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Benchmark Electronics 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
 

 

 

 

 

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 March 31, 2015

 

__  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

(Registrants telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 May 7, 2015 there were 52,398,514 Common Shares of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.

 

  

 


 

TABLE OF CONTENTS

 

PART I

 

 

 

 

Page

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Income

4

 

Condensed Consolidated Statements of Comprehensive Income

5

 

Condensed Consolidated Statement of Shareholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and

18

 

Results of Operations

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 6.

Exhibits

28

 

 

SIGNATURES

29

 

 

 

  

 


 

PART I - FINANCIAL INFORMATION

 

Item 1.            Financial Statements.   

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

  

 

 

 

 

 

 

 

March 31,

 

 

December 31,

(in thousands, except par value)

 

2015

 

 

2014

 

 

 

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

383,596

 

$

427,376

 

 

Accounts receivable, net of allowance for doubtful

 

 

 

 

 

 

 

 

accounts of $2,918 and $2,943, respectively

 

490,686

 

 

520,389

 

 

Inventories

 

426,837

 

 

401,261

 

 

Prepaid expenses and other assets

 

34,571

 

 

30,453

 

 

Income taxes receivable

 

152

 

 

572

 

 

Deferred income taxes

 

6,646

 

 

8,502

 

 

 

 

Total current assets

 

1,342,488

 

 

1,388,553

 

Long-term investments

 

1,012

 

 

1,008

 

Property, plant and equipment, net of accumulated

 

 

 

 

 

 

 

 

 

depreciation of $369,128 and $362,620 respectively

 

187,049

 

 

190,180

 

Goodwill, net

 

45,970

 

 

45,970

 

Deferred income taxes

 

25,054

 

 

25,017

 

Other, net

 

27,834

 

 

28,161

 

 

 

 

 

$

1,629,407

 

$

1,678,889

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current installments of capital lease obligations

$

701

 

$

676

 

 

Accounts payable

 

248,563

 

 

289,786

 

 

Income taxes payable

 

5,077

 

 

5,470

 

 

Accrued liabilities

 

58,287

 

 

63,166

 

 

 

 

Total current liabilities

 

312,628

 

 

359,098

 

Capital lease obligations, less current installments

 

8,665

 

 

8,845

 

Other long-term liabilities

 

17,406

 

 

17,800

 

Deferred income taxes

 

2,106

 

 

2,106

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred shares, $0.10 par value; 5,000 shares

 

 

 

 

 

 

 

 

authorized, none issued

 

 

 

 

 

Common shares, $0.10 par value; 145,000 shares

 

 

 

 

 

 

 

 

authorized; issued and outstanding  – 52,478 and

 

 

 

 

 

 

 

 

52,994, respectively

 

5,248

 

 

5,300

 

 

Additional paid-in capital

 

645,066

 

 

649,715

 

 

Retained earnings

 

651,224

 

 

645,500

 

 

Accumulated other comprehensive loss

 

(12,936)

 

 

(9,475)

 

 

 

 

Total shareholders’ equity

 

1,288,602

 

 

1,291,040

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

$

1,629,407

 

$

1,678,889

See accompanying notes to condensed consolidated financial statements.

3


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(unaudited)

  

 

 

 

Three Months Ended

 

 

March 31,

(in thousands, except per share data)

 

2015

 

 

2014

 

 

 

 

 

 

 

Sales

$

620,925

 

$

639,344

Cost of sales

 

569,146

 

 

588,221

 

Gross profit

 

51,779

 

 

51,123

Selling, general and administrative expenses

 

28,202

 

 

28,153

Restructuring charges and integration costs

 

4,869

 

 

2,109

Thailand flood-related items, net of insurance

-

 

 

(1,571)

 

Income from operations

 

18,708

 

 

22,432

Interest expense

 

(435)

 

 

(476)

Interest income

 

432

 

 

515

Other income (expense), net

 

(1,057)

 

 

26

 

Income before income taxes

 

17,648

 

 

22,497

Income tax expense

 

3,443

 

 

3,372

 

Net income

$

14,205

 

$

19,125

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic

$

0.27

 

$

0.36

 

Diluted

$

0.27

 

$

0.35

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

Basic

 

52,463

 

 

53,650

 

Diluted

 

53,045

 

 

54,277

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

  

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

(in thousands)

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

Net income

$

14,205

 

$

19,125

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustments

 

(3,462)

 

 

(27)

 

Unrealized gain (loss) on investments,

 

 

 

 

 

 

 

net of tax

 

5

 

 

(9)

 

Other

 

(4)

 

 

(8)

Other comprehensive loss

 

(3,461)

 

 

(44)

 

 

 

Comprehensive income

$

10,744

 

$

19,081

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders’ Equity

(unaudited)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Shares

 

Additional

 

 

 

Other

 

Total

 

 

 

Shares

 

Par

 

Paid-in

 

Retained

 

Comprehensive

 

Shareholders’

(in thousands)

 

Outstanding

 

Value

 

Capital

 

Earnings

 

Loss

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2014

 

 

52,994

 

$

5,300

$

649,715

$

645,500

$

(9,475)

$

1,291,040

Stock-based compensation expense

 

 

-

 

 

-

 

1,940

 

-

 

-

 

1,940

Shares repurchased and retired

 

 

(663)

 

 

(67)

 

(7,230)

 

(8,481)

 

-

 

(15,778)

Stock options exercised

 

 

46

 

 

5

 

816

 

-

 

-

 

821

Vesting of restricted stock units

 

 

120

 

 

12

 

(12)

 

-

 

-

 

-

Shares withheld for taxes

 

 

(19)

 

 

(2)

 

(455)

 

-

 

-

 

(457)

Excess tax benefit of stock-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation

 

 

-

 

 

-

 

292

 

-

 

-

 

292

Comprehensive income

 

 

-

 

 

-

 

-

 

14,205

 

(3,461)

 

10,744

Balances, March 31, 2015

 

 

52,478

 

$

5,248

$

645,066

$

651,224

$

(12,936)

$

1,288,602

See accompanying notes to condensed consolidated financial statements.

6


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

  

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

(in thousands)

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

14,205

 

$

19,125

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

(used in) operating activities:

 

 

 

 

 

 

 

 

 

Depreciation

 

 

10,933

 

 

9,640

 

 

 

Amortization

 

 

1,205

 

 

1,158

 

 

 

Deferred income taxes

 

 

1,818

 

 

3,293

 

 

 

(Gain) loss on the sale of property, plant and equipment

 

 

(14)

 

 

393

 

 

 

Asset impairments

 

 

84

 

 

-

 

 

 

Thailand flood insurance recovery

 

 

-

 

 

(550)

 

 

 

Stock-based compensation expense

 

 

1,940

 

 

1,432

 

 

 

Excess tax benefit from stock-based compensation

 

 

(328)

 

 

(426)

 

Changes in operating assets and liabilities, net of effects from

 

 

 

 

 

 

 

 

business acquisition:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

28,361

 

 

94,818

 

 

 

Inventories

 

 

(26,914)

 

 

(46,512)

 

 

 

Prepaid expenses and other assets

 

 

(4,432)

 

 

(1,029)

 

 

 

Accounts payable

 

 

(32,978)

 

 

(21,147)

 

 

 

Accrued liabilities

 

 

(5,074)

 

 

1,189

 

 

 

Income taxes

 

 

289

 

 

(650)

 

 

 

 

Net cash provided by (used in) operations

 

 

(10,905)

 

 

60,734

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from sales and redemptions of investments

 

 

1

 

 

6

 

Additions to property, plant and equipment

 

 

(16,312)

 

 

(14,512)

 

Proceeds from the sale of property, plant and equipment

 

 

412

 

 

106

 

Additions to purchased software

 

 

(515)

 

 

(104)

 

Thailand flood property insurance proceeds

 

 

-

 

 

550

 

Other

 

 

55

 

 

363

 

 

 

 

Net cash used in investing activities

 

 

(16,359)

 

 

(13,591)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from stock options exercised

 

 

821

 

 

5,811

 

Excess tax benefit from stock-based compensation

 

 

328

 

 

426

 

Principal payments on capital lease obligations

 

 

(155)

 

 

(132)

 

Share repurchases

 

 

(15,778)

 

 

(4,537)

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(14,784)

 

 

1,568

Effect of exchange rate changes

 

 

(1,732)

 

 

(72)

Net increase (decrease) in cash and cash equivalents

 

 

(43,780)

 

 

48,639

 

Cash and cash equivalents at beginning of year

 

 

427,376

 

 

345,555

 

Cash and cash equivalents at end of period

 

$

383,596

 

$

394,194

See accompanying notes to condensed consolidated financial statements.

7


 

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 industrial control equipment (including equipment for the aerospace and defense industries), telecommunication equipment, computers and related products for business enterprises, medical devices, and testing and instrumentation products. 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 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, 2014 (the 2014 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. Actual results could differ from those estimates.

 

Certain reclassifications of prior period amounts have been made to conform to the current presentation.

 

Note 2 – Stock-Based Compensation

The Benchmark Electronics, Inc. 2000 Stock Awards Plan (the 2000 Plan) authorized, and 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, 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 2010, and no additional grants can be made under that plan. The 2010 Plan was approved by the Company’s shareholders in 2010 and amended in 2014. 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) or 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 2002 and expired in 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 on the grant date. As of March 31, 2015, 3.8 million additional common shares were available for issuance under the Company’s existing plans.

 

8 


 

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 $1.9 million and $1.4 million for the three months ended March 31, 2015 and 2014, respectively. The total income tax benefit recognized in the condensed consolidated income statement for stock-based awards was $0.6 million and $0.6 million for the three months ended March 31, 2015 and 2014, 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, and performance-based restricted stock units 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. When it becomes probable, based on the Company’s expectation of performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense is recognized as a change in accounting estimate.

 

As of March 31, 2015, the unrecognized compensation cost and remaining weighted-average amortization period 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

$

6,008

 

$

552

 

$

8,990

 

$

3,289

Remaining weighted-average

 

 

 

 

 

 

 

 

 

 

 

  amortization period

2.3 years

 

0.9 years

 

3.0 years

 

2.2 years

 

 

 

 

 

 

 

 

 

 

 

 

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

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average assumptions used to value the options granted during the three months ended March 31, 2015 and 2014, were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

(in thousands)

 

 

2015

 

2014

Options granted

 

 

289

 

313

Expected term of options

 

 

6.4 years

 

7.0 years

Expected volatility

 

 

35%

 

39%

Risk-free interest rate

 

 

1.886%

 

1.998%

Dividend yield

 

 

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.

 

9 


 

The weighted-average fair value per option granted during the three months ended March 31, 2015 and 2014 was $8.76 and $9.74, respectively. The total cash received by the Company as a result of stock option exercises for the three months ended March 31, 2015 and 2014 was approximately $0.8 million and $5.8 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the three months ended March 31, 2015 and 2014 was $1.6 million and $1.8 million, respectively. For the three months ended March 31, 2015 and 2014, the total intrinsic value of stock options exercised was $0.3 million and $1.5 million, respectively.

 

The Company awarded performance-based restricted stock units to employees during the three months ended March 31, 2015 and 2014. 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.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Weighted-

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

Number of

 

 

Exercise

 

Contractual

 

Intrinsic

(in thousands, except per share data)

 

Options

 

 

Price

 

Term (Years)

 

Value

Outstanding as of December 31, 2014

 

2,437

 

$

20.07

 

 

 

 

Granted

 

289

 

$

23.14

 

 

 

 

Exercised

 

(46)

 

$

17.93

 

 

 

 

Forfeited or expired

 

(12)

 

$

22.76

 

 

 

 

Outstanding as of March 31, 2015

 

2,668

 

$

20.43

 

5.35

$

10,670

Exercisable as of March 31, 2015

 

1,859

 

$

20.09

 

3.48

$

8,389

 

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 March 31, 2015 for options that had exercise prices that were below the closing price.

 

The following table summarizes 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, 2014

 

109

 

$

16.33

Vested

 

(70)

 

$

16.85

Non-vested shares outstanding as of March 31, 2015

 

39

 

$

15.38

10 


 

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 awards outstanding as of December 31, 2014

 

412

 

$

20.33

Granted

 

168

 

$

23.14

Vested

 

(120)

 

$

19.57

Forfeited

 

(3)

 

$

20.04

Non-vested awards outstanding as of March 31, 2015

 

457

 

$

21.57

 

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, 2014

 

274

 

$

18.56

Granted(1)

 

76

 

$

23.14

Forfeited or expired

 

(53)

 

$

18.57

Non-vested units outstanding as of March 31, 2015

 

297

 

$

19.74

 

 

 

 

 

 

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

 

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. 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 excess 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

 

 

 

March 31,

(in thousands, except per share data)

 

 

2015

 

 

2014

Net income

 

$

14,205

 

$

19,125

 

 

 

 

 

 

 

 

Denominator for basic earnings per share -

 

 

 

 

 

 

 

weighted-average number of common

 

 

 

 

 

 

 

shares outstanding during the period

 

 

52,463

 

 

53,650

Incremental common shares attributable to

 

 

 

 

 

 

 

exercise of dilutive options

 

 

391

 

 

436

Incremental common shares attributable

 

 

 

 

 

 

 

to outstanding restricted shares and

 

 

 

 

 

 

 

restricted stock units

 

 

191

 

 

191

Denominator for diluted earnings per share

 

 

53,045

 

 

54,277

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.27

 

$

0.36

Diluted earnings per share

 

$

0.27

 

$

0.35

 

 

 

 

 

 

 

11 


 

 

Options to purchase 1.0  million common shares for each of the three months ended March 31, 2015 and 2014 were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

 

Note 4 – Goodwill and Other Intangible Assets

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

 

(in thousands)

 

Americas

 

Asia

 

Total

Goodwill at December 31, 2014 and March 31, 2015

$

7,868

$

38,102

$

45,970

 

 

 

 

 

 

 

 

Other assets consist primarily of acquired identifiable intangible assets and capitalized purchased software costs. Other intangible assets as of March 31, 2015 and December 31, 2014 were as follows:

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

(in thousands)

 

Amount

 

 

Amortization

 

 

Amount

Customer relationships

$

33,056

 

$

(16,813)

 

$

16,243

Technology licenses

 

11,300

 

 

(9,434)

 

 

1,866

Other

 

868

 

 

(195)

 

 

673

Other intangible assets, March 31, 2015

$

45,224

 

$

(26,442)

 

$

18,782

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

(in thousands)

 

Amount

 

 

Amortization

 

 

Amount

Customer relationships

$

33,188

 

$

(16,099)

 

$

17,089

Technology licenses

 

11,300

 

 

(9,434)

 

 

1,866

Other

 

868

 

 

(190)

 

 

678

Other intangible assets, December 31, 2014

$

45,356

 

$

(25,723)

 

$

19,633

 

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 three months ended March 31, 2015 and 2014 was $0.8 million and $0.9 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

2015 (remaining nine months)

$

3,178

2016

 

3,986

2017

 

2,099

2018

 

1,574

2019

 

1,574

12 


 

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 both March 31, 2015 and December 31, 2014, the Company had no borrowings outstanding under the Credit Agreement, $1.2 million in outstanding letters of credit and $198.8 million 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, 65% of the voting capital stock of each direct foreign subsidiary and substantially all of the 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 the Company’s ability to incur additional debt, pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. As of both March 31, 2015 and December 31, 2014, the Company was in compliance with all of these 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 2015. As of both March 31, 2015 and December 31, 2014, there were no working capital borrowings outstanding under the facility.

 

Note 6 – Inventories

Inventory costs are summarized as follows:

 

 

March 31,

 

 

December 31,

(in thousands)

 

2015

 

 

2014

Raw materials

$

286,261

 

$

266,556

Work in process

 

88,352

 

 

84,673

Finished goods

 

52,224

 

 

50,032

 

$

426,837

 

$

401,261

 

Note 7 – Income Taxes

Income tax expense (benefit) consists of the following:

 

Three Months Ended

 

March 31,

(in thousands)

 

2015

 

 

2014

Federal – Current

$

127

 

$

60

Foreign – Current

 

1,421

 

 

(29)

State – Current

 

77

 

 

48

Deferred

 

1,818

 

 

3,293

 

$

3,443

 

$

3,372

 

 

 

 

 

 

 

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

13 


 

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, 2016 in Malaysia and 2026 in Thailand, and are subject to certain conditions with which the Company expects to comply. The net impact of these tax incentives was to lower income tax expense for the three months ended March 31, 2015 and 2014 by approximately $1.7 million (approximately $0.03 per diluted share) and $3.2 million (approximately $0.06 per diluted share), respectively, as follows:

 

 

Three Months Ended

 

March 31,

(in thousands)

 

2015

 

 

2014

China

$

353

 

$

1,507

Malaysia

 

419

 

 

474

Thailand

 

962

 

 

1,253

 

$

1,734

 

$

3,234

 

 

 

 

 

 

 

As of March 31, 2015, the total amount of the reserve for uncertain tax benefits including interest and penalties was $18.0 million. The reserve is classified as a current or long-term liability in the condensed consolidated balance sheets based on the Company’s expectation of when the items will be settled. The amount of accrued potential interest and penalties, respectively, on unrecognized tax benefits included in the reserve as of March 31, 2015, was $1.7 million and $1.6 million. No material changes affected the reserve during the three months ended March 31, 2015.

 

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 2014. During the course of such examinations, disputes may occur as to matters of fact or law. Also, in most tax jurisdictions, the passage of time without examination will result in the expiration of applicable statutes of limitations thereby precluding examination of the tax period(s) for which such statute of limitation has expired. The Company believes that it has adequately provided for its tax liabilities.

14 


 

Note 8 – Segment and Geographic Information

The Company currently has manufacturing facilities in the United States, Mexico, Asia and Europe. 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

 

 

March 31,

(in thousands)

 

2015

 

2014

Net sales:

 

 

 

 

 

Americas

$

380,982

$

411,501

 

Asia

 

230,220

 

238,785

 

Europe

 

35,699

 

34,161

 

Elimination of intersegment sales

 

(25,976)

 

(45,103)

 

 

$

620,925

$

639,344

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

Americas

$

5,895

$

4,720

 

Asia

 

4,470

 

4,187

 

Europe

 

646

 

734

 

Corporate

 

1,127

 

1,157

 

 

$

12,138

$

10,798

 

 

 

 

 

 

Income from operations:

 

 

 

 

 

Americas

$

12,489

$

15,559

 

Asia

 

16,185

 

18,220

 

Europe

 

1,472

 

780

 

Corporate and intersegment eliminations

 

(11,438)

 

(12,127)

 

 

$

18,708

$

22,432

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

Americas

$

6,928

$

10,477

 

Asia

 

7,890

 

2,982

 

Europe

 

1,639

 

1,019

 

Corporate

 

370

 

138

 

 

$

16,827

$

14,616

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

Total assets:

 

 

 

 

 

Americas

$

669,503

$

712,588

 

Asia

 

670,253

 

666,717

 

Europe

 

240,276

 

239,274

 

Corporate and other

 

49,375

 

60,310

 

 

$

1,629,407

$

1,678,889

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

 

 

March 31,

(in thousands)

 

2015

 

2014

Geographic net sales:

 

 

 

 

 

United States

$

447,325

$

462,271

 

Asia

 

82,391

 

87,466

 

Europe

 

52,707

 

68,277

 

Other Foreign

 

38,502

 

21,330

 

 

$

620,925

$

639,344