Benchmark Electronics Inc (BHE) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Benchmark Electronics Second Quarter 2012 Earnings Call. At this time, all phone participants are in a listen-only mode. Later there will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Benchmark Electronics Chief Financial Officer, Don Adam. Please go ahead, sir.

Good morning, and welcome to the Benchmark Electronics Earnings Results Conference Call for the second quarter of 2012. After a few opening statements, I will turn the call over to Gayla Delly, our President and CEO, who will provide an overview of our performance during the second quarter, the state of our business, and the outlook for the third quarter. I will then follow with a review of our financial metrics. After our prepared remarks, Gayla and I will take time for your questions in our Q&A session. We will hold this call to one hour.

This morning during our conference call, we will be discussing forward-looking information that involves future events and the future financial performance of the Company. We would like to caution you that those statements reflect our current expectations, actual results, or actual events may differ materially from our projections.

We also would like to refer you to Benchmark's periodic reports that are filed from time to time with the Securities and Exchange Commission including the Company's 8-K and S-4 filings, quarterly filings on Forms 10-Q and our annual report on form 10-K. These documents contain cautionary language in identifying important risk factors that could cause actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update those projections or forward-looking statements in the future.

Now I will turn the call over to Gayla.

Thank you, Don. Good morning and thank you, everyone, for joining our call today. We are pleased with the second quarter improvements in a number of key areas which position us well for future growth.

I'll reflect on a few items from this morning's press release. Our second quarter revenues and EPS exceeded the high end of our guidance, with our operating margin percentage moving towards our near-term target of 4% with positive cash flow generation. Revenues were $630 million compared to our guidance of $595 million to $625 million for the second quarter. This represents a sequential 6% increase over Q1, and it also represents a year-over-year revenue increase of 8%.

Our earnings per share, excluding restructuring and Thailand flood-related charges, was $0.32 per share compared to our guidance of $0.26 to $0.30. The operating margin was 3.7% in Q2, excluding restructuring and Thai flood-related charges of $5 million, and this is compared to 3% in Q1. These results were supported by revenue growth, our continued focus on cost control, and the ongoing Thai recovery. All of these were supported by diligent focus by our global operations team. Importantly, we achieved these results while we supported several new program ramps during the quarter. As we and others in our industry have often noted, inefficiencies are associated with program ramps, and they are simply a fact in manufacturing, and we're no exception to this challenge.

Positive operating cash flow generation was $41 million for the quarter. Specifically, our working capital focus delivered strong improvements. Our inventory turns improved from 5.5 turns in the first quarter to 6 turns in the Q2 period. Our receivable days improved from 72 days in Q1 to 65 days in Q2. All in all, we had very strong operational execution and a strong second quarter.

We continue to drive toward our operating margin target of achieving 4% by the end of 2012. As discussed in our prior calls, our ability to achieve this operating margin target is dependent on both the volume of revenues and the revenue mix in our business. Mix is impacted not only by the industries that we serve, but also by the mix of new versus mature programs. As noted last quarter, throughout 2012, we will continue to focus on our recovery paths and improvements in our own operating efficiencies.

Four out of five of the industry sectors we serve were up this quarter, and Don will go through more on the breakdown of those in a moment. But notably in medical, telecommunications, and computing, we supported new programs, and this provided strength in an otherwise uncertain marketplace.

I'm also pleased to share our second quarter new bookings with you, which represent an annual revenue run rate at volume of between $155 million to $177 million. These were good results from our business development efforts. Our new bookings represented 37 new programs, which include 12 engineering projects. These estimated revenues have been adjusted in discussion with our customers to incorporate the current market conditions and expectations. Our recent bookings and new customer relationships provide a strong catalyst for incremental growth opportunities.

Amidst concerns about the macro economic environment, our bookings show that outsourcing opportunities remain strong. We had exciting opportunities underway even as we exit Q3, and our pipeline continues to be strong for outsourcing in general and mainly for Benchmark. Our new bookings were in each of the industries we serve and represented new programs with both new and existing customers, and as always, they are subject to the risks of timing and ultimate realization of the estimated revenues we provided.

For our third quarter guidance, we're a little more cautious in our guidance as we move forward in Q3. The level of uncertainty in the global economy has increased. It is difficult to find an article today in the news that does not point to the problems in Europe, the subdued growth in China, or concerns over the US politics, lack of GDP growth or other mounting concerns. But that's the world we're living in today, and there isn't a great deal of confidence-building news to read or listen to, and many of these problems won't be resolved rapidly.

For Q3, we normally do see a bit of softness, but we also see the macro environment deteriorating overall. So we reiterate, as others have already commented on, that there is reason for caution, and we have, with information from our customers, incorporated this into what we believe to be a prudent level of caution in our guidance for Q3. Based on this, we currently estimate that third quarter revenues will be between $595 million and $625 million, and our diluted earnings per share for the third quarter, excluding restructuring and Thai flood-related charges, are expected to be between $0.27 and $0.32.

In summary, we are pleased with our growth, our earnings, our working capital management performance for the second quarter. Our team is executing well. Although the macro environment is not favorable, we will remain focused and diligent through this period of uncertainty in the marketplace. We had a great second quarter. And while we're a little more cautious on our third quarter outlook, we will continue to drive for growth through new bookings and focus on operational excellence and efficiency improvements globally.

Now, I'll turn the call back over to Don to discuss in more detail our financial metrics for Q2.

Thank you, Gayla. First, I'd like to comment on our second quarter revenue and EPS. As Gayla mentioned, we were pleased to complete the second quarter of 2012 with revenues of $630 million. These revenues exceeded the high end of our guidance for the quarter of $595 million to $625 million, and were up sequentially from the first quarter of 2012 by $37 million or 6%. Our earnings per share, excluding restructuring and Thai flood-related charges for the quarter, were $0.32, and our GAAP earnings per share were $0.24. This compares to $0.25 for non-GAAP and $0.24 for GAAP EPS last year.

The revenue breakdown by industry for the second quarter of 2012 was as follows. Computing was 31%; industrial controls, 26%. Telecom was 25%. Medical was 10%, and Test and Instrumentation was 8%.

The breakdown when comparing the second quarter of 2012 to the first quarter of 2012 is as follows. Our Medical sectors were up 16% primarily driven by new programs ramping for several customers, and Test and Instrumentation revenues were up 10%. And Telecom revenues were up 8% quarter over quarter, again, primarily associated with new program ramps and increased output and returned market share in Thailand. In the Computing sector, revenues were up 7% associated with new program ramps. And for Industrial controls, our revenue was essentially flat this quarter as compared to last.

Now for a quick update on our Thailand operations -- included in our financial results for the second quarter are Thailand flood-related charges of $4.7 million. We continue to work with our insurance carriers on the claims and recovery process, which will be ongoing for the next several quarters. Upon settlement, recovery items including lost profits, will be recorded and may result in gains to Benchmark. We expect further recovery of our claims during the third quarter.

Now I would like to discuss a summary of our second quarter. Providing more meaningful comparative analysis, I will present certain financial information, excluding our restructuring and Thai flood-related charges during this call. We have included a reconciliation of our GAAP results to our results excluding these charges in today's press release.

Our operating margin for the second quarter was 3.7% compared to 3% for the first quarter of this year. As Gayla mentioned, this is a result of our increased revenues, continued recovery in Thailand, and our operations focus. Our net income was $18.2 million for the second quarter of 2012 and $15.2 million for the second quarter of 2011. GAAP net income for the second quarter of 2012 was $13.6 million compared to $14.7 million for the same quarter last year. We have interest income of approximately $231,000 for the quarter, interest expense of $322,000, and other expense of $448,000 primarily due to foreign currency losses.

The effective income tax rate was 20% for the second quarter. Note that we expect the tax rate in the third quarter to range from 20% to 22%. Diluted average shares outstanding used in the calculation of EPS was $57.2 million. Our cash and long-term investments balance of $297 million at June 30th, of which $16 million were [auctionary] securities classified as long term. The unrealized loss on these securities of $3.2 million is reflected in shareholders equity. Note that we did receive principal payments at par during the quarter of $9 million.

For the second quarter, we generated $41 million in cash flows from operations.

Capital expenditures for the second quarter were $8.9 million, and depreciation and amortization were $9 million for the quarter.

Repurchases of common shares for the second quarter were $19 million, or 1.4 million shares. I would like to point out that since the inception of our share repurchase programs in July of 2007, we have repurchased approximately 313 million or 18.7 million shares. As of June 30th, we have approval to repurchase an additional 112 million in common shares.

Our accounts receivables were at $458 million in June 30th, a decrease of $18 million from the last quarter. Our accounts receivable days improved to 65 from 72 days in the first quarter. Inventory was at $388 million at June 30th, a decrease of $16 million from the first quarter. Our inventory turns improved to 6 times for the quarter compared to 5.5 times in the first quarter.

Current assets were approximately $1.2 billion and the current ratio was 3.5 to 1 in the second quarter.

And finally as of June 30th, we had $10.8 million in debt outstanding, which is a long-term capital lease on one of our facilities.

I'm now going to turn the call back over to Gayla for her final remarks.

Thank you, Don. Again, I am pleased overall with our team's execution in the second quarter and the ongoing management of the things that are within our control. We had an excellent second quarter. Our strong performance in the second quarter and the solid booking performance provides us a strong basis for our future growth. We see numerous opportunities and challenges in the markets we serve.

Our existing capacity is sufficient for solid growth with the investments and expansions we took in 2010 and 2011. We will remain focused to support the changing needs of our customers, and ultimately, we will continue to adapt, grow, and invest in our business for the future.

And now I'd like to turn it over to the operator to open our Q&A session.

(Operator Instructions) We'll go to the line of Ryan White with Topeka. Please go ahead.

Hi. Good morning. Could you talk a little bit about where you're seeing perhaps the most caution in the September quarter, just what market?

Ryan, I think it is broad-based. We don't see any one market that is being more significantly impacted in their caution. And probably most importantly, with the number of new programs that we're supporting, those provide a good buffer and are not necessarily seeing the same level of impacts as some of the more mature programs, just with the new solutions and opportunities for improvement that new products often offer to the marketplace.

Okay. And then on the new computing programs that you've previously announced, can you just update us where we are in that ramp? I know some have started. Some are going to start.

Yes. In prior periods, we have announced two significant computing programs. One of those has ramped nicely and will begin to taper off towards the year-end in the volume that it has. And then the other program will do exactly the opposite. It is still in its development stages, and will begin to ramp towards the latter portion of the year. And once again, we've incorporated both of those into our guidance, and the new program ramp is probably somewhat delayed, or at least what we factored into our forecast is a bit of delay given the malaise in the marketplace today.

Okay. Thank you.

We'll go to line of Amit Daryanani with RBC Capital Market. Please go ahead.

Good morning.

Good morning, guys. Just two questions from me, one on the operating margin side. Can you just talk about what is driving the (inaudible) [basis] for the slow margin degradation in the September quarter? I guess revenues are going down, but are there any other factors that are driving the head wind?

I believe that our guidance incorporates only a slight decline associated with lowering of revenue which is primarily due to volume increase -- decrease as well as the new programs ramp. But, Amit, I don't believe that our guidance incorporates the level that you are -- or that you noted there. So we may need to go back through and make sure we calibrate there. I think one difference in some of the models that we have seen would be that if the actual versus the estimated tax rate that some of the models have seen. So with our actual tax rate being higher, it probably affects the margin that some of the models have incorporated into them.

I'll make sure that I check that out. And then, you've talked about in the past -- you've talked about a 4% operating margin target. What sort of revenue run rate would you need, given the fact that it looks like Thailand -- inefficiencies in Thailand have time to subside? What sort of revenue run rate do you need to get back to that 4% margin run rate?

With the 3.7% achieved and $630 million in the current mix, which is during a time period where we're recovering from Thailand, we would estimate that we would be pretty close to achieving the 4%, but for the Thailand impact this quarter with the current mix, and that's probably the best information that we have available. So the current mix, probably about 4%, $630 million. With a different mix -- having a mix with a greater level of more mature programs as opposed to new programs ramping and the mix of business we have from the industry and the services, it's going to be a bit higher. As the macro environment changes and some of the more mature programs get a boost, we would expect that to be at a lower revenue run rate.

Perfect. Thanks a lot, guys.

Thank you.

We'll go to the line of Sherri Scribner with Deutsche Bank. Please go ahead.

Hi, thanks. I was hoping you could give us a little detail by segment in terms of what you're expecting for fiscal fourth quarter. I think overall guide implies a 3% decline in revenue sequentially at the midpoint, and it seems like at least three of your segments, the sequential growth was driven by new programs. So can you give us a little bit of detail in terms of how those continue to play out through the year by segment? Do you expect new programs to continue to drive the Telecom and Medical segment, and what do you expect for Industrial and Testing? Thanks.

The only industry that I expect to be down significantly would be custom Instrumentation and then based on the new programs, I would expect the others to pick that up, or that's going to be the major factor that causes softness in the near term, and that's again an industry that does have quite a volatile change in revenues.

Can I just dig into that a little? Why was Testing up so much this quarter? And your commentary seems to imply that it's sort of a one-quarter thing and you'll see a decline next quarter. And then are you saying that you expect the other segments to be up sequentially again, so the only one that declines is Testing? Thanks.

I don't have any real insight into what gave the end customers opportunities to have such good sell-through in the second quarter. But to answer maybe the real question that you might be asking is, is there any market share or customer loss, and that answer is no. But as to what's happening in their end markets and why they have strengths right in advance of a fall-off, I do not have that answer. I do believe that there are some of their customers that announced maybe some changes or some drawback on their capital investments, but that's getting way into the weeds beyond my level of true knowledge. So from our customer relationships, no changes there. From their forecast, yes, there are changes. On the other industries, I'll let Don talk a little bit about some of the industry changes there.

Yes. I think as we go through the other industries, as Gayla mentioned on her prepared comments, we do have new programs ramping in some of the other sectors. I would expect, as Gayla indicated, we'll see the other industries sort of pick up the downturn that we're seeing in Test and Instrumentation. But I would say that most of them would be flattish compared to Q3.

Okay, great. Thank you.

And our next question comes from Jim Suva with Citi. Please go ahead.

Thank you, and congratulations there to you and your team at Benchmark. Just a quick clarification question, and sorry if I missed this in the prepared remarks, but you talked about the new bookings. Did you give the dollar amount like on an annual basis of what those new bookings are?

Yes. Jim, it was $155 million to $177 million.

Okay. So that looks like a pretty healthy number both quarter-over-quarter and year-over-year. Anything into that about -- is that kind of the booking rates that you guys are looking forward to doing, or was there anything unique in that quarter that may have caused it to increase because it looks like an extremely healthy number.

No, Jim. We'd expect those bookings to be even greater for the future quarters. No, there's no anomaly there. That's not one single extremely large program that drives that number up. It's just a good performance by the teams and expected levels of even better performance going forward.

Great. And then my follow-up is on the Computing programs, seeing that the macro environment has changed over the past year or two, is the dollar amount of kind of the smaller one that I believe you mentioned is going to be tapering off at the end of this year -- is that one kind of still in the $35 million to $55 million range? Is the larger one kind of still in the $100 million range or have some of those numbers also changed?

Jim, as we go through the remainder of the year, I guess we will have better insight. But I would say that the smaller one may end up being a bit larger, and the larger one may end up being a bit smaller as it relates to this year. So the one that we initially thought was larger, again, may get some boost later on, but that's not incorporated into our guidance currently. It would just be a ramp that would be into next year.

Thank you. Congratulations again to you and your team at Benchmark.

Thank you.

Thank you.

We'll go to Brian Alexander with Raymond James. Please go ahead.

Yes. Just is the caution for your revenue guidance based on the actual order rates that you're seeing from your customers that have ticked lower here in recent weeks, or are you basically just haircutting their forecasts at a higher rate than you have in the past because of the uncertainty that you alluded to?

Probably a combination of both of those. It's probably more so some of the customer indications have been tempered in the last -- quite honestly, it really didn't start until June. I think April and May were very strong. In June you started seeing caution, and in some ways, it almost seemed like a dog-pile effect of reading the news and reacting to it because it was pretty broad based, but nothing specifically significant or event- based other than, as I said, specifically Tests and Instrumentation which I do believe there were some changes in plans on capital expense for some of the customers' customers.

Okay, thanks. And to follow up, in the Telecom segment, can you just talk more about the growth you're seeing there -- up quite a bit year-over-year. I think you said 8% sequentially, better than the end markets seem to be doing, and quite frankly, many of your peers in that end market. I think you're back above pre-flood levels from a revenue standpoint. So just talk about how much of that Telecom strength was driven by demand from existing customers versus new programs and maybe a deeper view of your Telecom segment in terms of what subsectors you have the most exposure to. Thanks.

I think in terms of Telecom combination, there's new programs as well as the recovery from Thailand. As you point out, if you look at comparing to last year, we're up, but again, that's going to be attributed to new customers, but I think some of the other competitors in our segment are also seeing a little bit of strength in the Telecom, but I would say a combination from quarter-over-quarter Thailand recovering well and new programs really driving that increase.

In fact, Brian, we saw that a few of our competitors -- while we wanted to incorporate probably into our call notes that we felt strength and were possibly taking market share -- while we believe that we are performing very strong there, we're also seeing that others in the industry are seeing some strength in Telco. So it appears that there is actually a pretty strong level of incremental outsourcing going on or a very strong level of new products and traction in the customers that do outsource. So that's the marketplace as we see it today.

And then final one, Don, on the working capital -- that was a nice improvement this quarter. Anything that you would touch on specifically that Benchmark is doing to drive that improvement and how sustainable are these levels of both inventory turns and DSOs going forward?

I think, as Gayla alluded to or we alluded to during the call, just a diligent focus, but I think on the inventoryside, our targets have always been 6 to 6.5, and certainly we've had challenges over the last year and a half. But we're back at 6, and we certainly want to improve on that.

Okay, great. Thank you.

(Operator Instructions) We'll go to the line of Sean Hannan with Needham & Company. Please go ahead.

Yes, thank you. Good morning.

Good morning.

Good morning, Sean.

So going back to the wins topic, certainly a strong result in the quarter. If I look at kind of the trailing 12 months of wins, it's a pretty strong number, much stronger than I've seen in a good number of quarters. Can you provide a little bit of insight on the -- I realize, Gayla, you would like wins to be higher, but given the $155 million to $177 million range, is there a level of growth that that supports for you when you look to next year? Does that unequivocally, or should that unequivocally, support double-digit growth in kind of a normalized environment, or how do we think about that as being kind of an incremental contributor to your business?

I guess, Sean, the real challenge right now is figuring out what is normalized. Is this the new norm with a lower growth rate globally? But ultimately what I would say is this level of wins is very strong for Benchmark. And as we continue on this pace, it does provide us good strength to be at or above the competitive landscape in which we participate, and the underlying macro environment will really dictate whether that's double digit or single digit. But, again, maybe the point is we feel very good about controlling that which we control and are very excited about participating in some of the new wins.

I think one of the things that we have done and focused on are probably two changes to again point out that we've reflected on in some of our prior calls. One of them is the engineering focus. We're seeing a number of opportunities as we engage more aggressively with our engineering teams, where we are developing new relationships and are able to see the relationship at the engineering stage and have good follow-on work with those customers in building production opportunities and ongoing relationships.

The second thing is we have incremented and kind of refocused our business development team, and that seems to be getting some good traction as we see from the results here. So I think those are two important factors. But, no, there's no silver bullet or secret sauce. Ultimately, it's just execution and driving against what appears to be a pretty strong head wind of the macro environment right now.

Okay. That's helpful, Gayla. And then when we look to the remainder of 2012, is there any reason that investors should consider that December could very potentially be a down quarter from September or is the magnitude of ramps and thoughts that you're getting from customers and what you're planning internally, would there be any support to that that at least would either provide something that would be more flattish or up -- just directional thoughts around how you're thinking about new programs layering into December, and then if we're in still position to get to kind of that 4% operating margin I think alluded to a little bit earlier?

I'd be highly surprised and very -- if the negative environment of Q4 didn't show strength over Q3. That's traditionally a stronger quarter in the markets we serve. But clearly, as I said, I guess it's -- we are not getting guidance for Q4, but it would be highly unusual for our customers in the marketplace we have and the new programs we have not to show strength in Q4, but that's just not something that you would plan for. That would be a pretty dramatic change for the industry.

Oh --

And our next question will come from David Fondrie with Heartland Funds. Please go ahead.

Yes, good morning.

Good morning.

Congratulations on a nice quarter.

Thank you.

Don, could you go over insurance for Thailand a little bit -- I guess obviously charges the last two quarters. Could you give us an indication of what you have recorded as receivables and the amount that you have not yet, perhaps, claimed that up to this date, you think is claimable?

Yes. In terms of -- a quick history -- we did receive $20 million in the first quarter. Our receivable at the end of the quarter was $31 million. We are anticipating in the third quarter an additional $38 million during the -- again, during the quarter, but there will be additional claims, but those are still being worked out with the insurance company at this point.

At the end of the quarter, you had $31 million in receivables, and you're expecting --

Another approximately $38 million.

To receive that or to record that?

To receive that.

To receive that. So that would mean you'd have to claim another $7 million --

No, no, no. That's in excess of the receivable.

The claim has already --

The claim has already been -- yes. The claim has -- we expect to receive $38 million in the quarter. $31 million is a receivable at June 30th. So we anticipate collecting more than the receivable.

Which was -- okay. Okay.

Does that make sense?

Yes, I think so. That means you'd have to make another claim for $7 million, right?

No. It --

If you collect more than receivable --

No. I guessto try to simplify a bit, you go through the claims process. And part of the costs that we've incurred, we would expect to have the potential to recover, and that would be the $7 million differential between what's already recorded and reflected and that which we have put forth as a claim to the insurers that the GAAP accounting for it is such that we would not have the opportunity to reflect that on our financial statements until such time that the cash is received.

And then is it fair to say that we should be past the claim time where we'll have these Thailand charges?

We anticipate that those will continue to diminish. They were down a little more than half from Q1 to Q2. In our expectation, they should be down another 50 % or so from Q2 to Q3. And then there may be some nominal cost in Q4.

I congratulate you on the repurchase activity. I think that, as I said before, I think it's very accretive both to book value and to earnings, and perhaps I would have thought you might have been a little more aggressive, particularly when you were buying stock at $[13.57], but at least we bought some. Thanks.

Okay.

Thanks.

Thank you, David.

We'll go to the line of [Wamsi Mohan] with Bank of America. Please go ahead.

Yes, thank you. Good morning.

Good morning.

I was wondering if you could comment on how much of the revenues in the quarter on an approximate basis would you say are from programs that are ramped over the course of the last 12 months?

We don't have that in specific numbers, but I would say the growth that we saw is primarily driven by new programs. We don't have it carved out to determine the level of maturity of each of the programs and the total revenue, but the majority of the growth quarter-over-quarter came from new program ramps.

So there was some growth from mature and the rest of it from new programs quarter-on-quarter?

Yes.

Okay. And I was wondering if you could address if there are any material mature programs that are at end of life that would disproportionately pressure margins in the near term, just September and December, that you know of?

No. I do not believe we have any major programs that customers have called end of life or for any reason we aren't supporting going forward. There's always programs that expire or mature, but I don't see any of those significant to our revenue base in the third quarter. The only program that we did [call] out was the one that is -- the Computing program that by design was more significant in Q2 and Q3 and then tapering and finishing in Q4, but that is as expected.

Okay. Thanks a lot.

We'll go to Rick D'Auteuil with Columbia Management. Please go ahead.

Good morning.

Good morning.

Good morning, Rick.

Appreciate the good results, and I echo David Fondrie's comments on the buyback. Just to delve into his line of questioning on the insurance settlement, am I right if you guys are sort of under-accruing the Thailand insurance receivables, essentially you're understating your operating profits, right, because you're saying we're sort of assuming we're absorbing some of the costs that you're realizing. And so you're breaking out some extraordinary Thailand stuff, but you're understating that in your breakout. Is that a fair way to look at it?

I'll try again. So the costs that we have considered as part of the Thailand cost are unique and one-time costs, and the majority of those we have experienced, as we said, from that kind of $7-million differential. Some of those will be recoverable, but they are not -- and so under-accruing is a term that kind of sounds negative. No, it's GAAP. So from a casual business person or a qualified business person, we would clearly maybe question GAAP. However, we are not allowed to account for it in the period in accordance with GAAP until that cash is received. And as that cash is received, to the extent it is a recovery of those items, they would go back against that same line item as the Thailand recovery.

Okay.

So, we have to [call] it out, and then we have to put it back in in that same line item to the extent that we recover it, but cannot do so in the period until cash is received.

This could be a mismatch of the cost and the expected proceeds on a quarterly basis.

Okay. Just on the buyback, if I can delve into that a little bit, you have 100 and, I think, 12, I think you said still open on it, $112 million?

Correct. We just -- we have $12 million under an old program, and we just announced a new buyback several weeks ago for another $100 million. So there's $112 million remaining, correct.

Right. But doesn't it make sense to get a little more aggressive here? I guess I'd like your thoughts on why the board or management isn't being more aggressive on that. Again, as David pointed out, discount to book value, a discount accretive to earnings. So it seems to me, based on everything you've said, the world isn't falling apart, the new programs are ramping. If anything, outsourcing is gaining momentum. Those are all pretty powerful for your business. Even the caution that you've put out for the next quarter, it looks like you could kind of work your way through that and it gets better as the year progresses. So why wouldn't we get more aggressive than the level of buying that you've been doing?

I think we, again, will continue to evaluate the level of aggression we use in our buyback, and of course, in discussion with our board. I think the primary caution is always around the new program ramps, the business opportunities we see, and the level of investment that is required to support those and do so with a level of flexibility. But having said that, we clearly do understand that interest rates have never been so favorable, and we've seen others who have gone to the next step of actually using that as a means to accelerate their buyback program. So it is not, and has not been, something that we have done, but we will in discussion with our board continue to look at the best use of our capital structure in order to make sure that we have a solid foundation and also have a strong base to grow from.

I mean, you're a long way away from using debt. I think $297 million in cash at the end of the quarter, $112 million, you'd barely use more than a third if you were to just fill what you have approved at this point, and yet that would retire a substantial percentage of your shares. So again, I think it seems like you can address all of your growth capital requirements and still be much more aggressive on the buyback.

We appreciate your thoughts and feedback there.

Okay. Thank you.

We'll go to [Al Sabia] with Situs. Please go ahead.

Hi. My first question was going to be along the lines of the buyback question that was just asked. So if I could just add on to that? You have more receivables than you have total liabilities. So to the extent that you're doing a buyback on a daily basis, , since you now -- you aren't going to fill this $30 million buying what you were buying on a daily basis just by eyeballing the stock. And now that you've authorized another $100 million before the $30 million is done, when you look at the buyback, do you consider tendering for stock? I mean, is the buyback a means to stabilize the stock, avoid share creep, or you're now looking at it as a means to actually improve your returns in the business?

I think we've just used it as an ongoing mechanism of returns to investors. Others have used dividends, and this is just a -- in practical purposes probably in lieu of a dividend in the current marketplace as we've had it as an ongoing program. And as I stated just a moment ago, we'll continue to evaluate if the program should change or be more aggressive.

Right. I guess the point is that if you were going to set up this business today and you had a clean sheet of paper and you were going to establish this business and look at it as looking at your capital structure to maximize the returns in the business, you would agree that the business now is wildly over-capitalized, right?

I don't know that I agree that it was wildly over-capitalized, but we do have sufficient capital. I think again part of the structure of any global business is the opportunity to grow and properly fund the growth and the global environment, and so there is a level of cash that's appropriate for each geography and to support that growth. So, some of the funding requirements get more specific than just a consolidated level.

Okay. Is a tender offer for shares, given the fact that they've traded below your net liquidation value -- is that something that you would look at or is it [X amount of tender] (inaudible) going to be whether or not you step up to daily buying?

Again, as we go through this on a periodic basis with our board, it is our fiduciary responsibility to look at all options, and we will once again evaluate that to see if that is something that is deemed appropriate for our business and the opportunities we see in front of us.

Okay. And then just on the Test  and Instrumentation, on the weakness, can you be a little specific? Was it any one area? Was it semi-conductor tests, because as far as I remember, you guys do testing in air-conditioning systems and oscilloscope type of things and semi. Was any one of the segments weaker than the other, Telecom, Industrial?

So I don't think we do air-conditioning tests, but we did see some softness in some of the test equipment for use in Telco, and some of the semi-cap equipment for foundries. So I think the biggest change is probably the semi-cap for foundries where the spending has been kind of shut down or brought down in a significant manner.

Okay. Thanks a lot.

Thank you.

And we have no further questions.

Again, we thank you all for joining our call today, and we'll be available in our offices for any follow-up. Thank you, and have a good day.

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