UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

 

FORM 10‑Q

_______________

 

X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

 

__  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to________________

 

Commission File Number: 1‑10560

 

BENCHMARK ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Texas

74‑2211011

 

(State or other jurisdiction

(I.R.S. Employer

 

of incorporation or organization)

 

Identification No.)

4141 N. Scottsdale Road

85251

Scottsdale, Arizona

(Zip Code)

(Address of principal executive offices)

 

     

(623) 300-7000

(Registrants telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [Ö] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [Ö] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer [Ö]

Accelerated filer [   ]

Non-accelerated filer [   ] (Do not check if a smaller reporting company)

Smaller reporting company [   ]

Emerging growth company [   ]

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act). Yes [ ] No [Ö]

 

As of August 6, 2018 there were 46,585,922 shares of Common Stock of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.

  

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

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)

3

 

Condensed Consolidated Statement 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

25

 

Results of Operations

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

35

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 6.

Exhibits

37

 

 

SIGNATURES

38

 


 

PART I - FINANCIAL INFORMATION

 

Item 1.            Financial Statements.   

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

  

 

 

 

 

 

 

June 30,

December 31,

(in thousands, except par value)

 

2018

 

 

2017

 

 

 

 

 

 

 

 

(as adjusted)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

595,639

 

$

742,546

 

 

Accounts receivable, net of allowance for doubtful accounts of $105

 

 

 

 

 

 

 

 

and $105, respectively

 

444,953

 

 

436,560

 

 

Contract assets

 

148,231

 

 

146,496

 

 

Inventories

 

318,986

 

 

268,917

 

 

Prepaid expenses and other assets

 

35,277

 

 

36,018

 

 

Income taxes receivable

 

 

 

120

 

 

 

 

Total current assets

 

1,543,086

 

 

1,630,657

 

Property, plant and equipment, net of accumulated depreciation of

 

 

 

 

 

 

 

 

 

$445,939 and $432,043, respectively

 

203,872

 

 

186,473

 

Goodwill

 

192,116

 

 

191,616

 

Deferred income taxes

 

4,034

 

 

4,034

 

Other, net

 

94,077

 

 

96,524

 

 

 

 

 

$

2,037,185

 

$

2,109,304

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current installments of long-term debt and capital lease obligations

$

21,219

 

$

18,274

 

 

Accounts payable

 

383,606

 

 

362,701

 

 

Income taxes payable

 

20,803

 

 

11,663

 

 

Accrued liabilities

 

75,368

 

 

85,679

 

 

 

 

Total current liabilities

 

500,996

 

 

478,317

 

Long-term debt and capital lease obligations, less current installments

 

181,777

 

 

193,406

 

Other long-term liabilities

 

90,262

 

 

89,749

 

Deferred income taxes

 

20,005

 

 

8,694

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.10 par value; 5,000 shares authorized, none issued

 

 

 

 

 

Common stock, $0.10 par value; 145,000 shares authorized; issued

 

 

 

 

 

 

 

 

and outstanding – 47,334 and 49,143, respectively

 

4,733

 

 

4,914

 

 

Additional paid-in capital

 

607,984

 

 

634,192

 

 

Retained earnings

 

639,779

 

 

708,181

 

 

Accumulated other comprehensive loss

 

(8,351)

 

 

(8,149)

 

 

 

 

Total shareholders’ equity

 

1,244,145

 

 

1,339,138

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

$

2,037,185

 

$

2,109,304

See accompanying notes to condensed consolidated financial statements.

1


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss)

(unaudited)

 

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

June 30,

(in thousands, except per share data)

 

2018

 

2017

 

2018

 

2017

 

 

 

 

(as adjusted)

 

 

(as adjusted)

Sales

$

660,591

$

619,611

$

1,268,727

$

1,177,514

Cost of sales

 

606,292

 

560,127

 

1,156,110

 

1,070,498

 

Gross profit

 

54,299

 

59,484

 

112,617

 

107,016

Selling, general and administrative expenses

 

35,825

 

32,335

 

71,575

 

64,986

Amortization of intangible assets

 

2,367

 

2,481

 

4,733

 

4,962

Restructuring charges and other costs

 

1,758

 

1,544

 

3,993

 

3,055

 

Income from operations

 

14,349

 

23,124

 

32,316

 

34,013

Interest expense

 

(2,293)

 

(2,312)

 

(4,721)

 

(4,537)

Interest income

 

1,645

 

1,213

 

3,578

 

2,287

Other expense

 

(355)

 

(830)

 

(312)

 

(911)

 

Income before income taxes

 

13,346

 

21,195

 

30,861

 

30,852

Income tax expense

 

2,403

 

3,121

 

43,559

 

4,223

 

Net income (loss)

$

10,943

$

18,074

$

(12,698)

$

26,629

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

$

0.23

$

0.36

$

(0.26)

$

0.54

 

Diluted

$

0.23

$

0.36

$

(0.26)

$

0.53

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

47,451

 

49,766

 

47,981

 

49,640

 

Diluted

 

47,631

 

50,239

 

47,981

 

50,209

See accompanying notes to condensed consolidated financial statements.

2


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

(in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

(as adjusted)

 

 

(as adjusted)

Net income (loss)

$

10,943

 

$

18,074

 

$

(12,698)

 

$

26,629

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(2,652)

 

 

2,513

 

 

(1,320)

 

 

3,121

 

Unrealized gain on investments, net of tax

 

41

 

 

12

 

 

41

 

 

16

 

Unrealized gain (loss) on derivative, net of tax

 

244

 

 

(200)

 

 

1,077

 

 

165

 

Other

 

 

 

 

 

 

 

(13)

Other comprehensive income (loss)

 

(2,367)

 

 

2,325

 

 

(202)

 

 

3,289

 

 

 

Comprehensive income (loss)

$

8,576

 

$

20,399

 

$

(12,900)

 

$

29,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement 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, 2017 (as adjusted)

49,143

 

 

$  4,914

 

$  634,192

 

$  708,181

 

 

$  (8,149)

 

 

$  1,339,138

Stock-based compensation expense

 

 

 

 

 

5,405

 

 

 

 

 

5,405

Shares repurchased and retired

 

 

(2,174)

 

 

(217)

 

(34,183)

 

(41,468)

 

 

 

 

(75,868)

Stock options exercised

 

 

182

 

 

18

 

3,359

 

 

 

 

 

3,377

Vesting of restricted stock units

 

 

209

 

 

21

 

(21)

 

 

 

 

 

Shares withheld for taxes

 

 

(26)

 

 

(3)

 

(768)

 

 

 

 

 

(771)

Dividends declared

 

 

 

 

 

 

(14,236)

 

 

 

 

(14,236)

Net loss

 

 

 

 

 

 

(12,698)

 

 

 

 

(12,698)

Other comprehensive loss

 

 

 

 

 

 

 

 

(202)

 

 

(202)

Balances, June 30, 2018

 

 

47,334

 

 

$  4,733

 

$  607,984

 

$  639,779

 

 

$  (8,351)

 

 

$  1,244,145

See accompanying notes to condensed consolidated financial statements.

4


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

(in thousands)

 

2018

 

 

2017

 

 

 

 

 

 

 

 

(as adjusted)

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

$

(12,698)

 

$

26,629

 

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

 

 

 

 

 

 

 

(used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

19,373

 

 

18,414

 

 

 

Amortization

 

5,710

 

 

5,903

 

 

 

Deferred income taxes

 

10,936

 

 

1,360

 

 

 

Gain on the sale of property, plant and equipment

 

(116)

 

 

(167)

 

 

 

Asset impairments

 

96

 

 

 

 

 

Stock-based compensation expense

 

5,405

 

 

4,505

 

Changes in operating assets and liabilities, net of effects from

 

 

 

 

 

 

 

business acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

(8,980)

 

 

49,394

 

 

 

Contract assets

 

(1,735)

 

 

3,466

 

 

 

Inventories

 

(52,063)

 

 

(39,478)

 

 

 

Prepaid expenses and other assets

 

1,966

 

 

(7,233)

 

 

 

Accounts payable

 

23,103

 

 

16,675

 

 

 

Accrued liabilities

 

(16,025)

 

 

13,388

 

 

 

Income taxes

 

8,846

 

 

(327)

 

 

 

 

Net cash provided by (used in) operations

 

(16,182)

 

 

92,529

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from sales of investments at par

 

522

 

 

250

 

Additions to property, plant and equipment

 

(36,708)

 

 

(24,039)

 

Proceeds from the sale of property, plant and equipment

 

137

 

 

235

 

Additions to purchased software

 

(1,655)

 

 

(2,340)

 

Business acquisition, net of cash acquired

 

(2,731)

 

 

 

Other

 

(129)

 

 

(105)

 

 

 

 

Net cash used in investing activities

 

(40,564)

 

 

(25,999)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from stock options exercised

 

3,377

 

 

8,094

 

Employee taxes paid for shares withheld

 

(771)

 

 

(379)

 

Dividends paid

 

(7,136)

 

 

 

Borrowings under credit agreement

 

50,000

 

 

 

Principal payments on long-term debt and capital lease obligations

 

(59,121)

 

 

(6,185)

 

Share repurchases

 

(65,868)

 

 

(2,000)

 

Equity forward contract related to accelerated share repurchase

 

(10,000)

 

 

 

Debt issuance costs

 

 

 

(433)

 

 

 

 

Net cash used in financing activities

 

(89,519)

 

 

(903)

Effect of exchange rate changes

 

(642)

 

 

2,251

Net increase (decrease) in cash and cash equivalents

 

(146,907)

 

 

67,878

 

Cash and cash equivalents at beginning of year

 

742,546

 

 

681,433

 

Cash and cash equivalents at end of period

$

595,639

 

$

749,311

See accompanying notes to condensed consolidated financial statements.

5


 

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 worldwide engineering services, integrated technology solutions and manufacturing services (both electronic manufacturing services (EMS) and precision technology manufacturing services) to original equipment manufacturers (OEMs) in the following industries: industrial controls, aerospace and defense (A&D), telecommunications, computers and related products for business enterprises, medical devices, and test and instrumentation. The Company has manufacturing operations located in the United States and Mexico (the Americas), Asia and Europe.

 

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

 

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

 

Note 2 – New Accounting Pronouncements

Adopted in 2018

In May 2017, the Financial Accounting Standards Board (FASB) issued a new accounting standards update that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted the new guidance effective January 1, 2018. The impact of adoption on the Company's consolidated financial statements is dependent on future changes to stock-based compensation awards.

 

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

 

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

 

The Company applied ASC 606 using the full retrospective transition method. The Company elected the ASC 606 practical expedient and does not disclose the information about remaining performance obligations that have original expected durations of one year or less. Amounts prior to January 1, 2018 that have been adjusted in accordance with ASC 606 as described herein are noted “as adjusted”.

 

Previously, the Company recognized revenue from the sale of manufactured products built to customer

6 


 

specifications and excess inventory when title and risk of ownership passed, the price to the buyer was fixed or determinable and recoverability was reasonably assured, which was generally when the goods were shipped. Under ASC 606, the Company recognizes revenue as the customer takes control of the products. Under the 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. Accordingly, the Company will recognize revenue under these contracts earlier than under the previous accounting rules. Under other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, the Company continues to recognize revenue upon transfer of control of product to the customer. Revenue from design, development and engineering services also continues to be recognized over time as the services are performed.

 

The Company’s performance obligations generally have an expected duration of one year or less. The Company applies the practical expedients and does not disclose information about remaining performance obligations that have original expected durations of one year or less or any significant financing components in the contracts.

 

The Company recognizes the incremental costs, if any, of obtaining contracts as an expense when incurred since the amortization period of the assets that the Company otherwise would have recognized is one year less.

 

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

 

Condensed Consolidated Balance Sheet

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

 

 

 

As previously

 

 

 

 

 

(in thousands)

 

reported

 

Adjustments

 

As adjusted

 

Contract assets

$

 

$

146,496

 

$

146,496

 

Inventories

 

397,181

 

 

(128,264)

 

 

268,917

 

Prepaid expenses and other assets

 

42,263

 

 

(6,245)

 

 

36,018

 

Total assets

$

2,097,317

 

$

11,987

 

$

2,109,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes payable

$

11,662

 

$

1

 

$

11,663

 

Deferred income taxes

 

7,027

 

 

1,667

 

 

8,694

 

Total liabilities

 

768,498

 

 

1,668

 

 

770,166

 

Retained earnings

 

697,862

 

 

10,319

 

 

708,181

 

Total shareholders’ equity

 

1,328,819

 

 

10,319

 

 

1,339,138

 

Total liabilities and shareholders’ equity

$

2,097,317

 

$

11,987

 

$

2,109,304

7 


 

Condensed Consolidated Statement of Income

Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

As previously

 

 

 

 

 

(in thousands, except per share data)

 

reported

 

Adjustments

 

As adjusted

 

 

 

 

 

 

 

 

 

 

Sales

$

616,904

 

$

2,707

 

$

619,611

Cost of sales

$

558,317

 

$

1,810

 

$

560,127

Income tax expense

$

3,122

 

$

(1)

 

$

3,121

Net income

$

17,176

 

$

898

 

$

18,074

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

$

0.35

 

$

0.01

 

$

0.36

 

Diluted

$

0.34

 

$

0.02

 

$

0.36

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

49,766

 

 

49,766

 

 

49,766

 

Diluted

 

50,239

 

 

50,239

 

 

50,239

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Income

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

As previously

 

 

 

 

 

(in thousands, except per share data)

 

reported

 

Adjustments

 

As adjusted

 

 

 

 

 

 

 

 

 

 

Sales

$

1,183,405

 

$

(5,891)

 

$

1,177,514

Cost of sales

$

1,075,758

 

$

(5,260)

 

$

1,070,498

Income tax expense

$

4,620

 

$

(397)

 

$

4,223

Net income

$

26,863

 

$

(234)

 

$

26,629

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

$

0.54

 

$

 

$

0.54

 

Diluted

$

0.54

 

$

(0.01)

 

$

0.53

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

49,640

 

 

49,640

 

 

49,640

 

Diluted

 

50,209

 

 

50,209

 

 

50,209

8 


 

Condensed Consolidated Statement of Cashflows

Six Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

 

 

 

As previously

 

 

 

 

 

(in thousands)

 

reported

 

Adjustments

 

As adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

26,863

 

$

(234)

 

$

26,629

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

 

 

 

 

 by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

18,414

 

 

 

 

18,414

 

 

 

Amortization

 

5,903

 

 

 

 

5,903

 

 

 

Deferred income taxes

 

2,103

 

 

(743)

 

 

1,360

 

 

 

Gain on the sale of property, plant and equipment

 

(167)

 

 

 

 

(167)

 

 

 

Stock-based compensation expense

 

4,505

 

 

 

 

4,505

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

49,394

 

 

 

 

49,394

 

 

 

Contract assets

 

 

 

3,466

 

 

3,466

 

 

 

Inventories

 

(34,218)

 

 

(5,260)

 

 

(39,478)

 

 

 

Prepaid expenses and other assets

 

(9,658)

 

 

2,425

 

 

(7,233)

 

 

 

Accounts payable

 

16,675

 

 

 

 

16,675

 

 

 

Accrued liabilities

 

13,388

 

 

 

 

13,388

 

 

 

Income taxes

 

(673)

 

 

346

 

 

(327)

 

 

 

 

Net cash provided by operations

 

92,529

 

 

 

 

92,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(25,999)

 

 

 

 

(25,999)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

(903)

 

 

 

 

(903)

 

Effect of exchange rate changes

 

2,251

 

 

 

 

2,251

 

Net increase in cash and cash equivalents

 

67,878

 

 

 

 

67,878

 

Cash and cash equivalents at beginning of year

 

681,433

 

 

 

 

681,433

 

Cash and cash equivalents at end of period

$

749,311

 

$

 

$

749,311

 

Not Yet Adopted

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

 

In June 2016, the FASB issued a new accounting standards update, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for annual reporting periods beginning after December 15, 2019.  The Company does not expect the implementation of this update to have a material impact on its consolidated financial position, results of operations or cash flows and will adopt this update effective January 1, 2020.

 

In February 2016, the FASB issued a new accounting standards update changing the accounting for leases, including a requirement to record all leases on the consolidated balance sheets as assets (right-of-use) and liabilities (for reasonably certain lease payments). This update is effective for fiscal years beginning after December 15, 2018. The Company will adopt this update effective January 1, 2019, which will impact its

9 


 

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

 

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

 

Note 3 – Revenue

The Company’s revenues are generated primarily from the sale of manufactured products built to customer specifications. The Company also generates revenue from design, development and engineering services, in addition to the sale of excess 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 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 had recorded revenue, but not issued 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.

 

 

 

10 


 

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

 

 

 

Three Months Ended June 30, 2018

(in thousands)

 

Americas

 

Asia

 

Europe

 

Total

Market Sector:

 

 

 

 

 

 

 

 

 

Industrials

$

45,138

$

55,919

$

16,711

$

117,768

 

A&D

 

94,066

 

1,518

 

6,924

 

102,508

 

Medical

 

59,383

 

34,101

 

3,564

 

97,048

 

Test and instrumentation

 

47,333

 

41,552

 

17,185

 

106,070

 

Computing

 

141,417

 

17,528

 

1,692

 

160,637

 

Telecommunication

 

39,461

 

36,907

 

192

 

76,560

 

   External revenue

 

426,798

 

187,525

 

46,268

 

660,591

 

Elimination of intersegment sales

 

7,480

 

10,103

 

87

 

17,670

 

  Segment revenue

$

434,278

$

197,628

$

46,355

$

678,261

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

Americas

 

Asia

 

Europe

 

Total

Market Sector:

 

 

 

 

 

 

 

 

 

Industrials

$

97,867

$

109,576

$

34,885

$

242,328

 

A&D

 

182,480

 

2,648

 

15,247

 

200,375

 

Medical

 

114,375

 

72,364

 

7,596

 

194,335

 

Test and instrumentation

 

93,202

 

80,785

 

34,297

 

208,284

 

Computing

 

227,638

 

32,428

 

4,109

 

264,175

 

Telecommunication

 

83,355

 

74,992

 

883

 

159,230

 

   External revenue

 

798,917

 

372,793

 

97,017

 

1,268,727

 

Elimination of intersegment sales

 

14,146

 

19,957

 

134

 

34,237

 

  Segment revenue

$

813,063

$

392,750

$

97,151

$

1,302,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable Operating Segments

 

 

 

Three Months Ended June 30, 2017 (as adjusted)

(in thousands)

 

Americas

 

Asia

 

Europe

 

Total

Market Sector:

 

 

 

 

 

 

 

 

 

Industrials

$

56,053

$

52,094

$

16,607

$

124,754

 

A&D

 

93,047

 

917

 

6,116

 

100,080

 

Medical

 

48,139

 

33,822

 

4,874

 

86,835

 

Test and instrumentation

 

37,766

 

38,655

 

12,395

 

88,816

 

Computing

 

116,547

 

23,166

 

2,518

 

142,231

 

Telecommunication

 

45,239

 

31,222

 

434

 

76,895

 

   External revenue

 

396,791

 

179,876

 

42,944

 

619,611

 

Elimination of intersegment sales

 

8,643

 

14,604

 

66

 

23,313

 

  Segment revenue

$

405,434

$

194,480

$

43,010

$

642,924

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017 (as adjusted)

 

 

 

Americas

 

Asia

 

Europe

 

Total

Market Sector:

 

 

 

 

 

 

 

 

 

Industrials

$

110,150

$

97,885

$

33,905

$

241,940

 

A&D

 

186,456

 

1,049

 

12,475

 

199,980

 

Medical

 

95,740

 

66,299

 

9,721

 

171,760

 

Test and instrumentation

 

70,420

 

73,349

 

20,797

 

164,566

 

Computing

 

194,360

 

42,732

 

5,398

 

242,490

 

Telecommunication

 

93,153

 

62,386

 

1,239

 

156,778

 

   External revenue

 

750,279

 

343,700

 

83,535

 

1,177,514

 

Elimination of intersegment sales

 

16,475

 

30,084

 

119

 

46,678

 

  Segment revenue

$

766,754

$

373,784

$

83,654

$

1,224,192

11 


 

 

For the six months ended June 30, 2018 and 2017, 95.3% and 95.6%, respectively, of the Company’s revenue was recognized as products and services are transferred over time.

 

Note 4 – Stock-Based Compensation

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 June 30, 2018, 2.7 million additional shares of common stock were available for issuance under the Company’s 2010 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 $2.5 million and $5.4 million for the three and six months ended June 30, 2018, respectively, and $2.3 million and $4.5 million for the three and six months ended June 30, 2017, respectively. The total income tax benefit recognized in the condensed income statements for stock-based awards was $0.6 million and $1.3 million for the three and six months ended June 30, 2018, respectively, and $0.9 million and $1.6 million for the three and six months ended June 30, 2017, respectively. The compensation expense for stock-based awards is recognized over the vesting period of the awards using the straight-line method. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Awards of restricted stock units and performance-based restricted stock units are valued at the closing market price of the Company’s common stock on the date of grant. For performance-based restricted stock units, compensation expense is based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on the Company’s expectation of performance during the

12 


 

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 June 30, 2018, the unrecognized compensation cost and remaining weighted-average amortization related to stock-based awards were as follows:

 

 

 

 

 

 

Performance-

 

 

 

 

Time-based

 

based

 

 

 

 

Restricted

 

Restricted

 

 

Stock

 

Stock

 

Stock

(in thousands, except remaining period data)

 

Options

 

 Units 

 

Units(1)

Unrecognized compensation cost

 

 $  185

 

 $  17,183

 

 $  4,732

Remaining weighted-average

 

 

 

 

 

 

 

 

  amortization period

 

0.7 years

 

2.6 years

 

1.6 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 six months ended June 30, 2018 and 2017 was approximately $3.4 million and $8.1 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the six months ended June 30, 2018 and 2017 was $1.9 million and $3.8 million, respectively. For the six months ended June 30, 2018 and 2017, the total intrinsic value of stock options exercised was $2.2 million and $5.2 million, respectively.

 

The Company awarded performance-based restricted stock units to employees during the six months ended June 30, 2018 and 2017. The number of performance-based restricted stock units that will ultimately be earned will not be determined until the end of the corresponding performance periods, and may vary from as low as zero to as high as 2.5 times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue 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, 2017

 

596

 

 

$19.72

 

 

 

 

Exercised

 

(182)

 

 

18.57

 

 

 

 

Forfeited or expired

 

(20)

 

 

22.97

 

 

 

 

Outstanding as of June 30, 2018

 

394

 

 

$20.10

 

4.74

 

$  3,568

Exercisable as of June 30, 2018

 

358

 

 

$19.79

 

3.73

 

$  3,350

 

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company’s closing stock price as of the last

13 


 

business day of the period ended June 30, 2018 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 units outstanding as of December 31, 2017

 

593

 

 

$27.47

Granted

 

385

 

 

29.67

Vested

 

(209)

 

 

26.51

Forfeited

 

(70)

 

 

27.02

Non-vested units outstanding as of June 30, 2018

 

699

 

 

$29.01

 

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 units outstanding as of December 31, 2017

 

 

346

 

 

$26.88

Granted (1)

 

 

109

 

 

29.92

Forfeited

 

 

(145)

 

 

23.97

Non-vested units outstanding as of June 30, 2018

 

 

310

 

 

$29.31

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

14 


 

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

(in thousands, except per share data)

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

(as adjusted)

 

 

 

(as adjusted)

Net income (loss)

 

$

10,943

 

$

18,074

 

$

(12,698)

 

$

26,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share -

 

 

 

 

 

 

 

 

 

 

 

 

 

weighted-average number of common

 

 

 

 

 

 

 

 

 

 

 

 

 

shares outstanding during the period

 

 

47,451

 

 

49,766

 

 

47,981

 

 

49,640

Incremental common shares attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

exercise of dilutive options

 

 

116

 

 

318

 

 

 

 

341

Incremental common shares attributable

 

 

 

 

 

 

 

 

 

 

 

 

 

to outstanding restricted stock units

 

 

64

 

 

155

 

 

 

 

228

Denominator for diluted earnings per share

 

 

47,631

 

 

50,239

 

 

47,981

 

 

50,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.23

 

$

0.36

 

$

(0.26)

 

$

0.54

Diluted earnings (loss) per share

 

$

0.23

 

$

0.36

 

$

(0.26)

 

$

0.53

 

Potentially dilutive securities totaling 0.3 million common shares for the six months ended June 30, 2018 were not included in the computation of diluted loss per share because their effect would have decreased the loss per share.

 

Note 6 – Goodwill and Other Intangible Assets

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

 

(in thousands)

 

Americas

 

Asia

 

Total

Goodwill as of December 31, 2017

$

153,514

$

38,102

$

191,616

Acquisition

 

500

 

 

500

Goodwill as of June 30, 2018

$

154,014

$

38,102

$

192,116

 

During the three months ended June 30, 2018, the Company completed a non-significant business acquisition for $2.7 million. The preliminary allocation of the net purchase price resulted in $0.5 million of goodwill. The goodwill recognized in connection with the acquisition represents the future economic benefit arising from assets acquired that could not be individually identified and separately recognized, and is attributable to the general reputation, acquisition synergies and expected future cash flows of the acquisition.  The final allocation of the purchase price, which the Company expects to complete no later than one year from the acquisition date, may differ from the amounts included in these financial statements.

15 


 

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

 

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

 

 

As of June 30, 2018

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

Accumulated

 

Carrying

(in thousands)

 

Amount

 

Amortization

 

Amount

Customer relationships

$

100,170

 

$

(37,513)

 

$

62,657

Purchased software costs

 

36,806

 

 

(29,974)

 

 

6,832

Technology licenses

 

28,800

 

 

(19,438)

 

 

9,362

Trade names and trademarks

 

7,800

 

 

 

 

7,800

Other

 

868

 

 

(273)

 

 

595

Total

$

174,444

 

$

(87,198)

 

$

87,246

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

Accumulated

 

Carrying

(in thousands)

 

Amount

 

Amortization

 

Amount

Customer relationships

$

100,200

 

$

(34,372)

 

$

65,828

Purchased software costs

 

35,328

 

 

(29,612)

 

 

5,716

Technology licenses

 

28,800

 

 

(17,887)

 

 

10,913

Trade names and trademarks

 

7,800

 

 

 

 

7,800

Other

 

868

 

 

(261)

 

 

607

Total

$

172,996

 

$

(82,132)

 

$

90,864

 

Customer relationships are being amortized on a straight-line basis over a period of 10 to 14 years. Capitalized purchased software costs are being amortized on a straight-line basis over the estimated useful life of the related software, which ranges from 2 to 10 years. Technology licenses are being amortized over their estimated useful lives in proportion to the economic benefits consumed. The Company’s acquired trade names and trademarks have been determined to have an indefinite life. Amortization for the six months ended June 30, 2018 and 2017 was as follows:

 

Six Months Ended

 

June 30,

(in thousands)

 

2018

 

 

2017

Amortization of intangible assets

$

4,733

 

$

4,962

Amortization of capitalized purchased software costs

 

540

 

 

516

Amortization of debt costs

 

437

 

 

425

 

$

5,710

 

$

5,903

16 


 

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

2018 (remaining six months)

$

5,336

2019

 

11,311

2020

 

10,499

2021

 

7,312

2022

 

7,242

 

Note 7 – Borrowing Facilities

As of June 30, 2018, the Company had a $430 million Credit Agreement (the Credit Agreement) with JPMorgan Chase Bank, N.A. as administrative agent and collateral agent (the Administrative Agent), and the financial institutions acting as lenders thereunder from time to time. This Credit Agreement provided for a five-year $200 million revolving credit facility (the Revolving Credit Facility) and a five-year $230 million term loan facility (the Term Loan). The Revolving Credit Facility was available for general corporate purposes, could be drawn in foreign currencies up to an amount equivalent to $20 million, and could be used for letters of credit up to $20 million. The Credit Agreement included an accordion feature, pursuant to which total commitments under the facility could be increased by an additional $150 million, subject to satisfaction of certain conditions.

 

The Term Loan was payable in minimum quarterly principal installments of $4.3 million in 2018, $5.8 million in 2019, and $8.6 million in 2020, with the balance payable on the maturity date.

 

Interest on outstanding borrowings under the Credit Agreement accrued, at our option, at (a) the adjusted London interbank offered rate (LIBOR) plus 1.25% to 2.25%, or (b) the alternative base rate plus 0.25% to 1.25%, and was payable quarterly in arrears. The alternative base rate was equal to the highest of (i) the Administrative Agent’s prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted LIBOR rate plus 1.00%. The margin on the interest rates fluctuated based upon the ratio of the Company’s debt to its consolidated EBITDA. As of June 30, 2018, $148.8 million of the outstanding debt under the Credit Agreement was effectively at a fixed interest rate as a result of a $148.8 million notional interest rate swap contract discussed in Note 16. A commitment fee of 0.30% to 0.40% per annum (based on the debt to EBITDA ratio) on the unused portion of the revolving credit line was payable quarterly in arrears.

 

The Credit Agreement was 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) any debt owed to Benchmark and its subsidiaries and (c) all or substantially all other personal property of Benchmark and its domestic subsidiaries (including, accounts receivable, contract assets, inventory and fixed assets of Benchmark and its domestic subsidiaries), in each case, subject to customary exceptions and limitations. The Credit Agreement contained financial covenants as to debt leverage and interest coverage, 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 June 30, 2018 and December 31, 2017, the Company was in compliance with all of these covenants and restrictions.

 

As of June 30, 2018, the Company had $198.4 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 $197.2 million available for future borrowings under the Revolving Credit Facility.

17 


 

 

On July 20, 2018, the Company entered into a $650 million credit agreement (the New 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 New Credit Agreement replaced the Credit Agreement. The New Credit Agreement is comprised of a five-year $500 million revolving credit facility (the New Revolving Credit Facility) and a five-year $150 million term loan facility (the New Term Loan Facility), both with a maturity date of July 20, 2023. A portion of the New Term Loan Facility proceeds were used to (i) refinance all indebtedness and terminate all commitments under the Credit Agreement discussed above and (ii) pay the fees, costs and expenses associated with the foregoing and the negotiation, execution and delivery of the New Credit Agreement.

 

The New Revolving Credit Facility is available for general corporate purposes. The New 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 New Revolving Credit Facility in an aggregate amount not exceeding $275 million, subject to the satisfaction of certain conditions.

 

The New 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.

 

The Company’s Thailand subsidiary has a multi-purpose credit facility with Kasikornbank Public Company Limited (the Thai Credit Facility) that provides for 350 million Thai baht (approximately $10.6 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 2018. As of both June 30, 2018 and December 31, 2017, there were no working capital borrowings outstanding under the facility.

 

Note 8 – Contract Assets

As of June 30, 2018 and December 31, 2017, the Company had $148.2 million and $146.5 million 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:

 

 

Six Months Ended

 

June 30,

(in thousands)

 

2018

 

 

2017

Transferred to receivables from contract assets recognized at

 

 

 

 

 

   the beginning of the period

$

(290,599)

 

$

(305,850)

Contract assets recognized, net of reclassification to accounts receivable

 

292,334

 

 

302,384

Net change

$

1,735

 

$

(3,466)

18 


 

Note 9 – Inventories

Inventory costs are summarized as follows:

 

June 30,

December 31,

(in thousands)

 

2018

 

 

2017

 

 

 

 

(as adjusted)

Raw materials

$

310,972

 

$

258,228

Work in process

 

7,071

 

 

8,600

Finished goods

 

943

 

 

2,089

 

$

318,986

 

$

268,917

 

Note 10 – Accounts Receivable Sale Program

As of June 30, 2018, in connection with a trade accounts receivable sale program with an unaffiliated financial institution, the Company may elect to sell, at a discount, on an ongoing basis, up to a maximum of $40.0 million, of specific accounts receivable at any one time.

 

During the three months ended June 30, 2018 & 2017, the Company sold $40.0 million of accounts receivable under this program, and in exchange, the Company received cash proceeds of $39.9 million, net of the discount. During the six months ended June 30, 2018 and 2017, the Company sold $80.0 million and $65.0 million, respectively, of accounts receivable under this program, and in exchange, the Company received cash proceeds of $79.8 million and $64.9 million, respectively, net of the discount. The loss on the sale resulting from the discount was recorded to other expense within the Condensed Consolidated Statements of Income.

 

On July 20, 2018, the Company amended the terms of the trade accounts receivable sale program to, among other things, increase the maximum amount of specific accounts receivable that the Company may elect to sell, at any one time, from $40 million to $80 million.

 

Note 11 – Income Taxes

Income tax expense consists of the following:

 

Six Months Ended

 

June 30,

(in thousands)

 

2018

 

 

2017

 

 

 

 

(as adjusted)

Federal – current

$

(81)

 

$

(678)

Foreign – current

 

24,992

 

 

3,379

State – current

 

7,712

 

 

162

Deferred

 

10,936

 

 

1,360

 

$

43,559

 

$

4,223

 

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 and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The U.S. Tax Reform reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

 

To minimize tax base erosion with a territorial tax system, the U.S. Tax Reform enacted a new global intangible low-taxed income (GILTI) provision. Under the GILTI provision, certain foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s depreciable tangible assets are included in U.S. taxable income offset by a limited deemed paid foreign tax credit. The Company is subject

19 


 

to the GILTI provisions due to its operations in foreign jurisdictions.

 

As of December 31, 2017, the Company had approximately $928 million in cumulative undistributed foreign earnings outside the U.S. Substantially all of these undistributed earnings are subject to the U.S. mandatory repatriation tax and are eligible to be repatriated to the U.S. without additional U.S. tax under the U.S. Tax Reform. The Company has historically asserted its intention to indefinitely reinvest undistributed foreign earnings. The Company no longer considers these earnings to be indefinitely reinvested in its foreign subsidiaries. As a result of this change in assertion for undistributed earnings prior to December 31, 2017, the Company recorded $30.7 million of deferred tax expense for foreign withholding tax from Asia and $9.4 million of deferred U.S. state income tax expense in the first three months of 2018. During the six months ended June 30, 2018, the Company repatriated $522.0 million of foreign earnings to the U.S. For future undistributed earnings earned after December 31, 2017, the Company intends to indefinitely reinvest certain future undistributed foreign earnings from certain jurisdictions, and repatriate future earnings from other specific jurisdictions as part of its foreign cash management strategy around the world.

 

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

 

The Company has been granted certain tax incentives, including tax holidays, for its subsidiaries in China, Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2018 in China, 2021 in Malaysia and 2028 in Thailand, and are subject to certain conditions with which the Company expects to comply. The net impact of these tax incentives was to lower income tax expense for the six months ended June 30, 2018 and 2017 by approximately $6.6 million (approximately $0.14 per diluted share) and $4.2 million (approximately $0.08 per diluted share), respectively, as follows:

 

 

Six Months Ended

 

June 30,

(in thousands)

 

2018

 

 

2017

China

$

969

 

$

471

Malaysia

 

2,551

 

 

1,773

Thailand

 

3,070

 

 

1,926

 

$

6,590

 

$

4,170

 

As of June 30, 2018, the total amount of the reserve for uncertain tax benefits including interest was $0.3 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 amount of accrued potential interest on unrecognized tax benefits included in the reserve as of June 30, 2018, was $47.0 thousand. There was no reserve for potential penalties. During the six months ended June 30, 2018, the Company released $0.5 million of uncertain tax benefits from a U.S. Internal Revenue Service (IRS) audit related to the Secure Communication Systems, Inc. acquisition. During the first quarter of 2018, the IRS indicated that this examination of years 2013 to 2015 was closed. In addition, the IRS also notified the Company that the examination of the Company’s consolidated U.S. income tax return filings for 2014 was also closed with no additional tax costs.

 

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

20 


 

does not have any ongoing tax examinations by any jurisdiction. During the course of such 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. 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

Six Months Ended

 

 

June 30,

June 30,

(in thousands)

 

2018

 

2017

 

2018

 

2017

 

 

 

 

(as adjusted)

 

 

(as adjusted)

Net sales:

 

 

 

 

 

 

 

 

 

Americas

$

434,278

$

405,434

$

813,063

$

766,754

 

Asia

 

197,628

 

194,480

 

392,750

 

373,784

 

Europe

 

46,355

 

43,010

 

97,151

 

83,654

 

Elimination of intersegment sales

 

(17,670)

 

(23,313)

 

(34,237)

 

(46,678)

 

 

$

660,591

$

619,611

$

1,268,727

$

1,177,514

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Americas

$

5,816

$

5,415

$

11,425

$

10,920

 

Asia

 

2,871

 

2,973

 

5,693

 

6,139

 

Europe

 

900

 

679

 

1,784

 

1,336

 

Corporate

 

3,112

 

2,977

 

6,181

 

5,922

 

 

$

12,699

$

12,044

$

25,083

$

24,317

 

 

 

 

 

 

 

 

 

 

Income from operations:

 

 

 

 

 

 

 

 

 

Americas

$

15,522

$

19,157

$

32,259

$

31,777

 

Asia

 

16,829

 

20,457

 

34,478

 

33,837

 

Europe

 

2,200

 

2,509

 

5,195

 

4,879

 

Corporate and intersegment eliminations

 

(20,202)

 

(18,999)

 

(39,616)

 

(36,480)

 

 

$

14,349

$

23,124

$

32,316

$

34,013

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,293)

 

(2,312)

 

(4,721)

 

(4,537)

 

Interest income

 

1,645

 

1,213

 

3,578

 

2,287

 

Other expense

 

(355)

 

(830)

 

(312)

 

(911)

 

  Income before income taxes

$

13,346

$

21,195

$

30,861

$

30,852

 

 

 

 

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

Americas

$

12,545

$

5,770

$

25,394

$

9,036

 

Asia

 

2,937

 

8,714

 

8,650

 

11,124

 

Europe

 

630

 

2,466

 

1,652

 

3,380

 

Corporate

 

1,374

 

1,851

 

2,667

 

2,839

 

 

$

17,486

$

18,801

$

38,363

$

26,379

21 


 

 

 

 

June 30,

December 31,

(in thousands)

 

2018

 

2017

 

 

 

 

(as adjusted)

Total assets:

 

 

 

 

 

Americas

$

845,315

$

812,187

 

Asia

 

537,064

 

674,783

 

Europe

 

147,875

 

470,786

 

Corporate and other

 

506,931

 

151,548

 

 

$

2,037,185

$

2,109,304

 

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

 

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

June 30,

(in thousands)

 

2018

 

2017

 

2018

 

2017

 

 

 

 

(as adjusted)

 

 

(as adjusted)

Geographic net sales:

 

 

 

 

 

 

 

 

 

United States

$

449,598

$

415,383

$

841,565

$

784,100

 

Singapore

 

67,214

 

64,939

 

127,134

 

119,015

 

Other Asia

 

48,700

 

51,351

 

95,771

 

90,907

 

Europe

 

73,040

 

71,698

 

153,581

 

146,620

 

Other Foreign

 

22,039

 

16,240

 

50,676

 

36,872

 

 

$

660,591

$

619,611

$

1,268,727

$

1,177,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

December 31,

 

 

 

 

 

 

 

2018

 

2017

Long-lived assets:

 

 

 

 

 

 

 

 

 

United States

 

 

 

 

$

182,125

$

167,858

 

Asia

 

 

 

 

 

79,040

 

77,750

 

Europe

 

 

 

 

 

10,580

 

11,042

 

Other

 

 

 

 

 

26,154

 

25,830

 

 

 

 

 

 

$

297,899

$

282,480

 

 

 

 

 

 

 

 

 

 

22 


 

Note 13 – Supplemental Cash Flow and Non-Cash Information

The following information concerns supplemental disclosures of cash payments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(in thousands)

 

2018

 

 

2017

 

 

2018

 

 

2017

Income taxes paid, net

$

22,336

 

$

1,709

 

$

23,752

 

$

2,525

Interest paid

 

2,062

 

 

2,082

 

 

4,318

 

 

4,296

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash investing activity:

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

in accounts payable

 

 

 

 

 

 

$

5,960

 

$

2,074

 

Note 14 – Contingencies

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

 

Note 15 – Restructuring Charges

The Company has undertaken initiatives to restructure its business operations to improve utilization and realize cost savings. These initiatives have included changing the number and location of production facilities, largely to align capacity and infrastructure with current and anticipated customer demand. This alignment includes transferring programs from higher cost geographies to lower cost geographies. The process of restructuring entails moving production between facilities, reducing staff levels, realigning our business processes, reorganizing our management and other activities.

 

The Company recognized restructuring charges during 2018 and 2017 primarily related to facility transition and closures in the Americas, capacity reduction and reductions in workforce in certain facilities across various regions. The following table summarizes the 2018  activity in the accrued restructuring balances related to the restructuring activities initiated prior to June 30, 2018:

 

 

 

 

Balance as of

 

 

 

 

 

 

 

 

 

Foreign

 

Balance as of

 

 

 

December 31,

 

Restructuring

 

Cash

 

Non-Cash

 

Exchange

 

June 30,

(in thousands)

 

 

2017

 

 

 

Charges

 

 

Payment

 

Activity

 

Adjustments

 

2018

2018 Restructuring:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance

 

$

 

 

$

974

 

$

(974)

$

 

$

 

$

 

Other exit costs

 

 

 

 

 

691

 

 

(385)

 

 

 

 

 

306

 

 

 

 

 

 

1,665

 

 

(1,359)

 

 

 

 

 

306

2017 Restructuring:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance

 

 

47

 

 

 

3

 

 

(50)

 

 

 

 

 

 

Leased facilities and equipment

 

 

 

 

 

96

 

 

(96)

 

 

 

 

 

 

Other exit costs

 

 

198

 

 

 

270

 

 

(309)

 

 

 

(23)

 

 

136

 

 

 

245

 

 

 

369

 

 

(455)

 

 

 

(23)

 

 

136

2016 Restructuring:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance

 

 

29

 

 

 

(1)

 

 

(3)

 

 

 

 

 

25

 

Other exit costs

 

 

16

 

 

 

208

 

 

(128)

 

(96)

 

 

 

 

 

 

 

45

 

 

 

207

 

 

(131)

 

(96)

 

 

 

 

25

Total

 

$

290

 

 

$

2,241

 

$

(1,945)

$

(96)

 

$

(23)

 

$

467

23 


 

 

Note 16 – Fair Value

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

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

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

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

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

 

The Company’s financial instruments include cash equivalents, accounts and other receivables, accounts payable, accrued liabilities and long-term debt and capital lease obligations. The Company believes that the carrying values of these instruments approximate fair value. As of June 30, 2018, the Company’s long-term investments and derivative instruments were recorded at fair value using Level 3 inputs. The Company uses derivative instruments to manage the variability of foreign currency obligations and interest rates. The Company does not enter into derivatives for speculative purposes.

 

The forward currency exchange contracts in place as of June 30, 2018 have not been designated as accounting hedges and, therefore, changes in fair value are recorded within the Condensed Consolidated Statements of Income.

 

The Company has an interest rate swap agreement, which had a notional amount of $148.8 million and $155.3 million as of June 30, 2018 and December 31, 2017, respectively, to hedge a portion of its interest rate exposure on outstanding borrowings under the Credit Agreement. Under this interest rate swap agreement, the Company receives variable rate interest payments based on the one-month LIBOR rate and pays fixed rate interest payments. The fixed interest rate for the contract is 1.4935%. 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 effective, and thus qualifies and has been designated as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows. The fair value of the interest rate swap was a $3.4 million asset as of June 30, 2018 and a $2.0 million asset as of December 31, 2017.  During the six months ended  June 30, 2018, the Company recorded unrealized gain of $1.4 million ($1.1 million net of tax) on the swap in other comprehensive income. See Note 17.

24 


 

Note 17 Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component were as follows:

 

 

 

 

 

Foreign

 

 

 

 

Unrealized

 

 

 

 

 

 

 

 

 

currency

 

 

Derivative

 

loss on

 

 

 

 

 

 

 

 

 

translation

 

 

instruments,

 

investments,

 

 

 

 

 

(in thousands)

 

 

adjustments

 

 

net of tax

 

 

net of tax

 

 

Other

 

 

Total

Balances, December 31, 2017

 

$

(9,567)

 

$

1,478

 

$

(41)

 

$

(19)

 

$

(8,149)

 

Other comprehensive gain (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    before reclassifications

 

 

(1,320)

 

 

1,077

 

 

41

 

 

 

 

(202)

Net current period other comprehensive gain (loss)

 

 

(1,320)

 

 

1,077

 

 

41

 

 

 

 

(202)

Balances, June 30, 2018

 

$

(10,887)

 

$

2,555

 

$

 

$

(19)

 

$

(8,351)

 

See Note 16 for further explanation of the change in derivative instruments that is recorded to Accumulated Other Comprehensive Loss.

 

Note 18 – Shareholders’ Equity

Dividends

The Company began declaring and paying quarterly dividends during the first quarter of 2018. For the six months ended June 30, 2018, cash dividends paid totaled $7.1 million. On June 8, 2018, the Company declared a quarterly cash dividend of $0.15 per share of the Company’s common stock to shareholders of record as of June 29, 2018. The dividend of $7.1 million was paid on July 12, 2018. The Board of Directors currently intends to continue paying quarterly dividends. However, the Company’s future dividend policy is subject to the Company’s compliance with applicable law, and depending on, among other things, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed; there can be no assurance that the Company will continue to pay a dividend in the future.

 

Share Repurchase Authorization

On March 6, 2018, the Board of Directors approved an expanded stock repurchase authorization granting the Company authority to repurchase up to $250 million in common stock in addition to the $100.0 million approved on December 7, 2015. As of June 30, 2018, the Company had $237.6 million remaining under the stock repurchase authorization.

 

During the first quarter of 2018, the Company entered into an accelerated stock repurchase agreement (ASR) with a third party to repurchase an aggregate of $50.0 million of the Company’s common stock and received an initial delivery of 1.3 million shares of common stock. On July 18, 2018, the Company completed the ASR program and received delivery of the remaining shares totaling 0.4 million shares.



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

 

This quarterly report (this Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts and may include words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” or the negative or other variations thereof. In particular, statements, express or implied, concerning future operating results or the ability to generate sales, income or cash flow are forward-

25 


 

looking statements. Undue reliance should not be placed on any forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those discussed in Part I, Item 1A of the 2017 10-K and any added under  Part II, Item 1A of this Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of our operations, may vary materially from those indicated. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes, and the 2017 10-K.

 

OVERVIEW

We are a worldwide provider of engineering services, integrated technology solutions and manufacturing services (both EMS and precision technology manufacturing machining services) for more complex products. In this Report, references to Benchmark, the Company or use of the words “we”, “our” and “us” include Benchmark’s subsidiaries unless otherwise noted.

 

We provide our services to OEMs of industrial equipment, products used in the A&D industries, telecommunication equipment, computers and related products for business enterprises, medical devices, and test and instrumentation products. Our services include comprehensive and integrated design and manufacturing services and solutions—from initial product concept to volume production, including direct order fulfillment and aftermarket services.

 

Our customer engagement focuses on three principal areas:

 

•  Engineering Services, which include design for manufacturability, manufacturing process and test development, concurrent and sustaining engineering, turnkey product design and regulatory services. Our engineering services may be for systems, sub-systems, printed circuit boards and assemblies, and components. We provide these services across all the industries we serve, but focus primarily in regulated industries such as medical, complex industrials, 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 Internet-of-things data collection systems. We often merge these technology solutions with engineering services in support of manufacturing services. Our reference designs can be utilized across a variety of industries but we have significant capabilities for the aerospace and defense markets.

 

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

 

Our core strength lies in our ability to provide concept-to-production solutions in support of our customers. Our global manufacturing presence increases our ability to respond to our customers’ needs by providing accelerated time-to-market and time-to-volume production of high-quality products – especially for complex products with lower volume and higher mix in regulated markets. These capabilities enable us to build strong strategic relationships with our customers and to become an integral part of their business.

26 


 

 

We believe our primary competitive advantages are our engineering services (including product design), technology solutions, and manufacturing services (including electronics and precision technology capabilities) provided by highly skilled personnel. We continue to invest in our business to expand our skills and service offerings from direct customer inputs. We have a closed-loop feedback system in place to respond to customer ideas to enhance our future flexible design and manufacturing solutions in support of the full life cycle of their products. These solutions provide accelerated time-to-market, faster time-to-volume production, and reduced product development costs. Working closely with our customers and responding promptly to their needs, we become an integral part of their process to bring products to market faster and more economically.

 

In addition, we believe that a strong focus on human capital through the talent we hire and retain is critical to maintaining our competitiveness. We are driving a customer-centric organization with a high degree of accountability and ownership to develop processes necessary to exceed customer expectations and deliver financial performance aligned to our goals. Through our employee feedback process, we solicit and act upon information to improve our company and better support our customers and business processes in the future. We have taken steps to attract the best leaders and are accelerating our efforts to mentor and develop key leaders for the future.

 

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

 

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

 

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

 

Revenue is measured based on a consideration specified in a contract with a customer. We recognize revenue when we have satisfied a performance obligation by transferring control over a manufactured product to a customer. Our contracts with customers are short-term in nature. Customers are generally billed when the product is shipped or as services are performed. Under the majority of our manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being built. Revenues under these contracts are recognized progressively 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, we recognize 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. We assume no significant obligations after shipment as we typically warrant workmanship only. Therefore, the warranty provisions are generally not significant.

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Second Quarter 2018 Highlights

Sales for the three months ended June 30, 2018 increased 7% to $660.6 million compared to $619.6 million during the comparable 2017 period. During the second quarter of 2018, sales to customers in our various industry sectors fluctuated from the comparable 2017 period as follows:

 

·          Industrials decreased by 6%,

·          A&D increased by 2%,

·          Medical increased by 12%,

·          Test & Instrumentation increased by 19%,

·          Computing increased by 13%, and

·          Telecommunications was consistent with prior year.

 

The overall revenue increase was driven primarily by demand increases in the Computing sector for legacy storage and data security customers, Test & Instrumentation growth in our precision manufacturing machining operations serving the semi-capital equipment market and Medical growth from higher demand and program ramps from new and existing customers.

 

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 is made to a small number of customers, and the loss of a major customer, if not replaced, would adversely affect us. Sales to our 10 largest customers represented 45% of our sales in both the six months ended June 30, 2018 and 2017

 

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

 

We have undertaken initiatives to restructure our business operations with the intention of improving utilization and reducing costs. During the first six months of 2018, we recognized $2.2 million of restructuring charges, primarily related to the closure of facilities in the Americas and reductions in workforce in certain facilities primarily in the Americas. In addition, we incurred $1.8 million in costs related to the transition of our corporate headquarters to Arizona.

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RESULTS OF OPERATIONS

The following table presents the percentage relationship that certain items in our Condensed Consolidated Statements of Income bear to sales for the periods indicated. The financial information and the discussion below should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Report.

 

 

 

Three Months Ended

Six Months Ended

 

 

 

June 30,

June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

(as adjusted)

 

(as adjusted)

Sales

 

100.0

%

100.0

%

100.0

%

100.0

%

Cost of sales

 

91.8

 

90.4

 

91.1

 

90.9

 

 

Gross profit

 

8.2

 

9.6

 

8.9

 

9.1

 

Selling, general and administrative expenses

 

5.4

 

5.2

 

5.6

 

5.5

 

Amortization of intangible assets

 

0.4

 

0.4

 

0.4

 

0.4

 

Restructuring charges and other costs

 

0.3

 

0.2

 

0.3

 

0.3

 

 

Income from operations

 

2.2

 

3.7

 

2.5

 

2.9

 

Other expenses, net

 

(0.2)

 

(0.3)

 

(0.1)

 

(0.3)

 

 

Income before income taxes

 

2.0

 

3.4

 

2.4

 

2.6

 

Income tax expense

 

0.4

 

0.5

 

3.4

 

0.3

 

 

Net income (loss)

 

1.7

%

2.9

%

(1.0)

%

2.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Sales

Sales for the second quarter of 2018  were $660.6 million, a 7% increase from sales of $619.6 million for the same quarter in 2017. Sales for the first six months of 2018  were $1.3 billion, an 8% increase from sales of $1.2 billion for the same period in 2017. The following table sets forth, for the periods indicated, the percentages of our sales by industry sector.

 

 

 

Three Months Ended

Six Months Ended

 

 

 

June 30,

June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

 

Higher-Value Markets

 

 

(as adjusted)

 

(as adjusted)

Industrials

 

18

%

20

%

19

%

20

%

A&D

 

15

 

16

 

16

 

17

 

Medical

 

15

 

14

 

15

 

15

 

Test Instrumentation

 

16

 

15

 

16

 

14

 

 

 

 

64

 

65

 

66

 

66

 

 

Traditional Markets

 

 

 

 

 

 

 

 

 

Computing

 

24

 

23

 

21

 

21

 

Telecommunications

 

12

 

12

 

13

 

13

 

 

 

 

36

 

35

 

34

 

34

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

Industrials. Second quarter sales decreased 6% to $117.8 million from $124.8 million in 2017 primarily as a result of weaker demand from existing customers. Sales during the first six months of 2018  were $242.3 million compared to $241.9 million in the same period of 2017. 

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Aerospace and Defense. Second quarter sales increased 2% to $102.5 million from $100.1 million in 2017. Sales during the first six months of 2018  were $200.4 million compared to $200.0 million in the same period of 2017

 

Medical. Second quarter sales increased 12% to $97.0 million from $86.8 million in 2017, and increased 13% to $194.3 million during the first six months of 2018 from $171.8 million in the same period of 2017 from higher demand and program ramps from new and existing customers. 

 

Test & Instrumentation. Second quarter sales increased 19% to $106.1 million from $88.8 million in 2017 and increased 27% to $208.3 million during the first six months of 2018 from $164.5 million in the same period of 2017. The increase reflected strong demand in our precision manufacturing machining operations serving the semi-capital equipment market.

 

Computing. Second quarter sales increased 13% to $160.6 million from $142.2 million in 2017, and increased 9% to $264.2 million during the first six months of 2018 from $242.5 million in the same period of 2017. The increase is primarily due to increased demand from our legacy storage and data security customers.

 

Telecommunications. Second quarter sales were $76.6 million and $76.9 million in 2018 and 2017, respectively, and increased 2% to $159.2 million during the first six months of 2018 from $156.8 million in the same period of 2017

 

Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our 2017 10-K for factors pertaining to our international sales and fluctuations in the exchange rates of foreign currency and for further discussion of potential adverse effects in operating results associated with the risks of doing business abroad. During the first six months of both 2018 and 2017, 46% of our sales were from our international operations.

 

Gross Profit

Gross profit decreased 9% to $54.3 million for the three months ended June 30, 2018 from $59.5 million in the same quarter of 2017, and increased 5% to $112.6 million for the six months ended June 30, 2018 from $107.0 million in the same period of 2017. For the six months ended June 30, 2017, we incurred a $2.7 million net charge for the write-down of inventory associated with the insolvency of a customer. Including the inventory charge in the first quarter of 2017 and the partial recoveries in the second quarter of 2017 and the first and second quarters of 2018, gross profit as a percentage of sales was 8.2% and 8.9%, respectively, for the three and six months ended June 30, 2018 and 9.6% and 9.1%, respectively, for the three and six months ended June 30, 2017. Excluding these items, gross profit as a percentage of sales decreased to 8.2% and 8.8%, respectively, for the three and six months ended June 30, 2018 from 9.5% and 9.3%, respectively, in the same periods of 2017 primarily due to lower-margin Computing sector sales, and the impacts from Medical transitions, investments in engineering and solutions and new program ramp costs.

 

Selling, General and Administrative Expenses

SG&A increased by 11% to $35.8 million in the second quarter of 2018 compared to $32.3 million in 2017, and increased by 10% to $71.6 million in the first six months of 2018 compared to $65.0 million in 2017. During the first quarter of 2017, we had a $1.7 million charge for a provision to accounts receivable associated with the insolvency of a customer. Including this provision to accounts receivable, SG&A increased to 5.4% of sales for the second quarter of 2018 from 5.2% in 2017, and increased to 5.6% of sales for the first six months of 2018 from 5.5% in 2017. Excluding this provision to accounts receivable, SG&A increased to 5.4% of sales for the second quarter of 2018 from 5.2% in 2017, and increased to 5.6% of sales

30 


 

for the first six months of 2018 from 5.4% in 2017, primarily due to increased stock-based and variable compensation and the investment in our sales and marketing organization.

 

Restructuring Charges and Other Costs

During the first six months of 2018, we recognized $2.2 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. In addition, during the first six months of 2018 we incurred $1.8 million in costs related to the transition of our corporate headquarters to Arizona. We expect to incur additional restructuring charges of approximately $1.0 million to $1.5 million in the third quarter of 2018. In the first six months of 2017, we recognized $1.9 million of restructuring charges, primarily related to reductions in workforce in certain facilities across various regions, and $1.2 million in transition costs. See Note 15 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

 

Interest Income

Interest income increased to $3.6 million during the first six months of 2018 from $2.3 million during the comparable 2017 period due to investment of higher levels of available cash in interest bearing cash equivalents at higher interest rates.

 

Income Tax Expense

Income tax expense of $43.6 million represented an effective tax rate of 141.1% for the first six months of 2018, compared with $4.2 million for the comparable 2017 period, which represented an effective tax rate of 13.7%. During the first quarter of 2018, we changed our historical repatriation strategy. We have historically asserted our intention to indefinitely reinvest undistributed foreign earnings. We no longer consider these earnings to be indefinitely reinvested in our foreign subsidiaries. As a result of this change in assertion for undistributed earnings prior to December 31, 2017, we recorded a $30.7 million tax expense for foreign withholding tax from Asia and $9.4 million for U.S. state income tax expense in the first quarter of 2018. In the second quarter of 2018 we recorded $0.4 million of additional U.S. tax for the distributions from our foreign subsidiaries. In addition, during 2018 we released $0.5 million of uncertain tax benefits from a U.S. Internal Revenue Service (IRS) audit related to the Secure Communication Systems, Inc. acquisition. During the first quarter of 2018, the IRS indicated that this examination of years 2013 to 2015 was closed. Excluding these tax items, the effective tax rate in the first six months of 2018 would have been 14.1%.

 

We have been granted certain tax incentives, including tax holidays, for our subsidiaries in China, Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2018 in China, 2021 in Malaysia, and 2028 in Thailand. See Note 11 to the Condensed Consolidated Financial Statements in Item 1 of this Report.

 

Net Income (Loss)

We reported a net loss of $12.7 million, or $0.26 per diluted share, for the first six months of 2018, compared with net income of $26.6 million, or $0.53 per diluted share, for the same period in 2017. The net decrease of $39.3 million from 2017 was primarily the result of the tax expense related to the change in our historical repatriation strategy discussed above.

 

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our organic growth and operations through funds generated from operations and occasional borrowings under our revolving credit facility. Cash and cash equivalents totaled $595.6 million at June 30, 2018 and $742.5 million at December 31, 2017, of which $177.2 million and $673.4 million, respectively, were held outside the U.S. in various foreign subsidiaries. During the six months ended June 30, 2018, we repatriated $522.0 million of foreign earnings to the U.S.

 

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Cash used in operating activities during the first six months was $16.2 million for 2018 and consisted primarily of $12.7 million of net loss adjusted for $25.1 million of depreciation and amortization and $10.9 million in deferred income taxes, a $9.0 million increase in accounts receivable, a $52.1 million increase in inventories and a $23.1 increase in accounts payable. The deferred income taxes are a result of the change in assertion related to undistributed foreign earnings. The increase in inventories is primarily related to raw materials in support of the ramp of new programs into production. Working capital was $1.0 billion at June 30, 2018 and $1.2 billion at December 31, 2017.

 

We purchase components only after customer orders or forecasts are received, which mitigates, but does not eliminate, the risk of loss on inventories. Supplies of electronic components and other materials used in operations are subject to industry-wide shortages, which may increase the timing of when we can begin the manufacturing processes. In certain instances, suppliers may allocate available quantities to us. If shortages of these components and other material supplies used in operations occur, vendors may not ship the quantities we need for production, and we may be forced to delay shipments, which can increase backorders and impact cash flows.

 

Cash used in investing activities during the first six months was $40.6 million for 2018, primarily due to purchases of additional property, plant and equipment totaling $36.7 million. The purchases of property, plant and equipment were primarily for machinery and equipment in the Americas and Asia.

 

Cash used in financing activities during the first six months was $89.5 million for 2018. Share repurchases totaled $65.9 million, equity forward contract payment totaled $10.0 million, net principal payments on long-term debt totaled $9.1 million, dividends totaled $7.1 million, and we received $3.4 million from the exercise of stock options.

 

As of June 30, 2018, we had $198.4 million in borrowings outstanding under the Term Loan facility, $2.8 million in letters of credit outstanding under the Revolving Credit Facility and $197.2 million was available for future borrowing under the Revolving Credit Facility. See Note 7 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.

 

On July 20, 2018, we entered into a $650 million credit agreement to be used for general corporate purposes that replaced the existing Credit Agreement. The New Credit Agreement is comprised of a five-year $500 million revolving credit facility and a five-year $150 million term loan facility, both with a maturity date of July 20, 2023. A portion of the New Term Loan Facility proceeds were used to (i) refinance all indebtedness and terminate all commitments under the Credit Agreement discussed above and (ii) pay the fees, costs and expenses associated with the foregoing and the negotiation, execution and delivery of the New Credit Agreement.

 

The New Credit Agreement includes an accordion feature pursuant to which one or more incremental term loan and/or increase commitments under the New Revolving Credit Facility may be increased by an additional $275 million, subject to the satisfaction of certain conditions.

 

The New Term Loan Facility is subject to quarterly amortization of principal (in equal installments) equal to 1.25% of the initial aggregate term loan advances to be payable quarterly commencing June 30, 2019 until the maturity of the New Term Loan Facility.

 

Interest on outstanding borrowings under the New Credit Agreement (other than swingline loans) accrues, at our option, at (a) the London Interbank Offered Rate (LIBOR) plus approximately 1.00% to 2.00% per annum as specified in the New Credit Agreement or (b) for U.S. Dollar denominated loans, the base rate

32 


 

(which is the highest of (i) the federal funds rate plus 0.50%, (ii) the Bank of America, N.A. prime rate and (iii) the one month LIBOR adjusted daily plus 1.00%) plus 0% to 1.0% as specified in the New Credit Agreement. Swingline loans will bear interest at the base rate plus 0% to 1.0% as specified in the New Credit Agreement.

 

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

 

The New 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.

 

As of August 6, 2018, we had $150 million in borrowings outstanding under the New Term Loan Facility and $2.8 million in letters of credit outstanding under the New Revolving Credit Facility. $497.2 million remains available for future borrowings under the New Revolving Credit Facility. See Note 7 to the Condensed Consolidated Financial Statements included in Item 1 of this Report for more information regarding the terms of the New Credit Agreement.

 

During the next 12 months, we believe our capital expenditures will approximate $50 to $60 million, principally for machinery and equipment as well as expansion investments to support our ongoing business around the globe.

 

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

 

 

On March 6, 2018, our Board of Directors approved an expanded stock repurchase program granting us the authority to repurchase up to $250 million in common stock in addition to the $100.0 million approved on December 7, 2015. As of June 30, 2018, we had $237.6 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 New 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.

33 


 

 

CONTRACTUAL OBLIGATIONS

 

We have certain contractual obligations for operating and capital leases that were summarized in a table of Contractual Obligations in our 2017 10-K. There have been no material changes to our contractual obligations, outside of the ordinary course of our business, since December 31, 2017.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of June 30, 2018, 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 significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our 2017 10-K. Also, see Note to the Condensed Consolidated Financial Statements above for a discussion of recently enacted accounting principles.

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

 

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

 

      Foreign currency exchange risk;

      Import and export duties, taxes and regulatory changes;

      Inflationary economies or currencies; and

      Economic and political instability.

 

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

 

We transact business in various foreign countries and are subject to foreign currency fluctuation risks. We use natural hedging and forward contracts to economically hedge transactional exposure primarily associated with trade accounts receivable, other receivables and trade accounts payable that are denominated in a currency other than the functional currency of the respective operating entity. We do not use derivative financial instruments for speculative purposes. The forward contracts in place as of June 30, 2018 have not been designated as accounting hedges and, therefore, changes in fair value are recorded within our Consolidated Statements of Income.

 

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

 

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

34 


 

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 June 30, 2018, we had $198.4 million outstanding on the floating rate Term Loan facility, and we have an interest rate swap agreement with a notional amount of $148.8 million. Under this swap agreement, we receive variable rate interest 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. 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 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.

 

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within 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. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II—OTHER INFORMATION

 

Item 1.            Legal Proceedings

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

 

Item 1A.        Risk Factors

There are no material changes to the risk factors set forth in Part I, Item 1A of our 2017 10-K

 

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

(c)  The following table provides information for the quarter ended June 30, 2018 about the Company’s repurchases of its equity securities registered pursuant to Section 12 of the Exchange Act, at a total cost of $7.5 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)

April 1 to 30, 2018

 

68,717

 

$29.60

 

68,717

 

$243.0 million

May 1 to 31, 2018

 

104,496

 

$27.15

 

104,496

 

$240.2 million

June 1 to 30, 2018

 

89,710

 

$29.10

 

89,710

 

$237.6 million

Total

 

262,923

 

$28.46

 

262,923

 

 

 

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

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

(3) On March 6, 2018, the Board of Directors approved an expanded stock repurchase authorization granting the Company authority to repurchase up to $250 million in common stock in addition to the $100.0 million approved on December 7, 2015. As of June 30, 2018, the Company had $237.6 million remaining under the stock repurchase authorization. Stock purchases may be made in the open market, in privately negotiated transactions or block transactions, at the discretion of the Company’s management and as market conditions warrant. Purchases are funded from available cash and may be commenced, suspended or discontinued at any time without prior notice. Shares of stock repurchased under the program are retired.

 

During the first quarter of 2018, the Company entered into an accelerated stock repurchase agreement (ASR) with a third party to purchase shares of its common stock for a payment of $50.0 million and received an initial delivery of 1.3 million shares of common stock. See Note 18 to the Condensed Consolidated Financial Statements in Item 1 of this report. On July 18, 2018, the Company completed the ASR program and received delivery of the remaining shares totaling 0.4 million shares. The remaining shares received in connection with the ASR agreement will be reflected in the share repurchase table in the third quarter.

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Item 6.           Exhibits

Exhibit

 

 

Number

 

                            Description of Exhibit

 

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

 

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

 

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

 

10.1                    Credit Agreement, dated July 20, 2018, by and among Benchmark Electronics, Inc., certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender and a L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated July 20, 2018 (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 (1)               Section 1350 Certification of Chief Executive Officer

 

32.2 (1)               Section 1350 Certification of Chief Financial Officer

 

101.INS (2)        XBRL Instance Document

 

101.SCH (2)       XBRL Taxonomy Extension Schema Document

 

101.CAL (2)       XBRL Taxonomy Extension Calculation Linkbase Document

 

101.LAB (2)       XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE (2)       XBRL Taxonomy Extension Presentation Linkbase Document

 

101.DEF (2)       XBRL Taxonomy Extension Definition Linkbase Document

 

(1)   Filed herewith.

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

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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 August 8, 2018.  

 

 

BENCHMARK ELECTRONICS, INC.

 

 

(Registrant)

 

By: /s/ Paul J. Tufano

 

Paul J. Tufano

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

 

 

By: /s/ Roop K. Lakkaraju

 

Roop K. Lakkaraju

 

Chief Financial Officer

 

(Principal Financial Officer)

 

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