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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31,
2009
Commission file number 0-31285
TTM
TECHNOLOGIES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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91-1033443
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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2630 South Harbor Boulevard,
Santa Ana, California
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92704
(Zip Code)
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(Address of Principal Executive
Offices)
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(714) 327-3000
(Registrants telephone
number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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Nasdaq Global Select Market
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Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its Corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of Common Stock held by
non-affiliates of the registrant (based on the closing price of
the registrants Common Stock as reported on the Nasdaq
Global Select Market on June 29, 2009, the last business
day of the most recently completed second fiscal quarter), was
$344,249,008. For purposes of this computation, all officers,
directors, and 10% beneficial owners of the registrant are
deemed to be affiliates of the registrant. Such determination
should not be deemed to be an admission that such officers,
directors, or 10% beneficial owners are, in fact, affiliates of
the registrant.
As of March 11, 2010, there were outstanding
43,578,053 shares of the registrants Common Stock,
$0.001 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
its 2010 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report.
TTM
TECHNOLOGIES, INC.
ANNUAL
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
Statement
Regarding Forward-Looking Statements
This report on
Form 10-K
contains forward-looking statements regarding future events or
our future financial and operational performance.
Forward-looking statements include statements regarding markets
for our products; trends in net sales, gross profits and
estimated expense levels; liquidity and anticipated cash needs
and availability; and any statement that contains the words
anticipate, believe, plan,
forecast, foresee, estimate,
project, expect, seek,
target, intend, goal and
other similar expressions. The forward-looking statements
included in this report reflect our current expectations and
beliefs, and we do not undertake publicly to update or revise
these statements, even if experience or future changes make it
clear that any projected results expressed in this report,
annual or quarterly reports to stockholders, press releases or
company statements will not be realized. In addition, the
inclusion of any statement in this report does not constitute an
admission by us that the events or circumstances described in
such statement are material. Furthermore, we wish to caution and
advise readers that these statements are based on assumptions
that may not materialize and may involve risks and
uncertainties, many of which are beyond our control, that could
cause actual events or performance to differ materially from
those contained or implied in these forward-looking statements.
These risks and uncertainties include the business and economic
risks described in Item 1A, Risk Factors.
Unless otherwise indicated or unless the context requires
otherwise, all references in this document to TTM,
our company, we, us,
our, and similar names refer to TTM Technologies,
Inc. and its subsidiaries.
Overview
We are a one-stop provider of time-critical and technologically
complex printed circuit boards (PCBs) and backplane assemblies,
which serve as the foundation of sophisticated electronic
products. We serve high-end commercial and aerospace/defense
markets including the networking/communications
infrastructure, high-end computing, defense, and
industrial/medical markets which are characterized
by high levels of complexity and moderate production volumes.
Our customers include both original equipment manufacturers
(OEMs), electronic manufacturing services (EMS) providers, and
aerospace/defense companies. Our
time-to-market
and high technology focused manufacturing services enable our
customers to reduce the time required to develop new products
and bring them to market. We operate a total of nine facilities,
eight of which are located in the United States and one of which
is located in Shanghai, China.
On November 16, 2009, we and certain of our subsidiaries
entered into a stock purchase agreement (the Purchase Agreement)
with Meadville Holdings Limited (Meadville), an exempted company
incorporated under the laws of the Cayman Islands, and MTG
Investment (BVI) Limited (MTG), a company incorporated under the
laws of the British Virgin Islands and a wholly owned subsidiary
of Meadville, pursuant to which we agreed to acquire all of the
issued and outstanding capital stock of four wholly owned
subsidiaries of MTG (the PCB Subsidiaries). The PCB
Subsidiaries, through their respective subsidiaries, engage in
the business of manufacturing and distributing printed circuit
boards, including circuit design, quick-turn-around services,
and drilling and routing services. Following the closing of the
proposed acquisition of the PCB Subsidiaries (the PCB
Combination), the PCB Subsidiaries will become our wholly owned
subsidiaries.
Under the terms of the Purchase Agreement, we will purchase all
of the outstanding capital stock of the PCB Subsidiaries in
exchange for $114.0 million in cash and 36.3 million
shares of TTM common stock, plus our assumption of the
outstanding debt of the PCB Subsidiaries of approximately
$450 million. The Purchase Agreement does not provide for
an adjustment in the number of shares of TTM common stock to be
issued to Meadville in the acquisition in the event of a
fluctuation in the market value of TTMs common stock or
Meadvilles shares up through the closing date.
The Purchase Agreement contains customary representations,
warranties, covenants, and agreements of the parties thereto.
Completion of the proposed acquisition is subject to numerous
conditions. Following the closing of the PCB Combination, and
subject to the fulfillment of certain conditions, Meadville
intends to authorize and make a special dividend of the cash
proceeds and our shares received in the PCB Combination to its
shareholders or, to the extent a Meadville shareholder so
elects, such TTM shares that such electing Meadville shareholder
would
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otherwise have been entitled to receive will be sold by
Meadville and the net cash proceeds from the sale thereof shall
be remitted to the electing Meadville shareholder. After taking
into account the 36.3 million shares of our common stock to
be issued in the acquisition and based on the number of our
shares outstanding on November 16, 2009, the date we
executed the Purchase Agreement, approximately 46% of our common
stock outstanding after completion of the PCB Combination will
be held by Meadville, its shareholders, or their transferees.
Additional information relating to the PCB Combination,
including certain risks relating to the transaction and
conditions to the closing of the transaction, are included in
our prospectus/proxy statement dated February 10, 2010.
On March 12, 2010, we held a special meeting of
stockholders to consider and vote upon a proposal to approve the
issuance of 36.3 million shares of our common stock in
connection with the PBC Combination pursuant to the Purchase
Agreement. Only the stockholders of record at the close of
business on February 1, 2010, the record date, were
entitled to vote. We received the necessary votes in favor to
approve the issuance of shares of our common stock in connection
with the PCB Combination.
Industry
Background
PCBs are manufactured from sheets of laminated material, called
panels. Each panel is typically subdivided into multiple PCBs,
each consisting of a pattern of electrical circuitry etched from
copper to provide an electrical connection between the
components mounted to it.
PCBs serve as the foundation for virtually all electronic
products, ranging from consumer products (such as cellular
telephones and personal computers) to high-end commercial
electronic equipment (such as medical equipment, data
communications routers, switches and servers) and
aerospace/defense electronic systems. Generally, consumer
electronics products utilize commodity-type PCBs with lower
layer counts, less complexity and larger production runs.
High-end commercial equipment and aerospace/defense products
require more customized, multilayer PCBs using advanced
technologies. In addition, most high-end commercial and
aerospace/defense end markets have low volume requirements that
demand a highly flexible manufacturing environment. As
production of sophisticated circuit boards becomes more complex,
high-end manufacturers must continually invest in advanced
production equipment, engineering and process technology, and a
skilled workforce. Backplane assemblies also exhibit these
characteristics.
According to Prismark Partners LLC, the worldwide market for
PCBs was approximately $40.3 billion in 2009 with the
Americas producing 8%, or approximately $3.4 billion. The
market is divided between a few large companies and many small
companies. According to N.T. Information, there were
approximately 2,400 manufacturers worldwide and approximately
350 in North America in 2009. As a result of the economic
downturn in late 2008, many of these companies have experienced
reduced capacity utilization at their facilities. We anticipate
further consolidation in the domestic PCB industry and believe
that we are well positioned to benefit in this environment due
to our strong financial position and well-capitalized facilities.
We believe that several trends are impacting the PCB
manufacturing and backplane assembly industries. These trends
include:
Short electronic product life
cycles. Continual advances in technology have
shortened the life cycles of complex commercial electronic
products, placing greater pressure on OEMs to quickly bring new
products to market. The accelerated
time-to-market
and
ramp-to-volume
needs of OEMs for high-end commercial equipment create
opportunities for PCB manufacturers that can offer engineering
support in the prototype stage and manufacturing scalability
throughout the production life cycle.
Increasing complexity of electronic
products. OEMs are continually designing higher
performance electronic products, which require technologically
complex PCBs that can accommodate higher speeds and component
densities. These complex PCBs often require very high layer
counts, advanced manufacturing processes and materials, and
high-mix production capabilities, which involve processing small
lots in a flexible manufacturing environment. OEMs increasingly
rely upon larger PCB manufacturers, which possess the financial
resources necessary to invest in advanced manufacturing process
technologies and sophisticated engineering staff, often to the
exclusion of smaller PCB manufacturers that do not possess such
technologies or resources.
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Increasing competition from Asian
manufacturers. In recent years, many electronics
manufacturers have moved their commercial production to Asia to
take advantage of its exceptionally large, low-cost labor pool.
This is particularly true for consumer electronics producers
that utilize commodity-type PCBs with low layer counts and
complexity. These less sophisticated PCBs are generally mass
produced and have experienced significant pricing pressures from
Asian manufacturers. Printed circuit boards requiring complex
technologies, advanced manufacturing processes and materials,
quick turnaround times, or high-mix production are subject to
less competition from low-cost regions. In addition, many of the
unique challenges involved in successfully designing and
manufacturing highly complex PCBs and the ongoing
capital investment required to maintain
state-of-the-art
capabilities have created significant barriers to
entry to companies attempting to compete in these high-mix and
high-complexity segments of the domestic PCB industry.
Decreased reliance on multiple printed circuit board
manufacturers by OEMs. OEMs traditionally have
relied on multiple printed circuit board manufacturers to
provide different services as an electronic product moves
through its life cycle. The transfer of a product among
different printed circuit board manufacturers often results in
increased costs and inefficiencies due to incompatible
technologies and manufacturing processes and production delays.
In addition, OEMs generally find it easier to manage fewer
printed circuit board manufacturers. As a result, OEMs are
reducing the number of printed circuit board manufacturers and
backplane assembly service providers on which they rely,
presenting an opportunity for those that can offer one-stop
manufacturing capabilities from prototype to volume
production.
Unique capabilities for aerospace/defense
products. The aerospace/defense market is
characterized by time-consuming and complex certification
processes, long product life cycles, and a demand for
leading-edge technology with extremely high reliability and
durability. We anticipate that an increased focus on
incorporating leading-edge technology in products for
reconnaissance and intelligence combined with continued spending
on military communications, aerospace, and weapons systems
applications will support a significant long-term market for
these products. Success in the aerospace/defense market is
generally achieved only after manufacturers demonstrate the
long-term ability to pass extensive OEM and government
certification processes, numerous product inspections, audits
for quality and performance, and extensive administrative
requirements associated with participation in government
programs. Export controls represent a barrier to entry for
international competition as they restrict the overseas export
of defense-related materials, services, and sensitive
technologies that are associated with United States government
programs. In addition, the complexity of the end products serves
as a barrier to entry to many potential new suppliers.
End market demand for backplane assembly and
sub-system
products has increased in emerging and developing countries,
which is changing the historical locations where these products
are manufactured and sold. OEM customers continue to
increase their reliance on outsourcing their backplane and
sub-system
requirements as they streamline their own supply chains. OEMs
increasingly are migrating to EMS companies that provide the
vertical integration model that allows OEMs to reduce further
the number of supply chain participants. This is quickly
becoming the trend worldwide as the larger EMS companies have
global footprints that allow them to provide local support
wherever required. Some EMS companies provide their own internal
backplane and
sub-system
capabilities and others rely on support from the historical
suppliers of these products. Because of the logistical
challenges associated with larger backplanes and
sub-systems,
manufacturing is migrating to low cost regions throughout the
world, such as Mexico, China and several Eastern European
countries. In addition, manufacturing and assembly of these
products continues to transition to Asia not only for lower
costs, but also to support a growing base of new business in the
region. This has begun to affect even high-end systems that in
the past have been primarily delivered to North American and
European customers. This trend is less apparent in the
introduction phase of new products that are designed and
developed in North America due to OEM requirements for local
support, small lot and quick turn services that can be
effectively provided by North American suppliers.
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The TTM
Solution
We manufacture PCBs and backplane assemblies that satisfy all
stages of an electronic products life cycle
from prototype to volume production. Key aspects of our solution
include:
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One-stop manufacturing solution. We offer a
one-stop manufacturing solution to our customers through our
specialized and integrated facilities, some of which focus on
different stages of an electronic products life cycle.
This one-stop solution allows us to provide a broad array of
services and technologies to meet the rapidly evolving needs of
our customers.
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Quick-turn services. We deliver highly complex
PCBs to customers in significantly compressed lead times. This
rapid delivery service enables OEMs to develop sophisticated
electronic products quickly and reduce their time to market. In
addition, our quick-turn services provide us with an opportunity
to cross-sell our other services, including high-mix and volume
production in our targeted end markets.
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Strong process and technology expertise. We
deliver time-critical and highly complex manufacturing services
through our advanced manufacturing processes and material and
technology expertise. We regularly manufacture PCBs with layer
counts in excess of 30 layers.
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Aerospace/defense capabilities. We provide a
comprehensive product offering in the aerospace/defense market
and support customers with extensive PCB fabrication, assembly
and testing capabilities as well as exotic material and
technology expertise.
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Complementary backplane assembly. We provide
backplane and
sub-system
assembly products as an extension of our commercial and
aerospace/defense PCB offerings. This segment is a full service
provider of complex backplane assembly,
sub-system
assembly, electro-mechanical integration and design services.
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Our
Manufacturing Services
Quick-turn
We refer to our rapid turnaround services as
quick-turn because we provide custom-fabricated PCBs
to our customers within as little as 24 hours to
10 days. As a result of our ability to rapidly and reliably
respond to the critical time requirements of our customers, we
generally receive premium pricing for our quick-turn services as
compared to standard lead time prices.
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Prototype production. In the design, testing,
and launch phase of a new electronic products life cycle,
our customers typically require limited quantities of PCBs in a
very short period of time. We satisfy this need by manufacturing
prototype PCBs in small quantities, with delivery times ranging
from as little as 24 hours to 10 days.
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Ramp-to-volume
production. After a product has successfully
completed the prototype phase, our customers introduce the
product to the market and require larger quantities of PCBs in a
short period of time. This transition stage between low-volume
prototype production and volume production is known as
ramp-to-volume.
Our
ramp-to-volume
services typically include manufacturing up to a few hundred
PCBs per order with delivery times ranging from 5 to
15 days.
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For the years ended December 31, 2009 and 2008, orders with
delivery requirements of 10 days or less represented
approximately 11% and 12% of our PCB revenue, respectively.
Quick-turn orders decreased as a percentage of our PCB revenue
in 2009 due to higher demand for our standard lead-time and high
technology production services.
Standard
Delivery and Technology
Our standard delivery time services focus on the high-mix and
complex technology requirements of our customers, with delivery
times typically ranging from four to eight weeks for PCB
customers. Although we provide standard delivery time services
to all customers, including large OEMs, we do not target our
standard delivery time services to high-volume, consumer
electronics applications such as cellular telephones, personal
computers, hand-held devices and automotive products. Our high
technology expertise is evidenced by our ability to regularly
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produce complex printed circuit boards with more than 30 layers
in commercial volumes. In 2009, the average layer count of our
PCBs remained stable at 13.9. However, layer count alone is no
longer an adequate indication of technology levels in PCBs. The
technology level of many lower layer count PCBs is complex as a
result of the incorporation of other technologically advanced
factors, including high performance materials, blind and buried
vias, sequential lamination and extremely fine geometries and
tolerances.
Strategy
Our goal is to be the leading provider of time-critical,
one-stop manufacturing services for highly complex printed
circuit boards and backplane assemblies. Key aspects of our
strategy include:
Leveraging our one-stop manufacturing
solution. Our quick-turn capabilities allow us to
establish relationships with customers early in a products
life cycle, giving us an advantage in securing preferred vendor
status for subsequent
ramp-to-volume
and volume production opportunities. We also seek to gain
quick-turn business from our existing
ramp-to-volume
and volume customers.
Using our quick-turn capabilities to attract new customers
with high growth potential. Our
time-to-market
strategy focuses on the rapid introduction and short product
life cycle of advanced electronic products. We continue to
attract emerging companies to our facilities with quick-turn
production capabilities and believe that our ability to rapidly
and reliably respond to the critical time requirements of our
customers provides us with a significant competitive advantage.
Continuing to improve our technological capabilities and
manufacturing processes. We are consistently
among the first to adopt new developments in printed circuit
board manufacturing processes and technology. We continuously
evaluate new manufacturing processes, materials, and technology
to increase our capabilities and further reduce our delivery
times, improve quality, increase yields and decrease costs. We
continue to invest in technologies that are required by the
leading OEMs in the electronics industry.
Capitalizing on facility specialization to enhance operating
efficiency. We utilize a facility specialization
strategy in which each order is directed to the facility best
suited to the customers particular delivery time, product
complexity and volume needs. Our plants use compatible
technologies and manufacturing processes, allowing us generally
to move orders easily between plants to optimize operating
efficiency. This strategy provides customers with faster
delivery times and enhanced product quality and consistency.
Expanding our presence in targeted markets through internal
initiatives and selective acquisitions. We
actively target technologies and business opportunities that
enhance our competitive position in selected markets. Our 2006
acquisition of Tyco Printed Circuit Group, or PCG, exemplifies
our ability to successfully expand our business into desirable
markets, such as the aerospace/defense market. Similarly, our
proposed acquisition of the PCB Subsidiaries is intended to
broaden our product line offering, capture incremental
high-volume business from existing and new customers, expand and
diversify our customer base and end markets, and enable us to
create a one-stop global business solution for our customers. We
intend to pursue high-end commercial and defense customers that
demand flexible and advanced manufacturing processes, expertise
with high-performance specialty materials, and other high-mix
and complex technologies. In addition, we regularly evaluate and
pursue internal initiatives aimed at adding new customers and
better serving existing customers within our markets.
Manufacturing
Technology
The market for our products is characterized by rapidly evolving
technology. In recent years, the trend in the electronic
products industry has been to increase the speed, complexity,
and performance of components while reducing their size. We
believe our technological capabilities allow us to address the
needs of manufacturers who must bring complicated electronic
products to market faster.
To manufacture printed circuit boards, we generally receive
circuit designs directly from our customers in the form of
computer data files, which we review to ensure data accuracy and
product manufacturability. Processing these computer files with
computer aided manufacturing (CAM) technology, we generate
images of the circuit patterns that we then physically develop
on individual layers, using advanced photographic processes.
Through a variety of plating and etching processes, we
selectively add and remove conductive materials to form
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layers of thin circuitry, which are separated by electrical
insulating material. A multilayer circuit board is produced by
laminating together multiple layers of circuitry, using intense
heat and pressure under vacuum. Vertical connections between
layers are achieved by drilling and plating through small holes,
called vias. Vias are made by highly specialized drilling
equipment capable of achieving extremely fine tolerances with
high accuracy. We specialize in high layer count printed circuit
boards with extremely fine geometries and tolerances. Because of
the tolerances involved, we employ clean rooms in certain
manufacturing processes where tiny particles might otherwise
create defects on the circuit patterns. We also use automated
optical inspection systems and electrical testing systems to
ensure consistent quality of the circuits we produce.
We believe that our highly specialized equipment and advanced
manufacturing processes enable us to reliably produce printed
circuit boards with the following characteristics:
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High layer count. Manufacturing printed
circuit boards with a large number of layers is difficult to
accomplish due to the accumulation of manufacturing tolerances
and registration systems required. We regularly manufacture
printed circuit boards with more than 30 layers on a quick-turn
and volume basis. Approximately 60% of our 2009 PCB revenue
involved the manufacture of printed circuit boards with at least
12 layers or more, compared with 59% in 2008. Printed circuit
boards with at least 20 layers or more represented 26% of PCB
revenue in 2009, down from 27% in 2008, due to increasing levels
of high technology aerospace/defense and high density
interconnect printed circuit board products which are not
necessarily characterized by higher layer counts.
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Blind and buried vias. Vias are drilled holes
that provide electrical connectivity between layers of circuitry
in a printed circuit board. Blind vias connect the surface layer
of the printed circuit board to an internal layer and terminate
at the internal layer. Buried vias are holes that do not reach
either surface of the printed circuit board but allow inner
layers to be interconnected. Products with blind and buried vias
can be made thinner, smaller, lighter and with higher component
density and more functionality than products with traditional
vias.
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Embedded passives. Embedded passive technology
involves embedding either the capacitive or resistive elements
inside the printed circuit board, which allows for removal of
passive components from the surface of the printed circuit board
and thereby leaves more surface area for active components. Use
of this technology results in greater design flexibility and
products with higher component density and increased
functionality.
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Fine line traces and spaces. Traces are the
connecting copper lines between the different components of the
printed circuit board, and spaces are the distances between
traces. The smaller the traces and the tighter the spaces, the
higher the density on the printed circuit board and the greater
the expertise required to achieve a desired final yield on an
order. We are able to provide 0.003 inch traces and spaces.
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High aspect ratios. The aspect ratio is the
ratio between the thickness of the printed circuit board and the
diameter of a drilled hole. The higher the ratio, the greater
the difficulty to reliably form, electroplate and finish all the
holes on a printed circuit board. In production, we are able to
provide aspect ratios of up to 15:1.
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Thin core processing. A core is the basic
inner-layer building block material from which printed circuit
boards are constructed. A core consists of a flat sheet of
material comprised of glass-reinforced resin with copper foil
laminated on either side. The thickness of inner-layer cores is
typically determined by the overall thickness of the printed
circuit board and the number of layers required. The demand for
thinner cores derives from the requirements for thinner printed
circuit boards, higher layer counts and various electrical
parameters. Core thickness in our printed circuit boards ranges
from as little as 0.002 inches up to 0.062 inches.
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Microvias. Microvias are small vias with
diameters generally between 0.001 inches and
0.005 inches after plating. These very small vias consume
much less space on the layers they interconnect, thereby
providing for greater wiring densities and closer spacing of
components and their attachment pads. The fabrication of printed
circuit boards with microvias requires specialized equipment,
such as laser drills, and highly developed process knowledge.
Applications such as handheld wireless devices employ microvias
to obtain a higher degree of functionality from a given surface
area.
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Advanced hole fill process. Our advanced hole
fill processes provide designers the opportunity to increase the
density of component placements by reducing the surface area
required to place many types of components. In traditional
design, components are routed from their surface interfaces
through via connections in order to access power and ground
connections and the internal circuitry used to connect to other
discrete components. Our advanced hole fill processes provide
methods to allow for vias to be placed inside their respective
surface mount pads by filling the vias with a thermoset epoxy
and plating flat copper surface mount pads directly over the
filled hole.
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Advanced materials. We manufacture circuit
boards using a wide variety of advanced insulating materials.
These high-performance materials offer electrical, thermal, and
long-term reliability advantages over conventional materials but
are more difficult to manufacture. We are certified by
Underwriters Laboratories to manufacture printed circuit boards
using many types and combinations of these specialty materials.
This wide offering allows us to manufacture complex boards for
niche and high-end commercial and aerospace/defense markets.
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Advanced backplane assembly and system
integration. We provide specialized assembly
services for highly complex and large form-factor backplanes.
These services provide additional value for many of the high
technology backplane circuit boards produced in our printed
circuit board manufacturing facilities. The manufacture of
backplane assemblies involves mounting various electronic
components to large PCBs. Components include, but are not
limited to, connectors, capacitors, resistors, diodes,
integrated circuits, hardware and a variety of other parts. We
also assemble backplanes and
sub-systems
and provide full system integration of backplane assemblies,
cabling, power, thermal, and other complex electromechanical
parts into chasses and other enclosures. In addition to assembly
services, we provide a full range of inspection and testing
services such as automated optical inspection (AOI) and X-ray
inspection to ensure that all components have been properly
placed and electrical circuits are complete.
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Flexible circuits. We manufacture circuits on
flexible substrates that can be installed in three-dimensional
applications for electronic packaging systems. Use of flexible
circuitry enables improved reliability, improved electrical
performance, reduced weight and reduced assembly costs when
compared with traditional wire harness or ribbon cable
packaging. We can combine these flexible substrates with rigid
laminates to create highly reliable, high layer count rigid-flex
products.
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High frequency circuits. We have the ability
to produce and test specialized circuits used in radio-frequency
or microwave emission and collection applications. These
products are typically used for radar, transmit/receive antennas
and similar wireless applications. Markets for these products
include defense, avionics, satellite, and commercial. The
manufacture of these products requires advanced materials,
equipment, and methods that are highly specialized and distinct
from conventional printed circuit manufacturing techniques. We
also offer specialized radio-frequency assembly and test
services.
|
|
|
|
Thermal management. Increased component
density on circuit boards often requires improved thermal
dissipation to reduce operating temperatures. We have the
ability to produce printed circuits with electrically passive
heat sinks laminated externally on a circuit board or between
two circuit boards
and/or
electrically active thermal cores.
|
|
|
|
Design engineering services. We have the
ability to offer both mechanical and electrical computer aided
design (CAD) services, which allows us to offer our customers
complete design through production services for PCB, assembly
and system level products. We provide design services for both
defense and commercial applications. We also offer signal
integrity, thermal, and structural analysis services.
|
Customers
and Markets
Our customers include both OEMs and EMS companies that primarily
serve the networking/communications, aerospace/defense, high-end
computing and medical/industrial/instrumentation end markets of
the electronics industry. We measure customers as those
companies that have placed at least two orders in the preceding
12-month
period. As of December 31, 2009 and 2008, we had
approximately 700 and 860 customers, respectively.
7
The following table shows the percentage of our net sales in
each of the principal end markets we served for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
End Markets(1)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Aerospace/Defense
|
|
|
44
|
%
|
|
|
37
|
%
|
|
|
30
|
%
|
Networking/Communications
|
|
|
36
|
|
|
|
40
|
|
|
|
42
|
|
Computing/Storage/Peripherals
|
|
|
11
|
|
|
|
12
|
|
|
|
14
|
|
Medical/Industrial/Instrumentation/Other
|
|
|
9
|
|
|
|
11
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sales to EMS companies are classified by the end markets of
their OEM customers. |
Sales attributable to our five largest OEM customers, which can
vary from year to year, accounted for 34%, 29% and 24% of our
net sales in 2009, 2008 and 2007, respectively. This increase in
our customer concentration reflects a general trend of
consolidation in the industries we serve. Our five largest OEM
customers in 2009 were, in alphabetical order, Cisco Systems,
Huawei, Juniper Networks, Northrop Grumman and Raytheon. Sales
attributed to OEMs include sales made through EMS providers.
Sales to EMS providers comprised approximately 47%, 52% and 53%
of our net sales in 2009, 2008 and 2007, respectively. Although
our contractual relationships are with the EMS companies, we
typically negotiate price and volume requirements directly with
the OEMs. In addition, we are on the approved vendor lists of
several of our EMS providers. This positions us to participate
in business that is awarded at the discretion of the EMS
provider. Our five largest EMS customers in 2009 were, in
alphabetical order, Celestica, Flextronics, Hon Hai, Jabil, and
Plexus.
During 2009, 2008 and 2007 our net sales by country were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
|
74
|
%
|
|
|
74
|
%
|
|
|
75
|
%
|
China
|
|
|
16
|
|
|
|
12
|
|
|
|
9
|
|
Malaysia
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
Other
|
|
|
5
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to other countries, individually, for the years ended
December 31, 2009, 2008 and 2007 did not exceed 10% of
total net sales.
Our marketing strategy focuses on building long-term
relationships with our customers engineering and new
product introduction personnel early in the product development
phase. As the product moves from the prototype stage through
ramp-to-volume
and volume production, we shift our focus to the customers
procurement departments in order to capture sales at each point
in the products life cycle.
Our staff of engineers, sales support personnel, and managers
assist our sales representatives in advising customers with
respect to manufacturing feasibility, design review, and
technological capabilities through direct communication and
visits. We combine our sales efforts with customer service at
each facility to better serve our customers. Each large customer
is typically assigned an account manager to coordinate all of
the companys services across all of its facilities.
Additionally, the largest and most strategic customers are also
supported by selected program management and engineering
resources. Our sales force is comprised of direct sales
personnel, complemented by a large force of commission-based,
independent representatives.
Our international footprint includes a backplane and
sub-system
assembly operation in Shanghai, China, and inventory hubs in
China, Malaysia, Mexico, and Thailand. Our international sales
force services customers throughout North America, Europe, Asia,
and the Middle East. We believe our international reach enables
us to access new customers and allows us to better serve
existing customers.
8
Suppliers
The primary raw materials we use in PCB manufacturing include
copper-clad laminate; chemical solutions such as copper and gold
for plating operations; photographic film; carbide drill bits;
and plastic for testing fixtures. The primary raw materials we
use in backplane assembly include PCBs, connectors, capacitors,
resistors, diodes, integrated circuits and formed sheet metal.
We typically use
just-in-time
procurement practices to maintain our raw materials inventory at
low levels and work closely with our suppliers to obtain
technologically advanced raw materials. Although we have
preferred suppliers for some raw materials, most of our raw
materials are generally readily available in the open market
from numerous other potential suppliers. In addition, we
periodically seek alternative supply sources to ensure that we
are receiving competitive pricing and service. Adequate amounts
of all raw materials have been available in the past, and we
believe this availability will continue into the foreseeable
future.
Competition
Despite industry consolidation, the printed circuit board
industry is fragmented and characterized by intense competition.
Our principal North American PCB competitors include DDi,
Endicott Interconnect Technologies, Firan Technology Group,
ISU/Petasys, Viasystems, Pioneer Circuits, and Sanmina-SCI. Our
principal international PCB competitors include Elec &
Eltek, Hitachi, Multek and Wus. Our principal assembly
competitors include Amphenol, Sanmina-SCI, Simclair, TT
Electronics, and Viasystems.
We believe we compete favorably based on the following
competitive factors:
|
|
|
|
|
status as the largest North American PCB manufacturer;
|
|
|
|
ability to offer the most comprehensive PCB product offering;
|
|
|
|
ability to offer one-stop manufacturing capabilities;
|
|
|
|
specialized and integrated manufacturing facilities;
|
|
|
|
ability to offer
time-to-market
capabilities;
|
|
|
|
capability and flexibility to produce technologically complex
products;
|
|
|
|
leading edge aerospace/defense capabilities;
|
|
|
|
flexibility to manufacture low volume, high-mix products;
|
|
|
|
consistent high-quality product; and
|
|
|
|
outstanding customer service.
|
In addition, we believe our continuous evaluation and early
adoption of new manufacturing and production technologies give
us a competitive advantage. We believe that our ability to
manufacture PCBs using advanced technologies, such as blind and
buried vias, larger panel sizes, laser drilled microvias, exotic
materials, and smaller traces and spaces provides us with a
competitive advantage over manufacturers that do not possess
these advanced technological capabilities. Our future success
will depend in large part on our ability to maintain and enhance
our manufacturing capabilities and production technologies.
Backlog
Backlog consists of purchase orders received, including, in some
instances, forecast requirements released for production under
customer contracts. We obtain firm purchase orders from our
customers for all products. However, for many of these purchase
orders, customers do not make firm orders for delivery of
products more than 30 to 60 days in advance. Some of the
markets which we serve are characterized by increasingly short
product life cycles. For other markets, longer product life
cycles are more common as are orders for deliveries greater than
60 days in advance.
9
Intellectual
Property
We believe our business depends on the effectiveness of our
fabrication techniques and our ability to continue to improve
our manufacturing processes. We have limited patent or trade
secret protection for our manufacturing processes. We rely on
the collective experience of our employees in the manufacturing
process to ensure that we continuously evaluate and adopt the
new technologies available in our industry. In addition, we
depend on training, recruiting, and retaining our employees, who
are required to have sufficient know-how to operate advanced
equipment and to conduct complicated manufacturing processes.
Governmental
Regulation
Our operations are subject to federal, state, and local
regulatory requirements relating to environmental compliance,
waste management, and health and safety matters. In particular,
we are subject to regulations promulgated by the following:
|
|
|
|
|
the U.S. Occupational Safety and Health Administration
(OSHA), and state OSHA and Department of Labor laws pertaining
to health and safety in the workplace;
|
|
|
|
the U.S. Environmental Protection Agency (U.S. EPA),
pertaining to air emissions; wastewater discharges; and the use,
storage, discharge, and disposal of hazardous chemicals used in
the manufacturing processes;
|
|
|
|
the Department of Homeland Security (DHS) regarding the storage
of certain chemicals of interest;
|
|
|
|
corresponding state laws and regulations, including site
investigation and remediation;
|
|
|
|
corresponding U.S. county and city agencies;
|
|
|
|
corresponding agencies in China for our Shanghai facility;
|
|
|
|
the U.S. Departments of Commerce and State regarding export
compliance; and
|
|
|
|
material content directives and laws that ban or restrict
certain hazardous substances in products sold in member states
of the European Union, China, other countries, and New York City.
|
To date, the costs of compliance and environmental remediation
have not been material to us. These costs include investigation
of our three Connecticut sites and remediation of one as
required by the Connecticut Land Transfer Act and the
investigation and remediation of our Washington site as required
by the Washington Department of Ecology. Nevertheless,
additional or modified requirements may be imposed in the
future. If such additional or modified requirements are imposed
on us, or if conditions requiring remediation at other sites are
found to exist, we may be required to incur substantial
additional expenditures.
We made legal commitments to the U.S. EPA and to the State
of Connecticut regarding settlement of enforcement actions
against the Stafford, Connecticut facilities. The obligations
include fulfillment of a Compliance Management Plan (CMP) until
at least July 2009, and installation of rinse water recycling
systems at two of the Stafford, Connecticut facilities. As of
July 1, 2009, the CMP and one of two recycling systems were
completed.
Additionally, our operations are subject to federal regulations
relating to export control, including the following:
|
|
|
|
|
U.S. Department of State regulations including the Arms
Export Control Act (AECA) and International Traffic In Arms
Regulations (ITAR) located at 22 CFR Parts
120-130,
|
|
|
|
U.S. Department of Commerce regulations, including the
Export Administration Regulations (EAR) located at 15 CFR
Parts
730-744, and
|
|
|
|
Office of Foreign Asset Control (OFAC) regulations located at 31
CFR Parts
500-599.
|
We have not experienced any compliance issues and we maintain a
robust export compliance program.
10
Employees
As of December 31, 2009, we had 3,037 employees. Of
our employees, 2,837 were involved in manufacturing and
engineering, 57 worked in sales and marketing, and 143 worked in
accounting, systems and other support capacities. None of our
U.S. employees are represented by unions. In China,
approximately 95 employees are represented by a labor union
on a national level. We have not experienced any labor problems
resulting in a work stoppage and believe that we have good
relations with our employees.
Management
The following table, together with the accompanying text,
presents certain information as of December 31, 2009, with
respect to each of our executive officers.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s) Held With the Company
|
|
Kenton K. Alder
|
|
|
60
|
|
|
Chief Executive Officer, President and Director
|
Steven W. Richards
|
|
|
45
|
|
|
Executive Vice President, Chief Financial Officer and Secretary
|
Douglas L. Soder
|
|
|
49
|
|
|
Executive Vice President
|
Shane S. Whiteside
|
|
|
44
|
|
|
Executive Vice President and Chief Operating Officer
|
Kenton K. Alder has served as our Chief Executive
Officer, President and Director since March 1999. From January
1997 to July 1998, Mr. Alder served as Vice President of
Tyco Printed Circuit Group Inc., a printed circuit board
manufacturer. Prior to that time, Mr. Alder served as
President and Chief Executive Officer of ElectroStar, Inc.,
previously a publicly held printed circuit board manufacturing
company, from December 1994 to December 1996. From January 1987
to November 1994, Mr. Alder served as President of Lundahl
Astro Circuits Inc., a predecessor company to ElectroStar.
Mr. Alder holds a Bachelor of Science degree in Finance and
a Bachelor of Science degree in Accounting from Utah State
University.
Steven W. Richards has served as our Chief Financial
Officer since December 2005 and Executive Vice President since
November 2006. Mr. Richards has served as our Secretary
since September 2005, a Vice President since October 2003 and
our Treasurer from May 2000 to December 2005. From June 1996 to
April 2000, Mr. Richards worked in a variety of financial
planning and analysis roles at Atlantic Richfield Corporation, a
multinational oil and gas company. Mr. Richards holds a
Bachelor of Journalism degree from the University of Missouri,
Columbia and a Master of Business Administration degree from the
University of Southern California. Mr. Richards is a
Chartered Financial Analyst charterholder.
Douglas L. Soder has served as our Executive Vice
President since November 2006. Prior to joining our company,
Mr. Soder held the position of Executive Vice President for
Tyco Electronics from January 2001 until our acquisition of that
company in October 2006. During an almost
24-year
career at Tyco Electronics, Mr. Soder served in a variety
of sales, sales management, and operations management positions
at its AMP Incorporated and PCG subsidiaries. From November 1996
to January 2001, Mr. Soder was Vice President of Sales and
Marketing for PCG. Mr. Soder holds a Bachelor of Arts
degree in Political Science from Dickinson College.
Shane S. Whiteside has served as an Executive Vice
President since November 2006 and our Chief Operating Officer
since December 2002. From January 2001 to November 2002,
Mr. Whiteside was the Vice President of
Operations Santa Ana Division and our Director of
Operations Santa Ana Division from July 1999 to
December 2000. From March 1998 to June 1999, Mr. Whiteside
was our Director of Operations of Power Circuits.
Mr. Whiteside holds a Bachelor of Arts degree in Economics
from the University of California at Irvine.
Availability
of Reports Filed with the Securities and Exchange
Commission
We are a Delaware corporation, with our principal executive
offices located at 2630 South Harbor Blvd., Santa Ana, CA 92704.
Our telephone number is
(714) 327-3000.
Our web site address is www.ttmtech.com. Information
included on our website is not incorporated into this report.
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports are available without charge on
our website at www.ttmtech.com/investors/investors.jsp, as soon
as reasonably practicable after they are filed
11
electronically with the Securities and Exchange Commission
(SEC). Copies are also available without charge by
(i) telephonic request by calling our Investor Relations
Department at
(714) 241-0303,
(ii) e-mail
request to investor@ttmtech.com, or (iii) a written request
to TTM Technologies, Inc., Attention: Investor Relations, 2630
South Harbor Blvd., Santa Ana, CA 92704.
An investment in our common stock involves a high degree of
risk. You should carefully consider the factors described below,
in addition to those discussed elsewhere in this report, in
analyzing an investment in our common stock. If any of the
events described below occurs, our business, financial
condition, and results of operations would likely suffer, the
trading price of our common stock could fall, and you could lose
all or part of the money you paid for our common stock.
In addition, the following risk factors and uncertainties
could cause our actual results to differ materially from those
projected in our forward-looking statements, whether made in
this report or the other documents we file with the SEC, or our
annual or quarterly reports to stockholders, future press
releases, or oral statements, whether in presentations,
responses to questions, or otherwise.
Risks
Related to Our Company
We are
heavily dependent upon the worldwide electronics industry, which
is characterized by significant economic cycles and fluctuations
in product demand. A significant downturn in the electronics
industry could result in decreased demand for our manufacturing
services and could lower our sales and gross
margins.
A majority of our revenue is generated from the electronics
industry, which is characterized by intense competition,
relatively short product life cycles, and significant
fluctuations in product demand. Furthermore, the industry is
subject to economic cycles and recessionary periods and has been
negatively affected by the current contraction in the
U.S. economy and in the worldwide electronics market.
Moreover, due to the uncertainty in the end markets served by
most of our customers, we have a low level of visibility with
respect to future financial results. The current credit crisis
and related turmoil in the financial system have negatively
impacted the global economy and the electronics industry. A
lasting economic recession, excess manufacturing capacity, or a
prolonged decline in the electronics industry could negatively
affect our business, results of operations, and financial
condition. A decline in our sales could harm our profitability
and results of operations and could require us to record an
additional valuation allowance against our deferred income tax
assets or recognize an impairment of our long-lived assets,
including goodwill and other intangible assets.
The
global financial crisis may impact our business and financial
condition in ways that we currently cannot
predict.
The continued credit crisis and related turmoil in the global
financial system have had and may continue to have an impact on
our business and financial condition. In addition to the impact
that the global financial crisis has already had on us, we may
face significant challenges if conditions in the financial
markets do not improve or continue to worsen. For example,
continuation of the credit crisis could adversely impact overall
demand in the electronics industry, which could have a negative
effect on our revenues and profitability. In addition, our
ability to access the capital markets may be severely restricted
at a time when we would like, or need, to do so, which could
have an impact on our flexibility to react to changing economic
and business conditions or our ability to pursue acquisitions.
During
periods of excess global printed circuit board manufacturing
capacity, our gross margins may fall and/or we may have to incur
restructuring charges if we choose to reduce the capacity of or
close any of our facilities.
When we experience excess capacity, our sales revenues may not
fully cover our fixed overhead expenses, and in such a case our
gross margins will fall. In addition, we generally schedule our
quick-turn production facilities at
12
less than full capacity to retain our ability to respond to
unexpected additional quick-turn orders. However, if these
orders are not received, we may forego some production and could
experience continued excess capacity.
If we conclude we have significant, long-term excess capacity,
we may decide to permanently close one or more of our
facilities, and lay off some of our employees. Closures or
lay-offs could result in our recording restructuring charges
such as severance, other exit costs, and asset impairments.
We
face a risk that capital needed for our business and to repay
our debt obligations will not be available when we need it.
Additionally, our leverage and our debt service obligations may
adversely affect our cash flow.
As of December 31, 2009, we had total indebtedness of
approximately $175.0 million, which represented
approximately 34% of our total capitalization. If we complete
the PCB Combination, we expect to have more than
$450 million of additional indebtedness.
Our indebtedness could have significant negative consequences,
including:
|
|
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
limiting our ability to obtain additional financing;
|
|
|
|
requiring the use of a substantial portion of any cash flow from
operations to service our indebtedness, thereby reducing the
amount of cash flow available for other purposes, including
capital expenditures;
|
|
|
|
limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we
compete; and
|
|
|
|
placing us at a possible competitive disadvantage to less
leveraged competitors and competitors that have better access to
capital resources.
|
Our
acquisition strategy involves numerous risks.
As part of our business strategy, we expect that we will
continue to grow by pursuing acquisitions of businesses,
technologies, assets, or product lines that complement or expand
our business. Risks related to an acquisition may include:
|
|
|
|
|
the potential inability to successfully integrate acquired
operations and businesses or to realize anticipated synergies,
economies of scale, or other expected value;
|
|
|
|
diversion of managements attention from normal daily
operations of our existing business to focus on integration of
the newly acquired business;
|
|
|
|
unforeseen expenses associated with the integration of the newly
acquired business;
|
|
|
|
difficulties in managing production and coordinating operations
at new sites;
|
|
|
|
the potential loss of key employees of acquired operations;
|
|
|
|
the potential inability to retain existing customers of acquired
companies when we desire to do so;
|
|
|
|
insufficient revenues to offset increased expenses associated
with acquisitions;
|
|
|
|
the potential decrease in overall gross margins associated with
acquiring a business with a different product mix;
|
|
|
|
the inability to identify certain unrecorded liabilities;
|
|
|
|
the potential need to restructure, modify, or terminate customer
relationships of the acquired company;
|
|
|
|
an increased concentration of business from existing or new
customers; and
|
|
|
|
the potential inability to identify assets best suited to our
business plan.
|
13
Acquisitions may cause us to:
|
|
|
|
|
enter lines of business
and/or
markets in which we have limited or no prior experience;
|
|
|
|
issue debt and be required to abide by stringent loan covenants;
|
|
|
|
assume liabilities;
|
|
|
|
record goodwill and indefinite-lived intangible assets that will
be subject to impairment testing and potential periodic
impairment charges;
|
|
|
|
become subject to litigation and environmental issues, which
include product material content certifications;
|
|
|
|
incur unanticipated costs;
|
|
|
|
incur large and immediate write-offs;
|
|
|
|
issue common stock that would dilute our current
stockholders percentage ownership; and
|
|
|
|
incur substantial transaction-related costs, whether or not a
proposed acquisition is consummated.
|
Acquisitions of high technology companies are inherently risky,
and no assurance can be given that our recent or future
acquisitions, including the proposed PCB Combination, will be
successful and will not harm our business, operating results, or
financial condition. Failure to manage and successfully
integrate acquisitions we make could harm our business and
operating results in a material way. Even when an acquired
company has already developed and marketed products, product
enhancements may not be made in a timely fashion. In addition,
unforeseen issues might arise with respect to such products
after the acquisition.
If we
are unable to manage our growth effectively, our business could
be negatively affected.
We have experienced, and expect to continue to experience,
growth in the scope and complexity of our operations. This
growth may strain our managerial, financial, manufacturing, and
other resources. In order to manage our growth, we may be
required to continue to implement additional operating and
financial controls and hire and train additional personnel.
There can be no assurance that we will be able to do so in the
future, and failure to do so could jeopardize our expansion
plans and seriously harm our operations. In addition, growth in
our capacity could result in reduced capacity utilization and a
corresponding decrease in gross margins.
Our
development plans involve significant capital expenditures and
financing requirements, which are subject to a number of risks
and uncertainties.
Our business is capital intensive. Our ability to increase
revenue, profit, and cash flow depends upon continued capital
spending. There can be no assurance as to whether or
at what cost our anticipated capital projects will
be completed, if they will be completed on schedule, or as to
the success of these projects if completed. In addition, we may
be unable to generate sufficient cash flows from operations or
obtain necessary external financing to finance our capital
expenditures and investments. Further, our ability to obtain
external financing in the future is subject to a variety of
uncertainties, including the following:
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|
|
|
|
our future results of operations, financial condition, and cash
flows;
|
|
|
|
the condition of the global economy generally and the demand for
our products, specifically; and
|
|
|
|
the cost of financing and the condition of financial markets.
|
If adequate funds are not available on satisfactory terms, we
may be forced to curtail our expansion plans, which could result
in a loss of customers, the inability to successfully implement
our business strategy, and limitations on the growth of our
business.
14
We
depend upon a relatively small number of OEM customers for a
large portion of our sales, and a decline in sales to major
customers could harm our results of operations.
A small number of customers are responsible for a significant
portion of our sales. Our five largest OEM customers accounted
for approximately 34% and 29% of our net sales for the year
ended December 31, 2009 and 2008, respectively. Sales
attributed to OEMs include both direct sales as well as sales
that the OEMs place through EMS providers. Our customer
concentration could fluctuate, depending on future customer
requirements, which will depend in large part on market
conditions in the electronics industry segments in which our
customers participate. The loss of one or more significant
customers or a decline in sales to our significant customers
could harm our business, results of operations, and financial
condition and lead to declines in the trading price of our
common stock. In addition, we generate significant accounts
receivable in connection with providing manufacturing services
to our customers. If one or more of our significant customers
were to become insolvent or were otherwise unable to pay for the
manufacturing services provided by us, our results of operations
would be harmed.
In addition, during industry downturns, we may need to reduce
prices at customer requests to limit the level of order losses;
and we may be unable to collect payments from our customers.
There can be no assurance that key customers would not cancel
orders, that they would continue to place orders with us in the
future at the same levels as experienced by us in prior periods,
that they would be able to meet their payment obligations, or
that the end-products which use our products would be
successful. This concentration of customer base may materially
and adversely affect our operating results due to the loss or
cancellation of business from any of these key customers,
significant changes in scheduled deliveries to any of these
customers, or decreases in the prices of the products sold to
any of these customers.
We
compete against manufacturers in Asia, where production costs
are lower. These competitors may gain market share in our key
market segments, which may have an adverse effect on the pricing
of our products.
We may be at a competitive disadvantage with respect to price
when compared to manufacturers with lower-cost facilities in
Asia and other locations. We believe price competition from
printed circuit board manufacturers in Asia and other locations
with lower production costs may play an increasing role in the
market. Although we do have a backplane assembly facility in
China, we do not have offshore facilities for PCB manufacturing
in lower-cost locations such as Asia. While historically our
competitors in these locations have produced less
technologically advanced printed circuit boards, they continue
to expand their capacity and capabilities with advanced
equipment to produce higher technology printed circuit boards.
In addition, fluctuations in foreign currency exchange rates may
benefit these offshore competitors. As a result, these
competitors may gain market share, which may force us to lower
our prices, which would reduce our gross margins.
A
trend toward consolidation among our customers could adversely
affect our business.
Recently, some of our large customers have consolidated and
further consolidation of customers may occur. Depending on which
organization becomes the controller of the supply chain function
following the consolidation, we may not be retained as a
preferred or approved supplier. In addition, product duplication
could result in the termination of a product line that we
currently support. While there is potential for increasing our
position with the combined customer, there does exist the
potential for decreased revenue if we are not retained as a
continuing supplier. We also face the risk of increased pricing
pressure from the combined customer because of its increased
market share.
Our
failure to comply with the requirements of environmental laws
could result in litigation, fines and revocation of permits
necessary to our manufacturing processes. Failure to operate in
conformance with environmental laws could lead to debarment from
our participation in federal government contracts.
Our operations are regulated under a number of federal, state,
local, and foreign environmental and safety laws and regulations
that govern, among other things, the discharge of hazardous
materials into the air and water, as well as the handling,
storage, and disposal of such materials. These laws and
regulations include the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Superfund Amendment
and Reauthorization
15
Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Toxic Substances Control Act, and the Federal
Motor Carrier Safety Improvement Act as well as analogous state,
local, and foreign laws. Compliance with these environmental
laws is a major consideration for us because our manufacturing
processes use and generate materials classified as hazardous.
Because we use hazardous materials and generate hazardous wastes
in our manufacturing processes, we may be subject to potential
financial liability for costs associated with the investigation
and remediation of our own sites, or sites at which we have
arranged for the disposal of hazardous wastes, if such sites
become contaminated. Even if we fully comply with applicable
environmental laws and are not directly at fault for the
contamination, we may still be liable. The wastes we generate
include spent ammoniacal and cupric etching solutions, metal
stripping solutions, waste acid solutions, waste alkaline
cleaners, waste oil, and waste waters that contain heavy metals
such as copper, tin, lead, nickel, gold, silver, cyanide, and
fluoride, and both filter cake and spent ion exchange resins
from equipment used for
on-site
waste treatment.
Any material violations of environmental laws or failure to
maintain required environmental permits could subject us to
fines, penalties, and other sanctions, including the revocation
of our effluent discharge permits, which could require us to
cease or limit production at one or more of our facilities, and
harm our business, results of operations, and financial
condition. Even if we ultimately prevail, environmental lawsuits
against us would be time consuming and costly to defend.
Prior to our acquisition of our PCG business, PCG made legal
commitments to the U.S. EPA and to the State of Connecticut
regarding settlement of enforcement actions related to the PCG
operations in Connecticut. The obligations include fulfillment
of a Compliance Management Plan until July 1, 2009 and
installation of two rinse water recycling systems at the
Stafford, Connecticut facilities. To date we have installed one
of the two recycling systems. Failure to meet the remaining
commitment could result in further costly enforcement actions,
including exclusion from participation in defense and other
federal contracts, which would materially harm our business,
results of operations, and financial condition.
Environmental laws also could become more stringent over time,
imposing greater compliance costs and increasing risks and
penalties associated with violation. We operate in
environmentally sensitive locations, and we are subject to
potentially conflicting and changing regulatory agendas of
political, business, and environmental groups. Changes or
restrictions on discharge limits, emissions levels, material
storage, handling, or disposal might require a high level of
unplanned capital investment or global relocation. It is
possible that environmental compliance costs and penalties from
new or existing regulations may harm our business, results of
operations, and financial condition.
We are increasingly required to certify compliance with various
material content restrictions in our products based on laws of
various jurisdictions or territories such as the Restriction of
Hazardous Substances (RoHS) and Registration, Evaluation,
Authorization and Restriction of Chemicals (REACH) directives in
the European Union and Chinas RoHS legislation. New York
City has adopted identical restrictions and many
U.S. states are considering similar rules and legislation.
In addition, we must also certify as to the non-applicability to
the EUs Waste Electrical and Electronic Equipment
directive for certain products that we manufacture. The REACH
directive requires adoption of Substances of Very High Concern
(SVHCs) periodically. We must survey our supply chain and
certify to the non-presence or presence of SVHCs to our
customers. Currently, two lists totaling 29 SVHCs have been
adopted by the EU. As with other types of product certifications
that we routinely provide, we may incur liability and pay
damages if our products do not conform to our certifications.
New regulations could require us to acquire costly equipment or
to incur other significant expenses. Any failure by us following
the proposed PCB Combination to control the use of, or
adequately restrict the discharge of, hazardous substances could
subject us to substantial future liabilities.
We are also subject to a variety of environmental laws and
regulations in the Peoples Republic of China, or PRC,
which impose limitations on the discharge of pollutants into the
air and water and establish standards for the treatment,
storage, and disposal of solid and hazardous wastes. The
manufacturing of our products generates gaseous chemical wastes,
liquid wastes, waste water and other industrial wastes in
various stages of the manufacturing process. Production sites in
the PRC are subject to regulation and periodic monitoring by the
relevant environmental protection authorities. Environmental
claims or the failure to comply with current or future
regulations could result in the assessment of damages or
imposition of fines against us, suspension of production,
16
or cessation of operations. If the PCB Combination is effected,
our exposure to environmental laws and regulations of the PRC
would increase.
Our
business and operations could be adversely impacted by climate
change initiatives.
Our manufacturing processes require that we purchase significant
quantities of energy from third parties, which results in the
generation of greenhouse gasses, either directly
on-site or
indirectly at electric utilities. Both domestic and
international legislation to address climate change by reducing
greenhouse gas emissions and establishing a price on carbon
could create increases in energy costs and price volatility.
Considerable international attention is now focused on
development of an international policy framework to guide
international action to address climate change. Proposed and
existing legislative efforts to control or limit greenhouse gas
emissions could affect our energy source and supply choices as
well as increase the cost of energy and raw materials derived
from sources that generate greenhouse gas emissions.
The
U.S. Defense Security Service and the Committee on Foreign
Investment in the United States, or CFIUS, may take measures to
protect classified projects and national security.
Due to the substantial foreign ownership of our shares that
would result from the proposed PCB Combination, the
U.S. Defense Security Service and CFIUS may take measures
to protect classified projects and national security. Certain
measures and conditions may be imposed on us, which may
materially and adversely affect our operating results, due to
the impact of implementing security measures limiting our
control over certain U.S. facilities, contracts, personnel,
and operations.
We are
subject to the requirements of the National Industrial Security
Program Operating Manual for our facility security clearance,
which is a prerequisite to our ability to perform on classified
contracts for the U.S. government.
A facility security clearance is required in order to be awarded
and perform on classified contracts for the U.S. Department
of Defense and certain other agencies of the
U.S. government. We currently perform on several classified
contracts. As a cleared entity, we must comply with the
requirements of the National Industrial Security Program
Operating Manual, or NISPOM, and any other applicable
U.S. government industrial security regulations. Further,
due to the fact that immediately following the PCB Combination,
if effected, a significant portion of our voting equity will be
owned by a
non-U.S. entity,
we expect that following the closing of the PCB Combination we
will be required to be governed by and operate in accordance
with the terms and requirements of a Special Security Agreement,
or SSA, with the U.S. Department of Defense.
If we were to violate the terms and requirements of the SSA, the
NISPOM, or any other applicable U.S. government industrial
security regulations (which may apply to us under the terms of
our classified contracts), we could lose our security clearance.
We cannot assure you that we will be able to maintain our
security clearance. If for some reason our security clearance is
invalidated or terminated, we may not be able to continue to
perform classified contracts and would not be able to enter into
new classified contracts, which could adversely affect our
revenues.
We
export defense and commercial products from the United States to
other countries. If we were to fail to comply with export laws,
we could be subject to fines and other punitive
actions.
Exports from the United States are regulated by the
U.S. Department of State and U.S. Department of
Commerce, and exports from the PRC are regulated by certain PRC
authorities. Other foreign countries also regulate exports of
products that may be manufactured by us. Failure to comply with
these regulations can result in significant fines and penalties.
Additionally, violations of these laws can result in punitive
penalties, which would restrict or prohibit us from exporting
certain products, resulting in significant harm to our business.
We are
exposed to the credit risk of some of our customers and to
credit exposures in weakened markets.
Most of our sales are on an open credit basis, with
standard industry payment terms. We monitor individual customer
payment capability in granting such open credit arrangements,
seek to limit such open credit to amounts
17
we believe the customers can pay, and maintain reserves we
believe are adequate to cover exposure for doubtful accounts.
During periods of economic downturn in the electronics industry
and the global economy, our exposure to credit risks from our
customers increases. Although we have programs in place to
monitor and mitigate the associated risks, such programs may not
be effective in reducing our credit risks.
Our 10 largest customers accounted for approximately 52% and 50%
of our net sales for the years ended December 31, 2009 and
2008, respectively. Additionally, our OEM customers often direct
a significant portion of their purchases through a relatively
limited number of EMS companies. Our contractual relationship is
often with the EMS companies, who are obligated to pay us for
our products. Because we expect our OEM customers to continue to
direct our sales to EMS companies, we expect to continue to be
subject to this credit risk with a limited number of EMS
customers. If one or more of our significant customers were to
become insolvent or were otherwise unable to pay us, our results
of operations would be harmed.
Some of our customers are EMS companies located abroad. Our
exposure has increased as these foreign customers continue to
expand. With the primary exception of sales from our facility in
China and a portion of sales from our Ireland sales office, our
foreign sales are denominated in U.S. dollars and are
typically on the same open credit basis and terms
described above. Our foreign receivables were approximately 24%
of our net accounts receivable as of December 31, 2009 and
are expected to continue to grow as a percentage of our total
receivables. We do not utilize credit insurance as a risk
management tool.
We
rely on suppliers for the timely delivery of raw materials and
components used in manufacturing our printed circuit boards and
backplane assemblies, and an increase in industry demand or the
presence of a shortage for these raw materials or components may
increase the price of these raw materials or components and
reduce our gross margins. If a raw material supplier fails to
satisfy our product quality standards, it could harm our
customer relationships.
To manufacture printed circuit boards, we use raw materials such
as laminated layers of fiberglass, copper foil, chemical
solutions, gold, and other commodity products, which we order
from our suppliers. Although we have preferred suppliers for
most of these raw materials, the materials we use are generally
readily available in the open market, and numerous other
potential suppliers exist. In the case of backplane assemblies,
components include connectors, sheet metal, capacitors,
resistors and diodes, many of which are custom made and
controlled by our customers approved vendors. These
components for backplane assemblies in some cases have limited
or sole sources of supply. From time to time, we may experience
increases in raw material or component prices, based on demand
trends, which can negatively affect our gross margins. In
addition, consolidations and restructuring in our supplier base
may result in adverse materials pricing due to reduction in
competition among our suppliers. Furthermore, if a raw material
or component supplier fails to satisfy our product quality
standards, it could harm our customer relationships. Suppliers
may from time to time extend lead times, limit supplies, or
increase prices, due to capacity constraints or other factors,
which could harm our ability to deliver our products on a timely
basis. We have recently experienced an increase in the price we
pay for gold. In general, we are able to pass this price
increase on to our customers, but we cannot be certain we will
continue to be able to do so in the future.
If we
are unable to respond to rapid technological change and process
development, we may not be able to compete
effectively.
The market for our manufacturing services is characterized by
rapidly changing technology and continual implementation of new
production processes. The future success of our business will
depend in large part upon our ability to maintain and enhance
our technological capabilities, to manufacture products that
meet changing customer needs, and to successfully anticipate or
respond to technological changes on a cost-effective and timely
basis. We expect that the investment necessary to maintain our
technological position will increase as customers make demands
for products and services requiring more advanced technology on
a quicker turnaround basis. We may not be able to raise
additional funds in order to respond to technological changes as
quickly as our competitors.
In addition, the printed circuit board industry could encounter
competition from new or revised manufacturing and production
technologies that render existing manufacturing and production
technology less competitive or obsolete. We may not respond
effectively to the technological requirements of the changing
market. If we need new
18
technologies and equipment to remain competitive, the
development, acquisition, and implementation of those
technologies and equipment may require us to make significant
capital investments.
If we
are unable to provide our customers with high-end technology,
high quality products, and responsive service, or if we are
unable to deliver our products to our customers in a timely
manner, our results of operations and financial condition may
suffer.
In order to maintain our existing customer base and obtain
business from new customers, we must demonstrate our ability to
produce our products at the level of technology, quality,
responsiveness of service, timeliness of delivery, and at costs
that our customers require. If our products are of substandard
quality, if they are not delivered on time, if we are not
responsive to our customers demands, or if we cannot meet
our customers technological requirements, our reputation
as a reliable supplier of our products would likely be damaged.
If we are unable to meet these product and service standards, we
may be unable to obtain new contracts or keep our existing
customers, and this could have a material adverse effect on our
results of operations and financial condition.
Products
we manufacture may contain design or manufacturing defects,
which could result in reduced demand for our services and
liability claims against us.
We manufacture products to our customers specifications,
which are highly complex and may contain design or manufacturing
errors or failures, despite our quality control and quality
assurance efforts. Defects in the products we manufacture,
whether caused by a design, manufacturing, or materials failure
or error, may result in delayed shipments, customer
dissatisfaction, a reduction or cancellation of purchase orders,
or liability claims against us. If these defects occur either in
large quantities or too frequently, our business reputation may
be impaired. Our sales mix has shifted towards standard delivery
time products, which have larger production runs, thereby
increasing our exposure to these types of defects. Since our
products are used in products that are integral to our
customers businesses, errors, defects, or other
performance problems could result in financial or other damages
to our customers beyond the cost of the printed circuit board,
for which we may be liable. Although our invoices and sales
arrangements generally contain provisions designed to limit our
exposure to product liability and related claims, existing or
future laws or unfavorable judicial decisions could negate these
limitation of liability provisions. Product liability litigation
against us, even if it were unsuccessful, would be time
consuming and costly to defend. Although we maintain technology
errors and omissions insurance, we cannot assure you that we
will continue to be able to purchase such insurance coverage in
the future on terms that are satisfactory to us, if at all.
If we
are unable to maintain satisfactory capacity utilization rates,
our results of operations and financial condition would be
adversely affected.
Given the high fixed costs of our operations, decreases in
capacity utilization rates can have a significant effect on our
business. Accordingly, our ability to maintain or enhance gross
margins would continue to depend, in part, on maintaining
satisfactory capacity utilization rates. In turn, our ability to
maintain satisfactory capacity utilization would depend on the
demand for our products, the volume of orders we receive, and
our ability to offer products that meet our customers
requirements at competitive prices. If current or future
production capacity fails to match current or future customer
demands, our facilities would be underutilized and we would be
less likely to achieve expected gross margins.
Competition
in the printed circuit board market is intense, and we could
lose market share if we are unable to maintain our current
competitive position in end markets using our quick-turn, high
technology and high-mix manufacturing services.
The printed circuit board industry is intensely competitive,
highly fragmented, and rapidly changing. We expect competition
to continue, which could result in price reductions, reduced
gross margins, and loss of market share. Our principal North
American PCB competitors include DDi, Endicott Interconnect
Technologies, Firan Technology Group, ISU/Petasys, Viasystems,
Pioneer Circuits, and Sanmina-SCI. Our principal international
PCB competitors include Elec & Eltek, Hitachi, Ibiden,
ISU/Petasys and Multek. Our principal assembly competitors
include Amphenol, Sanmina-SCI, Simclar, TT Electronics, and
Viasystems. In addition, we increasingly compete on an
international basis, and new and emerging technologies may
result in new competitors entering our markets.
19
Some of our competitors and potential competitors have
advantages over us, including:
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greater financial and manufacturing resources that can be
devoted to the development, production, and sale of their
products;
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more established and broader sales and marketing channels;
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more manufacturing facilities worldwide, some of which are
closer in proximity to OEMs;
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manufacturing facilities that are located in countries with
lower production costs;
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lower capacity utilization, which in peak market conditions can
result in shorter lead times to customers;
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ability to add additional capacity faster or more efficiently;
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preferred vendor status with existing and potential customers;
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greater name recognition; and
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larger customer bases.
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In addition, these competitors may respond more quickly to new
or emerging technologies, or adapt more quickly to changes in
customer requirements, and devote greater resources to the
development, promotion, and sale of their products than we do.
We must continually develop improved manufacturing processes to
meet our customers needs for complex products, and our
manufacturing process technology is generally not subject to
significant proprietary protection. During recessionary periods
in the electronics industry, our strategy of providing
quick-turn services, an integrated manufacturing solution, and
responsive customer service may take on reduced importance to
our customers. As a result, we may need to compete more on the
basis of price, which could cause our gross margins to decline.
Periodically, printed circuit board manufacturers and backplane
assembly providers experience overcapacity. Overcapacity,
combined with weakness in demand for electronic products,
results in increased competition and price erosion for our
products.
Our
results of operations are often subject to demand fluctuations
and seasonality. With a high level of fixed operating costs,
even small revenue shortfalls would decrease our gross margins
and potentially cause the trading price of our common stock to
decline.
Our results of operations fluctuate for a variety of reasons,
including:
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timing of orders from and shipments to major customers;
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the levels at which we utilize our manufacturing capacity;
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price competition;
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changes in our mix of revenues generated from quick-turn versus
standard delivery time services;
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expenditures, charges or write-offs, including those related to
acquisitions, facility restructurings, or asset
impairments; and
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expenses relating to expanding existing manufacturing facilities.
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A significant portion of our operating expenses is relatively
fixed in nature, and planned expenditures are based in part on
anticipated orders. Accordingly, unexpected revenue shortfalls
may decrease our gross margins. In addition, we have experienced
sales fluctuations due to seasonal patterns in the capital
budgeting and purchasing cycles, as well as inventory management
practices of our customers and the end markets we serve. In
particular, the seasonality of the computer industry and
quick-turn ordering patterns affect the overall printed circuit
board industry. These seasonal trends have caused fluctuations
in our operating results in the past and may continue to do so
in the future. Results of operations in any period should not be
considered indicative of the results to be expected for any
future period. In addition, our future quarterly operating
results may fluctuate and may not meet the expectations of
securities analysts or investors. If this occurs, the trading
price of our common stock likely would decline.
20
Because
we sell on a purchase order basis, we are subject to
uncertainties and variability in demand by our customers that
could decrease revenues and harm our operating
results.
We generally sell to customers on a purchase order basis rather
than pursuant to long-term contracts. Our quick-turn orders are
subject to particularly short lead times. Consequently, our
sales are subject to short-term variability in demand by our
customers. Customers submitting purchase orders may cancel,
reduce, or delay their orders for a variety of reasons. The
level and timing of orders placed by our customers may vary, due
to:
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customer attempts to manage inventory;
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changes in customers manufacturing strategies, such as a
decision by a customer to either diversify or consolidate the
number of printed circuit board manufacturers or backplane
assembly service providers used or to manufacture or assemble
its own products internally;
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variation in demand for our customers products; and
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changes in new product introductions.
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We have periodically experienced terminations, reductions, and
delays in our customers orders. Further terminations,
reductions, or delays in our customers orders could harm
our business, results of operations, and financial condition.
The
increasing prominence of EMS providers in the printed circuit
board industry could reduce our gross margins, potential sales,
and customers.
Sales to EMS providers represented approximately 47% and 52% of
our net sales for the year ended December 31, 2009 and
2008, respectively. Sales to EMS providers include sales
directed by OEMs as well as orders placed with us at the EMS
providers discretion. EMS providers source on a global
basis to a greater extent than OEMs. The growth of EMS providers
increases the purchasing power of such providers and could
result in increased price competition or the loss of existing
OEM customers. In addition, some EMS providers, including some
of our customers, have the ability to directly manufacture
printed circuit boards and create backplane assemblies. If a
significant number of our other EMS customers were to acquire
these abilities, our customer base might shrink, and our sales
might decline substantially. Moreover, if any of our OEM
customers outsource the production of PCBs and creation of
backplane assemblies to these EMS providers, our business,
results of operations, and financial condition may be harmed.
If
events or circumstances occur in our business that indicate that
our goodwill and definite-lived intangibles may not be
recoverable, we could have impairment charges that would
negatively affect our earnings.
As of December 31, 2009, our consolidated balance sheet
reflected $29.2 million of goodwill and definite-lived
intangible assets. We periodically evaluate whether events and
circumstances have occurred, such that the potential for reduced
expectations for future cash flows coupled with further decline
in the market price of our stock and market capitalization may
indicate that the remaining balance of goodwill and
definite-lived intangible assets may not be recoverable. If
factors indicate that assets are impaired, we would be required
to reduce the carrying value of our goodwill and definite-lived
intangible assets, which could harm our results during the
periods in which such a reduction is recognized. Our goodwill
and definite-lived intangible assets may increase in future
periods if we consummate other acquisitions. Amortization or
impairment of these additional intangibles would, in turn,
reduce our earnings.
Damage
to our manufacturing facilities due to fire, natural disaster,
or other events could harm our financial results.
We have U.S. manufacturing and assembly facilities in
California, Connecticut, Utah, and Wisconsin. We also have an
assembly facility in China. The destruction or closure of any of
our facilities for a significant period of time as a result of
fire, explosion, blizzard, act of war or terrorism, flood,
tornado, earthquake, lightning, or other natural
21
disaster could harm us financially, increasing our costs of
doing business and limiting our ability to deliver our
manufacturing services on a timely basis.
Our
manufacturing processes depend on the collective industry
experience of our employees. If a significant number of these
employees were to leave us, it could limit our ability to
compete effectively and could harm our financial
results.
We have limited patent or trade secret protection for our
manufacturing processes. We rely on the collective experience of
our employees involved in our manufacturing processes to ensure
we continuously evaluate and adopt new technologies in our
industry. Although we are not dependent on any one employee or a
small number of employees, if a significant number of our
employees involved in our manufacturing processes were to leave
our employment, and we were not able to replace these people
with new employees with comparable experience, our manufacturing
processes might suffer as we might be unable to keep up with
innovations in the industry. As a result, we may lose our
ability to continue to compete effectively.
We may
be exposed to intellectual property infringement claims by third
parties that could be costly to defend, could divert
managements attention and resources, and if successful,
could result in liability.
We rely on a combination of copyright, patent, trademark and
trade secret laws, confidentiality procedures, contractual
provisions, and other measures to protect our proprietary
information. All of these measures afford only limited
protection. These measures may be invalidated, circumvented, or
challenged, and others may develop technologies or processes
that are similar or superior to our technology. We may not have
the controls and procedures in place that are needed to
adequately protect proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may
attempt to copy our products or obtain or use information that
we regard as proprietary, which could adversely impact our
revenues and financial condition.
Furthermore, there is a risk that we may infringe on the
intellectual property rights of others. As is the case with many
other companies in the PCB industry, we from time to time
receive communications from third parties asserting patent
rights to our products and enter into discussions with such
third parties. Irrespective of the validity or the successful
assertion of such claims, we could incur costs in either
defending or settling any intellectual property disputes
alleging infringement. If any claims are brought against the
customers for such infringement, whether or not these have
merit, we could be required to expend significant resources in
defending such claims. In the event we are subject to any
infringement claims, we may be required to spend a significant
amount of money to develop non-infringing alternatives or obtain
licenses. We may not be successful in developing such
alternatives or in obtaining such licenses on reasonable terms
or at all, which could disrupt the production processes, damage
our reputation, and affect our revenues and financial condition.
We
depend heavily on a single customer, the U.S. government, for a
substantial portion of our business, including programs subject
to security classification restrictions on information. Changes
affecting the governments capacity to do business with us
or our direct customers or the effects of competition in the
defense industry could have a material adverse effect on our
business.
A significant portion of our revenues is derived from products
and services ultimately sold to the U.S. government and is
therefore affected by, among other things, the federal budget
process. We are a supplier, primarily as a subcontractor, to the
U.S. government and its agencies as well as foreign
governments and agencies. These contracts are subject to the
respective customers political and budgetary constraints
and processes, changes in customers short-range and
long-range strategic plans, the timing of contract awards, and
in the case of contracts with the U.S. government, the
congressional budget authorization and appropriation processes,
the governments ability to terminate contracts for
convenience or for default, as well as other risks such as
contractor suspension or debarment in the event of certain
violations of legal and regulatory requirements. The termination
or failure to fund one or more significant contracts by the
U.S. government could have a material adverse effect on our
business, results of operations or prospects.
22
Our
business may suffer if any of our key senior executives
discontinues employment with us or if we are unable to recruit
and retain highly skilled engineering and sales
staff.
Our future success depends to a large extent on the services of
our key managerial employees. We may not be able to retain our
executive officers and key personnel or attract additional
qualified management in the future. Our business also depends on
our continuing ability to recruit, train, and retain highly
qualified employees, particularly engineering and sales and
marketing personnel. The competition for these employees is
intense, and the loss of these employees could harm our
business. Further, our ability to successfully integrate
acquired companies depends in part on our ability to retain key
management and existing employees at the time of the acquisition.
Increasingly,
our larger customers are requesting that we enter into supply
agreements with them that have increasingly restrictive terms
and conditions. These agreements typically include provisions
that increase our financial exposure, which could result in
significant costs to us.
Increasingly, our larger customers are requesting that we enter
into supply agreements with them. These agreements typically
include provisions that generally serve to increase our exposure
for product liability and warranty claims as
compared to our standard terms and conditions which
could result in higher costs to us as a result of such claims.
In addition, these agreements typically contain provisions that
seek to limit our operational and pricing flexibility and extend
payment terms, which can adversely impact our cash flow and
results of operations.
Our
backplane assembly operation serves customers and has a
manufacturing facility outside the United States and is subject
to the risks characteristic of international operations. These
risks include significant potential financial damage and
potential loss of the business and its assets.
Because we have a manufacturing operation in Asia and sales
offices located in Asia and Europe, we are subject to the risks
of changes in economic and political conditions in those
countries, including but not limited to:
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managing international operations;
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export license requirements;
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fluctuations in the value of local currencies;
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labor unrest and difficulties in staffing;
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government or political unrest;
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longer payment cycles;
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language and communication barriers as well as time zone
differences;
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cultural differences;
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increases in duties and taxation levied on our products;
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imposition of restrictions on currency conversion or the
transfer of funds;
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limitations on imports or exports of our product offering;
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travel restrictions;
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expropriation of private enterprises; and
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the potential reversal of current favorable policies encouraging
foreign investment and trade.
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Our
operations in the PRC subject us to risks and uncertainties
relating to the laws and regulations of the PRC.
Under its current leadership, the government of the PRC has been
pursuing economic reform policies, including the encouragement
of foreign trade and investment and greater economic
decentralization. No assurance can be given, however, that the
government of the PRC will continue to pursue such policies,
that such policies will
23
be successful if pursued, or that such policies will not be
significantly altered from time to time. Despite progress in
developing its legal system, the PRC does not have a
comprehensive and highly developed system of laws, particularly
with respect to foreign investment activities and foreign trade.
Enforcement of existing and future laws and contracts is
uncertain, and implementation and interpretation thereof may be
inconsistent. As the Chinese legal system develops, the
promulgation of new laws, changes to existing laws and the
preemption of local regulations by national laws may adversely
affect foreign investors. Further, any litigation in the PRC may
be protracted and result in substantial costs and diversion of
resources and management attention. In addition, some government
policies and rules are not timely published or communicated, if
they are published at all. As a result, we may operate our
business in violation of new rules and policies without having
any knowledge of their existence. These uncertainties could
limit the legal protections available to us. Consummation of the
PCB Combination would result in us having a substantially
greater presence in and exposure to the PRC.
The
economies of the countries in which we operate may be adversely
affected by a recurrence of severe acute respiratory syndrome,
or an outbreak of other epidemics such as H1N1 or avian
flu.
Past occurrences of epidemics or pandemics, depending on their
scale of occurrence, have caused different degrees of damage to
the national and local economies in the affected countries. A
recurrence of SARS or an outbreak of any other epidemics or
pandemics, such as the H1N1 influenza or avian flu, especially
in the areas where we have operations, or where we may have
operations in the future, may result in quarantines, temporary
closures of offices and manufacturing facilities, travel
restrictions, or the temporary or permanent loss of key
personnel. The perception that an outbreak of contagious disease
may occur again may also have an adverse effect on the economic
conditions of affected countries. Any of the above may cause
material disruptions to our operations, which in turn may
adversely affect our financial condition and results of
operations.
We are
subject to risks of currency fluctuations.
A portion of our cash and other current assets is held in
currencies other than the U.S. dollar. As of
December 31, 2009, we had approximately $32.9 million
of current assets denominated in Chinese RMB. Changes in
exchange rates among other currencies and the U.S. dollar
will affect the value of these assets as translated to
U.S. dollars in our balance sheet. To the extent that we
ultimately decide to repatriate some portion of these funds to
the United States, the actual value transferred could be
impacted by movements in exchange rates. Any such type of
movement could negatively impact the amount of cash available to
fund operations or to repay debt. Significant inflation or
disproportionate changes in foreign exchange rates could occur
as a result of general economic conditions, acts of war or
terrorism, changes in governmental monetary or tax policy, or
changes in local interest rates. The impact of future exchange
rate fluctuations between the U.S. Dollar and the RMB
cannot be predicted. To the extent that we may have outstanding
indebtedness denominated in the RMB, the appreciation of the RMB
against the U.S. Dollar will have an adverse impact on our
financial condition and results of operations (including the
cost of servicing, and the value in our balance sheet of, the
RMB-denominated indebtedness).
Further, the PRC government imposes control over the
convertibility of RMB into foreign currencies. Pursuant to
certain PRC regulations, conversion of RMB into foreign exchange
from foreign exchange accounts in the PRC is based on, among
other things, a board resolution declaring the distribution of a
dividend and payment of profits. Remittance of such amounts to
foreign investors from the foreign exchange accounts of the
foreign invested enterprises in the PRC or conversion of the RMB
into foreign currencies at designated foreign exchange banks for
the remittance of dividends and profits do not require
permission from the State Administration of Foreign Exchange, or
SAFE, and other applicable governmental authorities of the PRC
do not impose restrictions on the category of recurring
international payments and transfers. However, conversion of RMB
into foreign currencies for capital account items, including
direct investment, loans, and security investment, must be
approved by SAFE and the relevant branch. These regulations and
procedures subject us to further currency exchange risks.
24
Our
business has benefited from OEMs deciding to outsource their PCB
manufacturing and backplane assembly needs to us. If OEMs choose
to provide these services in-house or select other providers,
our business could suffer.
Our future revenue growth partially depends on new outsourcing
opportunities from OEMs. Current and prospective customers
continuously evaluate our performance against other providers.
They also evaluate the potential benefits of manufacturing their
products themselves. To the extent that outsourcing
opportunities are not available either due to OEM decisions to
produce these products themselves or to use other providers, our
financial results and future growth could be adversely affected.
We may
not be able to fully recover our costs for providing design
services to our customers, which could harm our financial
results.
Although we enter into design service activities with purchase
order commitments, the cost of labor and equipment to provide
these services may in fact exceed what we are able to fully
recover through purchase order coverage. We also may be subject
to agreements with customers in which the cost of these services
is recovered over a period of time or through a certain number
of units shipped as part of the ongoing product price. While we
may make contractual provisions to recover these costs in the
event that the product does not go into production, the actual
recovery can be difficult and may not happen in full. In other
instances, the business relationship may involve investing in
these services for a customer as an ongoing service not directly
recoverable through purchase orders. In any of these cases, the
possibility exists that some or all of these activities are
considered costs of doing business, are not directly
recoverable, and may adversely impact our operating results.
Unanticipated
changes in our tax rates or in our assessment of the
realizability of our deferred income tax assets or exposure to
additional income tax liabilities could affect our operating
results and financial condition.
We are subject to income taxes in the United States and various
foreign jurisdictions. Significant judgment is required in
determining our provision for income taxes and, in the ordinary
course of business, there are many transactions and calculations
in which the ultimate tax determination is uncertain. Our
effective tax rates could be adversely affected by changes in
the mix of earnings in countries and states with differing
statutory tax rates, changes in the valuation of deferred income
tax assets and liabilities, changes in tax laws, as well as
other factors. Our tax determinations are regularly subject to
audit by tax authorities, and developments in those audits could
adversely affect our income tax provision. Although we believe
that our tax estimates are reasonable, the final determination
of tax audits or tax disputes may be different from what is
reflected in our historical income tax provisions, which could
affect our operating results.
If our
net earnings do not remain at or above recent levels, or we are
not able to predict with a reasonable degree of probability that
they will continue, we may have to record a valuation allowance
against our net deferred income tax assets.
As of December 31, 2009, we had net deferred income tax
assets of approximately $44.1 million. Based on our
forecast for future taxable earnings, we believe we will utilize
the deferred income tax assets in future periods. However, if
our estimates of future earnings are lower than expected, we may
record a higher income tax provision due to a write down of our
net deferred income tax assets, which would reduce our earnings
per share.
Risks
Relating to the Proposed PCB Combination
Failure
to complete the proposed PCB Combination could adversely affect
our future business and operations.
The proposed PCB Combination is subject to the satisfaction of
various closing conditions, including the approval by our
stockholders and other conditions described in the Purchase
Agreement that are outside the control
25
of us and Meadville. We cannot assure you that these conditions
will be satisfied or that the PCB Combination will be
successfully completed. In the event that the PCB Combination is
not completed:
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we would not realize the potential benefits of the PCB
Combination, including the potentially enhanced financial and
competitive position of the combined company;
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our attention from
day-to-day
business may be diverted, we may lose key employees, and our
relationships with our customers and partners may be disrupted
as a result of uncertainties with regard to our business and
prospects; and
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we will incur and must pay significant costs and expenses
related to the PCB Combination, such as legal, accounting, and
advisory fees.
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Any such events could adversely affect our business and
operating results.
Our
business could suffer due to the pendency and consummation of
the proposed PCB Combination.
The pendency and consummation of the PCB Combination may have a
negative impact on our or, following the proposed PCB
Combination, the combined companys, ability to sell
products and services, attract and retain key management,
technical, sales, or other personnel, maintain and attract new
customers, and maintain strategic relationships with third
parties. For example, we, and following consummation of the PCB
Combination the combined company, may experience the deferral,
cancellation, or decline in the size or rate of orders for
products or services or a deterioration in customer
relationships. Any such events could harm our, and following the
PCB Combination, the combined companys, operating results
and financial condition.
The
purchase price payable in the PCB Combination will not be
adjusted for any changes in the price of our common stock or
Meadvilles shares.
A portion of the consideration payable in connection with the
PCB Combination would be paid through the issuance to Meadville
of 36.3 million shares of our common stock, and we will
deliver to Meadville cash in the amount of $114.0 million
and assume the outstanding debt of the PCB Subsidiaries of
approximately $450 million. Under the Purchase Agreement,
other than as a result of reclassifications, stock splits, stock
dividends, and similar changes effected by us, neither the
number of shares of our common stock to be issued nor the amount
of cash to be delivered will be adjusted even if the market
price of our common stock or Meadvilles shares fluctuates
between the date of the stock purchase agreement and the closing
date of the PCB Combination. The stock purchase and special
dividend of our common stock and cash to Meadvilles
shareholders may not be completed until a significant period of
time has passed. Stock price changes may result from a variety
of factors that are beyond the control of us or Meadville,
including:
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market reaction to the pendency of the PCB Combination and
market assessment of the merits and risks of the PCB Combination
and the likelihood of the PCB Combination being consummated;
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changes in the respective businesses, operations, or prospects
of our or Meadvilles PCB business;
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governmental or litigation developments or regulatory
considerations affecting us or the electronics industry;
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general business, market, industry, or economic conditions;
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the worldwide supply/demand balance for products in the PCB and
electronics industry; and
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other factors beyond the control of us or Meadville, including
those described elsewhere in this Risk Factors
section.
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Neither party is permitted to walk away from the PCB
Combination or re-solicit the vote of its shareholders solely
because of changes in the market price, and therefore value, of
our common stock or Meadvilles shares through the closing
date of the PCB Combination. Any reduction in our stock price
would result in Meadville shareholders receiving less value in
the PCB Combination. Conversely, any increase in our stock price
would potentially result in Meadville, and ultimately Meadville
shareholders, receiving greater value in the PCB
26
Combination. The specific dollar value per share of our common
stock that Meadville, and ultimately Meadville shareholders,
would receive upon completion of the PCB Combination will depend
on, among other things, the market value of our common stock at
that time and at the time of Meadvilles special dividend
of our shares to Meadvilles shareholders.
We may
not realize the operating and financial benefits we expect from
the PCB Combination.
The post-acquisition integration of our company and the PCB
Subsidiaries would be complex, time-consuming, and expensive,
and may disrupt the
day-to-day
management and operation of our business. After the PCB
Combination, the combined company would need to overcome
significant challenges in order to realize any benefits or
synergies from the PCB Combination. These challenges include the
timely, efficient, and successful completion of a number of
post-acquisition events, including the following:
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integrating the operations of the companies;
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implementing disclosure controls, internal controls, and
financial reporting systems to comply with the requirements of
accounting principles generally accepted in the United States,
or U.S. GAAP, and U.S. securities laws and regulations
required as a result of integration of the PCB Subsidiaries as
part of a consolidated reporting company under the Securities
Exchange Act of 1934, as amended, or the Exchange Act;
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retaining and assimilating the key personnel of each company;
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resolving possible inconsistencies in operating and product
standards, internal controls, procedures and policies, business
cultures, corporate governance and reporting practices, and
compensation methodologies between the companies;
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retaining existing vendors and customers of the companies and
attracting additional customers;
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retaining strategic partners of each company and attracting new
strategic partners; and
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creating uniform business standards, procedures, policies, and
information systems.
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The execution of these post-acquisition integration events would
involve considerable risks and may not be successfully
implemented, or if implemented, on a timely basis. These risks
include the following:
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potential disruption of ongoing business operations and
distraction of the management of the combined company;
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potential strain on financial and managerial controls and
reporting systems and procedures of the combined company;
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unanticipated expenses and potential delays related to
integration of the operations, technology, and other resources
of the companies;
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potential impairment of relationships with employees, suppliers,
and customers as a result of the inclusion and integration of
management personnel;
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greater than anticipated costs and expenses related to the PCB
Combination or the integration of the respective businesses of
us and the PCB Subsidiaries following the PCB Combination;
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the difficulty of complying with government-imposed regulations
in both the U.S. and the PRC, which may in many ways be
materially different from one another; and
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potential unknown liabilities associated with the PCB
Combination and the combined operations.
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The combined company may not succeed in mitigating these risks
or any other problems encountered in connection with the PCB
Combination. The inability to successfully integrate the
operations, technology, and personnel of our company and the PCB
Subsidiaries, or any significant delay in achieving integration
of the companies, could have a material adverse effect on the
combined company after the PCB Combination and, as a result, on
the market price of our common stock following the PCB
Combination.
27
As a
result of the PCB Combination, we and the PCB Subsidiaries as a
combined company would be a substantially larger and broader
organization, with a greater geographic diversity relative to
our and Meadvilles current operations, and if management
is unable to sufficiently manage the combined company, operating
and financial results would suffer.
As a result of the PCB Combination, the combined company would
have significantly more employees, greater geographic diversity,
and customers in multiple distribution channels. The combined
company would face challenges inherent in efficiently managing
an increased number of employees over large geographic
distances, including the need to implement appropriate policies,
benefits, reporting, management, and compliance programs and
systems. The inability to manage successfully the substantially
larger and internationally diverse organization, or any
significant delay in achieving successful management of the
organization, could have a material adverse effect on the
combined company and, as a result, on the market price of our
common stock.
The
combined company would need to invest in its operations to
integrate us and the PCB Subsidiaries and to maintain and grow
the combined business, and may need additional funds to do
so.
The combined company would depend on the availability of
adequate capital to maintain and develop its business. We
believe that the combined company can meet its capital
requirements from internally generated funds, cash in hand, and
available borrowings. If the combined company is unable to fund
its capital requirements as currently planned, however, it would
have a material adverse effect on the combined companys
business, financial condition, and operating results. If the
combined company does not achieve our expected operating
results, the combined company would need to reallocate its
sources and uses of operating cash flows. This may include
borrowing additional funds to service debt payments, which may
impair the ability of the combined company to make investments
in the business or to integrate us and the PCB Subsidiaries.
There is no assurance that the combined company would be able to
borrow any such additional funds when needed on commercially
acceptable terms or at all.
Should the combined company need to raise funds through
incurring additional debt, the combined company may become
subject to covenants even more restrictive than those contained
in our or the PCB Subsidiaries current debt instruments.
Furthermore, if we issue additional equity, our equity holders
would suffer dilution. There can be no assurance that additional
capital would be available on a timely basis, on favorable
terms, or at all.
The
PCB Combination could cause us or the PCB Subsidiaries to lose
key personnel, which could materially affect the combined
companys business and require the combined company to
incur substantial costs to recruit replacements for lost
personnel.
As a result of the PCB Combination, our current and prospective
employees and the PCB Subsidiaries employees could
experience uncertainty about their future roles within the
combined company. This uncertainty may adversely affect their
ability or willingness to continue with the combined company,
and the ability of the combined company to attract and retain
key management, sales, marketing, and technical personnel. Any
failure to retain and attract key personnel could have a
material adverse effect on our and the PCB Subsidiaries
current business and the business of the combined company after
the completion of the PCB Combination.
General
uncertainty related to the PCB Combination could harm us and
Meadville.
In response to the announcement and pendency of the proposed PCB
Combination, customers may delay or defer purchasing decisions.
If this were to occur, our and Meadvilles cash flows and
revenue, respectively, and the revenues of the combined company,
could decline materially or any anticipated increases in revenue
could be lower than expected. Also, speculation regarding the
likelihood of the closing of the PCB Combination could increase
the volatility of our share price.
Regulatory
authorities may delay or impose conditions on approval of the
PCB Combination, which may diminish the anticipated benefits of
the PCB Combination.
The completion of the PCB Combination requires the receipt of
various approvals from governmental authorities, both in the
U.S. and in the PRC, including certain antitrust approvals
and completion of a review by the
28
U.S. Defense Security Service and the U.S. State
Department. The antitrust and other regulatory approvals may
take substantial time, and there can be no assurance that such
approvals can be obtained. Failure to obtain these approvals in
a timely manner may delay the completion of the PCB Combination,
possibly for a significant period of time, or prevent the
completion of the PCB Combination altogether. In addition,
regulatory authorities may attempt to condition their approval
of the PCB Combination on the imposition of conditions that
could restrict the
day-to-day
operations of the combined company, including requiring the
discontinuance of certain lines of business, that may have a
material adverse effect on the combined companys operating
results or the value of our common stock after the PCB
Combination is completed. Any delay in the completion of the PCB
Combination or conditions on effecting the PCB Combination may
diminish anticipated benefits or may result in additional
transaction costs, loss of revenue, or other effects associated
with uncertainty about the completion or terms of the PCB
Combination.
Both
we and the PCB Subsidiaries, and the PCB Combination, may be
subject to adverse regulatory requirements and
conditions.
A condition to completing the PCB Combination was the
termination or expiration of the waiting period under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, or the
Hart-Scott-Rodino
Act. We and Meadville previously made the required filings with
the U.S. Department of Justice and the U.S. Federal
Trade Commission and received notice from the Federal Trade
Commission in January 2010 that our request for early
termination of the review period had been granted. However, even
after the termination of the waiting period of the
Hart-Scott-Rodino
Act, the Department of Justice or the Federal Trade Commission,
as well as a foreign regulatory agency or government, state, or
private persons, may challenge the PCB Combination at any time
before or after its completion. We and Meadville cannot assure
you that the Department of Justice or Federal Trade Commission
or third parties would not try to prevent the PCB Combination or
seek to impose restrictions or conditions on us or the PCB
Subsidiaries. The PCB Combination is also subject to approval by
CFIUS, which we obtained on February 2, 2010. The
effectiveness of the PCB Combination is further conditioned upon
the receipt of antitrust approvals from the applicable
governmental authorities of the PRC. Such approvals may take a
substantial amount of time to obtain and there can be no
assurance that such approvals can be obtained in a timely manner
or at all. Depending on the nature of any restrictions or
conditions, these restrictions or conditions may jeopardize or
delay completion of the PCB Combination or lessen the
anticipated benefits of the PCB Combination.
The U.S. Department of Justice, the SEC, and other
governmental authorities have a broad range of civil and
criminal sanction authority available to them under the
U.S. Foreign Corrupt Practices Act, referred to as the
FCPA, and other laws, which they may seek to impose in
appropriate circumstances. Recent civil and criminal settlements
with a number of public corporations and individuals have
included multi-million dollar fines, disgorgement, injunctive
relief, guilty pleas, deferred prosecution agreements, and other
sanctions, including requirements that corporations retain a
monitor to oversee compliance with the FCPA. The combined
company may incur significant expenses in instituting controls
related to compliance with the FCPA.
Due to
the lack of back up facilities in the PRC, the combined
companys operations could be adversely affected by a
shortage of utilities or a discontinuation of priority supply
status offered for such utilities.
The manufacturing of PCBs requires significant quantities of
electricity and water. Meadville and the PCB Subsidiaries have
historically purchased substantially all of the electrical power
for their manufacturing plants in the PRC from local power
plants. Because the PRCs economy has recently been in a
state of growth, the strain on the nations power plants is
increasing, which has led to continuing power outages in various
parts of the country. There may be times when the combined
companys operations in the PRC may be unable to obtain
adequate sources of electricity to meet production requirements.
Additionally, the combined company would not likely maintain any
back-up
power generation facilities for its operations, so if it were to
lose power at any of its facilities it would be required to
cease operations until power was restored. Any stoppage of power
could adversely affect the combined companys ability to
meet its customers orders in a timely manner, thus
potentially resulting in a loss of business and increased costs
of manufacturing. In addition, the sudden cessation of power
supply could damage the combined companys equipment,
resulting in the need for costly repairs or maintenance as well
as damage to products in production, resulting in an increase in
scrapped products. Similarly, the sudden cessation of the water
supply to the PRC facilities could adversely affect the combined
companys ability to fulfill orders in a timely manner,
potentially resulting in a loss of business and
under-utilization of capacity. Various regions in the PRC have
in the past experienced shortages of both electricity and water
and unexpected interruptions of power supply. There
29
can be no assurance that the combined companys required
utilities would not in the future experience material
interruptions, which could have a material adverse effect on its
results of operations and financial condition.
Charges
to earnings resulting from the application of the purchase
method of accounting may adversely affect the market value of
our common stock following the PCB Combination.
If the anticipated benefits of the PCB Combination are not
achieved, our financial results, including our earnings, could
be adversely affected. In accordance with U.S. GAAP, we
would account for the PCB Combination using the purchase method
of accounting. For accounting purposes, we would be considered
the acquiring company. As a result, we would allocate the total
purchase price to the PCB Subsidiaries tangible assets,
identifiable intangible assets, liabilities assumed, and
noncontrolling interests based on their fair values as of the
date of completion of the PCB Combination, and record the excess
of the purchase price over those fair values as goodwill. The
combined company would incur additional amortization expense
over the estimated useful lives of certain of the intangible
assets acquired in connection with the PCB Combination. In
addition, to the extent the value of goodwill or intangible
assets with indefinite lives becomes impaired, we may be
required to incur material charges relating to the impairment of
those assets.
We
incur a variety of costs as a result of being a public company,
and those costs may increase as a result of the PCB
Combination.
As a U.S. public company registered with the SEC under the
Exchange Act, we incur significant legal, accounting, and other
expenses. In addition, the Sarbanes-Oxley Act of 2002, as well
as rules subsequently implemented by the SEC and the Nasdaq
Stock Market, frequently require changes in corporate governance
policies and practices of companies registered with the SEC
under the Exchange Act. These rules and regulations increase
legal and financial compliance costs and make some activities
more time-consuming and costly. In addition, we incur additional
costs associated with our Exchange Act public company reporting
requirements. These rules and regulations also may make it more
difficult and more expensive for us to obtain and pay for, at
commercially reasonable rates, director and officer liability
insurance, and the combined company may be required to accept
reduced policy limits and reduced scope of coverage or incur
substantially higher costs to obtain the same or similar levels
of coverage. As a result, it may be more difficult for the
combined company to attract and retain qualified persons to
serve on its board of directors or as executive officers. As a
result, implementation of disclosure controls, internal
controls, and financial reporting systems complying with the
requirements of U.S. GAAP and U.S. securities laws and
regulations required as a result of our continued status as a
reporting company under the Exchange Act following effectiveness
of the PCB Combination may be more difficult and costly than
anticipated.
We
expect to incur significant costs as a result of the integration
of our operations with the PCB Subsidiaries.
There are inconsistencies in standards, controls, procedures and
policies, business cultures, and compensation structures between
us and the PCB Subsidiaries. The integration of our operations
and the operations of the PCB subsidiaries and reconciling the
inconsistencies in the standards, controls, procedures and
policies, business cultures, and compensation structures between
us and the PCB Subsidiaries may result in additional costs for
the combined company. There are no assurances that such
inconsistencies can be reconciled seamlessly or at all. The
failure to reconcile such inconsistencies may lessen the
anticipated benefits of the PCB Combination.
Following
the effectiveness of the PCB Combination, the current principal
owners of Meadville are expected to own a substantial percentage
of our common stock.
Following the effectiveness of the PCB Combination,
approximately 46% of our common stock outstanding after giving
effect to the PCB Combination (based on the number of shares of
our common stock outstanding on November 16, 2009, the date
we executed and announced the Purchase Agreement) would be owned
by Meadville and, following the special dividend of our common
stock by Meadville to its shareholders (or sale thereof on
behalf of such shareholders electing to sell such TTM shares to
which they would otherwise have been entitled), by
Meadvilles shareholders or their transferees, and an
estimated 33% to 39% of our common stock would be owned by
certain of Meadvilles principal shareholders. These
principal shareholders of Meadville will be entitled to jointly
nominate one individual to our board of directors and a majority
of the members of the board of directors of
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the PCB Subsidiaries, and thus will have influence over our
management, operations, and potential significant corporate
actions.
Current
holders of our common stock would suffer substantial dilution if
the PCB Combination is effected.
The PCB Combination would dilute the ownership position of our
current stockholders. If the PCB Combination is effected, we
would issue 36.3 million shares of our common stock in
connection with the PCB Combination, representing approximately
46% of our outstanding common stock after giving effect to the
PCB Combination (based on the number of shares of our common
stock outstanding on November 16, 2009, the date we
executed and announced the stock purchase agreement).
Consequently, following the PCB Combination, our current
stockholders, as a general matter, would have less influence
over the management and policies of our company than they
currently exercise over the management and policies of our
company.
The
PCB Subsidiaries do not currently have a certificate of
state-owned land use or certificates of real estate ownership
for certain of their properties in the PRC and the properties
associated with certain facilities are subject to a general city
re-zoning plan which, if implemented in the future, may require
the combined company to relocate these facilities.
The PCB Subsidiaries do not currently have certificates of real
estate ownership for certain buildings used as dormitories and a
sewage treatment center for staff dormitories in the PRC. The
PCB Subsidiaries also have not obtained the relevant certificate
of state-owned land use and certificates of real estate
ownership for certain facilities in the PRC. Further, there is a
legal defect in the leasing of a parcel of land currently used
for dormitories and two buildings used as staff quarters in the
PRC. We can provide no assurance that the PCB Subsidiaries will
be able to obtain relevant land use certificates in a timely
manner or at all, or that the combined companys results of
operations or financial condition would not be adversely
affected due to the lack of such certificates. Any requirement
to cease using the relevant property and premises could also
have a material adverse effect on the combined companys
business.
In addition, we understand that all of the properties where
certain of the PCB Subsidiaries facilities are located are
now subject to a general city rezoning plan which has been
prepared by the Dongguan municipal government. According to the
relevant PRC regulations, the general rezoning plan is made for
twenty years. Under the rezoning plan, it is intended that the
properties where certain of the PCB Subsidiaries
facilities are located will be re-designated from industrial to
commercial use. If and when implemented in respect of those
properties, the rezoning plan may require the combined company
to vacate these properties and relocate the facilities.
In the event the combined company is required to vacate the
above properties, the combined company would implement certain
strategies to minimize any loss of production capacity during
relocation. There can be no assurance that the combined
companys strategies to deal with the relocation of the
facilities can be implemented, or that such strategies can be
implemented before the combined company is required to vacate
the above properties due to the proposed general city rezoning
plan. If the combined company is required to relocate the
facilities, the combined companys results of operation and
financial condition may be materially and adversely affected.
The
PCB Subsidiaries have historically operated in Asia, where
production costs are lower. We have historically operated
primarily in North America. Following the PCB Combination, the
average production costs of the combined company may be higher
than the historic average production costs of the PCB
Subsidiaries due to the integration of the production costs of
the PCB Subsidiaries with our production costs. Competitors with
lower production costs may gain market share in the combined
companys key market segments, which may have an adverse
effect on the pricing of the products of the combined
company.
Although the PCB Subsidiaries have historically operated in
Asia, the PCB Combination and the integration of the PCB
Subsidiaries with our company, which has historically operated
in North America, may result in the combined company being at a
competitive disadvantage with respect to price when compared to
manufacturers with other lower-cost facilities in Asia and other
locations. We believe price competition from PCB manufacturers
in Asia and other locations with lower production costs may play
an increasing role in the market. While historically our and the
PCB Subsidiaries competitors in these locations have
produced less technologically advanced PCBs, they continue to
expand their capacity and capabilities with advanced equipment
to produce higher technology PCBs. In addition, fluctuations in
foreign currency exchange rates may benefit these offshore
competitors. As a
31
result, these competitors may gain market share, which may force
the combined company to lower its prices, which would reduce the
combined companys gross margins.
The PCB Subsidiaries manufacturing facilities are located
in Hong Kong and the PRC. To the extent that other
cost-competitive regions begin to enter into PCB production and
start to draw foreign investment into their domestic PCB
industries or establish domestic markets for such products, the
combined company may face greater competition for its products.
Correspondingly, if conditions in the PCB products markets in
the PRC and Hong Kong deteriorate, particularly for reasons such
as increases in labor or other costs, migration of the supply
chain outside of the PRC and Hong Kong, or decreases in demand
for PCBs in the PRC, then production and consumption of PCBs may
shift to these other regions. The inability of the combined
company to shift its production and sales to these regions could
have a material adverse effect on its results of operations and
financial condition.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
The following table describes our principal manufacturing
facilities and administrative offices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
Owned
|
|
|
Total
|
|
Location(1)
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Chippewa Falls, WI
|
|
|
|
|
|
|
281,000
|
|
|
|
281,000
|
|
Dallas, OR(2)
|
|
|
|
|
|
|
127,700
|
|
|
|
127,700
|
|
Hopkins, MN (office)
|
|
|
8,700
|
|
|
|
|
|
|
|
8,700
|
|
Inglewood (Los Angeles), CA(3)
|
|
|
65,137
|
|
|
|
|
|
|
|
65,137
|
|
Logan, UT
|
|
|
|
|
|
|
124,104
|
|
|
|
124,104
|
|
Redmond, WA(4)
|
|
|
|
|
|
|
102,200
|
|
|
|
102,200
|
|
San Diego, CA
|
|
|
37,500
|
|
|
|
|
|
|
|
37,500
|
|
Santa Ana, CA
|
|
|
8,287
|
|
|
|
82,600
|
|
|
|
90,887
|
|
Santa Clara, CA
|
|
|
18,304
|
|
|
|
45,685
|
|
|
|
63,989
|
|
Shanghai, China
|
|
|
85,745
|
|
|
|
|
|
|
|
85,745
|
|
Stafford, CT
|
|
|
21,251
|
|
|
|
100,000
|
|
|
|
121,251
|
|
Stafford Springs, CT
|
|
|
10,000
|
|
|
|
53,000
|
|
|
|
63,000
|
|
Staffordville, CT
|
|
|
|
|
|
|
56,000
|
|
|
|
56,000
|
|
Union City (Hayward), CA(3)
|
|
|
116,993
|
|
|
|
|
|
|
|
116,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
371,917
|
|
|
|
972,289
|
|
|
|
1,344,206
|
|
Logan, UT (vacant land)
|
|
|
|
|
|
|
2.5 acres
|
|
|
|
|
|
Stafford, CT (vacant land)
|
|
|
|
|
|
|
2.5 acres
|
|
|
|
|
|
Chippewa Falls, WI (vacant land)
|
|
|
|
|
|
|
5.0 acres
|
|
|
|
|
|
|
|
|
(1) |
|
All locations pertain to our PCB Manufacturing segment with the
exception of Shanghai, China and Union City, California, which
pertain to our Backplane Assembly segment. |
|
(2) |
|
We ceased production at the Dallas, Oregon facility during the
second quarter 2007. We are in the process of selling the owned
property. |
|
(3) |
|
On September 1, 2009 we announced the closure of our Los
Angeles and Hayward, California production facilities. We ceased
production at our Los Angeles, California facility in the fourth
quarter of 2009 and intend to cease production at the Hayward,
California facility during the first quarter 2010. |
|
(4) |
|
We ceased production at the Redmond, Washington facility during
the second quarter 2009. We are in the process of selling the
owned property. |
32
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we may become a party to various legal
proceedings arising in the ordinary course of our business.
There can be no assurance that we will prevail in any such
litigation.
Prior to our acquisition of PCG in October 2006, PCG made legal
commitments to the U.S. EPA and the State of Connecticut
regarding settlement of enforcement actions against the PCG
operations in Connecticut. On August 17, 2004, PCG was
sentenced for Clean Water Act violations and was ordered to pay
a $6 million fine and an additional $3.7 million to
fund environmental projects designed to improve the environment
for Connecticut residents. In September 2004, PCG agreed to a
stipulated judgment with the Connecticut Attorney Generals
office and the Connecticut Department of Environmental
Protection (DEP) under which PCG paid a $2 million civil
penalty and agreed to implement capital improvements of
$2.4 million to reduce the volume of rinse water discharged
from its manufacturing facilities in Connecticut. The
obligations to the U.S. EPA were completed as of
July 1, 2009. The Connecticut DEP obligations involves the
installation of rinse water recycling systems at the Stafford,
Connecticut facilities. As of December 31, 2009, one
recycling system was completed and placed into operation, and
approximately $0.6 million remains to be expended in the
form of capital improvements to meet the second rinse water
recycling system requirement. We have assumed these legal
commitments as part of our purchase of PCG. Failure to meet our
remaining recycling system commitment could result in further
costly enforcement actions
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Historical
Trading Price
Our common stock has been listed on the Nasdaq Stock under the
symbol TTMI since September 21, 2000. The
following table sets forth the quarterly high and low sales
prices of our common stock as reported on the Nasdaq Stock for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.70
|
|
|
$
|
3.87
|
|
Second Quarter
|
|
$
|
9.76
|
|
|
$
|
5.40
|
|
Third Quarter
|
|
$
|
11.99
|
|
|
$
|
7.85
|
|
Fourth Quarter
|
|
$
|
12.52
|
|
|
$
|
9.78
|
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.99
|
|
|
$
|
7.83
|
|
Second Quarter
|
|
$
|
15.76
|
|
|
$
|
11.43
|
|
Third Quarter
|
|
$
|
14.11
|
|
|
$
|
9.81
|
|
Fourth Quarter
|
|
$
|
10.11
|
|
|
$
|
3.76
|
|
As of March 11, 2010, there were approximately
303 holders of record of our common stock. The closing sale
price of our common stock on the Nasdaq Stock on March 11,
2010 was $9.64.
Dividend
Policy
We have not declared or paid any dividends since 2000, and we do
not anticipate paying any cash dividends in the foreseeable
future. We presently intend to retain any future earnings to
finance future operations and the expansion of our business.
33
STOCK
PRICE PERFORMANCE GRAPH
The performance graph below compares, for the period from
December 31, 2004 to December 31, 2009, the cumulative
total stockholder return on our common stock against the
cumulative total return of:
|
|
|
|
|
the Nasdaq Composite Index; and
|
|
|
|
a peer group consisting of two publicly traded circuit board
companies that we have selected.
|
The graph assumes $100 was invested in our common stock on
December 31, 2004, and an investment in each of the peer
group and the Nasdaq Composite Index, and the reinvestment of
all dividends. The companies included in the peer group are
Sanmina Corporation (Nasdaq NM: SANM) and Merix Corporation
(Nasdaq NM: MERX).
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
TTM Technologies, Inc., The NASDAQ Composite Index
And A Peer Group
* $100 invested on 12/31/04 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/04
|
|
12/05
|
|
12/06
|
|
12/07
|
|
12/08
|
|
12/09
|
|
TTM Technologies, Inc.
|
|
|
100.00
|
|
|
|
79.66
|
|
|
|
96.02
|
|
|
|
98.81
|
|
|
|
44.15
|
|
|
|
97.71
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
101.33
|
|
|
|
114.01
|
|
|
|
123.71
|
|
|
|
73.11
|
|
|
|
105.61
|
|
Peer Group
|
|
|
100.00
|
|
|
|
50.89
|
|
|
|
42.64
|
|
|
|
22.38
|
|
|
|
5.39
|
|
|
|
21.69
|
|
The performance graph above shall not be deemed
filed for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of that
section. The performance graph above will not be deemed
incorporated by reference into any filing of our company under
the Securities Act of 1933, as amended, or the Exchange Act.
34
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected historical financial data presented below are
derived from our consolidated financial statements. The selected
financial data should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our consolidated
financial statements and the notes thereto included elsewhere in
this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009(1)(2)
|
|
|
2008(1)(3)
|
|
|
2007
|
|
|
2006(4)(5)
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
|
$
|
240,209
|
|
Cost of goods sold
|
|
|
479,267
|
|
|
|
543,741
|
|
|
|
539,205
|
|
|
|
276,216
|
|
|
|
186,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
103,209
|
|
|
|
137,240
|
|
|
|
130,253
|
|
|
|
93,100
|
|
|
|
53,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
26,517
|
|
|
|
30,436
|
|
|
|
29,835
|
|
|
|
16,473
|
|
|
|
11,977
|
|
General and administrative
|
|
|
36,548
|
|
|
|
33,255
|
|
|
|
32,712
|
|
|
|
19,608
|
|
|
|
14,135
|
|
Amortization of definite-lived intangibles
|
|
|
3,440
|
|
|
|
3,799
|
|
|
|
4,126
|
|
|
|
1,786
|
|
|
|
1,202
|
|
Restructuring charges
|
|
|
5,490
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
12,761
|
|
|
|
123,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal reclamation
|
|
|
|
|
|
|
(3,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
84,756
|
|
|
|
187,112
|
|
|
|
66,673
|
|
|
|
38,066
|
|
|
|
27,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
18,453
|
|
|
|
(49,872
|
)
|
|
|
63,580
|
|
|
|
55,034
|
|
|
|
26,442
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11,198
|
)
|
|
|
(11,065
|
)
|
|
|
(13,828
|
)
|
|
|
(3,394
|
)
|
|
|
(251
|
)
|
Interest income
|
|
|
467
|
|
|
|
1,370
|
|
|
|
1,379
|
|
|
|
4,419
|
|
|
|
2,126
|
|
Other, net
|
|
|
401
|
|
|
|
(1,804
|
)
|
|
|
137
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
8,123
|
|
|
|
(61,371
|
)
|
|
|
51,268
|
|
|
|
56,102
|
|
|
|
28,317
|
|
Income tax (provision) benefit
|
|
|
(3,266
|
)
|
|
|
24,460
|
|
|
|
(16,585
|
)
|
|
|
(21,063
|
)
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
43,080
|
|
|
|
42,681
|
|
|
|
42,242
|
|
|
|
41,740
|
|
|
|
41,232
|
|
Diluted
|
|
|
43,579
|
|
|
|
42,681
|
|
|
|
42,568
|
|
|
|
42,295
|
|
|
|
41,770
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$
|
19,140
|
|
|
$
|
21,324
|
|
|
$
|
22,772
|
|
|
$
|
12,178
|
|
|
$
|
9,290
|
|
|
|
|
(1) |
|
Effective January 1, 2009, we adopted new authoritative
guidance for convertible debt instruments with retrospective
application to the date of the issuance of convertible debt,
which for us was May 2008. The implementation of the new
authoritative guidance for convertible debt instruments
increased interest expense by $2.6 million for the year
ended December 31, 2008. |
|
(2) |
|
We recorded restructuring charges and write-down of certain
long-lived assets associated with specific plant facilities and
assets held for sale in 2009. |
|
(3) |
|
We recorded an impairment of goodwill and long-lived assets in
2008 as a result of our annual goodwill impairment test and the
write-down of certain long-lived assets associated with specific
plant facilities and assets held for sale. |
35
|
|
|
(4) |
|
Our results for the year ended December 31, 2006, include
65 days of activity of PCG, which we acquired on
October 27, 2006. |
|
(5) |
|
Effective January 1, 2006, we adopted new authoritative
guidance on share based payments. The implementation of the new
authoritative guidance for share based payments increased cost
of goods sold by $0.5 million, selling and marketing by
$0.1 million and general and administrative by
$0.9 million for the year ended December 31, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
323,112
|
|
|
$
|
280,362
|
|
|
$
|
98,839
|
|
|
$
|
127,405
|
|
|
$
|
111,224
|
|
Total assets
|
|
|
543,058
|
|
|
|
540,240
|
|
|
|
498,798
|
|
|
|
573,698
|
|
|
|
273,143
|
|
Convertible senior notes
|
|
|
139,882
|
|
|
|
134,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities
|
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
200,705
|
|
|
|
|
|
Stockholders equity
|
|
|
340,917
|
|
|
|
330,036
|
|
|
|
328,594
|
|
|
|
287,315
|
|
|
|
243,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
42,028
|
|
|
$
|
(25,065
|
)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
$
|
39,176
|
|
Cash flows provided by operating activities
|
|
|
73,977
|
|
|
|
75,632
|
|
|
|
73,984
|
|
|
|
32,784
|
|
|
|
31,027
|
|
Cash flows used in investing activities
|
|
|
(128,497
|
)
|
|
|
(21,281
|
)
|
|
|
(1,705
|
)
|
|
|
(234,579
|
)
|
|
|
(13,583
|
)
|
Cash flows provided by (used in) financing activities
|
|
|
440
|
|
|
|
74,793
|
|
|
|
(113,828
|
)
|
|
|
200,027
|
|
|
|
626
|
|
|
|
|
(1) |
|
EBITDA means earnings before interest expense,
income taxes, depreciation and amortization. We present EBITDA
to enhance the understanding of our operating results. EBITDA is
a key measure we use to evaluate our operations. We provide our
EBITDA because we believe that investors and securities analysts
will find EBITDA to be a useful measure for evaluating our
operating performance and comparing our operating performance
with that of similar companies that have different capital
structures and for evaluating our ability to meet our future
debt service, capital expenditures, and working capital
requirements. However, EBITDA should not be considered as an
alternative to cash flows from operating activities as a measure
of liquidity or as an alternative to net income as a measure of
operating results in accordance with accounting principles
generally accepted in the United States. The following provides
a reconciliation of EBITDA to the financial information in our
consolidated statement of operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
3,266
|
|
|
|
(24,460
|
)
|
|
|
16,585
|
|
|
|
21,063
|
|
|
|
(2,524
|
)
|
Interest expense
|
|
|
11,198
|
|
|
|
11,065
|
|
|
|
13,828
|
|
|
|
3,394
|
|
|
|
251
|
|
Depreciation of property, plant and equipment
|
|
|
19,140
|
|
|
|
21,324
|
|
|
|
22,772
|
|
|
|
12,178
|
|
|
|
9,290
|
|
Amortization of intangibles
|
|
|
3,567
|
|
|
|
3,917
|
|
|
|
4,242
|
|
|
|
1,903
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
37,171
|
|
|
|
11,846
|
|
|
|
57,427
|
|
|
|
38,538
|
|
|
|
8,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
42,028
|
|
|
$
|
(25,065
|
)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
$
|
39,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This financial review presents our operating results for each of
our three most recent fiscal years and our financial condition
at December 31, 2009. Except for historical information
contained herein, the following discussion contains
forward-looking statements which are subject to known and
unknown risks, uncertainties and other factors that may cause
our actual results to differ materially from those expressed or
implied by such forward-looking statements. We discuss such
risks, uncertainties and other factors throughout this report
and specifically under Item 1A of Part I of this
report, Risk Factors. In addition, the following discussion
should be read in connection with the information presented in
our consolidated financial statements and the related notes to
our consolidated financial statements.
OVERVIEW
We are a one-stop provider of time-critical and technologically
complex printed circuit boards (PCBs) and backplane assemblies,
which serve as the foundation of sophisticated electronic
products. We serve high-end commercial and aerospace/defense
markets including the networking/communications
infrastructure, high-end computing, defense, and
industrial/medical markets which are characterized
by high levels of complexity and moderate production volumes.
Our customers include both original equipment manufacturers
(OEMs), electronic manufacturing services (EMS) providers, and
aerospace/defense companies. Our
time-to-market
and high technology focused manufacturing services enable our
customers to reduce the time required to develop new products
and bring them to market.
On November 16, 2009, we and certain of our subsidiaries
entered into a Purchase Agreement with Meadville, an exempted
company incorporated under the laws of the Cayman Islands, and
MTG, a company incorporated under the laws of the British Virgin
Islands and a wholly owned subsidiary of Meadville, pursuant to
which we agreed to acquire all of the issued and outstanding
capital stock of its PCB Subsidiaries. The PCB Subsidiaries,
together with their subsidiaries, engage in the business of
manufacturing and distributing printed circuit boards, including
circuit design, quick-turn-around services, and drilling and
routing services. Following the closing of the proposed PCB
Combination, the PCB Subsidiaries will become our wholly owned
subsidiaries. See Note 1 of the notes to consolidated
financial statements.
We measure customers as those companies that have placed at
least two orders in the preceding
12-month
period. As of December 31, 2009, we had approximately 700
customers and as of December 31, 2008 we had approximately
860 customers. Sales to our 10 largest customers accounted
for 52% and 50% of our net sales in 2009 and 2008, respectively.
We sell to OEMs both directly and indirectly through EMS
companies. Sales attributable to our five largest OEM customers
accounted for approximately 34% and 29% of our net sales in 2009
and 2008, respectively.
The following table shows the percentage of our net sales
attributable to each of the principal end markets we served for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
End Markets(1)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Aerospace/Defense
|
|
|
44
|
%
|
|
|
37
|
%
|
|
|
30
|
%
|
Networking/Communications
|
|
|
36
|
|
|
|
40
|
|
|
|
42
|
|
Computing/Storage/Peripherals
|
|
|
11
|
|
|
|
12
|
|
|
|
14
|
|
Medical/Industrial/Instrumentation/Other
|
|
|
9
|
|
|
|
11
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sales to EMS companies are classified by the end markets of
their OEM customers. |
For PCBs we measure the time sensitivity of our products by
tracking the quick-turn percentage of our work. We define
quick-turn orders as those with delivery times of 10 days
or less, which typically captures research and development,
prototype, and new product introduction work, in addition to
unexpected short-term demand among
37
our customers. Generally, we quote prices after we receive the
design specifications and the time and volume requirements from
our customers. Our quick-turn services command a premium price
as compared to standard lead time products. Quick-turn orders
decreased from approximately 12% of PCB revenue in 2008 to
approximately 11% of PCB revenue in 2009 due to higher demand
for our standard lead-time and high technology production
services. We also deliver a large percentage of compressed
lead-time work with lead times of 11 to 20 days. We receive
a premium price for this work as well. Purchase orders may be
canceled prior to shipment. We charge customers a fee, based on
percentage completed, if an order is canceled once it has
entered production.
We derive revenues primarily from the sale of printed circuit
boards and backplane assemblies using customer-supplied
engineering and design plans. We recognize revenues when
persuasive evidence of a sales arrangement exists, the sales
terms are fixed and determinable, title and risk of loss have
transferred, and collectibility is reasonably
assured generally when products are shipped to the
customer. Net sales consist of gross sales less an allowance for
returns, which typically has been less than 2% of gross sales.
We provide our customers a limited right of return for defective
printed circuit boards and backplane assemblies. We record an
estimated amount for sales returns and allowances at the time of
sale based on historical information.
Cost of goods sold consists of materials, labor, outside
services, and overhead expenses incurred in the manufacture and
testing of our products as well as stock-based compensation
expense. Many factors affect our gross margin, including
capacity utilization, product mix, production volume, and yield.
We do not participate in any significant long-term contracts
with suppliers, and we believe there are a number of potential
suppliers for the raw materials we use.
Selling and marketing expenses consist primarily of salaries and
commissions paid to our internal sales force and independent
sales representatives, salaries paid to our sales support staff,
stock-based compensation expense as well as costs associated
with marketing materials and trade shows. We generally pay
higher commissions to our independent sales representatives for
quick-turn work, which generally has a higher gross profit
component than standard lead-time work.
General and administrative costs primarily include the salaries
for executive, finance, accounting, information technology,
facilities and human resources personnel, as well as insurance
expenses, expenses for accounting and legal assistance,
incentive compensation expense, stock-based compensation
expense, bad debt expense, and acquisition related expenses.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements included in this report
have been prepared in accordance with accounting principles
generally accepted in the United States of America. The
preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities, net sales and expenses, and related
disclosure of contingent assets and liabilities.
A critical accounting policy is defined as one that is both
material to the presentation of our consolidated financial
statements and requires management to make difficult, subjective
or complex judgments that could have a material effect on our
financial condition or results of operations. These policies
require us to make assumptions about matters that are highly
uncertain at the time of the estimate. Different estimates we
could reasonably have used, or changes in the estimates that are
reasonably likely to occur, would have a material effect on our
financial condition or results of operations.
Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Management has discussed the development, selection and
disclosure of these estimates with the audit committee of our
board of directors. Actual results may differ from these
estimates under different assumptions or conditions.
Our critical accounting policies include asset valuation related
to bad debts; inventory obsolescence; sales returns and
allowances; impairment of long-lived assets, including goodwill
and intangible assets; realizability of deferred income tax
assets; and determining self-insured reserves, asset retirement
obligations and environmental liabilities.
38
Allowance
for Doubtful Accounts
We provide customary credit terms to our customers and generally
do not require collateral. We perform ongoing credit evaluations
of the financial condition of our customers and maintain an
allowance for doubtful accounts based upon historical
collections experience and expected collectibility of accounts.
Our actual bad debts may differ from our estimates.
Inventories
In assessing the realization of inventories, we are required to
make judgments as to future demand requirements and compare
these with current and committed inventory levels. Provision is
made to reduce excess and obsolete inventories to their
estimated net realizable value. Our inventory requirements may
change based on our projected customer demand, changes due to
market conditions, technological and product life cycle changes,
longer or shorter than expected usage periods, and other factors
that could affect the valuation of our inventories. We maintain
specific finished goods inventories near certain key customer
locations in accordance with agreements with those customers.
Although this inventory is typically supported by valid purchase
orders, should these customers ultimately not purchase these
inventories, our results of operations and financial condition
would be adversely affected.
Revenue
Recognition
We derive revenues primarily from the sale of printed circuit
boards and backplane assemblies using customer-supplied
engineering and design plans. We provide our customers a limited
right of return for defective printed circuit boards and
backplane assemblies. We accrue an estimated amount for sales
returns and allowances at the time of sale based on historical
information. To the extent actual experience varies from our
historical experience, revisions to these allowances may be
required.
Long-lived
Assets
We have significant long-lived tangible and intangible assets
consisting of property, plant and equipment, definite-lived
intangibles, and goodwill. We review these assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. In
addition, we perform an impairment test related to goodwill at
least annually. Our goodwill and intangibles are largely
attributable to our acquisitions of other businesses. We have
two reporting units, PCB Manufacturing and Backplane Assembly,
which are also our operating segments.
During the fourth quarter of each year, we perform our annual
impairment assessment of goodwill, which requires the use of a
fair-value based analysis. We determine the fair value of our
reporting units based on discounted cash flows and market
approach analyses as considered necessary and considered factors
such as a weakening economy, reduced expectations for future
cash flows coupled with a decline in the market price of our
stock and market capitalization for a sustained period, as
indicators for potential goodwill impairment. If the reporting
units carrying amount exceeds its estimated fair value, a
second step must be performed to measure the amount of the
goodwill impairment loss, if any. The second step compares the
implied fair value of the reporting units goodwill,
determined in the same manner as the amount of goodwill
recognized in a business combination, with the carrying amount
of such goodwill. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to
that excess.
We also assess other long-lived assets, specifically
definite-lived intangibles and property, plant and equipment,
for potential impairment given similar impairment indicators.
When indicators of impairment exist related to our long-lived
tangible assets and definite-lived assets, we use an estimate of
the undiscounted net cash flows in measuring whether the
carrying amount of the assets are recoverable. Measurement of
the amount of impairment, if any, is based upon the difference
between the assets carrying value and estimated fair
value. Fair value is determined through various valuations
techniques, including market and income approaches as considered
necessary.
39
If forecasts and assumptions used to support the realizability
of our goodwill and other long-lived assets change in the
future, significant impairment charges could result that would
adversely affect our results of operations and financial
condition.
Income
Taxes
Deferred income tax assets are reviewed for recoverability, and
valuation allowances are provided, when necessary, to reduce
deferred income tax assets to the amounts that are more likely
than not to be realized. At December 31, 2009 and 2008, we
had net deferred income tax assets of $44.1 million and
$39.8 million, respectively, and no valuation allowance.
Should our expectations of taxable income change in future
periods, it may be necessary to establish a valuation allowance,
which could affect our results of operations in the period such
a determination is made. In addition, we record income tax
provision or benefit during interim periods at a rate that is
based on expected results for the full year. If future changes
in market conditions cause actual results for the year to be
more or less favorable than those expected, adjustments to the
effective income tax rate could be required.
Self
Insurance
We are self-insured for group health insurance and workers
compensation benefits provided to our employees, and we purchase
insurance to protect against annual claims at the individual and
aggregate level. The insurance carrier adjudicates and processes
employee claims and is paid a fee for these services. We
reimburse our insurance carriers for paid claims subject to
variable monthly limitations. We estimate our exposure for
claims incurred but not reported at the end of each reporting
period and use our judgment using our historical claim data and
information and analysis provided by actuarial and claim
advisors, our insurance carriers and brokers on an annual basis
to estimate our liability for these claims. This liability is
subject to an individual insured stop-loss coverage that ranges
from $175,000 to $250,000 per individual. Our actual claims
experience may differ from our estimates.
Asset
Retirement Obligations and Environmental
Liabilities
We establish liabilities for the costs of asset retirement
obligations when a legal or contractual obligation exists to
dispose of or restore an asset upon its retirement and the
timing and cost of such work can be reasonably estimated. The
Company capitalizes the associated asset retirement costs as
part of the carrying amount of the long-lived asset. The
liability is initially measured at fair value and subsequently
is adjusted for accretion expense and changes in the amount or
timing of the estimated cash flows. In addition, we accrue an
estimate of the costs of site closure environmental
investigations and environmental remediation for work at
identified sites where an assessment has indicated it is
probable that cleanup costs are or will be required and may be
reasonably estimated. In making these estimates, we consider
information that is currently available, existing technology,
enacted laws and regulations, and our estimates of the timing of
the required remedial actions, and we discount these estimates
at 8%. We also are required to estimate the amount of any
probable recoveries, including insurance recoveries. We recorded
a net adjustment to our estimate for asset retirement
obligations in the amount of $0.4 million during the year
ended December 31, 2009 related to changes in the estimated
timing and amount of cash flows to restore our leased Hayward
and Los Angeles, California manufacturing facilities to shell
condition, the full settlement of obligations related to one of
our Santa Clara, California production facility leases, and
the partial settlement of obligations related to our Hayward,
California facility lease.
40
RESULTS
OF OPERATIONS
The following table sets forth the relationship of various items
to net sales in our consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
82.3
|
|
|
|
79.8
|
|
|
|
80.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17.7
|
|
|
|
20.2
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
4.6
|
|
|
|
4.5
|
|
|
|
4.5
|
|
General and administrative
|
|
|
6.3
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Amortization of definite-lived intangibles
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Restructuring charges
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
2.2
|
|
|
|
18.1
|
|
|
|
|
|
Metal reclamation
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14.5
|
|
|
|
27.5
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
3.2
|
|
|
|
(7.3
|
)
|
|
|
9.5
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1.9
|
)
|
|
|
(1.6
|
)
|
|
|
(2.0
|
)
|
Interest income
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Other, net
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(1.8
|
)
|
|
|
(1.7
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1.4
|
|
|
|
(9.0
|
)
|
|
|
7.7
|
|
Income tax (provision) benefit
|
|
|
(0.6
|
)
|
|
|
3.6
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
0.8
|
%
|
|
|
(5.4
|
)%
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have two reportable segments: PCB Manufacturing and Backplane
Assembly. These reportable segments are managed separately
because they distribute and manufacture distinct products with
different production processes. PCB Manufacturing fabricates
printed circuit boards. Backplane Assembly is a contract
manufacturing business that specializes in assembling backplanes
into
sub-assemblies
and other complete electronic devices. PCB Manufacturing
customers are either EMS companies or OEM companies, while
Backplane Assembly customers are usually OEMs. Our Backplane
Assembly segment includes our Hayward, California and Shanghai,
China plants and our Ireland sales support infrastructure. Our
PCB Manufacturing segment is comprised of seven domestic PCB
fabrication plants, including a facility that provides follow-on
value-added services primarily for one of the PCB Manufacturing
plants. The following table compares net sales by reportable
segment for the years ended December 31, 2009, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB Manufacturing
|
|
$
|
506,272
|
|
|
$
|
590,515
|
|
|
$
|
578,840
|
|
Backplane Assembly
|
|
|
107,307
|
|
|
|
124,048
|
|
|
|
124,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
613,579
|
|
|
|
714,563
|
|
|
|
703,177
|
|
Inter-company sales
|
|
|
(31,103
|
)
|
|
|
(33,582
|
)
|
|
|
(33,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Net
Sales
Net sales decreased $98.5 million, or 14.5%, from
$681.0 million for the year ended December 31, 2008 to
$582.5 million for the year ended December 31, 2009
due to reduced demand at most of our production facilities
resulting from a downturn in the global economy and due to the
shutdown of our Redmond, Washington production facility at the
end of March 2009 and our Los Angeles, California facility at
the end of November 2009. These manufacturing facilities were
closed as part of our strategy to concentrate our production at
fewer facilities during a period of industry-wide reduced
demand. The $84.2 million revenue decline in our PCB
Manufacturing segment reflects the closure of our Redmond,
Washington and Los Angeles, California facilities, partially
offset by increased pricing, and compounded by lower demand,
mainly in our PCB Manufacturing commercial end markets. PCB
volume declined approximately 23% due to reduced demand while
prices rose approximately 9% due to a shift in production mix
toward more high-technology production. Our quick-turn
production, which we measure as orders placed and shipped within
10 days, decreased from approximately 12% of PCB sales for
the year ended December 31, 2008 to approximately 11% of
PCB sales for the year ended December 31, 2009. The
increasingly complex nature of our quick-turn work requires more
time to manufacture, thereby extending some of these orders
beyond the
10-day
delivery window. The $16.7 million decline in revenue from
our Backplane Assembly segment was due to reduced volume at our
Hayward, California production facility in conjunction with the
pending closure announced on September 1, 2009. This
manufacturing facility is being closed due to a steady decline
in volume over several years.
Net sales increased $11.5 million, or 1.7%, from
$669.5 million for the year ended December 31, 2007 to
$681.0 million for the year ended December 31, 2008.
This revenue increase is substantially due to increased demand
from aerospace/defense customers and higher pricing from the PCB
Manufacturing segment, while Backplane Assembly segment sales
remained relatively consistent with 2007. This revenue increase
was achieved in spite of the closure of our Dallas, Oregon
facility in April 2007. The Dallas, Oregon facility contributed
approximately $11.8 million of revenue to the PCB
Manufacturing segment during 2007. Excluding revenue derived
from our Dallas, Oregon facility, revenue from the PCB
Manufacturing segment in 2008 improved by $23.3 million
from 2007 due to increased net sales at our other PCB
Manufacturing facilities. PCB sales volume, measured by panels
shipped, decreased approximately 11% for the year ended
December 31, 2008 as compared to the year ended 2007.
Prices rose approximately 13% due to a shift in production mix
toward more high technology production. Our quick-turn
production, which we measure as orders placed and shipped within
10 days, decreased from 15% of PCB revenue for the year
ended December 31, 2007 to 12% of PCB revenue for the year
ended December 31, 2008.
Cost
of Goods Sold
Cost of goods sold decreased $64.4 million, or 11.8%, from
$543.7 million for the year ended December 31, 2008 to
$479.3 million for the year ended December 31, 2009
due primarily to the decline in PCB volume discussed above. The
decrease in cost of goods sold was mostly driven by lower labor,
direct material costs and supplies associated with lower
production volume. As a percentage of net sales, cost of goods
sold increased from 79.8% for the year ended December 31,
2008 to 82.3% for the year ended December 31, 2009,
primarily due to reduced absorption of fixed costs on lower
volume and inventory write-off costs related to the closure of
our Redmond, Washington and Los Angeles, California facility and
the pending closure of our Hayward, California facility.
Cost of goods sold increased $4.5 million, or 0.8%, from
$539.2 million for the year ended December 31, 2007 to
$543.7 million for the year ended December 31, 2008.
Cost of goods sold increased mainly due to increased sales but
was also impacted by increased labor and overhead costs. For the
year ended December 31, 2008, cost of goods sold, as a
percentage of sales, decreased to 79.8% from 80.5% for the year
ended December 31, 2007, primarily due to a shift in
production mix toward more high technology production and higher
pricing.
Gross
Profit
As a result of the foregoing, gross profit decreased
$34.0 million, or 24.8%, from $137.2 million for the
year ended December 31, 2008 to $103.2 million for the
year ended December 31, 2009. Our gross margin decreased
from 20.2% for the year ended December 31, 2008 to 17.7%
for the year ended December 31, 2009. The decrease in
42
our gross margin was due primarily to lower fixed cost
absorption and inventory write-off costs related to the closure
of our Redmond, Washington, and Los Angeles, California
facilities and the pending closure of our Hayward, California
facility. While there continues to be a shift in production mix
towards more high technology production and higher pricing in
2009, reduced volume across our remaining manufacturing
facilities more than offset the benefit of higher pricing and
contributed to a lower gross margin.
Gross profit increased $6.9 million, or 5.3%, from
$130.3 million for the year ended December 31, 2007 to
$137.2 million for the year ended December 31, 2008
with gross margin increasing from 19.5% for the year ended
December 31, 2007 to 20.2% for the year ended
December 31, 2008. The change in our gross margin for 2008
was primarily due to a shift in production mix toward more high
technology production and higher pricing.
Selling
and Marketing Expenses
Selling and marketing expenses decreased $3.9 million, or
12.8%, from $30.4 million for the year ended
December 31, 2008 to $26.5 million for the year ended
December 31, 2009. The decrease in selling and marketing
expense was primarily a result of lower selling labor and
commission expenses due to lower net sales and reduced costs as
a result of the closure of our Redmond, Washington facility. As
a percentage of net sales, selling and marketing expenses were
4.6% for the year ended December 31, 2009 as compared to
4.5% for the year ended December 31, 2008.
Selling and marketing expenses increased $0.6 million, or
2.0%, from $29.8 million for the year ended
December 31, 2007 to $30.4 million for the year ended
December 31, 2008. The increase for the year ended 2008 was
primarily due to increased labor expenses. As a percentage of
net sales, selling and marketing expenses were consistent at
4.5% for the years ended December 31, 2008 and 2007.
General
and Administrative Expense
General and administrative expenses increased $3.2 million
from $33.3 million, or 4.9% of net sales, for the year
ended December 31, 2008 to $36.5 million, or 6.3% of
net sales, for the year ended December 31, 2009. The
increase in expense for the year ended December 31, 2009
primarily relates to $5.4 million in acquisition
transaction costs, partially offset by lower incentive bonus
expense.
General and administrative expenses increased $0.6 million
from $32.7 million, or 4.9% of net sales, for the year
ended December 31, 2007 to $33.3 million, or 4.9% of
net sales, for the year ended December 31, 2008. The
increase in expenses resulted primarily from higher incentive
bonus expense and stock-based compensation expense for
restricted stock units and stock option awards, partially offset
by lower accounting and consulting expenses.
Restructuring
Charges
Restructuring charges recorded for the year ended
December 31, 2009 of $5.5 million are related to
separation and contract termination costs. The separation costs
in the amount of $5.0 million are associated with the lay
off of approximately 850 employees, of which
710 employees are associated with the closure of the
Redmond, Washington and Hayward and Los Angeles, California
production facilities, and 140 employees are related to
various other U.S. facilities during 2009. The contract
termination costs of $0.5 million are related to building
operating leases associated with the closure of our Los Angeles,
California manufacturing facility.
Additionally, we expect to incur contract termination costs
ranging from $0.4 million to $0.7 million related to
building operating leases associated with the pending closure of
our Hayward, California manufacturing facility in the first
quarter of 2010.
Impairment
of Goodwill and Long-Lived Assets
Impairment of long-lived assets for the year ended
December 31, 2009 in the amount of $8.4 million was
related to the closure of the Redmond, Washington and Los
Angeles, California production facilities, and the pending
closure of our Hayward, California facility, and consists of
machinery and equipment. Additionally, during the year ended
December 31, 2009 we reduced the value of the Redmond,
Washington and Dallas, Oregon
43
buildings, which are classified as assets held for sale, by
$4.4 million to record the estimated fair value less costs
to sell given current market conditions. We do not expect to
incur any additional significant impairment charges related to
these closures.
For the year ended December 31, 2008 we recorded an
impairment of long-lived assets, including assets held for sale,
of $6.3 million related to our Dallas, Oregon, Redmond,
Washington, and Hayward, California production facilities. Our
Dallas, Oregon facility, which is held for sale, was reduced to
$3.2 million in consideration of real estate market
conditions, which represented its then current estimate of fair
value less costs to sell. Additionally, we determined that
certain long-lived assets, consisting of machinery and equipment
were impaired due to slower growth and lower future production
expectations for Hayward, California and the January 15,
2009 announcement of our plans to close the Redmond, Washington
production facility.
The Redmond, Washington and Los Angeles, California production
facilities are part of the PCB Manufacturing operating segment,
while the Hayward, California facility is part of the Backplane
Assembly operating segment.
Additionally, during the fourth quarter of 2008, we recorded
goodwill impairment charges of $117.0 million. As a result
of our annual goodwill impairment testing, and giving
consideration to factors such as a weakening economy, reduced
expectation for future cash flows coupled with the decline in
the market price of our stock and market capitalization for a
sustained period as indicators for potential goodwill
impairment, we determined that the carrying value of our PCB
Manufacturing segments goodwill exceeded its implied fair
value, resulting in an impairment charge.
Metal
Reclamation
During 2008, we recognized $3.7 million of income related
to a pricing reconciliation of metal reclamation activity
attributable to a single vendor. As a result of the pricing
reconciliation, we discovered that the vendor had inaccurately
compensated us for gold reclamations over the last several
years. While pricing reconciliations of this nature occur
periodically, we do not expect to recognize a similar amount in
future periods.
Other
Income (Expense)
Other expense, net decreased $1.2 million from
$11.5 million for the year ended December 31, 2008 to
$10.3 million for the year ended December 31, 2009.
The overall net decrease consists of a $0.1 million
increase in interest expense, and a $0.9 million decrease
in interest income, offset by a $2.2 million decrease in
other, net. Interest income declined due to lower interest
rates, partially offset by higher cash balances. In connection
with the full repayment of our credit facility in 2008, we
realized a loss on the settlement of a derivative of
$1.2 million, which was recognized as other, net. During
the years ended December 31, 2009 and 2008, we also
recognized as other, net a $0.3 million unrealized gain and
a $0.6 million unrealized loss, respectively, on a money
market fund that suspended redemption and is being liquidated.
Other expense decreased by $0.8 million from
$12.3 million for the year ended December 31, 2007 to
$11.5 million for the year ended December 31, 2008.
The net decrease consists of a $2.8 million decrease in
interest expense, offset by a $2.0 million increase in
other, net. Interest expense of $11.1 million for 2008
includes interest costs and the amortization of related debt
issuance costs and was accounted for under the new authoritative
guidance for convertible debt instruments included in ASC
Subtopic
470-20,
Debt with Conversion and Other Options. Interest costs
and amortization of debt issuance costs decreased by
$1.6 million and $1.2 million, respectively, as
compared to 2007, resulting from a combination of overall lower
outstanding debt balances under our credit agreement with UBS
Securities in 2008 and a higher level of accelerated
amortization of debt issuance costs in 2007 as a result of high
levels of debt repayment during that period. This decrease was
offset by the increase in other, net expense of
$2.0 million primarily related to the realized loss on the
settlement of a derivative of $1.2 million during the
quarter ended June 30, 2008 associated with the repayment
in full of the Credit Agreement, the $0.6 million estimated
unrealized loss on a money market fund that suspended
redemptions and is being liquidated and other of
$0.2 million.
44
Income
Taxes
The provision for income taxes increased $27.8 million from
a $24.5 million tax benefit for the year ended
December 31, 2008 to a $3.3 million tax provision for
the year ended December 31, 2009. Our effective tax rate
was 40.2% in 2009 and 39.9% for 2008. The increase in the
provision and the effective tax rate from 2008 is primarily due
to an increase in pretax income. Our effective tax rate is
primarily impacted by the federal income tax rate, apportioned
state income tax rates, utilization of other credits and
deductions available to us, and certain non-deductible items.
Additionally, as of December 31, 2009, we had net deferred
income tax assets of approximately $44.1 million. Based on
our forecast for future taxable earnings, we believe it is more
likely than not that we will utilize the deferred income tax
asset in future periods.
The provision for income taxes decreased $41.1 million from
a $16.6 million tax provision for the year ended
December 31, 2007 to a $24.5 million tax benefit for
the year ended December 31, 2008. Our effective tax rate
was 39.9% in 2008 and 32.3% for 2007. The decrease in the
provision is due to the decrease in pretax income. The increase
in our effective tax rate is due to the addition of state tax
credits and the decrease in production activities deductions.
Liquidity
and Capital Resources
Our principal sources of liquidity have been cash provided by
operations and the issuance of Convertible Notes. Our principal
uses of cash have been to meet debt service requirements,
finance capital expenditures, and fund working capital
requirements. We anticipate that servicing debt, funding working
capital requirements, financing capital expenditures, and
acquisitions will continue to be the principal demands on our
cash in the future.
As of December 31, 2009, we had net working capital of
approximately $323.1 million, including restricted cash,
compared to $280.4 million as of December 31, 2008.
This increase in working capital is primarily attributable to
the growth in cash balances resulting from earnings generated in
the period.
Our 2010 capital expenditure plan is expected to total
approximately $15 million and will fund capital equipment
purchases to expand our technological capabilities throughout
our facilities and replace aging equipment.
Net cash provided by operating activities was $74.0 million
in 2009 compared to $75.6 million in 2008 and
$74.0 million in 2007. Our 2009 operating cash flow of
$74.0 million reflects net income of $4.9 million,
$12.8 million of an impairment of long-lived assets,
$28.2 million of depreciation and amortization,
$6.3 million of stock-based compensation, and a net
decrease in operating assets and liabilities of
$27.0 million, offset by an increase in net deferred income
tax assets of $4.8 million, an unrealized gain of
$0.3 million on short-term investments and
$0.1 million other. The decrease in operating assets and
liabilities for the year ended December 31, 2009, was
primarily the result of a decrease in accounts receivable and
inventories due to manufacturing facility closures, improved
collection of accounts receivable and better inventory
management. Our 2008 operating cash flow of $75.6 million
reflects a net loss of $36.9 million, $123.3 million
of an impairment of goodwill and long-lived assets,
$30.6 million of depreciation and amortization,
$5.1 million of stock-based compensation, and
$0.2 million other, offset by an increase in net deferred
income tax assets of $38.1 million and a net increase in
operating assets and liabilities of $8.6 million.
Net cash used in investing activities was $128.5 million in
2009, compared to $21.3 million in 2008 and
$1.7 million in 2007. In 2009, $120.0 million of cash
was placed into restricted accounts for the acquisition of the
PCB Subsidiaries, made net purchases of approximately
$11.1 million of property, plant, and equipment and a
licensing agreement and received $2.6 million in proceeds
from the redemption of short-term investments. In 2008, we made
net purchases of approximately $17.6 million of property,
plant, and equipment, redesignated $19.5 million from cash
and cash equivalents to short-term investments and received
$15.9 million in proceeds from the redemption of short-term
investments.
Net cash provided by financing activities was $0.4 million
in 2009, compared to $74.8 million in 2008 and cash used of
$113.8 million in 2007. Our 2009 financing net cash
proceeds primarily reflect cash proceeds from the exercises of
employee stock options. Our 2008 financing net cash proceeds
primarily reflect cash proceeds from the issuance of Convertible
Notes of $175.0 million, proceeds from warrants of
$26.2 million and exercises of
45
employee stock options of $2.4 million, partially offset by
debt repayment of $85.0 million, payment for the
convertible note hedge of $38.3 million and debt issuance
costs of $5.8 million. Our 2007 financing net cash used
reflects repayments of $115.7 million of debt, partially
offset by proceeds of $1.7 million from employee stock
option exercises and $0.2 million from other factors.
In May 2008, we issued our Convertible Notes in a public
offering with an aggregate principal amount of
$175.0 million. The Convertible Notes bear interest at a
rate of 3.25% per annum. Interest is payable semiannually in
arrears on May 15 and November 15 of each year, beginning
November 15, 2008. The Convertible Notes are senior
unsecured obligations and will rank equally to our future
unsecured senior indebtedness and senior in right of payment to
any of our future subordinated indebtedness. We received
proceeds of $169.2 million after the deduction of offering
expenses of $5.8 million. These offering expenses are being
amortized to interest expense over the term of the Convertible
Notes.
At any time prior to November 15, 2014, holders may convert
their Convertible Notes into cash and, if applicable, into
shares of our common stock based on a conversion rate of
62.6449 shares of our common stock per $1,000 principal
amount of Convertible Notes, subject to adjustment, under the
following circumstances: (1) during any calendar quarter
beginning after June 30, 2008 (and only during such
calendar quarter), if the last reported sale price of our common
stock for at least 20 trading days during the 30 consecutive
trading days ending on the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of
the applicable conversion price on each applicable trading day
of such preceding calendar quarter; (2) during the five
business day period after any 10 consecutive trading day period
in which the trading price per note for each day of that 10
consecutive trading day period was less than 98% of the product
of the last reported sale price of our common stock and the
conversion rate on such day; or (3) upon the occurrence of
specified corporate transactions described in the prospectus
supplement related to the Convertible Notes, which can be found
on the SECs website at www.sec.gov. As of
December 31, 2009, none of the conversion criteria had been
met.
On or after November 15, 2014 until the close of business
on the third scheduled trading day preceding the maturity date,
holders may convert their notes at any time, regardless of the
foregoing circumstances. Upon conversion, for each $1,000
principal amount of notes, we will pay cash for the lesser of
the conversion value or $1,000 and shares of our common stock,
if any, based on a daily conversion value calculated on a
proportionate basis for each day of the 60 trading day
observation period. Additionally, in the event of a fundamental
change as defined in the prospectus supplement, or other
conversion rate adjustments such as share splits or
combinations, other distributions of shares, cash or other
assets to stockholders, including self-tender transactions
(Other Conversion Rate Adjustments), the conversion rate may be
modified to adjust the number of shares per $1,000 principal
amount of the notes.
The maximum number of shares issuable upon conversion, including
the effect of a fundamental change and subject to Other
Conversion Rate Adjustments, would be approximately
14 million shares.
We are not permitted to redeem the notes at any time prior to
maturity. In the event of a fundamental change or certain
default events, as defined in the prospectus supplement, holders
may require us to repurchase for cash all or a portion of their
notes at a price equal to 100% of the principal amount, plus any
accrued and unpaid interest.
In connection with the issuance of the Convertible Notes, we
entered into a convertible note hedge and warrant transaction
(Call Spread Transaction), with respect to our common stock. The
convertible note hedge, which cost an aggregate
$38.3 million and was recorded, net of tax, as a reduction
of additional paid-in capital, consists of our option to
purchase up to 11.0 million shares of common stock at a
price of $15.96 per share. This option expires on May 15,
2015 and can only be executed upon the conversion of the
Convertible Notes. Additionally, we sold warrants for the option
to purchase 11.0 million shares of our common stock at a
price of $18.15 per share. The warrants expire on
August 17, 2015. The proceeds from the sale of warrants of
$26.2 million was recorded as an addition to additional
paid-in capital. The Call Spread Transaction has no effect on
the terms of the Convertible Notes and reduces potential
dilution by effectively increasing the conversion price of the
Convertible Notes to $18.15 per share of our common stock.
46
As of December 31, 2009, we had two outstanding standby
letters of credit: a $1.0 million standby letter of credit
expiring February 28, 2011 related to the lease of one of
our production facilities and a $1.5 million standby letter
of credit expiring December 31, 2010 associated with our
workers compensation insurance program.
During 2009, we announced our plan to close our Redmond,
Washington and Hayward and Los Angeles, California facilities
and lay off approximately 710 employees at these sites. In
addition, we laid off about 140 employees at various other
U.S. facilities during 2009. We recorded $5.0 million
in separation costs related to these restructurings for the year
ended December 31, 2009. As of December 31, 2009,
$0.7 million of accrued separation costs remained for
approximately 67 employees yet to be separated. We expect
the remaining employees to be separated and a significant amount
of the remaining accrued restructuring costs to be paid by the
first quarter of 2010.
Additionally, we incurred $0.5 million in contract
termination costs related to building operating leases
associated with the closure of our Los Angeles, California
manufacturing facility for the year ended December 31,
2009. We expect to incur contract termination costs ranging from
$0.4 million to $0.7 million related to building
operating leases associated with the closure of our Hayward,
California manufacturing facility in the first quarter of 2010.
We are involved in various stages of investigation and cleanup
related to environmental remediation at various production
sites. We currently estimate that we will incur total
remediation costs of $0.8 million over the next 12 to
84 months related to three Connecticut production sites and
our former Washington production site.
For our Connecticut production sites, we are involved in various
stages of investigation and cleanup related to environmental
remediation matters for two of the sites and have investigated a
third site. We currently estimate that we will incur remediation
costs of $0.8 million to $1.3 million. In addition, we
have obligations to the Connecticut DEP to make certain
environmental asset improvements to one remaining waste water
treatment system in one Connecticut plant. These costs are
estimated to be $0.6 million and have been considered in
our capital expenditure plan for 2010. Lastly, we were required
to maintain a Compliance Management Plan until July 1, 2009
under a compliance agreement with the U.S. EPA.
For our Washington production site, we discovered copper
contamination in the soil and groundwater that exceeded state
and city standards. We engaged a consultant to investigate the
underlying soil and groundwater and determined that such
contamination was limited. The contaminated soil was removed and
groundwater treatment installed as of December 31, 2009. We
are taking voluntary cleanup actions to remediate both soil and
groundwater that include two quarterly groundwater samplings
post-remediation. We have a remaining accrual of
$0.1 million for such remediation costs.
Based on our current level of operations, we believe that cash
generated from operations, available cash and the proceeds from
the issuance of Convertible Notes will be adequate to meet our
currently anticipated debt service, capital expenditures,
acquisition, and working capital needs for the next
12 months and beyond. Additionally, upon effect of the PCB
Combination, we will assume approximately $450 million in
debt which we believe we will be able to service through our
combined operations.
Our principal liquidity needs for periods beyond the next
12 months are to meet debt service requirements as well as
for other contractual obligations as indicated in our
contractual obligations table below and for capital purchases
under our annual capital expenditure plan.
47
Contractual
Obligations and Commitments
The following table provides information on our contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations(1)(2)(3)
|
|
Total
|
|
|
1 Year
|
|
|
2 - 3 Years
|
|
|
4 - 5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Debt obligations
|
|
$
|
175,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175,000
|
|
Interest on debt obligations
|
|
|
31,282
|
|
|
|
5,688
|
|
|
|
11,375
|
|
|
|
11,375
|
|
|
|
2,844
|
|
Operating leases
|
|
|
5,923
|
|
|
|
2,493
|
|
|
|
1,879
|
|
|
|
435
|
|
|
|
1,116
|
|
Purchase obligations
|
|
|
2,743
|
|
|
|
2,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
214,948
|
|
|
$
|
10,924
|
|
|
$
|
13,254
|
|
|
$
|
11,810
|
|
|
$
|
178,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consideration for the acquisition of the PCB Subsidiaries
consisting of $114.0 million in cash, 36.3 million
shares of TTM common stock and our assumption of the outstanding
debt of the PCB Subsidiaries of approximately $450 million
as summarized in the Purchase Agreement, is not included in the
table above. At December 31, 2009, we maintained
approximately $120.0 million in restricted cash to be
utilized as part of the consideration for the purchase of all of
the outstanding capital stock of the PCB Subsidiaries. |
|
(2) |
|
Unrecognized uncertain tax benefits of $0.1 million are not
included in the table above as we are not sure when the amount
will be paid. |
|
(3) |
|
Environmental liabilities of $0.8 million, not included in
the table above, are accrued and recorded as long-term
liabilities in the consolidated balance sheet. |
Off
Balance Sheet Arrangements
We do not currently have, nor have we ever had, any
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
In addition, we do not engage in trading activities involving
non-exchange traded contracts. As a result, we are not
materially exposed to any financing, liquidity, market, or
credit risk that could arise if we had engaged in these
relationships.
Impact of
Inflation
We believe that our results of operations are not dependent upon
moderate changes in the inflation rate as we expect that we
generally will be able to continue to pass along component price
increases to our customers.
Recently
Issued Accounting Standards
In June 2009, the FASB issued Statement of Financial Accounting
Standards No. 166, Accounting for Transfers of Financial
Assets an amendment of Statement of Financial Accounting
Standards No. 140, included in ASC Subtopic
860-50,
Servicing Assets and Liabilities. This guidance is
intended to improve the relevance, representational
faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a
transferors continuing involvement, if any, in transferred
financial assets. This guidance is effective for interim and
annual reporting periods beginning after November 15, 2009.
We continue to evaluate the potential impact of adopting this
new guidance on our consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting
Standards No. 167, Amendments to Financial Accounting
Standards Board I Interpretation No. 46(R), included in
ASC Subtopic
810-10,
Consolidations Overall. This guidance is
intended to improve financial reporting by enterprises involved
with variable interest entities by requiring ongoing
reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity and addresses concerns
regarding the timely and usefulness of information about an
enterprises involvement in a variable interest entity.
This guidance is effective for interim and annual reporting
periods beginning after November 15, 2009, with early
application prohibited. We continue to evaluate the potential
impact of adopting this new guidance on our consolidated
financial statements.
48
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate Risk. Our interest income is
more sensitive to fluctuation in the general level of
U.S. interest rates than to changes in rates in other
markets. Changes in U.S. interest rates affect the interest
earned on cash and cash equivalents. Our outstanding debt bears
a fixed interest rate and therefore is not subject to the
effects of interest rate fluctuation.
Foreign Currency Exchange Risk. We are subject
to risks associated with transactions that are denominated in
currencies other than the U.S. dollar, as well as the
effects of translating amounts denominated in a foreign currency
to the U.S. dollar as a normal part of the reporting
process. Our Chinese operations utilize the Chinese Yuan or RMB
as the functional currency, which results in our recording a
translation adjustment that is included as a component of
accumulated other comprehensive income within our statement of
stockholders equity. Net foreign currency transaction
gains or losses on transactions denominated in currencies other
than the U.S. dollar (or other than RMB with respect to our
Chinese operations) were $0.1 million loss and
$0.1 million gain during the fiscal years ended
December 31, 2008 and 2007, respectively. The net foreign
currency transaction gains or losses on transactions denominated
in currencies other than the U.S. dollar (or other than RMB
with respect to our Chinese operations) was immaterial for the
year ended December 31, 2009. We currently do not utilize
any derivative instruments to hedge foreign currency risks.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Reference is made to the financial statements, the report
thereon, and the notes thereto, and the supplementary data
commencing at page 55 of this report, which financial
statements, report, notes, and data are included herein.
The following unaudited selected quarterly results of operations
data for the years ended December 31, 2009 and 2008 have
been derived from our unaudited condensed consolidated financial
statements, which in the opinion of management have been
prepared on the same basis as the audited consolidated financial
statements and reflect all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the
information for the quarters presented. This information should
be read in conjunction with the consolidated financial
statements and the related notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included as part of this report. The operating
results for the quarters presented are not necessarily
indicative of the operating results of any future period. We use
a 13-week fiscal quarter accounting period with the first
quarter ending on the Monday closest to April 1 and the fourth
quarter always ending on December 31. The first and fourth
quarters of 2009 contained 89 and 94 days, respectively,
and for 2008, the first and fourth quarters contained 91 and
93 days, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter(c)
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
148,997
|
|
|
$
|
144,480
|
|
|
$
|
139,075
|
|
|
$
|
149,924
|
|
Gross profit
|
|
|
24,269
|
|
|
|
27,059
|
|
|
|
24,207
|
|
|
|
27,674
|
|
Income (loss) before income taxes
|
|
|
2,308
|
|
|
|
9,623
|
|
|
|
(8,062
|
)(a)
|
|
|
4,254
|
|
Net income (loss)
|
|
|
1,427
|
|
|
|
5,948
|
|
|
|
(4,885
|
)
|
|
|
2,367
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.05
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
174,071
|
|
|
$
|
172,975
|
|
|
$
|
169,019
|
|
|
$
|
164,916
|
|
Gross profit
|
|
|
37,737
|
|
|
|
36,591
|
|
|
|
32,141
|
|
|
|
30,771
|
|
Income (loss) before income taxes
|
|
|
22,885
|
|
|
|
14,386
|
|
|
|
13,190
|
|
|
|
(111,832
|
)(b)
|
Net income (loss)
|
|
|
14,372
|
|
|
|
9,112
|
|
|
|
8,793
|
|
|
|
(69,188
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
(1.62
|
)
|
Diluted
|
|
$
|
0.34
|
|
|
$
|
0.21
|
|
|
$
|
0.20
|
|
|
$
|
(1.62
|
)
|
|
|
|
(a) |
|
Includes restructuring charges of $2.5 million and
long-lived asset impairment charges of $10.3 million. |
|
(b) |
|
Includes impairment charges of $123.3 million consisting of
a goodwill impairment of $117.0 million and a long-lived
asset impairment of $6.3 million. |
49
|
|
|
(c) |
|
On February 4, 2010, we announced certain financial results
for the quarter ended December 31, 2009, which reflected
income before income taxes of $4,879, net income of $2,753, and
earnings per share of $0.06. These results reflected a fourth
quarter impairment of $1.5 million for assets classified as
held for sale. Subsequent to the issuance of this information,
the Company through its reporting process obtained additional
information pertaining to contingencies that existed at year end
that allowed us to refine our estimates of the fair value of
certain assets classified as held for sale. As a result, it was
determined that we needed to increase the impairment charge for
the quarter ended December 31, 2009 to the
$2.1 million now reflected in our 2009 audited financial
statements. |
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
An evaluation was performed under the supervision of and with
the participation of our management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of
the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act
Rules 13(a)-15(e)
and 15(d)-15(e)) as of December 31, 2009. Based on that
evaluation, our management, including our CEO and CFO, concluded
that our disclosure controls and procedures (as defined in
Rule 13(a)-15(e)
and 15(d)-15(e) of the Exchange Act), are effective to ensure
that information required to be disclosed by us in reports that
we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported as
specified in the SECs rules and forms.
Changes
in Internal Control Over Financial Reporting
There has been no change in our internal control over financial
reporting during the quarter ended December 31, 2009 that
has materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
internal control over financial reporting (as such item is
defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f))
to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control
Integrated Framework, our management concluded that our internal
control over financial reporting is effective as of
December 31, 2009.
Our independent registered public accounting firm, KPMG LLP, has
issued an attestation report on our internal control over
financial reporting, which is included on page 56 of this
report.
50
Inherent
Limitations on Effectiveness of Controls
Our management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls or our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no
matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control
systems objectives will be met. The design of a control
system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Further, because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error
or fraud will not occur or that all control issues and instances
of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls also can be
circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with policies or
procedures.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not Applicable
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information required by this Item relating to our directors
is incorporated herein by reference to the definitive Proxy
Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2010 Annual Meeting of Stockholders. The
information required by this Item relating to our executive
officers is included in Item 1, Business
Management of this report.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2010 Annual
Meeting of Stockholders.
51
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements and Financial Statement Schedule
(1) Financial Statements are listed in the Index to
Financial Statements on page 55 of this Report.
(2) Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts are set forth
on page 92 of this Report.
Other schedules are omitted because they are not applicable, not
required, or because required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
(b) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibits
|
|
|
1
|
.1
|
|
Underwriting Agreement, dated May 8, 2008, among the
Registrant, J.P. Morgan Securities Inc. and UBS Securities
LLC.(1)
|
|
2
|
.1
|
|
Form of Plan of Reorganization.(2)
|
|
2
|
.2
|
|
Stock and Asset Purchase Agreement by and among Tyco Printed
Circuit Group LP, Tyco Electronics Corporation, Raychem
International, Tyco Kappa Limited, Tyco Electronics Logistics
AG, and TTM (Ozarks) Acquisition, Inc. dated as of
August 2, 2006.(3)
|
|
3
|
.1
|
|
Registrants Certificate of Incorporation.(4)
|
|
3
|
.2
|
|
Registrants Second Amended and Restated Bylaws.(5)
|
|
4
|
.1
|
|
Indenture, dated as of May 14, 2008, between the Registrant
and American Stock Transfer and Trust Company.(1)
|
|
4
|
.2
|
|
Supplemental Indenture, dated as of May 14, 2008, between
the Registrant and American Stock Transfer and
Trust Company.(1)
|
|
4
|
.3
|
|
Form of Registrants common stock certificate.(4)
|
|
4
|
.4
|
|
Sell-Down Registration Rights Agreement, dated December 23,
2009, by and among Meadville Holdings Limited, MTG Investment
(BVI) Limited, and TTM Technologies, Inc.(10)
|
|
10
|
.1
|
|
Call Option Transaction Confirmation, dated as of May 8,
2008, between TTM Technologies, Inc. and JPMorgan Chase Bank,
National Association.(1)
|
|
10
|
.2
|
|
Warrant Transaction Confirmation, dated as of May 8, 2008,
between TTM Technologies, Inc. and JPMorgan Chase Bank, National
Association.(1)
|
|
10
|
.3
|
|
Call Option Transaction Confirmation, dated as of May 8,
2008, between TTM Technologies, Inc. and UBS AG.(1)
|
|
10
|
.4
|
|
Warrant Transaction Confirmation, dated as of May 8, 2008,
between TTM Technologies, Inc. and UBS AG.(1)
|
|
10
|
.5
|
|
Call Option Transaction Confirmation, dated as of May 16,
2008, between TTM Technologies, Inc. and JPMorgan Chase Bank,
National Association.(2)
|
|
10
|
.6
|
|
Warrant Transaction Confirmation, dated as of May 16, 2008,
between TTM Technologies, Inc. and JPMorgan Chase Bank, National
Association.(2)
|
|
10
|
.7
|
|
Call Option Transaction Confirmation, dated as of May 16,
2008, between TTM Technologies, Inc. and UBS AG.(2)
|
|
10
|
.8
|
|
Warrant Transaction Confirmation, dated as of May 16, 2008,
between TTM Technologies, Inc. and UBS AG.(2)
|
|
10
|
.9
|
|
Employment Agreement dated as of December 31, 2005 between
the Registrant and Kenton K. Alder.(7)
|
|
10
|
.10
|
|
Form of Executive Change in Control Severance Agreement and
schedule of agreements entered into on December 1, 2005.(7)
|
52
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibits
|
|
|
10
|
.11
|
|
Employment Agreement dated as of October 28, 2006 between
the Registrant and Douglas L. Soder.(8)
|
|
10
|
.12
|
|
2006 Incentive Compensation Plan.(8)
|
|
10
|
.13
|
|
Form of Stock Option Agreement.(8)
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Award Agreement.(8)
|
|
10
|
.15
|
|
Form of Indemnification Agreement with directors.(2)
|
|
10
|
.16
|
|
Stock Purchase Agreement, dated November 16, 2009, by and
among Meadville Holdings Limited, MTG Investment (BVI) Limited,
TTM Technologies, Inc., TTM Technologies International, Inc.,
and TTM Hong Kong Limited.(9)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.(11)
|
|
23
|
.1
|
|
Consent of KPMG LLP, independent registered public accounting
firm.(12)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.(12)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.(12)
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(12)
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(12)
|
|
|
|
(1) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Securities and Exchange Commission (the
Commission) on May 14, 2008. |
|
(2) |
|
Incorporated by reference to the Registration Statement on
Form S-1
(Registration
No. 333-39906)
declared effective September 20, 2000. |
|
(3) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on August 4, 2006. |
|
(4) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on August 30, 2005. |
|
(5) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on February 19, 2009. |
|
(6) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on May 22, 2008. |
|
(7) |
|
Incorporated by reference to the Registrants
Form 10-K
as filed with the Commission on March 15, 2006. |
|
(8) |
|
Incorporated by reference to the Registrants
Form 10-K
as filed with the Commission on March 16, 2007. |
|
(9) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on November 16, 2009. |
|
(10) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on December 23, 2009. |
|
(11) |
|
Incorporated by reference to the Registrants Registration
Statement on
Form S-4
filed with the Commission on December 24, 2009. |
|
(12) |
|
Filed herewith. |
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TTM TECHNOLOGIES, INC.
Kenton K. Alder
President and Chief Executive Officer
Date: March 15, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ KENTON
K. ALDER
Kenton
K. Alder
|
|
President, Chief Executive Officer (Principal Executive
Officer), and Director
|
|
March 15, 2010
|
|
|
|
|
|
/s/ STEVEN
W. RICHARDS
Steven
W. Richards
|
|
Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 15, 2010
|
|
|
|
|
|
/s/ ROBERT
E. KLATELL
Robert
E. Klatell
|
|
Chairman of the Board
|
|
March 15, 2010
|
|
|
|
|
|
/s/ THOMAS
T. EDMAN
Thomas
T. Edman
|
|
Director
|
|
March 15, 2010
|
|
|
|
|
|
/s/ JAMES
K. BASS
James
K. Bass
|
|
Director
|
|
March 15, 2010
|
|
|
|
|
|
/s/ RICHARD
P. BECK
Richard
P. Beck
|
|
Director
|
|
March 15, 2010
|
|
|
|
|
|
/s/ JOHN
G. MAYER
John
G. Mayer
|
|
Director
|
|
March 15, 2010
|
54
TTM
TECHNOLOGIES, INC.
55
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
TTM Technologies, Inc.:
We have audited TTM Technologies, Inc.s (the Company)
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting (Item 9A). Our responsibility is to
express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2009, and
our report dated March 15, 2010 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
Salt Lake City, Utah
March 15, 2010
56
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
TTM Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
TTM Technologies, Inc. and subsidiaries (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2009.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2009 and 2008,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company has changed its method of accounting for
uncertainties in income taxes effective January 1, 2007,
due to the adoption of Financial Accounting Standards Board
(FASB) Interpretation 48, Accounting for Uncertainty in
Income Taxes, included in ASC Subtopic
740-10,
Income Taxes Overall. Also discussed in
Note 2 to the consolidated financial statements, the
Company has changed its method of accounting for convertible
debt instruments effective January 1, 2009, due to the
adoption of FASB Staff Position APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), included in ASC Subtopic
470-20,
Debt with Conversion and Other Options, and the
consolidated financial statements have been adjusted for the
retrospective application of this standard.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 15, 2010
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
/s/ KPMG LLP
Salt Lake City, Utah
March 15, 2010
57
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
94,347
|
|
|
$
|
148,465
|
|
Short-term investments
|
|
|
1,351
|
|
|
|
3,657
|
|
Restricted cash
|
|
|
120,000
|
|
|
|
|
|
Accounts receivable, net of allowances of $3,651 in 2009 and
$4,911 in 2008
|
|
|
89,519
|
|
|
|
115,232
|
|
Inventories
|
|
|
60,153
|
|
|
|
71,011
|
|
Prepaid expenses and other current assets
|
|
|
2,669
|
|
|
|
2,581
|
|
Income taxes receivable
|
|
|
|
|
|
|
3,432
|
|
Assets held for sale
|
|
|
7,875
|
|
|
|
3,250
|
|
Current deferred income taxes
|
|
|
6,645
|
|
|
|
5,502
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
382,559
|
|
|
|
353,130
|
|
Property, plant and equipment, net
|
|
|
88,577
|
|
|
|
114,931
|
|
Debt issuance costs, net
|
|
|
3,542
|
|
|
|
4,044
|
|
Noncurrent deferred income taxes
|
|
|
37,430
|
|
|
|
34,329
|
|
Goodwill
|
|
|
14,130
|
|
|
|
14,149
|
|
Definite-lived intangibles, net
|
|
|
15,111
|
|
|
|
18,330
|
|
Deposits and other non-current assets
|
|
|
1,709
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
543,058
|
|
|
$
|
540,240
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
37,867
|
|
|
$
|
48,750
|
|
Accrued salaries, wages and benefits
|
|
|
19,253
|
|
|
|
21,596
|
|
Other accrued expenses
|
|
|
2,327
|
|
|
|
2,422
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
59,447
|
|
|
|
72,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
|
139,882
|
|
|
|
134,914
|
|
Other long-term liabilities
|
|
|
2,812
|
|
|
|
2,522
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
142,694
|
|
|
|
137,436
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000 shares
authorized, 43,181 and 42,811 shares issued and outstanding
in 2009 and 2008, respectively
|
|
|
43
|
|
|
|
43
|
|
Additional paid-in capital
|
|
|
215,461
|
|
|
|
209,401
|
|
Retained earnings
|
|
|
122,283
|
|
|
|
117,426
|
|
Accumulated other comprehensive income
|
|
|
3,130
|
|
|
|
3,166
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
340,917
|
|
|
|
330,036
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
543,058
|
|
|
$
|
540,240
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
58
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
Cost of goods sold
|
|
|
479,267
|
|
|
|
543,741
|
|
|
|
539,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
103,209
|
|
|
|
137,240
|
|
|
|
130,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
26,517
|
|
|
|
30,436
|
|
|
|
29,835
|
|
General and administrative
|
|
|
36,548
|
|
|
|
33,255
|
|
|
|
32,712
|
|
Amortization of definite-lived intangibles
|
|
|
3,440
|
|
|
|
3,799
|
|
|
|
4,126
|
|
Restructuring charges
|
|
|
5,490
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
12,761
|
|
|
|
123,322
|
|
|
|
|
|
Metal reclamation
|
|
|
|
|
|
|
(3,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
84,756
|
|
|
|
187,112
|
|
|
|
66,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
18,453
|
|
|
|
(49,872
|
)
|
|
|
63,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11,198
|
)
|
|
|
(11,065
|
)
|
|
|
(13,828
|
)
|
Interest income
|
|
|
467
|
|
|
|
1,370
|
|
|
|
1,379
|
|
Other, net
|
|
|
401
|
|
|
|
(1,804
|
)
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(10,330
|
)
|
|
|
(11,499
|
)
|
|
|
(12,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
8,123
|
|
|
|
(61,371
|
)
|
|
|
51,268
|
|
Income tax (provision) benefit
|
|
|
(3,266
|
)
|
|
|
24,460
|
|
|
|
(16,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
$
|
34,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
59
TTM
TECHNOLOGIES, INC.
For the
Years Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2006
|
|
|
42,093
|
|
|
$
|
42
|
|
|
$
|
167,850
|
|
|
$
|
119,316
|
|
|
$
|
107
|
|
|
$
|
287,315
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,683
|
|
|
|
|
|
|
|
34,683
|
|
|
$
|
34,683
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax of $838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,378
|
|
Unrealized loss on effective cash flow hedges, net of tax
benefit of $386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
743
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle related to
income tax uncertainties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
Exercise of stock options
|
|
|
287
|
|
|
|
|
|
|
|
1,712
|
|
|
|
|
|
|
|
|
|
|
|
1,712
|
|
|
|
|
|
Excess tax benefits from stock awards exercised or released
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
42,380
|
|
|
|
42
|
|
|
|
173,365
|
|
|
|
154,337
|
|
|
|
850
|
|
|
|
328,594
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,911
|
)
|
|
|
|
|
|
|
(36,911
|
)
|
|
$
|
(36,911
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax of $982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672
|
|
Unrealized loss on effective cash flow hedges, net of tax
benefit of $64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
Reclassification for realized losses on cash flow hedges net of
tax of $442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,316
|
|
|
|
2,316
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(34,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior note embedded conversion option, net of tax
of $15,907
|
|
|
|
|
|
|
|
|
|
|
25,680
|
|
|
|
|
|
|
|
|
|
|
|
25,680
|
|
|
|
|
|
Purchase of convertible note hedge, net of tax benefits of
$14,633
|
|
|
|
|
|
|
|
|
|
|
(23,624
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,624
|
)
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
Exercise of stock options
|
|
|
277
|
|
|
|
1
|
|
|
|
2,394
|
|
|
|
|
|
|
|
|
|
|
|
2,395
|
|
|
|
|
|
Excess tax benefits from stock awards exercised or released
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
Issuance of common stock for restricted stock units
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
42,811
|
|
|
|
43
|
|
|
|
209,401
|
|
|
|
117,426
|
|
|
|
3,166
|
|
|
|
330,036
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,857
|
|
|
|
|
|
|
|
4,857
|
|
|
$
|
4,857
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax benefit of
$22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
59
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
Tax shortfall from stock awards exercised or released
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
Issuance of common stock for restricted stock units
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
43,181
|
|
|
$
|
43
|
|
|
$
|
215,461
|
|
|
$
|
122,283
|
|
|
$
|
3,130
|
|
|
$
|
340,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
60
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
$
|
34,683
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
19,140
|
|
|
|
21,324
|
|
|
|
22,804
|
|
Amortization of definite-lived intangible assets
|
|
|
3,567
|
|
|
|
3,917
|
|
|
|
4,242
|
|
Amortization of debt discount and debt issuance costs
|
|
|
5,470
|
|
|
|
5,403
|
|
|
|
3,692
|
|
Non-cash interest imputed on other long-term liabilities
|
|
|
137
|
|
|
|
131
|
|
|
|
122
|
|
Excess tax benefit from stock awards exercised or released
|
|
|
(24
|
)
|
|
|
(210
|
)
|
|
|
(341
|
)
|
Deferred income taxes
|
|
|
(4,841
|
)
|
|
|
(38,056
|
)
|
|
|
1,831
|
|
Stock-based compensation
|
|
|
6,265
|
|
|
|
5,076
|
|
|
|
3,361
|
|
Impairment of goodwill and long-lived assets
|
|
|
12,761
|
|
|
|
123,322
|
|
|
|
|
|
Unrealized (gain) loss on short-term investments
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
Net (gain) loss on sale of property, plant and equipment and
other
|
|
|
(61
|
)
|
|
|
252
|
|
|
|
84
|
|
Amortization of premiums and discounts on short-term
investments, net
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
25,686
|
|
|
|
4,547
|
|
|
|
7,129
|
|
Inventories
|
|
|
10,850
|
|
|
|
(4,854
|
)
|
|
|
1,628
|
|
Prepaid expenses and other current assets
|
|
|
(101
|
)
|
|
|
1,104
|
|
|
|
184
|
|
Income taxes receivable
|
|
|
3,616
|
|
|
|
(1,195
|
)
|
|
|
(1,520
|
)
|
Accounts payable
|
|
|
(9,996
|
)
|
|
|
(5,695
|
)
|
|
|
2,308
|
|
Accrued salaries, wages and benefits and other accrued expenses
|
|
|
(3,024
|
)
|
|
|
(2,523
|
)
|
|
|
(6,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
73,977
|
|
|
|
75,632
|
|
|
|
73,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment and equipment deposits
|
|
|
(11,507
|
)
|
|
|
(17,789
|
)
|
|
|
(14,040
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
729
|
|
|
|
165
|
|
|
|
1,335
|
|
Restricted cash for future acquisition
|
|
|
(120,000
|
)
|
|
|
|
|
|
|
|
|
Redesignation of cash and cash equivalents to short-term
investments
|
|
|
|
|
|
|
(19,522
|
)
|
|
|
|
|
Proceeds from the redemption of short-term investments
|
|
|
2,631
|
|
|
|
15,865
|
|
|
|
|
|
Proceeds from redemptions of
held-to-maturity
short-term investments
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
Purchase of licensing agreement
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(128,497
|
)
|
|
|
(21,281
|
)
|
|
|
(1,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
416
|
|
|
|
2,394
|
|
|
|
1,712
|
|
Excess tax benefits from stock awards exercised or released
|
|
|
24
|
|
|
|
210
|
|
|
|
341
|
|
Proceeds from issuance of convertible senior notes
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
|
|
|
|
(85,000
|
)
|
|
|
(115,705
|
)
|
Proceeds from warrants
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
Payment of convertible note hedge
|
|
|
|
|
|
|
(38,257
|
)
|
|
|
|
|
Payment of debt issuance costs
|
|
|
|
|
|
|
(5,751
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
440
|
|
|
|
74,793
|
|
|
|
(113,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
(38
|
)
|
|
|
640
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(54,118
|
)
|
|
|
129,784
|
|
|
|
(40,979
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
148,465
|
|
|
|
18,681
|
|
|
|
59,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
94,347
|
|
|
$
|
148,465
|
|
|
$
|
18,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
5,699
|
|
|
$
|
6,031
|
|
|
$
|
9,346
|
|
Cash paid, net for income taxes
|
|
|
3,855
|
|
|
|
15,001
|
|
|
|
15,543
|
|
Supplemental disclosures of noncash investing and financing
activities:
At December 31, 2009, 2008 and 2007 accrued purchases of
equipment totaled $586, $1,470 and $1,557, respectively.
During 2009, the Company commenced the process of selling the
buildings at its Redmond, Washington production facility and as
a result classified such assets to assets held for sale. See
Note 4.
During 2008 and 2007, the Company recognized unrealized losses
on a derivative instrument of $108 and $635, net of tax,
respectively.
See accompanying notes to consolidated financial statements.
61
TTM
TECHNOLOGIES, INC.
(Dollars
and shares in thousands, except per share data)
|
|
(1)
|
Nature of
Operations and Basis of Presentation
|
TTM Technologies, Inc. (the Company or TTM) is a manufacturer of
complex printed circuit boards (PCBs) used in sophisticated
electronic equipment and provides backplane and
sub-system
assembly services for both standard and specialty products in
defense and commercial operations. The Company sells to a
variety of customers located both within and outside of the
United States of America. The Companys customers include
both original equipment manufacturers (OEMs) and electronic
manufacturing services (EMS) companies. The Companys OEM
customers often direct a significant portion of their purchases
through EMS companies.
On November 16, 2009, the Company and certain of its
subsidiaries entered into a stock purchase agreement (the
Purchase Agreement) with Meadville Holdings Limited (Meadville),
an exempted company incorporated under the laws of the Cayman
Islands, and MTG Investment (BVI) Limited (MTG), a company
incorporated under the laws of the British Virgin Islands and a
wholly owned subsidiary of Meadville, pursuant to which the
Company agreed to acquire all of the issued and outstanding
capital stock of four wholly owned subsidiaries of MTG (the PCB
Subsidiaries). The PCB Subsidiaries, through their respective
subsidiaries, engage in the business of manufacturing and
distributing printed circuit boards, including circuit design,
quick-turn-around services, and drilling and routing services.
Following the closing of the proposed acquisition of the PCB
Subsidiaries (the PCB Combination), the PCB Subsidiaries will
become wholly owned subsidiaries of the Company.
Under the terms of the Purchase Agreement, the Company will
purchase all of the outstanding capital stock of the PCB
Subsidiaries in exchange for $114,034 in cash and
36,334 shares of TTM common stock, plus the Companys
assumption of the outstanding debt of the PCB Subsidiaries of
approximately $450,000. The Purchase Agreement does not provide
for an adjustment in the number of shares of TTM common stock to
be issued to Meadville in the acquisition in the event of a
fluctuation in the market value of TTMs common stock or
Meadvilles shares up through the closing date.
The Purchase Agreement contains customary representations,
warranties, covenants, and agreements of the parties thereto.
Completion of the proposed acquisition is subject to numerous
conditions. Following the closing of the PCB Combination, and
subject to the fulfillment of certain conditions, Meadville
intends to authorize and make a special dividend of the cash
proceeds and TTM shares received in the PCB Combination to its
shareholders or, to the extent a Meadville shareholder so
elects, such TTM shares that such electing Meadville shareholder
would otherwise have been entitled to receive will be sold by
Meadville and the net cash proceeds from the sale thereof shall
be remitted to the electing Meadville shareholder. After taking
into account the 36,334 shares of TTM common stock to be
issued in the acquisition and based on the number of shares
outstanding on November 16, 2009, the date the Company
executed the Purchase Agreement, approximately 46% of TTM common
stock outstanding after completion of the PCB Combination will
be held by Meadville, its shareholders, or their transferees.
As part of the consideration for the purchase of all of the
outstanding capital stock of the PCB Subsidiaries as described
above, the Company is required to maintain approximately
$120,000 in various accounts which are restricted in nature and
has been recorded as restricted cash in the consolidated balance
sheet as of December 31, 2009. Legal and accounting costs
of $5,383 associated with the PCB Combination have been expensed
and recorded as general and administrative expense in the
consolidated statement of operations for the year ended
December 31, 2009 due to the adoption of Financial
Accounting Standards Board Statement No. 141 (revised
2007), Business Combinations, included in ASC
Topic 805, Business Combinations.
Additional information relating to the PCB Combination,
including certain risks relating to the transaction and
conditions to the closing of the transaction, are included in
our prospectus/proxy statement dated February 10, 2010.
On March 12, 2010, the Company held a special meeting of
stockholders to consider and vote upon a proposal to approve the
issuance of 36,334 shares of the Companys common
stock in connection with the PBC Combination pursuant to the
Purchase Agreement. Only the stockholders of record at the close
of business on
62
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
February 1, 2010, the record date, were entitled to vote.
The Company received the necessary votes in favor to approve the
issuance of shares of the Companys common stock in
connection with the PCB Combination.
Certain reclassifications of prior year amounts have been made
to conform to the current year presentation. Beginning in 2009,
the Company reports gains and losses from the sale or disposal
of property, plant and equipment as a component of general and
administrative expenses in the consolidated statements of
operations. Prior to 2009, the gains and losses from the sale or
disposal of property, plant and equipment were included as a
component of cost of goods sold.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Such estimates include the sales return reserve,
short-term investments, accounts receivable, inventories,
goodwill, intangible assets and other long-lived assets, self
insurance reserves, asset retirement obligations, environmental
liabilities, legal contingencies, assumptions used in the
calculation of stock-based compensation and income taxes, among
others. These estimates and assumptions are based on
managements best estimates and judgment. Management
evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the
economic environment, which management believes to be reasonable
under the circumstances. Management adjusts such estimates and
assumptions when facts and circumstances dictate. Unpredictable
spending by OEM and EMS companies has also increased the
uncertainty inherent in such estimates and assumptions. As
future events and their effects cannot be determined with
precision, actual results could differ from those estimates.
Principles
of Consolidation
The consolidated financial statements include the accounts of
TTM Technologies, Inc. and its wholly-owned subsidiaries: Power
Circuits, Inc., TTM Advanced Circuits, Inc., TTM Technologies
International, Inc., TTM Printed Circuit Group, Inc., TTM
Technologies (Shanghai) Co. Ltd., TTM Iota, Ltd., TTM
Technologies (Ireland) Ltd., TTM Technologies (Ireland) EU Ltd.,
TTM Technologies (Switzerland) GmbH, and TTM Hong Kong Limited.
All intercompany accounts and transactions have been eliminated
in consolidation.
Foreign
Currency Translation and Transactions
The functional currency of the Companys TTM Technologies
(Shanghai) Co. Ltd. subsidiary is the local currency, the
Chinese RMB. Accordingly, assets and liabilities are translated
into U.S. dollars using period-end exchange rates. Sales
and expenses are translated at the average exchange rates in
effect during the period. The resulting translation gains or
losses are recorded as a component of accumulated other
comprehensive income in the consolidated statement of
stockholders equity and comprehensive income (loss). Gains
and losses resulting from foreign currency transactions are
included in income as a component of other, net in the
consolidated statements of operations and totaled $26 gain, $69
loss and $100 gain for the years ended December 31, 2009,
2008 and 2007, respectively.
Cash
Equivalents and Short-Term Investments
The Company considers highly liquid investments with
insignificant interest rate risk and original maturities to the
Company of three months or less to be cash equivalents. Cash
equivalents consist primarily of interest-bearing bank accounts,
money market funds and short-term debt securities.
The Company considers highly liquid investments with an
effective maturity to the Company of more than three months and
less than one year to be short-term investments.
63
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Short-term investments are comprised of an investment in The
Reserve Primary Fund (Primary Fund), a money market fund that
has suspended redemptions and is being liquidated. The Company
has recorded these investments as trading securities and at fair
value. Unrealized holdings gains and losses on trading
securities are recorded as a component of other, net in the
consolidated statements of operations.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are reflected at estimated net realizable
value, do not bear interest nor do they generally require
collateral. The Company performs credit evaluations of its
customers and adjusts credit limits based upon payment history
and the customers current creditworthiness. The Company
maintains an allowance for doubtful accounts based upon a
variety of factors. The Company reviews all open accounts and
provides specific reserves for customer collection issues when
it believes the loss is probable, considering such factors as
the length of time receivables are past due, the financial
condition of the customer, and historical experience. The
Company also records a reserve for all customers, excluding
those that have been specifically reserved for, based upon
evaluation of historical losses, which exceeded the specific
reserves the Company had established.
Inventories
Inventories are stated at the lower of cost (determined on a
first-in,
first-out basis) or market. Provisions to value the inventory at
the lower of the actual cost to purchase and / or
manufacture the inventory, or the current estimated market value
of the inventory, are based upon assumptions about future demand
and market conditions. The Company also performs evaluations of
inventory and records a provision for estimated excess and
obsolete items based upon forecasted demand, and any other known
factors at the time.
Property,
Plant and Equipment, Net
Property, plant and equipment are recorded at cost. Depreciation
expense is computed using the straight-line method over the
estimated useful lives of the assets. Assets recorded under
leasehold improvements are amortized using the straight-line
method over the lesser of their useful lives or the related
lease term. The Company uses the following estimated useful
lives:
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|
|
|
|
Buildings and improvements
|
|
|
7-40 years
|
|
Machinery and equipment
|
|
|
3-12 years
|
|
Furniture and fixtures
|
|
|
3-7 years
|
|
Automobiles
|
|
|
5 years
|
|
Upon retirement or other disposition of property, plant and
equipment, the cost and related accumulated depreciation are
removed from the accounts. The resulting gain or loss is
included in the determination of income from operations in the
period incurred. Depreciation and amortization expense on
property, plant and equipment was $19,140, $21,324, and $22,772
for the years ended December 31, 2009, 2008 and 2007,
respectively.
The Company capitalizes interest on borrowings during the active
construction period of major capital projects. Capitalized
interest is amortized over the average useful lives of such
assets, which primarily consist of machinery and equipment. The
Company capitalized interest costs of $287, $275 and $286 during
the years ended December 31, 2009, 2008 and 2007,
respectively, in connection with various capital projects.
Major renewals and betterments are capitalized and depreciated
over their estimated useful lives while minor expenditures for
maintenance and repairs are charged to expense as incurred.
Debt
Issuance Costs
Debt issuance costs are amortized to expense over the period of
the underlying convertible senior notes or credit facility using
the effective interest rate method, adjusted to give effect to
any early repayments.
64
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Goodwill
Goodwill represents the excess of purchase price of an
acquisition over the fair value of net assets acquired. Goodwill
is not amortized but instead should be tested for impairment, at
a reporting unit level, annually and when events and
circumstances warrant an evaluation. Goodwill is tested for
impairment using a two-step process. The first step of the
goodwill impairment test, used to identify potential impairment,
compares the estimated fair value of the reporting unit
containing goodwill with the related carrying amount (including
goodwill). If the estimated fair value of the reporting unit
exceeds its carrying amount, the reporting units goodwill
is not considered to be impaired, and the second step of the
impairment test is unnecessary. If the reporting units
carrying amount exceeds its estimated fair value, the second
step must be performed to measure the amount of the goodwill
impairment loss, if any. The second step of the goodwill
impairment test compares the implied fair value of the reporting
units goodwill, determined in the same manner as the
amount of goodwill recognized in a business combination, with
the carrying amount of such goodwill. If the carrying amount of
the reporting units goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an
amount equal to that excess.
In performing the impairment test, the fair value of the
Companys reporting units is determined using a combination
of the income approach and the market approach as considered
necessary. Under the income approach, the fair value of each
reporting unit is calculated based on the present value of
estimated future net cash flows. Under the market approach, fair
value is estimated based on market multiples of earnings or
similar measures for comparable companies and market
transactions, when available.
The Company evaluates goodwill on an annual basis, as of the end
of the fourth quarter, and whenever events and changes in
circumstances indicate that there may be a potential impairment.
In making this assessment, management relies on a number of
factors including operating results, business plans, economic
projections, anticipated future cash flows, business trends and
market conditions.
The Company has two reporting units, which are also operating
segments. In the fourth quarter of 2009, the Company performed
its annual impairment test of goodwill and concluded that
goodwill was not impaired. See Notes 4 and 7 for
information regarding the goodwill impairment recorded in 2008
as a result of the annual impairment test.
Intangible
Assets
Intangible assets include customer relationships and licensing
agreements, which are being amortized over their estimated
useful lives using straight-line and accelerated methods. The
estimated useful lives of such intangibles range from three
years to 15 years. Amortization expense related to acquired
licensing agreements is classified as cost of goods sold.
Impairment
of Long-lived Assets
Long-lived tangible assets, including property, plant and
equipment, assets held for sale, and definite-lived intangible
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset or
asset groups may not be recoverable. The Company evaluates,
regularly, whether events and circumstances have occurred that
indicate possible impairment and relies on a number of factors,
including operating results, business plans, economic
projections, and anticipated future cash flows. The Company uses
an estimate of the future undiscounted net cash flows of the
related asset or asset group over the remaining life in
measuring whether the assets are recoverable. Measurement of the
amount of impairment, if any, is based upon the difference
between the assets carrying value and estimated fair
value. Fair value is determined through various valuations
techniques, including market and income approaches as considered
necessary. See Note 4 for information regarding the asset
impairment recorded for the years ended December 31, 2009
and 2008 as a result of specific events and changes in
circumstances.
65
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The Company classifies assets to be sold as assets held for sale
when (i) Company management has approved and commits to a
plan to sell the asset, (ii) the asset is available for
immediate sale in its present condition and is ready for sale,
(iii) an active program to locate a buyer and other actions
required to sell the asset have been initiated, (iv) the
sale of the asset is probable, (v) the asset is being
actively marketed for sale at a price that is reasonable in
relation to its current fair value, and (vi) it is unlikely
that significant changes to the plan will be made or that the
plan will be withdrawn. Assets classified as held for sale are
recorded at the lower of the carrying amount or fair value less
the cost to sell.
Revenue
Recognition
The Company derives its revenue primarily from the sale of PCBs
using customer supplied engineering and design plans and
recognizes revenues when: (i) persuasive evidence of a
sales arrangement exists, (ii) the sales terms are fixed
and determinable, (iii) title and risk of loss have
transferred, and (iv) collectibility is reasonably
assured generally when products are shipped to the
customer, except in situations in which title passes upon
receipt of the products by the customer. In this case, revenues
are recognized upon notification that customer receipt has
occurred. The Company does not have customer acceptance
provisions, but it does provide its customers a limited right of
return for defective PCBs. The Company accrues an estimated
amount for sales returns and allowances related to defective
PCBs at the time of sale based on its ability to estimate sales
returns and allowances using historical information. As of
December 31, 2009 and 2008, the reserve for sales returns
and allowances was $2,636 and $3,291, respectively, which is
included as a reduction to accounts receivable, net. Shipping
and handling fees are included as part of net sales. The related
freight costs and supplies associated with shipping products to
customers are included as a component of cost of goods sold.
Stock-Based
Compensation
The Company recognizes stock-based compensation expense in the
consolidated financial statements for its equity-classified
employee stock-based compensation awards based on the grant date
fair value of the awards, net of estimated forfeitures. The
compensation expense is recognized on a straight line basis over
the vesting period of the awards. The fair value of restricted
stock units is measured on the grant date based on the quoted
closing market price of the Companys common stock and the
fair value of stock options is estimated on the grant date using
the Black-Scholes option pricing model based on the underlying
common stock closing price as of the date of grant, the expected
term, stock price volatility, and risk-free interest rates.
Convertible
Senior Notes
On January 1, 2009, the Company adopted Financial
Accounting Standards Board (FASB) Staff Position APB
14-1,
Accounting for Convertible Debt Instruments That May Be Settled
in Cash Upon Conversion (Including Partial Cash Settlement),
included in Accounting Standards Codification (ASC) Subtopic
470-20,
Debt with Conversion and Other Options, and as a result
the Company accounts for its convertible debt instruments by
separately accounting for the liability and equity components in
a manner that reflects the entitys nonconvertible debt
borrowing rate when interest cost is recognized in subsequent
periods. The Company has retrospectively applied this method of
accounting back to the issuance date of convertible debt, which
for the Company was May 2008.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred income tax assets or liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred income tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be settled or realized.
The effect
66
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
on deferred income tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. Deferred income tax assets are reviewed for
recoverability and the Company records a valuation allowance to
reduce its deferred income tax assets when it is more likely
than not that all or some portion of the deferred income tax
assets will not be realized.
The Company has various foreign subsidiaries formed or acquired
to conduct or support its business outside the United States.
The Company provides for income taxes, net of applicable foreign
tax credits, on temporary differences in its investment in
foreign subsidiaries which are not considered to be permanently
invested outside of the United States.
On January 1, 2007, the Company adopted FASB
Interpretations 48, Accounting for Uncertainty in Income
Taxes, included in ASC Subtopic
740-10,
Income Taxes Overall, and as a result the
Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the
period in which the change in judgment occurs. Estimated
interest and penalties related to underpayment of income taxes
are recorded as a component of income tax provision in the
consolidated statement of operations.
Self
Insurance
The Company is primarily self insured for group health insurance
and workers compensation benefits provided to employees. The
Company also purchases stop loss insurance to protect against
annual claims per individual and at an aggregate level. The
individual insured stop losses on the Companys self
insurance range from $175 to $250 per individual. Self insurance
liabilities are estimated for claims incurred but not paid based
on judgment, using our historical claim data and information and
analysis provided by actuarial and claim advisors, our insurance
carrier and other professionals. The Company accrued $5,212 and
$4,814 for self insurance liabilities at December 31, 2009
and 2008, respectively, and these amounts are reflected within
accrued salaries, wages and benefits in the consolidated balance
sheets.
Derivatives
and Hedging Transactions
Derivative financial instruments are recognized as either assets
or liabilities in the consolidated balance sheets at their
respective fair values. The Company does not use derivative
financial instruments for trading or speculative purposes and
recent derivative financial instruments have been limited to
interest rate swap agreements. When an interest rate swap
derivative contract is executed, the Company will designate the
derivative instrument as a hedge of the variability of cash
flows to be paid (cash flow hedge). For its hedging
relationship, the Company will formally document the hedging
relationship and its risk management objective and strategy for
undertaking the hedge, the hedging instrument, the hedged item,
the nature of the risk being hedged, how the hedging
instruments effectiveness in offsetting the hedged risk
will be assessed, and a description of the method of measuring
ineffectiveness. The Company will also formally assess, both at
the hedges inception and on an ongoing basis, whether the
derivative that is used in hedging transactions is highly
effective in offsetting changes in cash flows of hedged items.
To the extent the interest rate swap provides an effective
hedge, the differences between the fair value and the book value
of the interest rate swap are recognized in accumulated other
comprehensive income, net of tax, as a component of
stockholders equity. To the extent there is any hedge
ineffectiveness, changes in fair value relating to the
ineffective portion are immediately recognized in earnings as
interest expense. The Company also evaluates whether the risk of
default by the counterparty to the interest rate swap contract
has changed.
As of December 31, 2009 and 2008 the Company did not have
any derivative financial instruments outstanding.
67
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Sales
Tax Collected from Customers
As a part of the Companys normal course of business, sales
taxes are collected from customers. Sales taxes collected are
remitted, in a timely manner, to the appropriate governmental
tax authority on behalf of the customer. The Companys
policy is to present revenue and costs, net of sales taxes.
Fair
Value Measures
On January 1, 2008, the Company adopted the provisions of
ASC Topic 820, Fair Value Measurements and Disclosures,
for fair value measurements of financial assets and financial
liabilities and for fair value measurements of non-financial
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis. On January 1,
2009, the Company adopted the provisions of ASC Topic 820 for
fair value measurements of non-financial assets and
non-financial liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, essentially
an exit price, based on the highest and best use of the asset or
liability. The Company discloses fair value measures by using a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The levels of the fair
value hierarchy are:
Level 1 Quoted market prices in active markets
for identical assets or liabilities;
Level 2 Significant other observable inputs
(e.g., quoted prices for similar items in active markets, quoted
prices for identical or similar items in markets that are not
active, inputs other than quoted prices that are observable such
as interest rate and yield curves, and market-corroborated
inputs); and
Level 3 Unobservable inputs in which there is
little or no market data, which require the reporting unit to
develop its own assumptions.
Asset
Retirement Obligations
The Company accounts for asset retirement obligations by
recognizing a liability for the fair value of legally required
asset retirement obligations associated with long-lived assets
in the period in which the retirement obligations are incurred
and the liability can be reasonably estimated. The Company
capitalizes the associated asset retirement costs as part of the
carrying amount of the long-lived asset. The liability is
initially measured at fair value and subsequently is adjusted
for accretion expense and changes in the amount or timing of the
estimated cash flows.
Environmental
Accrual
Accruals for estimated costs for environmental obligations
generally are recognized no later than the date when the Company
identifies what cleanup measures, if any, are likely to be
required to address the environmental conditions. Included in
such obligations are the estimated direct costs to investigate
and address the conditions, and the associated engineering,
legal and consulting costs. In making these estimates, the
Company considers information that is currently available,
existing technology, enacted laws and regulations, and its
estimates of the timing of the required remedial actions. Such
accruals are initially measured on a discounted basis and are
adjusted as further information becomes available, or
circumstances change and are accreted up over time.
Earnings
Per Share
Basic earnings per common share excludes dilution and is
computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings
per common share reflect the potential dilution that could occur
if stock options or other common stock equivalents were
exercised or converted into common stock. The dilutive effect of
stock options or other common stock equivalents is calculated
using the treasury stock method.
68
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Comprehensive
Income (Loss)
Comprehensive income (loss) includes changes to equity accounts
that were not the result of transactions with stockholders.
Comprehensive income (loss) is comprised of net income (loss),
changes in the cumulative foreign currency translation
adjustments and realized and unrealized gains or losses on
derivative instruments.
Loss
Contingencies
The Company establishes an accrual for an estimated loss
contingency when it is both probable that an asset has been
impaired or that a liability has been incurred and the amount of
the loss can be reasonably estimated. Any legal fees expected to
be incurred in connection with a contingency are expensed as
incurred.
Recently
Issued Accounting Standards
In June 2009, the FASB issued the Accounting Standards
Codification (ASC). The ASC became the single source of
authoritative, nongovernmental generally accepted accounting
principles (GAAP) in the United States, other than guidance
issued by the SEC. The ASC is effective for interim and annual
periods ending after September 15, 2009. The adoption of
the ASC did not have a material impact on the Companys
financial statements. However, reference to specific accounting
standards have been changed to refer to the appropriate section
of the ASC. Subsequent revisions to GAAP by the FASB will be
incorporated into the ASC through issuance of Accounting
Standards Updates (ASU).
In January 2010, the FASB issued ASU
2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements, which
will require companies to make new disclosures about recurring
or nonrecurring fair value measurements including significant
transfers into and out of Level 1 and Level 2 fair
value hierarchies and information on purchases, sales, issuance
and settlements on a gross basis in the reconciliation of
Level 3 fair value measurements. The ASU is effective
prospectively for financial statements issued for fiscal years
and interim periods beginning after December 15, 2009. The
new disclosures about purchases, sales, issuance and settlements
on a gross basis in the reconciliation of Level 3 fair
value measurements is effective for interim and annual reporting
periods beginning after December 15, 2010. The Company
expects that the adoption of ASU
2010-06 will
not have a material impact on its consolidated financial
statements.
In June 2009, the FASB issued Statement of Financial Accounting
Standards No. 166, Accounting for Transfers of Financial
Assets an amendment of Statement of Financial Accounting
Standards No. 140, included in ASC Subtopic
860-50,
Servicing Assets and Liabilities. This guidance is
intended to improve the relevance, representational
faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a
transferors continuing involvement, if any, in transferred
financial assets. This guidance is effective for interim and
annual reporting periods beginning after November 15, 2009.
The Company continues to evaluate the potential impact of
adopting this new guidance on its consolidated financial
statements.
In June 2009, the FASB issued Statement of Financial Accounting
Standards No. 167, Amendments to Financial Accounting
Standards Board Interpretation No. 46(R), included in
ASC Subtopic
810-10,
Consolidations Overall. This guidance is
intended to improve financial reporting by enterprises involved
with variable interest entities by requiring ongoing
reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity and addresses concerns
regarding the timely and usefulness of information about an
enterprises involvement in a variable interest entity.
This guidance is effective for interim and annual reporting
periods beginning after November 15, 2009, with early
application prohibited. The Company continues to evaluate the
potential impact of adopting this new guidance on its
consolidated financial statements.
69
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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(3)
|
Restructuring
Charges
|
The Company has recorded total restructuring costs of $5,490,
consisting of employee separation and contract termination costs
for the year ended December 31, 2009, which have been
classified as restructuring charges in the consolidated
statement of operations. The Company also recorded other exit
costs of $3,350 related to inventory write-downs for the year
ended December 31, 2009, which has been recorded as a
component of cost of goods sold in the consolidated statement of
operations.
On January 15, 2009, the Company announced its plan to
close its Redmond, Washington facility and lay off approximately
370 employees at this site. In addition, the Company laid
off about 140 employees at various other
U.S. facilities on January 15, 2009. The Company has
recorded $2,677 in separation costs and $713 in inventory
write-off costs related to this restructuring for the year ended
December 31, 2009. Total separation costs of $2,460 were
recorded at the time of the announcement in the first quarter of
2009. The Redmond, Washington facility is part of the
Companys PCB Manufacturing segment. Long-lived asset
impairments of $737 were also recognized as a result of the
Redmond, Washington restructuring plan (see Note 4).
As of December 31, 2009, all employees related to the
January 15, 2009 restructuring had been separated and all
accrued separation costs had been paid. The below table shows
the utilization of the accrued restructuring costs during the
year ended December 31, 2009:
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|
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|
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|
|
(In thousands)
|
|
|
Accrued at December 31, 2008
|
|
$
|
|
|
Estimated severance charges
|
|
|
2,677
|
|
Amount paid
|
|
|
(2,677
|
)
|
|
|
|
|
|
Accrued at December 31, 2009
|
|
$
|
|
|
|
|
|
|
|
On September 1, 2009 the Company announced its plan to
close its Hayward and Los Angeles, California facilities and lay
off approximately 340 employees at these sites. The Company
has recorded $2,284 for the year ended December 31, 2009,
consisting of $1,453 for the PCB Manufacturing segment and $831
for the Backplane Assembly segment, in separation costs related
to this September 1, 2009 restructuring, of which $2,332
was recorded at the time of the announcement in the third
quarter of 2009. The Company also recorded $2,637 in inventory
write-off costs for the year ended December 31, 2009
related to this restructuring. As of December 31, 2009,
$702 of accrued separation costs remains for approximately
67 employees yet to be separated. The Company expects the
remaining employees to be separated and a significant amount of
the remaining accrued restructuring costs to be paid during the
first quarter of 2010. Accrued restructuring costs are included
as a component of accrued salaries, wages and benefits in the
consolidated balance sheet. Long-lived asset impairments of
$7,649 were also recognized as a result of the Hayward and Los
Angeles, California restructuring plan (see Note 4).
Additionally for the year ended December 31, 2009, the
Company incurred $529 in contract termination costs related to
building operating leases associated with the closure of its Los
Angeles, California manufacturing facility. These estimated
contract termination costs are included as a component of other
accrued expenses in the consolidated balance sheet.
The Company also expects to incur additional contract
termination costs ranging from $400 to $700 related to the
building operating lease associated with the closure of its
Hayward, California manufacturing facility in the first quarter
of 2010.
The Los Angeles, California facility is part of the
Companys PCB Manufacturing segment, while the Hayward,
California facility is part of the Backplane Assembly segment.
70
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The below table shows the utilization of the accrued
restructuring costs during the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
Severance
|
|
|
Termination
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Accrued at December 31, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Estimated liabilities
|
|
|
2,332
|
|
|
|
529
|
|
|
|
2,861
|
|
Adjustment
|
|
|
(48
|
)
|
|
|
|
|
|
|
(48
|
)
|
Amount paid
|
|
|
(1,582
|
)
|
|
|
|
|
|
|
(1,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued at December 31, 2009
|
|
$
|
702
|
|
|
$
|
529
|
|
|
$
|
1,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Impairment
of Goodwill and Long-lived Assets
|
Impairment
of Goodwill
For the year ended December 31, 2008, the Company recorded
an impairment of goodwill in the amount of $117, 018 for its PCB
Manufacturing operating segment when its carrying value exceeded
its fair value, which resulted from the Companys annual
goodwill impairment test. In conjunction with the testing, the
Company considered factors such as a weakening economy, reduced
expectations for future cash flows coupled with a decline in the
market price of the companys stock and market
capitalization for a sustained period, as indicators for
potential goodwill impairment. See Note 7 for additional
information regarding the impairment of goodwill.
If forecasts and assumptions used to support the realizability
of goodwill and other long-lived assets change in the future,
significant impairment charges could result that would adversely
affect the Companys results of operations and financial
condition.
There were no goodwill impairment charges for the years ended
December 31, 2009 and 2007.
71
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Impairment
of Long-lived Assets
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
PCB Manufacturing
|
|
|
|
|
|
|
|
|
Plant Closures:
|
|
|
|
|
|
|
|
|
Los Angeles, California
|
|
$
|
7,457
|
|
|
$
|
|
|
Redmond, Washington
|
|
|
737
|
|
|
|
1,808
|
|
Assets held for sale:
|
|
|
|
|
|
|
|
|
Redmond, Washington
|
|
|
2,125
|
|
|
|
|
|
Dallas, Oregon
|
|
|
2,250
|
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,569
|
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
|
Backplane Assembly
|
|
|
|
|
|
|
|
|
Plant Closure:
|
|
|
|
|
|
|
|
|
Hayward, California
|
|
|
192
|
|
|
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,761
|
|
|
$
|
6,304
|
|
|
|
|
|
|
|
|
|
|
In 2008, the Company determined that certain long-lived assets,
consisting of machinery and equipment for the Hayward,
California and Redmond, Washington production facilities, were
impaired due to slower growth and lower future production
expectations for Hayward, California and the January 15,
2009 announcement of the Companys plans to close the
Redmond, Washington production facility. On September 1,
2009, the Company also announced the closure of the Los Angeles
and Hayward, California production facilities, which resulted in
the additional impairment of machinery and equipment.
During the second quarter of 2009, the Company commenced the
process of selling the buildings at the Redmond, Washington
facility and classified the buildings as assets held for sale
and recognized at the lesser of carrying value or fair value
less costs to sell (Note 11).
During the years ended December 31, 2009 and 2008, the
Company reduced the carrying value of the Dallas, Oregon and
Redmond, Washington facilities, which were classified as assets
held for sale in a prior period, to record the estimated fair
value less costs to sell resulting in an impairment of $4,375
for the year ended December 31, 2009. The Company continues
to actively market these facilities at a price that is
indicative of current market conditions.
There was no impairment of long-lived assets for the year ended
December 31, 2007.
|
|
(5)
|
Short-Term
Investments
|
Short-term investments are comprised of an investment in the
Primary Fund, a money market fund that has suspended redemptions
and is being liquidated. The Company classifies these
investments as trading securities and are recognized at fair
value.
The original cost of this investment was $20,101 and was
originally classified as cash and cash equivalents on the
Companys consolidated balance sheet. However, in 2008 the
net asset value of the Primary Fund decreased below $1 per share
as a result of the Primary Funds valuing at zero its
holding of debt securities issued by Lehman Brothers Holdings,
Inc., which filed bankruptcy on September 15, 2008. As a
result, the Company recorded a $579 unrealized loss, included in
other, net in the Companys consolidated statement of
operations, to recognize its pro rata share of the estimated
loss in this investment for the year ended December 31,
2008.
72
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The Company has requested redemption of its investment in the
Primary Fund and received partial distribution of funds in the
amount of $2,631 and $15,865 during 2009 and 2008, respectively.
During the year ended December 31, 2009, the fair value of
the Companys remaining investment increased based on a
court order issued on November 25, 2009 by the
U.S. District Court for the Southern District of New York
prescribing amounts to be distributed which resulted in
sufficient information available to determine the current
investment fair value, and as a result the Company recorded a
$325 unrealized gain, included in other, net in the
Companys consolidated statement of operations. At
December 31, 2009 and 2008, the fair value of the
Companys remaining investment in the Primary Fund was
$1,351 and $3,657, respectively (Note 11).
Subsequent to December 31, 2009, the Company received a
distribution of funds in the amount of $1,351 representing the
redemption of substantially all of the outstanding Primary Fund
investment.
|
|
(6)
|
Composition
of Certain Consolidated Financial Statement Captions
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
25,562
|
|
|
$
|
29,915
|
|
Work-in-process
|
|
|
27,501
|
|
|
|
36,444
|
|
Finished goods
|
|
|
11,982
|
|
|
|
8,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,045
|
|
|
|
75,157
|
|
Less: Reserve for obsolescence
|
|
|
(4,892
|
)
|
|
|
(4,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,153
|
|
|
$
|
71,011
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
9,156
|
|
|
$
|
10,650
|
|
Buildings and improvements
|
|
|
45,688
|
|
|
|
53,423
|
|
Machinery and equipment
|
|
|
137,058
|
|
|
|
147,857
|
|
Construction-in-progress
|
|
|
3,965
|
|
|
|
2,887
|
|
Furniture and fixtures
|
|
|
498
|
|
|
|
658
|
|
Automobiles
|
|
|
330
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,695
|
|
|
|
215,842
|
|
Less: Accumulated depreciation
|
|
|
(108,118
|
)
|
|
|
(100,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,577
|
|
|
$
|
114,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
$
|
4,338
|
|
|
$
|
4,338
|
|
Less: Accumulated amortization
|
|
|
(796
|
)
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,542
|
|
|
$
|
4,044
|
|
|
|
|
|
|
|
|
|
|
Other accrued expenses:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
711
|
|
|
$
|
711
|
|
Restructuring charges
|
|
|
529
|
|
|
|
|
|
Income taxes payable
|
|
|
180
|
|
|
|
|
|
Professional fees
|
|
|
163
|
|
|
|
193
|
|
Other
|
|
|
744
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,327
|
|
|
$
|
2,422
|
|
|
|
|
|
|
|
|
|
|
73
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
(7)
|
Goodwill
and Definite-lived Intangibles
|
As of December 31, 2009 and 2008, goodwill by operating
segment and the components of definite-lived intangibles were as
follows:
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backplane
|
|
|
PCB
|
|
|
|
|
|
|
Assembly
|
|
|
Manufacturing
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance as of January 1, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
14,149
|
|
|
$
|
117,018
|
|
|
$
|
131,167
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(117,018
|
)
|
|
|
(117,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,149
|
|
|
|
|
|
|
|
14,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment during the year
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
14,130
|
|
|
|
117,018
|
|
|
|
131,148
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(117,018
|
)
|
|
|
(117,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
14,130
|
|
|
$
|
|
|
|
$
|
14,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backplane
|
|
|
PCB
|
|
|
|
|
|
|
Assembly
|
|
|
Manufacturing
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance as of January 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
13,108
|
|
|
$
|
117,018
|
|
|
$
|
130,126
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,108
|
|
|
|
117,018
|
|
|
|
130,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses during the year
|
|
|
|
|
|
|
117,018
|
|
|
|
117,018
|
|
Foreign currency translation adjustment during the year
|
|
|
1,041
|
|
|
|
|
|
|
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
14,149
|
|
|
|
117,018
|
|
|
|
131,167
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
(117,018
|
)
|
|
|
(117,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
14,149
|
|
|
$
|
|
|
|
$
|
14,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of each year, the Company performs its
annual goodwill impairment test. For the years ended
December 31, 2009 and 2007, the Company performed its
annual impairment test of goodwill and concluded that goodwill
was not impaired. In 2009 and 2008 the fair value of the
Backplane Assembly segment substantially exceeded its carrying
value.
In performing step one of the annual impairment test for the
year ended December 31, 2008, the Company determined the
fair value of its operating segments based on a combination of
discounted cash flow analysis and market approach and
incorporated factors such as a weakening economy, reduced
expectations for future cash flows coupled with a decline in the
market price of the Companys stock and market
capitalization for a sustained period, as indicators for
potential goodwill impairment. The failure of step one of the
goodwill impairment test triggered a step two impairment test
for the PCB Manufacturing operating segment only. As a result of
step two of the impairment test, the Company determined the
implied fair value of PCB Manufacturing operating segments
goodwill and concluded that the carrying value of goodwill for
this operating segment exceeded its implied fair
74
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
value as of December 31, 2008. Accordingly, an impairment
charge of $117,018 was recognized in the fourth quarter of 2008.
A tax benefit has been recognized on a portion of this goodwill
impairment. See Note 10 for further details on the tax
impact of the goodwill impairment.
Goodwill in the Backplane Assembly operating segment includes
the activity related to a foreign subsidiary which operates in a
currency other than the U.S. dollar and therefore reflects
a foreign currency rate change.
Definite-lived
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Net
|
|
|
Average
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Currency
|
|
|
Carrying
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Rate Change
|
|
|
Amount
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
(years)
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic customer relationships
|
|
$
|
35,429
|
|
|
$
|
(20,849
|
)
|
|
$
|
251
|
|
|
$
|
14,831
|
|
|
|
12.0
|
|
Licensing agreement
|
|
|
350
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
280
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,779
|
|
|
$
|
(20,919
|
)
|
|
$
|
251
|
|
|
$
|
15,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic customer relationships
|
|
$
|
35,429
|
|
|
$
|
(17,410
|
)
|
|
$
|
253
|
|
|
$
|
18,272
|
|
|
|
12.0
|
|
Licensing agreement
|
|
|
350
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
58
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,779
|
|
|
$
|
(17,702
|
)
|
|
$
|
253
|
|
|
$
|
18,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The definite-lived intangibles related to strategic customer
relationships include the activity related to a foreign
subsidiary which operates in a currency other than the
U.S. dollar and therefore reflects a foreign currency rate
change.
Amortization expense was $3,567, $3,917 and $4,242 in 2009, 2008
and 2007, respectively. Amortization expense related to acquired
licensing agreements is classified as cost of goods sold.
Estimated aggregate amortization for definite-lived intangible
assets for the next five years is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
3,282
|
|
2011
|
|
|
3,135
|
|
2012
|
|
|
2,801
|
|
2013
|
|
|
2,688
|
|
2014
|
|
|
1,933
|
|
|
|
|
|
|
|
|
$
|
13,839
|
|
|
|
|
|
|
|
|
(8)
|
Convertible
Senior Notes
|
In May 2008, the Company issued 3.25% Convertible Senior
Notes (Convertible Notes) due May 15, 2015, in a public
offering for an aggregate principal amount of $175,000. The
Convertible Notes bear interest at a rate of 3.25% per annum.
Interest is payable semiannually in arrears on May 15 and
November 15 of each year, beginning November 15, 2008. The
Convertible Notes are senior unsecured obligations and rank
equally to the Companys future unsecured senior
indebtedness and senior in right of payment to any of the
Companys future subordinated indebtedness. The liability
and equity components of the Convertible Notes are separately
accounted for in a manner that reflects the Companys
non-convertible debt borrowing rate when interest costs are
recognized.
75
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The Company received proceeds of $169,249 after the deduction of
offering expenses of $5,751 upon issuance of the Convertible
Notes. The Company has allocated the Convertible Notes offering
costs to the liability and equity components in proportion to
the allocation of proceeds and accounted for them as debt
issuance costs and equity issuance costs, respectively. At
December 31, 2009 and 2008 the following summarizes the
liability and equity components of the Convertible Notes:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Liability components:
|
|
|
|
|
|
|
|
|
Convertible Notes
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
Less: Convertible Notes unamortized discount
|
|
|
(35,118
|
)
|
|
|
(40,086
|
)
|
|
|
|
|
|
|
|
|
|
Convertible Notes, net of discount
|
|
$
|
139,882
|
|
|
$
|
134,914
|
|
|
|
|
|
|
|
|
|
|
Equity components:
|
|
|
|
|
|
|
|
|
Additional paid-in capital:
|
|
|
|
|
|
|
|
|
Embedded conversion option Convertible Notes
|
|
$
|
43,000
|
|
|
$
|
43,000
|
|
Embedded conversion option Convertible Notes
issuance costs
|
|
|
(1,413
|
)
|
|
|
(1,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,587
|
|
|
$
|
41,587
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, remaining unamortized debt
issuance costs included in other non-current assets were $3,542
and $4,044, respectively, and are being amortized to interest
expense over the term of the Convertible Notes. Amortization
expense for the years ended December 31, 2009, 2008 and
2007 was $502, $2,489 and $3,692, respectively. At
December 31, 2009 the remaining amortization period for the
unamortized Convertible Note discount and debt issuance costs
was 5.38 years.
The components of interest expense resulting from the
Convertible Notes for the years ended December 31, 2009 and
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Contractual coupon interest
|
|
$
|
5,688
|
|
|
$
|
3,560
|
|
Amortization of Convertible Notes debt discount
|
|
|
4,968
|
|
|
|
2,914
|
|
Amortization of debt issuance costs
|
|
|
502
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,158
|
|
|
$
|
6,768
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009 and 2008, the
amortization of the Convertible Notes debt discount and debt
issuance costs are based on an effective interest rate of 8.37%.
Conversion
At any time prior to November 15, 2014, holders may convert
their Convertible Notes into cash and, if applicable, into
shares of the Companys common stock based on a conversion
rate of 62.6449 shares of the Companys common stock
per $1 principal amount of Convertible Notes, subject to
adjustment, under the following circumstances: (1) during
any calendar quarter beginning after June 30, 2008 (and
only during such calendar quarter), if the last reported sale
price of our common stock for at least 20 trading days during
the 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter is greater than or
equal to 130% of the applicable conversion price on each
applicable trading day of such preceding calendar quarter;
(2) during the five business day period after any 10
consecutive trading day period in which the trading price per
76
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
note for each day of that 10 consecutive trading day period was
less than 98% of the product of the last reported sale price of
our common stock and the conversion rate on such day; or
(3) upon the occurrence of specified corporate transactions
described in the prospectus supplement. As of December 31,
2009, none of the conversion criteria had been met.
On or after November 15, 2014 until the close of business
on the third scheduled trading day preceding the maturity date,
holders may convert their notes at any time, regardless of the
foregoing circumstances. Upon conversion, for each $1 principal
amount of notes, the Company will pay cash for the lesser of the
conversion value or $1 and shares of our common stock, if any,
based on a daily conversion value calculated on a proportionate
basis for each day of the 60 trading day observation period.
Additionally, in the event of a fundamental change as defined in
the prospectus supplement, or other conversion rate adjustments
such as share splits or combinations, other distributions of
shares, cash or other assets to stockholders, including
self-tender transactions (Other Conversion Rate Adjustments),
the conversion rate may be modified to adjust the number of
shares per $1 principal amount of the notes.
The maximum number of shares issuable upon conversion, including
the effect of a fundamental change and subject to Other
Conversion Rate Adjustments, would be 13,978.