Benchmark Electronics Earnings 2018-09-30

BHE 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 form10q.htm FORM 10-Q

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 September 30, 2018

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

For the transition period from _________________ to________________

Commission File Number: 1‑10560

BENCHMARK ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)

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

(623) 300-7000

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

As of November 7, 2018, there were 43,710,356 shares of common stock of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.

TABLE OF CONTENTS

		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income (Loss)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statement of Shareholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and	25
	Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

PART II—OTHER INFORMATION

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

SIGNATURES		38

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

					September 30,		December 31,
(in thousands, except par value)						2018		2017
							(as adjusted)
Assets
	Current assets:
		Cash and cash equivalents			$	475,713	$	742,546
		Accounts receivable, net of allowance for doubtful accounts of $1,729
			and $105, respectively			455,971		436,560
		Contract assets				155,898		146,496
		Inventories				321,194		268,917
		Prepaid expenses and other assets				34,988		36,018
		Income taxes receivable				38		120
				Total current assets		1,443,802		1,630,657
	Property, plant and equipment, net of accumulated depreciation of
				$452,611 and $432,043, respectively		208,495		186,473
	Goodwill					192,116		191,616
	Deferred income taxes					4,034		4,034
	Other, net					92,324		96,524
					$	1,940,771	$	2,109,304

Liabilities and Shareholders’ Equity
	Current liabilities:
		Current installments of long-term debt and capital lease obligations			$	4,880	$	18,274
		Accounts payable				373,879		362,701
		Income taxes payable				6,438		11,663
		Accrued liabilities				92,976		85,679
				Total current liabilities		478,173		478,317
	Long-term debt and capital lease obligations, less current installments					149,341		193,406
	Other long-term liabilities					90,615		89,749
	Deferred income taxes					20,960		8,694
	Shareholders’ equity:
		Preferred stock, $0.10 par value; 5,000 shares authorized, none issued				—		—
		Common stock, $0.10 par value; 145,000 shares authorized; issued
			and outstanding – 45,130 and 49,143, respectively			4,513		4,914
		Additional paid-in capital				596,110		634,192
		Retained earnings				609,577		708,181
		Accumulated other comprehensive loss				(8,518)		(8,149)
				Total shareholders’ equity		1,201,682		1,339,138
		Commitments and contingencies
					$	1,940,771	$	2,109,304

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss)

(unaudited)

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(in thousands, except per share data)			2018		2017		2018		2017
				(as adjusted)				(as adjusted)
Sales		$	640,688	$	610,929	$	1,909,415	$	1,788,443
Cost of sales			587,911		552,686		1,744,021		1,623,184
	Gross profit		52,777		58,243		165,394		165,259
Selling, general and administrative expenses			37,607		32,093		109,182		97,079
Amortization of intangible assets			2,368		2,736		7,101		7,698
Restructuring charges and other costs			1,845		2,511		5,838		5,566
	Income from operations		10,957		20,903		43,273		54,916
Interest expense			(3,822)		(2,324)		(8,543)		(6,861)
Interest income			1,619		1,334		5,197		3,621
Other income (expense)			1,139		(394)		827		(1,305)
	Income before income taxes		9,893		19,519		40,754		50,371
Income tax expense			2,094		1,688		45,653		5,911
	Net income (loss)	$	7,799	$	17,831	$	(4,899)	$	44,460

Earnings (loss) per share:
	Basic	$	0.17	$	0.36	$	(0.10)	$	0.89
	Diluted	$	0.17	$	0.35	$	(0.10)	$	0.88

Weighted-average number of shares outstanding:
	Basic		46,301		49,865		47,415		49,716
	Diluted		46,455		50,330		47,415		50,292

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(in thousands)				2018		2017		2018			2017
					(as adjusted)				(as adjusted)
Net income (loss)			$	7,799	$	17,831	$	(4,899)		$	44,460
Other comprehensive income (loss):
	Foreign currency translation adjustments			(249)		1,313		(1,569)			4,434
	Unrealized gain on investments, net of tax			—		3		41			19
	Unrealized gain on derivative, net of tax			82		89		1,159			254
	Other			—		—		—			(13)
Other comprehensive income (loss)				(167)		1,405		(369)			4,694
		Comprehensive income (loss)	$	7,632	$	19,236	$	(5,268)		$	49,154

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders’ Equity

(unaudited)

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

Balances, December 31, 2017 (as adjusted)		49,143	$ 4,914	$ 634,192	$ 708,181		$ (8,149)	$ 1,339,138
Stock-based compensation expense		—	—	8,229	—		—	8,229
Shares repurchased and retired		(4,401)	(440)	(48,913)	(72,700)		—	(122,053)
Stock options exercised		187	19	3,444	—		—	3,463
Vesting of restricted stock units		229	23	(23)	—		—	—
Shares withheld for taxes		(28)	(3)	(819)	—		—	(822)
Dividends declared		—	—	—	(21,005)		—	(21,005)
Net loss		—	—	—	(4,899)		—	(4,899)
Other comprehensive loss		—	—	—	—		(369)	(369)
Balances, September 30, 2018		45,130	$ 4,513	$ 596,110	$ 609,577		$ (8,518)	$ 1,201,682

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

					Nine Months Ended
					September 30,
(in thousands)						2018		2017
							(as adjusted)

Cash flows from operating activities:
	Net income (loss)				$	(4,899)	$	44,460
	Adjustments to reconcile net income (loss) to net cash provided by
		(used in) operating activities:
			Depreciation			29,104		27,452
			Amortization			10,539		9,139
			Provision for doubtful accounts			1,714		1,697
			Deferred income taxes			11,863		581
			Gain on the sale of property, plant and equipment			(215)		(194)
			Asset impairments			96		42
			Stock-based compensation expense			8,229		6,819
	Changes in operating assets and liabilities, net of effects from
		business acquisition:
			Accounts receivable			(21,733)		29,229
			Contract assets			(9,402)		(5,373)
			Inventories			(54,342)		(36,747)
			Prepaid expenses and other assets			2,493		(8,181)
			Accounts payable			12,620		3,922
			Accrued liabilities			2,170		15,637
			Income taxes			(5,530)		1,407
				Net cash provided by (used in) operations		(17,293)		89,890
Cash flows from investing activities:
	Proceeds from sales of investments at par					522		250
	Additions to property, plant and equipment					(50,437)		(35,033)
	Proceeds from the sale of property, plant and equipment					237		270
	Additions to purchased software					(2,496)		(2,703)
	Business acquisition, net of cash acquired					(2,731)		—
	Other					(130)		(156)
				Net cash used in investing activities		(55,035)		(37,372)
Cash flows from financing activities:
	Proceeds from stock options exercised					3,463		9,828
	Employee taxes paid for shares withheld					(822)		(383)
	Dividends paid					(14,235)		—
	Borrowings under credit agreement					50,000		—
	Principal payments on long-term debt and capital lease obligations					(107,758)		(9,288)
	Share repurchases					(122,053)		(5,887)
	Debt issuance costs					(2,303)		(433)
				Net cash used in financing activities		(193,708)		(6,163)
Effect of exchange rate changes						(797)		2,358
Net increase (decrease) in cash and cash equivalents						(266,833)		48,713
	Cash and cash equivalents at beginning of year					742,546		681,433
	Cash and cash equivalents at end of period				$	475,713	$	730,146

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

Note 1 – Basis of Presentation

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

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

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

Note 2 – New Accounting Pronouncements

Adopted in 2018

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

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

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

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

Previously, the Company recognized revenue from the sale of manufactured products built to customer specifications and excess inventory when title and risk of ownership passed, the price to the buyer was fixed or determinable and recoverability was reasonably assured, which was generally when the goods were shipped. Under ASC 606, the Company recognizes revenue as the customer takes control of the products. Under the majority of the Company’s manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being built. Revenues under these contracts are recognized progressively based on the cost-to-cost method. Accordingly, the Company will recognize revenue under these contracts earlier than under the previous accounting rules. Under other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, the Company continues to recognize revenue upon transfer of control of product to the customer. Revenue from design, development and engineering services also continues to be recognized over time as the services are performed.

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

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

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

Condensed Consolidated Balance Sheet
December 31, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

					Impact of changes in accounting policies
					As previously
(in thousands)						reported	Adjustments			As adjusted

	Net income				$	44,375	$	85	$	44,460
	Adjustments to reconcile net income to net cash provided
		by operating activities:
			Depreciation			27,452		—		27,452
			Amortization			9,139		—		9,139
			Provision for doubtful accounts			1,697		—		1,697
			Deferred income taxes			1,505		(924)		581
			Gain on the sale of property, plant and equipment			(194)		—		(194)
			Asset impairments			42		—		42
			Stock-based compensation expense			6,819		—		6,819
	Changes in operating assets and liabilities:
			Accounts receivable			29,229		—		29,229
			Contract assets			—		(5,373)		(5,373)
			Inventories			(38,778)		2,031		(36,747)
			Prepaid expenses and other assets			(12,066)		3,885		(8,181)
			Accounts payable			3,922		—		3,922
			Accrued liabilities			15,637		—		15,637
			Income taxes			1,111		296		1,407
				Net cash provided by operations		89,890		—		89,890

				Net cash used in investing activities		(37,372)		—		(37,372)

				Net cash used in financing activities		(6,163)		—		(6,163)
	Effect of exchange rate changes					2,358		—		2,358
	Net increase in cash and cash equivalents					48,713		—		48,713
	Cash and cash equivalents at beginning of year					681,433		—		681,433
	Cash and cash equivalents at end of period				$	730,146	$	—	$	730,146

Not Yet Adopted

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

In June 2016, the FASB issued a new 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 consolidated balance sheet. Originally, entities were required to adopt this update using a modified retrospective approach, which required prior periods to be presented under this new standard with various practical expedients allowed. However, in July 2018, the FASB issued additional guidance which allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption (January 1, 2019). The Company is currently evaluating the impact this standard will have on its consolidated financial statements and which transition approach will be used upon adoption.

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

Note 3 – Revenue

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

Revenue is measured based on a consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a manufactured product to a customer. The Company’s contracts with customers are generally short-term in nature. Customers are generally billed when the product is shipped or as services are performed. Under the majority of the Company’s manufacturing contracts with customers, the customer controls all of the work-in-progress as products are being built. Revenues under these contracts are recognized progressively based on the cost-to-cost method. For other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, the Company recognizes revenue upon transfer of control of product to the customer. Revenue from design, development and engineering services is recognized over time as the services are performed. The Company assumes no significant obligations after shipment as it typically warrants workmanship only. Therefore, the warranty provisions are generally not significant.

If the Company records revenue, but does not issue an invoice, a contract asset is recognized. The contract asset is transferred to accounts receivable when the entitlement to payment becomes unconditional.

Taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of sales.

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 September 30, 2018
(in thousands)			Americas		Asia		Europe		Total
Market Sector:
	Industrials	$	45,334	$	67,969	$	15,001	$	128,304
	A&D		97,141		—		7,847		104,988
	Medical		58,725		34,404		3,171		96,300
	Test and instrumentation		32,016		30,494		14,098		76,608
	Computing		125,110		18,018		2,258		145,386
	Telecommunication		37,846		50,716		540		89,102
	External revenue		396,172		201,601		42,915		640,688
	Elimination of intersegment sales		7,965		8,552		139		16,656
	Segment revenue	$	404,137	$	210,153	$	43,054	$	657,344

			Nine Months Ended September 30, 2018
			Americas		Asia		Europe		Total
Market Sector:
	Industrials	$	141,966	$	180,195	$	49,887	$	372,048
	A&D		278,191		—		23,093		301,284
	Medical		173,192		106,769		10,142		290,103
	Test and instrumentation		125,603		111,280		48,393		285,276
	Computing		352,747		50,446		6,368		409,561
	Telecommunication		123,386		125,708		2,049		251,143
	External revenue		1,195,085		574,398		139,932		1,909,415
	Elimination of intersegment sales		22,115		28,505		273		50,893
	Segment revenue	$	1,217,200	$	602,903	$	140,205	$	1,960,308


			Reportable Operating Segments
			Three Months Ended September 30, 2017 (as adjusted)
(in thousands)			Americas		Asia		Europe		Total
Market Sector:
	Industrials	$	50,644	$	58,488	$	16,809	$	125,941
	A&D		89,261		871		6,163		96,295
	Medical		55,162		41,716		5,178		102,056
	Test and instrumentation		42,587		34,071		12,454		89,112
	Computing		96,688		26,257		2,396		125,341
	Telecommunication		37,555		33,857		772		72,184
	External revenue		371,897		195,260		43,772		610,929
	Elimination of intersegment sales		7,520		12,947		54		20,521
	Segment revenue	$	379,417	$	208,207	$	43,826	$	631,450

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

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

Note 4 – Stock-Based Compensation

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

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

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values. The total compensation cost recognized for stock-based awards was $2.8 million and $8.2 million for the three and nine months ended September 30, 2018, respectively, and $2.3 million and $6.8 million for the three and nine months ended September 30, 2017, respectively. The total income tax benefit recognized in the condensed income statements for stock-based awards was $0.7 million and $2.0 million for the three and nine months ended September 30, 2018, respectively, and $0.8 million and $2.5 million for the three and nine months ended September 30, 2017, respectively. The compensation expense for stock-based awards is recognized over the vesting period of the awards using the straight-line method. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Awards of restricted stock units and performance-based restricted stock units are valued at the closing market price of the Company’s common stock on the date of grant. For performance-based restricted stock units, compensation expense is based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on the Company’s expectation of performance during the

measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a change in accounting estimate.

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

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

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

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

The Company awarded performance-based restricted stock units to employees during the nine months ended September 30, 2018 and 2017. The number of performance-based restricted stock units that will ultimately be earned will not be determined until the end of the corresponding performance periods, and may vary from as low as zero to as high as 2.5 times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue growth, operating margin expansion, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for issuance under the Company’s 2010 Plan.

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

			Weighted-
		Weighted-	Average	Aggregate
	Number of	Average	Remaining	Intrinsic
	Options	Exercise	Contractual	Value
	(in thousands)	Price	Term (Years)	(in thousands)
Outstanding as of December 31, 2017	596	$19.72
Exercised	(187)	18.61
Forfeited or expired	(20)	22.98
Outstanding as of September 30, 2018	389	$20.09	4.48	$ 1,288
Exercisable as of September 30, 2018	354	$19.78	3.51	$ 1,279

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

business day of the period ended September 30, 2018 for options that had exercise prices that were below the closing price.

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

		Weighted-
	Number of	Average
	Units	Grant Date
	(in thousands)	Fair Value
Non-vested units outstanding as of December 31, 2017	593	$27.47
Granted	402	29.52
Vested	(229)	26.79
Forfeited	(86)	27.35
Non-vested units outstanding as of September 30, 2018	680	$28.93

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

		Weighted-
	Number of	Average
	Units	Grant Date
	(in thousands)	Fair Value
Non-vested units outstanding as of December 31, 2017	346	$26.88
Granted ⁽¹⁾	120	29.60
Forfeited	(147)	24.06
Non-vested units outstanding as of September 30, 2018	319	$29.19

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

Note 5 – Earnings Per Share

Basic earnings per share is computed using the weighted-average number of shares outstanding. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for the incremental shares attributed to outstanding stock equivalents. Stock equivalents include common stock issuable upon the exercise of stock options and other equity instruments, and are computed using the treasury stock method. Under the treasury stock method, the exercise price of a share and the amount of compensation cost, if any, for future service that the Company has not yet recognized are assumed to be used to repurchase shares in the current period.

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


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
(in thousands, except per share data)			2018		2017		2018		2017
				(as adjusted)				(as adjusted)
Net income (loss)		$	7,799	$	17,831	$	(4,899)	$	44,460

Denominator for basic earnings per share -
	weighted-average number of common
	shares outstanding during the period		46,301		49,865		47,415		49,716
Incremental common shares attributable to
	exercise of dilutive options		90		268		—		319
Incremental common shares attributable					.
	to outstanding restricted stock units		64		197		—		257
Denominator for diluted earnings per share			46,455		50,330		47,415		50,292

Basic earnings (loss) per share		$	0.17	$	0.36	$	(0.10)	$	0.89
Diluted earnings (loss) per share		$	0.17	$	0.35	$	(0.10)	$	0.88

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

Note 6 – Goodwill and Other Intangible Assets

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

(in thousands)		Americas		Asia		Total
Goodwill as of December 31, 2017	$	153,514	$	38,102	$	191,616
Acquisition		500		—		500
Goodwill as of September 30, 2018	$	154,014	$	38,102	$	192,116

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

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

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

		As of September 30, 2018
		Gross				Net
		Carrying	Accumulated			Carrying
(in thousands)		Amount	Amortization			Amount
Customer relationships	$	100,162	$	(39,091)	$	61,071
Purchased software costs		37,645		(30,268)		7,377
Technology licenses		28,800		(20,214)		8,586
Trade names and trademarks		7,800		—		7,800
Other		868		(279)		589
Total	$	175,275	$	(89,852)	$	85,423

		As of December 31, 2017
		Gross				Net
		Carrying	Accumulated			Carrying
(in thousands)		Amount

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$28.09	44	$1,230

10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31

8-K	2019-02-07	Earnings, Officers, Exhibits
8-K	2019-01-07	Officers
8-K	2018-12-17	Other Events, Exhibits
8-K	2018-10-30	Earnings, Exhibits
8-K	2018-10-26	Other Events, Exhibits
8-K	2018-09-17	Other Events, Exhibits
8-K	2018-08-06	Other Events, Exhibits
8-K	2018-07-24	Earnings, Exhibits
8-K	2018-07-20	Enter Agreement, Leave Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K	2018-07-18	Other Events
8-K	2018-06-08	Other Events, Exhibits
8-K	2018-05-18	Officers, Other Events, Exhibits
8-K	2018-05-16	Shareholder Vote
8-K	2018-04-25	Earnings, Regulation FD, Exhibits
8-K	2018-03-07	Other Events, Exhibits
8-K	2018-02-22	Enter Agreement, Officers, Exhibits
8-K	2018-02-07	Earnings, Regulation FD, Exhibits

TER	Teradyne
HUBB	Hubbell
FLEX	Flex
MRCY	Mercury Systems
AVX	AVX
CLS	Celestica
PKE	Park Electrochemical
IIN	Intricon
SPA	Sparton
EXFO	Exfo

EX-31.1	ex31_1.htm
EX-31.2	ex31_2.htm
EX-32.1	ex32_1.htm
EX-32.2	ex32_2.htm