Company Quick10K Filing
Quick10K
Benchmark Electronics
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
BHE 2018-09-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Basis of Presentation
Note 2 - New Accounting Pronouncements
Note 3 - Revenue
Note 4 - Stock-Based Compensation
Note 5 - Earnings per Share
Note 6 - Goodwill and Other Intangible Assets
Note 7 - Borrowing Facilities
Note 8 - Contract Assets
Note 10 - Accounts Receivable Sale Program
Note 12 - Segment and Geographic Information
Note 14 - Contingencies
Note 15 - Restructuring Charges
Note 16 - Fair Value
Note 17 - Accumulated Other Comprehensive Loss
Note 18 - Shareholders' Equity
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Benchmark Electronics Earnings 2018-09-30

BHE 10Q Quarterly Report

Balance SheetIncome StatementCash 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

(Registrants telephone number, including area code)

 

 

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

 

Indicate by check mark whether the registrant has submitted electronically 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.

1


 

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.

2


 

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.

3


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders’ Equity

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

 

Other

 

 

Total

 

 

 

Shares

 

Par

 

Paid-in

 

Retained

 

Comprehensive

Shareholders’

(in thousands)

 

Outstanding

 

Value

 

Capital

 

Earnings

 

 

Loss

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2017 (as adjusted)

49,143

 

 

$  4,914

 

$  634,192

 

$  708,181

 

 

$  (8,149)

 

 

$  1,339,138

Stock-based compensation expense

 

 

 

 

 

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.

4


 

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.

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 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”.

 

6 


 

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

7 


 

Condensed Consolidated Statement of Income

Three Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

As previously

 

 

 

 

 

(in thousands, except per share data)

 

reported

 

Adjustments

 

As adjusted

 

 

 

 

 

 

 

 

 

 

Sales

$

603,550

 

$

7,379

 

$

610,929

Cost of sales

$

545,395

 

$

7,291

 

$

552,686

Income tax expense

$

1,919

 

$

(231)

 

$

1,688

Net income

$

17,512

 

$

319

 

$

17,831

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

$

0.35

 

$

0.01

 

$

0.36

 

Diluted

$

0.35

 

$

 

$

0.35

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

49,865

 

 

49,865

 

 

49,865

 

Diluted

 

50,330

 

 

50,330

 

 

50,330

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Income

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

As previously

 

 

 

 

 

(in thousands, except per share data)

 

reported

 

Adjustments

 

As adjusted

 

 

 

 

 

 

 

 

 

 

Sales

$

1,786,955

 

$

1,488

 

$

1,788,443

Cost of sales

$

1,621,153

 

$

2,031

 

$

1,623,184

Income tax expense

$

6,539

 

$

(628)

 

$

5,911

Net income

$

44,375

 

$

85

 

$

44,460

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

$

0.89

 

$

 

$

0.89

 

Diluted

$

0.88

 

$

 

$

0.88

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

49,716

 

 

49,716

 

 

49,716

 

Diluted

 

50,292

 

 

50,292

 

 

50,292

8 


 

Condensed Consolidated Statement of Cash Flows

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of changes in accounting policies

 

 

 

 

 

As previously

 

 

 

 

 

(in thousands)

 

reported

 

Adjustments

 

As adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

44,375

 

$

85

 

$

44,460

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

 

 

 

 

 by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

27,452

 

 

 

 

27,452

 

 

 

Amortization

 

9,139

 

 

 

 

9,139

 

 

 

Provision for doubtful accounts

 

1,697

 

 

 

 

1,697

 

 

 

Deferred income taxes

 

1,505

 

 

(924)

 

 

581

 

 

 

Gain on the sale of property, plant and equipment

 

(194)

 

 

 

 

(194)

 

 

 

Asset impairments

 

42

 

 

 

 

42

 

 

 

Stock-based compensation expense

 

6,819

 

 

 

 

6,819

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

29,229

 

 

 

 

29,229

 

 

 

Contract assets

 

 

 

(5,373)

 

 

(5,373)

 

 

 

Inventories

 

(38,778)

 

 

2,031

 

 

(36,747)

 

 

 

Prepaid expenses and other assets

 

(12,066)

 

 

3,885

 

 

(8,181)

 

 

 

Accounts payable

 

3,922

 

 

 

 

3,922

 

 

 

Accrued liabilities

 

15,637

 

 

 

 

15,637

 

 

 

Income taxes

 

1,111

 

 

296

 

 

1,407

 

 

 

 

Net cash provided by operations

 

89,890

 

 

 

 

89,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(37,372)

 

 

 

 

(37,372)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

(6,163)

 

 

 

 

(6,163)

 

Effect of exchange rate changes

 

2,358

 

 

 

 

2,358

 

Net increase in cash and cash equivalents

 

48,713

 

 

 

 

48,713

 

Cash and cash equivalents at beginning of year

 

681,433

 

 

 

 

681,433

 

Cash and cash equivalents at end of period

$

730,146

 

$

 

$

730,146

 

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

9 


 

liabilities (for reasonably certain lease payments). This update is effective for fiscal years beginning after December 15, 2018. The Company will adopt this update effective January 1, 2019, which will impact its consolidated balance sheet. Originally, entities were required to adopt this update using a modified retrospective approach, which required prior periods to be presented under this new standard with various practical expedients allowed. However, in July 2018, the FASB issued additional guidance which allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption (January 1, 2019). The Company is currently evaluating the impact this standard will have on its consolidated financial statements and which transition approach will be used upon adoption.

 

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

 

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.

 

 

 

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 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

11 


 

 

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

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 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

13 


 

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.

14 


 

Note 5 – Earnings Per Share

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

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.

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 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