1,206
Finance lease liability, noncurrent (included in long-term debt)

$
4,668
Operating lease liability, current (included in other accrued liabilities)

$
11,889
Operating lease liability, noncurrent

$
70,859
Weighted average remaining lease term – finance leases

4.0 years
Weighted average remaining lease term – operating leases

9.57 years
Weighted average discount rate – finance leases

10.10%
Weighted average discount rate – operating leases

4.63%

~~Future annual minimum lease payments and finance lease commitments as of March 31, 2019 were as follows (in thousands):~~

Operating

Finance
Year ending December 31,

Leases

Leases

2019 (remaining nine months)
$
11,240

$
1,316

2020

14,301

1,781

2021

12,022

1,816

2022

10,308

1,853

2023

9,715

465

2024 and thereafter

46,917

—

Total minimum lease payments
$
104,503

$
7,231

Less: imputed interest

(21,755)

(1,357)

Present value of lease liabilities
$
82,748

$
5,874

~~As of March 31, 2019, the Company’s future operating leases that have not yet commenced are immaterial.~~

Future annual minimum lease payments and capital lease commitments in effect as of December 31, 2018 having a noncancelable term in excess of one year as determined prior to the adoption of ASU 842 were as follows (in thousands):

Operating

Capital
Year ending December 31,

Leases

Leases

2019
$
15,272

$
1,746

2020

14,518

1,781

2021

12,203

1,816

2022

10,466

1,853

2023

9,890

465

Thereafter

47,868

—

Total minimum lease payments
$
110,217

$
7,661

Less: amount representing interest

1,514

Present value of minimum lease payments

6,147

Less: current installments

1,168

Capital lease obligations, less current installments

$
4,979

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report (this Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts and may include words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” or the negative or other variations thereof. In particular, statements, express or implied, concerning future operating results, ~~or the~~including guidance for second quarter 2020 results and beyond, our 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~~the anticipated impact of the COVID-19 pandemic, our anticipated plans and responses to the COVID-19 pandemic, our expected revenue mix, our business strategy and strategic initiatives, our repurchases of shares of our common stock and our intentions concerning the payment of dividends, among others. Although we believe these statements are ~~not guarantees of performance. They~~based upon reasonable assumptions, they involve risks, uncertainties and assumptions that are beyond our ability to control or predict, relating to operations, markets and the business environment generally, including those discussed in Part I, Item 1A of the ~~2018~~2019 10-K, ~~and any added under~~in Part II, Item 1A of this ~~Report.~~Report and in any of our subsequent reports filed with the SEC. In particular, these statements also depend on the duration, severity and evolution of the COVID-19 pandemic and related risks, including government and other third-party responses to it and the consequences for the global economy, our business and the businesses of our suppliers and customers, as well as our ability (or inability) to execute on its plans to respond to the COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of our operations, may vary materially from those indicated. Undue reliance should not be placed on any forward-looking statements. Forward-looking statements are not guarantees of performance. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes, and the ~~2018~~2019 10-K. All forward-looking statements included in this document are based upon information available to the company as of the date of this document, and it assumes no obligation to update them.

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 machining services). In this Report, references to Benchmark, the Company or use of the words “we”, “our” and “us” include Benchmark’s subsidiaries unless otherwise noted.

From initial product concept to volume production, including direct order fulfillment and aftermarket services, Benchmark has been providing integrated services and solutions to original equipment manufacturers (OEMs) since 1979. Today, Benchmark proudly serves the following industries: aerospace and defense (A&D), medical technologies, complex industrials, ~~test and instrumentation,~~semiconductor capital equipment (Semi-Cap), next-generation telecommunications and ~~high-end~~advanced computing.

Our customer engagement focuses on three principal areas:

•Engineering Services, which includes turnkey product design, design for manufacturability, manufacturing process and test development, concurrent and sustaining engineering and regulatory services. Our engineering services may be for systems, sub-systems, printed circuit boards and assemblies, and components. We provide these services across all the industries we serve, but focus primarily in regulated industries such as medical, complex industrials, aerospace and defense, and next-generation telecommunications.

•Technology Solutions, which involve developing a library of building blocks or reference designs

primarily in defense solutions, surveillance systems, radio frequency and high-speed design, and front-end managed connectivity data collection systems. We often merge these technology solutions with engineering services in order to support manufacturing services. Our reference designs can be utilized across a variety of industries but we have significant capabilities in the aerospace and defense and ~~next generation telecommunication~~next-generation telecommunications markets. We have also developed stronger capabilities in radio frequency (RF) and high speed design for both components and substrates. The need to reduce Size, Weight, and Power (SWaP) to accommodate embedding high frequency electronic communications into specific designs is important to customers in the aerospace and defense, medical, and ~~next generation~~next-generation telecommunications markets.

•Manufacturing Services, which include producing printed circuit board assemblies (PCBAs) using both traditional surface mount technologies (SMT) and microelectronics are then often integrated into a subsystem assembly, or a box build as part of systems integration. Systems integration often involves building a finished assembly that includes PCBAs, complex subsystem assemblies, mechatronics, displays, optics, and other components. These final products may be configured to order and delivered directly to the end-customer across all the industries we serve. Manufacturing services also includes precision technology manufacturing comprised of precision machining, advanced metal joining, assembly and functional testing primarily for customers in the ~~test & instrumentation market (semiconductor~~semiconductor capital ~~equipment)~~equipment as well as the medical and aerospace and defense ~~markets~~.markets.

Our core strength lies in our ability to provide concept-to-production solutions in support of our customers. Our global manufacturing presence increases our ability to respond to our customers’ needs by providing accelerated time-to-market and time-to-volume production of high-quality products – especially for complex products with lower volume and higher mix in regulated markets. These capabilities enable us to build strong strategic relationships with our customers and to become an integral part of their ~~business~~.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 designs and manufacturing solutions in support of the full life cycle of their products. These solutions offload ~~our customers from worrying about~~ the electronics design work from our customers so they can focus on product areas where they can provide more value add and in the process accelerate their time-to-market and reduce their product development costs. Working closely with our customers and responding promptly to their needs, we become an integral part of their development process helping them bring products to market faster and more ~~economically~~.economically.

In addition, we believe that a strong focus on human capital through the talent we hire and retain is critical to maintaining our competitiveness. We are driving a customer-centric organization with a high degree of accountability and ownership to develop processes necessary to exceed customer expectations and deliver

financial performance aligned to our goals. Through our employee feedback process, we solicit and act upon information to improve our company and better support our customers and business processes in the future. We have taken steps to attract the best leaders into our business and we are accelerating our efforts to mentor and develop key leaders for the ~~future~~.future.

Our customers often face challenges in designing supply chains, demand planning, procuring materials and managing their inventories efficiently due to fluctuations in their customer demand, product design changes, short product life cycles and component price fluctuations.

We employ enterprise resource planning (ERP) systems and lean manufacturing principles to manage

procurement and manufacturing processes in an efficient and cost-effective manner so that, where possible, components arrive on a just-in-time, as-and-when-needed basis. Because we are a significant purchaser of electronic components and other raw materials, we are able to capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts, obtain components and other raw materials that are in short supply, and return excess components. Our agility and expertise in supply chain management and our relationships with suppliers across the supply chain enable us to help reduce our customers’ cost of goods sold and inventory exposure.

We recognize revenue as the customer takes control of the manufactured products built to customer specifications. We also generate revenue from our design, development and engineering services, in addition to the sale of other inventory.

Revenue is measured based on the consideration specified in a contract with a customer. Under the majority of our manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being built. Revenues under these contracts are recognized over time based on the cost-to-cost method. Under other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, we recognize revenue upon transfer of control of product to the customer, which is generally when the goods are shipped. Revenue from engineering services that include design and development elements also continues to be recognized over time as the services are performed. We assume no significant obligations after shipment as we typically warrant workmanship only. Therefore, the warranty provisions are generally not significant.

COVID-19 Pandemic Update

In late 2019, there was an outbreak of a new strain of coronavirus (COVID-19) first identified in Wuhan, Hubei Province, China, which has since spread globally. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Further, the COVID-19 outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, “shelter-in-place,” “stay-at-home,” total lock-down orders, business limitations or shutdowns and similar orders. As a result, the COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and created significant volatility and disruption of financial markets. In an effort to first and foremost protect the health and safety of our employees, we also took proactive action to adopt social distancing policies at our locations globally, including working from home for certain employees, limiting the number of employees attending meetings, reducing the number of people in our locations at any one time, and suspending employee travel.

Benchmark provides critical infrastructure products and essential services in each of our locations. However, as a result of the COVID-19 pandemic, including the related responses from government authorities, the Company’s operations were impacted worldwide starting in the first quarter of 2020. The disruptive impacts caused by the COVID-19 pandemic to the Company’s first quarter results were driven by reduced productivity levels throughout our facilities, direct costs associated with labor expenses, personal protective equipment, supply chain inefficiencies and under absorption of fixed costs. These impacts began with a shut-down of the Company’s manufacturing facilities in Suzhou, China early in the first quarter of 2020 (which have now ramped back to full capacity starting in mid-March).

However, the disruptive impacts caused by the COVID-19 pandemic have since affected our operations in all other regions. For example, starting in mid-March, our Penang, Malaysia operation, which includes our largest precision machining facility, was significantly disrupted. As a result, our Penang, Malaysia operation has been operating at approximately 30% of capacity through the end of the first quarter of 2020. The facility has only recently been granted permission to resume full operations. Other operations that have

experienced, and continue to experience, significant disruptions include our facilities in California, as well as in Tijuana and Guadalajara, Mexico.We have resumed operations in Tijuana and will be returning to full production in phases.
Further, we have experienced, and continue to experience, a challenging supply chain environment and labor constraints due to the COVID-19 pandemic. Our revenue for the first three months of 2020 was impacted as a result of the COVID-19 pandemic. We expect revenue will be negatively impacted during the second quarter of 2020 due to operational inefficiencies and supply chain capabilities to support customer demand.
The COVID-19 pandemic continues to affect the Company’s operations into the second quarter of 2020, due in large part to government enacted plant shut-downs, stay-at-home or shelter-in-place or similar restrictions, particularly in our Tijuana, Mexico, Penang, Malaysia and California facilities, as discussed above. We also anticipate that we may experience customer demand fluctuations and further supply chain constraints stemming from the impact of the COVID-19 pandemic, which could have resulting impacts on our business, financial condition, results of operations, and our ability (or inability) to execute on our plans to respond to the COVID-19 pandemic.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in the United States in response to the COVID-19 pandemic. The CARES Act among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021, and contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The Company has evaluated the impact of these provisions and has determined these provisions did not have any impact on our first quarter results. In addition, the CARES Act allows for employee retention tax credits to be taken in future US payroll tax filings and allows for the deferral of certain future employer portion of social security tax with 50% to be paid at the end of calendar years 2021 and 2022, respectively. The Company is currently evaluating the benefits of these items for future quarters.
International authorities in various jurisdictions have also allowed for cash grants, delay of tax filings, and delay of tax payments for future quarters. We are evaluating and determining whether we can take advantage of these benefits in certain jurisdictions, if warranted.
In response to uncertainties related to the impact of the COVID-19 virus, we are proactively taking a series of actions to lower our cost structure and reduce capital expenditures. On April 29, 2020, the Company announced a temporary 10% salary reduction for all executive officers (including our named executive officers) effective April 27, 2020 through December 31, 2020 and the Company Board of Directors approved a temporary 10% reduction in their quarterly cash compensation effective April 27, 2020 through December 31, 2020. Other senior leaders in the Company will take a 7% salary reduction through September 29, 2020. Additional cost reduction actions in our U.S. factories will consist of employees taking rotating time off depending on the factory loading levels. Cost reduction actions in our non-U.S. locations will depend on local law requirements. Additionally, we expect to reduce variable compensation and other discretionary expenses, such as travel. We have also implemented actions to conserve our cash and cash equivalents such as reducing planned capital expenditures, deferring certain planned investments, temporarily suspending our share repurchase activity, and deferring payroll and income tax payments in accordance with the CARES Act. Finally, we have implemented certain other procedures to manage potential risks related to working capital such as closely monitoring the financial stability, payment terms and credit limits of our customers.
We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions
25

based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, the exact extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume.
Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. See “Risk Factors” in Part II, Item 1A of this Report for additional risks we face due to the COVID-19 pandemic.

First Quarter ~~2019~~2020 Highlights

Sales for the three months ended March 31, ~~2019~~2020 decreased 1%15% to ~~$602.8~~$515.0 million compared to ~~$608.1~~$602.8 million during the comparable ~~2018~~2019 period. During the first quarter of ~~2019,~~2020, sales to customers in our various industry sectors fluctuated from the comparable ~~2018~~2019 period as follows:

Higher-Value Markets

·Industrials decreased by 8%12%,

·A&D increased by 8%15%,

·Medical increased by 7%14%, and

·~~Test & Instrumentation~~Semi-Cap increased by 25%.

Traditional Markets

Computing decreased by ~~36%.~~

~~Traditional Markets~~

·~~Computing increased by 20%~~71%, and

·Telecommunications ~~increased~~decreased by 7%37%.

The overall revenue decrease was driven primarily by lower revenue in Computing due to our exit from a legacy Computing contract (as discussed below) which was dilutive to our gross margin, in addition to lower Telecommunications revenue due to softer demand ~~for semiconductor capital equipment~~from legacy broadband products. These decreases were partially offset by increased revenue in the ~~Test & Instrumentation sector.~~A&D, Medical and Semi-Cap sectors. Higher-value markets were ~~down~~up 8% ~~while~~primarily from the increased revenues in A&D, Medical and Semi-Cap, and traditional market revenues were ~~up 14%~~down 57% year-over-year ~~primarily~~ from ~~higher~~lower Computing ~~revenues.~~and Telecommunications revenues as described above.

Our sales depend on the success of our customers, some of which operate in businesses associated with rapid technological change and consequent product obsolescence. Developments adverse to our major customers or their products, or the failure of a major customer to pay for components or services, can adversely affect us. A substantial percentage of our sales are made to a small number of customers, and the loss of a major customer, if not replaced, would adversely affect us. Sales to our 10ten largest customers represented ~~41%~~42% and ~~44%~~41% of our sales in the three months ended March 31, 2020 and 2019, ~~and~~ respectively.

During 2018, ~~respectively~~.

Asas part of our ongoing process to review contracts that are marginal and dilutive to our gross margin, we ~~are~~made the decision to not ~~renewing~~renew the legacy contract with a large Computing customer that ~~expires~~was to expire at the end of 2019. ~~We have begun~~During the ~~transition planning and expect revenues related to~~second quarter of 2019, we completed the final build out of this legacy contract and in the ~~second half~~third quarter of 2019 ~~to be approximately $20 million (an approximate 88% decrease~~had an immaterial amount of revenue from this contract as the ~~second half of 2018).~~transition was completed.

During the three months ended March 31, 2019, we recovered $2.7 million from a recent customer insolvency in the Industrials sector. Of the recovery amount, $1.7 million was recovery of bad debt expenses and $1.0 million was recovery from the write down of inventory. These recoveries decreased cost of sales by $1.0 million and selling, general and administrative expenses (SG&A) by $1.7 million.

We experience fluctuations in gross profit from period to period. Different programs contribute different gross ~~profits~~margins depending on the type of services involved, location of production, size of the program, complexity of the product and level of material costs associated with the various products. Moreover, new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower, resulting in inefficiencies and unabsorbed manufacturing overhead costs. In addition, a number of our new and higher-volume programs remain subject to competitive constraints that can exert downward pressure on our margins. During periods of low production volume and slow new program

ramps, we generally have idle capacity and reduced gross ~~profit.~~margin. Gross profit can also be impacted by other situations, such as the current COVID-19 global pandemic discussed above and the ransomware incident experienced in 2019.

We have undertaken initiatives to restructure our business operations with the intention of improving utilization and reducing costs. During the first three months of ~~2019,~~2020, we recognized ~~$1.6~~$1.7 million of restructuring charges and other costs due in part to expenses associated with various site closures and restructuring activities, ~~and~~in addition to our ~~recent proxy activity.~~go to market changes. In addition, during the first three months of 2020, we incurred $1.0 million in costs related to an asset impairment in Asia.

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. ~~For ease of reference, we refer to the first quarter of 2019 below simply as “2019” and the first quarter of 2018 simply as “2018”.~~

		Three Months Ended						Three Months Ended
		March 31,						March 31,
			2019		2018				2020		2019

Sales	Sales		100.0	%	100.0	%	Sales		100.0	%	100.0	%
Cost of sales	Cost of sales		91.1		90.4		Cost of sales		91.6		91.7
	Gross profit		8.9		9.6		Gross profit		8.4		8.3
Selling, general and administrative expenses	Selling, general and administrative expenses		5.6		5.9		Selling, general and administrative expenses		6.1		5.0
Amortization of intangible assets	Amortization of intangible assets		0.4		0.4		Amortization of intangible assets		0.5		0.4
Restructuring charges and other costs	Restructuring charges and other costs		0.3		0.4		Restructuring charges and other costs		0.6		0.3
	Income from operations		2.7		3.0		Income from operations		1.3		2.7
Other income (expense), net	Other income (expense), net		0.2		(0.1)		Other income (expense), net		(0.3)		0.2
	Income before income taxes		2.9		2.9		Income before income taxes		0.9		2.9
Income tax expense	Income tax expense		0.6		6.8		Income tax expense		0.2		0.6
	Net income (loss)		2.3	%	(3.9)	%	Net income		0.7	%	2.3	%

Sales

As noted above, sales decreased 1%15% in ~~2019~~2020 from ~~2018~~2019. Sales by sector were as follows:

	Three Months Ended
	March 31,
(in thousands)		2020		2019
Higher-Value Markets
Industrials	$	102,826	$	116,373
A&D		119,200		103,889
Medical		117,976		103,478
Semi-Cap		82,720		66,021
		422,722		389,761
Traditional Markets
Computing		36,601		124,310
Telecommunications		55,641		88,749
		92,242		213,059
Total	$	514,964	$	602,820

Three Months Ended

March 31,
(in thousands)

2019

2018

Higher-Value Markets

Industrials
$
115,765

$
125,648

A&D

103,889

96,119

Medical

103,478

97,074

Test & Instrumentation

66,021

102,375

389,153

421,216

Traditional Markets

Computing

124,310

103,538

Telecommunications

89,357

83,382

213,667

186,920

Total
$
602,820

$
608,136

Industrials.~~2019~~ 2020sales decreased 8%12% to ~~$115.8~~$102.8 million from ~~$125.6~~$116.4 million in ~~2018~~2019 primarily due to ~~the insolvency of a customer as noted above and decreased~~softer demand ~~across several of our customers~~. from existing customers.

Aerospace and Defense.~~2019~~ 2020sales increased 8%15% to $119.2 million from $103.9 million ~~from $96.1 million~~ in ~~2018~~2019 primarily due to increased demand from ~~military and security communication devices and commercial aerospace products~~. our defense customers.

Medical.~~2019~~ 2020sales increased 7%14% to ~~$103.4~~$118.0 million from ~~$97.1~~$103.5 million in ~~2018~~2019 primarily due to higher demand and program ramps from new and existing customers.

Semiconductor Capital Equipment.2020 sales increased ~~demand for renal and imaging products.~~

~~Test & Instrumentation.~~~~2019~~ ~~sales decreased 36%~~25% to $82.7 million from $66.0 million ~~from $102.4 million~~ in ~~2018. The decrease reflects declines in~~2019 primarily due to higher demand throughout the broader semiconductor capital equipment market.

Computing.~~2019~~2020 sales ~~increased 20%~~decreased 71% to $36.6 million from $124.3 million in 2019 primarily from ~~$103.5~~our exit of a legacy Computing contract that was completed in 2019.

Telecommunications.2020 sales decreased 37% to $55.7 million from $88.7 million in ~~2018.~~ ~~The increase is~~2019 due primarily ~~due~~ to ~~increased~~decreased demand from ~~certain storage~~existing customers.

~~Telecommunications.~~~~2019~~ ~~sales increased 7% to $89.4 million from $83.4 million in~~ ~~2018. The increase related primarily to new program ramps with satellite and broadcast products~~.

Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our ~~2018~~2019 10-K for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated with the risks of doing business abroad. During 2020 and 2019, 49% and ~~2018,~~ 45% ~~and 48%~~, respectively, of our sales were from international operations.

Gross Profit

Gross profit decreased 8%13% to ~~$53.8~~$43.4 million for ~~2019~~2020 from ~~$58.3~~$50.0 million in ~~2018.~~2019. For the three months ended March 31, 2019, ~~and 2018,~~ gross profit included $1.0 million ~~and $0.3 million, respectively,~~ of recoveries associated with inventory charges from customer insolvencies in ~~2018 and 2017. Including the partial inventory charge recoveries in the first quarter of 2019 and 2018, gross~~2018. Gross margin was ~~8.9%~~8.4% for the three months ended March 31, 2020 and 8.3% for the three months ended March 31, 2019 ~~and 9.6%~~including the partial inventory charge recoveries in 2019. Excluding the recoveries, gross margin increased to 8.4% for the three months ended March 31, ~~2018. Excluding these items, gross margin decreased to 8.8% for the three months ended March 31,~~2020 from 8.1% in 2019 ~~from 9.5% in 2018~~ primarily due to the ~~36%~~71% reduction in ~~Test & Instrumentation~~Computing revenue, which typically has ~~higher~~lower gross margins compared to our ~~corporate average.~~other markets.

Selling, General and Administrative Expenses

SG&A ~~decreased 6%~~increased 5% to ~~$33.8~~$31.6 million in ~~2019~~2020 from ~~$35.8~~$30.0 million in ~~2018.~~2019. During 2019, we had a $1.7 million recovery of a provision for accounts receivable associated with the insolvency of a customer. Including this recovery, SG&A, as a percentage of sales, was ~~5.6%~~6.1% in ~~2019~~2020 and ~~5.9%~~5.0% in ~~2018.~~2019. Excluding this recovery, SG&A, as a percentage of sales, was ~~5.9%~~6.1% in ~~both 2019~~2020 and ~~2018.~~5.3% in 2019. The increase in SG&A as a percentage of sales is due to the lower revenues in 2020.

Amortization of Intangible Assets

Amortization of intangible assets was $2.4 million in each of 2020 and 2019.

Restructuring Charges and Other Costs

During the first three months of 2020, we recognized $1.7 million of restructuring charges, primarily related to site closures and restructuring activities in certain facilities in the Americas and Asia. In addition, during the first three months of 2020, we incurred $1.0 million in costs related to an asset impairment in Asia. In the first three months of 2019, we recognized $0.6 million of restructuring charges, primarily related to reductions in workforce in certain facilities in the Americas and Asia. In addition, during the first three months of 2019, we incurred $1.0 million in costs primarily related to fees and costs incurred in reaching the cooperation agreement with Engaged Capital and other proxy related activities as well as our

CEO transition. We expect to incur additional restructuring charges and other costs ranging from $3.0 million to $4.0 million in the second quarter of 2019 as we continue to reduce excess capacity and improve our cost structure. In the first three months of 2018, we recognized $1.4 million of restructuring charges, primarily related to facility transition and closures in the Americas and reductions in workforce in certain facilities primarily in the Americas, and $0.8 million in costs related to the transition of our corporate headquarters to Arizona. See Note 1513 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Interest Expense

Interest expense ~~decreased~~increased to ~~$1.6~~$1.7 million during the first three months of ~~2019~~2020 from ~~$2.4~~$1.6 million during the comparable ~~2018~~2019 period due to ~~lower~~higher debt levels.

Interest Income

Interest income decreased to ~~$1.3~~$0.6 million during the first three months of ~~2019~~2020 from ~~$1.9~~$1.3 million during the comparable ~~2018~~2019 period due primarily to lower invested cash ~~equivalents.~~equivalents and the lower interest rate environment.

Income Tax Expense

Income tax expense of ~~$3.6~~$0.9 million represented an effective tax rate of ~~20.8%~~18.5% for the first three months of ~~2019,~~2020, compared with ~~$41.2~~$3.6 million for the comparable ~~2018~~2019 period, which represented an effective tax rate of ~~235.0%~~20.8%. During the first quarter of 2018, we changed our historical repatriation strategy. Previously, we had historically asserted our intention to indefinitely reinvest undistributed foreign earnings. As of March 31, 2018, we no longer consider ~~the~~ earnings prior to December 31, 2017 to be indefinitely reinvested in our foreign subsidiaries. As a result of this change in assertion for undistributed earnings, we recorded a $30.7 million tax expense for foreign withholding tax from Asia and $9.4 million for U.S. state income tax expense. In addition, during the period ended March 31, 2018, we released $0.5 million of uncertain tax benefits from a U.S. Internal Revenue Service (IRS) audit related to the Secure Communication Systems, Inc. acquisition and we had additional tax benefits related to stock compensation and tax returns filed in the first quarter of 2018. Excluding the tax effects of the change in the assertion of undistributed foreign earnings and the various tax benefits recorded in the period ended March 31, 2018, the effective tax rate in the first quarter of 2018 would have been 15.6% compared to 20.8% in the first quarter of 2019. The ~~increase~~decrease in the effective tax rate was primarily ~~a result~~due to the mix of ~~higher taxable income in geographies with higher tax rate in 2019~~earnings and ~~the expiration of a China tax incentive in December 2018.~~taxing jurisdictions.

We have been granted certain tax incentives, including tax holidays, for our subsidiaries in Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2021 in Malaysia, and 2028 in Thailand. ~~Our Chinese subsidiary expects to submit an application for a new tax incentive in China during the second half of 2019.~~ See Note 119 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Net Income ~~(Loss)~~

We reported net income of $3.9 million, or $0.10 per diluted share, for the first three months of 2020, compared with a net income of $13.8 million, or $0.34 per diluted share, for the ~~first three months of 2019, compared with net a loss of $23.6 million, or $0.49 per diluted share, for the~~ same period in ~~2018.~~2019. The net ~~increase~~decrease of ~~$37.4~~$9.9 million from ~~2018~~2019 was primarily the result of ~~the tax expense related to the change~~lower gross profit as well as higher selling, general and administrative expenses and restructuring charges and other costs in ~~our historical repatriation strategy discussed above.~~2020.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our organic growth and operations through funds generated from operations and occasional borrowings under our revolving credit facility. Cash and cash equivalents and restricted cash totaled ~~$395.3~~$411.8 million at March 31, ~~2019~~2020 and ~~$458.1~~$364.0 million at December 31, ~~2018,~~2019, of which ~~$165.7~~$188.8 million and ~~$154.4~~$197.8 million, respectively, were held outside the U.S. in various foreign subsidiaries.

Cash ~~provided by~~used in operating activities during the first three months of 2020 was ~~$16.4~~$3.1 million ~~for 2019~~ and consisted primarily of ~~$13.8~~$3.9 million of net income adjusted for $12.2 million of depreciation and amortization, ~~and~~ a ~~$64.2~~$6.4 million decrease in accounts receivable and a $14.9 million increase in accounts payable, offset by a ~~$16.9 million increase in contract assets, a $5.9~~$23.8 million increase in inventories ~~a $45.9 million decrease in accounts payable~~ and ~~a $12.1~~$17.2 million decrease in accrued liabilities. The decrease in accounts receivable was impacted by lower sales. The increase in ~~contract assets and~~ inventories is primarily related to ~~longer lead production times~~mix changes from customers late in the first quarter of 2020 and inventory to support long productions cycles for products in our Semi-Cap and Medical sectors. The increase in accounts payable was primarily a result of ~~production for certain customers.~~the timing of inventory purchases and the timing of payments. The decrease in ~~accounts payable~~accrued liabilities was primarily a result of the timing of payments. Working capital was $0.8 billion at March 31, ~~2019~~2020 and ~~$0.9~~$0.7 billion at December 31, ~~2018.~~2019.

We purchase components only after customer orders or forecasts are received, which mitigates, but does

not eliminate, the risk of loss on inventories. Supplies of electronic components and other materials used in operations are subject to industry-wide shortages. In certain instances, suppliers may allocate available quantities to us. If shortages of these components and other material supplies used in operations occur,

vendors may not ship the quantities we need for production, and we may be forced to delay shipments, which can increase backorders and impact cash flows. We have also experienced, and continue to experience, a challenging supply chain environment, and labor constraints due to the COVID-19 virus.

Cash used in investing activities during the first three months was ~~$10.2~~$11.5 million for ~~2019,~~2020, primarily due to purchases of additional property, plant and equipment totaling ~~$9.3~~$11.9 million. The purchases of property, plant and equipment were primarily for machinery and equipment in the Americas and Asia.

Cash ~~used in~~provided by financing activities during the first three months of ~~2019~~2020 was ~~$68.5~~$66.5 million. Share repurchases totaled ~~$61.1~~$19.3 million, net ~~principal payments~~borrowing activities on long-term debt totaled ~~$0.3~~$92.8 million, dividends totaled ~~$6.2~~5.5 million, and we received ~~$0.3~~$0.4 million from the exercise of stock options.

Under the terms of our $650.0 million Credit Agreement, in addition to the Term Loan facility, we have a $500.0 million five-year revolving credit facility to be used for general corporate purposes (subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions), 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 March 31, ~~2019,~~2020, we had ~~$150.0~~$142.5 million in borrowings outstanding under the Term Loan ~~facility~~Facility and ~~$2.8~~$95.0 million in borrowings and $3.7 million in letters of credit outstanding under ~~our revolving credit facility.~~the Revolving Credit Facility, respectively. See Note 76 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 March 31, ~~2019,~~2020, we were in compliance with all of these covenants and restrictions.

Our operations, and the operations of businesses we acquire, are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, health and safety matters. We believe we operate in substantial compliance with all applicable requirements and we seek to ensure that newly acquired businesses comply or will comply substantially with applicable requirements. To date, the costs of compliance and workplace and environmental remediation have not been material to us. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements in the future. In addition, our past, current and future operations, and the operations of businesses we have or may acquire, may give rise to claims of exposure by employees or the public, or to other claims or liabilities relating to environmental, waste management or health and safety concerns.

As of March 31, ~~2019,~~2020, we had cash and cash equivalents totaling ~~$395.3~~$411.8 million and ~~$497.2~~$401.3 million available for borrowings under the Revolving Credit ~~Facility.~~Facility, subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions as described above. During the next 12 months, we believe our capital expenditures will approximate ~~$40~~$25 million to ~~$50~~$30 million, principally for machinery and equipment to support our ongoing business around the ~~globe.~~globe, in addition to expenditures for information technology infrastructure items and software.

On October 26, 2018, our Board of Directors approved an expanded stock repurchase program granting us the authority to repurchase up to $100 million in common stock in addition to the $250 million approved on

March 6, 2018. On February 19, 2020, the Board of Directors authorized the repurchase of an additional $150 million of the Company’s common stock. As of March 31, ~~2019,~~2020, we had ~~$140.5~~$210.1 million remaining under the share repurchase authorization to purchase additional shares. We are under no commitment or obligation to repurchase any

particular amount of common stock.

Management believes that our existing cash balances and funds generated from operations will be sufficient to permit us to meet our liquidity requirements over the next 12 months. Management further believes that our ongoing cash flows from operations and any borrowings we may incur under our Revolving Credit Facility will enable us to meet operating cash requirements in future years. If we consummated significant acquisitions in the future, our capital needs would increase and could possibly result in our need to increase available borrowings under our Credit Agreement or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on acceptable terms.

CONTRACTUAL OBLIGATIONS

We have certain contractual obligations for operating and capital leases that were summarized in a table of Contractual Obligations in our ~~2018~~2019 10-K. There have been no material changes to our contractual obligations, outside of the ordinary course of our business, since December 31, ~~2018.~~2019.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, ~~2019,~~2020, we did not have any significant off-balance sheet arrangements. See Note 16 to the Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND RECENTLY ENACTED ACCOUNTING PRINCIPLES

Management’s discussion and analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. ~~Our~~See Note 2 to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Report for a discussion of recently enacted accounting principles. Also, our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our ~~2018~~2019 10-K. ~~Also, see Note~~ 2 ~~to the Condensed Consolidated Financial Statements above for a discussion of recently enacted accounting principles.~~

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our international sales comprise a significant portion of our net sales. We are exposed to risks associated with operating internationally, including:

•Foreign currency exchange risk;

•Import and export duties, taxes and regulatory changes;

•Inflationary economies or currencies; and

•Economic and political instability.

Additionally, some of our operations are in developing countries. Certain events, including natural disasters, can impact the infrastructure of a developing country more severely than they would impact the infrastructure of a developed country. A developing country can also take longer to recover from such events, which could lead to delays in our ability to resume full operations.

We transact business in various foreign countries and are subject to foreign currency fluctuation risks. We use natural hedging and forward contracts to economically hedge transactional exposure primarily associated with trade accounts receivable, other receivables and trade accounts payable that are denominated in a currency other than the functional currency of the respective operating entity. We do not

use derivative financial instruments for speculative purposes. The forward contract in place as of March

31, ~~2019~~2020 has not been designated as an accounting hedge and, therefore, changes in fair value are recorded within our Condensed Consolidated Statements of Income.

Our sales are substantially denominated in U.S. dollars. Our foreign currency cash flows are generated in certain European and Asian countries and Mexico.

We are also exposed to market risk for changes in interest rates on our financial instruments, a portion of which relates to our invested cash balances. We do not use derivative financial instruments in our investing activities. We place cash and cash equivalents and investments with various major financial institutions. We protect our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by generally investing in investment-grade securities.

We are also exposed to interest rate risk on borrowings under our Credit Agreement. As of March 31, ~~2019~~2020, we had ~~$150.0~~$95.0 million outstanding on the floating rate revolving credit facility. In addition, we had $142.5 million outstanding on the floating rate term loan facility, and we have an interest rate swap agreement with a notional amount of ~~$150.0~~$142.5 million. Under this swap agreement, we receive variable rate interest rate payments and pay fixed rate interest payments. The effect of this swap is to convert a portion of our floating rate interest expense to fixed interest rate expense. The interest rate swap is designated as a 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

Item 1. Legal Proceedings

We are involved in various legal actions arising in the ordinary course of business. ~~Other than as described below, there~~There have been no material changes to the legal proceedings previously reported under Part I, Item 3 of our ~~Annual Report on Form~~2019 10-K, ~~for the year ended December 31, 2018,~~ and, in the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position or results of operations.

We are plaintiffs in a multi-district class action filed in the US District Court for the District of Arizona on June 28, 2017, Case No. 2:17-cv-02058-DJH. The case was brought against eighteen worldwide manufacturers of aluminum, tantalum, and film capacitors. The plaintiffs, including the Company and several of its subsidiaries, allege that the manufacturers participated in a conspiracy to fix the prices of and allocate markets for the affected capacitors between 2001 and 2014. While the litigation is still ongoing, three of the eighteen defendant groups have settled out of court resulting in a net recovery of $1,836,000 by Benchmark.

Item 1A.Risk Factors

~~There are~~Except as set forth below, there have been no material changes to the risk factors ~~set forth~~previously disclosed in Part I, Item 1A of our ~~2018~~2019 10-K.

Our business, financial condition and results of operations have been and are expected to continue to be adversely affected by the recent novel coronavirus (COVID-19) pandemic, the extent of which is uncertain and difficult to predict.

Benchmark provides critical infrastructure products and essential services in each of our locations. However, as a result of the COVID-19 pandemic, including the related responses from government authorities, the Company’s operations were impacted worldwide starting in the first quarter of 2020. For example, a number of the Company’s facilities worldwide have been, or continue to be, affected by government enacted plant shut-downs, stay-at-home or shelter-in-place or similar restrictions. Additionally, the Company experienced, and continues to experience, a challenging supply chain environment and labor constraints due to the COVID-19 pandemic. For additional information see “—COVID-19 Pandemic Update” in Part I, Item 2 of this Report.

Additionally, our business, financial condition and results of operations may be further impacted in a number of ways, including, but not limited to, the following:

further disruptions to our operations, including due to additional facility closures, restrictions on our operations and sales, marketing and distribution efforts and/or interruptions to our engineering and design processes and other important business activities;

reduced demand for our products and services, particularly due to disruptions to the businesses and operations of our customers;

interruptions, availability or delays in global shipping to transport our products;

further slowdown or stoppage in the supply chain for our products, in addition to higher costs;

limitations on employee resources and availability, including due to sickness, government restrictions, the desire of employees to avoid contact with large groups of people or mass transit disruptions;

greater difficulty in collecting customer receivables;

a fluctuation in foreign currency exchange rates or interest rates could result from market uncertainties;

an increase in the cost or the difficulty to obtain debt or equity financing could affect our financial condition or our ability to fund operations or future investment opportunities;

any breach of financial covenants contained in the Credit Agreement;

changes to the carrying value of our goodwill and intangible assets; and

an increase in regulatory restrictions or continued market volatility could hinder our ability to execute strategic business activities, as well as negatively impact our stock price.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

Additionally, COVID-19 could negatively affect our internal controls over financial reporting as a portion of our workforce is required to work from home and therefore new processes, procedures, and controls could be required to respond to changes in our business environment. Further, should any key employees become ill from COVID-19 and unable to work, the attention of the management team could be diverted.

Any of the foregoing could adversely affect our business, financial condition and results of operations. The potential effects of COVID-19 may also impact many of our other risk factors discussed in “Risk Factors” in Part I, Item 1A in our 2019 10-K. The exact extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted, including, but not limited to, the duration and spread of the COVID-19 outbreak, its severity, the actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information for the quarter ended March 31, ~~2019~~2020 about the Company’s repurchases of its equity securities registered pursuant to Section 12 of the Exchange Act, at a total cost of ~~$61.1~~$19.3 million:

ISSUER PURCHASES OF EQUITY SECURITIES

(d) Maximum

(c) Total

Number (or

Number of

Approximate

Shares

Dollar Value)

(or Units)

of Shares

Purchased as

(or Units) that

(a) Total

Part of

May Yet Be

Number of

Publicly

Purchased

Shares (or

(b) Average

Announced

Under the

Units)
Price Paid per Share

Plans or

Plans or
Period

Purchased⁽¹⁾

(or Unit)⁽²⁾

Programs

Programs⁽³⁾
January 1 to 31, 2019

576,604

$22.73

576,604

$188.4 million
February 1 to 28, 2019

281,865

$26.78

281,865

$180.9 million
March 1 to 31, 2019

1,524,390

$26.49

1,524,390

$140.5 million
Total

2,382,859

$25.61

2,382,859

ISSUER PURCHASES OF EQUITY SECURITIES
					(d) Maximum
				(c) Total	Number (or
				Number of	Approximate
				Shares	Dollar Value)
				(or Units)	of Shares
				Purchased as	(or Units) that
	(a) Total			Part of	May Yet Be
	Number of			Publicly	Purchased
	Shares (or		(b) Average	Announced	Under the
	Units)	Price Paid per Share		Plans or	Plans or
Period	Purchased⁽¹⁾		(or Unit)⁽²⁾	Programs	Programs⁽³⁾
January 1 to 31, 2020	—		—	—	$79.5 million
February 1 to 29, 2020	311,698		$27.66	311,698	$220.8 million
March 1 to 31, 2020	412,002		$25.95	412,002	$210.1 million
Total	723,700		$26.69	723,700

⁽¹⁾ All stock repurchases were made on the open market.

⁽²⁾Average price paid per share is calculated on a settlement basis and excludes commission.

⁽³⁾On October ~~26,~~30, 2018, the Company announced that the Board of Directors authorized the repurchase of $100 million of the Company’s common stock in addition to the $250 million previously ~~approved~~announced on March 6,7, 2018. On February 24, 2020, the Company announced that the Board of Directors authorized the repurchase of an additional $150 million of the Company’s common stock. Net of shares repurchased to date, the total remaining authorization outstanding as of March 31, ~~2019~~2020 is ~~$140.5~~$210.1 million. Stock purchases may be made in the open market, in privately negotiated transactions or block transactions, at the discretion of the Company’s management and as market conditions warrant. Purchases are funded from available cash and may be commenced, suspended or discontinued at any time without prior notice. Shares of stock repurchased under the program are ~~retired~~.retired.

3435

Item 6.Exhibits

Exhibit
Number		Description of Exhibit

3.1Restated Certificate of Formation dated May 17, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 17, 2016) (the 8-K) (Commission file number 1-10560)

3.2Amended and Restated Bylaws of the Company dated May 11, 2016 (incorporated by reference to Exhibit 3.2 to the 8-K)

4.1Specimen form of certificate evidencing the Common Shares (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014) (Commission file number 1-10560)

~~10.1~~ ⁽¹⁾Agreement, dated February 25, 2019, by and among the Company, Engaged Capital, LLC, Glenn W. Welling, Engaged Capital Flagship Master Fund, LP, Engaged Capital Flagship Fund, LP, Engaged Capital Flagship Fund, Ltd. and Engaged Capital Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 26, 2019 (Commission file number 1-10560))

~~10.2~~ ^{(1) (3)}Employment Agreement, dated February 26, 2019, between the Company and Jeffrey W. Benck (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 28, 2019 (Commission file number 1-10560))

31.1 ⁽¹⁾Section 302 Certification of Chief Executive Officer

31.2 ⁽¹⁾Section 302 Certification of Chief Financial Officer

32.1 ⁽²⁾Section 1350 Certification of Chief Executive ~~Office~~Officerr

32.2 ⁽²⁾Section 1350 Certification of Chief Financial Officer

101.INS ⁽⁴⁾⁽¹⁾XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH ⁽⁴⁾⁽¹⁾Inline XBRL Taxonomy Extension Schema Document

101.CAL ⁽⁴⁾⁽¹⁾Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF ⁽¹⁾Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB ⁽⁴⁾⁽¹⁾Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE ⁽⁴⁾⁽¹⁾Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~101.DEF~~ 104 ⁽⁴⁾⁽¹⁾Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

⁽¹⁾ ~~XBRL Taxonomy Extension Definition Linkbase Document~~

⁽¹⁾Filed herewith.

⁽²⁾ Furnished herewith

SIGNATURES

⁽³⁾ ~~Indicates management contract or compensatory plan or arrangement.~~

⁽⁴⁾ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections.

~~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 May 8, ~~2019~~2020.

	BENCHMARK ELECTRONICS, INC.
	(Registrant)
	By: /s/ Jeffrey W. Benck
	Jeffrey W. Benck
	President and Chief Executive Officer
	(Principal Executive Officer)


	By: /s/ Roop K. Lakkaraju
	Roop K. Lakkaraju
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

3637

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

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

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

		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income ~~(Loss)~~	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) ~~(Loss)~~	3
	Condensed Consolidated Statements of Shareholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and	2322
	Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3435
Item 6.	Exhibits	3536

SIGNATURES		3637

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

Balances, December 31, 2018		41,357	$ 4,136	$ 554,939	$ 584,274		$ (11,124)	$ 1,132,225
Stock-based compensation expense		—	—	2,772	—		—	2,772
Shares repurchased and retired		(2,383)	(239)	(26,473)	(34,368)		—	(61,080)
Stock options exercised		13	1	278	—		—	279
Vesting of restricted stock units		227	23	(23)	—		—	—
Shares withheld for taxes		(45)	(4)	(1,232)	—		—	(1,236)
Dividends declared		—	—	—	(5,875)		—	(5,875)
Net income		—	—	—	13,773		—	13,773
Other comprehensive loss		—	—	—	—		(2,133)	(2,133)
Balances, March 31, 2019		39,169	$ 3,917	$ 530,261	$ 557,804		$ (13,257)	$ 1,078,725

Balances, December 31, 2017		49,143	$ 4,914	$ 634,192	$ 708,181		$ (8,149)	$ 1,339,138
Stock-based compensation expense		—	—	2,870	—		—	2,870
Shares repurchased and retired		(1,911)	(191)	(31,252)	(36,938)		—	(68,381)
Stock options exercised		168	17	3,062	—		—	3,079
Vesting of restricted stock units		198	20	(20)	—		—	—
Shares withheld for taxes		(26)	(3)	(760)	—		—	(763)
Dividends declared		—	—	—	(7,136)		—	(7,136)
Net loss		—	—	—	(23,641)		—	(23,641)
Other comprehensive income		—	—	—	—		2,165	2,165
Balances, March 31, 2018		47,572	$ 4,757	$ 608,092	$ 640,466		$ (5,984)	$ 1,247,331

		Performance-
	Time-based	based
	Restricted	Restricted
	Stock	Stock
(in thousands, except remaining period data)	Units	Units⁽¹⁾
Unrecognized compensation cost	$ 25,211	$ 6,964
Remaining weighted-average
amortization period	3.2 years	2.1 years

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

			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	(13)	21.82
Outstanding as of March 31, 2019	361	$20.29	4.10	$ 2,150
Exercisable as of March 31, 2019	361	$20.29	4.10	$ 2,150

		As of March 31, 2019
		Gross				Net
		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount
Customer relationships	$	100,123	$	(42,224)	$	57,899
Purchased software costs		39,811		(30,991)		8,820
Technology licenses		28,800		(21,781)		7,019
Trade names and trademarks		7,800		—		7,800
Other		868		(291)		577
Total	$	177,402	$	(95,287)	$	82,115

		As of December 31, 2018
		Gross				Net
		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount
Customer relationships	$	100,146	$	(40,661)	$	59,485
Purchased software costs		39,069		(30,626)		8,443
Technology licenses		28,800		(21,006)		7,794
Trade names and trademarks		7,800		—		7,800
Other		868		(285)		583
Total	$	176,683	$	(92,578)	$	84,105

Year ending December 31,		Amount
2019 (remaining nine months)	$	8,240
2020		10,215
2021		7,136
2022		6,943
2023		6,543

Note 9 – Inventories
Inventory costs are summarized as follows:
		March 31,		December 31,
(in thousands)		2019		2018

Raw materials	$	305,603	$	300,439
Work in process		7,524		7,321
Finished goods		2,436		2,215
	$	315,563	$	309,975

Note 11 – Income Taxes
Income tax expense consists of the following:
	Three Months Ended
	March 31,
(in thousands)		2019		2018

Federal – current	$	675	$	(304)
Foreign – current		1,558		2,154
State – current		688		306
Deferred		685		39,000
	$	3,606	$	41,156

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
		March 31,
(in thousands)			2019		2018

Geographic net sales:
	United States	$	418,364	$	391,967
	Asia		86,624		106,991
	Europe		73,345		80,541
	Other foreign		24,487		28,637
		$	602,820	$	608,136

			March 31,		December 31,
			2019		2018
Long-lived assets:
	United States	$	250,535	$	190,056
	Asia		77,690		79,051
	Europe		18,629		9,537
	Other foreign		29,712		22,945
		$	376,566	$	301,589

Note 19 – Supplemental Cash Flow and Non-Cash Information
The following is additional information concerning supplemental disclosures of cash payments.

	Three Months Ended
	March 31,
(in thousands)		2020		2019
Income taxes paid, net	$	2,035	$	2,242
Interest paid		1,939		1,990

Non-cash investing activity:
Additions to property, plant and equipment in accounts payable	$	7,173	$	1,945

		Balance as of						Foreign			Balance as of
		December 31,		Restructuring			Cash	Exchange			March 31,
(in thousands)			2018		Charges		Payment	Adjustments			2019
2019 Restructuring:
	Severance	$	—	$	236	$	(130)	$	—	$	106
	Other exit costs		—		93		(31)		—		62
			—		329		(161)		—		168

2018 Restructuring:
	Severance		282		—		(282)		—		—
	Other exit costs		918		228		(1,051)		—		95
			1,200		228		(1,333)		—		95
2017 Restructuring:
	Other exit costs		135		—		—		(1)		134
			135		—		—		(1)		134
Total		$	1,335	$	557	$	(1,494)	$	(1)	$	397

			Foreign
			currency		Derivative
			translation		instruments,
(in thousands)			adjustments		net of tax		Other		Total
Balances, December 31, 2018		$	(11,840)	$	116	$	600	$	(11,124)
	Other comprehensive loss
	before reclassifications		(833)		(1,017)		—		(1,850)
	Amounts reclassified from accumulated
	other comprehensive loss		—		(268)		(15)		(283)
Net current period other comprehensive loss			(833)		(1,285)		(15)		(2,133)
Balances, March 31, 2019		$	(12,673)	$	(1,169)	$	585	$	(13,257)

Finance lease right-of-assets (included in other assets)	$	2,845
Operating lease right-of-use assets	$	81,159
Finance liability, current (included in current installments of long-term debt)	$	1,206
Finance lease liability, noncurrent (included in long-term debt)	$	4,668
Operating lease liability, current (included in other accrued liabilities)	$	11,889
Operating lease liability, noncurrent	$	70,859
Weighted average remaining lease term – finance leases		4.0 years
Weighted average remaining lease term – operating leases		9.57 years
Weighted average discount rate – finance leases		10.10%
Weighted average discount rate – operating leases		4.63%

		Operating			Finance
Year ending December 31,			Leases		Leases
	2019 (remaining nine months)	$	11,240	$	1,316
	2020		14,301		1,781
	2021		12,022		1,816
	2022		10,308		1,853
	2023		9,715		465
	2024 and thereafter		46,917		—
	Total minimum lease payments	$	104,503	$	7,231
	Less: imputed interest		(21,755)		(1,357)
	Present value of lease liabilities	$	82,748	$	5,874

ISSUER PURCHASES OF EQUITY SECURITIES
					(d) Maximum
				(c) Total	Number (or
				Number of	Approximate
				Shares	Dollar Value)
				(or Units)	of Shares
				Purchased as	(or Units) that
	(a) Total			Part of	May Yet Be
	Number of			Publicly	Purchased
	Shares (or		(b) Average	Announced	Under the
	Units)	Price Paid per Share		Plans or	Plans or
Period	Purchased⁽¹⁾		(or Unit)⁽²⁾	Programs	Programs⁽³⁾
January 1 to 31, 2019	576,604		$22.73	576,604	$188.4 million
February 1 to 28, 2019	281,865		$26.78	281,865	$180.9 million
March 1 to 31, 2019	1,524,390		$26.49	1,524,390	$140.5 million
Total	2,382,859		$25.61	2,382,859