Benchmark Electronics Inc: Form 10-Q for the period ended Mar 31, 2026

The financial information and the discussion below should be read in conjunction with other information, including the unaudited condensed consolidated financial statements and Notes thereto in Part I, Item 1 of this quarterly report on Form 10-Q for the quarterly period ended March 31, 2026 (this Report), the consolidated financial statements and Notes thereto appearing in the Company’s annual report on Form 10-K for the year ended December 31, 2025 (the 2025 10-K), and Part I, Item 1A, Risk Factors of the 2025 10-K. In this Report, references to Benchmark, the Company or use of the words “we,” “our” and “us” include Benchmark’s subsidiaries unless otherwise noted.

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 (the 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,” “could,” “predict,” and similar expressions of the negative or other variations thereof. In particular, statements, expressed or implied, concerning the Company's outlook and guidance for quarterly periods or fiscal year 2026 results, future operating results or margins, the ability to generate sales and income or cash flow, expected revenue mix, the Company’s business strategy and strategic initiatives, the Company’s repurchases of shares of its common stock, the Company’s expectations regarding restructuring charges, stock-based compensation expense, amortization of intangibles, award of any tax incentives and capital expenditures, and the Company’s intentions concerning the payment of dividends, among others, are forward-looking statements. Although the Company believes these statements are based on and derived from reasonable assumptions, they involve risks, uncertainties and assumptions, that are beyond the Company’s ability to control or predict, relating to operations, markets and the business environment generally, including those discussed under Part I, Item 1A of the 2025 10-K and in any of the Company’s subsequent reports filed with the Securities and Exchange Commission (the SEC). Events relating to the possibility of customer demand fluctuations, supply chain constraints, continuing inflationary pressures, the effects of foreign currency fluctuations and high interest rates, the potential of another U.S. government shutdown and the economic impacts, volatility and uncertainty resulting therefrom, geopolitical uncertainties including continuing hostilities and tensions, trade restrictions and sanctions, tariffs and retaliatory countermeasures, the ability to utilize the Company’s manufacturing facilities at sufficient levels to cover its fixed operating costs, or write-downs or write-offs of obsolete or unsold inventory, may have resulting impacts on the Company’s business, financial condition, results of operations, and the Company’s ability (or inability) to execute on its plans. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of the Company’s 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. All forward-looking statements included in this document are based upon information available to the Company as of the date of this document, and the Company assumes no obligation to update.

OVERVIEW

Benchmark Electronics, Inc. (the Company) is a Texas corporation that provides design engineering and advanced manufacturing services that include both electronic manufacturing services (EMS) and precision technology (PT) services. We support customers throughout their product lifecycle starting from initial product concept through volume production, including the ability to manage direct order fulfillment and provide aftermarket services. We are a trusted partner to our European and U.S. based national and multi-national original equipment manufacturers (OEMs). Served markets include: aerospace and defense (A&D), medical, industrial, semiconductor capital equipment (Semi-Cap), and advanced computing and communication (AC&C). The Company has manufacturing operations located in the United States and Mexico (the Americas), Asia and Europe.

Our customer engagement focuses on two principal areas:

• Manufacturing Services include printed circuit board assemblies (PCBAs), subsystem and full system integration, precision metal machining, complex electromechanical assembly, and related test and fulfillment services. We support build-to-order or configured-to-order programs across regulated, high-reliability markets. Our manufacturing capabilities span electronics assembly, precision machining, clean room assembly, systems integration, and direct order fulfillment.
• Design & Engineering Services include turnkey product design, designing for manufacturability, design optimization for our factory processes and supply chain, test development, concurrent and sustaining engineering, and regulatory services. Our engineering services may be for systems, sub-systems, printed circuit boards and assemblies, and components. We have the flexibility and capability to engage anywhere in the design process flow. We provide these services across all the industries we serve. We often partner with our customers to provide turnkey product realization from requirements through the launch to volume production in our factories. We have also developed differentiated capabilities in radio frequency (RF) and optics. The need to improve size, weight and power (SWaP) to accommodate high frequency electronics communications is important to customers in the A&D, medical, and AC&C markets.

Our core strength lies in our ability to partner with our customers to provide concept-to-production solutions through a tightly integrated and seamless set of design, test, manufacturing, supply chain, and support services. The integration of these product realization services, along with 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, with an emphasis on complex products serving regulated markets with high reliability requirements. These capabilities and attributes enable us to build strong strategic relationships with our customers as an integral part of their business.

Our ability to deliver these integrated solutions is enabled by our highly skilled personnel who provide leading-edge technical capabilities in engineering services (including full life cycle), high frequency RF systems, microelectronics, optics, miniaturization, and manufacturing services (including electronics, complex precision machining, and clean room assembly). To support customers across these sectors, we have strategically invested in geographically diverse manufacturing locations and global supply chain capabilities.

A strong focus on human capital, including talent we hire and retain, is critical to maintaining our competitiveness. Our people-first culture is centered on our five core values, consisting of acting with integrity, valuing inclusion, commitment to customers, promoting ingenuity, and genuine caring for each other, our customers and our communities, and we take pride in our innovative and continuous improvement mindset. Our intent is to delight our customers while delivering operational and financial performance aligned with our goals. Through our employee engagement and customer satisfaction feedback processes, we continuously solicit and act upon information to improve our Company and better support our customers and business processes. We have invested in attracting and developing leadership throughout the organization and are committed to investing in an innovative and forward-thinking workforce.

Our customers often face challenges in supply chain design, demand planning, material procurement, and inventory management due to demand variability, product design changes, short product life cycles, and component price fluctuations.

We employ enterprise resource planning (ERP) systems and lean/six sigma methodologies to efficiently and cost-effectively manage procurement and manufacturing processes. Because we are a significant purchaser of electronic components and other raw materials, we are generally 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.

We recognize manufacturing services 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 of the work-in-progress as products are being built. Revenues under these contracts are recognized progressively based on the cost-to-cost method. For 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 the product to the customer, which is generally when the goods are shipped. Revenue from design, development and engineering services is 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, warranty provisions are generally not significant.

Impact of Certain Factors on Results

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, including conditions affecting the availability of electronic components or the failure of a major customer to pay for components or services, can impact our ability to fulfill customer demand. 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 50% and 54% of our total sales during the three months ended March 31, 2026 and 2025, respectively.

Industry supply conditions have reflected varying demand dynamics across end markets and component categories, including periods of imbalance across certain technologies, notably in the memory market. While supply conditions have improved in certain areas compared to prior periods, supply availability and pricing conditions continue to vary across the broader market.

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. During periods of low production volume, we generally have unabsorbed manufacturing overhead costs and reduced gross profit. Gross profit can also be impacted by higher costs associated with other situations, such as supply chain constraints. This includes supply chain premiums for excess component costs paid to secure available supply resulting in revenue with cost recovery only with no margin. In addition, a number of our new program ramps require incremental investment during the launch and ramp phase, which can exert downward pressure on our gross profit.

Inflation, interest rates, disruption in the global economy and financial markets, geopolitical events, tariffs and trade restrictions continue to create uncertainty. However, we are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of the date we filed this Report. These estimates may change as new events occur and additional information is obtained. Actual results could differ from these estimates under different assumptions or conditions.

On February 20, 2026, the U.S. Supreme Court issued a ruling striking down tariffs imposed under the International Emergency Economic Powers Act, including, among others, tariffs on imports of certain Canadian, Chinese, and Mexican goods, a universal baseline tariff on imports from most countries, and reciprocal tariffs on select countries. The global tariff landscape continues to shift rapidly, with changes impacting businesses and markets around the world. We continue to monitor the situation, including any potential refunds of such tariffs, and evaluate the impact on our results of operations. No potential refunds have been recorded in the Condensed Consolidated Financial Statements as we cannot reasonably estimate the financial impact, but believe the impact would not be material to the Company. For additional information, refer to Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

RESULTS OF OPERATIONS

The following table presents the percentage relationship that certain items in our condensed consolidated statements of income bear to sales for the periods indicated.

Sales

Sales for the first quarter of 2026 increased 7% from the first quarter of 2025.

Sales are analyzed by management by market sector and by geographic segment, which reflect our reportable segments. Our global business development strategy is based on our targeted market sectors. Management measures operational performance and allocates resources on a geographic segment basis.

Sales by market sector were as follows:

(in thousands)

Semiconductor Capital Equipment. Sales for the three months ended March 31, 2026 decreased 2% to $190.7 million from $195.1 million for the three months ended March 31, 2025. The decrease was primarily due to the timing of customer demand and order fulfillment during the quarter.

Industrial. Sales for the three months ended March 31, 2026 decreased 3% to $133.3 million from $136.7 million for the three months ended March 31, 2025. The decrease was primarily due to demand softness from certain existing customers.

Aerospace and Defense. Sales for the three months ended March 31, 2026 decreased 2% to $119.8 million from $121.9 million for the three months ended March 31, 2025. The decrease was primarily due to certain programs going end-of-life, partially offset by new program wins.

Medical. Sales for the three months ended March 31, 2026 increased 24% to $128.5 million from $103.6 million for the three months ended March 31, 2025. The increase was primarily due to new program wins and the timing of customer order fulfillment.

Advanced Computing and Communications. Sales for the three months ended March 31, 2026 increased 41% to $105.1 million from $74.5 million for the three months ended March 31, 2025. The increase was primarily due to new program wins.

Our international operations are subject to the risks of doing business abroad. See Part I, Item 1A of our 2025 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 three months ended March 31, 2026 and 2025, 62% and 66%, respectively, of our sales were from international operations.

Sales by geographic segment were as follows:

(in thousands)

Americas. Sales for the three months ended March 31, 2026 increased 10% to $311.3 million from $284.3 million for the three months ended March 31, 2025. The increase was primarily due to higher demand in AC&C and Medical sectors partially offset by decreased demand in the A&D and Industrial sectors.

Asia. Sales for the three months ended March 31, 2026 increased 7% to $303.1 million from $284.0 million for the three months ended March 31, 2025. The increase was primarily due to an increase in demand for A&D, AC&C, and Industrial sectors partially offset by decreased demand in the Semi-Cap sector.

Europe. Sales for the three months ended March 31, 2026 decreased 3% to $83.3 million from $86.3 million for the three months ended March 31, 2025. The decrease was primarily due to lower demand in the Industrial sector partially offset by an increase in the Medical and Semi-Cap sectors.

Gross Profit

Gross profit for the three months ended March 31, 2026 increased 10% to $69.2 million from $63.2 million for the three months ended March 31, 2025. Gross profit margin increased to 10.2% for the three months ended March 31, 2026 from 10.0% for the three months ended March 31, 2025. The increases were primarily driven by higher sales volumes, which resulted in improved absorption of fixed manufacturing costs, as well as favorable mix.

Income from Operations

Income from operations for the three months ended March 31, 2026 increased 86% to $21.9 million from $11.8 million in the three months ended March 31, 2025. The increase was primarily due to decreased restructuring expenses and other costs in the current period, as the settlement of a tax assessment in the Americas was recorded during the three months ended March 31, 2025.

Income from operations by reportable segment was as follows:

(in thousands)

25

Americas. Income from operations for the three months ended March 31, 2026 increased 277% to $7.8 million from a loss of $4.4 million for the three months ended March 31, 2025. The increase was primarily due to decreased restructuring expenses and other costs in the current period, as the settlement of a tax assessment in the Americas was recorded during the three months ended March 31, 2025.

Asia. Income from operations for the three months ended March 31, 2026 increased 8% to $41.9 million from $38.6 million for the three months ended March 31, 2025. The increase was primarily due to higher sales.

Europe. Income from operations for the three months ended March 31, 2026 decreased 6% to $7.5 million from $8.0 million for the three months ended March 31, 2025. The decrease was primarily due to lower sales partially offset by cost control.

Selling, General and Administrative Expenses

SG&A expenses increased to $42.4 million for the three months ended March 31, 2026 from $38.8 million for the three months ended March 31, 2025. The increase was primarily due to professional services and variable compensation.

Amortization of Intangible Assets

Amortization of intangible assets was $1.2 million for both the three months ended March 31, 2026 and 2025.

Restructuring Charges and Other Costs

During the three months ended March 31, 2026, we recognized $3.7 million of restructuring charges and other costs which primarily related to a planned closure of our site in Phoenix, Arizona and other smaller activities involving capacity reductions and reductions in workforce in certain facilities across various regions.

During the three months ended March 31, 2025, we recognized $1.3 million restructuring charges and other costs primarily due to capacity and workforce reductions at our sites in the Americas. Additionally, the Company agreed to a $10.1 million settlement related to an indirect tax assessment in the Americas.

See Note 16 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for additional information on our restructuring charges and other costs.

Interest Expense

Interest expense decreased to $3.6 million for the three months ended March 31, 2026 from $5.3 million for the three months ended March 31, 2025. The decrease was primarily due to decreased borrowings and a lower interest rate environment.

Interest Income

Interest income decreased to $1.9 million for the three months ended March 31, 2026 from $2.7 million for the three months ended March 31, 2025. The decrease was primarily due to a lower interest environment.

Other Expense, Net

Other expense, net increased to $1.7 million for the three months ended March 31, 2026 from $0.8 million for the three months ended March 31, 2025. The increase was primarily due to higher foreign currency exchange losses.

Income Tax Expense

Income tax expense of $5.4 million represented a 29.3% effective tax rate for the three months ended March 31, 2026, compared with $4.8 million for the three months ended March 31, 2025, representing an effective tax rate of 56.6%. The decrease in the effective tax rate for the three months ended March 31, 2026 was primarily due to higher losses incurred during the three months ended March 31, 2025 in a jurisdiction for which no corresponding tax benefit was recognized, which reduced pre-tax income and increased the effective tax rate for that period. Losses in those jurisdictions were higher in the prior-year period primarily due to the settlement of an indirect tax assessment recorded during the period.

Net Income

We reported net income of $13.0 million, or $0.36 per diluted share, for the three months ended March 31, 2026, compared with net income of $3.6 million, or $0.10 per diluted share, for the three months ended March 31, 2025. The increases were primarily due to the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our organic growth and operations through funds generated from operations and borrowings under our credit agreement (as amended and restated, the Credit Agreement), consisting of a term loan facility and a $550.0 million revolving credit facility, both with a maturity date of June 27, 2030. Cash, cash equivalents and restricted cash totaled $325.2 million as of March 31, 2026, which included $303.8 million held outside the United States in various foreign subsidiaries.

Management believes that our existing cash balances, funds generated from operations, and borrowing availability under our revolving credit facility 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. From time to time, we may pursue strategic opportunities, including acquisitions, or experience changes in working capital or capital investment requirements, which could increase our capital needs and may 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.

Cash Flows

Cash provided from operating activities was $47.0 million during the three months ended March 31, 2026, and primarily consisted of $13.0 million of net income, adjusted for $11.9 million of depreciation and amortization, $5.4 million of stock-based compensation expense, a $42.3 million increase in accounts payable, a $14.2 million decrease in accounts receivable, and a $6.4 million decrease in prepaid expenses and other assets, partially offset by a $25.6 million increase in inventories, a $8.4 million decrease in accrued liabilities, $8.1 million increase in contract assets and a $4.6 million decrease in advance payments from customer. Working capital was $0.8 billion as of March 31, 2026.

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. When shortages of these components and other material supplies used in operations have occurred, vendors have at times been unable to ship the quantities we need for production, forcing us to delay shipments, which can increase backorders and impact cash flows. Vendors also may increase the costs of components based on the market conditions including these shortages. 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, we have been impacted by supply chain constraints, including shortages, longer lead times and increased transit times. Furthermore, the U.S. government’s trade policy and imposition of tariffs on certain foreign goods (as well as the possibility of imposing significant, additional tariffs in the future) and geopolitical issues or conflicts may make it more difficult or costly for us to procure components and other material supplies and, in turn, may increase the cost to our customers, which may materially and adversely impact demand for our products and services, our results of operations or our financial condition.

Cash used in investing activities was $16.1 million during the three months ended March 31, 2026 primarily due to capital expenditures for property, plant and equipment of $16.0 million and purchased software of $2.3 million. The purchases of property, plant and equipment were primarily for leasehold improvements and machinery and equipment in the Americas and Asia.

Cash used in financing activities was $25.9 million during the three months ended March 31, 2026. Borrowings under the Credit Agreement were $113.0 million and principal payments under the Credit Agreement were $118.9 million. In addition, during the three months ended March 31, 2026, we paid $5.8 million for share repurchases, $8.1 million for employee taxes in connection with the settlement of stock-based awards and $6.1 million for dividends.

Credit Agreement

On June 27, 2025, the Company entered into a $700 million second amended and restated credit agreement (the Credit Agreement) by and among the Company, certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender and an L/C Issuer. The Credit Agreement is comprised of a five-year $550 million revolving credit facility and a five-year $150 million term loan facility, both with a maturity date of June 27, 2030. As of March 31, 2026, we had $147.2 million in borrowings outstanding under the term loan facility, $60.0 million outstanding under our revolving credit facility and $4.0 million in letters of credit outstanding under our revolving credit facility. See Note 5 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for more information regarding the terms of our 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, including trade accounts receivable, 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 March 31, 2026, we were in compliance with all of these covenants and restrictions.

As of March 31, 2026, we had $486.0 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 $70 million to $80 million, principally for machinery and equipment to help increase our production capacity to support anticipated revenue growth and our ongoing business around the globe.

Dividends

During both the three months ended March 31, 2026 and 2025, cash dividends paid totaled $6.1 million. On March 16, 2026, the Board of Directors declared a quarterly cash dividend of $0.17 per share of the Company’s common stock to shareholders of record as of March 31, 2026. The dividend of $6.1 million was paid on April 10, 2026.

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 dependent 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. Dividend payments are not mandatory or guaranteed; there can be no assurance that the Company will continue to pay a dividend in the future.

Share Repurchase Authorization

On February 19, 2020, the Board of Directors approved an expanded share repurchase authorization granting the Company authority to repurchase up to $150 million in common stock.

The Company repurchased 0.1 million shares for an aggregate of $5.8 million at an average price of $53.67 per share during the three months ended March 31, 2026. As of March 31, 2026, the Company had $116.9 million remaining under share repurchase authorizations. See Note 7 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report for more information on the share repurchase authorization.

CONTRACTUAL OBLIGATIONS

We have certain contractual obligations for operating leases that were summarized in “Contractual Obligations” under Part II, Item 7 in our 2025 10-K. Other than items discussed in Note 5 and Note 6 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report, there have been no material changes to our contractual obligations, outside of the ordinary course of our business, since December 31, 2025.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND RECENTLY ENACTED ACCOUNTING PRINCIPLES

Management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. See Note 2 to the unaudited condensed consolidated financial statements in Part I, 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 2025 10-K. There have been no changes to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2025 10-K.

Our international sales comprise a significant portion of our business. We are exposed to risks associated with operating internationally, including:

• Foreign currency exchange risk;
• Import and export duties, taxes, tariffs and regulatory changes;
• Inflationary economies or currencies; and
• Economic and political instability.

Additionally, some of our operations are in developing countries. Certain events, including natural disasters, can impact the infrastructure of a developing country more severely than they would impact the infrastructure of a developed country. A developing country can also take longer to recover from such events, which could lead to delays in our ability to resume full operations.

We transact business in various foreign countries and are subject to foreign currency fluctuation risks. We use natural hedging and forward contracts to economically hedge transactional exposure primarily associated with trade accounts receivable, other receivables and trade accounts payable that are denominated in a currency other than the functional currency of the respective operating entity. We do not use derivative financial instruments for speculative purposes. Certain forward currency exchange contracts in place as of March 31, 2026 have not been designated as accounting hedges and, therefore, changes in fair value are recorded within our unaudited condensed consolidated statements of income in Part I, Item 1 of this Report.

The Company enters into forward currency exchange contracts designated as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheets until earnings are affected by the variability of the cash flows.

Our sales are substantially denominated in U.S. dollars. Our foreign currency cash flows are generated in certain European and Asian countries and Mexico.

We are also exposed to market risk for changes in interest rates on our financial instruments, a portion of which relates to our invested cash balances. We do not use derivative financial instruments in our investing activities. We place cash and cash equivalents and investments with various major financial institutions. We protect our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by generally investing in investment grade securities.

We are also exposed to interest rate risk on borrowings under our Credit Agreement. As of March 31, 2026, we had $147.2 million outstanding on the floating rate term loan facility, and we have an interest rate swap agreement with a notional amount of $147.2 million and a fixed interest rate of 3.965%. Under this swap agreement, we receive variable rate interest rate payments and pay fixed rate interest payments. The effect of this swap is to convert our floating rate interest expense to a fixed interest rate expense. The interest rate swap is designated as a cash flow hedge.

For additional information regarding our forward currency exchange contracts and interest rate swap agreement, see Note 13 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report.

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective at a reasonable assurance level.

There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the last fiscal quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

We are currently upgrading our enterprise resource planning system (ERP), which is expected to occur in phases over the next several years. We have completed the implementation of the upgrades at certain of the Company’s locations and have revised and updated the related controls. These changes did not materially affect our internal control over financial reporting. As we implement the upgrades of this ERP system at the remaining locations over the next several years, we will continue to assess the impact on our internal control over financial reporting.

Management recognizes that any disclosure controls and procedures and internal control over financial reporting, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in designing such control systems, evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in a cost-effective control system, misstatements may occur and not be detected.