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, 20172018
__ 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) |
| |
(480) 372-4365(623) 300-7000
(Registrant’s telephone number, including area code)
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|
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, or 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 7,6, 20172018, there were 49,924,16946,585,922 shares of Common Stock of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.
TABLE OF CONTENTS
PART I
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PART I—FINANCIAL INFORMATION | ||
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1 | ||
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| 2 | |
| Condensed Consolidated Statements of Comprehensive Income (Loss) | 3 |
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| 5 | |
| 6 | |
Management’s Discussion and Analysis of Financial Condition and |
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PART II—OTHER INFORMATION | ||
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PART I - FINANCIAL INFORMATION
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
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| June 30, |
| December 31, |
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| June 30, | December 31, | ||||||||
(in thousands, except par value) | (in thousands, except par value) |
| 2017 |
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| 2016 | (in thousands, except par value) |
| 2018 |
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| 2017 | ||||||
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| (unaudited) |
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| (as adjusted) | |||||
Assets | Assets |
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| Assets |
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| Current assets: |
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| Current assets: |
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| Cash and cash equivalents | $ | 595,639 |
| $ | 742,546 | |||||
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| Cash and cash equivalents | $ | 749,311 |
| $ | 681,433 |
| Accounts receivable, net of allowance for doubtful accounts of $105 |
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| Accounts receivable, net of allowance for doubtful accounts of $4,535 |
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| and $105, respectively |
| 444,953 |
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| 436,560 | ||||
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| and $2,838, respectively |
| 391,830 |
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| 440,692 |
| Contract assets |
| 148,231 |
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| 146,496 | ||||
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| Inventories |
| 416,030 |
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| 381,334 |
| Inventories |
| 318,986 |
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| 268,917 | ||||
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| Prepaid expenses and other assets |
| 39,177 |
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| 28,057 |
| Prepaid expenses and other assets |
| 35,277 |
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| 36,018 | ||||
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| Income taxes receivable |
| 1,296 |
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| 146 |
| Income taxes receivable |
| — |
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| 120 | ||||
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| Total current assets |
| 1,597,644 |
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| 1,531,662 |
| Total current assets |
| 1,543,086 |
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| 1,630,657 | ||||
| Property, plant and equipment, net of accumulated depreciation of |
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| Property, plant and equipment, net of accumulated depreciation of |
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| $416,263 and $406,375, respectively |
| 172,080 |
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| 166,148 |
| $445,939 and $432,043, respectively |
| 203,872 |
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| 186,473 | ||||
| Goodwill |
| 191,616 |
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| 191,616 | Goodwill |
| 192,116 |
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| 191,616 | ||||||
| Deferred income taxes |
| 4,366 |
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| 6,572 | Deferred income taxes |
| 4,034 |
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| 4,034 | ||||||
| Other, net |
| 98,734 |
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| 102,670 | Other, net |
| 94,077 |
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| 96,524 | ||||||
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| $ | 2,064,440 |
| $ | 1,998,668 |
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| $ | 2,037,185 |
| $ | 2,109,304 | ||||
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Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity |
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| Liabilities and Shareholders’ Equity |
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| Current liabilities: |
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| Current liabilities: |
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| Current installments of long-term debt and capital lease obligations | $ | 15,333 |
| $ | 12,396 |
| Current installments of long-term debt and capital lease obligations | $ | 21,219 |
| $ | 18,274 | ||||
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| Accounts payable |
| 343,241 |
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| 326,249 |
| Accounts payable |
| 383,606 |
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| 362,701 | ||||
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| Income taxes payable |
| 3,864 |
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| 3,534 |
| Income taxes payable |
| 20,803 |
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| 11,663 | ||||
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| Accrued liabilities |
| 83,684 |
|
| 70,202 |
| Accrued liabilities |
| 75,368 |
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| 85,679 | ||||
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| Total current liabilities |
| 446,122 |
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| 412,381 |
| Total current liabilities |
| 500,996 |
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| 478,317 | ||||
| Long-term debt and capital lease obligations, less current installments |
| 202,122 |
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| 211,252 | Long-term debt and capital lease obligations, less current installments |
| 181,777 |
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| 193,406 | ||||||
| Other long-term liabilities |
| 10,359 |
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| 9,570 | Other long-term liabilities |
| 90,262 |
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| 89,749 | ||||||
| Shareholders’ equity: |
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| Deferred income taxes |
| 20,005 |
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| 8,694 | ||||||
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| Preferred stock, $0.10 par value; 5,000 shares authorized, none issued |
| — |
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| — | Shareholders’ equity: |
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| Common stock, $0.10 par value; 145,000 shares authorized; issued |
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| Preferred stock, $0.10 par value; 5,000 shares authorized, none issued |
| — |
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| — | ||||
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| and outstanding – 49,845 and 49,330, respectively |
| 4,985 |
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| 4,933 |
| Common stock, $0.10 par value; 145,000 shares authorized; issued |
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| Additional paid-in capital |
| 637,796 |
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| 626,306 |
| and outstanding – 47,334 and 49,143, respectively |
| 4,733 |
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| 4,914 | ||||
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| Retained earnings |
| 773,943 |
|
| 748,402 |
| Additional paid-in capital |
| 607,984 |
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| 634,192 | ||||
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| Accumulated other comprehensive loss |
| (10,887) |
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| (14,176) |
| Retained earnings |
| 639,779 |
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| 708,181 | ||||
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| Total shareholders’ equity |
| 1,405,837 |
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| 1,365,465 |
| Accumulated other comprehensive loss |
| (8,351) |
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| (8,149) | ||||
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| Commitments and contingencies |
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| Total shareholders’ equity |
| 1,244,145 |
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| 1,339,138 | ||||
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| $ | 2,064,440 |
| $ | 1,998,668 |
| Commitments and contingencies |
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| $ | 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)
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| Three Months Ended | Six Months Ended |
| Three Months Ended | Six Months Ended | ||||||||||||
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| June 30, | June 30, |
| June 30, | June 30, | ||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | (in thousands, except per share data) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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| (as adjusted) |
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| (as adjusted) | ||
Sales | Sales | $ | 616,904 | $ | 579,342 | $ | 1,183,405 | $ | 1,128,567 | Sales | $ | 660,591 | $ | 619,611 | $ | 1,268,727 | $ | 1,177,514 |
Cost of sales | Cost of sales |
| 558,317 |
| 526,488 |
| 1,075,758 |
| 1,025,396 | Cost of sales |
| 606,292 |
| 560,127 |
| 1,156,110 |
| 1,070,498 |
| Gross profit |
| 58,587 |
| 52,854 |
| 107,647 |
| 103,171 | Gross profit |
| 54,299 |
| 59,484 |
| 112,617 |
| 107,016 |
Selling, general and administrative expenses | Selling, general and administrative expenses |
| 32,335 |
| 28,540 |
| 64,986 |
| 56,997 | Selling, general and administrative expenses |
| 35,825 |
| 32,335 |
| 71,575 |
| 64,986 |
Amortization of intangible assets | Amortization of intangible assets |
| 2,481 |
| 2,972 |
| 4,962 |
| 5,775 | Amortization of intangible assets |
| 2,367 |
| 2,481 |
| 4,733 |
| 4,962 |
Restructuring charges and other costs | Restructuring charges and other costs |
| 1,544 |
| 3,602 |
| 3,055 |
| 6,391 | Restructuring charges and other costs |
| 1,758 |
| 1,544 |
| 3,993 |
| 3,055 |
| Income from operations |
| 22,227 |
| 17,740 |
| 34,644 |
| 34,008 | Income from operations |
| 14,349 |
| 23,124 |
| 32,316 |
| 34,013 |
Interest expense | Interest expense |
| (2,312) |
| (2,299) |
| (4,537) |
| (4,633) | Interest expense |
| (2,293) |
| (2,312) |
| (4,721) |
| (4,537) |
Interest income | Interest income |
| 1,213 |
| 329 |
| 2,287 |
| 593 | Interest income |
| 1,645 |
| 1,213 |
| 3,578 |
| 2,287 |
Other income (expense) |
| (830) |
| 71 |
| (911) |
| (152) | ||||||||||
Other expense | Other expense |
| (355) |
| (830) |
| (312) |
| (911) | |||||||||
| Income before income taxes |
| 20,298 |
| 15,841 |
| 31,483 |
| 29,816 | Income before income taxes |
| 13,346 |
| 21,195 |
| 30,861 |
| 30,852 |
Income tax expense | Income tax expense |
| 3,122 |
| 3,156 |
| 4,620 |
| 6,079 | Income tax expense |
| 2,403 |
| 3,121 |
| 43,559 |
| 4,223 |
| Net income | $ | 17,176 | $ | 12,685 | $ | 26,863 | $ | 23,737 | Net income (loss) | $ | 10,943 | $ | 18,074 | $ | (12,698) | $ | 26,629 |
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Earnings per share: |
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Earnings (loss) per share: | Earnings (loss) per share: |
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| Basic | $ | 0.35 | $ | 0.26 | $ | 0.54 | $ | 0.48 | Basic | $ | 0.23 | $ | 0.36 | $ | (0.26) | $ | 0.54 |
| Diluted | $ | 0.34 | $ | 0.26 | $ | 0.54 | $ | 0.47 | Diluted | $ | 0.23 | $ | 0.36 | $ | (0.26) | $ | 0.53 |
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Weighted-average number of shares outstanding: | Weighted-average number of shares outstanding: |
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| Weighted-average number of shares outstanding: |
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| Basic |
| 49,766 |
| 49,323 |
| 49,640 |
| 49,586 | Basic |
| 47,451 |
| 49,766 |
| 47,981 |
| 49,640 |
| Diluted |
| 50,239 |
| 49,667 |
| 50,209 |
| 50,042 | 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)
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| Three Months Ended |
| Six Months Ended |
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| Three Months Ended |
| Six Months Ended | ||||||||||||||||
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| June 30, |
| June 30, |
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| June 30, |
| June 30, | ||||||||||||||||
(in thousands) | (in thousands) |
| 2017 |
| 2016 |
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| 2017 |
| 2016 | (in thousands) |
| 2018 |
| 2017 |
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| 2018 |
| 2017 | ||||||||||
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| (as adjusted) |
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| (as adjusted) | ||||||
Net income | $ | 17,176 |
| $ | 12,685 |
| $ | 26,863 |
| $ | 23,737 | |||||||||||||||||||
Net income (loss) | Net income (loss) | $ | 10,943 |
| $ | 18,074 |
| $ | (12,698) |
| $ | 26,629 | ||||||||||||||||||
Other comprehensive income (loss): | Other comprehensive income (loss): |
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| Other comprehensive income (loss): |
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| Foreign currency translation adjustments |
| 2,513 |
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| (832) |
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| 3,121 |
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| 516 | Foreign currency translation adjustments |
| (2,652) |
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| 2,513 |
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| (1,320) |
|
| 3,121 | ||||||
| Unrealized gain on investments, net of tax |
| 12 |
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| 22 |
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| 16 |
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| 16 | Unrealized gain on investments, net of tax |
| 41 |
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| 12 |
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| 41 |
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| 16 | ||||||
| Unrealized gain (loss) on derivative, net of tax |
| (200) |
|
| (667) |
|
| 165 |
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| (2,899) | Unrealized gain (loss) on derivative, net of tax |
| 244 |
|
| (200) |
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| 1,077 |
|
| 165 | ||||||
| Other |
| - |
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| - |
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| (13) |
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| - | Other |
| — |
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| — |
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| — |
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| (13) | ||||||
Other comprehensive income (loss) | Other comprehensive income (loss) |
| 2,325 |
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| (1,477) |
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| 3,289 |
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| (2,367) | Other comprehensive income (loss) |
| (2,367) |
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| 2,325 |
|
| (202) |
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| 3,289 | ||||||
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| Comprehensive income | $ | 19,501 |
| $ | 11,208 |
| $ | 30,152 |
| $ | 21,370 |
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| Comprehensive income (loss) | $ | 8,576 |
| $ | 20,399 |
| $ | (12,900) |
| $ | 29,918 | ||
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See accompanying notes to condensed consolidated financial statements.
3
BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders’ Equity
(unaudited)
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| Accumulated |
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| Accumulated |
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| Common Stock |
| Additional |
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| Other |
| Total |
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| Common Stock |
| Additional |
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| Other |
| Total | ||||||||||
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| Shares |
| Par |
| Paid-in |
| Retained |
| Comprehensive | Shareholders’ |
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| Shares |
| Par |
| Paid-in |
| Retained |
| Comprehensive | Shareholders’ | ||||||||||
(in thousands) | (in thousands) |
| Outstanding |
| Value |
| Capital |
| Earnings |
| Loss |
| Equity | (in thousands) |
| Outstanding |
| Value |
| Capital |
| Earnings |
| Loss |
| Equity | ||||||||
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Balances, December 31, 2016 |
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| 49,330 |
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| $ 4,933 |
| $ 626,306 |
| $ 748,402 |
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| $ (14,176) |
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| $ 1,365,465 | ||||||||||||||||||
Balances, December 31, 2017 (as adjusted) | Balances, December 31, 2017 (as adjusted) | 49,143 |
|
| $ 4,914 |
| $ 634,192 |
| $ 708,181 |
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| $ (8,149) |
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| $ 1,339,138 | |||||||||||||||||||
Stock-based compensation expense | Stock-based compensation expense |
|
| - |
| - |
| 4,505 |
| - |
| - |
| 4,505 | Stock-based compensation expense |
|
| — |
| — |
| 5,405 |
| — |
| — |
| 5,405 | ||||||
Shares repurchased and retired | Shares repurchased and retired |
|
| (61) |
| (6) |
| (672) |
| (1,322) |
| - |
| (2,000) | Shares repurchased and retired |
|
| (2,174) |
| (217) |
| (34,183) |
| (41,468) |
| — |
| (75,868) | ||||||
Stock options exercised | Stock options exercised |
|
| 411 |
| 41 |
| 8,053 |
| - |
| - |
| 8,094 | Stock options exercised |
|
| 182 |
| 18 |
| 3,359 |
| — |
| — |
| 3,377 | ||||||
Vesting of restricted stock units | Vesting of restricted stock units |
|
| 177 |
| 18 |
| (18) |
| - |
| - |
| - | Vesting of restricted stock units |
|
| 209 |
| 21 |
| (21) |
| — |
| — |
| — | ||||||
Shares withheld for taxes | Shares withheld for taxes |
|
| (12) |
| (1) |
| (378) |
| - |
| - |
| (379) | Shares withheld for taxes |
|
| (26) |
| (3) |
| (768) |
| — |
| — |
| (771) | ||||||
Net income |
|
| - |
| - |
| - |
| 26,863 |
| - |
| 26,863 | |||||||||||||||||||||
Other comprehensive income |
|
| - |
|
| - |
| - |
| - |
| 3,289 |
| 3,289 | ||||||||||||||||||||
Balances, June 30, 2017 |
|
| 49,845 |
|
| $ 4,985 |
| $ 637,796 |
| $ 773,943 |
|
| $ (10,887) |
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| $ 1,405,837 | ||||||||||||||||||
Dividends declared | Dividends declared |
|
| — |
| — |
| — |
| (14,236) |
| — |
| (14,236) | ||||||||||||||||||||
Net loss | Net loss |
|
| — |
| — |
| — |
| (12,698) |
| — |
| (12,698) | ||||||||||||||||||||
Other comprehensive loss | Other comprehensive loss |
|
| — |
|
| — |
| — |
| — |
| (202) |
| (202) | |||||||||||||||||||
Balances, June 30, 2018 | 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 |
|
| Six Months Ended | ||||||||||||
|
|
| June 30, |
|
| June 30, | ||||||||||||
(in thousands) | (in thousands) |
| 2017 |
| 2016 | (in thousands) |
| 2018 |
| 2017 | ||||||||
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| (as adjusted) | ||||||||||||
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Cash flows from operating activities: | Cash flows from operating activities: |
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| Cash flows from operating activities: |
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| Net income | $ | 26,863 |
| $ | 23,737 | Net income (loss) | $ | (12,698) |
| $ | 26,629 | ||||||
| Adjustments to reconcile net income to net cash provided by |
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| Adjustments to reconcile net income (loss) to net cash provided by |
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| operating activities: |
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| (used in) operating activities: |
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| ||||||
|
| Depreciation |
| 18,414 |
|
| 21,160 |
| Depreciation |
| 19,373 |
|
| 18,414 | ||||
|
| Amortization |
| 5,903 |
|
| 6,740 |
| Amortization |
| 5,710 |
|
| 5,903 | ||||
|
| Deferred income taxes |
| 2,103 |
|
| 2,649 |
| Deferred income taxes |
| 10,936 |
|
| 1,360 | ||||
|
| Gain on the sale of property, plant and equipment |
| (167) |
|
| (136) |
| Gain on the sale of property, plant and equipment |
| (116) |
|
| (167) | ||||
|
| Asset impairments |
| - |
|
| 121 |
| Asset impairments |
| 96 |
|
| — | ||||
|
| Stock-based compensation expense |
| 4,505 |
|
| 3,981 |
| Stock-based compensation expense |
| 5,405 |
|
| 4,505 | ||||
|
| Excess tax benefits from stock-based compensation |
| - |
|
| (122) | Changes in operating assets and liabilities, net of effects from |
|
|
|
| ||||||
| Changes in operating assets and liabilities, net of effects from |
|
|
|
|
| business acquisition: |
|
|
|
| |||||||
|
| business acquisition: |
|
|
|
|
| Accounts receivable |
| (8,980) |
|
| 49,394 | |||||
|
| Accounts receivable |
| 49,394 |
|
| 57,044 |
| Contract assets |
| (1,735) |
|
| 3,466 | ||||
|
| Inventories |
| (34,218) |
|
| 37,034 |
| Inventories |
| (52,063) |
|
| (39,478) | ||||
|
| Prepaid expenses and other assets |
| (9,658) |
|
| (5,864) |
| Prepaid expenses and other assets |
| 1,966 |
|
| (7,233) | ||||
|
| Accounts payable |
| 16,675 |
|
| 23,084 |
| Accounts payable |
| 23,103 |
|
| 16,675 | ||||
|
| Accrued liabilities |
| 13,388 |
|
| (10,036) |
| Accrued liabilities |
| (16,025) |
|
| 13,388 | ||||
|
| Income taxes |
| (673) |
|
| (1,258) |
| Income taxes |
| 8,846 |
|
| (327) | ||||
|
| Net cash provided by operations |
| 92,529 |
|
| 158,134 |
| Net cash provided by (used in) operations |
| (16,182) |
|
| 92,529 | ||||
Cash flows from investing activities: | Cash flows from investing activities: |
|
|
|
| Cash flows from investing activities: |
|
|
|
| ||||||||
| Proceeds from sales of investments at par |
| 250 |
|
| 200 | Proceeds from sales of investments at par |
| 522 |
|
| 250 | ||||||
| Additions to property, plant and equipment |
| (24,039) |
|
| (15,149) | Additions to property, plant and equipment |
| (36,708) |
|
| (24,039) | ||||||
| Proceeds from the sale of property, plant and equipment |
| 235 |
|
| 188 | Proceeds from the sale of property, plant and equipment |
| 137 |
|
| 235 | ||||||
| Additions to purchased software |
| (2,340) |
|
| (1,054) | Additions to purchased software |
| (1,655) |
|
| (2,340) | ||||||
| Other |
| (105) |
|
| (83) | Business acquisition, net of cash acquired |
| (2,731) |
|
| — | ||||||
|
| Net cash used in investing activities |
| (25,999) |
|
| (15,898) | Other |
| (129) |
|
| (105) | |||||
|
| Net cash used in investing activities |
| (40,564) |
|
| (25,999) | |||||||||||
Cash flows from financing activities: | Cash flows from financing activities: |
|
|
|
| Cash flows from financing activities: |
|
|
|
| ||||||||
| Proceeds from stock options exercised |
| 8,094 |
|
| 823 | Proceeds from stock options exercised |
| 3,377 |
|
| 8,094 | ||||||
| Employee taxes paid for shares withheld |
| (379) |
|
| (536) | Employee taxes paid for shares withheld |
| (771) |
|
| (379) | ||||||
| Excess tax benefits from stock-based compensation |
| - |
|
| 122 | Dividends paid |
| (7,136) |
|
| — | ||||||
| Principal payments on long-term debt and capital lease obligations |
| (6,185) |
|
| (6,149) | Borrowings under credit agreement |
| 50,000 |
|
| — | ||||||
| Share repurchases |
| (2,000) |
|
| (29,315) | Principal payments on long-term debt and capital lease obligations |
| (59,121) |
|
| (6,185) | ||||||
| Debt issuance costs |
| (433) |
|
| - | Share repurchases |
| (65,868) |
|
| (2,000) | ||||||
|
| Net cash used in financing activities |
| (903) |
|
| (35,055) | Equity forward contract related to accelerated share repurchase |
| (10,000) |
|
| — | |||||
Effect of exchange rate changes |
| 2,251 |
|
| 72 | |||||||||||||
Net increase in cash and cash equivalents |
| 67,878 |
|
| 107,253 | |||||||||||||
| Cash and cash equivalents at beginning of year |
| 681,433 |
|
| 465,995 | Debt issuance costs |
| — |
|
| (433) | ||||||
| Cash and cash equivalents at end of period | $ | 749,311 |
| $ | 573,248 |
| Net cash used in financing activities |
| (89,519) |
|
| (903) | |||||
Effect of exchange rate changes | Effect of exchange rate changes |
| (642) |
|
| 2,251 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 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), engineering and design services, and precision machining services. The Company provides servicestechnology 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, 20162017 (the 20162017 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.
Effective January 1,Note 2 – New Accounting Pronouncements
Adopted in 2018
In May 2017, the Company adoptedFinancial Accounting Standards Board (FASB) issued a new accounting standardstandards update that simplifies several aspectsprovides guidance about which changes to the terms or conditions of the accounting for employeea share-based payment transactions, includingaward 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 for income taxes, forfeitures,standards update, which seeks to reduce the existing diversity in how certain cash receipts and statutory withholding requirements, as well as classificationcash payments are presented and classified in the Condensed Consolidated Statementsstatement of Cash Flows. As required by this standard, excess tax benefits recognized on stock-based compensation expense are reflected in the accompanying Condensed Consolidated Income Statement as a component of the provision for income taxes on a prospective basis (See Note 8). As a result of including the income tax effects from excess tax benefits in income tax expense, the effects of the excess tax benefits are no longer included in the calculation of diluted shares outstanding, resulting in an increase in the number of diluted shares outstanding.cash flows. The Company adopted this change innew update effective January 1, 2018. The adoption of this guidance had no impact on the methodconsolidated financial statements of calculating diluted shares outstanding onthe Company.
In May 2014, the FASB issued a prospective basis. Additionally, excess tax benefits or deficiencies recognized on stock-based compensation expense are classifiednew standard (commonly referred to as an operating activity inASC 606), which changed the accompanying Condensed Consolidated Statements of Cash Flows. The Company has applied this provision prospectively. Additionally,way the Company is now required to presentrecognizes revenue and significantly expanded the cost of shares withheld from the employee to satisfy the employees’ income tax liability as a financing activity on the statement of cash flows rather than as an operating cash flow.disclosure requirements for revenue arrangements. The Company adopted this change retrospectively.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 six months ended June 30, 2016, net cash provided by operations increased by $0.5 million with a corresponding offset to net cash used in financing activities. The standard also allows for the option to account for forfeitures as they occur when determining the amount of compensation cost to be recognized, rather than estimating expected forfeitures over the course of a vesting period.full retrospective transition method. The Company elected to account for forfeitures as they occur. The net cumulative effect to the Company fromASC 606 practical expedient and does not disclose the adoptioninformation about remaining performance obligations that have original expected durations of this accounting standard update was an increaseone year or less. Amounts prior to paid-in capital of $0.2 million and a reduction to retained earnings of $0.2 million as of January 1, 2017.2018 that have been adjusted in accordance with ASC 606 as described herein are noted “as adjusted”.
Certain reclassifications of prior period amounts have been made to conform to the current period presentation. During the quarter ended September 30, 2016,Previously, the Company concluded that it was appropriaterecognized revenue from the sale of manufactured products built to customer
6
to classify amounts relatingspecifications 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 intangiblethe assets separately. Previously,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 |
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.
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 reported these amounts underrecorded revenue, but not issued an invoice, a contract asset is recognized. The contract asset is transferred to accounts receivable when the captions “costentitlement 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”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 “selling, general2017, 95.3% and administrative expenses”. These reclassifications had no effect on previously reported net income.95.6%, respectively, of the Company’s revenue was recognized as products and services are transferred over time.
Note 24 – 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 sharesstock on the date of grant, generally vest over a four-year period from the date of grant and have a term of ten10 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 unit awardsunits 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, 20172018, 3.22.7 million additional shares of common sharesstock 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, and $1.9 million and $4.0 million for the three and six months ended June 30, 2016, 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, and $0.7 million and $1.5 millionrespectively. The compensation expense for stock-based awards is recognized over the three and six months ended June 30, 2016, respectively.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 shares, restricted stock units and performance-based restricted stock units are valued at the closing market price of the Company’s common sharesstock 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, 2017,2018, the unrecognized compensation cost and remaining weighted-average amortization related to stock-based awards were as follows:
|
|
|
|
|
| Performance- |
|
|
|
|
| Performance- | ||||
|
|
|
|
|
| based |
|
|
| Time-based |
| based | ||||
|
|
|
| Restricted |
| Restricted |
|
|
| Restricted |
| Restricted | ||||
|
| Stock |
| Stock |
| Stock |
| Stock |
| Stock |
| Stock | ||||
(in thousands) |
| Options |
| Units |
| Units(1) | ||||||||||
(in thousands, except remaining period data) |
| Options |
| Units |
| Units(1) | ||||||||||
Unrecognized compensation cost |
| $ 1,223 |
|
| $ 13,673 |
|
| $ 5,195 |
| $ 185 |
| $ 17,183 |
| $ 4,732 | ||
Remaining weighted-average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization period | 1.1 years |
|
| 2.6 years |
|
| 1.8 years |
| 0.7 years |
| 2.6 years |
| 1.6 years | |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Based on the probable achievement of the performance goals identified in each award. | (1) Based on the probable achievement of the performance goals identified in each award. | (1) Based on the probable achievement of the performance goals identified in each award. |
7
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. No options were granted during the six months ended June 30, 2017 and 2016.
The total cash received by the Company as a result of stock option exercises for the six months ended June 30, 20172018 and 20162017 was approximately $8.1$3.4 million and $0.8$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 and 2016 was $3.8$1.9 million and $1.6$3.8 million, respectively. For the six months ended June 30, 20172018 and 2016,2017, the total intrinsic value of stock options exercised was $5.2$2.2 million and $0.3$5.2 million, respectively.
The Company awarded performance-based restricted stock units to employees during the six months ended June 30, 20172018 and 2016.2017. The number of performance-based restricted stock units that maywill 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 audited 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 |
|
|
|
|
|
|
| Average |
| Remaining |
| Aggregate |
|
| Number of |
|
| Exercise |
| Contractual |
| Intrinsic |
(in thousands, except per share data) |
| Options |
|
| Price |
| Term (Years) |
| Value |
Outstanding as of December 31, 2016 |
| 1,197 |
|
| $19.51 |
|
|
|
|
Exercised |
| (411) |
|
| 19.71 |
|
|
|
|
Forfeited or expired |
| (11) |
|
| 19.99 |
|
|
|
|
Outstanding as of June 30, 2017 |
| 775 |
|
| $19.40 |
| 5.35 |
| $ 10,004 |
Exercisable as of June 30, 2017 |
| 619 |
|
| $18.46 |
| 3.64 |
| $ 8,559 |
|
|
|
|
|
|
| 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, 20172018 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- |
|
|
| Weighted- | ||
|
|
|
| Average |
| Number of |
| Average | ||
|
| Number of |
| Grant Date |
| Units |
| Grant Date | ||
(in thousands, except per share data) |
| Units |
| Fair Value | ||||||
Non-vested awards outstanding as of December 31, 2016 |
| 525 |
|
| $22.57 | |||||
|
| (in thousands) |
| Fair Value | ||||||
Non-vested units outstanding as of December 31, 2017 |
| 593 |
|
| $27.47 | |||||
Granted |
| 264 |
|
| 31.50 |
| 385 |
|
| 29.67 |
Vested |
| (177) |
|
| 21.01 |
| (209) |
|
| 26.51 |
Forfeited |
| (29) |
|
| 23.39 |
| (70) |
|
| 27.02 |
Non-vested awards outstanding as of June 30, 2017 |
| 583 |
|
| $27.05 | |||||
Non-vested units outstanding as of June 30, 2018 |
| 699 |
|
| $29.01 |
8
The following table summarizes the activities related to the Company’s performance-based restricted stock units:
|
|
|
|
|
| Weighted- |
|
|
|
|
|
| Average |
|
|
| Number of |
|
| Grant Date |
(in thousands, except per share data) |
|
| Units |
|
| Fair Value |
Non-vested units outstanding as of December 31, 2016 |
|
| 227 |
|
| $21.43 |
Granted (1) |
|
| 144 |
|
| 31.40 |
Forfeited or expired |
|
| (50) |
|
| 18.69 |
Non-vested units outstanding as of June 30, 2017 |
|
| 321 |
|
| $26.35 |
|
|
|
|
|
| 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
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 sharesstock 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 |
|
| Three Months Ended |
| Six Months Ended | ||||||||||||||||
|
|
| June 30, |
| June 30, |
|
| June 30, |
| June 30, | ||||||||||||||||
(in thousands, except per share data) | (in thousands, except per share data) |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 | (in thousands, except per share data) |
| 2018 |
| 2017 |
|
| 2018 |
| 2017 | ||||||
Net income |
| $ | 17,176 |
| $ | 12,685 |
| $ | 26,863 |
| $ | 23,737 | ||||||||||||||
|
|
|
|
| (as adjusted) |
|
|
| (as adjusted) | |||||||||||||||||
Net income (loss) | Net income (loss) |
| $ | 10,943 |
| $ | 18,074 |
| $ | (12,698) |
| $ | 26,629 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Denominator for basic earnings per share - | Denominator for basic earnings per share - |
|
|
|
|
|
|
|
|
| Denominator for basic earnings per share - |
|
|
|
|
|
|
|
|
| ||||||
| weighted-average number of common |
|
|
|
|
|
|
|
|
| weighted-average number of common |
|
|
|
|
|
|
|
|
| ||||||
| shares outstanding during the period |
| 49,766 |
| 49,323 |
|
| 49,640 |
| 49,586 | shares outstanding during the period |
| 47,451 |
| 49,766 |
|
| 47,981 |
| 49,640 | ||||||
Incremental common shares attributable to | Incremental common shares attributable to |
|
|
|
|
|
|
|
|
| Incremental common shares attributable to |
|
|
|
|
|
|
|
|
| ||||||
| exercise of dilutive options |
| 318 |
| 287 |
|
| 341 |
| 289 | exercise of dilutive options |
| 116 |
| 318 |
|
| — |
| 341 | ||||||
Incremental common shares attributable | Incremental common shares attributable |
|
|
|
|
|
|
|
|
| Incremental common shares attributable |
|
|
|
|
|
|
|
|
| ||||||
| to outstanding restricted stock units |
| 155 |
| 57 |
|
| 228 |
| 167 | to outstanding restricted stock units |
| 64 |
| 155 |
|
| — |
| 228 | ||||||
Denominator for diluted earnings per share | Denominator for diluted earnings per share |
| 50,239 |
| 49,667 |
|
| 50,209 |
| 50,042 | Denominator for diluted earnings per share |
| 47,631 |
| 50,239 |
|
| 47,981 |
| 50,209 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic earnings per share |
| $ | 0.35 |
| $ | 0.26 |
| $ | 0.54 |
| $ | 0.48 | ||||||||||||||
Diluted earnings per share |
| $ | 0.34 |
| $ | 0.26 |
| $ | 0.54 |
| $ | 0.47 | ||||||||||||||
Basic earnings (loss) per share | Basic earnings (loss) per share |
| $ | 0.23 |
| $ | 0.36 |
| $ | (0.26) |
| $ | 0.54 | |||||||||||||
Diluted earnings (loss) per share | Diluted earnings (loss) per share |
| $ | 0.23 |
| $ | 0.36 |
| $ | (0.26) |
| $ | 0.53 |
Options to purchase 1.0Potentially dilutive securities totaling 0.3 million common shares for both the three- and six-month periodssix months ended June 30, 20162018 were not included in the computation of diluted earningsloss per share because their effect would have been anti-dilutive.decreased the loss per share.
9
Note 46 – Goodwill and Other Intangible Assets
Goodwill allocated to the Company’s reportable segments was as follows:
(in thousands) |
| Americas |
| Asia |
| Total |
| Americas |
| Asia |
| Total |
Goodwill as of December 31, 2016 and June 30, 2017 | $ | 153,514 | $ | 38,102 | $ | 191,616 | ||||||
|
|
|
|
|
|
| ||||||
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, 20172018 and December 31, 20162017 were as follows:
|
| As of June 30, 2017 |
| As of June 30, 2018 | ||||||||||||
|
| Gross |
|
|
|
|
| Net |
| Gross |
|
|
|
|
| Net |
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying | ||||
(in thousands) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | ||||
Customer relationships | $ | 100,144 |
| $ | (31,145) |
| $ | 68,999 | $ | 100,170 |
| $ | (37,513) |
| $ | 62,657 |
Purchased software costs |
| 33,936 |
|
| (29,038) |
|
| 4,898 |
| 36,806 |
|
| (29,974) |
|
| 6,832 |
Technology licenses |
| 26,800 |
|
| (15,968) |
|
| 10,832 |
| 28,800 |
|
| (19,438) |
|
| 9,362 |
Trade names and trademarks |
| 7,800 |
|
| - |
|
| 7,800 |
| 7,800 |
|
| — |
|
| 7,800 |
Other |
| 868 |
|
| (249) |
|
| 619 |
| 868 |
|
| (273) |
|
| 595 |
Total | $ | 169,548 |
| $ | (76,400) |
| $ | 93,148 | $ | 174,444 |
| $ | (87,198) |
| $ | 87,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2016 |
| As of December 31, 2017 | ||||||||||||
|
| Gross |
|
|
|
|
| Net |
| Gross |
|
|
|
|
| Net |
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying | ||||
(in thousands) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | ||||
Customer relationships | $ | 100,053 |
| $ | (27,883) |
| $ | 72,170 | $ | 100,200 |
| $ | (34,372) |
| $ | 65,828 |
Purchased software costs |
| 31,582 |
|
| (28,508) |
|
| 3,074 |
| 35,328 |
|
| (29,612) |
|
| 5,716 |
Technology licenses |
| 26,800 |
|
| (14,189) |
|
| 12,611 |
| 28,800 |
|
| (17,887) |
|
| 10,913 |
Trade names and trademarks |
| 7,800 |
|
| - |
|
| 7,800 |
| 7,800 |
|
| — |
|
| 7,800 |
Other |
| 868 |
|
| (237) |
|
| 631 |
| 868 |
|
| (261) |
|
| 607 |
Total | $ | 167,103 |
| $ | (70,817) |
| $ | 96,286 | $ | 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, 20172018 and 20162017 was as follows:
| Six Months Ended | Six Months Ended | ||||||||
| June 30, | June 30, | ||||||||
(in thousands) |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||
Amortization of intangible assets | $ | 4,962 |
| $ | 5,775 | $ | 4,733 |
| $ | 4,962 |
Amortization of capitalized purchased software costs |
| 516 |
| 587 |
| 540 |
| 516 | ||
Amortization of debt costs |
| 425 |
| 378 |
| 437 |
| 425 | ||
| $ | 5,903 |
| $ | 6,740 | $ | 5,710 |
| $ | 5,903 |
1016
The estimated future amortization expense of acquired intangible assets for each of the next five years is as follows (in thousands):
Year ending December 31, |
| Amount |
| Amount |
2017 (remaining six months) | $ | 5,640 | ||
2018 |
| 10,245 | ||
2018 (remaining six months) | $ | 5,336 | ||
2019 |
| 10,084 |
| 11,311 |
2020 |
| 9,316 |
| 10,499 |
2021 |
| 6,389 |
| 7,312 |
2022 |
| 7,242 |
Note 57 – Borrowing Facilities
TheAs of June 30, 2018, the Company hashad a $430 million Credit Agreement (the Credit Agreement) by and among Benchmark, 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 providesprovided 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), both with a maturity date of November 12, 2020.. The revolving credit facility isRevolving Credit Facility was available for general corporate purposes, maycould be drawn in foreign currencies up to an amount equivalent to $20 million, and maycould be used for letters of credit up to $20 million. The Credit Agreement includesincluded an accordion feature, pursuant to which total commitments under the facility maycould be increased by an additional $150 million, subject to the satisfaction of certain conditions.
The Term Loan iswas payable in minimum quarterly principal installments of $2.9 million in 2017, $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 accrues,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 iswas payable quarterly in arrears. The alternative base rate iswas 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 fluctuatesfluctuated based upon the ratio of the Company’s debt to its consolidated EBITDA. As of June 30, 2017, $159.62018, $148.8 million of the outstanding debt under the Credit Agreement was effectively at a fixed interest rate as a result of a $159.6$148.8 million notional interest rate swap contract discussed in Note 14.16. 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 iswas payable quarterly in arrears.
The Credit Agreement iswas 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 indebtednessdebt 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 containscontained 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 maycould 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, 20172018 and December 31, 2016,2017, the Company was in compliance with all of these covenants and restrictions.
As of June 30, 2017,2018, the Company had $212.8$198.4 million in borrowings outstanding under the Term Loan facility and $2.6$2.8 million in letters of credit outstanding under the revolving credit facility.Revolving Credit Facility. The Company had $197.2 million available for future borrowings under the Revolving Credit Facility.
1117
has $197.4On 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 future borrowingsgeneral 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 revolving credit facility.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 2017.2018. As of both June 30, 20172018 and 2016,December 31, 2017, there were no working capital borrowings outstanding under the facility.
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:
Note 6 – Inventories | |||||
Inventory costs are summarized as follows: | |||||
|
| June 30, |
| December 31, | |
(in thousands) |
| 2017 |
|
| 2016 |
Raw materials | $ | 270,826 |
| $ | 233,111 |
Work in process |
| 112,054 |
|
| 113,496 |
Finished goods |
| 33,150 |
|
| 34,727 |
| $ | 416,030 |
| $ | 381,334 |
| 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 710 – Accounts Receivable Sale Program
InAs 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. The program was executed on March 29, 2017, is an uncommitted facility and is scheduled to expire in one year with options to automatically extend the agreement, although any party may elect to terminate the agreement upon 60 days prior notice.
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 during the three and six months ended June 30, 2017 was not material, and 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
1219
Note 8 – Income Taxes | |||||
Income tax expense consists of the following: | |||||
| Six Months Ended | ||||
| June 30, | ||||
(in thousands) |
| 2017 |
|
| 2016 |
Federal – current | $ | (1,024) |
| $ | 9 |
Foreign – current |
| 3,379 |
|
| 3,186 |
State – current |
| 162 |
|
| 235 |
Deferred |
| 2,103 |
|
| 2,649 |
| $ | 4,620 |
| $ | 6,079 |
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.
IncomeExcluding 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, and state income taxes (net of federal benefit). The decrease in income tax expense during 2017 is primarily the result of a tax incentive in China and the recognition of excessU.S. tax benefits in the U.S. attributable to the adoption of an accounting standard effective January 1, 2017. See Note 1. Under this standard, the excess tax benefits or deficiencies resulting from the exercise or vesting of awards are included in income tax expense in the reporting period in which they occur. Therefore, the tax effect of stock option exercises and RSU vesting is not spread over the entire year through the use of the annual effective tax rate, but instead is recorded entirely in the period in which the tax deduction arose. Accordingly, the Company recorded the income tax benefit as a discrete item for the six months ended June 30, 2017. The Company’s effective tax rate could fluctuate significantly on a quarterly basis due to the tax effects of stock-based compensation.
The Company considers earnings from foreign subsidiaries to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been made for these earnings. Upon distribution of foreign subsidiary earnings in the form of dividends or otherwise, such distributed earnings would be subject to U.S. income taxes and foreign withholding taxes, reduced by any applicable foreign tax credits. Determination of the amount of any unrecognized deferred tax liability on these undistributed earnings is not practicable.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, 20172018 and 20162017 by approximately $4.2$6.6 million (approximately 0.08$0.14 per diluted share) and $2.0$4.2 million (approximately $0.04$0.08 per diluted share), respectively, as follows:
| Six Months Ended | Six Months Ended | ||||||||
| June 30, | June 30, | ||||||||
(in thousands) |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||
China | $ | 471 |
| $ | - | $ | 969 |
| $ | 471 |
Malaysia |
| 1,773 |
| 707 |
| 2,551 |
| 1,773 | ||
Thailand |
| 1,926 |
| 1,337 |
| 3,070 |
| 1,926 | ||
| $ | 4,170 |
| $ | 2,044 | $ | 6,590 |
| $ | 4,170 |
As of June 30, 2017,2018, the total amount of the reserve for uncertain tax benefits including interest was $9.0$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
13
potential interest on unrecognized tax benefits included in the reserve as of June 30, 2017,2018, was $17.0$47.0 thousand. There was no reserve for potential penalties. During the threesix months ended June 30, 2017, we recorded an additional $0.92018, the Company released $0.5 million of additional accrualsuncertain tax benefits from a U.S. Internal Revenue Service (IRS) audit related to the openSecure 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 a subsidiary in Thailand for the years 2004 to 2005. We received a denial of our appeal to the local2014 was also closed with no additional tax authorities for this open examination and have recorded an accrual for the remaining unrecognized tax benefit related to this examination.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 2016.
The Company is currently under examination by the U.S. Internal Revenue Service for 2014. In addition, Secure Communication Systems, Inc. and its subsidiaries (the Secure Group), companies that2017. Currently, the Company acquired on November 11, 2015, are under a U.S. income tax audit for calendar years 2013, 2014 and through November 11, 2015. This audit is for the period of time prior to the acquisition of the Secure Group by the Company, and any resulting tax liabilities are the responsibility of the seller. The Company
20
does not expect to incurhave any incomeongoing tax costs with respect to this audit.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.
14
Note 912 – 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 |
| Three Months Ended | Six Months Ended | ||||||||||||
|
| June 30, | June 30, |
| June 30, | June 30, | ||||||||||||
(in thousands) | (in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | (in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
|
|
| (as adjusted) |
|
| (as adjusted) | |||||||||||
Net sales: | Net sales: |
|
|
|
|
|
|
|
| Net sales: |
|
|
|
|
|
|
|
|
| Americas | $ | 405,602 | $ | 395,354 | $ | 780,161 | $ | 748,168 | Americas | $ | 434,278 | $ | 405,434 | $ | 813,063 | $ | 766,754 |
| Asia |
| 191,207 |
| 162,825 |
| 366,098 |
| 336,195 | Asia |
| 197,628 |
| 194,480 |
| 392,750 |
| 373,784 |
| Europe |
| 43,408 |
| 40,505 |
| 83,824 |
| 82,520 | Europe |
| 46,355 |
| 43,010 |
| 97,151 |
| 83,654 |
| Elimination of intersegment sales |
| (23,313) |
| (19,342) |
| (46,678) |
| (38,316) | Elimination of intersegment sales |
| (17,670) |
| (23,313) |
| (34,237) |
| (46,678) |
|
| $ | 616,904 | $ | 579,342 | $ | 1,183,405 | $ | 1,128,567 |
| $ | 660,591 | $ | 619,611 | $ | 1,268,727 | $ | 1,177,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: | Depreciation and amortization: |
|
|
|
|
|
|
|
| Depreciation and amortization: |
|
|
|
|
|
|
|
|
| Americas | $ | 5,415 | $ | 5,842 | $ | 10,920 | $ | 11,608 | Americas | $ | 5,816 | $ | 5,415 | $ | 11,425 | $ | 10,920 |
| Asia |
| 2,973 |
| 4,129 |
| 6,139 |
| 8,249 | Asia |
| 2,871 |
| 2,973 |
| 5,693 |
| 6,139 |
| Europe |
| 679 |
| 692 |
| 1,336 |
| 1,396 | Europe |
| 900 |
| 679 |
| 1,784 |
| 1,336 |
| Corporate |
| 2,977 |
| 3,330 |
| 5,922 |
| 6,647 | Corporate |
| 3,112 |
| 2,977 |
| 6,181 |
| 5,922 |
|
| $ | 12,044 | $ | 13,993 | $ | 24,317 | $ | 27,900 |
| $ | 12,699 | $ | 12,044 | $ | 25,083 | $ | 24,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: | Income from operations: |
|
|
|
|
|
|
|
| Income from operations: |
|
|
|
|
|
|
|
|
| Americas | $ | 18,611 | $ | 21,434 | $ | 33,807 | $ | 39,479 | Americas | $ | 15,522 | $ | 19,157 | $ | 32,259 | $ | 31,777 |
| Asia |
| 20,044 |
| 11,665 |
| 32,365 |
| 22,557 | Asia |
| 16,829 |
| 20,457 |
| 34,478 |
| 33,837 |
| Europe |
| 2,571 |
| 2,536 |
| 4,952 |
| 5,488 | Europe |
| 2,200 |
| 2,509 |
| 5,195 |
| 4,879 |
| Corporate and intersegment eliminations |
| (18,999) |
| (17,895) |
| (36,480) |
| (33,516) | Corporate and intersegment eliminations |
| (20,202) |
| (18,999) |
| (39,616) |
| (36,480) |
|
| $ | 22,227 | $ | 17,740 | $ | 34,644 | $ | 34,008 |
| $ | 14,349 | $ | 23,124 | $ | 32,316 | $ | 34,013 |
Other income (expense): | 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: | Capital expenditures: |
|
|
|
|
|
|
|
| Capital expenditures: |
|
|
|
|
|
|
|
|
| Americas | $ | 5,770 | $ | 5,387 | $ | 9,036 | $ | 9,596 | Americas | $ | 12,545 | $ | 5,770 | $ | 25,394 | $ | 9,036 |
| Asia |
| 8,714 |
| 1,464 |
| 11,124 |
| 4,573 | Asia |
| 2,937 |
| 8,714 |
| 8,650 |
| 11,124 |
| Europe |
| 2,466 |
| 491 |
| 3,380 |
| 672 | Europe |
| 630 |
| 2,466 |
| 1,652 |
| 3,380 |
| Corporate |
| 1,851 |
| 1,024 |
| 2,839 |
| 1,362 | Corporate |
| 1,374 |
| 1,851 |
| 2,667 |
| 2,839 |
|
| $ | 18,801 | $ | 8,366 | $ | 26,379 | $ | 16,203 |
| $ | 17,486 | $ | 18,801 | $ | 38,363 | $ | 26,379 |
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
| June 30, | December 31, | |||||||||||
|
|
|
|
|
|
| 2017 |
| 2016 | |||||||||
Total assets: |
|
|
|
|
|
|
|
| ||||||||||
| Americas |
|
|
|
| $ | 910,825 | $ | 864,388 | |||||||||
| Asia |
|
|
|
|
| 678,513 |
| 634,838 | |||||||||
| Europe |
|
|
|
|
| 407,716 |
| 393,443 | |||||||||
| Corporate and other |
|
|
|
|
| 67,386 |
| 105,999 | |||||||||
|
|
|
|
|
| $ | 2,064,440 | $ | 1,998,668 |
1521
|
|
| 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 |
| Three Months Ended | Six Months Ended | ||||||||||||
|
| June 30, | June 30, |
| June 30, | June 30, | ||||||||||||
(in thousands) | (in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | (in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
|
|
| (as adjusted) |
|
| (as adjusted) | |||||||||||
Geographic net sales: | Geographic net sales: |
|
|
|
|
|
|
|
| Geographic net sales: |
|
|
|
|
|
|
|
|
| United States | $ | 449,598 | $ | 415,383 | $ | 841,565 | $ | 784,100 | |||||||||
| United States | $ | 413,568 | $ | 412,203 | $ | 787,967 | $ | 797,191 | Singapore |
| 67,214 |
| 64,939 |
| 127,134 |
| 119,015 |
| Asia |
| 115,782 |
| 82,257 |
| 210,857 |
| 153,719 | Other Asia |
| 48,700 |
| 51,351 |
| 95,771 |
| 90,907 |
| Europe |
| 71,385 |
| 57,583 |
| 147,462 |
| 122,527 | Europe |
| 73,040 |
| 71,698 |
| 153,581 |
| 146,620 |
| Other Foreign |
| 16,169 |
| 27,299 |
| 37,119 |
| 55,130 | Other Foreign |
| 22,039 |
| 16,240 |
| 50,676 |
| 36,872 |
|
| $ | 616,904 | $ | 579,342 | $ | 1,183,405 | $ | 1,128,567 |
| $ | 660,591 | $ | 619,611 | $ | 1,268,727 | $ | 1,177,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
| December 31, |
|
|
|
|
| June 30, | December 31, | ||
|
|
|
|
|
|
| 2017 |
| 2016 |
|
|
|
|
|
| 2018 |
| 2017 |
Long-lived assets: | Long-lived assets: |
|
|
|
|
|
|
|
| Long-lived assets: |
|
|
|
|
|
|
|
|
| United States |
|
|
|
| $ | 164,691 | $ | 167,367 | United States |
|
|
|
| $ | 182,125 | $ | 167,858 |
| Asia |
|
|
|
|
| 72,641 |
| 67,998 | Asia |
|
|
|
|
| 79,040 |
| 77,750 |
| Europe |
|
|
|
|
| 10,750 |
| 8,415 | Europe |
|
|
|
|
| 10,580 |
| 11,042 |
| Other |
|
|
|
|
| 22,218 |
| 24,290 | Other |
|
|
|
|
| 26,154 |
| 25,830 |
|
|
|
|
|
| $ | 270,300 | $ | 268,070 |
|
|
|
|
| $ | 297,899 | $ | 282,480 |
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22
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 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 The following table summarizes the
23
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,
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,
The Company has an interest rate swap agreement, which had a notional amount of 24 Note The changes in accumulated other comprehensive loss by component were as follows:
See Note Note 18 – 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 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
OVERVIEW We are a worldwide provider of engineering services, integrated We provide our services to
Our
• 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
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 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
We recognize revenue from the sale of manufactured products built to customer Revenue is 27
Sales for the three months ended June 30,
·
· ·Medical increased by 12%, · Test & Instrumentation increased by ·Computing increased by 13%, and ·Telecommunications was consistent with prior year.
The overall revenue increase was driven primarily by
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%
We experience fluctuations in gross profit from period to period. Different programs contribute different gross profits depending on factors such as the
We have undertaken initiatives to restructure our business operations with the intention of improving utilization and reducing costs. During the first six months of 28
RESULTS OF OPERATIONS The following table presents the percentage relationship that certain items in our Condensed Consolidated Statements of Income bear to sales for the periods indicated. The financial information and the discussion below should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Report.
Sales Sales for the second quarter of
Industrials. Second quarter sales decreased 29
Aerospace and Defense. Second quarter sales increased
Medical. Second quarter sales
Test & Instrumentation. Second quarter sales increased
Computing. Second quarter sales increased
Telecommunications. Second quarter sales
Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our
Gross Profit Gross profit
Selling, General and Administrative Expenses SG&A increased by 30 for the first six months of
Restructuring Charges and Other Costs During
Interest Income Interest income increased to $3.6 million during the first six months of 2018 from $2.3 million Income Tax Expense Income tax expense of
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
Net Income (Loss) We reported a net
LIQUIDITY AND CAPITAL RESOURCES We have historically financed our organic growth and operations through funds generated from
31 Cash
We purchase components only after customer orders or forecasts are received, which mitigates, but does not eliminate, the risk of loss on inventories. Supplies of electronic components and other materials used in operations are subject to industry-wide
Cash used in investing activities during the first six months was
Cash used in financing activities during the first six months was
On July 20, 2018, we The New Credit Agreement includes an accordion feature pursuant to which 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
(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 As of 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.
33
CONTRACTUAL OBLIGATIONS
We have certain contractual obligations for operating and capital leases that were summarized in a table of Contractual Obligations in our
OFF-BALANCE SHEET ARRANGEMENTS
As of June 30,
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
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,
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,
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
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.
PART II—OTHER INFORMATION
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.
There are no material changes to the risk factors set forth in Part I, Item 1A of our
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (c) The following table provides information for the quarter ended June 30,
(1) All (2) Average price paid per share is calculated on a settlement basis and excludes commission. (3) 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.
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
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,
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