Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report (this Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts and may include words such as “anticipate,” “believe,” “intend,” “plan,” “project,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” or the negative or other variations thereof. In particular, statements, express or implied, concerning future operating results, including guidance for third quarter 2021 results and beyond, our ability to generate sales, income or cash flow, the anticipated impact of the COVID-19 pandemic, our anticipated plans and responses to the COVID-19 pandemic, our expected revenue mix, our business strategy and strategic initiatives, our repurchases of shares of our common stock and our intentions concerning the payment of dividends, among others, are forward-looking statements. Although we believe these statements are based upon reasonable assumptions, they involve risks, uncertainties and assumptions that are beyond our ability to control or predict, relating to operations, markets and the business environment generally, including those discussed in Part I, Item 1A of the 2020 10-K and in any of our subsequent reports filed with the SEC. In particular, these statements also depend on the duration, severity and evolution of the COVID-19 pandemic and related risks, including the emergence and severity of its variants, the availability of vaccines and potential hesitancy to utilize them, government and other third-party responses to it and the consequences for the global economy, our business and the businesses of our suppliers and customers, as well as our ability (or inability) to execute on our plans to respond to the COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of our operations, may vary materially from those indicated. Undue reliance should not be placed on any forward-looking statements. Forward-looking statements are not guarantees of performance. The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes, and the 2020 10-K. All forward-looking statements included in this document are based upon information available to us as of the date of this document, and we assume no obligation to update them.
OVERVIEW
We are a worldwide provider of innovative product design services, engineering services, technology solutions and advanced manufacturing services (both electronic manufacturing services (EMS) and precision technology services). In this Report, references to Benchmark, the Company or use of the words “we”, “our” and “us” include Benchmark’s subsidiaries unless otherwise noted.
From initial product concept to volume production, including direct order fulfillment and aftermarket services, Benchmark has been providing integrated services and solutions to original equipment manufacturers (OEMs) since 1979. Today, Benchmark proudly serves the following industries: aerospace and defense (A&D), medical technologies, complex industrials, semiconductor capital equipment (semi-cap), next-generation telecommunications and advanced computing.
Our customer engagement focuses on three principal areas:
Design & Engineering Services, which include design for manufacturability, manufacturing process and test development, concurrent and sustaining engineering, turnkey product design and regulatory services. Our engineering services may be for systems, sub-systems, printed circuit boards and assemblies, and components. We provide these services across all the industries we serve, but focus primarily in regulated industries such as medical, complex industrials, A&D, and semi-cap.
Technology Solutions, which involve developing a library of building blocks or reference designs primarily in defense solutions, surveillance systems, radio frequency and high-speed design, and front-end managed connectivity data collection systems. We often merge these technology solutions with engineering services to provide turnkey product development from requirements through to volume production that we support with our manufacturing services. Our building blocks can be utilized across a variety of industries but we have significant capabilities in the A&D and the complex industrials markets. We have also developed differentiated capabilities in radio frequency (RF) and high-speed design for both components and substrates. The need to reduce size, weight, and power (SWaP) to accommodate high frequency electronics communications is important to customers in the A&D, medical, and next-generation telecommunications markets.
Manufacturing Services, which include printed circuit board assemblies (PCBAs) using both traditional surface mount technologies (SMT) and microelectronics, subsystem assembly, system build and integration. System builds and integration often involve building a finished assembly that includes PCBAs, complex subsystem assemblies, mechatronics, displays, optics, and other components. These final products may be configured to order and delivered directly to the end-customer across all the industries we serve. Manufacturing services also includes precision technology
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services comprised of precision machining, advanced metal joining, assembly and functional testing primarily for the semi-cap market (serving semiconductor capital equipment customers) and A&D market.
Our core strength lies in our ability to provide concept-to-production solutions in support of our customers. Our global manufacturing presence increases our ability to respond to our customers’ needs by providing accelerated time-to-market and time-to-volume production of high-quality products – especially for complex products with lower volume and higher mix in regulated markets with higher reliability requirements. These capabilities enable us to build strong strategic relationships with our customers and to become an integral part of their business.
We believe our primary competitive advantages are our leading edge technical capabilities in engineering services (including product design in which we can take a product idea from concept to design to volume manufacturing), technology solutions (especially high frequency RF solutions, microelectronics, and miniaturization), and manufacturing services (including electronics and complex precision machining capabilities) provided by highly skilled personnel. We also have diversified end market and regulated market experience in our targeted higher-value markets. To support customers in these markets, we have invested in strategic global supply chain design and execution.
In addition, we believe that a strong focus on human capital through the talent we hire and retain is critical to maintaining our competitiveness. We are driving a customer-centric organization with a high degree of accountability and ownership to develop processes necessary to exceed customer expectations and deliver financial performance aligned to our goals. Through our employee feedback process, we solicit and act upon information to improve our Company and better support our customers and business processes in the future. We have taken steps to attract the best leaders and are accelerating our efforts to increase our diversity and inclusion in our employee and management ranks as we seek to develop an innovative and forward thinking workforce for the future.
Our customers often face challenges in designing supply chains, demand planning, procuring materials and managing their inventories efficiently due to fluctuations in their customer demand, product design changes, short product life cycles and component price fluctuations.
We employ enterprise resource planning (ERP) systems and lean manufacturing principles to manage procurement and manufacturing processes in an efficient and cost-effective manner so that, where possible, components arrive on a just-in-time, as-and-when-needed basis. Because we are a significant purchaser of electronic components and other raw materials, we are able to capitalize on the economies of scale associated with our relationships with suppliers to negotiate price discounts, obtain components and other raw materials that are in short supply, and return excess components. Our agility and expertise in supply chain management and our relationships with suppliers across the supply chain enable us to help reduce our customers’ cost of goods sold and inventory exposure.
We recognize revenue as the customer takes control of the manufactured products built to customer specifications. We also generate revenue from our design, development and engineering services, in addition to the sale of other inventory.
Revenue is measured based on the consideration specified in a contract with a customer. Under the majority of our manufacturing contracts with customers, the customer controls all the work-in-progress as products are being built. Revenues under these contracts are recognized over time based on the cost-to-cost method. Under other manufacturing contracts, the customer does not take control of the product until it is completed. Under these contracts, we recognize revenue upon transfer of control of product to the customer, which is generally when the goods are shipped. Revenue from engineering services that include design and development elements also continues to be recognized over time as the services are performed. As a general matter, we assume no significant obligations after shipment as we typically warrant workmanship only. Therefore, the warranty provisions are generally not significant.
COVID-19 Pandemic Update
In late 2019, there was an outbreak of a new strain of coronavirus (COVID-19) first identified in Wuhan, Hubei Province, China, which has since spread globally. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Further, the COVID-19 outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, “shelter-in-place,” “stay-at-home,” and total lock-down orders, business limitations or shutdowns and similar orders. As a result, the COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, and created significant volatility and disruption of financial markets. In an effort to first and foremost protect the health and safety of our employees, we also took proactive action to adopt social distancing policies at our locations globally, including working from home for certain employees, limiting the number of employees attending meetings, reducing the number of people in our locations at any one time, and significantly limiting employee travel. More recently, a new, more contagious variant of COVID-19 (the Delta Variant) has spread globally, which has caused some governments
21
to reimplement various measures to reduce the spread. It is unclear at this point the full impact the Delta Variant will have on the global economy and on our Company.
As a result of the COVID-19 pandemic, our revenue during 2020 was negatively impacted primarily as a result of operational inefficiencies relating to reduced productivity levels throughout our facilities and supply chain constraints, which affected our ability to support customer demand. Additionally, the COVID-19 pandemic negatively impacted our 2020 results due to increased direct costs associated with labor expenses and personal protective equipment for our employees, as well as under absorption of fixed costs.
Benchmark provides critical infrastructure products and essential services in each of our locations, which has allowed us to continue to operate. The COVID-19 pandemic continues to affect the Company’s operations into 2021. End market demand continues to grow as more customers recover from the pandemic. However, we continue to see component supply chain constraints across all commodity categories. In the second quarter of 2021, the supply chain environment was also adversely impacted due to rising COVID-19 cases in Malaysia. As a result of the increasing cases, the Malaysian government mandated reduced staffing at our Penang, Malaysia operation through most of the second quarter. Government restrictions have recently eased now allowing increased workforce capacity and we are managing through reduced staffing and intermittent work stoppages to keep our employees healthy and maximize production.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in the United States in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021, and contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The Company evaluated the impact of these provisions and determined these provisions did not have any impact on the year ended December 31, 2020 or the six months ended June 30, 2021. In addition, the CARES Act allows for employee retention tax credits to be taken in U.S. payroll tax filings and allows for the deferral of the employer portion of social security taxes with 50% to be paid at the end of calendar years 2021 and 2022, respectively. Accordingly, the Company has deferred the payment of the employer portion of social security taxes for the year ended December 31, 2020 until the end of 2021 and 2022, respectively. The Company has also determined it was entitled to employee retention credits and filed for the credits in the second quarter 2020 payroll tax reports pursuant to the guidance provided by the Internal Revenue Service. The amount of credits has been recorded in operating expenses for the year ended December 31, 2020. The Company has determined that it is not eligible for employee retention tax credits as of June 30, 2021, and the deferral of the employer portion of social security taxes is not available for 2021.
We continue to monitor the evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, the exact extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations, is currently unknown and will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the COVID-19 pandemic, its severity, the actions to contain the virus or treat its impact, including the availability and efficacy of vaccinations (particularly with respect to emerging strains of the virus) and the rate of inoculations, and how quickly and to what extent normal economic and operating conditions can resume, which may not return fully to pre-pandemic levels.
Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. See “Risk Factors” in Part I, Item 1A of our 2020 10-K for additional risks we face due to the COVID-19 pandemic.
Second Quarter 2021 Highlights
Sales for the three months ended June 30, 2021 were $544.7 million, an 11% increase from sales of $491.0 million during the three months ended June 30, 2020. During the second quarter of 2021, sales to customers in our various industry sectors fluctuated from the second quarter of 2020 as follows:
Higher-Value Markets
Industrials increased by 15%,
A&D increased by 9%,
Medical decreased by 19%, and
Semi-cap increased by 60%.
Traditional Markets
Computing decreased by 10%, and
Telecommunications increased by 21%.
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Higher-value market revenues were up 12% year-over-year from strength in A&D, Industrials and Semi-cap, partially offset by a decrease in Medical. Traditional market revenues were up 7% year-over-year from strength in the Telecommunications market.
Our sales depend on the success of our customers, some of which operate in businesses associated with rapid technological change and consequent product obsolescence. Developments adverse to our major customers or their products, the availability of electronic component supply, or the failure of a major customer to pay for components or services, including in each case as a result of the COVID-19 pandemic, can adversely affect us. A substantial percentage of our sales are made to a small number of customers, and the loss of a major customer, if not replaced, would adversely affect us. Sales to our ten largest customers represented 46% and 43% of our sales during the six months ended June 30, 2021 and 2020, respectively.
For the three and six months ended June 30, 2021, lead times continue to extend, and more components are being placed on allocation by suppliers. Several commodities were impacted, yet semiconductors remain the most constrained. We are maintaining close alignment with our suppliers and distributors to minimize disruptions to existing orders and to secure supply in support of customer demand increases. In some cases, we are actively working with customers to replan mix and redesign some products to enable alternate component sourcing. In general, our ability to fulfill upside demand is challenging due to component constraints.
We experience fluctuations in gross profit from period to period. Different programs contribute different gross profits depending on the type of services involved, location of production, size of the program, complexity of the product and level of material costs associated with the various products. Moreover, new programs can contribute relatively less to our gross profit in their early stages when manufacturing volumes are usually lower, resulting in inefficiencies and unabsorbed manufacturing overhead costs. In addition, a number of our new program ramps remain subject to competitive constraints that can exert downward pressure on our margins. During periods of low production volume, we generally have idle capacity and reduced gross profit.
We have undertaken initiatives to restructure our business operations with the intention of improving utilization and reducing costs. During the first six months of 2021, we recognized $3.2 million of restructuring and other costs due in part to expenses associated with various site closures and restructuring activities.
RESULTS OF OPERATIONS
The following table presents the percentage relationship that certain items in our condensed consolidated statements of income (loss) bear on sales for the periods indicated. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and Notes thereto in Part I, Item 1 of this Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
91.2
|
|
|
|
92.9
|
|
|
|
91.4
|
|
|
|
92.2
|
|
|
Gross profit
|
|
|
8.8
|
|
|
|
7.1
|
|
|
|
8.6
|
|
|
|
7.8
|
|
|
Selling, general and administrative expenses
|
|
|
6.2
|
|
|
|
5.8
|
|
|
|
6.1
|
|
|
|
6.0
|
|
|
Amortization of intangible assets
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
Restructuring charges and other costs
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
0.3
|
|
|
|
0.9
|
|
|
Ransomware related incident costs (recovery), net
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
—
|
|
|
Income (loss) from operations
|
|
|
2.0
|
|
|
|
(0.4
|
)
|
|
|
2.2
|
|
|
|
0.5
|
|
|
Other expense, net
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
Income (loss) before income taxes
|
|
|
1.7
|
|
|
|
(0.8
|
)
|
|
|
1.8
|
|
|
|
0.1
|
|
|
Income tax expense (benefit)
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
0.0
|
|
|
Net income (loss)
|
|
|
1.4
|
%
|
|
|
(0.7
|
)%
|
|
|
1.5
|
%
|
|
|
0.0
|
%
|
23
Sales
As noted above, sales for the second quarter of 2021 increased 11% from the same quarter in 2020. Sales by industry sector were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
(in thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Higher-Value Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials
|
|
$
|
99,906
|
|
|
$
|
87,130
|
|
|
$
|
195,358
|
|
|
$
|
189,956
|
|
|
A&D
|
|
|
96,680
|
|
|
|
88,524
|
|
|
|
186,061
|
|
|
|
207,724
|
|
|
Medical
|
|
|
108,905
|
|
|
|
134,751
|
|
|
|
217,095
|
|
|
|
252,727
|
|
|
Semi-Cap
|
|
|
139,204
|
|
|
|
86,851
|
|
|
|
252,314
|
|
|
|
169,571
|
|
|
|
|
|
444,695
|
|
|
|
397,256
|
|
|
|
850,828
|
|
|
|
819,978
|
|
|
Traditional Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computing
|
|
|
39,598
|
|
|
|
43,853
|
|
|
|
83,284
|
|
|
|
80,454
|
|
|
Telecommunications
|
|
|
60,369
|
|
|
|
49,857
|
|
|
|
116,271
|
|
|
|
105,498
|
|
|
|
|
|
99,967
|
|
|
|
93,710
|
|
|
|
199,555
|
|
|
|
185,952
|
|
|
Total
|
|
$
|
544,662
|
|
|
$
|
490,966
|
|
|
$
|
1,050,383
|
|
|
$
|
1,005,930
|
|
Industrials. Second quarter 2021 sales increased 15% to $99.9 million from $87.1 million in the second quarter of 2020. Sales during the first six months of 2021 increased 3% to $195.4 million from $190.0 million in the same period of 2020. The increase was primarily due to improvements from building infrastructure and commercial construction programs.
Aerospace and Defense. Second quarter 2021 sales increased 9% to $96.7 million from $88.5 million in the second quarter of 2020. The increase was primarily due to strong demand in our defense programs for surveillance vehicles, secure communications and computing, and military satellite programs. Sales during the first six months of 2021 decreased 10% to $186.1 million from $207.7 million in the same period of 2020. The decrease was primarily due to a decline in customer demand in the commercial aerospace sector year over year.
Medical. Second quarter 2021 sales decreased 19% to $108.9 million from $134.8 million in the second quarter of 2020. Sales during the first six months of 2021 decreased 14% to $217.1 million from $252.7 million in the same period of 2020. The decrease was due to the reduction of demand in COVID specific programs and lack of end market demand recovery for certain customers.
Semiconductor Capital Equipment. Second quarter 2021 sales increased 60% to $139.2 million from $86.9 million in the second quarter of 2020. Sales during the first six months of 2021 increased 49% to $252.3 million from $169.6 million in the same period of 2020. The increase was primarily due to higher demand from our front-end wafer fabrication equipment customers. Our revenue in this sector is primarily precision machining and large electro-mechanical assembly, which were less impacted from global component shortages.
Computing. Second quarter 2021 sales decreased 10% to $39.6 million from $43.9 million in the second quarter of 2020. The decrease was primarily due to a high performance computing program that was expected to ramp in the second quarter of 2021 but was delayed to the second half of 2021. Sales during the first six months of 2021 increased 4% to $83.3 million from $80.5 million in the same period of 2020. The increase was primarily due to higher demand with existing customers.
Telecommunications. Second quarter 2021 sales increased 21% to $60.4 million from $49.9 million in the second quarter of 2020. Sales during the first six months of 2021 increased 10% to $116.3 million from $105.5 million in the same period of 2020. The increase was primarily due to strong demand from new and existing programs in commercial broadband and commercial satellites.
Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our 2020 10-K for factors pertaining to our international sales, fluctuations in foreign currency exchange rates and a discussion of potential adverse effects in operating results associated with the risks of doing business abroad. During the second quarter of 2021 and 2020, 56% and 50%, respectively, of our sales were from international operations.
Gross Profit
Gross profit increased 38.0% to $47.9 million in the second quarter of 2021 from $34.7 million in the second quarter of 2020. Gross profit increased 15.5% to $90.1 million for the first six months of 2021 from $78.0 million for the same period in 2020. Gross margin increased primarily due to higher revenues.
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Selling, General and Administrative (SG&A) Expenses
SG&A increased to $34.0 million in the second quarter of 2021 from $28.5 million in the second quarter of 2020, and increased to $64.6 for the first six months of 2021 from $60.1 for the same period of 2020. The increase was primarily due to due to higher variable compensation costs and U.S. medical expenses.
Amortization of Intangible Assets
Amortization of intangible assets was $1.6 million in the second quarter of 2021 and $2.4 million in the second quarter of 2020, and $3.2 million for the first six months of 2021 and $4.8 million for the same period in 2020. The decrease was primarily due to a fully amortized intangible asset as of December 31, 2020.
Restructuring Charges and Other Costs
During the first six months of 2021, we recognized $3.2 million of restructuring and other costs primarily due to expenses associated with announced site closures or exits, reduction in force and other restructuring activities primarily in the Americas. During the first six months of 2020, we recognized $7.3 million of restructuring charges, primarily related to site closures and restructuring activities in certain facilities in the Americas and Asia. In addition, during the first six months of 2020, we incurred $1.0 million in costs related to an asset impairment in Asia. See Note 12 to the condensed consolidated financial statements in Part I, Item 1 of this Report for additional information on our restructuring charges.
Ransomware Incident Related Costs, Net
During the fourth quarter ended December 31, 2019, ransomware incident related costs incurred totaled $12.7 million or $7.7 million, net of estimated insurance recoveries of $5.0 million. These costs were primarily comprised of certain employee related expenses and various third party consulting services, including forensic experts, legal counsel and other IT professional expenses. During the year ended December 31, 2020, we collected $6.6 million of insurance recoveries which include the $5.0 million of estimated insurance recoveries recorded in 2019 and an additional $1.6 million recorded in 2020. During the first six months of 2021, we collected an additional $3.4 million of insurance recoveries. As of June 30, 2021, the Company has collected insurance recoveries totaling $10.0 million. Further insurance recoveries will be recorded when realized or realizable.
Interest Expense
Interest expense increased to $4.2 million during the first six months of 2021 from $4.1 million during the same period of 2020.
Interest Income
Interest income decreased to $0.3 million in the first six months of 2021 from $0.9 million in the same period of 2020 due to lower invested cash equivalents and lower interest rates.
Income Tax Expense
Income tax expense of $3.6 million represented an 19.1% effective tax rate for the first six months of 2021, compared with $0.4 million for the same period of 2020 representing an effective tax rate of 45.8%. The higher effective tax rate in 2020 is the result of the overall loss before income taxes during the first six months of 2020 compared to the overall profit before income taxes during the first six months of 2021.
We have been granted certain tax incentives, including tax holidays, for our subsidiaries in Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through March 31, 2021 in Malaysia and 2028 in Thailand. See Note 8 to the condensed consolidated financial statements in Part I, Item 1 of this Report.
Net Income
We reported a net income of $15.3 million, or $0.42 per diluted share, for the first six months of 2021, compared with a net income of $0.4 million, or $0.01 per diluted share, for the same period in 2020. The net increase of $14.9 million in 2021 is primarily the result of items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our organic growth and operations through funds generated from operations and occasional borrowings under our revolving credit facility. Cash and cash equivalents and restricted cash totaled $370.4 million at June 30, 2021 and $396.0
25
million at December 31, 2020, of which $235.4 million and $207.3 million, respectively, were held outside the U.S. in various foreign subsidiaries.
Cash provided by operating activities was $40.3 million during the first six months of 2021. The cash provided by operations during 2021 consisted primarily of $15.3 million of net income, adjusted for $22.0 million of depreciation and amortization, a $92.7 million increase in accounts payable, a $19.0 million decrease in accounts receivable, and a $4.6 million increase in advance payments from customers, partially offset by an $88.6 million increase in inventories, an $11.9 million increase in contract assets, an $8.3 million increase in prepaids and other assets, and a $11.9 million decrease in accrued liabilities. Working capital was $0.7 billion at both June 30, 2021 and December 31, 2020.
We primarily purchase components only after customer orders or forecasts are received, which mitigates, but does not eliminate, the risk of loss on inventories. Supplies of electronic components and other materials used in operations are subject to industry-wide shortages. In certain instances, suppliers may allocate available quantities to us. If shortages of these components and other material supplies used in operations occur, vendors may not ship the quantities we need for production, and we may be forced to delay shipments, which can increase backorders and impact cash flows. In certain instances, we request and receive advance payments from customers as prepayments of inventory to meet working capital demands of a contract, offset inventory risks such as inventory purchased in advance of current needs and protect the Company from the failure of other parties to fulfill obligations under a contract. For example, as discussed above under “COVID-19 Pandemic Update,” we have been impacted by supply chain constraints, including shortages, longer lead times and increased transit times.
Cash used in investing activities was $18.4 million during the first six months of 2021 primarily due to purchases of additional property, plant and equipment totaling $16.7 million. The purchases of property, plant and equipment were primarily for machinery and equipment in the Americas.
Cash used in financing activities was $49.1 million during the first six months of 2021. Principal payments on the Credit Agreement (as defined below) and finance lease obligations totaled $3.8 million and $0.8 million, respectively, share repurchases totaled $30.3 million, dividends paid totaled $11.6 million, and we received $0.3 million from the exercise of stock options.
Under the terms of our $650.0 million credit agreement (Credit Agreement), in addition to the $150.0 million Term Loan facility, we have a $500.0 million five-year revolving credit facility to be used for general corporate purposes, both with a maturity date of July 20, 2023. The Credit Agreement includes an accordion feature pursuant to which total commitments under the facility may be increased by an additional $275.0 million, subject to satisfaction of certain conditions. As of June 30, 2021, we had $133.1 million in borrowings outstanding under the Term Loan facility, $3.9 million in letters of credit outstanding under our revolving credit facility, and $496.1 million remains available for future borrowings under the revolving credit facility, subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions. See Note 5 to the condensed consolidated financial statements in Part I, Item 1 of this Report for more information regarding the terms of the Credit Agreement.
The Credit Agreement contains certain financial covenants related to interest coverage and debt leverage, and certain customary affirmative and negative covenants, including restrictions on our ability to incur additional debt and liens, pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. Amounts due under the Credit Agreement could be accelerated upon specified events of default, including a failure to pay amounts due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject, in some cases, to cure periods. As of June 30, 2021, we were in compliance with all of these covenants and restrictions.
Our operations, and the operations of businesses we acquire, are subject to certain foreign, federal, state and local regulatory requirements relating to environmental, waste management, health and safety matters. We believe we operate in substantial compliance with all applicable requirements and we seek to ensure that newly acquired businesses comply or will comply substantially with applicable requirements. To date, the costs of compliance and workplace and environmental remediation have not been material to us. However, material costs and liabilities may arise from these requirements or from new, modified or more stringent requirements in the future. In addition, our past, current and future operations, and the operations of businesses we have or may acquire, may give rise to claims of exposure by employees or the public, or to other claims or liabilities relating to environmental, waste management or health and safety concerns.
As of June 30, 2021, we had cash and cash equivalents, including restricted cash, totaling $370.4 million and $496.1 million available for borrowings under the Credit Agreement, subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions.
During the next 12 months, we believe our capital expenditures will approximate $50 million to $60 million, principally for machinery and equipment to help increase our production capacity to support anticipated revenue growth and our ongoing business around the globe.
On March 6, 2018, our Board of Directors approved an expanded stock repurchase program granting us the authority to repurchase up to $250 million in common stock in addition to the $100 million approved on December 7, 2015. On October 26, 2018, the Board of
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Directors authorized an additional $100 million shares for repurchase above our existing program. On February 19, 2020, the Board of Directors authorized the repurchase of an additional $150 million of the Company’s common stock. During the six months ended June 30, 2021, we repurchased a total of 1.0 million common shares for an aggregate of $30.3 million at an average price of $30.06 per share. As of June 30, 2021, we had $173.9 million remaining under the share repurchase authorization to purchase additional shares. We are under no commitment or obligation to repurchase any particular amount of common stock.
The Company began declaring and paying quarterly dividends during the first quarter of 2018. In February 2020, the Board of Directors approved a quarterly dividend increase, raising the quarterly dividend from $0.15 to $0.16 per common share. In May 2021, the Board of Directors approved a quarterly dividend increase, raising the quarterly dividend from $0.16 to $0.165 per common share. During the first six months of 2021 and 2020, cash dividends paid totaled $11.6 million and $11.4 million, respectively. On June 15, 2021, the Company declared a quarterly cash dividend of $0.165 per share of the Company’s common stock to shareholders of record as of June 30, 2021. The dividend of $5.9 million was paid on July 14, 2021. The Board of Directors currently intends to continue paying quarterly dividends. However, the Company’s future dividend policy is subject to the Company’s compliance with applicable law, and depends on, among other things, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the Board of Directors may deem relevant, including the impact of the COVID-19 pandemic. Dividend payments are not mandatory or guaranteed; there can be no assurance that the Company will continue to pay a dividend in the future.
Management believes that our existing cash balances and funds generated from operations will be sufficient to permit us to meet our liquidity requirements over the next 12 months. Management further believes that our ongoing cash flows from operations and any borrowings we may incur under our revolving credit facility will enable us to meet operating cash requirements in future years. If we consummated significant acquisitions in the future, our capital needs would increase and could possibly result in our need to increase available borrowings under our Credit Agreement or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on acceptable terms.
CONTRACTUAL OBLIGATIONS
We have certain contractual obligations for operating and capital leases that were summarized in a table of Contractual Obligations in our 2020 10-K. There have been no material changes to our contractual obligations, outside of the ordinary course of our business, since December 31, 2020.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND RECENTLY ENACTED ACCOUNTING PRINCIPLES
Management’s discussion and analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. See Note 2 to the condensed consolidated financial statements in Part 1, Item 1 of this Report for a discussion of recently enacted accounting principles. Also, our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements included in our 2020 10-K.