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, 2014.
__ 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.) |
3000 Technology Drive |
77515 |
|
Angleton, Texas |
(Zip Code) |
|
(Address of principal executive offices)
|
|
|
(979) 849‑6550
(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 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. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b–2 of the Act.
Large accelerated filer [Ö] |
Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
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 5, 2014, there were 53,868,228 Common Shares of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.
|
TABLE OF CONTENTS
PART I
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Page |
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PART I—FINANCIAL INFORMATION |
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1 |
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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Management’s Discussion and Analysis of Financial Condition and |
22 |
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29 |
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31 |
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PART II—OTHER INFORMATION |
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32 |
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32 |
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32 |
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33 |
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34 |
PART I - FINANCIAL INFORMATION
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June 30, |
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December 31, |
(in thousands, except par value) |
|
2014 |
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2013 |
||||
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(unaudited) |
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Assets |
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||||
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Current assets: |
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|
|
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|||
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Cash and cash equivalents |
$ |
401,869 |
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$ |
345,555 |
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Accounts receivable, net of allowance for doubtful |
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accounts of $292 and $338, respectively |
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499,479 |
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559,763 |
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Inventories, net |
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421,216 |
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396,699 |
||
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Prepaid expenses and other assets |
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33,134 |
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26,283 |
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Income taxes receivable |
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2,631 |
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3,231 |
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Deferred income taxes |
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6,902 |
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11,302 |
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Total current assets |
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1,365,231 |
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1,342,833 |
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Long-term investments |
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9,710 |
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9,921 |
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Property, plant and equipment, net of accumulated |
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depreciation of $357,502 and $346,500 respectively |
|
190,686 |
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185,319 |
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Goodwill, net |
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45,970 |
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44,691 |
|||
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Deferred income taxes |
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32,042 |
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33,856 |
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Other, net |
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37,838 |
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40,751 |
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$ |
1,681,477 |
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$ |
1,657,371 |
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Liabilities and Shareholders’ Equity |
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||||
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Current liabilities: |
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|||
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Current installments of capital lease obligations |
$ |
628 |
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$ |
582 |
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Accounts payable |
|
298,762 |
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320,953 |
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Income taxes payable |
|
5,553 |
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9,570 |
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Accrued liabilities |
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72,731 |
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67,272 |
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Total current liabilities |
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377,674 |
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398,377 |
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Capital lease obligations, less current installments |
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9,194 |
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9,521 |
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Other long-term liabilities |
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21,680 |
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20,369 |
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Deferred income taxes |
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2,071 |
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2,071 |
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Shareholders’ equity: |
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Preferred shares, $0.10 par value; 5,000 shares |
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authorized, none issued |
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— |
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— |
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Common shares, $0.10 par value; 145,000 shares |
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authorized; issued – 54,070 and 53,936, respectively |
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outstanding – 53,959 and 53,825, respectively |
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5,396 |
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5,383 |
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Additional paid-in capital |
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653,853 |
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644,594 |
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Retained earnings |
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621,377 |
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586,422 |
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Accumulated other comprehensive loss |
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(9,496) |
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(9,094) |
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Less treasury shares, at cost; 111 shares |
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(272) |
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(272) |
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Total shareholders’ equity |
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1,270,858 |
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1,227,033 |
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Commitments and contingencies |
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$ |
1,681,477 |
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$ |
1,657,371 |
See accompanying notes to condensed consolidated financial statements.
1
Condensed Consolidated Statements of Income |
(unaudited) |
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|
Three Months Ended |
Six Months Ended |
||||||
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June 30, |
June 30, |
||||||
(in thousands, except per share data) |
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2014 |
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2013 |
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2014 |
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2013 |
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Sales |
$ |
716,868 |
$ |
607,522 |
$ |
1,356,212 |
$ |
1,149,966 |
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Cost of sales |
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659,117 |
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563,155 |
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1,247,338 |
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1,068,765 |
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Gross profit |
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57,751 |
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44,367 |
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108,874 |
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81,201 |
Selling, general and administrative expenses |
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28,700 |
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23,311 |
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56,853 |
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45,710 |
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Restructuring charges and integration |
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and acquisition-related costs |
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1,907 |
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5,667 |
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4,016 |
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6,109 |
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Asset impairment charge and other |
|
- |
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2,606 |
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- |
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2,606 |
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Thailand flood related items, net of insurance |
- |
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- |
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(1,571) |
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- |
||
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Income from operations |
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27,144 |
|
12,783 |
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49,576 |
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26,776 |
Interest expense |
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(473) |
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(463) |
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(949) |
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(922) |
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Interest income |
|
668 |
|
291 |
|
1,183 |
|
705 |
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Other income (expense) |
|
99 |
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(501) |
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125 |
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(185) |
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Income before income taxes |
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27,438 |
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12,110 |
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49,935 |
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26,374 |
Income tax expense |
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5,288 |
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3,653 |
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8,660 |
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6,430 |
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Net income |
$ |
22,150 |
$ |
8,457 |
$ |
41,275 |
$ |
19,944 |
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Earnings per share: |
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Basic |
$ |
0.41 |
$ |
0.16 |
$ |
0.77 |
$ |
0.37 |
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Diluted |
$ |
0.41 |
$ |
0.16 |
$ |
0.76 |
$ |
0.36 |
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Weighted-average number of shares outstanding: |
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|||
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Basic |
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53,826 |
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54,207 |
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53,738 |
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54,500 |
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Diluted |
|
54,405 |
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54,500 |
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54,394 |
|
54,897 |
See accompanying notes to condensed consolidated financial statements.
2
Condensed Consolidated Statements of Comprehensive Income |
(unaudited) |
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(in thousands) |
|
2014 |
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|
2013 |
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|
2014 |
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|
2013 |
||||
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|
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Net income |
$ |
22,150 |
|
$ |
8,457 |
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$ |
41,275 |
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$ |
19,944 |
||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
||||
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Foreign currency translation adjustments |
|
(206) |
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(371) |
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(233) |
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(1,009) |
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Unrealized gain (loss) on investments, |
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|
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|
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|||
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net of tax |
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(145) |
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|
284 |
|
|
(154) |
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|
276 |
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Other |
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(7) |
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- |
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(15) |
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1 |
|||
Other comprehensive loss |
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(358) |
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(87) |
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(402) |
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(732) |
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Comprehensive income |
$ |
21,792 |
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$ |
8,370 |
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$ |
40,873 |
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$ |
19,212 |
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|
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Statement of Shareholders’ Equity |
(unaudited) |
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|
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Accumulated |
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Common Shares |
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Additional |
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Other |
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Total |
|||
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Shares |
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Par |
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Paid-in |
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Retained |
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Comprehensive |
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Treasury |
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Shareholders’ |
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(in thousands) |
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Outstanding |
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Value |
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Capital |
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Earnings |
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Loss |
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Shares |
|
Equity |
|||
Balances, December 31, 2013 |
|
|
53,825 |
|
$ |
5,383 |
$ |
644,594 |
$ |
586,422 |
$ |
(9,094) |
$ |
(272) |
$ |
1,227,033 |
|
Stock-based compensation expense |
|
|
- |
|
|
- |
|
4,217 |
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- |
|
- |
|
- |
|
4,217 |
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Shares repurchased and retired |
|
|
(509) |
|
|
(51) |
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(5,524) |
|
(6,320) |
|
- |
|
- |
|
(11,895) |
|
Stock options exercised |
|
|
567 |
|
|
56 |
|
10,712 |
|
- |
|
- |
|
- |
|
10,768 |
|
Issuance of restricted shares, net of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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forfeitures |
|
|
89 |
|
|
9 |
|
(9) |
|
- |
|
- |
|
- |
|
- |
Restricted shares withheld for taxes |
|
|
(13) |
|
|
(1) |
|
(308) |
|
- |
|
- |
|
- |
|
(309) |
|
Excess tax benefit of stock-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation |
|
|
- |
|
|
- |
|
171 |
|
- |
|
- |
|
- |
|
171 |
Comprehensive income |
|
|
- |
|
|
- |
|
- |
|
41,275 |
|
(402) |
|
- |
|
40,873 |
|
Balances, June 30, 2014 |
|
|
53,959 |
|
$ |
5,396 |
$ |
653,853 |
$ |
621,377 |
$ |
(9,496) |
$ |
(272) |
$ |
1,270,858 |
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows |
(unaudited) |
|
|
|
|
|
|
Six Months Ended |
||||
|
|
|
|
|
|
June 30, |
||||
(in thousands) |
|
|
2014 |
|
|
2013 |
||||
Cash flows from operating activities: |
|
|
|
|
|
|
||||
|
Net income |
|
$ |
41,275 |
|
$ |
19,944 |
|||
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
|||
|
|
operating activities: |
|
|
|
|
|
|
||
|
|
|
Depreciation |
|
|
19,841 |
|
|
17,554 |
|
|
|
|
Amortization |
|
|
2,358 |
|
|
2,021 |
|
|
|
|
Deferred income taxes |
|
|
6,674 |
|
|
4,338 |
|
|
|
|
(Gain) loss on the sale of property, plant and equipment |
|
|
541 |
|
|
(1,226) |
|
|
|
|
Asset impairments |
|
|
- |
|
|
3,854 |
|
|
|
|
Thailand flood insurance recovery |
|
|
(550) |
|
|
- |
|
|
|
|
Stock-based compensation expense |
|
|
3,680 |
|
|
3,420 |
|
|
|
|
Excess tax benefit from stock-based compensation |
|
|
(538) |
|
|
(184) |
|
|
Changes in operating assets and liabilities, net of effects from |
|
|
|
|
|
|
|||
|
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business acquisition: |
|
|
|
|
|
|
||
|
|
|
Accounts receivable |
|
|
60,259 |
|
|
5,238 |
|
|
|
|
Inventories |
|
|
(24,738) |
|
|
(12,150) |
|
|
|
|
Prepaid expenses and other assets |
|
|
(5,673) |
|
|
5,578 |
|
|
|
|
Accounts payable |
|
|
(21,060) |
|
|
20,254 |
|
|
|
|
Accrued liabilities |
|
|
6,805 |
|
|
(3,597) |
|
|
|
|
Income taxes |
|
|
(3,180) |
|
|
(3,826) |
|
|
|
|
|
Net cash provided by operations |
|
|
85,694 |
|
|
61,218 |
Cash flows from investing activities: |
|
|
|
|
|
|
||||
|
Proceeds from sales and redemptions of investments |
|
|
57 |
|
|
25 |
|||
|
Additions to property, plant and equipment |
|
|
(29,442) |
|
|
(11,870) |
|||
|
Proceeds from the sale of property, plant and equipment |
|
|
202 |
|
|
1,660 |
|||
|
Additions to purchased software |
|
|
(855) |
|
|
(1,441) |
|||
|
Business acquisition, net of cash acquired |
|
|
750 |
|
|
(19,270) |
|||
|
Thailand flood property insurance proceeds |
|
|
550 |
|
|
- |
|||
|
Other |
|
|
359 |
|
|
- |
|||
|
|
|
|
Net cash used in investing activities |
|
|
(28,379) |
|
|
(30,896) |
Cash flows from financing activities: |
|
|
|
|
|
|
||||
|
Proceeds from stock options exercised |
|
|
10,768 |
|
|
5,767 |
|||
|
Excess tax benefit from stock-based compensation |
|
|
538 |
|
|
184 |
|||
|
Principal payments on capital lease obligations |
|
|
(281) |
|
|
(240) |
|||
|
Share repurchases |
|
|
(11,895) |
|
|
(21,247) |
|||
|
|
|
|
Net cash used in financing activities |
|
|
(870) |
|
|
(15,536) |
Effect of exchange rate changes |
|
|
(131) |
|
|
(463) |
||||
Net increase in cash and cash equivalents |
|
|
56,314 |
|
|
14,323 |
||||
|
Cash and cash equivalents at beginning of year |
|
|
345,555 |
|
|
384,579 |
|||
|
Cash and cash equivalents at end of period |
|
$ |
401,869 |
|
$ |
398,902 |
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 integrated manufacturing services. The Company provides services to original equipment manufacturers (OEMs) of computers and related products for business enterprises, medical devices, industrial control equipment, which includes equipment for the aerospace and defense industry, testing and instrumentation products and telecommunication equipment. The Company has manufacturing operations located in the Americas, Asia and Europe.
The condensed consolidated financial statements included herein have been prepared by the Company without an audit pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The financial statements reflect all normal and recurring adjustments that in the opinion of management are necessary 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, 2013 (the 2013 10-K).
Management of the Company 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. Actual results could differ from those estimates.
Note 2 – Stock-Based Compensation
The Benchmark Electronics, Inc. 2000 Stock Awards Plan (the 2000 Plan) authorized, and the Benchmark Electronics, Inc. 2010 Omnibus Incentive Compensation Plan (as amended, 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, restricted stock units, stock appreciation rights, performance compensation awards, phantom stock awards and deferred share units, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options are granted to employees with an exercise price equal to the market price of the Company’s common shares on the date of grant, generally vest over a four-year period from the date of grant and have a term of ten years. Restricted shares and 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. The 2000 Plan expired in February 2010, and no additional grants can be made under that plan. The 2010 Plan was approved by the Company’s shareholders in May 2010. Members of the Board of Directors who are not employees of the Company hold awards under the Benchmark Electronics, Inc. 2002 Stock Option Plan for Non-Employee Directors (the 2002 Plan) and the 2010 Plan. Stock options were granted pursuant to the 2002 Plan upon the occurrence of the non-employee director’s election or re-election to the Board of Directors. All awards under the 2002 Plan were fully vested upon the date of grant and have a term of ten years. The 2002 Plan was approved by the Company’s shareholders in May 2002 and expired in February 2012. No additional grants may be made under the 2002 Plan. Non-employee directors currently receive equity awards under the 2010 Plan. Since 2011, 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 from the grant date.
As of June 30, 2014, 4.3 million additional common shares were available for issuance under the
6
All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values. The total compensation cost recognized for stock-based awards was $2.2 million and $3.7 million for the three and six months ended June 30, 2014, respectively, and $1.9 million and $3.4 million for the three and six months ended June 30, 2013, respectively. The total income tax benefit recognized in the income statement for stock-based awards was $1.0 million and $1.7 million for the three and six months ended June 30, 2014, respectively, and $0.4 million and $0.9 million for the three and six months ended June 30, 2013, respectively. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the vesting period of the awards using the straight-line method. Cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as cash flows from financing activities. Awards of restricted shares, restricted stock units, performance-based restricted stock units and phantom stock are valued at the closing market price of the Company’s common shares 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. If 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 June 30, 2014, the unrecognized compensation cost and remaining weighted-average amortization related to stock-based awards were as follows:
|
|
|
|
|
|
|
|
|
Performance- |
||
|
|
|
|
|
|
|
|
|
based |
||
|
|
|
|
|
|
|
Restricted |
|
Restricted |
||
|
|
Stock |
|
Restricted |
|
Stock |
|
Stock |
|||
(in thousands) |
|
Options |
|
Shares |
|
Units |
|
Units(1) |
|||
Unrecognized compensation cost |
$ |
5,648 |
|
$ |
1,470 |
|
$ |
7,732 |
|
$ |
2,573 |
Remaining weighted-average |
|
|
|
|
|
|
|
|
|
|
|
amortization period |
2.1 years |
|
1.4 years |
|
3.0 years |
|
2.1 years |
||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) Based on the probable achievement of the performance goals identified in each award. |
7
The weighted-average assumptions used to value the options granted during the three and six months ended June 30, 2014 and 2013, were as follows:
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
June 30, |
|
June 30, |
||||
(in thousands) |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Options granted |
|
|
65 |
|
- |
|
378 |
|
348 |
Expected term of options |
|
|
8.1 years |
|
N/A |
|
7.0 years |
|
7.4 years |
Expected volatility |
|
|
39% |
|
N/A |
|
39% |
|
42% |
Risk-free interest rate |
|
|
2.479% |
|
N/A |
|
2.081% |
|
1.396% |
Dividend yield |
|
|
zero |
|
N/A |
|
zero |
|
zero |
The expected term of the options represents the estimated period of time until exercise and is based on historical experience, giving consideration to the contractual terms, vesting schedules and expectations of future plan participant behavior. Separate groups of plan participants that have similar historical exercise behavior are considered separately for valuation purposes. Expected stock price volatility is based on the historical volatility of the Company’s common shares. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates in effect at the time of grant with an equivalent remaining term. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.
The weighted-average fair value per option granted during the three and six months ended June 30, 2014 was $10.74 and $9.91, respectively. The total cash received as a result of stock option exercises for the six months ended June 30, 2014 and 2013 was approximately $10.8 million and $5.8 million, respectively. The 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, 2014 and 2013 was $2.3 million and $1.3 million, respectively. For the six months ended June 30, 2014 and 2013, the total intrinsic value of stock options exercised was $2.7 million and $1.4 million, respectively.
The Company awarded performance-based restricted stock units to employees during the six months ended June 30, 2014 and 2013. 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 three 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 income 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 2010 Plan.
8
The following table summarizes the 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, 2013 |
|
3,084 |
|
$ |
19.79 |
|
|
|
|
Granted |
|
378 |
|
$ |
22.94 |
|
|
|
|
Exercised |
|
(567) |
|
$ |
18.98 |
|
|
|
|
Forfeited or expired |
|
(37) |
|
$ |
19.75 |
|
|
|
|
Outstanding as of June 30, 2014 |
|
2,858 |
|
$ |
20.36 |
|
5.00 |
$ |
15,200 |
Exercisable as of June 30, 2014 |
|
2,026 |
|
$ |
20.68 |
|
3.21 |
$ |
10,308 |
|
|
|
|
|
|
|
|
|
|
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 June 30, 2014 for options that had |
|||||||||
exercise prices that were below the closing price. |
The following table summarizes the activities related to the Company’s restricted shares: |
|||||
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Average |
|
|
Number of |
|
|
Grant Date |
(in thousands, except per share data) |
|
Shares |
|
|
Fair Value |
Non-vested shares outstanding as of December 31, 2013 |
|
194 |
|
$ |
16.56 |
Vested |
|
(76) |
|
$ |
16.87 |
Forfeited |
|
(7) |
|
$ |
16.89 |
Non-vested shares outstanding as of June 30, 2014 |
|
111 |
|
$ |
16.34 |
The following table summarizes the activities related to the Company’s time-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, 2013 |
|
303 |
|
$ |
17.48 |
Granted |
|
246 |
|
$ |
22.92 |
Vested |
|
(95) |
|
$ |
17.57 |
Forfeited |
|
(14) |
|
$ |
20.14 |
Non-vested units outstanding as of June 30, 2014 |
|
440 |
|
$ |
20.41 |
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, 2013 |
|
215 |
|
$ |
16.78 |
Granted(1) |
|
88 |
|
$ |
22.92 |
Forfeited |
|
(29) |
|
$ |
18.52 |
Non-vested units outstanding as of June 30, 2014 |
|
274 |
|
$ |
18.56 |
|
|
|
|
|
|
(1)Represents target number of units that can vest based on the achievement of the |
|||||
performance goals. |
|
|
|
|
|
9
Note 3 – 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 during the three and six months ended June 30, 2014 and 2013. Stock equivalents include common shares 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, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the amount of estimated tax benefits that would be recorded in paid-in-capital, if any, when the share is exercised are assumed to be used to repurchase shares in the current period.
The following table sets forth the calculation of basic and diluted earnings per share. |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
(in thousands, except per share data) |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Net income |
|
$ |
22,150 |
|
$ |
8,457 |
|
$ |
41,275 |
|
$ |
19,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
|
shares outstanding during the period |
|
|
53,826 |
|
|
54,207 |
|
|
53,738 |
|
|
54,500 |
Incremental common shares attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise of outstanding dilutive options |
|
|
443 |
|
|
205 |
|
|
461 |
|
|
213 |
Incremental common shares attributable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to outstanding restricted shares and |
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted stock units |
|
|
136 |
|
|
88 |
|
|
195 |
|
|
184 |
Denominator for diluted earnings per share |
|
|
54,405 |
|
|
54,500 |
|
|
54,394 |
|
|
54,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.41 |
|
$ |
0.16 |
|
$ |
0.77 |
|
$ |
0.37 |
|
Diluted earnings per share |
|
$ |
0.41 |
|
$ |
0.16 |
|
$ |
0.76 |
|
$ |
0.36 |
Options to purchase 0.7 million and 0.7 million common shares for the three and six months ended June 30, 2014, respectively, were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. Options to purchase 3.2 million common shares for both the three and six month periods June 30, 2013 were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.
10
Note 4 – Goodwill and Other Intangible Assets
The changes in goodwill allocated to the Company’s reportable segments were as follows for the six months ended June 30, 2014:
(in thousands) |
|
Americas |
|
Asia |
|
Total |
Goodwill at December 31, 2013 |
$ |
6,641 |
$ |
38,050 |
$ |
44,691 |
Purchase accounting adjustments |
|
1,227 |
|
52 |
|
1,279 |
Goodwill at June 30, 2014 |
$ |
7,868 |
$ |
38,102 |
$ |
45,970 |
The purchase accounting adjustments are based on management’s estimates resulting from review of information obtained after the acquisition date that relates to facts and circumstances that existed at the acquisition date. See note 16 to the condensed consolidated financial statements for additional information.
Other assets consist primarily of acquired identifiable intangible assets, capitalized purchased software costs and assets held for sale. Other intangible assets as of June 30, 2014 and December 31, 2013 were as follows:
|
|
Gross |
|
|
|
|
|
Net |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
(in thousands) |
|
Amount |
|
|
Amortization |
|
|
Amount |
Customer relationships |
$ |
33,336 |
|
$ |
(14,555) |
|
$ |
18,781 |
Technology licenses |
|
11,300 |
|
|
(9,023) |
|
|
2,277 |
Other |
|
868 |
|
|
(178) |
|
|
690 |
Other intangible assets, June 30, 2014 |
$ |
45,504 |
|
$ |
(23,756) |
|
$ |
21,748 |
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
Net |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
(in thousands) |
|
Amount |
|
|
Amortization |
|
|
Amount |
Customer relationships |
$ |
33,348 |
|
$ |
(12,900) |
|
$ |
20,448 |
Technology licenses |
|
11,300 |
|
|
(8,999) |
|
|
2,301 |
Other |
|
868 |
|
|
(166) |
|
|
702 |
Other intangible assets, December 31, 2013 |
$ |
45,516 |
|
$ |
(22,065) |
|
$ |
23,451 |
Customer relationships are amortized on a straight-line basis over a period of ten years. Technology licenses are amortized over their estimated useful lives in proportion to the economic benefits consumed. Amortization of other intangible assets for the six months ended June 30, 2014 and 2013 was $1.7 million and $1.3 million, respectively.
The estimated future amortization expense of other intangible assets for each of the next five years is as follows (in thousands):
Year ending December 31, |
|
Amount |
2014 (remaining six months) |
$ |
2,087 |
2015 |
|
4,123 |
2016 |
|
4,094 |
2017 |
|
1,923 |
2018 |
|
1,574 |
11
Note 5 – Borrowing Facilities
Under the terms of a credit agreement (the Credit Agreement), the Company has a $200 million five-year revolving credit facility for general corporate purposes with a maturity date of July 30, 2017. The Credit Agreement includes an accordion feature under which total commitments under the facility may be increased by an additional $100 million, subject to satisfaction of certain conditions and lender approval.
Interest on outstanding borrowings under the Credit Agreement is payable quarterly, at the Company’s option, at either LIBOR plus 1.75% to 2.75% or a prime rate plus 0.75% to 1.75%, based upon the Company’s leverage ratio as specified in the Credit Agreement. A commitment fee of 0.30% to 0.40% per annum (based upon the Company’s liquidity ratio as specified in the Credit Agreement) on the unused portion of the revolving credit line is payable quarterly in arrears. As of June 30, 2014 and December 31, 2013, the Company had no borrowings outstanding under the Credit Agreement, $1.2 million and $0.8 million, respectively, in outstanding letters of credit and $198.8 million and $199.2 million, respectively, was available for future borrowings.
The Credit Agreement is secured by the Company’s domestic inventory and accounts receivable, 100% of the stock of the Company’s domestic subsidiaries and 65% of the voting capital stock of each direct foreign subsidiary and substantially all other tangible and intangible assets of the Company and its domestic subsidiaries. The Credit Agreement contains customary financial covenants as to debt leverage and fixed charges, and restricts our ability to incur additional debt, pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. As of both June 30, 2014 and December 31, 2013, the Company was in compliance with all such covenants and restrictions.
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 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 2014. As of both June 30, 2014 and December 31, 2013, the Company’s Thailand subsidiary had no working capital borrowings outstanding.
Note 6 – Inventories |
|||||
Inventory costs are summarized as follows: |
|||||
|
|
June 30, |
|
|
December 31, |
(in thousands) |
|
2014 |
|
|
2013 |
Raw materials |
$ |
275,566 |
|
$ |
245,455 |
Work in process |
|
98,061 |
|
|
84,710 |
Finished goods |
|
47,589 |
|
|
66,534 |
|
$ |
421,216 |
|
$ |
396,699 |
12
Note 7 – Income Taxes |
|||||
Income tax expense (benefit) consists of the following: |
|||||
|
Six Months Ended |
||||
|
June 30, |
||||
(in thousands) |
|
2014 |
|
|
2013 |
Federal – Current |
$ |
361 |
|
$ |
(748) |
Foreign – Current |
|
1,330 |
|
|
2,749 |
State – Current |
|
295 |
|
|
91 |
Deferred |
|
6,674 |
|
|
4,338 |
|
$ |
8,660 |
|
$ |
6,430 |
|
|
|
|
|
|
In 2014, 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 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 reportable for U.S. income tax purposes (subject to adjustment for foreign tax credits). Determination of the amount of any unrecognized deferred tax liability on these undistributed earnings is not practicable.
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 2015 in China and Malaysia and 2026 in Thailand, and are subject to certain conditions with which the Company expects to comply. The Company’s Chinese subsidiary had a tax incentive that expired at the end of 2012. During the first quarter of 2014, this tax incentive was extended until 2015 and was retroactively applied to the 2013 calendar year. The tax adjustment for the retroactive income tax incentive for 2013 totaling $1.2 million was recorded as of March 31, 2014. The net impact of all of these tax incentives was to lower income tax expense for the six months ended June 30, 2014 and 2013 by approximately $6.5 million (approximately $0.12 per diluted share) and $2.4 million (approximately $0.04 per diluted share), respectively, as follows:
|
Six Months Ended |
||||
|
June 30, |
||||
(in thousands) |
|
2014 |
|
|
2013 |
China |
$ |
1,876 |
|
$ |
- |
Malaysia |
|
1,214 |
|
|
550 |
Thailand |
|
3,362 |
|
|
1,816 |
|
$ |
6,452 |
|
$ |
2,366 |
|
|
|
|
|
|
13
As of June 30, 2014, the total amount of the reserve for uncertain tax benefits including interest and penalties was $21.3 million. The reserve is classified as a current or long-term liability in the consolidated balance sheet based on the Company’s expectation of when the items will be settled. The amount of accrued potential interest and penalties, respectively, on unrecognized tax benefits included in the reserve as of June 30, 2014, was $1.6 million and $1.6 million. No material changes affected the reserve during the six months ended June 30, 2014. The Company’s Thailand subsidiary has filed for a refund of $8.0 million of previously paid income taxes applicable to the years 2004 and 2005, which is included in other assets. The Thai tax authorities conducted an initial examination of the applicable refund filings, and in 2011, the Company recorded a reserve for uncertain benefits of $7.1 million against this refund claim. In 2012, the Company received official notification that the tax authorities had rejected its refund claim. The Company has appealed the rejected claim and is awaiting the tax authorities’ decision.
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 2004 to 2013.
The Company is subject to examination by tax authorities for varying periods in various U.S. and foreign tax jurisdictions. In the second quarter of 2014, the Internal Revenue Service (IRS) initiated a federal income tax audit of the calendar year 2011 for the Company and its U.S. subsidiaries. During the course of such examinations, disputes may occur as to matters of fact and/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 the taxing authority from conducting an 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 8 – Segment and Geographic Information
The Company has manufacturing facilities in the United States, Mexico, 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: the Americas, Asia and Europe. Information about operating segments was as follows:
|
|
Three Months Ended |
Six Months Ended |
||||||
|
|
June 30, |
June 30, |
||||||
(in thousands) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
Americas |
$ |
440,869 |
$ |
357,987 |
$ |
852,370 |
$ |
658,826 |
|
Asia |
|
268,609 |
|
235,616 |
|
507,394 |
|
461,676 |
|
Europe |
|
36,522 |
|
38,062 |
|
70,683 |
|
74,760 |
|
Elimination of intersegment sales |
|
(29,132) |
|
(24,143) |
|
(74,235) |
|
(45,296) |
|
|
$ |
716,868 |
$ |
607,522 |
$ |
1,356,212 |
$ |
1,149,966 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
Americas |
$ |
5,229 |
$ |
4,114 |
$ |
9,949 |
$ |
7,979 |
|
Asia |
|
4,224 |
|
4,301 |
|
8,411 |
|
8,579 |
|
Europe |
|
744 |
|
669 |
|
1,478 |
|
1,321 |
|
Corporate |
|
1,204 |
|
865 |
|
2,361 |
|
1,696 |
|
|
$ |
11,401 |
$ |
9,949 |
$ |
22,199 |
$ |
19,575 |
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
|
Americas |
$ |
19,527 |
$ |
9,389 |
$ |
35,086 |
$ |
19,307 |
|
Asia |
|
18,102 |
|
9,073 |
|
36,322 |
|
20,116 |
|
Europe |
|
1,466 |
|
3,826 |
|
2,246 |
|
5,631 |
|
Corporate and intersegment eliminations |
|
(11,951) |
|
(9,505) |
|
(24,078) |
|
(18,278) |
|
|
$ |
27,144 |
$ |
12,783 |
$ |
49,576 |
$ |
26,776 |
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
Americas |
$ |
12,891 |
$ |
2,984 |
$ |
23,368 |
$ |
7,096 |
|
Asia |
|
724 |
|
1,451 |
|
3,706 |
|
3,082 |
|
Europe |
|
1,549 |
|
643 |
|
2,568 |
|
1,500 |
|
Corporate |
|
517 |
|
1,313 |
|
655 |
|
1,633 |
|
|
$ |
15,681 |
$ |
6,391 |
$ |
30,297 |
$ |
13,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||
|
|
|
|
|
|
|
2014 |
|
2013 |
Total assets: |
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
|
|
$ |
716,696 |
$ |
702,378 |
|
Asia |
|
|
|
|
|
692,778 |
|
658,668 |
|
Europe |
|
|
|
|
|
218,606 |
|
255,644 |
|
Corporate and other |
|
|
|
|
|
53,397 |
|
40,681 |
|
|
|
|
|
|
$ |
1,681,477 |
$ |
1,657,371 |
15
Geographic net sales information reflects the destination of the product shipped. Long-lived |
|||||||||
assets information is based upon the physical location of the asset. |
|||||||||
|
|
Three Months Ended |
Six Months Ended |
||||||
|
|
June 30, |
June 30, |
||||||
(in thousands) |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Geographic net sales: |
|
|
|
|
|
|
|
|
|
|
United States |
$ |
522,135 |
$ |
418,259 |
$ |
984,406 |
$ |
804,796 |
|
Asia |
|
96,975 |
|
119,882 |
|
184,441 |
|
205,972 |
|
Europe |
|
68,574 |
|
51,215 |
|
136,851 |
|
110,181 |
|
Other Foreign |
|
29,184 |
|
18,166 |
|
50,514 |
|
29,017 |
|
|
$ |
716,868 |
$ |
607,522 |
$ |
1,356,212 |
$ |
1,149,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
December 31, |
||
|
|
|
|
|
|
|
2014 |
|
2013 |
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
$ |
95,126 |
$ |
96,287 |
|
Asia |
|
|
|
|
|
92,866 |
|
98,816 |
|
Europe |
|
|
|
|
|
10,520 |
|
10,333 |
|
Other |
|
|
|
|
|
30,012 |
|
20,634 |
|
|
|
|
|
|
$ |
228,524 |
$ |
226,070 |
|
|
|
|
|
|
|
|
|
|
Note 9 – Supplemental Cash Flow and Non-Cash Information |
||||||||||||
The following information concerns supplemental disclosures of cash payments. |
||||||||||||
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Income taxes paid, net |
$ |
4,390 |
|
$ |
964 |
|
$ |
5,093 |
|
$ |
5,652 |
|
Interest paid |
|
424 |
|
|
414 |
|
|
866 |
|
|
838 |
During the six months ended June 30, 2013, the Company recognized a non-cash asset impairment charge of $3.8 million related to its facility in Tianjin, China that is being held for sale based on market activity. Also during the six months ended June 30, 2013, the Company disposed of a non-manufacturing facility in Thailand for $1.6 million resulting in a gain of $1.2 million.
Note 10 – Contingencies
The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations.
Note 11 – Impact of Recently Enacted Accounting Standards
In May 2014, the Financial Accounting Standards Board issued a new standard that will supersede most of the existing revenue recognition requirements in current U.S. GAAP and require entities to recognize revenue at an amount reflecting the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for reporting periods beginning after December 15, 2016, and permits the use of either the retrospective or cumulative effect transition method, with early application not permitted. For the Company, the new standard will be effective January 1, 2017, and the Company is currently evaluating the impact the pronouncement will have on its consolidated financial statements and related disclosures and has not yet selected a transition method. As the new standard will supersede all existing revenue guidance affecting the
16
Company under U.S. GAAP, it could impact revenue and cost recognition on contracts across all its business segments, in addition to its business processes and information technology systems. As a result, the Company’s evaluation of the effect of the new standard will likely extend over several future periods.
The Company has determined that no other recently issued accounting standards will have a material impact on its consolidated financial position, results of operations or cash flows, or apply to its operations.
Note 12 – Restructuring Charges
The Company has undertaken initiatives to restructure its business operations with the intention of improving utilization and realizing cost savings in the future. 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, among other activities, moving production between facilities, reducing staff levels, realigning our business processes and reorganizing our management.
The Company recognized restructuring charges during 2014, 2013 and 2012 primarily related to the closure of facilities, capacity reduction and reductions in workforce in certain facilities across various regions. These charges were recorded pursuant to plans developed and approved by management.
The following table summarizes the 2014 activity in the accrued restructuring balances related to the various restructuring activities initiated prior to June 30, 2014:
|
|
|
Balance as of |
|
|
|
|
|
|
|
Foreign |
|
Balance as of |
|
|
|
December 31, |
|
Restructuring |
|
Cash |
|
Non-Cash |
|
Exchange |
|
June 30, |
(in thousands) |
|
2013 |
|
Charges |
|
Payment |
|
Activity |
|
Adjustments |
|
2014 |
|
2014 Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
$ |
- |
$ |
181 |
$ |
(181) |
$ |
- |
$ |
- |
$ |
- |
|
|
|
- |
|
181 |
|
(181) |
|
- |
|
- |
|
- |
2013 Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
120 |
|
87 |
|
(179) |
|
- |
|
3 |
|
31 |
|
Other exit costs |
|
833 |
|
(87) |
|
(292) |
|
(237) |
|
21 |
|
238 |
|
|
|
953 |
|
- |
|
(471) |
|
(237) |
|
24 |
|
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
34 |
|
7 |
|
(41) |
|
- |