NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED APRIL 4, 2020 AND MARCH 30, 2019
Unaudited
1. Basis of Presentation
Basis of Presentation:
The accompanying Condensed Consolidated Financial Statements included herein have been prepared by Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”) without audit and pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The accompanying Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the consolidated financial position of the Company as of April 4, 2020 and September 28, 2019, the results of operations and shareholders' equity for the three and six months ended April 4, 2020 and March 30, 2019, and the cash flows for the same six month periods.
The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. Fiscal 2020 includes 53 weeks; therefore, the first quarter of fiscal 2020 included 14 weeks while all other fiscal quarters presented herein included 13 weeks.
Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the SEC’s rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2019 Annual Report on Form 10-K.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and notes thereto. The full extent to which the COVID-19 outbreak will impact the Company's business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted. The Company has considered information available as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
Recently Adopted Accounting Pronouncements:
In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue relating to contracts with customers that depicts the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services ("Topic 606"). On September 30, 2018, the Company adopted and applied Topic 606 to all contracts using the modified retrospective method of adoption. Upon adoption, the Company recognized an increase to its fiscal 2019 beginning Retained earnings balance of $7.8 million.
In February 2016, the FASB issued ASU 2016-02 (“Topic 842”), which is intended to improve financial reporting of lease transactions by requiring lessees to recognize most leases as a right-of-use (“ROU”) asset and lease liability on their balance sheets for the rights and obligations created by leases, but record expenses on their income statements in a similar manner. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. ASU 2016-02 also requires disclosures regarding the amount, timing and judgments related to accounting for an entity’s leases and related cash flows.
On September 29, 2019, the Company adopted Topic 842 using the modified retrospective method of adoption, which allows financial information for comparative periods prior to adoption not to be updated. The Company recognized right-of-use assets and operating lease liabilities on its Consolidated Balance Sheets, but the standard did not have a material impact on its Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows.
ASC 842 provides optional practical expedients to assist with transition to the new standard. Management elected the package of practical expedients offered, which allows entities to not reassess: (i) whether any contracts prior to the adoption date are or contain leases, (ii) lease classification, and (iii) whether capitalized initial direct costs continue to meet the definition of initial
direct costs under the new guidance. For all new and modified leases after adoption, management elected the short-term lease recognition exemption for all of the Company’s leases that qualify, in addition to the practical expedient to not separate lease and nonlease components. Refer to Note 7, "Leases," for further information.
In August 2017, the FASB issued ASU 2017-12 related to the accounting for hedging activities. The pronouncement expands and refines hedge accounting, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The Company adopted this guidance during the first quarter of fiscal 2020 with no material impact to the Company's Consolidated Financial Statements; however, the impact of the new standard on future periods will depend on the facts and circumstances of future transactions.
Recently Issued Accounting Pronouncements Not Yet Adopted:
In June 2016, the FASB issued ASU 2016-13, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and required consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company beginning in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is currently in the process of assessing the impact of the adoption of the new standard on its Consolidated Financial Statements.
In March 2020, the FASB issued ASU 2020-04, which provides guidance in accounting for contracts, hedging relationships, and other transactions that are affected by reference rate reform. The optional expedients and exceptions in this guidance are allowed to be applied by the Company starting with the second quarter of fiscal year 2020. The Company is currently in the process of assessing the impacts of the adoption on its Consolidated Financial Statements.
The Company believes that no other recently issued accounting standards will have a material impact on its Consolidated Financial Statements, or apply to its operations.
2. Inventories
Inventories as of April 4, 2020 and September 28, 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
Raw materials
|
|
$
|
634,357
|
|
|
$
|
577,545
|
|
Work-in-process
|
|
59,021
|
|
|
49,315
|
|
Finished goods
|
|
72,440
|
|
|
74,078
|
|
Total inventories, net
|
|
$
|
765,818
|
|
|
$
|
700,938
|
|
In certain circumstances, per contractual terms, customer deposits are received by the Company to offset obsolete and excess inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed Consolidated Balance Sheets as of April 4, 2020 and September 28, 2019 was $131.7 million and $136.5 million, respectively.
3. Debt, Finance Lease Obligations and Other Financing
Debt, finance lease obligations and other financing as of April 4, 2020 and September 28, 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
4.05% Senior Notes, due June 15, 2025
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
4.22% Senior Notes, due June 15, 2028
|
|
50,000
|
|
|
50,000
|
|
Borrowings under the credit facility
|
|
101,000
|
|
|
95,000
|
|
Finance lease and other financing obligations
|
|
44,574
|
|
|
44,492
|
|
Unamortized deferred financing fees
|
|
(1,367
|
)
|
|
(1,512
|
)
|
Total obligations
|
|
294,207
|
|
|
287,980
|
|
Less: current portion
|
|
(107,880
|
)
|
|
(100,702
|
)
|
Long-term debt and finance lease obligations, net of current portion
|
|
$
|
186,327
|
|
|
$
|
187,278
|
|
On June 15, 2018, the Company entered into a Note Purchase Agreement (the “2018 NPA”) pursuant to which it issued an aggregate of $150.0 million in principal amount of unsecured senior notes, consisting of $100.0 million in principal amount of 4.05% Series A Senior Notes, due on June 15, 2025, and $50.0 million in principal amount of 4.22% Series B Senior Notes, due on June 15, 2028 (collectively, the “2018 Notes”), in a private placement. The 2018 NPA includes customary operational and financial covenants with which the Company is required to comply, including, among others, maintenance of certain financial ratios such as a total leverage ratio and a minimum interest coverage ratio. The 2018 Notes may be prepaid in whole or in part at any time, subject to payment of a make-whole amount; interest on the 2018 Notes is payable semiannually. As of April 4, 2020, the Company was in compliance with the covenants under the 2018 NPA.
On May 15, 2019, the Company refinanced its then-existing senior unsecured revolving credit facility (the "Prior Credit Facility") by entering into a new 5-year senior unsecured revolving credit facility (collectively with the Prior Credit Facility, referred to as the "Credit Facility"), which expanded the maximum commitment from $300.0 million to $350.0 million and extended the maturity from July 5, 2021 to May 15, 2024. The maximum commitment under the Credit Facility may be further increased to $600.0 million, generally by mutual agreement of the Company and the lenders, subject to certain customary conditions. During the six months ended April 4, 2020, the highest daily borrowing was $164.5 million; the average daily borrowings were $122.2 million. The Company borrowed $333.7 million and repaid $327.7 million of revolving borrowings under the Credit Facility during the six months ended April 4, 2020. As of April 4, 2020, the Company was in compliance with all financial covenants relating to the Credit Facility, which are generally consistent with those in the 2018 NPA previously discussed. The Company is required to pay a commitment fee on the daily unused revolver credit commitment based on the Company's leverage ratio; the fee was 0.125% as of April 4, 2020. To further ensure our ability to meet our working capital and fixed capital requirements, the Company entered into Amendment No. 1 to the Credit Facility on April 29, 2020, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”) in response to the COVID-19 outbreak. The agreement amended the Credit Facility among the Company, the other subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto and the Agent (the “Existing Credit Facility”; the Existing Credit Facility as amended by the Amendment, the “Credit Facility”). Refer to Note 17, "Subsequent Event," for further information regarding the Amendment.
The fair value of the Company’s debt, excluding finance leases, was $249.5 million and $252.3 million as of April 4, 2020 and September 28, 2019, respectively. The carrying value of the Company's debt, excluding finance leases and other financing obligations, was $251.0 million and $245.0 million as of April 4, 2020 and September 28, 2019, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives," for further information regarding the Company's fair value calculations and classifications.
4. Derivatives
All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations, in addition to non-designated hedges to manage foreign currency exposures
associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes.
The Company designates some foreign currency exchange contracts as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $4.9 million of unrealized losses, net of tax, related to cash flow hedges will be reclassified from other comprehensive (loss) income into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive (Loss) Income.
The Company enters into forward currency exchange contracts for its operations in Malaysia and Mexico on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $79.8 million as of April 4, 2020, and $80.0 million as of September 28, 2019. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a $4.9 million liability as of April 4, 2020, and a $0.6 million liability as of September 28, 2019.
The Company had additional forward currency exchange contracts outstanding as of April 4, 2020, with a notional value of $23.8 million; there were $34.4 million such contracts outstanding as of September 28, 2019. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net." The total fair value of these derivatives was a $0.4 million liability as of April 4, 2020, and a $0.9 million asset as of September 28, 2019.
The tables below present information regarding the fair values of derivative instruments and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments (in thousands)
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
Derivatives designated as hedging instruments
|
|
Balance sheet
classification
|
|
Fair Value
|
|
Fair Value
|
|
Balance sheet
classification
|
|
Fair Value
|
|
Fair Value
|
Foreign currency forward contracts
|
|
Prepaid expenses and other
|
|
$
|
—
|
|
|
$
|
156
|
|
|
Other accrued liabilities
|
|
$
|
4,902
|
|
|
$
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments (in thousands)
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
Derivatives not designated as hedging instruments
|
|
Balance sheet
classification
|
|
Fair Value
|
|
Fair Value
|
|
Balance sheet
classification
|
|
Fair Value
|
|
Fair Value
|
Foreign currency forward contracts
|
|
Prepaid expenses and other
|
|
$
|
119
|
|
|
$
|
912
|
|
|
Other accrued liabilities
|
|
$
|
512
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive (Loss) Income ("OCL") (in thousands)
|
for the Three Months Ended
|
Derivatives in cash flow hedging relationships
|
|
Amount of (Loss) Gain Recognized in OCL on Derivatives
|
|
April 4, 2020
|
|
March 30, 2019
|
Foreign currency forward contracts
|
|
$
|
(6,325
|
)
|
|
$
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Impact on Gain (Loss) Recognized in Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands)
|
for the Three Months Ended
|
Derivatives in cash flow hedging relationships
|
|
Classification of Gain (Loss) Reclassified from Accumulated OCL into Income
|
|
Amount of Gain (Loss) Reclassified from Accumulated OCL into Income
|
|
|
April 4, 2020
|
|
March 30, 2019
|
Foreign currency forward contracts
|
|
Cost of sales
|
|
$
|
204
|
|
|
$
|
(670
|
)
|
Foreign currency forward contracts
|
|
Selling and administrative expenses
|
|
$
|
10
|
|
|
$
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
Location of (Loss) Gain Recognized on Derivatives in Income
|
|
Amount of (Loss) Gain on Derivatives Recognized in Income
|
|
|
April 4, 2020
|
|
March 30, 2019
|
Foreign currency forward contracts
|
|
Miscellaneous, net
|
|
$
|
(223
|
)
|
|
$
|
843
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive (Loss) Income ("OCL") (in thousands)
|
for the Six Months Ended
|
Derivatives in cash flow hedging relationships
|
|
Amount of (Loss) Gain Recognized in OCL on Derivatives
|
|
April 4, 2020
|
|
March 30, 2019
|
Foreign currency forward contracts
|
|
$
|
(4,140
|
)
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Impact on Gain (Loss) Recognized in Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands)
|
for the Six Months Ended
|
Derivatives in cash flow hedging relationships
|
|
Classification of Gain (Loss) Reclassified from Accumulated OCL into Income
|
|
Amount of Gain (Loss) Reclassified from Accumulated OCL into Income
|
|
|
April 4, 2020
|
|
March 30, 2019
|
Foreign currency forward contracts
|
|
Cost of sales
|
|
$
|
177
|
|
|
$
|
(1,354
|
)
|
Foreign currency forward contracts
|
|
Selling and administrative expenses
|
|
$
|
(1
|
)
|
|
$
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
Location of (Loss) Gain Recognized on Derivatives in Income
|
|
Amount of (Loss) Gain on Derivatives Recognized in Income
|
|
|
April 4, 2020
|
|
March 30, 2019
|
Foreign currency forward contracts
|
|
Miscellaneous, net
|
|
$
|
(633
|
)
|
|
$
|
1,630
|
|
Fair Value Measurements:
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:
Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
The following table lists the fair values of liabilities of the Company’s derivatives as of April 4, 2020 and September 28, 2019, by input level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Input Levels (Liability)/Asset (in thousands)
|
April 4, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Derivatives
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
—
|
|
|
$
|
(5,295
|
)
|
|
$
|
—
|
|
|
$
|
(5,295
|
)
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
—
|
|
|
$
|
216
|
|
|
$
|
—
|
|
|
$
|
216
|
|
The fair value of foreign currency forward contracts is determined using a market approach, which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currency and interest rate forward curves.
5. Income Taxes
Income tax expense for the three and six months ended April 4, 2020 was $1.2 million and $4.4 million, respectively, compared to $3.9 million and $15.8 million for the three and six months ended March 30, 2019, respectively.
The effective tax rate for the three and six months ended April 4, 2020 was 8.2% and 9.1%, respectively, compared to the effective tax rates of 13.7% and 25.2% for the three and six months ended March 30, 2019, respectively. The effective tax rate for the three and six months ended April 4, 2020 decreased from the effective tax rate for the three and six months ended March 30, 2019, primarily due to the geographic distribution of pre-tax book income, the additional impact of the U.S. Tax Cuts & Jobs Act of $7.0 million recorded during the three months ended December 29, 2018, the $0.6 million tax benefit related to restructuring recorded during the three months ended April 4, 2020 and the $0.8 million benefit for special tax items recorded during the three months ended January 4, 2020. The $0.8 million benefit during the three months ended January 4, 2020 was comprised of a $1.9 million benefit related to guidance issued by the U.S. Department of the Treasury regarding foreign tax credits partially offset by $1.1 million of special tax items.
The Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 27, 2020. The Company does not expect a material impact from the law.
There were no material additions to the amount of unrecognized tax benefits recorded for uncertain tax positions as of April 4, 2020. The Company recognizes accrued interest and penalties on uncertain tax positions as a component of income tax expense. The amount of interest and penalties recorded for the three and six months ended April 4, 2020 was not material.
One or more uncertain tax positions may be settled within the next 12 months. Settlement of these matters is not expected to have a material effect on the Company's consolidated results of operations, financial position and cash flows. The Company is not currently under examination by taxing authorities in the U.S. The Company is under audit in various foreign jurisdictions but settlement is not expected to have a material impact.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. During the three months ended April 4, 2020, the Company continued to record a full valuation allowance against its net deferred tax assets in certain jurisdictions within the EMEA segment and a partial valuation against its net deferred tax assets in certain jurisdictions within the AMER segment, as it was more likely than not that these assets would not be fully realized based primarily on historical performance. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until it determines it is more likely than not that the deferred tax assets will be realized.
6. Earnings Per Share
The following is a reconciliation of the amounts utilized in the computation of basic and diluted earnings per share for the three and six months ended April 4, 2020 and March 30, 2019 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
April 4,
2020
|
|
March 30,
2019
|
|
April 4,
2020
|
|
March 30,
2019
|
Net income
|
|
$
|
12,926
|
|
|
$
|
24,758
|
|
|
$
|
43,932
|
|
|
$
|
46,984
|
|
Basic weighted average common shares outstanding
|
|
29,291
|
|
|
30,603
|
|
|
29,216
|
|
|
31,003
|
|
Dilutive effect of share-based awards and options outstanding
|
|
634
|
|
|
782
|
|
|
783
|
|
|
833
|
|
Diluted weighted average shares outstanding
|
|
29,925
|
|
|
31,385
|
|
|
29,999
|
|
|
31,836
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.81
|
|
|
$
|
1.50
|
|
|
$
|
1.52
|
|
Diluted
|
|
$
|
0.43
|
|
|
$
|
0.79
|
|
|
$
|
1.46
|
|
|
$
|
1.48
|
|
For the three and six months ended April 4, 2020, share-based awards for approximately 0.3 million and 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.
For both the three and six months ended March 30, 2019, share-based awards for approximately 0.1 million shares were not included in the computation of diluted earnings per share as they were antidilutive.
See also Note 12, "Shareholders' Equity," for information regarding the Company's share repurchase plans.
7. Leases
The Company’s lease portfolio includes both real estate and non-real estate type leases which are accounted for as either finance or operating leases. Real estate leases generally include office, warehouse and manufacturing facilities and non-real estate leases generally include office equipment and vehicles. The Company determines if a contract is or contains a lease at inception. The Company’s leases have remaining lease terms of less than 1 year to 41 years. Renewal options that are deemed reasonably certain are included as part of the lease term for purposes of calculating the right-of-use (“ROU”) assets and lease liability. Variable lease payments are generally expensed as incurred and include certain index-based changes in rent, certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. The Company elected the practical expedient to not separate lease and nonlease components, as such nonlease components are included in the calculation of the ROU asset and lease liability and included in the lease expense over the term of the lease. The Company uses a discount rate to calculate the ROU asset and lease liability. When the implicit rate is known or provided in the lease documents, the Company is required to use this rate. In cases in which the implicit rate is not known, the Company uses an estimated incremental borrowing rate.
Operating lease ROU assets and lease liabilities are recorded on the date the Company takes possession of the leased assets with expense recognized on a straight-line basis over the lease term. Leases with an estimated total term of 12 months or less are not recorded on the balance sheet and the lease expense is recognized on a straight-line basis over the lease term. Generally, the Company's lease agreements do not contain material residual value guarantees or material restrictive covenants.
Upon adoption of ASU 2016-02, the Company recorded $45.5 million of right-of-use assets and lease liabilities, related to its existing operating lease portfolio. The Company also reclassified amounts previously held on the balance sheet to operating right-of-use assets and operating lease liabilities upon adoption due to existing arrangements subject to the new standard, including $30.2 million of prepaid leases in other non-current assets. The accounting for the Company’s finance leases remained substantially unchanged. In addition, the company recognized a $1.1 million reduction to retained earnings as a result of two existing build-to-suit arrangements for the facilities in Guadalajara, Mexico that were reassessed to be finance leases under the new standard. The adoption of this new standard did not have a material impact on the Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Comprehensive (Loss) Income.
As a result of the adoption, the following adjustments were made to the opening balances of the Company's Condensed Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
Impacts due to adoption of Topic 842
|
|
September 29, 2019
|
ASSETS
|
|
|
|
|
|
Prepaid expenses and other
|
$
|
31,974
|
|
|
$
|
(170
|
)
|
|
$
|
31,804
|
|
Operating right-of-use assets
|
—
|
|
|
75,790
|
|
|
75,790
|
|
Property, plant and equipment, net
|
384,224
|
|
|
(1,833
|
)
|
|
382,391
|
|
Deferred income taxes
|
13,654
|
|
|
432
|
|
|
14,086
|
|
Other non-current assets
|
64,714
|
|
|
(30,193
|
)
|
|
34,521
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
Other accrued liabilities
|
$
|
106,461
|
|
|
$
|
7,939
|
|
|
$
|
114,400
|
|
Long-term debt and finance lease obligations, net of current portion
|
187,278
|
|
|
(207
|
)
|
|
187,071
|
|
Long-term operating lease liabilities
|
—
|
|
|
37,371
|
|
|
37,371
|
|
Retained earnings
|
1,178,677
|
|
|
(1,077
|
)
|
|
1,177,600
|
|
The components of lease expense for three and six months ended April 4, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
April 4, 2020
|
|
|
April 4, 2020
|
|
Finance lease expense:
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,075
|
|
|
$
|
2,269
|
|
Interest on lease liabilities
|
|
1,211
|
|
|
2,502
|
|
Operating lease expense
|
|
2,898
|
|
|
6,079
|
|
Other lease expense
|
|
1,139
|
|
|
1,259
|
|
Total
|
|
$
|
6,323
|
|
|
$
|
12,109
|
|
Based on the nature of the ROU asset, amortization of finance right-of-use assets, operating lease expense and other lease expense are recorded within either cost of goods sold or selling and administrative expenses and interest on finance lease liabilities is recorded within interest expense on the Condensed Consolidated Statements of Comprehensive (Loss) Income. Other lease expense includes lease expense for leases with an estimated total term of twelve months or less and variable lease expense related to variations in lease payments as a result of a change in factors or circumstances occurring after the lease possession date.
The following tables sets forth the amount of lease assets and lease liabilities included in the Company’s Condensed Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
Financial Statement Line Item
|
April 4, 2020
|
|
ASSETS
|
|
|
Finance lease assets
|
Property, plant and equipment, net
|
$
|
36,227
|
|
Operating lease assets
|
Right-of-use operating lease assets
|
74,371
|
|
Total lease assets
|
|
$
|
110,598
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
Current
|
|
|
Finance lease liabilities
|
Current portion of long-term debt and finance lease obligations
|
$
|
2,372
|
|
Operating lease liabilities
|
Other accrued liabilities
|
8,545
|
|
Non-current
|
|
|
Finance lease liabilities
|
Long-term debt and finance lease obligations, net of current portion
|
36,532
|
|
Operating lease liabilities
|
Long-term operating lease liabilities
|
39,617
|
|
Total lease liabilities
|
|
$
|
87,066
|
|
Other information related to the Company’s leases was as follows:
|
|
|
|
|
|
|
April 4, 2020
|
|
Weighted-average remaining lease term (in years)
|
|
|
Finance leases
|
|
13.4
|
|
Operating leases
|
|
18.3
|
|
Weighted-average discount rate
|
|
|
Finance leases
|
|
17.8
|
%
|
Operating leases
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
April 4, 2020
|
|
|
April 4, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities (in thousands)
|
|
|
|
|
Operating cash flows used in finance leases
|
|
$
|
1,125
|
|
|
$
|
2,249
|
|
Operating cash flows used in operating leases
|
|
2,659
|
|
|
5,838
|
|
Finance cash flows used in finance leases
|
|
845
|
|
|
1,564
|
|
ROU assets obtained in exchange for lease liabilities (in thousands)
|
|
|
|
|
Operating leases
|
|
$
|
6
|
|
|
$
|
7,509
|
|
Finance leases
|
|
83
|
|
|
357
|
|
Future minimum lease payments required under finance and operating leases as of April 4, 2020, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
Finance leases
|
Remaining 2020
|
|
$
|
5,241
|
|
|
$
|
3,602
|
|
2021
|
|
8,710
|
|
|
6,535
|
|
2022
|
|
7,950
|
|
|
6,068
|
|
2023
|
|
7,532
|
|
|
5,321
|
|
2024
|
|
5,936
|
|
|
4,993
|
|
2025 and thereafter
|
|
20,362
|
|
|
98,771
|
|
Total minimum lease payments
|
|
55,731
|
|
|
125,290
|
|
Less: imputed interest
|
|
(7,569
|
)
|
|
(86,386
|
)
|
Present value of lease liabilities
|
|
$
|
48,162
|
|
|
$
|
38,904
|
|
As of April 4, 2020, the Company’s future operating leases that have not yet commenced are immaterial.
Future minimum lease payments required under long-term operating and capital leases as of September 28, 2019, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
Capital leases
|
2020
|
|
$
|
10,395
|
|
|
$
|
6,734
|
|
2021
|
|
6,554
|
|
|
3,490
|
|
2022
|
|
5,584
|
|
|
2,884
|
|
2023
|
|
5,153
|
|
|
1,652
|
|
2024
|
|
3,713
|
|
|
958
|
|
Thereafter
|
|
9,426
|
|
|
34,143
|
|
Total
|
|
$
|
40,825
|
|
|
$
|
49,861
|
|
8. Share-Based Compensation
The Company recognized $5.8 million and $10.8 million of compensation expense associated with share-based awards for the three and six months ended April 4, 2020, respectively, and $5.2 million and $9.9 million for the three and six months ended March 30, 2019, respectively.
The Company uses the Black-Scholes valuation model to determine the fair value of stock options and stock-settled appreciation rights ("SARs"). The Company uses its stock price on grant date as the fair value assigned to restricted stock units ("RSUs").
Performance stock units ("PSUs") are payable in shares of the Company's common stock. PSUs vest based on the relative total shareholder return ("TSR") of the Company's common stock as compared to the companies in the Russell 3000 index, a market condition, and the Company's economic return performance during the three year performance period, a performance condition. The Company uses the Monte Carlo valuation model to determine the fair value of PSUs at the date of grant for PSUs that vest based on the relative TSR of the Company's common stock. The Company uses its stock price on grant date as the fair value assigned to PSUs that vest based on the Company's economic return performance. The number of shares that may be issued pursuant to PSUs ranges from zero to 0.6 million and is dependent upon the Company's TSR and economic return performance over the applicable performance periods.
The Company recognizes share-based compensation expense over the share-based awards' vesting period.
9. Litigation
The Company is party to lawsuits in the ordinary course of business. Management does not believe that these proceedings, individually or in the aggregate, will have a material positive or adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
10. Reportable Segments
Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in assessing performance and allocating resources. The Company uses an internal management reporting system, which provides important financial data to evaluate performance and allocate the Company’s resources on a regional basis. Net sales for the segments are attributed to the region in which the product is manufactured or the service is performed. The services provided, manufacturing processes used, class of customers serviced and order fulfillment processes used are similar and generally interchangeable across the segments. A segment’s performance is evaluated based upon its operating income (loss). A segment’s operating income (loss) includes its net sales less cost of sales and selling and administrative expenses, but excludes corporate and other expenses. Corporate and other expenses primarily represent corporate selling and administrative expenses, and restructuring costs and other charges, if any. These costs are not allocated to the segments, as management excludes such costs when assessing the performance of the segments. Inter-segment transactions are generally recorded at amounts that approximate arm’s length transactions. The accounting policies for the segments are the same as for the Company taken as a whole.
Information about the Company’s three reportable segments for the three and six months ended April 4, 2020 and March 30, 2019, respectively, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
April 4,
2020
|
|
March 30,
2019
|
|
April 4,
2020
|
|
March 30,
2019
|
Net sales:
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
334,454
|
|
|
$
|
364,490
|
|
|
$
|
687,930
|
|
|
$
|
718,357
|
|
APAC
|
|
387,845
|
|
|
378,441
|
|
|
838,987
|
|
|
756,553
|
|
EMEA
|
|
74,003
|
|
|
75,822
|
|
|
158,480
|
|
|
148,120
|
|
Elimination of inter-segment sales
|
|
(28,938
|
)
|
|
(29,702
|
)
|
|
(65,624
|
)
|
|
(68,435
|
)
|
|
|
$
|
767,364
|
|
|
$
|
789,051
|
|
|
$
|
1,619,773
|
|
|
$
|
1,554,595
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
AMER
|
|
$
|
289
|
|
|
$
|
14,230
|
|
|
$
|
12,586
|
|
|
$
|
28,680
|
|
APAC
|
|
49,874
|
|
|
48,704
|
|
|
112,252
|
|
|
100,515
|
|
EMEA
|
|
(544
|
)
|
|
(133
|
)
|
|
(858
|
)
|
|
863
|
|
Corporate and other costs
|
|
(32,410
|
)
|
|
(29,627
|
)
|
|
(66,837
|
)
|
|
(59,933
|
)
|
|
|
$
|
17,209
|
|
|
$
|
33,174
|
|
|
$
|
57,143
|
|
|
$
|
70,125
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(3,814
|
)
|
|
$
|
(3,145
|
)
|
|
$
|
(7,946
|
)
|
|
$
|
(5,394
|
)
|
Interest income
|
|
533
|
|
|
440
|
|
|
1,178
|
|
|
965
|
|
Miscellaneous, net
|
|
154
|
|
|
(1,773
|
)
|
|
(2,019
|
)
|
|
(2,885
|
)
|
Income before income taxes
|
|
$
|
14,082
|
|
|
$
|
28,696
|
|
|
$
|
48,356
|
|
|
$
|
62,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4,
2020
|
|
September 28,
2019
|
Total assets:
|
|
|
|
|
AMER
|
|
$
|
796,760
|
|
|
$
|
751,990
|
|
APAC
|
|
974,617
|
|
|
958,744
|
|
EMEA
|
|
242,040
|
|
|
209,541
|
|
Corporate and eliminations
|
|
81,781
|
|
|
80,608
|
|
|
|
$
|
2,095,198
|
|
|
$
|
2,000,883
|
|
|
|
|
|
|
11. Guarantees
The Company offers certain indemnifications under its customer manufacturing agreements. In the normal course of business, the Company may from time to time be obligated to indemnify its customers or its customers’ customers against damages or liabilities arising out of the Company’s negligence, misconduct, breach of contract, or infringement of third-party intellectual property rights. Certain agreements have extended broader indemnification, and while most agreements have contractual limits, some do not. However, the Company generally does not provide for such indemnities and seeks indemnification from its customers for damages or liabilities arising out of the Company’s adherence to customers’ specifications or designs or use of materials furnished, or directed to be used, by its customers. The Company does not believe its obligations under such indemnities are material.
In the normal course of business, the Company also provides its customers a limited warranty covering workmanship, and in some cases materials, on products manufactured by the Company. Such warranty generally provides that products will be free from defects in the Company’s workmanship and meet mutually agreed-upon specifications for periods generally ranging from 12 months to 24 months. The Company’s obligation is generally limited to correcting, at its expense, any defect by repairing or replacing such defective product. The Company’s warranty generally excludes defects resulting from faulty customer-supplied components, design defects or damage caused by any party or caused other than by the Company.
The Company provides for an estimate of costs that may be incurred under its limited warranty at the time product revenue is recognized and establishes additional reserves for specifically identified product issues. These costs primarily include labor and materials, as necessary, associated with repair or replacement and are included in the Company's accompanying Condensed Consolidated Balance Sheets in "other accrued liabilities." The primary factors that affect the Company’s warranty liability include the value and the number of shipped units and historical and anticipated rates of warranty claims. As these factors are impacted by actual experience and future expectations, the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Below is a table summarizing the activity related to the Company’s limited warranty liability for the six months ended April 4, 2020 and March 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
April 4,
2020
|
|
March 30,
2019
|
Reserve balance, beginning of period
|
|
$
|
6,276
|
|
|
$
|
6,646
|
|
Accruals for warranties issued during the period
|
|
1,554
|
|
|
2,374
|
|
Settlements (in cash or in kind) during the period
|
|
(1,466
|
)
|
|
(1,737
|
)
|
Reserve balance, end of period
|
|
$
|
6,364
|
|
|
$
|
7,283
|
|
12. Shareholders' Equity
On August 20, 2019, the Board of Directors approved a new stock repurchase plan under which the Company is authorized to repurchase $50.0 million of its common stock (the "2019 Program"). The 2019 Program commenced upon completion of the 2018 Program, as defined below. During the three months ended April 4, 2020, the Company repurchased 224,564 shares under the 2019 Program for $13.2 million at an average price of $58.57 per share. During the six months ended April 4, 2020, the Company repurchased 315,231 shares under the 2019 Program for $19.5 million at an average price of $61.81 per share. As of
April 4, 2020, $27.2 million of authority remained under the 2019 Program. The Company suspended indefinitely any share repurchases under the 2019 Program in March 2020 due to the uncertainties created by the COVID-19 outbreak.
On February 14, 2018, the Board of Directors approved a stock repurchase plan under which the Company was authorized to repurchase $200.0 million of its common stock (the "2018 Program"). During the three months ended March 30, 2019, the Company repurchased 991,683 shares under the 2018 Program for $56.2 million, at an average price of $56.72 per share. During the six months ended March 30, 2019, the Company repurchased 1,861,632 shares under the 2018 Program for $106.3 million, at an average price of $57.10 per share. The 2018 Program was completed during the fiscal fourth quarter of 2019, when all share repurchase authority under it was exhausted.
All shares repurchased under the aforementioned programs were recorded as treasury stock.
13. Trade Accounts Receivable Sale Programs
The Company has Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), and HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA"), under which the Company may elect to sell receivables at a discount. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of April 4, 2020 is $340.0 million. The maximum facility amount under the HSBC RPA as of April 4, 2020 is $60.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.
Transfers of receivables under the programs are accounted for as sales and, accordingly, receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows. Proceeds from the transfer reflect the face value of the receivables less a discount. The sale discount is recorded within "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive (Loss) Income in the period of the sale.
The Company sold $188.3 million and $241.9 million of trade accounts receivable under these programs during the three months ended April 4, 2020 and March 30, 2019, respectively, in exchange for cash proceeds of $187.4 million and $240.4 million, respectively.
The Company sold $416.1 million and $474.4 million of trade accounts receivable under these programs during the six months ended April 4, 2020 and March 30, 2019, respectively, in exchange for cash proceeds of $414.0 million and $471.6 million, respectively.
14. Revenue from Contracts with Customers
Significant Judgments
Revenue is recognized over time for arrangements with customers for which: (i) the Company's performance does not create an asset with an alternative use to the Company, and (ii) the Company has an enforceable right to payment, including reasonable profit margin, for performance completed to date. Revenue recognized over time is estimated based on costs incurred to date plus a reasonable profit margin. If either of the two conditions noted above are not met to recognize revenue over time, revenue is recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement.
The Company recognizes revenue when a contract exists and when, or as, it satisfies a performance obligation by transferring control of a product or service to a customer. Contracts are accounted for when they have approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.
The Company generally enters into a master services arrangement that establishes the framework under which business will be conducted. These arrangements represent the master terms and conditions of the Company's services that apply to individual orders, but they do not commit the customer to work with, or to continue to work with, the Company nor do they obligate the customer to any specific volume or pricing of purchases. Moreover, these terms can be amended in appropriate situations.
Customer purchase orders are received for specific quantities with predominantly fixed pricing and delivery requirements. Thus, for the majority of our contracts, there is no guarantee of any revenue to the Company until a customer submits a purchase order. As a result, the Company generally considers its arrangement with a customer to be the combination of the master services arrangement and the purchase order. Most of the Company's arrangements with customers create a single performance obligation as the promise to transfer the individual manufactured product or service is capable of being distinct.
The Company’s performance obligations are satisfied over time as work progresses or at a point in time. A performance obligation is satisfied over time if the Company has an enforceable right to payment, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and is assessed on a contract by contract basis.
Generally, there are no subjective customer acceptance requirements or further obligations related to goods or services provided; if such requirements or obligations exist, then a sale is recognized at the time when such requirements are completed and such obligations are fulfilled.
The Company does not allow for a general right of return. Net sales include amounts billed to customers for shipping and handling and out-of-pocket expenses. The corresponding shipping and handling costs and out-of-pocket expenses are included in cost of sales. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from net sales.
Contract Costs
For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date.
There were no other costs to obtain or fulfill customer contracts.
Disaggregated Revenue
The table below includes the Company’s revenue for the three and six months ended April 4, 2020 and March 30, 2019, respectively, disaggregated by geographic reportable segment and market sector (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
April 4, 2020
|
|
|
Reportable Segment:
|
|
|
AMER
|
|
APAC
|
|
EMEA
|
|
Total
|
Market Sector:
|
|
|
|
|
|
|
|
|
Healthcare/Life Sciences
|
|
$
|
117,143
|
|
|
$
|
118,033
|
|
|
$
|
35,804
|
|
|
$
|
270,980
|
|
Industrial/Commercial
|
|
87,260
|
|
|
182,582
|
|
|
16,961
|
|
|
286,803
|
|
Aerospace/Defense
|
|
96,197
|
|
|
42,933
|
|
|
18,356
|
|
|
157,486
|
|
Communications
|
|
30,828
|
|
|
19,994
|
|
|
1,273
|
|
|
52,095
|
|
External revenue
|
|
331,428
|
|
|
363,542
|
|
|
72,394
|
|
|
767,364
|
|
Inter-segment sales
|
|
3,026
|
|
|
24,303
|
|
|
1,609
|
|
|
28,938
|
|
Segment revenue
|
|
$
|
334,454
|
|
|
$
|
387,845
|
|
|
$
|
74,003
|
|
|
$
|
796,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 30, 2019
|
|
|
Reportable Segment:
|
|
|
AMER
|
|
APAC
|
|
EMEA
|
|
Total
|
Market Sector:
|
|
|
|
|
|
|
|
|
Healthcare/Life Sciences
|
|
$
|
125,434
|
|
|
$
|
141,655
|
|
|
$
|
32,547
|
|
|
$
|
299,636
|
|
Industrial/Commercial
|
|
94,208
|
|
|
131,808
|
|
|
24,220
|
|
|
250,236
|
|
Aerospace/Defense
|
|
75,854
|
|
|
47,752
|
|
|
16,904
|
|
|
140,510
|
|
Communications
|
|
67,681
|
|
|
29,984
|
|
|
1,004
|
|
|
98,669
|
|
External revenue
|
|
363,177
|
|
|
351,199
|
|
|
74,675
|
|
|
789,051
|
|
Inter-segment sales
|
|
1,313
|
|
|
27,242
|
|
|
1,147
|
|
|
29,702
|
|
Segment revenue
|
|
$
|
364,490
|
|
|
$
|
378,441
|
|
|
$
|
75,822
|
|
|
$
|
818,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
April 4, 2020
|
|
|
Reportable Segment:
|
|
|
AMER
|
|
APAC
|
|
EMEA
|
|
Total
|
Market Sector:
|
|
|
|
|
|
|
|
|
Healthcare/Life Sciences
|
|
$
|
241,339
|
|
|
$
|
267,758
|
|
|
$
|
74,170
|
|
|
$
|
583,267
|
|
Industrial/Commercial
|
|
179,181
|
|
|
381,928
|
|
|
35,694
|
|
|
596,803
|
|
Aerospace/Defense
|
|
201,686
|
|
|
86,182
|
|
|
41,740
|
|
|
329,608
|
|
Communications
|
|
58,794
|
|
|
48,685
|
|
|
2,616
|
|
|
110,095
|
|
External revenue
|
|
681,000
|
|
|
784,553
|
|
|
154,220
|
|
|
1,619,773
|
|
Inter-segment sales
|
|
6,930
|
|
|
54,434
|
|
|
4,260
|
|
|
65,624
|
|
Segment revenue
|
|
$
|
687,930
|
|
|
$
|
838,987
|
|
|
$
|
158,480
|
|
|
$
|
1,685,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
March 30, 2019
|
|
|
Reportable Segment:
|
|
|
AMER
|
|
APAC
|
|
EMEA
|
|
Total
|
Market Sector:
|
|
|
|
|
|
|
|
|
Healthcare/Life Sciences
|
|
$
|
241,199
|
|
|
$
|
293,761
|
|
|
$
|
65,254
|
|
|
$
|
600,214
|
|
Industrial/Commercial
|
|
177,926
|
|
|
248,079
|
|
|
43,373
|
|
|
469,378
|
|
Aerospace/Defense
|
|
138,227
|
|
|
89,846
|
|
|
34,902
|
|
|
262,975
|
|
Communications
|
|
158,145
|
|
|
60,959
|
|
|
2,924
|
|
|
222,028
|
|
External revenue
|
|
715,497
|
|
|
692,645
|
|
|
146,453
|
|
|
1,554,595
|
|
Inter-segment sales
|
|
2,860
|
|
|
63,908
|
|
|
1,667
|
|
|
68,435
|
|
Segment revenue
|
|
$
|
718,357
|
|
|
$
|
756,553
|
|
|
$
|
148,120
|
|
|
$
|
1,623,030
|
|
For both the three and six months ended April 4, 2020 and March 30, 2019, approximately 90% of the Company's revenue was recognized as products and services were transferred over time.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets, and deferred revenue on the Company’s accompanying Condensed Consolidated Balance Sheets.
Contract Assets: For performance obligations satisfied at a point in time, billing occurs subsequent to revenue recognition, at which point the customer has been billed and the resulting asset is recorded within accounts receivable. For performance obligations satisfied over time as work progresses, the Company has an unconditional right to payment, which results in the
recognition of contract assets. The following table summarizes the activity in the Company's contract assets for the six months ended April 4, 2020 and March 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
April 4,
2020
|
|
March 30,
2019
|
Contract assets, beginning of period
|
|
$
|
90,841
|
|
|
$
|
—
|
|
Cumulative effect adjustment at September 29, 2018
|
|
—
|
|
|
76,417
|
|
Revenue recognized during the period
|
|
1,460,580
|
|
|
1,393,777
|
|
Amounts collected or invoiced during the period
|
|
(1,440,144
|
)
|
|
(1,383,391
|
)
|
Contract assets, end of period
|
|
$
|
111,277
|
|
|
$
|
86,803
|
|
Deferred Revenue: Deferred revenue is recorded when consideration is received from a customer prior to transferring goods or services to the customer under the terms of the contract, which is included in other accrued liabilities. As of April 4, 2020 and September 28, 2019 the balance of prepayments from customers that remained in Other accrued liabilities was $80.0 million and $67.9 million, respectively. The advance payment is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract, offset obsolete and excess inventory risks and to protect the company from the other party failing to adequately complete some or all of its obligations under the contract. Deferred revenue is recognized into revenue when all revenue recognition criteria are met. For performance obligations satisfied over time, recognition will occur as work progresses; otherwise deferred revenue will be recognized based upon shipping terms.
15. Restructuring and Impairment Charges
Restructuring and impairment costs incurred in the Company's AMER segment primarily relate to the previously announced closure of our Boulder Design Center. These charges are recorded within restructuring and impairment charges on the Condensed Consolidated Statements of Comprehensive (Loss) Income. Restructuring liabilities are recorded within other accrued liabilities on the Condensed Consolidated Balance Sheets.
For the three and six months ended April 4, 2020, the Company incurred restructuring and impairment costs of $6.0 million, which consisted of the following:
|
|
•
|
$3.1 million of fixed asset and operating right-of-use asset impairment at the Company's Boulder Design Center; and
|
|
|
•
|
$2.9 million of severance from the reduction of the Company's workforce primarily at the Boulder Design Center.
|
The Company recognized a tax benefit of $0.6 million related to restructuring charges.
The Company's restructuring accrual activity for the three months ended April 4, 2020 is included in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Asset and Operating Right-of-Use Asset Impairment
|
|
Employee Termination and Severance Costs
|
|
Total
|
Accrual balance, January 4, 2020
|
|
$
|
—
|
|
|
$
|
447
|
|
|
$
|
447
|
|
Restructuring and impairment costs
|
|
3,054
|
|
|
2,949
|
|
|
6,003
|
|
Amounts utilized
|
|
(3,054
|
)
|
|
(2,049
|
)
|
|
(5,103
|
)
|
Accrual balance, April 4, 2020
|
|
$
|
—
|
|
|
$
|
1,347
|
|
|
$
|
1,347
|
|
There was no material restructuring activity for the three months ended January 4, 2020.
All impairment costs were expensed in the three months ended April 4, 2020. The restructuring accrual balance is expected to be utilized by the end of the fiscal fourth quarter of 2020.
16. Acquisition
On July 27, 2018, the Company purchased the assets of one of the business lines of Cascade Controls, Inc., a new product introduction company in Portland, Oregon, for $12.4 million in cash, subject to certain customary post-closing adjustments. In the three months ended December 29, 2018, the Company received a $1.2 million purchase price adjustment as a result of a post-closing adjustment.
17. Subsequent Event
To further ensure our ability to meet our working capital and fixed capital requirements, the Company entered into Amendment No. 1 to the Credit Facility on April 29, 2020, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent in response to the COVID-19 outbreak. The agreement amended the Credit Facility among the Company, the other subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto and the Agent. The Amendment amended certain provisions of the Existing Credit Facility to, among other things, provide for a $138 million unsecured delayed draw term loan facility. Subject to the prior reduction or termination of the term loan commitments in accordance with the Credit Facility, the term loan commitments will be available to the Company until July 28, 2020. Term loans borrowed under the new facility will be funded in a single draw and will mature on April 28, 2021. The proceeds of the term loans will be used to prepay outstanding revolving and swing line loans under the Credit Facility and for general corporate purposes of the Company and its subsidiaries. The Company subsequently drew the full amount of the unsecured delayed draw term loan facility.
Outstanding term loans will bear interest, at the Company’s option, at a eurocurrency rate plus a margin of 1.75% per annum or at a base rate plus a margin of 0.75% per annum. In addition, the Company is required to pay, on a quarterly basis, a ticking fee at a rate equal to 0.75% per annum on the average daily aggregate unused term loan commitments from the effective date of the Amendment to and including the date all of the term loan commitments are terminated in accordance with the terms of the Credit Facility.