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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, 2010
Commission
file number 0-31285
TTM TECHNOLOGIES,
INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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91-1033443
(I.R.S. Employer
Identification No.)
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2630 South Harbor Boulevard,
Santa Ana, California
(Address of Principal
Executive Offices)
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92704
(Zip
Code)
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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 þ No o
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
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Accelerated filer
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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 28, 2010, the last business
day of the most recently completed second fiscal quarter), was
$527,590,448. 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 3, 2011, there were outstanding
80,782,338 shares of the registrants Common Stock,
$0.001 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
its 2011 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
PART I
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 annual report
or future 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.
General
We are a leading global provider of time-critical and
technologically complex printed circuit board (PCB) products and
backplane assemblies (PCBs populated with electronic
components), which serve as the foundation of sophisticated
electronic products. We are the largest PCB manufacturer in
North America and one of the top five PCB manufacturers in the
world, based on revenues, with approximately $1.2 billion
in net sales in 2010. We have over 17,000 employees
worldwide and we operate a total of 15 specialized and
integrated facilities in the United States and China. We focus
on providing
time-to-market
and advanced technology products and offer a one-stop
manufacturing solution to our customers from engineering support
to prototype development through final volume production. This
one-stop solution allows us to align technology development with
the diversified needs of our customers, many of whom are based
in high growth markets, and to enable them to reduce the time
required to develop new products and bring them to market. We
serve a diversified customer base consisting of approximately
1,160 customers in various markets throughout the world,
including manufacturers of networking/communications
infrastructure products, personal computers, touch screen
tablets and mobile media devices (cellular phones and smart
phones). We also serve the high-end computing, commercial
aerospace/defense, and industrial/medical industries. Our
customers include both original equipment manufacturers (OEMs)
and electronic manufacturing services (EMS) providers.
In April 2010, we acquired from Meadville Holdings Limited
(Meadville) all of the issued and outstanding capital stock of
four of its subsidiaries. These four companies and their
respective subsidiaries, collectively referred to as the PCB
Subsidiaries, comprised Meadvilles PCB manufacturing and
distributing business. Prior to the acquisition, the PCB
Subsidiaries made Meadville one of the leading PCB manufacturers
in China by revenue, with a focus on producing high-end PCB
products. Our April 2010 acquisition of the PCB Subsidiaries
greatly increased our global production capacity, expanded our
presence in the touch screen tablet and mobile media device
markets, and enhanced our flexible, rigid-flex, high-density
interconnect (HDI) and substrate product capabilities.
Prior to our acquisition of the PCB Subsidiaries, we had two
operating segments, PCB Manufacturing and Backplane Assembly,
consistent with the nature of our operations. Due to the
acquisition, we reassessed our operating segments and now manage
our worldwide operations based on two geographic operating
segments: (1) North America, which consists of seven
domestic PCB fabrication plants, including a facility that
provides follow-on value-added services primarily for one of the
PCB fabrication plants, and one backplane assembly plant in
Shanghai, China, which is managed in conjunction with our
U.S. operations and its related European sales
1
support infrastructure; and (2) Asia Pacific, which
consists of the PCB Subsidiaries and their seven PCB fabrication
plants, which include a substrate facility. Each segment
operates predominantly in the same industry with production
facilities that produce similar customized products for our
customers and uses similar means of product distribution in
their respective geographic regions.
Industry
Overview
PCBs are manufactured in panels from sheets of laminated
material. 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
electronics products (such as cellular phones, smart phones,
touch screen tablets and personal computers) to high-end
commercial electronic equipment (such as medical equipment, data
communications routers, switches and servers) and
aerospace/defense electronic systems.
High-end commercial equipment and aerospace/defense products
require customized, multilayer PCBs using advanced technologies.
Most high-end commercial and aerospace/defense end markets have
low volume requirements that demand a highly flexible
manufacturing environment. Traditionally, consumer electronics
products utilized commodity-type PCBs with lower layer counts,
less complexity and larger production runs. However, recent
advances in consumer electronics products are driving a
transition to higher layer count, more complex PCBs.
According to Prismark Partners LLC, a PCB industry research
firm, the worldwide market for PCBs was approximately
$51.0 billion in 2010, with the Americas producing 8%
(approximately $3.9 billion), China producing 36%
(approximately $18.5 billion) and the rest of the world
producing 56% (approximately $28.6 billion). According to
Prismark Partners, worldwide PCB revenue is expected to increase
at a rate of 6% to 8% in 2011.
Demand for increasing functionality in electronic products has
increased the complexity of PCBs, and this trend is expected to
continue. Consumers desire more capacity in their
devices in other words, the demand for the same or
smaller size devices with more features is on the rise. Products
designed to offer faster data transmission, thinner and more
lightweight features, and reduced power consumption generally
require increasingly complex PCBs to meet these criteria. By
using HDI technology, circuit densities can be increased,
thereby providing for smaller products with higher packaging
densities. According to Gartner, Inc., a technology research
firm, 268 million smart phones were produced in 2010,
representing
year-over-year
growth of over 55%. Gartner predicts smart phone volume will
reach approximately 710 million units by 2013, with a
substantial portion of growth coming from the Chinese market.
Recent industry reports indicate that the Chinese smart phone
market is predicted to grow at a 29% compound annual growth rate
(CAGR) by 2015, with international brands enjoying significant
growth. According to a January 2011 Morgan Stanley research
report, the proliferation of smart phones and touch screen
tablets is expected to drive HDI PCB demand up 42% in 2011 over
2010 levels.
Following a similar upward trend, the global substrate market,
which represents approximately 14% of the global PCB market, is
expected to grow at a CAGR of 12% by 2014 according to BPA
Consulting, a PCB industry research firm. This growth is driven
by increasing demand for end-products containing highly-advanced
semiconductors. The Chinese substrate market alone is expected
to grow at a CAGR of 17% due to both Chinas increased
production of semiconductors and the continuing growth in
end-products containing highly advanced semiconductors.
Substrate manufacturing requires deployment of large amounts of
resources and strong engineering services. For this reason, we
believe that the number of competitors is much smaller compared
to standard PCB manufacturers.
The PCB manufacturing market is highly fragmented with
relatively few large scale companies. According to a report by
N.T. Information, a PCB industry research firm, dated June 2010,
there were approximately 2,800 manufacturers worldwide in 2009,
with the top 20 suppliers representing approximately 40% of the
global market. As a result of global economic trends, the number
of PCB producers operating in China has increased significantly
since 2000. This corresponds with a significant decline of North
American and European PCB producers during the same time period.
2
Industry
Trends
We believe that several trends are impacting the PCB
manufacturing industry. These trends include:
Shorter 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 continue to design higher
performance electronic products, which in turn require
technologically complex PCBs that can accommodate higher speeds
and component densities, including HDI PCBs. These complex PCBs
can 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. Even the low end of the PCB market (less than four
layers) continues to transition to higher layer counts as
consumer products increase in complexity. Advances in chip
technology continue to drive market share growth in HDI,
substrate and flex PCB categories.
Increasing concentration of global PCB production in
Asia. In recent years, many electronics
manufacturers have moved their commercial production to Asia to
take advantage of its exceptionally large, low-cost labor pool.
In particular, the trend has favored China, which had the
largest PCB market in terms of both revenue and number of
suppliers in 2010 according to Prismark Partners and N. T.
Information. The overall technical capability of suppliers in
China has improved dramatically in recent years and China has
emerged as a global production center for cellular phones, smart
phones, touch screen devices, computers and computer
peripherals, and high-end consumer electronics. According to BPA
Consulting, approximately 53% of the worlds PCB production
will be generated from China, Hong Kong and Taiwan by 2013. The
continued outsourcing of production to China should result in
additional commercial market share potential for PCB
manufacturers with a strong presence and reputation in China.
Decreased reliance on multiple PCB manufacturers by
OEMs. OEMs traditionally have relied on multiple
PCB manufacturers to provide different services as an electronic
product moves through its life cycle. The transfer of a product
among different PCB 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 and less costly to manage fewer PCB
manufacturers. As a result, OEMs are reducing the number of PCB
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 increasingly time-consuming and complex
certification processes, long product life cycles, and a demand
for leading-edge technology with extremely high reliability and
durability. While the US Department of Defense (DoD) budget
faces increasing scrutiny as part of overall US budget deficit
reduction efforts, we anticipate that a continued DoD commitment
and upgrades, incorporating leading-edge PCB technology in
products for reconnaissance and intelligence, communications and
weapon systems combined with Foreign Military Sales (FMS)
programs and a recovering global commercial aerospace industry,
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 and high reliability
commercial aerospace programs. United States export controls
represent a barrier to entry for international competition as
they restrict the overseas export and/or overseas manufacture 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. TTMs global
footprint and strong historical relations with leading North
American defense and commercial aerospace contractors provides
us with a positive position to support the emerging commercial
aerospace industry in China.
3
Our
Strategy
Our goal is to be the leading global provider of time-critical,
one-stop manufacturing services for highly complex PCBs. In our
Asia Pacific segment, we intend to primarily target the smart
phone, touch screen tablet and networking infrastructure
markets; increase our high technology conventional, HDI, flex
and rigid-flex capabilities and capacities; and enhance our
current niche position in substrates. In our North America
segment, we intend to continue to capitalize on our advanced
technology, high mix/low volume and quick-turn around (QTA)
service capabilities; enhance our commercial PCB capacity;
expand our strategic account management model to strengthen our
customer relationships; and leverage our market leadership and
niche positions. More generally, our strategy includes:
Emphasize advanced technological capabilities and
manufacturing processes. As the demand for more
high-end PCBs increases across all markets, production of
sophisticated PCBs becomes more complex. We address this growing
market by delivering time critical and highly complex
manufacturing services. We manufacture PCBs with layer counts in
excess of 30 layers and believe that our HDI, flex and
rigid-flex, substrate and other high technology capabilities
provide an attractive market niche for our company. Our Asia
Pacific segment has been a leader in HDI PCBs and IC substrate
manufacturing and, accordingly, we believe that we have an
early-mover advantage over many of our competitors. With rising
requirements for faster data transmission, shrinking features
(lightweight and thin) and lower power consumption, more PCB
designs have migrated to more complex HDI PCBs from conventional
multi-layer PCBs. This is especially true of portable devices
such as smart phones and tablet PCs. As a leading manufacturer,
we continually evaluate and invest in advanced production
equipment, new manufacturing processes, engineering and process
technology capabilities, in order to further reduce our delivery
times, improve quality, increase yields and decrease costs.
Focus on early stages of product life
cycle. We work to service our customers
needs from the earliest stages of product development, including
design services, engineering support and prototype development.
By building alliances with our customers early in the
development process, we are able to gain advantages in our core
markets through the sharing and transfer of technologies and
know-how. These alliances, often the result of strategic account
management efforts, frequently allow us to gain access to new
product pipelines and technologies we may not be able to
otherwise obtain, or to obtain them more rapidly, thereby
enhancing our leadership position in our targeted markets. Our
expertise with new product development is enhanced by our
ability to deliver highly complex PCBs to customers in
significantly compressed lead times. This rapid delivery service
enables OEMs to develop sophisticated electronic products more
quickly and reduce their time to market. In addition, our QTA
services provide us with an opportunity to cross-sell our other
services, including high-mix and volume production in our
targeted end markets.
Pursue new customers in growth end markets. We
continue to pursue new customers with high growth
characteristics and target additional high growth end-markets
that are characterized by rapid product introduction cycles and
demand for time-critical services. In that regard, our 2010
Meadville acquisition provided significant opportunities in high
growth end markets such as the networking/communications
infrastructure, touch screen tablet, mobile media device
(cellular phones and smart phones) and high-end computing
markets. Over the last several years, China has emerged as a
global production center for these products. This trend has
driven the growth of the PCB market, particularly in China. Our
strategic focus on these fast-growing markets, together with our
reputation and network of China facilities, has enabled us to
generate strong sales growth. Our ability to serve these markets
is enhanced by our technological capabilities, as these markets
require PCB products with higher layer counts, feature
miniaturization, and higher circuit density. In addition, we
intend to pursue high-end commercial and defense customers that
demand flexible and advanced manufacturing processes, expertise
with high-performance specialty materials assembly and testing
capabilities, and expertise in other high-mix and complex
technologies. We regularly evaluate and pursue internal
initiatives aimed at adding new customers and better serving
existing customers within our markets.
Capitalize on our large presence in China. We
believe that our Asia Pacific operating segment provides a key
strategic and competitive advantage. Many key suppliers, direct
OEM customers, and EMS customers manufacturing on behalf of OEMs
are located in China. Chinas increasing dominance in
electronics supply chain management is particularly evident in
desktop computers, notebook computers, servers, cellular phones,
smart
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phones, touch screen tablets, and communication equipment
products. Proximity to these China-based suppliers and customers
enables us to react swiftly to customer demand for comprehensive
PCB products and services. We are also able to coordinate more
effectively with our suppliers, and enjoy a cost advantage in
terms of transportation costs over PCB manufacturers located
outside of China. Furthermore, due to historically low labor
costs in China, we are able to maintain comparatively lower
operating costs and increased production process flexibility.
Maintain our customer-driven culture. Our
customer-oriented culture emphasizes extraordinary service,
competitive differentiation and superior execution. Our
customer-oriented strategies include engaging in co-development
of new products, capturing new technology products for next
generation equipment, and continuing to invest in and enhance
our HDI PCB, rigid flex and flex PCB capabilities. Our ability
to anticipate and meet customers needs is critical to
retaining existing customers and attracting leading companies as
new customers. Other key elements of our customer focus includes
managing customer schedules and vender inventory.
Market our facility specialization and one-stop manufacturing
solution. 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 between plants to optimize operating efficiency.
This strategy provides customers with faster delivery times and
enhanced product quality and consistency. In addition, our
global one-stop manufacturing solution includes engineering
support, prototype, low volume/high-mix products, medium
volume/ramp and
high-volume
production. This one-stop solution allows us to provide a broad
array of services and technologies to meet the rapidly evolving
needs of our customers. See Item 2
Properties for a further description of our global
specialized and integrated production facilities.
Products
and Services
We offer a wide range of PCB products including conventional
PCBs, HDI PCBs, flexible PCBs, rigid-flex PCBs, backplane
assemblies, and IC substrates. We also offer certain value-added
services to support our customers needs. These include
design for manufacturability (DFM) support during new product
introduction stages, PCB layout design, simulation and testing
services, QTA production and drilling and routing services. By
providing these value-added services to customers, we are able
to provide our customers with a one-stop
manufacturing solution, which enhances our relationships with
our customers.
Conventional
PCBs
A PCB is a board containing a pattern of conducting material,
such as copper, which becomes an electrical circuit when
electrical components are attached to it. It is the basic
platform used to interconnect electronic components and can be
found in most electronic products, including computers and
computer peripherals, communications equipment, cellular phones,
high-end consumer electronics, automotive components and medical
and industrial equipment. PCBs are more product-specific than
other electronic components because generally they are unique
for a specific electronic device or appliance. Conventional PCBs
can be classified as single-sided, double-sided and multi-layer
boards.
A multi-layer PCB can accommodate more complex circuitry than a
double-sided PCB. It has more than two copper circuit layers
with pieces of laminate bonded by resin in between layers.
Multi-layer PCBs require more sophisticated production
techniques compared to single and double-sided PCBs, as, among
other things, they require high precision manufacturing and more
stringent product quality. The number of layers comprising a PCB
generally increases with complexity of the end product. For
example, a simple consumer device such as a garage door
controller may use a single sided or double sided PCB, while a
high-end network router or computer server may use a PCB with 20
layers or more.
5
High
density interconnect or HDI PCBs
Our North America and Asia Pacific segments produce HDI PCBs,
which are PCBs with higher wiring density per unit area and
require more sophisticated technology and manufacturing
processes for their production than conventional PCB products.
HDI PCBs are boards with high-density characteristics including
micro holes, or vias (diameter typically less than 0.1 mm), fine
lines (line width and spaces typically less than 0.075
mm) and can be composed of thin high performance materials,
thereby enabling more connectivity functions per unit area. In
general, a boards complexity is a function of density,
layer count, laminate material type and surface finishes. Board
density represents a key indicator of a PCBs overall
complexity. As electronic devices have become smaller and more
portable, with higher functionality, demand for advanced HDI PCB
products has increased dramatically.
Flexible
PCBs
Flexible PCBs are printed circuits produced on a flexible
laminate, allowing it to be folded or bent to fit the available
space or allow relative movement. We manufacture circuits on
flexible substrates that can be installed in three-dimensional
applications for electronic packaging systems. Use of flexible
circuitry can enable improved reliability, improved electrical
performance, reduced weight and reduced assembly costs when
compared with traditional wire harness or ribbon cable
packaging. Flexible PCBs can provide flexible electronic
connectivity of an electrical devices apparatus such as
printer heads, cameras, camcorders, TVs, mobile handsets, and
touch screen tablets.
Rigid-flex
PCBs
Rigid-flex circuitry provides a simple means to integrate
multiple PCB assemblies and other elements such as display,
input or storage devices without wires, cables or connectors,
replacing them with thin, light composites that integrate wiring
in ultra-thin, flexible ribbons between sections. In rigid-flex
packaging, a flexible circuit substrate provides a backbone of
wiring with rigid multilayer circuit sections
built-up as
modules where needed.
Since the ribbons can be bent or folded, rigid-flex provides a
means to compactly package electronics in three dimensions with
dynamic or static bending functions as required, enabling
miniaturization and thinness of product design. The simplicity
of rigid-flex integration also generally reduces the number of
parts required, which can improve reliability. The increasing
popularity of mobile electronics coupled with the design trend
of developing increasingly thinner, lighter and more
feature-rich products is expected to further drive growth in the
rigid-flex and flex sector, where these PCBs are the backbone of
miniaturization.
Rigid-flex technology is essential to a broad range of
applications including aerospace, industrial and transportation
systems requiring high reliability; hand-held and wearable
electronics such as mobile phones, video cameras and music
players where thinness and mechanical articulation are
essential; and ultra-miniaturized products such as headsets,
medical implants and semiconductor packaging where size and
reliability are paramount.
Backplane
assemblies
A backplane is an interconnecting device that has circuitry and
sockets into which PCBs or other additional electronic devices
can be plugged. In a computer, these may be referred to as a
motherboard. 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 can assemble backplanes and
sub-systems
and provide full system integration of backplane assemblies,
cabling, power, thermal, and other complex electromechanical
parts into chassis and other enclosures. In addition to assembly
services, we provide 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. Our focus is to provide
backplane and
sub-system
assembly products primarily as an extension of our commercial
and aerospace/defense PCB offerings.
6
IC
substrates
IC substrates are mounts that are used to connect very small ICs
(integrated circuits or semiconductors) to comparatively larger
PCBs for assembly into electronic end-products such as memory
modules, cellular phones, digital cameras, automotive GPS and
engine controls. IC substrates, also known as IC carriers, are
highly miniaturized circuits manufactured by a process largely
similar to that for PCBs, but requiring the use of ultra-thin
materials and including micron-scale features, as they must
bridge the gap between
sub-micron
IC features and millimeter scale PCBs. Consequently, IC
substrates are generally manufactured in a semiconductor-grade
clean room environment to ensure products are free of defects
and contamination.
IC substrates are a basic component of IC packages which,
combined with other electronic components in an assembly,
control functions of an electronic appliance. IC packages can be
broadly divided into single chip modules (or SCMs) and
multi-chip modules (or MCMs), with the former containing one IC
chip, and the latter containing multiple chips and other
electronic components.
Design
and Engineering Services
We are actively involved in the early stages of many of our
customers product development cycles. This involvement
positions us at the leading-edge of technical innovation in the
engineering of complex PCBs. Our engineering and sales teams
collaborate to identify the specific needs of our customers and
work with them to develop innovative, high performance
solutions. 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 also
offer signal integrity, thermal, and structural analysis
services. This method of product development provides us with an
in-depth understanding of our customers businesses and
enables us to better anticipate and serve their needs.
Establishing customer relationships early in a products
life cycle, often as a result of our strategic account
management efforts, also provides an advantage in securing
preferred vendor status for subsequent ramp to volume and volume
production opportunities.
Process
and product development
Process and product development plays a vital role in our
business. As electronic products become smaller, demands are
also increasing for higher speed and functionality of such
products. Accordingly, continued advancement in processing
technology is required to develop increasingly smaller sized PCB
products with increased functionality by accommodating even more
powerful and complicated chipsets. As product responsiveness and
speed increases, special electrical properties become factors
affecting signal integrity and the transmission speed between
PCBs and the electrical components to which they are connected.
Special materials, equipment, chemicals and manufacturing
processes are therefore required to ensure the proper
functioning of the final electronic end-product.
Quick-turn
around services
We refer to our rapid turnaround services as quick-turn
around 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 QTA 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 five to
15 days.
|
7
Manufacturing
Technologies
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 PCBs, 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 horizontal 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 PCBs 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 PCBs with
the following characteristics:
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High layer count. Manufacturing PCBs with a
large number of layers is difficult to accomplish due to the
accumulation of manufacturing tolerances and registration
systems required. In our North America segment, we regularly
manufacture PCBs with more than 30 layers on a quick-turn and
volume basis. Approximately 62% of our 2010 North America
PCB revenue involved the manufacture of PCBs with at least 12
layers or more, compared with 60% in 2009. Printed circuit
boards with at least 20 layers or more represented 31% of
North America PCB revenue in 2010, up from 26% in 2009.
Approximately 24% of our 2010 Asia Pacific net sales involved
the manufacture of PCBs with at least 12 layers or more.
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High Density Interconnect (HDI). HDI
technology utilizes microvias, which are small vias with
diameters generally between 0.001 inches and
0.005 inches after plating. These microvias 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 PCBs 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. HDI PCBs
represented approximately 34% of our Asia Pacific net sales in
2010.
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Blind and buried vias. Vias are drilled holes
that provide electrical connectivity between layers of circuitry
in a PCB. Blind vias connect the surface layer of the PCB to an
internal layer and terminate at the internal layer. Buried vias
are holes that do not reach either surface of the PCB 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 PCB, which allows for removal of passive components
from the surface of the PCB 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
PCB, and spaces are the distances between traces. The smaller
the traces and the tighter the spaces, the higher the density on
the PCB and the greater the expertise required to achieve a
desired final yield on an order. We are able to provide
0.002 inch traces and spaces.
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8
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High aspect ratios. The aspect ratio is the
ratio between the thickness of the PCB 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
PCB. 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 PCBs 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 PCB and the number of
layers required. The demand for thinner cores derives from the
requirements for thinner PCBs, higher layer counts and various
electrical parameters. Core thickness in our PCBs ranges from as
little as 0.002 inches up to 0.062 inches.
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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 PCBs 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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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.
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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.
|
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. Included in the end markets that our
OEM and EMS customers serve is the U.S. government. As a
result, we are a supplier, primarily as a subcontractor, to the
U.S. government. We measure customers as those companies
that have placed orders of $2,000 or more in the preceding
12-month
period. As of December 31, 2010 and 2009, we had
approximately 1,160 and 850 customers, respectively. The
increase in customers is due primarily to our acquisition of the
PCB Subsidiaries in April 2010.
9
The following table shows the percentage of our net sales in
each of the principal end markets we served for the periods
indicated:
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|
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|
|
|
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|
|
End Markets(1)
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|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Aerospace/Defense
|
|
|
20
|
%
|
|
|
44
|
%
|
|
|
37
|
%
|
Cellular Phone
|
|
|
10
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|
|
|
|
|
|
|
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|
Computing/Storage/Peripherals
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|
|
21
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|
|
|
11
|
|
|
|
12
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|
Medical/Industrial/Instrumentation/Other
|
|
|
9
|
|
|
|
8
|
|
|
|
10
|
|
Networking/Communications
|
|
|
35
|
|
|
|
36
|
|
|
|
40
|
|
Other
|
|
|
5
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(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 28%, 34% and 29% of our
net sales in 2010, 2009 and 2008, respectively. Our five largest
OEM customers in 2010 were, in alphabetical order, Apple, Cisco
Systems, Ericsson, Huawei, and IBM. Sales attributed to OEMs
include sales made through EMS providers. Sales to EMS providers
comprised approximately 45%, 47% and 52% of our net sales in
2010, 2009 and 2008, 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 2010 were, in alphabetical order,
Celestica, Flextronics, Hon Hai, Jabil and Plexus.
During 2010, 2009 and 2008 our net sales by country were as
follows:
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Country
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|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
|
35
|
%
|
|
|
74
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%
|
|
|
74
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%
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China
|
|
|
42
|
|
|
|
16
|
|
|
|
12
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|
Malaysia
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Other
|
|
|
18
|
|
|
|
5
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
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%
|
|
|
|
|
|
|
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|
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|
Net sales to other countries, individually, for the years ended
December 31, 2010, 2009 and 2008 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, frequently through strategic account management teams. 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 our 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 the PCB Subsidiaries and
their seven PCB fabrication plants, a backplane and
sub-system
assembly operation in Shanghai, China, and customer inventory
hubs in France, Poland, Hong Kong, China, Mexico, and Southeast
Asia. 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.
10
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. Although we have preferred
suppliers for some raw materials used in the manufacture of
PCBs, most of our raw materials are generally readily available
in the open market from numerous other potential suppliers.
The primary raw materials we use in backplane assembly are
manufactured components such as PCBs, connectors, capacitors,
resistors, diodes, integrated circuits and formed sheet metal,
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.
For example, in some instances our customers will require us to
use a specific component from a particular supplier or require
us to use a component provided by the customer itself, in which
case we may have a single or limited number of suppliers for
these specific components.
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. 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.
Both PCB and IC substrates are heavy consumers of gold and
copper, which represented a significant amount of our cost of
goods sold in 2010, and are thus vulnerable to cost increases if
raw material prices rise. See Item 1A
Risk Factors.
Competition
Despite industry consolidation, the PCB industry is fragmented
and characterized by intense competition. Our principal PCB and
substrate competitors include Unimicron, Ibiden, Tripod,
Foxconn, DDi, Sanmina-SCI, Multek and Wus. Our principal
backplane assembly competitors include Amphenol, Sanmina-SCI,
Simclar, TT Electronics, and Viasystems.
We believe we compete favorably based on the following
competitive factors:
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status as a top five global PCB manufacturer;
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capability and flexibility to produce technologically complex
products;
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ability to offer one-stop manufacturing solution;
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specialized and integrated manufacturing facilities;
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ability to offer
time-to-market
capabilities;
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leading edge aerospace/defense capabilities;
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flexibility to manufacture low volume, high-mix products;
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consistent high-quality product; and
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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, including our HDI
and substrate capabilities, provides us with a competitive
advantage over manufacturers that do not possess this advanced
technological expertise. Our future success will depend in large
part on our ability to maintain and enhance our manufacturing
capabilities and production technologies.
11
Seasonality
As a result of the product and customer mix of our Asia Pacific
operating segment, a portion of our revenue is subject to
seasonal fluctuations. These fluctuations include seasonal
patterns in the computer and cellular phone industry, which
together have become a significant portion of the end markets
that we serve. This seasonality typically results in higher net
sales in the third quarter due to end customer demand for fourth
quarter sales of consumer electronics products. Seasonal
fluctuations also include the Chinese New Year holiday in the
first quarter, which typically results in lower net sales.
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. At December 31, 2010, total
backlog was $207.8 million compared with $93.6 million
at the end of 2009. The increase in the backlog is due primarily
to our acquisition of the PCB Subsidiaries in April 2010 as well
as stronger business conditions in 2010 compared to 2009.
Substantially all backlog at December 31, 2010 is expected
to be converted to sales in 2011.
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.
National
Security Matters
A portion of our business consists of manufacturing defense and
defense-related items for various departments and agencies of
the U.S. government, including the U.S. Department of
Defense, or the DoD, which requires that we maintain facility
security clearances under the National Industrial Security
Program, or NISP. The NISP requires that a corporation
maintaining a facility security clearance take steps to mitigate
foreign ownership, control or influence, referred to as
FOCI. Pursuant to these laws and regulations,
effective October 2010 we entered into a Special Security
Agreement with the DoD; Su Sih (BVI) Limited, or Su Sih (a
significant foreign minority owner of our capital stock); and
Mr. Tang Hsiang Chien (as the beneficial owner of Su Sih).
The purpose of the Special Security Agreement is to deny
Mr. Tang, Su Sih, and other persons affiliated with our PCB
Subsidiaries from unauthorized access to classified and
controlled unclassified information and influence over our
business or management in a manner that could result in the
compromise of classified information or could adversely affect
the performance of classified contracts.
Other
Governmental Regulations
Our operations, particularly those in North America, are subject
to a broad range of regulatory requirements relating to export
control, environmental compliance, waste management, and health
and safety matters. In particular, we are subject to the
following:
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|
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;
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|
U.S. Department of Commerce regulations, including the
Export Administration Regulations (EAR) located at 15 CFR
Parts
730-744;
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|
Office of Foreign Asset Control (OFAC) regulations located at
31 CFR Parts
500-599;
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12
|
|
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|
|
U.S. Occupational Safety and Health Administration (OSHA),
and state OSHA and Department of Labor laws pertaining to health
and safety in the workplace;
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|
U.S. Environmental Protection Agency (U.S. EPA)
regulations pertaining to air emissions; wastewater discharges;
and the use, storage, discharge, and disposal of hazardous
chemicals used in the manufacturing processes;
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|
Department of Homeland Security (DHS) regulations regarding the
storage of certain chemicals of interest;
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|
corresponding state laws and regulations, including site
investigation and remediation;
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|
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corresponding U.S. county and city agencies;
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|
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corresponding regulations and agencies in China for our Chinese
facilities;
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|
|
|
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; and
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|
|
|
directives that disallow the use of certain minerals
(conflict minerals) originating in the Democratic
Republic of the Congo.
|
To date, the costs of compliance and environmental remediation
have not been material to us. 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.
Employees
As of December 31, 2010, we had 17,448 employees. Of
our employees, 15,691 were involved in manufacturing and
engineering, 271 worked in sales and marketing, and 1,486 worked
in accounting, systems and other support capacities. None of our
U.S. employees are represented by unions. In China,
approximately 8,251 employees are represented by a labor
union. 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, 2010, with
respect to each of our executive officers.
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|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s) Held With the Company
|
|
Kenton K. Alder
|
|
|
61
|
|
|
Chief Executive Officer, President and Director
|
Chung Tai Keung, Canice
|
|
|
55
|
|
|
Chief Executive Officer - Asia Pacific Region
|
Steven W. Richards
|
|
|
46
|
|
|
Executive Vice President, Chief Financial Officer and Secretary
|
Douglas L. Soder
|
|
|
50
|
|
|
Executive Vice President
|
Shane S. Whiteside
|
|
|
45
|
|
|
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 PCB manufacturer. Prior to
that time, Mr. Alder served as President and Chief
Executive Officer of ElectroStar, Inc., previously a publicly
held PCB 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.
Mr. Chung Tai Keung, Canice has served as Chief
Executive Officer of our Asia Pacific operating segment since
April 8, 2010. Prior to joining our company, Mr. Chung
served as Deputy Managing Director of Meadville Group since
2005. Prior to joining the Meadville Group, Mr. Chung was
an executive director of Elec & Eltek International
Holdings Limited (formerly listed on The Stock Exchange of Hong
Kong Limited) from August 1993
13
to March 2005 and Elec & Eltek International Company
Limited (a company listed on the Singapore Exchange Securities
Trading Limited) from April 1994 to March 2005. Mr. Chung
had been Chief Executive Officer of Elec & Eltek
Groups PCB business and held various management positions
at Fairchild Semiconductors (HK) Limited, China Cement Company
(Hong Kong) Limited, the Astec Group and Chen Hsong Machinery
Co, Limited. Mr. Chung graduated from the Hong Kong
Polytechnic University in 1979 in Accountancy. Mr. Chung is
currently the vice chairman of the Hong Kong Printed Circuit
Association Limited.
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 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 annual report or future quarterly reports to stockholders,
press releases, or oral statements, whether in presentations,
responses to questions, or otherwise.
14
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. 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.
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;
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the condition of the global economy generally and the demand for
our products, specifically; and
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the cost of financing and the condition of financial markets.
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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.
As a
result of the acquisition of the PCB Subsidiaries, we are a
substantially larger and broader organization, with a greater
geographic diversity relative to our operations prior to the
acquisition. If management is unable to sufficiently manage the
combined company, operating and financial results would
suffer.
As a result of the acquisition of the PCB Subsidiaries, we have
significantly more employees, greater geographic diversity, and
customers in multiple distribution channels. We 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 our company and, as a result, on the market
price of our common stock.
We may not realize the operating and financial benefits we
expect from our Asia Pacific operations.
The post-acquisition integration of our company and the PCB
Subsidiaries has been progressing well. The integration is,
however, complex, time-consuming, and expensive. As a combined
company, we need to overcome significant challenges in order to
realize anticipated benefits and synergies. These challenges
include the timely, efficient, and successful completion of a
number events, including the following:
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continued integration of the operations of the companies;
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continued implementation of 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; Section 404 of the
Sarbanes-Oxley Act of 2002; 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 (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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addressing the significant wage increases that have occurred
throughout the PRC in recent periods;
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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
involve considerable risks. 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
integration of the respective businesses of us and the PCB
Subsidiaries;
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the difficulty of complying with government-imposed regulations
in both the U.S. and China, which may in many ways be
materially different from one another; and
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potential unknown liabilities associated with the combined
operations.
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The combined company may not succeed in mitigating these risks.
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 and, as a result, on the market price of our
common stock.
Our
Asia Pacific operations serve customers and have manufacturing
facilities outside the United States and are subject to the
risks characteristic of international operations. These risks
include significant potential financial damage and potential
loss of business and assets.
Because we have significant manufacturing operations 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, rising wages 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 China subject us to risks and uncertainties
relating to the laws and regulations of China.
Under its current leadership, the government of China 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 China will continue to pursue such policies, that
such policies will be successful if pursued, or that such
policies will not be significantly altered from time to time.
Despite progress in developing its legal system, China 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
China may be protracted and may 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.
Our
Asia Pacific 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. The PCB Subsidiaries have historically
purchased substantially all of the electrical power for their
manufacturing plants in China from local power plants. Because
Chinas 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 our operations in China may be
unable to obtain adequate sources of electricity to meet
production requirements. Additionally, we would not likely
maintain any
back-up
power generation facilities for our operations, so if we were to
lose power at any of our facilities we would be required to
cease operations until power was restored. Any stoppage of power
could adversely affect our ability to meet our 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 our 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 China facilities could adversely affect our ability to
fulfill orders in a timely manner, potentially resulting in a
loss of business and under-utilization of capacity. Various
regions in China have in the past experienced shortages of both
electricity and water and unexpected interruptions of power
supply. There can be no assurance that our required utilities
would not in the future experience material interruptions, which
could have a material adverse effect on our results of
operations and financial condition.
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As a
global organization, we continue to invest in our operations to
integrate us and the PCB Subsidiaries and to maintain and grow
our combined business, and we may need additional funds to do
so.
We depend on the availability of adequate capital to maintain
and develop our business. We believe that we can meet our
capital requirements from internally generated funds, cash in
hand, and available borrowings. If we are unable to fund our
capital requirements as currently planned, however, it would
have a material adverse effect on our business, financial
condition, and operating results. If we do not achieve our
expected operating results, we would need to reallocate our
sources and uses of operating cash flows. This may include
borrowing additional funds to service debt payments, which may
impair our ability to make investments in our business. There is
no assurance that we would be able to borrow any such additional
funds when needed on commercially acceptable terms or at all.
Should we need to raise funds through incurring additional debt,
we may become subject to covenants even more restrictive than
those contained in our 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.
We
incur a variety of costs as a result of being a public company,
and those costs have increased and may continue to increase as a
result of our acquisition of the PCB Subsidiaries.
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 we 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 us to attract and
retain qualified persons to serve on our 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 may be more difficult and costly than anticipated.
The
principal owners of Meadville own a substantial percentage of
our common stock.
Approximately 35% of our common stock was owned by
Meadvilles shareholders as of December 31, 2010.
These principal shareholders of Meadville are entitled to
jointly nominate one individual to our board of directors and a
majority of the members of the board of directors of the PCB
Subsidiaries.
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 China and the properties
associated with certain facilities are subject to a general city
re-zoning plan which, if implemented in the future, may require
us to relocate these facilities.
The PCB Subsidiaries do not currently have certificates of real
estate ownership for certain non-manufacturing buildings in
China. 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 China. 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
China. 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 our 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 our business.
In addition, certain of the properties where one PCB
Subsidiarys facilities is located are subject to a general
city rezoning plan which has been prepared by the Dongguan
municipal government. According to the relevant PRC
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regulations, the general rezoning plan is made for twenty years.
Under the rezoning plan, it is intended that the properties
where these 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 us to vacate
these properties and relocate the facilities.
In the event we are required to vacate the above properties, we
would implement certain strategies to minimize any loss of
production capacity during relocation. There can be no assurance
that our strategies to deal with the relocation of the
facilities can be implemented, or that such strategies can be
implemented before we are required to vacate the above
properties due to the proposed general city rezoning plan. If we
are required to relocate the facilities, our results of
operation and financial condition may be materially and
adversely affected.
We
depend on the U.S. government for a substantial portion of our
business, which involves unique risks.
A significant portion of our revenues is derived from products
and services ultimately sold to the U.S. government by our
OEMs and EMS customers 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. While our sales to
OEMs and EMS resellers are made through purchase orders that are
not subject to cancellation, returns, or re-negotiation, the
contracts between our direct customers and the government end
user are subject to political and budgetary constraints and
processes, changes in short-range and long-range strategic
plans, the timing of contract awards, 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.
Changes
in government defense spending could have a material adverse
effect on our business.
In 2010, aerospace/defense sales accounted for approximately 20%
of our total net sales. The substantial majority of these sales
are related to both U.S. and foreign military and defense
programs. While we do not sell directly to the
U.S. government, we are a supplier to the
U.S. government and its agencies as well as foreign
governments and agencies. Consequently, our sales are affected
by changes in the defense budgets of the U.S. and foreign
governments. The domestic and international threat of terrorist
activity, emerging nuclear states and conventional military
threats have led to an increase in demand for defense products
and services and homeland security solutions in the recent past.
The U.S. government, however, is facing unprecedented
budgeting constraints and a decline in U.S. defense
expenditures generally could adversely affect our business.
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 is responsible for a significant
portion of our sales. Our five largest OEM customers accounted
for approximately 28%, 34% and 29% of our net sales for the year
ended December 31, 2010, 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
19
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 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 DoD and certain
other agencies of the U.S. government. 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 a significant portion of our
voting equity is owned by a
non-U.S. entity,
we are required to be governed by and operate in accordance with
the terms and requirements of the Special Security Agreement
described in Business National Security
Matters. The terms of the SSA have been previously
disclosed in our SEC filings.
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
classified contracts), we could lose our security clearance. We
cannot be certain 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 on classified contracts and would not be able to enter
into new classified contracts, which could adversely affect our
revenues.
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 PCB 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 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.
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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 PCB 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 PCB 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 PCB and substrate
competitors include Unimicron, Ibiden, Nippon Mektron, Tripod,
Foxconn, DDi, Sanmina-SCI, Multek and Wus. Our principal
backplane assembly competitors include Amphenol, Simclar-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.
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, PCB 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.
The
increasing prominence of EMS companies as our customers could
reduce our gross margins, potential sales, and
customers.
Sales to EMS companies represented approximately 45%, 47% and
52% of our net sales for the year ended December 31, 2010,
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
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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 PCBs 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.
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. 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 PCB 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
QTA production facilities at 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.
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.
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 China 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.
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
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Clean Water Act, the Resource Conservation and Recovery Act, the
Superfund Amendment and Reauthorization 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 both
of the 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 RoHS 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, four lists totaling 46 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 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 from
various stages of the manufacturing process. Production sites in
China are subject to regulation and periodic monitoring by the
relevant
23
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, or cessation of operations.
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 PCB 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.
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 PCB 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.
24
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
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.
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, 2010, we had total indebtedness of
approximately $555.4 million, which represented
approximately 40% of our total capitalization.
Our indebtedness could have significant negative consequences,
including:
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increasing our vulnerability to general adverse economic and
industry conditions;
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limiting our ability to obtain additional financing;
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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;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we
compete; and
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placing us at a possible competitive disadvantage to less
leveraged competitors and competitors that have better access to
capital resources.
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25
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.
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 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 OEM customers accounted for approximately 42%,
56% and 49% of our net sales for the years ended
December 31, 2010, 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. Our foreign receivables were approximately 26% and 24%
of our net accounts receivable as of December 31, 2010 and
2009, respectively, 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.
A
continued increase in the cost of raw materials could have an
adverse impact on our business and reduce our gross
margins.
To manufacture PCBs, 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. 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. The supply of raw materials has tightened recently and
commodities prices have risen. These increases in raw material
and component prices, if sustained, can negatively affect our
gross margins. For example, 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.
We
rely on suppliers for the timely delivery of raw materials and
components used in manufacturing our PCBs and backplane
assemblies. If a raw material supplier fails to satisfy our
product quality standards, it could harm our customer
relationships.
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. The components for backplane assemblies in some cases
have limited or sole sources of supply. 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.
26
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:
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the potential inability to successfully integrate acquired
operations and businesses or to realize anticipated synergies,
economies of scale, or other expected value;
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diversion of managements attention from normal daily
operations of our existing business to focus on integration of
the newly acquired business;
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unforeseen expenses associated with the integration of the newly
acquired business;
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difficulties in managing production and coordinating operations
at new sites;
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the potential loss of key employees of acquired operations;
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the potential inability to retain existing customers of acquired
companies when we desire to do so;
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insufficient revenues to offset increased expenses associated
with acquisitions;
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the potential decrease in overall gross margins associated with
acquiring a business with a different product mix;
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the inability to identify certain unrecorded liabilities;
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the potential need to restructure, modify, or terminate customer
relationships of the acquired company;
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an increased concentration of business from existing or new
customers; and
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the potential inability to identify assets best suited to our
business plan.
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Acquisitions may cause us to:
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enter lines of business
and/or
markets in which we have limited or no prior experience;
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issue debt and be required to abide by stringent loan covenants;
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assume liabilities;
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record goodwill and indefinite-lived intangible assets that will
be subject to impairment testing and potential periodic
impairment charges;
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become subject to litigation and environmental issues, which
include product material content certifications;
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incur unanticipated costs;
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incur large and immediate write-offs;
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issue common stock that would dilute our current
stockholders percentage ownership; and
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incur substantial transaction-related costs, whether or not a
proposed acquisition is consummated.
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Acquisitions of high technology companies are inherently risky,
and no assurance can be given that our recent or future
acquisitions 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.
27
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 PCB, 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.
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.
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
28
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.
Damage
to our manufacturing facilities due to fire, natural disaster,
or other events could harm our financial results.
We have seven manufacturing and assembly facilities in the
United States and eight manufacturing and assembly facilities in
China and Hong Kong. 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 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
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 gases, either directly
on-site or
indirectly at electric utilities. Both domestic and
international legislation to address climate change by reducing
greenhouse gas emissions 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 sources and
supply choices as well as increase the cost of energy and raw
materials derived from sources that generate greenhouse gas
emissions.
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, 2010, we had net deferred income tax
assets of approximately $18.3 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. Additionally, the ability to utilize deferred income
tax assets is dependent upon the generation of taxable income in
the specific tax jurisdictions that have deferred income tax
assets.
29
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, 2010, our consolidated balance sheet
reflected $295.7 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.
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, 2010, we had an aggregate of approximately
$256.0 million in current assets denominated in Chinese RMB
and the Hong Kong Dollar (HKD). 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 and the
U.S. Dollar and the HKD cannot be predicted. To the extent
that we may have outstanding indebtedness denominated in the RMB
or in the HKD, the appreciation of the RMB and the HKD 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 and HKD-denominated indebtedness).
Further, Chinas 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 China 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 China 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 China 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.
30
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
The following table describes our principal manufacturing
facilities and our drilling and tooling process facility.
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Leased
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Owned
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Total
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US Locations(1)
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Square Feet
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Square Feet
|
|
|
Square Feet
|
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Chippewa Falls, WI
|
|
|
|
|
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281,000
|
|
|
|
281,000
|
|
Logan, UT
|
|
|
|
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124,104
|
|
|
|
124,104
|
|
San Diego, CA
|
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37,500
|
|
|
|
|
|
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37,500
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Santa Ana, CA
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8,287
|
|
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82,600
|
|
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90,887
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Santa Clara, CA
|
|
|
18,304
|
|
|
|
45,685
|
|
|
|
63,989
|
|
Stafford, CT
|
|
|
21,251
|
|
|
|
156,000
|
|
|
|
177,251
|
|
Stafford Springs, CT
|
|
|
10,000
|
|
|
|
53,000
|
|
|
|
63,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
95,342
|
|
|
|
742,389
|
|
|
|
837,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Locations(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong (OPCM)
|
|
|
86,982
|
|
|
|
|
|
|
|
86,982
|
|
Dongguan, China (SYE)
|
|
|
|
|
|
|
422,971
|
|
|
|
422,971
|
|
Dongguan, China (DMC)
|
|
|
|
|
|
|
1,322,803
|
|
|
|
1,322,803
|
|
Guangzhou, China (GME)
|
|
|
|
|
|
|
968,028
|
|
|
|
968,028
|
|
Shanghai, China(1)
|
|
|
85,745
|
|
|
|
|
|
|
|
85,745
|
|
Shanghai, China (SME)
|
|
|
|
|
|
|
416,761
|
|
|
|
416,761
|
|
Shanghai, China (SMST/SP)
|
|
|
|
|
|
|
521,257
|
|
|
|
521,257
|
|
Shanghai, China (SKE)(2)
|
|
|
3,294
|
|
|
|
135,207
|
|
|
|
138,501
|
|
Suzhou, China (MAS)
|
|
|
|
|
|
|
1,129,690
|
|
|
|
1,129,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,021
|
|
|
|
4,916,717
|
|
|
|
5,092,738
|
|
We maintain our properties in good operating condition. We
believe that our properties are suitable and adequate for us to
operate at present levels, and the productive capacity and
extent of utilization of the facilities are appropriate for our
existing real estate requirements.
|
|
|
(1) |
|
Locations pertain to our North America segment |
|
(2) |
|
Drilling and tooling process facility |
|
(3) |
|
Foreign locations represents the following subsidiaries: |
|
|
|
|
|
OPC Manufacturing Limited (OPCM)
|
|
|
|
Dongguan Shengyi Electronics Ltd. (SYE)
|
|
|
|
Dongguan Meadville Circuits Limited (DMC)
|
|
|
|
Guangzhou Meadville Electronics Co., Ltd. (GME)
|
|
|
|
Shanghai Meadville Electronics Co., Ltd. (SME)
|
|
|
|
Shanghai Meadville Science & Technology Co., Ltd. (SMST/SP)
|
|
|
|
Shanghai Kaiser Electronics Co., Ltd. (SKE)
|
|
|
|
Meadville Aspocomp (Suzhou) Electronics Co., Ltd. (MAS)
|
31
|
|
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. We believe that the amount of any ultimate potential
loss for known matters would not be material to our financial
condition, however, the outcome of these actions is inherently
difficult to predict. In the event of an adverse outcome, the
ultimate potential loss could have a material adverse effect on
our financial condition or results of operations and cash flows
in a particular period.
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 Global Select
Market 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 Global Select Market for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2010:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.94
|
|
|
$
|
8.25
|
|
Second Quarter
|
|
$
|
12.06
|
|
|
$
|
8.79
|
|
Third Quarter
|
|
$
|
10.77
|
|
|
$
|
8.04
|
|
Fourth Quarter
|
|
$
|
15.69
|
|
|
$
|
9.29
|
|
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
|
|
As of March 3, 2011, there were approximately 304 holders
of record of our common stock. The closing sale price of our
common stock on the Nasdaq Global Select Market on March 3,
2011 was $18.20.
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.
32
STOCK
PRICE PERFORMANCE GRAPH
The performance graph below compares, for the period from
December 31, 2005, to December 31, 2010, the
cumulative total stockholder return on our common stock against
the cumulative total return of:
|
|
|
|
|
the NASDAQ Composite Index;
|
|
|
|
the Dow Jones U.S. Electrical Components &
Equipment Index, and
|
|
|
|
the remaining company in a peer group index previously used by
us.
|
The graph assumes $100 was invested in our common stock on
December 31, 2005, and an investment in each of the
(i) NASDAQ Composite Index, (ii) the Dow Jones US
Electrical Components & Equipment Index and
(iii) the remaining company in a peer group index
previously used by us, and the reinvestment of all dividends. We
have added the Dow Jones U.S. Electrical
Components & Equipment Index to the graph to capture
the stock performance of companies whose products and services
are more closely related to us. Our previous peer group index
had consisted of two companies, Sanmina-SCI Corporation (Nasdaq
NM: SANM) and Merix Corporation (Nasdaq NM: MERX). Merix merged
with Viasystems on February 16, 2010 and, as a result,
relevant information for Merix is no longer available. The peer
group index now consists of only Sanmina Corporation. The
performance of the previous peer group index is presented here
for comparative purposes in accordance with Item 201(e) of
Regulation S-K
and will not be provided in the future.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
TTM Technologies, Inc., The NASDAQ Composite Index
The Dow Jones US Electrical Components & Equipment
Index
And A Peer Group
* $100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/06
|
|
12/07
|
|
12/08
|
|
12/09
|
|
12/10
|
|
TTM Technologies, Inc.
|
|
|
120.53
|
|
|
|
124.04
|
|
|
|
55.43
|
|
|
|
122.66
|
|
|
|
158.72
|
|
NASDAQ Composite
|
|
|
111.16
|
|
|
|
124.64
|
|
|
|
73.80
|
|
|
|
107.07
|
|
|
|
125.99
|
|
Dow Jones US Electrical Components & Equipment
|
|
|
112.77
|
|
|
|
135.19
|
|
|
|
68.96
|
|
|
|
112.00
|
|
|
|
144.08
|
|
Peer Group
|
|
|
80.99
|
|
|
|
42.72
|
|
|
|
11.03
|
|
|
|
43.15
|
|
|
|
44.91
|
|
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.
33
|
|
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,
|
|
|
|
2010(1)
|
|
|
2009(2)
|
|
|
2008(2)
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,179,671
|
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
Cost of goods sold
|
|
|
925,266
|
|
|
|
479,267
|
|
|
|
543,741
|
|
|
|
539,205
|
|
|
|
276,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
254,405
|
|
|
|
103,209
|
|
|
|
137,240
|
|
|
|
130,253
|
|
|
|
93,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
34,345
|
|
|
|
26,517
|
|
|
|
30,436
|
|
|
|
29,835
|
|
|
|
16,473
|
|
General and administrative
|
|
|
79,668
|
|
|
|
36,548
|
|
|
|
33,255
|
|
|
|
32,712
|
|
|
|
19,608
|
|
Amortization of definite-lived intangibles
|
|
|
13,678
|
|
|
|
3,440
|
|
|
|
3,799
|
|
|
|
4,126
|
|
|
|
1,786
|
|
Restructuring charges
|
|
|
389
|
|
|
|
5,490
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
Impairment of goodwill and long-lived assets
|
|
|
766
|
|
|
|
12,761
|
|
|
|
123,322
|
|
|
|
|
|
|
|
|
|
Metal reclamation
|
|
|
|
|
|
|
|
|
|
|
(3,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
128,846
|
|
|
|
84,756
|
|
|
|
187,112
|
|
|
|
66,673
|
|
|
|
38,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
125,559
|
|
|
|
18,453
|
|
|
|
(49,872
|
)
|
|
|
63,580
|
|
|
|
55,034
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(22,255
|
)
|
|
|
(11,198
|
)
|
|
|
(11,065
|
)
|
|
|
(13,828
|
)
|
|
|
(3,394
|
)
|
Other, net
|
|
|
5,333
|
|
|
|
868
|
|
|
|
(434
|
)
|
|
|
1,516
|
|
|
|
4,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(16,922
|
)
|
|
|
(10,330
|
)
|
|
|
(11,499
|
)
|
|
|
(12,312
|
)
|
|
|
1,068
|
|
Income (loss) before income taxes
|
|
|
108,637
|
|
|
|
8,123
|
|
|
|
(61,371
|
)
|
|
|
51,268
|
|
|
|
56,102
|
|
Income tax (provision) benefit
|
|
|
(28,738
|
)
|
|
|
(3,266
|
)
|
|
|
24,460
|
|
|
|
(16,585
|
)
|
|
|
(21,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
79,899
|
|
|
|
4,857
|
|
|
|
(36,911
|
)
|
|
|
34,683
|
|
|
|
35,039
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
(8,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to TTM Technologies, Inc.
stockholders
|
|
$
|
71,531
|
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share attributable to TTM
Technologies, Inc. stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.02
|
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
Diluted
|
|
$
|
1.01
|
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
70,220
|
|
|
|
43,080
|
|
|
|
42,681
|
|
|
|
42,242
|
|
|
|
41,740
|
|
Diluted
|
|
|
70,819
|
|
|
|
43,579
|
|
|
|
42,681
|
|
|
|
42,568
|
|
|
|
42,295
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$
|
48,747
|
|
|
$
|
19,140
|
|
|
$
|
21,324
|
|
|
$
|
22,772
|
|
|
$
|
12,178
|
|
|
|
|
(1) |
|
Our results for the year ended December 31, 2010, include
267 days of activity of the PCB Subsidiaries, which we
acquired on April 8, 2010. |
|
(2) |
|
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. |
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
258,299
|
|
|
$
|
323,112
|
|
|
$
|
280,362
|
|
|
$
|
98,839
|
|
|
$
|
127,405
|
|
Total assets
|
|
|
1,761,952
|
|
|
|
543,058
|
|
|
|
540,240
|
|
|
|
498,798
|
|
|
|
573,698
|
|
Convertible senior notes
|
|
|
145,283
|
|
|
|
139,882
|
|
|
|
134,914
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities
|
|
|
380,118
|
|
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
200,705
|
|
TTM Technologies, Inc. stockholders equity
|
|
|
728,255
|
|
|
|
340,917
|
|
|
|
330,036
|
|
|
|
328,594
|
|
|
|
287,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
193,434
|
|
|
$
|
42,028
|
|
|
$
|
(25,065
|
)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
Net cash provided by operating activities
|
|
|
125,819
|
|
|
|
73,977
|
|
|
|
75,632
|
|
|
|
73,984
|
|
|
|
32,784
|
|
Net cash provided by (used in) investing activities
|
|
|
32,956
|
|
|
|
(128,497
|
)
|
|
|
(21,281
|
)
|
|
|
(1,705
|
)
|
|
|
(234,579
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(35,368
|
)
|
|
|
440
|
|
|
|
74,793
|
|
|
|
(113,828
|
)
|
|
|
200,027
|
|
|
|
|
(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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
79,899
|
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
28,738
|
|
|
|
3,266
|
|
|
|
(24,460
|
)
|
|
|
16,585
|
|
|
|
21,063
|
|
Interest expense
|
|
|
22,255
|
|
|
|
11,198
|
|
|
|
11,065
|
|
|
|
13,828
|
|
|
|
3,394
|
|
Depreciation of property, plant and equipment
|
|
|
48,747
|
|
|
|
19,140
|
|
|
|
21,324
|
|
|
|
22,772
|
|
|
|
12,178
|
|
Amortization of intangibles
|
|
|
13,795
|
|
|
|
3,567
|
|
|
|
3,917
|
|
|
|
4,242
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
113,535
|
|
|
|
37,171
|
|
|
|
11,846
|
|
|
|
57,427
|
|
|
|
38,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
193,434
|
|
|
$
|
42,028
|
|
|
$
|
(25,065
|
)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
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, 2010. 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 leading global provider of time-critical and
technologically complex printed circuit board (PCB) products and
backplane assemblies (PCBs populated with electronic
components), which serve as the foundation of sophisticated
electronic products. We provide our customers
time-to-market
and advanced technology products and offer a one-stop
manufacturing solution to customers from engineering support to
prototype development through final volume production. We serve
a diversified customer base in various markets throughout the
world, including manufacturers of networking/communications
infrastructure products, personal computers, touch screen
tablets and mobile media devices (cellular phones and smart
phones). We also serve high-end computing, commercial
aerospace/defense, and industrial/medical industries. Our
customers include both original equipment manufacturers (OEMs)
and electronic manufacturing services (EMS) providers.
In April 2010, we acquired from Meadville all of the issued and
outstanding capital stock of four of its subsidiaries. These
four companies and their respective subsidiaries, collectively
referred to as the PCB Subsidiaries, comprised Meadvilles
PCB manufacturing and distributing business. See Note 3 in
our consolidated financial statements.
We believe that the combination of our legacy business and the
PCB Subsidiaries will increase our diversification and allow us
to better address a number of industry trends and other
operational challenges impacting us:
|
|
|
|
|
Ability to meet customer demand for a one-stop manufacturing
solution. As a result of the business
combination, we are now a leading global PCB company with
high-technology capabilities and a highly diversified revenue
mix by geographic region and end market. In addition, we can now
offer our customers a one-stop global manufacturing solution
from quick-turn through volume production and a focused facility
specialization strategy.
|
|
|
|
Ability to respond to increasing global
competition. We now can capitalize on potential
economies of scale, cost savings and access to a highly trained
workforce, a global sales force, and flexible manufacturing
platform; complementary footprints, customers and end markets;
and talented management teams with leading expertise in the
Asian market.
|
|
|
|
Ability to continue expanding market presence and
capitalizing on new opportunities. We can now
capture additional business globally from both existing and new
customers, particularly in North America and Europe.
|
We believe that these factors position us to compete effectively
in our industry by allowing us to respond to technologically
complex and time-sensitive customer demands and increasing
competition from other global manufacturers.
While our customers include both OEM and EMS providers, we
measure customers based on OEM companies as they are the
ultimate end customers. We measure customers as those companies
that have placed orders of $2,000 or more in the preceding
12-month
period. As of December 31, 2010, we had approximately 1,160
customers and as of December 31, 2009 we had approximately
850 customers. Sales to our 10 largest customers accounted for
42% and 56% of our net sales in 2010 and 2009, respectively. We
sell to OEMs both directly and indirectly through EMS companies.
36
The following table shows the percentage of our net sales
attributable to each of the principal end markets we served for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
End Markets(1)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Aerospace/Defense
|
|
|
20
|
%
|
|
|
44
|
%
|
|
|
37
|
%
|
Cellular Phone
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Computing/Storage/Peripherals
|
|
|
21
|
|
|
|
11
|
|
|
|
12
|
|
Medical/Industrial/Instrumentation/Other
|
|
|
9
|
|
|
|
8
|
|
|
|
10
|
|
Networking/Communications
|
|
|
35
|
|
|
|
36
|
|
|
|
40
|
|
Other
|
|
|
5
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
We also deliver a significant percentage of compressed lead-time
work with lead times of 11 to 20 days. We typically receive
a premium price for this work as well. Purchase orders may be
cancelled prior to shipment. We charge customers a fee, based on
percentage completed, if an order is cancelled once it has
entered production. We derive revenues primarily from the sale
of PCBs 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
PCBs 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 generally do not participate in any significant long-term
contracts with suppliers, with the exception of the supply
arrangement to purchase laminate and prepregs from a related
party controlled by a significant shareholder, 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, gains or losses on the sale or
disposal of property, plant and equipment, and acquisition
related expenses.
37
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 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 and inventory; sales returns and allowances;
impairment of long-lived assets, including goodwill and
intangible assets; derivative instruments and hedging
activities; realizability of deferred tax assets; establishing
the fair value of individual assets acquired, liabilities
assumed, and noncontrolling interest when we acquire other
businesses; and determining self-insured reserves.
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 judgments as to 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. When the
market value of inventory is less than the carrying value, the
inventory cost is written down to their estimated net realizable
value thereby establishing a new cost basis. Our inventory
requirements may change based on our projected customer demand,
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
certain 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.
Sales
Returns and Allowances
We derive revenues primarily from the sale of printed circuit
boards and backplane assemblies using customer-supplied
engineering and design plans and recognize revenue upon
delivery. 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 using our judgment based on historical
information and anticipated returns as a result of current
period sales. 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
38
acquisitions of other businesses. As necessary, we make
judgments regarding future cash flow forecasts in the
determination of impairment. We have two operating segments,
North America and Asia Pacific.
During the fourth quarter of each year, and when events and
circumstances warrant an evaluation, 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 consider factors
such as a weakened 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.
As of December 31, 2010, our assessment of goodwill
impairment indicated that the fair value of goodwill for our
North America segment was substantially in excess of its
estimated carrying values, and therefore goodwill for the North
America segment was not impaired. For our Asia Pacific segment,
which consists of the PCB Subsidiaries acquired in April 2010,
we did not assess for goodwill impairment as we recently
finalized the assignment of estimated fair values to assets
acquired, liabilities assumed and noncontrolling interests.
Further, we did not find evidence of indicators for potential
goodwill impairment, such as a weakened economy, reduced
expectations for future cash flows, or a decline in the market
price of our stock and market capitalization for a sustained
period.
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 intangible assets, we use an
estimate of the undiscounted net cash flows in measuring whether
the carrying amount of the assets is 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 valuation
techniques, including market and income approaches as considered
necessary, which involve judgments related to future cash flows
and the application of the appropriate valuation model.
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.
Derivative
Instruments and Hedging Activities
As a matter of policy, we use derivatives for risk management
purposes, and we do not use derivatives for speculative
purposes. Derivatives are typically entered into as hedges of
changes in interest rates, currency exchange rates, and other
risks.
When we determine to designate a derivative instrument as a cash
flow hedge, we 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. We
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.
Derivative financial instruments are recognized as either assets
or liabilities on the consolidated balance sheet with
measurement at fair value. Fair value of the derivative
instruments is determined using pricing models developed based
on the underlying swap interest rate, foreign currency exchange
rates, and other observable market data as appropriate. The
values are also adjusted to reflect nonperformance risk of both
the counterparty and the Company. For derivatives that are
designated as a cash flow hedge, changes in the fair value of
the derivative are recognized in accumulated other comprehensive
income, to the extent the derivative is effective at offsetting
the changes in cash flow being hedged until the hedged item
affects earnings. To the extent there is any hedge
ineffectiveness, changes in fair value relating to the
ineffective portion are immediately recognized in earnings.
Changes in the fair value of derivatives that are not designated
as hedges are recorded in earnings each period.
39
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 based on our estimate of future taxable
income. 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. 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.
In addition, we are subject to income taxes in the United States
and foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes. In the
ordinary course of our business, there are many transactions
where the ultimate tax determination is uncertain. Additionally,
our calculations of income taxes are based on our
interpretations of applicable tax laws in the jurisdictions in
which we file.
Business
Combinations
We allocate the purchase price of acquired companies to the
tangible and intangible assets acquired, liabilities assumed and
noncontrolling interest, based on their estimated fair values.
The excess of the purchase price over these fair values is
recorded as goodwill. We engage independent third-party
appraisal firms to assist us in determining the fair values of
assets acquired, liabilities assumed, and noncontrolling
interest. Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible
assets.
The fair value of the real property was estimated primarily via
the cost approach, and where applicable, the sales comparison
approach and income approach. The procedures employed included
site inspections, analysis of the subject properties, review of
the highest and best use of the subject properties, discussions
with onsite property management, determinations regarding future
use of the facilities, review of real property market data
available in the local market, estimation of replacement cost,
new and typical expected useful lives, and the calculation of
all factors of obsolescence.
For the fair value of the personal property we utilized the cost
approach as the primary approach for valuing the majority of the
personal property. The market approach was used to estimate the
value of certain equipment commonly traded in the second hand
marketplace, as well as computers and computer-related assets.
The income approach was used to quantify any economic
obsolescence that may be present in the subject assets. Our
analysis also entailed an estimation of useful lives, which were
researched and discussed with property management and market
sources. The fair value measurement assumes the highest and best
use of personal property assets by market participants.
The significant purchased intangible assets recorded by us
include customer relationships, trade name, and order backlog.
The fair values assigned to the identified intangible assets are
discussed in Note 3 of the notes to the consolidated
financial statements.
Critical estimates in valuing certain intangible assets include
but are not limited to: future expected cash flows from customer
relationships, estimating cash flows from existing backlog,
market position of the trade name, as well as assumptions about
cash flow savings from the trade name, and discount rates.
Managements estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable and, as a result, actual results may
differ from estimates.
Estimates associated with the accounting for acquisitions may
change during the measurement period as additional information
becomes available regarding the assets acquired, liabilities
assumed, and noncontrolling interest as discussed in Note 3
of the notes to consolidated financial statements.
Self
Insurance
We are primarily self-insured in North America for group health
insurance and workers compensation benefits provided to
our U.S. employees, and we purchase insurance to protect
against annual claims at the individual and aggregate level. We
estimate our exposure for claims incurred but not reported at
the end of each reporting period. We use our judgment using our
historical claim data and information and analysis provided by
actuarial and claim
40
advisors, our insurance carriers and brokers on an annual basis
to estimate our liability for these claims. This liability is
subject to individual insured stop-loss coverage for both
programs which is $250,000 per individual. Our actual claims
experience may differ from our estimates.
RESULTS
OF OPERATIONS
The years ended December 31, 2009 and 2008 do not include
the results of operations from our acquired PCB Subsidiaries, as
the acquisition occurred on April 8, 2010. The acquisition
has had and will continue to have a significant effect on our
operations as discussed in the various comparisons noted below.
Included in the consolidated statement of operations for the
year ended December 31, 2010 are 267 days of results
of operations for the Asia Pacific operations for the period
from April 9, 2010 through December 31, 2010. The
following table sets forth the relationship of various items to
net sales in our consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
78.4
|
|
|
|
82.3
|
|
|
|
79.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
21.6
|
|
|
|
17.7
|
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
2.9
|
|
|
|
4.6
|
|
|
|
4.5
|
|
General and administrative
|
|
|
6.8
|
|
|
|
6.3
|
|
|
|
4.9
|
|
Amortization of definite-lived intangibles
|
|
|
1.2
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Restructuring charges
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
0.1
|
|
|
|
2.2
|
|
|
|
18.1
|
|
Metal reclamation
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11.0
|
|
|
|
14.5
|
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
10.6
|
|
|
|
3.2
|
|
|
|
(7.3
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1.9
|
)
|
|
|
(1.9
|
)
|
|
|
(1.6
|
)
|
Other, net
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(1.4
|
)
|
|
|
(1.8
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
9.2
|
|
|
|
1.4
|
|
|
|
(9.0
|
)
|
Income tax (provision) benefit
|
|
|
(2.4
|
)
|
|
|
(0.6
|
)
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
6.8
|
|
|
|
0.8
|
|
|
|
(5.4
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to TTM Technologies, Inc.
stockholders
|
|
|
6.1
|
%
|
|
|
0.8
|
%
|
|
|
(5.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to our acquisition of the PCB Subsidiaries, we had two
operating segments, PCB Manufacturing and Backplane Assembly,
consistent with the nature of our operations. Due to the
acquisition, we reassessed our operating segments and now manage
our worldwide operations based on two geographic operating
segments: (1) North America, which consists of seven
domestic PCB fabrication plants, including a facility that
provides follow-on value-added services primarily for one of the
PCB fabrication plants, and one backplane assembly plant in
Shanghai, China, which is managed in conjunction with our
U.S. operations and its related European sales support
infrastructure; and (2) Asia Pacific, which consists of the
PCB Subsidiaries and their seven PCB fabrication plants, which
include a substrate facility. Each segment operates
predominantly in the same industry with production facilities
that produce similar customized products for our customers and
use similar means of product distribution in their respective
geographic regions.
41
The following table compares net sales by reportable segment for
the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
581,828
|
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
Asia Pacific
|
|
|
604,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
1,186,576
|
|
|
|
582,476
|
|
|
|
680,981
|
|
Inter-segment sales
|
|
|
(6,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,179,671
|
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Total net sales increased $597.2 million, from
$582.5 million for the year ended December 31, 2009 to
$1,179.7 million for the year ended December 31, 2010
due to our acquisition of the PCB Subsidiaries in April 2010,
which comprise our Asia Pacific segment.
Net sales for the North America segment remained consistent with
net sales of $582.5 million for the year ended
December 31, 2009 and net sales of $581.8 million for
the year ended December 31, 2010. Sales volume at a number
of our facilities increased due to the improving economy and the
transfer of work from our closed facilities partially offset by
the lost revenue resulting from the closure of our Los Angeles,
California facility in November 2009, and our Hayward,
California facility in March 2010. The revenue reflects a
decrease of 2% in our average PCB selling price from the year
ended December 31, 2009 as compared to the year ended
December 31, 2010 and an increase in PCB volume of 7% from
the year ended December 31, 2009 as compared to
December 31, 2010 due to the improving economy.
Total net sales, all of which were attributable to our North
America segment, 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
primarily 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. 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 decrease in revenue is also attributable to
reduced volume at our Hayward, California production facility in
conjunction with the closure announced on September 1,
2009. This backplane assembly facility was closed in 2010 due to
a steady decline in volume over several years.
Cost
of Goods Sold
Cost of goods sold increased $446.0 million from
$479.3 million for the year ended December 31, 2009 to
$925.3 million for the year ended December 31, 2010
primarily due to our acquisition of the PCB Subsidiaries in
April 2010, which comprise our Asia Pacific segment.
Cost of goods sold for the North America segment decreased
$17.4 million, or 3.6%, from $479.3 million for the
year ended December 31, 2009 to $461.9 million for the
year ended December 31, 2010 due primarily to increased
production volume partially offset by reduced overhead from the
facility closures discussed above, as well as lower direct
material costs due to lower volumes of backplane assemblies,
which inherently have a higher material content. As a percentage
of net sales, cost of goods sold decreased from 82.3% for the
year ended
42
December 31, 2009 to 79.4% for the year ended
December 31, 2010, primarily due to cost savings from our
closed facilities and increased absorption of fixed costs across
a smaller plant footprint following the closure of our Los
Angeles and Hayward, California facilities.
Cost of goods sold, all of which were attributable to our North
America segment, 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
and direct material costs 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 closure
of our Hayward, California facility.
Gross
Profit
As a result of the foregoing, gross profit increased
$151.2 million from $103.2 million for the year ended
December 31, 2009 to $254.4 million for the year ended
December 31, 2010, primarily due to our acquisition of the
PCB Subsidiaries. Overall gross margin increased from 17.7% for
the year ended December 31, 2009 to 21.6% for the year
ended December 31, 2010 due primarily to higher overall
profit margins for the Asia Pacific segment, which in turn are
primarily attributable to that segments sale of HDI PCBs
and other product mix variations, partially offset by
$6.7 million of increased costs in the Asia Pacific segment
due to the fair value mark up of acquired PCB Subsidiaries
inventory. Overall gross margin also increased due to cost
savings from our closed facilities and higher fixed cost
absorption on higher volumes in our North America segment.
Gross profit, all of which was attributable to our North America
segment, 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 our gross margin was due
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 was 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.
Selling
and Marketing Expenses
Selling and marketing expenses increased $7.8 million, or
29.4%, from $26.5 million for the year ended
December 31, 2009 to $34.3 million for the year ended
December 31, 2010 due to our acquisition of the PCB
Subsidiaries. As a percentage of net sales, selling and
marketing expenses were 4.6% for the year ended
December 31, 2009 as compared to 2.9% for the year ended
December 31, 2010. The decline in selling and marketing
expense as a percentage of net sales is due to our acquisition
of the PCB Subsidiaries, which have lower selling labor and
commission expense than our North America segment.
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.
General
and Administrative Expense
General and administrative expenses increased $43.2 million
from $36.5 million, or 6.3% of net sales, for the year
ended December 31, 2009 to $79.7 million, or 6.8% of
net sales, for the year ended December 31, 2010. The
increase in expense primarily relates to our acquisition of the
PCB Subsidiaries in April 2010 as well as an increase in
transaction-related costs of $3.8 million from
$5.4 million for the year ended December 31, 2009 to
$9.2 million for the year ended December 31, 2010.
43
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 transaction-related
costs, partially offset by lower incentive bonus expense.
Amortization
of Definite-Lived Intangibles
Intangible amortization expense increased $10.3 million
from $3.4 million, or 0.5% of net sales, for the year ended
December 31, 2009 to $13.7 million, or 1.2% of net
sales, for the year ended December 31, 2010. The increase
was due to our acquisition of the PCB Subsidiaries. Acquired
identifiable intangible assets include customer relationships,
trade name and order backlog.
Intangible amortization expense decreased $0.4 million from
$3.8 million, or 0.5% of net sales, for the year ended
December 31, 2008 to $3.4 million, or 0.6% of net
sales, for the year ended December 31, 2009. The
amortization expense primarily relates to the strategic customer
relationship intangibles acquired in the PCG acquisition in
October 2006.
Restructuring
Charges
Restructuring charges recorded for the year ended
December 31, 2010 are primarily related to contract
termination costs related to building operating leases
associated with the closure of our Hayward, California facility.
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.
Impairment
of Goodwill and Long-Lived Assets
Impairment of long-lived assets of $0.8 million for the
year ended December 31, 2010 related to the further
reduction in the value of the Dallas, Oregon facility to record
the estimated fair value less cost to sell given the then
current market conditions. We sold this facility in July 2010.
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 then 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 buildings, which were classified
as assets held for sale, by $4.4 million to record the
estimated fair value less costs to sell given current market
conditions.
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 was 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 Hayward and Los Angeles, California
production facilities were part of our current North America
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
44
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 reclamation 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 increased $6.6 million from
$10.3 million for the year ended December 31, 2009 to
$16.9 million for the year ended December 31, 2010.
The increase in other expense, net was primarily due to interest
expense related to the debt assumed at the date of acquisition
of the PCB Subsidiaries, as well as increased amortization of
costs related to the issuance of this debt. For the year ended
December 31, 2010, the increase in interest expense was
partially offset by foreign currency transaction gains.
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, offset by a $1.3 million
decrease in other, net. 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.
Income
Taxes
The provision for income taxes increased $25.4 million from
$3.3 million for the year ended December 31, 2009 to
$28.7 million for the year ended December 31, 2010
primarily due to higher pre-tax income. Our effective tax rate
was 26.5% for the year ended December 31, 2010 and 40.2%
for the year ended December 31, 2009. Our effective tax
rate decreased in 2010 primarily due to the acquisition of the
PCB Subsidiaries, which have a lower effective tax rate than our
North America operations, partially offset by the impact of the
non-deductibility of certain transaction costs. Additionally,
certain foreign losses generated are not more than likely to be
realizable, and thus no income tax benefit has been recognized
on these losses. Our effective tax rate is primarily impacted by
the U.S. federal income tax rate, apportioned state income
tax rates, tax rates in China and Hong Kong, generation of other
credits and deductions available to us, and certain
non-deductible items. Additionally, as of December 31,
2010, we had net deferred income tax assets of approximately
$18.3 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 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 from 2008 was primarily due to the increase in pretax
income from a loss in 2008.
Liquidity
and Capital Resources
Our principal sources of liquidity have been cash provided by
operations, the issuance of Convertible Notes and, more
recently, the issuance of term and revolving debt. Our principal
uses of cash have been to meet debt service requirements,
finance capital expenditures, fund working capital requirements
and finance acquisitions. 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, 2010, we had net working capital of
approximately $258.3 million compared to
$323.1 million as of December 31, 2009. This decrease
in working capital is primarily attributable to our use of
approximately $114.0 million of the $120.0 million of
restricted cash and the incurrence of debt (including
45
current maturities) in connection with our April 2010
acquisition of the PCB Subsidiaries, partially offset by the
increases in receivables and inventories resulting from that
acquisition.
Our 2011 capital expenditure plan is expected to total
approximately $136.0 million (of which approximately
$115.0 million relates to our Asia Pacific segment), and
will fund capital equipment purchases to increase production
capacity, expand our technological capabilities and replace
aging equipment.
Based on our current level of operations, we believe that cash
generated from operations, cash on hand and available borrowings
under our existing credit arrangements will be adequate to meet
our currently anticipated debt service, capital expenditures,
acquisition, and working capital needs for the next
12 months and beyond. The semiannual repayments on our
existing term loan increase as the debt nears maturity in 2013.
Should we choose to maintain a significant level of annual
capital expenditures or to pursue an acquisition in the next few
years, refinancing of our existing debt may be necessary. In the
event we determine to engage in significant acquisition or debt
refinancing transactions, the adequacy of our liquidity will
depend on our ability to achieve an appropriate combination of
financing from third parties and access to capital markets. We
cannot give any assurances that we will be able to obtain
additional financing or otherwise access the capital markets in
the future on acceptable terms or at all.
Credit
Agreement
On April 9, 2010, in conjunction with the acquisition of
the PCB Subsidiaries, the Company became a party to a credit
agreement (Credit Agreement), entered into on November 16,
2009 by certain PCB Subsidiaries, which are now our wholly owned
foreign subsidiaries. The Credit Agreement was put in place in
contemplation of the acquisition in order to refinance the
then-existing credit facilities of the PCB Subsidiaries.
The Credit Agreement consists of a $350.0 million senior
secured Term Loan, a $87.5 million senior secured Revolving
Loan, a $65.0 million Factoring Facility, and a
$80.0 million Letters of Credit Facility, all of which
mature on November 16, 2013. The Credit Agreement is
secured by substantially all of the assets of the PCB
Subsidiaries and is senior to all other of our debt including
the Convertible Senior Notes. The Company has fully and
unconditionally guaranteed the full and punctual payment of all
obligations of the PCB Subsidiaries under the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a
floating rate of LIBOR (term election by Company) plus an
applicable interest margin. Borrowings bear interest at a rate
of LIBOR plus 2.0% under the Term Loan, LIBOR plus 2.25% under
the Revolving Loan, and LIBOR plus 1.25% under the Factoring
Facility. At December 31, 2010, the weighted average
interest rate on the outstanding borrowings was 2.26%.
Borrowings under the Credit Agreement are subject to certain
financial and operating covenants that include maintaining
maximum total leverage ratios and minimum net worth, current
assets, and interest coverage ratios at both the Company and PCB
Subsidiaries level. On August 3, 2010, we entered into a
waiver and amendment letter with The Hongkong and Shanghai
Banking Corporation Limited, as Facility Agent for and on behalf
of the other lenders named in the Credit Agreement, amending the
financial covenants related to consolidated tangible net worth,
gearing ratio (the ratio of consolidated net borrowings to
consolidated tangible net worth), and leverage. At
December 31, 2010, we were in compliance with the amended
covenants.
We are required to pay a commitment fee of 0.20% per annum on
any unused portion of loan or facility under the Credit
Agreement. For the year ended December 31, 2010, we
incurred $0.3 million in commitment fees related to unused
portion loan or facility under the Credit Agreement. As of
December 31, 2010, all of the Term Loan and
$61.6 million of Letters of Credit were outstanding, and
available borrowing capacity under the Revolving Loan and
Factoring Facility was $87.5 million and
$65.0 million, respectively.
Bank
Loans
Bank loans are made up of bank lines of credit in mainland China
and are used for working capital and capital investment for our
mainland China facilities. These facilities are denominated in
either U.S. Dollars or Chinese Renminbi (RMB), with
interest rates tied to either the LIBOR or Peoples Bank of
China rates with a small margin adjustment. These bank loans
expire at various dates through May 2012.
46
Convertible
Notes
In May 2008, we issued $175.0 million of Convertible Notes.
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. The Convertible Notes are senior
unsecured obligations and 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 is 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, 2010, 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 May 15,
2015 maturity of the Convertible Notes, 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 applicable 60 trading day observation period.
The maximum number of shares issuable upon conversion, subject
to certain 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 of
$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 ratably beginning
August 2015 through February 2016. 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.
Other
Letters of Credit
In addition to the letters of credit obtained by the PCB
Subsidiaries pursuant to the Credit Agreement, we maintain
several letters of credit: a $2.0 million standby letter of
credit expiring December 31, 2011 associated with insured
workers compensation program; a $1.0 million standby letter
of credit expiring February 29, 2012 related to the lease
for one of our production facilities; and various other letters
of credits aggregating to approximately $0.4 million
related to purchases of machinery and equipment with various
expiration dates through June 2011.
47
Contractual
Obligations and Commitments
The following table provides information on our contractual
obligations as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations(1)(2)
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
4 - 5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
380,432
|
|
|
$
|
67,123
|
|
|
$
|
313,301
|
|
|
$
|
8
|
|
|
$
|
|
|
Convertible debt obligations
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
Interest on debt obligations
|
|
|
41,614
|
|
|
|
13,490
|
|
|
|
19,593
|
|
|
|
8,531
|
|
|
|
|
|
Interest rate swap liabilities
|
|
|
6,487
|
|
|
|
3,045
|
|
|
|
3,442
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contract liabilities
|
|
|
277
|
|
|
|
5
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
Equipment payables
|
|
|
72,754
|
|
|
|
59,802
|
|
|
|
12,952
|
|
|
|
|
|
|
|
|
|
Related party financing
obligation(3)
|
|
|
20,399
|
|
|
|
|
|
|
|
20,399
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
70,927
|
|
|
|
34,776
|
|
|
|
36,151
|
|
|
|
|
|
|
|
|
|
Operating lease commitments
|
|
|
4,215
|
|
|
|
1,634
|
|
|
|
1,121
|
|
|
|
463
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
772,105
|
|
|
$
|
179,875
|
|
|
$
|
407,231
|
|
|
$
|
184,002
|
|
|
$
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
Estimated environmental liabilities of $0.6 million, not
included in the table above, are accrued and recorded as
liabilities in our consolidated December 31, 2010 balance
sheet. |
|
(3) |
|
Related party financing obligation consists of a put and call
option agreement in which we granted a put option to a related
party to sell and they granted us a call option to purchase the
remaining 20% equity interest in a recently acquired PCB
subsidiary beginning in 2013. We expect the option to be
exercised in 2013. |
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.
Seasonality
As a result of the product and customer mix of our Asia Pacific
operating segment, a portion of our revenue will be subject to
seasonal fluctuations going forward. These fluctuations include
seasonal patterns in the computer and cellular phone industry,
which together have become a significant portion of the end
markets that we serve. This seasonality typically results in
higher net sales in the third quarter due to end customer demand
for fourth quarter sales of consumer electronics products.
Seasonal fluctuations also include the Chinese New Year holiday
in the first quarter, which typically results in lower net sales.
Impact of
Inflation
We believe that our results of operations are not materially
impacted by 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. Severe increases in
inflation, however, could affect the global and
U.S. economies and have an adverse impact on our business,
financial condition and results of operations.
48
Recently
Issued Accounting Standards
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,
except for 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 adoption of ASU
2010-06 is
not expected to have a material impact on our consolidated
financial statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
In the normal course of business operations we are exposed to
risks associated with fluctuations in interest rates and foreign
currency exchange rates. We address these risks through
controlled risk management that includes the use of derivative
financial instruments to economically hedge or reduce these
exposures. We do not enter into derivative financial instruments
for trading or speculative purposes.
We have not experienced any losses to date on any derivative
financial instruments due to counterparty credit risk.
To ensure the adequacy and effectiveness of our interest rate
and foreign exchange hedge positions, we continually monitor our
interest rate swap positions and foreign exchange forward
positions, both on a stand-alone basis and in conjunction with
their underlying interest rate and foreign currency exposures,
from an accounting and economic perspective. However, given the
inherent limitations of forecasting and the anticipatory nature
of the exposures intended to be hedged, we cannot assure that
such programs will offset more than a portion of the adverse
financial impact resulting from unfavorable movements in either
interest or foreign exchange rates. In addition, the timing of
the accounting for recognition of gains and losses related to
mark-to-market
instruments for any given period may not coincide with the
timing of gains and losses related to the underlying economic
exposures and, therefore, may adversely affect our consolidated
operating results and financial position.
Interest
rate risk
Our business is exposed to interest rate risk resulting from
fluctuations in interest rates. Our interest expense is more
sensitive to fluctuations in the general level of LIBOR and the
Peoples Bank of China interest rates than to changes in
rates in other markets. Increases in interest rates would
increase interest expenses relating to the outstanding variable
rate borrowings of certain foreign subsidiaries and increase the
cost of debt. Fluctuations in interest rates can also lead to
significant fluctuations in the fair value of the debt
obligations.
On April 9, 2010, we entered into a two-year pay-fixed,
receive floating
(1-month
LIBOR), amortizing interest rate swap arrangement with an
initial notional amount of $146.5 million, for the period
beginning April 18, 2011 and ending on April 16, 2013.
The interest rate swap will apply a fixed interest rate against
the first interest payments of a portion of the
$350.0 million Term Loan for this period. The notional
amount of the interest rate swap decreases to zero over its
term, consistent with our risk management objectives. The
notional value underlying the hedge at December 31, 2010
was $146.5 million. Under the terms of the interest rate
swap, the Company will pay a fixed rate of 2.50% and will
receive floating
1-month
LIBOR during the swap period.
To the extent the instruments are considered to be effective,
changes in fair value are recorded as a component of accumulated
other comprehensive income. 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. No ineffectiveness was recognized for the year
ended December 31, 2010. At inception, the fair value of
the interest rate swap was zero. As of December 31, 2010,
the fair value of the swap was recorded as a liability of
$3.4 million in other long-term liabilities. The change in
the fair value of the interest rate swap is recorded as a
component of accumulated other comprehensive income, net of tax,
in our consolidated balance sheet. There was no impact to
interest expense for the
49
year ended December 31, 2010 as the interest rate swap does
not hedge interest rate cash flows until the period beginning
April 18, 2011. We have designated this interest rate swap
as a cash flow hedge.
We also, through our acquisition of the PCB Subsidiaries,
assumed a long term pay-fixed, receive floating
(1-month
LIBOR), amortizing interest rate swap arrangement with an
initial notional amount of $40.0 million, for the period
beginning October 8, 2008 and ending on July 30, 2012.
The notional amount of the interest rate swap amortizes to zero
over its term, consistent with our risk management objectives.
The notional value underlying the hedge at December 31,
2010 was $40.0 million. Under the terms of the interest
rate swap, we will pay a fixed rate of 3.43% and will receive
floating
1-month
LIBOR during the swap period. As the borrowings attributable to
this interest rate swap were paid off upon acquisition, we did
not designate this interest rate swap as a cash flow hedge. As
of December 31, 2010, the fair value of the swap was
recorded as a liability of $1.2 million in other long-term
liabilities. The change in fair value of this interest rate swap
is recorded as other, net in the consolidated statement of
operations.
As of December 31, 2010, approximately 39% of our long term
debt was based on fixed rates, including notional amounts
related to interest rate swaps. Based on our borrowings as of
December 31, 2010, an assumed 1% change in variable rates
would cause our annual interest cost to change by
$3.4 million.
Foreign
currency risks
We are subject to risks associated with transactions that are
denominated in currencies other than our functional currencies,
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 Asia Pacific operations utilize the
Chinese Renminbi or RMB, and the Hong Kong Dollar or HKD, as the
functional currency, which results in the Company recording a
translation adjustment that is included as a component of
accumulated other comprehensive income. The Company does not
generally engage in hedging to manage foreign currency risk
related to its revenue and expenses denominated in RMB and HKD.
We enter into foreign currency forward contracts to mitigate the
impact of changes in foreign currency exchange rates and to
reduce the volatility of purchases and other obligations
generated in currencies other than the functional currencies.
Our foreign subsidiaries may at times purchase forward exchange
contracts to manage their foreign currency risk in relation to
particular purchases or obligations, such as the related party
financing obligation arising from the put call option to
purchase the remaining 20% of a majority owned subsidiary in
2013, and certain purchases of machinery denominated in foreign
currencies other than our foreign functional currency. The
notional amount of the foreign exchange contracts at
December 31, 2010 was approximately $36.3 million. We
did not have any foreign exchange contracts as of
December 31, 2009. We have designated certain of these
foreign exchange contracts as cash flow hedges, with the
exception of the foreign exchange contracts in relation to the
related party financing obligation. In this instance, the hedged
item is a recognized liability subject to foreign currency
transaction gains and losses and therefore, changes in the
hedged item due to foreign currency exchange rates are already
recorded in earnings. Therefore, hedge accounting has not been
applied.
50
The table below presents information about certain of the
foreign currency forward contracts at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
Average Contract
|
|
|
|
Notional
|
|
|
Rate or Strike
|
|
|
|
Amount
|
|
|
Amount
|
|
|
|
(In thousands in USD)
|
|
|
Receive foreign currency/pay USD
|
|
|
|
|
|
|
|
|
Euro
|
|
$
|
31,685
|
|
|
|
1.32
|
|
Japanese Yen
|
|
|
4,581
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value, net asset
|
|
$
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Instruments
The table below presents information about certain of our debt
instruments (bank borrowings) as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Market
|
|
|
Average
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Interest Rate
|
|
|
|
(In thousands)
|
|
|
Variable Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
|
$
|
56,504
|
|
|
$
|
117,005
|
|
|
$
|
192,504
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
366,021
|
|
|
$
|
356,401
|
|
|
|
2.23
|
%
|
RMB
|
|
|
10,619
|
|
|
|
3,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,411
|
|
|
|
14,411
|
|
|
|
5.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Variable Rate
|
|
|
67,123
|
|
|
|
120,797
|
|
|
|
192,504
|
|
|
|
4
|
|
|
|
4
|
|
|
|
380,432
|
|
|
|
370,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
207,508
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
207,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67,123
|
|
|
$
|
120,797
|
|
|
$
|
192,504
|
|
|
$
|
4
|
|
|
$
|
175,004
|
|
|
$
|
555,432
|
|
|
$
|
578,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swap Contracts
The table below presents information regarding our interest rate
swaps as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2012
|
|
2013
|
|
Fair Market Value
|
|
Average interest payout rate
|
|
|
2.72
|
%
|
|
|
2.59
|
%
|
|
|
2.50
|
%
|
|
|
|
|
Interest payout amount
|
|
|
(3,366
|
)
|
|
|
(3,155
|
)
|
|
|
(676
|
)
|
|
|
|
|
Average interest received rate
|
|
|
0.26
|
%
|
|
|
0.26
|
%
|
|
|
0.26
|
%
|
|
|
|
|
Interest received amount
|
|
|
321
|
|
|
|
319
|
|
|
|
70
|
|
|
|
|
|
Fair value loss at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,627
|
)
|
51
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
We use a 13-week fiscal quarter accounting period with the first
quarter ending on the Monday closest to and proceeding April 1
and the fourth quarter always ending on December 31. The
first and fourth quarters of 2010 contained 88 and 95 days,
respectively, and for 2009, the first and fourth quarters
contained 89 and 94 days, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except per share data)
|
|
Year Ended December 31, 2010: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
138,219
|
|
|
$
|
310,248
|
|
|
$
|
357,813
|
|
|
$
|
373,391
|
|
Gross profit
|
|
|
26,973
|
|
|
|
57,094
|
|
|
|
80,335
|
|
|
|
90,003
|
|
Income before income taxes
|
|
|
7,079
|
|
|
|
11,126
|
|
|
|
41,584
|
|
|
|
48,848
|
|
Net income
|
|
|
4,485
|
|
|
|
6,740
|
|
|
|
32,145
|
|
|
|
36,529
|
|
Net income attributable to TTM Technologies, Inc. stockholders
|
|
|
4,485
|
|
|
|
4,929
|
|
|
|
29,091
|
|
|
|
33,026
|
|
Earnings per share attributable to TTM Technologies, Inc.
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.06
|
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
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
|
)(b)
|
|
|
4,254
|
|
Net income (loss)
|
|
|
1,427
|
|
|
|
5,948
|
|
|
|
(4,885
|
)
|
|
|
2,367
|
|
Net income (loss) attributable to TTM Technologies, Inc.
stockholders
|
|
|
1,427
|
|
|
|
5,948
|
|
|
|
(4,885
|
)
|
|
|
2,367
|
|
Earnings (loss) per share attributable to TTM Technologies, Inc.
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.05
|
|
|
|
|
(a) |
|
Our results for the quarters include the activity of PCB
Subsidiaries, which we acquired on April 8, 2010. |
|
(b) |
|
Includes restructuring charges of $2.5 million and
long-lived asset impairment charges of $10.3 million. |
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
52
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as
defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of December 31, 2010. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer, including
management, concluded that, as of December 31, 2010, such
disclosure controls and procedures were effective in ensuring
that information required to be disclosed by us in reports that
we file and submit under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms and
(ii) accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure.
Managements
Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such item
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f)).
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 (GAAP). Internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and
that our receipts and expenditures are being made only in
accordance with authorizations of management and the board of
directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect
on our financial statements.
Under the supervision of and with the participation of our Chief
Executive Officer and Chief Financial Officer, management
conducted its 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 its evaluation, management concluded that
our internal control over financial reporting was effective as
of December 31, 2010.
The Company acquired the PCB Subsidiaries during April 2010.
Management excluded from its evaluation of the effectiveness of
our internal control over financial reporting as of
December 31, 2010 the acquired entitys internal
control over financial reporting associated with total assets of
$1.3 billion and total net sales of $597.8 million
included in the consolidated financial statements of the Company
as of and for the year ended December 31, 2010.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 has been audited by the
independent registered public accounting firm engaged to audit
our 2010 financial statements, KPMG LLP, as stated in their
report which appears under the heading Report of
Independent Registered Public Accounting Firm on
page 60 of this report.
Inherent
Limitations on Effectiveness of Controls
Management, including our Chief Executive Officer and Chief
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.
53
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.
Changes
in Internal Control Over Financial Reporting
As a result of the acquisition of the PCB Subsidiaries in April
2010, we began implementing internal controls over financial
reporting to include consolidation of the PCB Subsidiaries, as
well as acquisition-related accounting and disclosures. The
integration of the PCB Subsidiaries represents a material change
in our internal control over financial reporting. Management
continues to be engaged in substantial efforts to evaluate the
effectiveness of our internal control procedures and the design
of those control procedures relating to the acquisition of the
PCB Subsidiaries with the plan to complete and report its
evaluation of the PCB Subsidiaries internal control over
financial reporting by December 31, 2011.
There have been no other changes in our internal control over
financial reporting during the quarter ended December 31,
2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
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 2011 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 2011 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 2011 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 2011 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 2011 Annual
Meeting of Stockholders.
54
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements
(1) Financial Statements are listed in the Index to
Financial Statements on page 59 of this Report.
|
|
|
|
(2)
|
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.
|
(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)
|
|
3
|
.1
|
|
Registrants Certificate of Incorporation(2)
|
|
3
|
.2
|
|
Registrants Fourth Amended and Restated Bylaws(3)
|
|
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(2)
|
|
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.(4)
|
|
4
|
.5
|
|
Registration Rights Agreement, dated as of April 9, 2010,
by and among Tang Hsiang Chien, Su Sih (BVI) Limited, and the
Registrant(5)
|
|
4
|
.6
|
|
Shareholders Agreement, dated as of April 9, 2010, by and
among Meadville Holdings Limited; Su Sih (BVI) Limited; Tang
Hsiang Chien; Tang Chung Yen, Tom; Tang Ying Ming, Mai; and the
Registrant(5)
|
|
10
|
.1
|
|
Call Option Transaction Confirmation, dated as of May 8,
2008, between the Registrant and JPMorgan Chase Bank, National
Association(1)
|
|
10
|
.2
|
|
Warrant Transaction Confirmation, dated as of May 8, 2008,
between the Registrant and JPMorgan Chase Bank, National
Association(1)
|
|
10
|
.3
|
|
Call Option Transaction Confirmation, dated as of May 8,
2008, between the Registrant and UBS AG(1)
|
|
10
|
.4
|
|
Warrant Transaction Confirmation, dated as of May 8, 2008,
between the Registrant and UBS AG(1)
|
|
10
|
.5
|
|
Call Option Transaction Confirmation, dated as of May 16,
2008, between the Registrant and JPMorgan Chase Bank, National
Association(6)
|
|
10
|
.6
|
|
Warrant Transaction Confirmation, dated as of May 16, 2008,
between the Registrant and JPMorgan Chase Bank, National
Association(6)
|
|
10
|
.7
|
|
Call Option Transaction Confirmation, dated as of May 16,
2008, between the Registrant and UBS AG(6)
|
|
10
|
.8
|
|
Warrant Transaction Confirmation, dated as of May 16, 2008,
between the Registrant and UBS AG(6)
|
|
10
|
.9
|
|
Restated Employment Agreement, dated as of March 19, 2010,
between the Registrant and Kenton K. Alder(7)
|
|
10
|
.10
|
|
Reserved
|
|
10
|
.11
|
|
Reserved
|
|
10
|
.12
|
|
2006 Incentive Compensation Plan(8)
|
55
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibits
|
|
|
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(9)
|
|
10
|
.16
|
|
Stock Purchase Agreement, dated November 16, 2009, by and
among Meadville Holdings Limited, MTG Investment (BVI) Limited,
the Registrant, TTM Technologies International, Inc., and TTM
Hong Kong Limited(10)
|
|
10
|
.17
|
|
Form of Executive Change in Control Severance Agreement(7)
|
|
10
|
.18
|
|
Form of Performance-Based Restricted Unit Award Agreement(11)
|
|
10
|
.19
|
|
Reserved
|
|
10
|
.20
|
|
Reserved
|
|
10
|
.21
|
|
Credit Agreement, dated November 16, 2009, as amended on
March 30, 2010 and further amended on August 3, 2010,
by and among certain PCB Subsidiaries, the Lenders, and the
other parties named therein(12)
|
|
10
|
.22
|
|
Waiver and Amendment Letter with The Hongkong and Shanghai
Banking Corporation Limited, dated August 3, 2010(12)
|
|
10
|
.23
|
|
Special Security Agreement(13)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant(14)
|
|
23
|
.1
|
|
Consent of KPMG LLP, independent registered public accounting
firm(14)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer(14)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer(14)
|
|
32
|
.1
|
|
Certification of Chief Executive Officer(14)
|
|
32
|
.2
|
|
Certification of Chief Financial Officer(14)
|
|
|
|
(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 Registrants
Form 8-K
as filed with the Commission on August 30, 2005. |
|
(3) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on March 2, 2011. |
|
(4) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on December 23, 2009. |
|
(5) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on April 13, 2010. |
|
(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 8-K
as filed with the Commission on March 24, 2010. |
|
(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 June 2, 2010. |
|
(10) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on November 16, 2009. |
|
(11) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on March 30, 2010. |
|
(12) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on August 5, 2010. |
|
(13) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on October 22, 2010. |
|
(14) |
|
Filed herewith. |
56
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, 2011
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, 2011
|
|
|
|
|
|
/s/ STEVEN
W. RICHARDS
Steven
W. Richards
|
|
Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 15, 2011
|
|
|
|
|
|
/s/ ROBERT
E. KLATELL
Robert
E. Klatell
|
|
Chairman of the Board
|
|
March 15, 2011
|
|
|
|
|
|
/s/ JAMES
K. BASS
James
K. Bass
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ RICHARD
P. BECK
Richard
P. Beck
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ THOMAS
T. EDMAN
Thomas
T. Edman
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ PHILIP
G. FRANKLIN
Philip
G. Franklin
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ JACQUES
S. GANSLER
Jacques
S. Gansler
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ RONALD
W. IVERSON
Ronald
W. Iverson
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ JOHN
G. MAYER
John
G. Mayer
|
|
Director
|
|
March 15, 2011
|
57
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ TANG
CHUNG YEN, TOM
Tang
Chung Yen, Tom
|
|
Director
|
|
March 15, 2011
|
|
|
|
|
|
/s/ DOV
S. ZAKHEIM
Dov
S. Zakheim
|
|
Director
|
|
March 15, 2011
|
58
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, 2010, 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, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
The Company acquired the PCB subsidiaries from Meadville
Holdings Limited (PCB Subsidiaries) during 2010, and management
excluded from its assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2010, the acquired PCB Subsidiaries internal
control over financial reporting associated with total assets of
$1.3 billion and total revenues of $597.8 million
included in the consolidated financial statements of the Company
and subsidiaries as of and for the year ended December 31,
2010. Our audit of internal control over financial reporting of
the Company also excluded an evaluation of the internal control
over financial reporting of the acquired PCB Subsidiaries.
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 and subsidiaries as
of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss),
60
and cash flows for each of the years in the three-year period
ended December 31, 2010, and our report dated
March 15, 2011 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Salt Lake City, Utah
March 15, 2011
61
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, 2010 and 2009, 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, 2010.
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 and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
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, 2010, 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, 2011
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
/s/ KPMG LLP
Salt Lake City, Utah
March 15, 2011
62
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
216,078
|
|
|
$
|
94,347
|
|
Short-term investments
|
|
|
|
|
|
|
1,351
|
|
Restricted cash
|
|
|
|
|
|
|
120,000
|
|
Accounts and notes receivable, net
|
|
|
287,703
|
|
|
|
89,519
|
|
Inventories
|
|
|
135,385
|
|
|
|
60,153
|
|
Prepaid expenses and other current assets
|
|
|
30,125
|
|
|
|
10,544
|
|
Deferred income taxes
|
|
|
7,208
|
|
|
|
6,645
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
676,499
|
|
|
|
382,559
|
|
Property, plant and equipment, net
|
|
|
740,630
|
|
|
|
88,577
|
|
Deferred income taxes
|
|
|
23,733
|
|
|
|
37,430
|
|
Goodwill
|
|
|
197,808
|
|
|
|
14,130
|
|
Definite-lived intangibles, net
|
|
|
97,873
|
|
|
|
15,111
|
|
Deposits and other non-current assets
|
|
|
25,409
|
|
|
|
5,251
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,761,952
|
|
|
$
|
543,058
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
67,123
|
|
|
$
|
|
|
Accounts payable
|
|
|
154,600
|
|
|
|
37,867
|
|
Accounts payable due to related parties
|
|
|
50,374
|
|
|
|
|
|
Accrued salaries, wages and benefits
|
|
|
51,107
|
|
|
|
19,253
|
|
Equipment payable
|
|
|
59,802
|
|
|
|
|
|
Other accrued expenses
|
|
|
35,194
|
|
|
|
2,327
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
418,200
|
|
|
|
59,447
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes, net of discount
|
|
|
145,283
|
|
|
|
139,882
|
|
Long-term debt, net of discount
|
|
|
312,995
|
|
|
|
|
|
Deferred income taxes
|
|
|
12,608
|
|
|
|
|
|
Related party financing obligation
|
|
|
20,399
|
|
|
|
|
|
Other long-term liabilities
|
|
|
19,609
|
|
|
|
2,812
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
510,894
|
|
|
|
142,694
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
TTM Technologies, Inc. stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000 shares
authorized, 80,262 and 43,181 shares issued and outstanding
in 2010 and 2009, respectively
|
|
|
80
|
|
|
|
43
|
|
Additional paid-in capital
|
|
|
519,051
|
|
|
|
215,461
|
|
Retained earnings
|
|
|
193,814
|
|
|
|
122,283
|
|
Accumulated other comprehensive income
|
|
|
15,310
|
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
Total TTM Technologies, Inc. stockholders equity
|
|
|
728,255
|
|
|
|
340,917
|
|
Noncontrolling interest
|
|
|
104,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
832,858
|
|
|
|
340,917
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,761,952
|
|
|
$
|
543,058
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
63
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
1,179,671
|
|
|
$
|
582,476
|
|
|
$
|
680,981
|
|
Cost of goods sold
|
|
|
925,266
|
|
|
|
479,267
|
|
|
|
543,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
254,405
|
|
|
|
103,209
|
|
|
|
137,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
34,345
|
|
|
|
26,517
|
|
|
|
30,436
|
|
General and administrative
|
|
|
79,668
|
|
|
|
36,548
|
|
|
|
33,255
|
|
Amortization of definite-lived intangibles
|
|
|
13,678
|
|
|
|
3,440
|
|
|
|
3,799
|
|
Restructuring charges
|
|
|
389
|
|
|
|
5,490
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
766
|
|
|
|
12,761
|
|
|
|
123,322
|
|
Metal reclamation
|
|
|
|
|
|
|
|
|
|
|
(3,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
128,846
|
|
|
|
84,756
|
|
|
|
187,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
125,559
|
|
|
|
18,453
|
|
|
|
(49,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(22,255
|
)
|
|
|
(11,198
|
)
|
|
|
(11,065
|
)
|
Other, net
|
|
|
5,333
|
|
|
|
868
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(16,922
|
)
|
|
|
(10,330
|
)
|
|
|
(11,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
108,637
|
|
|
|
8,123
|
|
|
|
(61,371
|
)
|
Income tax (provision) benefit
|
|
|
(28,738
|
)
|
|
|
(3,266
|
)
|
|
|
24,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
79,899
|
|
|
|
4,857
|
|
|
|
(36,911
|
)
|
Less: Net income attributable to the noncontrolling interest
|
|
|
(8,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to TTM Technologies, Inc.
stockholders
|
|
$
|
71,531
|
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to TTM Technologies, Inc.
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.02
|
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
1.01
|
|
|
$
|
0.11
|
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
64
TTM
TECHNOLOGIES, INC.
For the
Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total TTM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Technologies, Inc
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2007
|
|
|
42,380
|
|
|
$
|
42
|
|
|
$
|
173,365
|
|
|
$
|
154,337
|
|
|
$
|
850
|
|
|
$
|
328,594
|
|
|
$
|
|
|
|
$
|
328,594
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,911
|
)
|
|
|
|
|
|
|
(36,911
|
)
|
|
|
|
|
|
|
(36,911
|
)
|
Foreign currency translation adjustment, net of tax expense of
$982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672
|
|
|
|
1,672
|
|
|
|
|
|
|
|
1,672
|
|
Unrealized loss on effective cash flow hedges, net of tax
benefit of $64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
(108
|
)
|
Reclassification of realized losses on cash flow hedges net of
tax of $442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752
|
|
|
|
752
|
|
|
|
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,595
|
)
|
|
|
|
|
|
|
|
|
Convertible senior note embedded conversion option, net of tax
of $15,907
|
|
|
|
|
|
|
|
|
|
|
25,680
|
|
|
|
|
|
|
|
|
|
|
|
25,680
|
|
|
|
|
|
|
|
25,680
|
|
Purchase of convertible note hedge, net of tax benefit of $14,633
|
|
|
|
|
|
|
|
|
|
|
(23,624
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,624
|
)
|
|
|
|
|
|
|
(23,624
|
)
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
|
|
26,197
|
|
Exercise of stock options
|
|
|
277
|
|
|
|
1
|
|
|
|
2,394
|
|
|
|
|
|
|
|
|
|
|
|
2,395
|
|
|
|
|
|
|
|
2,395
|
|
Excess tax benefits from stock awards exercised or released
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
313
|
|
Issuance of common stock for restricted stock units
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
42,811
|
|
|
|
43
|
|
|
|
209,401
|
|
|
|
117,426
|
|
|
|
3,166
|
|
|
|
330,036
|
|
|
|
|
|
|
|
330,036
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,857
|
|
|
|
|
|
|
|
4,857
|
|
|
|
|
|
|
|
4,857
|
|
Foreign currency translation adjustment, net of tax benefit of
$22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,821
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
59
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
416
|
|
Tax shortfall from stock awards exercised or released
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
|
|
(621
|
)
|
Issuance of common stock for restricted stock units
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
|
6,265
|
|
|
|
|
|
|
|
6,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
43,181
|
|
|
|
43
|
|
|
|
215,461
|
|
|
|
122,283
|
|
|
|
3,130
|
|
|
|
340,917
|
|
|
|
|
|
|
|
340,917
|
|
Acquisition of PCB Subsidiaries
|
|
|
36,334
|
|
|
|
36
|
|
|
|
294,346
|
|
|
|
|
|
|
|
|
|
|
|
294,382
|
|
|
|
93,478
|
|
|
|
387,860
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,531
|
|
|
|
|
|
|
|
71,531
|
|
|
|
8,368
|
|
|
|
79,899
|
|
Foreign currency translation adjustment, net of tax expense of
$2,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,301
|
|
|
|
15,301
|
|
|
|
2,757
|
|
|
|
18,058
|
|
Unrealized loss on effective cash flow hedges, net of tax
benefit of $564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,121
|
)
|
|
|
(3,121
|
)
|
|
|
|
|
|
|
(3,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,711
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
227
|
|
|
|
|
|
|
|
2,113
|
|
|
|
|
|
|
|
|
|
|
|
2,113
|
|
|
|
|
|
|
|
2,113
|
|
Excess tax benefits from stock awards exercised or released
|
|
|
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
218
|
|
Issuance of common stock for restricted stock units
|
|
|
520
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,913
|
|
|
|
|
|
|
|
|
|
|
|
6,913
|
|
|
|
|
|
|
|
6,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
80,262
|
|
|
$
|
80
|
|
|
$
|
519,051
|
|
|
$
|
193,814
|
|
|
$
|
15,310
|
|
|
$
|
728,255
|
|
|
$
|
104,603
|
|
|
$
|
832,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
65
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
79,899
|
|
|
$
|
4,857
|
|
|
$
|
(36,911
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
48,747
|
|
|
|
19,140
|
|
|
|
21,324
|
|
Amortization of definite-lived intangible assets
|
|
|
13,795
|
|
|
|
3,567
|
|
|
|
3,917
|
|
Amortization of convertible notes, debt discount and debt
issuance costs
|
|
|
6,780
|
|
|
|
5,470
|
|
|
|
5,403
|
|
Non-cash interest imputed on other long-term liabilities and
related party financing obligation
|
|
|
1,084
|
|
|
|
137
|
|
|
|
131
|
|
Income tax benefit from restricted stock units released and
common stock options exercised
|
|
|
(506
|
)
|
|
|
(24
|
)
|
|
|
(210
|
)
|
Deferred income taxes
|
|
|
16,400
|
|
|
|
(4,841
|
)
|
|
|
(38,056
|
)
|
Stock-based compensation
|
|
|
6,913
|
|
|
|
6,265
|
|
|
|
5,076
|
|
Impairment of goodwill and long-lived assets
|
|
|
766
|
|
|
|
12,761
|
|
|
|
123,322
|
|
Unrealized (gain) loss on short-term investments
|
|
|
|
|
|
|
(325
|
)
|
|
|
|
|
Net loss (gain) on sale of property, plant and equipment and
other
|
|
|
437
|
|
|
|
(61
|
)
|
|
|
252
|
|
Net unrealized gain on derivative assets and liabilities
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
Net unrealized foreign currency exchange loss
|
|
|
500
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, net
|
|
|
(79,920
|
)
|
|
|
25,686
|
|
|
|
4,547
|
|
Inventories
|
|
|
(8,830
|
)
|
|
|
10,850
|
|
|
|
(4,854
|
)
|
Prepaid expenses and other current assets
|
|
|
(10,394
|
)
|
|
|
(101
|
)
|
|
|
1,104
|
|
Accounts payable
|
|
|
23,400
|
|
|
|
(9,996
|
)
|
|
|
(5,695
|
)
|
Accrued salaries, wages and benefits and other accrued expenses
|
|
|
27,549
|
|
|
|
592
|
|
|
|
(3,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
125,819
|
|
|
|
73,977
|
|
|
|
75,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of PCB Subsidiaries, net of cash acquired
|
|
|
(28,529
|
)
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment and equipment deposits
|
|
|
(68,489
|
)
|
|
|
(11,507
|
)
|
|
|
(17,789
|
)
|
Proceeds from sale of property, plant and equipment and assets
held for sale
|
|
|
8,623
|
|
|
|
729
|
|
|
|
165
|
|
Restricted cash for future acquisition
|
|
|
|
|
|
|
(120,000
|
)
|
|
|
|
|
Restricted cash released to cash and cash equivalents
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
Redesignation of cash and cash equivalents to short-term
investments
|
|
|
|
|
|
|
|
|
|
|
(19,522
|
)
|
Proceeds from the redemption of short-term investments
|
|
|
1,351
|
|
|
|
2,631
|
|
|
|
15,865
|
|
Purchase of licensing agreement
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
32,956
|
|
|
|
(128,497
|
)
|
|
|
(21,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of assumed long-term debt in acquisition
|
|
|
(387,980
|
)
|
|
|
|
|
|
|
|
|
Proceeds from new long-term borrowings
|
|
|
387,980
|
|
|
|
|
|
|
|
|
|
Net repayment of revolving loan
|
|
|
(37,987
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
2,113
|
|
|
|
416
|
|
|
|
2,394
|
|
Excess tax benefits from stock awards exercised or released
|
|
|
506
|
|
|
|
24
|
|
|
|
210
|
|
Proceeds from issuance of convertible senior notes
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
Principal payments on long-term debt
|
|
|
|
|
|
|
|
|
|
|
(85,000
|
)
|
Proceeds from warrants
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
Payment of convertible note hedge
|
|
|
|
|
|
|
|
|
|
|
(38,257
|
)
|
Payment of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(5,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(35,368
|
)
|
|
|
440
|
|
|
|
74,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
(1,676
|
)
|
|
|
(38
|
)
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
121,731
|
|
|
|
(54,118
|
)
|
|
|
129,784
|
|
Cash and cash equivalents at beginning of year
|
|
|
94,347
|
|
|
|
148,465
|
|
|
|
18,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
216,078
|
|
|
$
|
94,347
|
|
|
$
|
148,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
14,995
|
|
|
$
|
5,699
|
|
|
$
|
6,031
|
|
Cash paid, net for income taxes
|
|
|
15,569
|
|
|
|
3,855
|
|
|
|
15,001
|
|
Supplemental disclosures of noncash investing and financing
activities:
The Company issued common stock and replacement awards with a
fair value of $294,382 in connection with the PCB Subsidiaries
acquisition, (as defined in the accompanying notes.) See
Note 3.
At December 31, 2010, 2009 and 2008 accrued purchases of
equipment totaled $75,397, $586 and $1,470, 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 8.
During 2008, the Company recognized unrealized losses on
derivative instrument of $108, net of tax.
See accompanying notes to consolidated financial statements.
66
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 leading global
provider of time-critical and technologically complex printed
circuit board (PCB) products and backplane assemblies (PCBs
populated with electronic components), which serve as the
foundation of sophisticated electronic products. The Company
provides
time-to-market
and advanced technology products and offers a one-stop
manufacturing solution to customers from engineering support to
prototype development through final volume production. The
Company serves a diversified customer base in various markets
throughout the world, including manufacturers of
networking/communications infrastructure products, personal
computers, touch screen tablets and mobile media devices
(cellular phones and smart phones). The Company also serves
high-end computing, commercial aerospace/defense, and
industrial/medical industries. The Companys customers
include both original equipment manufacturers (OEMs) and
electronic manufacturing services (EMS) providers.
In April 2010, the Company acquired from Meadville Holdings
Limited (Meadville) all of the issued and outstanding capital
stock of four of its subsidiaries. These four companies and
their respective subsidiaries collectively referred to as the
PCB Subsidiaries, comprised Meadvilles PCB manufacturing
and distributing business. See Note 3.
Prior to the Companys acquisition of the PCB Subsidiaries,
the Company had two operating segments, PCB Manufacturing and
Backplane Assembly, consistent with the nature of our
operations. Due to the acquisition, the Company reassessed its
operating segments and now manages its worldwide operations
based on two geographic operating segments: (1) North
America, which consists of seven domestic PCB fabrication
plants, including a facility that provides follow-on value-added
services primarily for one of the PCB fabrication plants, and
one backplane assembly plant in Shanghai, China, which is
managed in conjunction with our U.S. operations and its
related European sales support infrastructure; and
(2) Asia Pacific, which consists of the PCB
Subsidiaries and their seven PCB fabrication plants, which
include a substrate facility. Each segment operates
predominantly in the same industry with production facilities
that produce similar customized products for our customers and
uses similar means of product distribution in their respective
geographic regions.
Certain reclassifications of prior year amounts have been made
to conform to the current year presentation.
|
|
(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; derivative
instruments and hedging activities; asset retirement
obligations; environmental liabilities; legal contingencies;
assumptions used in the calculation of stock-based compensation
and income taxes; establishing the fair value of individual
assets acquired, liabilities assumed, and noncontrolling
interest when the Company acquires other businesses; and 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.
67
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Principles
of Consolidation
The consolidated financial statements include the accounts of
TTM Technologies, Inc. and its subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Foreign
Currency Translation and Transactions
The functional currency of certain of the Companys
subsidiaries is either the Chinese RMB or the Hong Kong Dollar.
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 $3,174, $26 and ($69) for
the years ended December 31, 2010, 2009 and 2008,
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.
Short-term investments are comprised of an investment in The
Reserve Primary Fund (Primary Fund), a money market fund which
has been liquidated as of December 31, 2010. The Company
recorded these investments as trading securities and at fair
value. Unrealized gains and losses on trading securities are
recorded as a component of other, net in the consolidated
statements of operations.
Accounts
and Notes Receivable, Allowance for Doubtful Accounts and
Factoring Arrangements
Accounts
Receivable
Accounts receivable are reflected at estimated net realizable
value, do not bear interest and do not 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.
Additionally, in the normal course of business, the
Companys foreign subsidiaries utilize accounts receivable
factoring arrangements. Under these arrangements, the Company
may sell certain of its accounts receivable to financial
institutions, which are accounted for as a sale, at a discount
ranging from 1% to 2% of the accounts receivable. In all
arrangements there is no recourse against the Company for its
customers failure to pay. The Company sold $49,372 of
accounts receivable for the year ended December 31, 2010.
The Company did not sell any accounts receivable for the years
ended December 31, 2009 and 2008.
68
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Allowance
for Doubtful Accounts
The following summarizes the activity in the Companys
allowance for doubtful accounts for the years ended
December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
1,015
|
|
|
$
|
1,620
|
|
|
$
|
2,023
|
|
Additions charged to expense
|
|
|
852
|
|
|
|
18
|
|
|
|
112
|
|
Deductions
|
|
|
(109
|
)
|
|
|
(623
|
)
|
|
|
(515
|
)
|
Effect of foreign currency exchange rates
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,827
|
|
|
$
|
1,015
|
|
|
$
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Receivable
Notes receivable represent short-term trade notes received from
financial institutions on behalf of certain of the
Companys customers for the sale of PCBs and are reflected
at estimated net realizable value, do not bear interest and do
not generally require collateral. The Company does not maintain
an allowance for doubtful accounts on these trade notes as the
financial institution bears the risk of loss for uncollectibilty.
Additionally, in the normal course of business, the
Companys foreign subsidiaries may sell certain of its
notes receivable at a discount ranging from 1% to 2% of the
notes receivable. The Company sold $78,416, $20,035 and $1,987
for the years ended December 31, 2010, 2009 and 2008,
respectively.
Inventories
Inventories are stated at the lower of cost (determined on a
first-in,
first-out and weighted average basis) or market. Assessments 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. As a
result of the Companys assessments, when the market value
of inventory is less than the carrying value, the inventory cost
is written down to the market value and the write down is
recorded as a charge to cost of goods sold.
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:
|
|
|
|
|
Land use rights
|
|
|
50-99 years
|
|
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 operating income (loss) in the
period incurred. Depreciation and amortization expense on
property, plant and equipment was $48,747, $19,140, and $21,324,
for the years ended December 31, 2010, 2009 and 2008
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 buildings and machinery and
equipment. The Company capitalized interest costs of $1,522,
$287, and $275 during the years ended December 31, 2010,
2009 and 2008, respectively, in connection with various capital
projects.
69
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Major renewals and betterments are capitalized and depreciated
over their estimated useful lives while minor expenditures for
maintenance and repairs are included in operating income (loss)
as incurred.
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. 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 operating segments. In the fourth quarter of
2010, the Company performed its annual impairment test of
goodwill and concluded that goodwill was not impaired. See
Note 8 for information regarding the goodwill impairment
recorded in 2008 as a result of the annual impairment test.
Intangible
Assets
Intangible assets include customer relationships, trade name,
order backlog 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 0.2 years to 15 years.
Amortization expense related to acquired licensing agreements is
classified as a component of 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 regularly
evaluates 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 valuation
techniques, including market and income approaches as considered
necessary.
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 and are a component of prepaid expenses and
other current assets in the consolidated balance sheets.
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. The reserve
for sales returns and allowances is included as a reduction to
accounts receivable, net. Shipping and handling fees and related
freight costs and supplies associated with shipping products to
customers are included as a component of cost of goods sold.
70
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following summarizes the activity in the Companys
allowance for sales returns and allowances for the years ended
December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
2,636
|
|
|
$
|
3,291
|
|
|
$
|
3,681
|
|
Additions charged to expense
|
|
|
11,663
|
|
|
|
3,933
|
|
|
|
4,488
|
|
Deductions
|
|
|
(9,933
|
)
|
|
|
(4,588
|
)
|
|
|
(4,878
|
)
|
Effect of foreign currency exchange rates
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,380
|
|
|
$
|
2,636
|
|
|
$
|
3,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
Compensation
The Company recognizes stock-based compensation expense in its
consolidated financial statements for its incentive compensation
plan awards and its recently acquired foreign employee stock
awards.
The incentive compensation plan awards include performance-based
restricted stock units, restricted stock units, and stock
options and the associated compensation expense is based on the
grant date fair value of the awards, net of estimated
forfeitures. Compensation expense for the incentive compensation
plan awards is recognized on a straight line basis over the
vesting period of the awards. The fair value of
performance-based restricted stock units is estimated on the
grant date using a Monte Carlo simulation 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. 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. The fair value of the
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.
In conjunction with the acquisition of foreign subsidiaries
during the year ended December 31, 2010, existing foreign
employee share awards were replaced with fractional shares of
TTM common stock plus cash. See Notes 3 and 14. The fair
value of the foreign employee share awards was estimated based
on the closing price of TTMs common stock on the effective
date of the acquisition plus cash equivalent in an amount to
have been received by the foreign subsidiaries
shareholders as a dividend after the close of the acquisition,
net of forfeitures. Compensation expense for the foreign
employee share awards is recognized on a straight line basis
over the vesting period of the awards.
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 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 does not provide for U.S. income taxes on
undistributed earnings for its Asia Pacific operating segment as
the foreign earnings will be permanently reinvested in such
foreign jurisdictions.
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 percent likely to be
realized. Changes in recognition or measurement are reflected in
the period in which the change in
71
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 in North America 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 loss on the Companys
self insurance for each program is $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 has accrued $5,617 and $5,212 for self insurance
liabilities at December 31, 2010 and 2009, respectively,
and these amounts are reflected within accrued salaries, wages
and benefits in the consolidated balance sheets.
Group health insurance and workers compensation benefits for the
Companys Asia Pacific region are fully insured.
Derivative
Instruments and Hedging Activities
Derivative financial instruments are recognized as either assets
or liabilities in the consolidated balance sheets at their
respective fair values. As a matter of policy, the Company uses
derivatives for risk management purposes, and the Company does
not use derivatives for speculative purposes.
Derivatives are typically entered into as hedges for changes in
interest rates, currency exchange rates, and other risks. When
the Company determines to designate a derivative instrument as a
cash flow hedge, the Company formally documents 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 also formally assesses, 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.
Fair value of the derivative instruments is determined using
pricing models developed based on the underlying swap interest
rate, foreign currency exchange rates, and other observable
market data as appropriate. The values are also adjusted to
reflect nonperformance risk of both the counterparty and the
Company. For derivatives that are designated as a cash flow
hedge, changes in the fair value of the derivative are
recognized in accumulated other comprehensive income, to the
extent the derivative is effective at offsetting the changes in
cash flow being hedged until the hedged item affects earnings.
To the extent there is any hedge ineffectiveness, changes in
fair value relating to the ineffective portion are immediately
recognized in earnings. Changes in the fair value of derivatives
that are not designated as hedges are recorded in earnings each
period.
Value
Added and Sales Tax Collected from Customers
As a part of the Companys normal course of business, value
added and sales taxes are collected from customers. Such 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
value added and sales taxes.
Fair
Value Measures
The Company measures at fair value its financial and
non-financial assets by using a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value. 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
72
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
measurement date, essentially an exit price, based on the
highest and best use of the asset or liability. 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. Accretion expense is recorded as a
component of general and administrative expense in the
consolidated statement of operations.
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 attributable to TTM
Technologies, Inc. stockholders 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.
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
hedged 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.
73
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Recently
Issued Accounting Standards
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.
|
|
(3)
|
Acquisition
of PCB Subsidiaries
|
On the evening of April 8, 2010 (in the morning of
April 9, 2010, Hong Kong time), the Company acquired from
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, all of the issued and outstanding capital stock of
four wholly owned subsidiaries of MTG. These four companies,
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. Subsequent to the acquisition, these four
companies and their subsidiaries (together, the PCB
Subsidiaries) are subsidiaries of the Company and represent the
Asia Pacific operating segment of the Company.
The Company purchased the PCB Subsidiaries for a total
consideration of $114,034 in cash and 36,334 shares of TTM
common stock, of which approximately 26,225 are subject to
restrictions. After taking into account the 36,334 shares
of TTM common stock issued in the acquisition and based on the
number of shares outstanding on April 8, 2010, the date the
Company acquired the PCB Subsidiaries, approximately 45% of TTM
common stock outstanding was held by Meadville, its
shareholders, or their transferees.
Bank fees and legal and accounting costs associated with the
acquisition of the PCB Subsidiaries of $9,170 and $5,383 for the
years ended December 31, 2010 and 2009, respectively, have
been expensed and recorded as general and administrative expense
in the consolidated statement of operations in accordance with
ASC Topic 805, Business Combinations.
As part of the consideration for the purchase of all of the
outstanding capital stock of the PCB Subsidiaries as described
above, the Company was required to maintain approximately
$120,000 in cash and cash equivalents in various accounts, which
were restricted in nature and therefore recorded as restricted
cash in the consolidated balance sheet as of December 31,
2009.
The following summarizes the components of the PCB Subsidiaries
purchase price:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Value of TTM shares issued:
|
|
|
|
|
TTM shares issued with restrictions
|
|
$
|
201,959
|
|
TTM shares issued without restrictions
|
|
|
89,965
|
|
Foreign employee replacement share awards
|
|
|
2,458
|
|
|
|
|
|
|
|
|
|
294,382
|
|
Cash consideration
|
|
|
114,034
|
|
|
|
|
|
|
Total
|
|
$
|
408,416
|
|
|
|
|
|
|
74
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The value of the shares of the Companys common stock used
in determining the purchase price was $9.06 per share, the
closing price of the Companys common stock on
April 8, 2010, the effective date of the acquisition.
Additionally, approximately 26,225 of the Companys shares
issued and subsequently distributed to the principal
shareholders in the acquisition of the PCB Subsidiaries maintain
certain restrictions, including a
lock-up
transfer restriction during the
18-month
period following the closing of the acquisition of the PCB
Subsidiaries and therefore, the fair value of these shares has
been determined considering the restrictions, resulting in a
discount of 15% from the closing share price.
The foreign employee share awards were granted to certain
employees involved in the PCB Subsidiaries business by a related
party which was previously owned by the controlling shareholder
of the PCB Subsidiaries before the Companys acquisition of
the PCB Subsidiaries. The fair value of the share awards
included as purchase consideration was determined using a $9.06
per share price plus cash prorated for the pre-combination
service period. See Note 14.
The purchase price of the PCB Subsidiaries was allocated to
tangible and intangible assets acquired, liabilities assumed and
noncontrolling interests based on their estimated fair value at
the date of the acquisition (April 8, 2010). The excess of
the purchase price over the fair value of net assets acquired
and noncontrolling interests was allocated to goodwill.
The fair values assigned are based on reasonable methods
applicable to the nature of the assets acquired, liabilities
assumed and noncontrolling interests. The following summarizes
the final estimated fair values of net assets acquired and
noncontrolling interests:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
85,505
|
|
Accounts and notes receivables ($139,398 contractual gross
receivables)
|
|
|
131,844
|
|
Inventories
|
|
|
66,150
|
|
Other current assets
|
|
|
12,762
|
|
Property, plant, and equipment
|
|
|
567,985
|
|
Identifiable intangible assets
|
|
|
96,588
|
|
Goodwill
|
|
|
183,267
|
|
Other assets
|
|
|
15,133
|
|
Current liabilities
|
|
|
(196,866
|
)
|
Long-term debt, net of discount
|
|
|
(417,414
|
)
|
Related party financing obligation
|
|
|
(19,381
|
)
|
Other liabilities
|
|
|
(23,679
|
)
|
Noncontrolling interest
|
|
|
(93,478
|
)
|
|
|
|
|
|
Total
|
|
$
|
408,416
|
|
|
|
|
|
|
As of December 31, 2010, the purchase price allocation had
been finalized.
Equipment
payables
Equipment payables represent equipment purchases, some with
extended payment terms. Equipment purchases with payment terms
less than one year are reported as Equipment payables in the
consolidated balance sheet and those with payment terms greater
than one year are included in Other long-term liabilities in the
consolidated balance sheet.
75
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Property,
plant and equipment
The fair value of property, plant and equipment was determined
by utilizing three approaches: the cost, sales comparison, and
income capitalization approaches combined with management
assumptions. Each approach assumes valuation of the property at
the propertys highest and best use.
Long-term
debt, net of discount
On the acquisition date, the Company became a party to the PCB
Subsidiaries November 16, 2009 Credit Agreement with
various lenders. The credit agreement was put in place in
contemplation of the acquisition in order to refinance existing
credit facilities consisting of a term and revolving loan and
factoring and letter of credit facilities. The amount drawn
under this credit agreement to refinance and extinguish the
existing credit facilities was approximately $388,000 after the
completion of the acquisition of the PCB Subsidiaries. The fair
value of existing debt assumed was based on its contractual
provisions that required it to be repaid upon a change in
control.
Additionally, certain bank loans maintained by the PCB
Subsidiaries within the Peoples Republic of China (PRC)
were kept in place after the Companys completion of the
acquisition of the PCB Subsidiaries. The amount drawn under
these lines as of the acquisition date amounted to approximately
$30,000. The Company determined the fair value of the assumed
debt using a present value analysis based on market rates of
LIBOR plus spread for the debt.
Related
party financing obligation
The related party financing obligation consists of a put and
call option agreement which grants the noncontrolling interest a
put option to sell, and to one of the PCB Subsidiaries a call
option to purchase, the remaining 20% equity interest in one of
its majority owned subsidiaries. The exercise price of the put
option is the greater of (i) an enterprise value
calculation, which uses earnings before interest and taxes,
depreciation and amortization projections on the extrapolation
of the latest unaudited combined financial results of the
majority owned subsidiary to a four-year period and an
enterprise value multiplier of 5.5 times, or (ii) the net
asset value based on the extrapolation of the latest unaudited
combined financial results of the majority owned subsidiary as
at end of the fiscal year 2012; or (iii) the minimum price
of approximately 15,384 EUR plus interest which will accrue at a
rate of 2.5% compounded annually until the option is exercised.
Fair value as of the acquisition date of the financial liability
was based upon the minimum price as the other two scenarios were
determined to be nonsubstantive due to the challenging current
and expected future operations of the subsidiary. As the minimum
price represents a fixed obligation, the noncontrolling interest
was accounted for as a financing obligation rather than a
noncontrolling interest and 100% of the subsidiary is
consolidated. The fair value of the related party financial
liability was estimated based on the minimum price of the
obligation plus 2.5% interest discounted at the liabilitys
discount rate based on the Companys adjusted cost of
borrowing as of the acquisition date.
Noncontrolling
Interest
Noncontrolling interests consist of a 29.8% equity interest in
one PCB manufacturing subsidiary and a 20.0% equity interest in
one other PCB manufacturing subsidiary held by third parties.
The fair value was determined by utilizing a combination of
income and market comparable approaches. The income approach was
used to estimate the total enterprise value of each
noncontrolling interest by estimating discounted future cash
flows. The market comparable approach indicates the fair value
of the noncontrolling interest based on a comparison to
comparable enterprises in similar lines of business that are
publicly traded or are part of a public or private transaction.
76
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Identifiable
Intangible Assets
Acquired identifiable intangible assets include customer
relationships, trade name and order backlog. The fair value of
the identifiable intangible assets was determined using various
income approach methods, including excess earnings and relief
from royalties, as appropriate to determine the present value of
expected future cash flows for each identifiable intangible
asset based on discount rates which incorporate a risk premium
to take into account the risks inherent in those expected cash
flows. The expected cash flows were estimated using available
historical data adjusted based on the Companys historical
experience and the expectations of market participants. The
amounts assigned to each class of intangible assets and the
related weighted average amortization periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
Intangible Asset
|
|
|
Weighted-Average
|
|
|
|
Acquired
|
|
|
Amortization Period
|
|
|
|
(In thousands)
|
|
|
|
|
|
Customer relationships
|
|
$
|
84,998
|
|
|
|
8.0 years
|
|
Trade name
|
|
|
10,302
|
|
|
|
6.0 years
|
|
Order backlog
|
|
|
1,288
|
|
|
|
0.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Goodwill represents the excess of the PCB Subsidiaries purchase
price over the fair value of assets acquired, liabilities
assumed and noncontrolling interests. During the year ended
December 31, 2010, goodwill was adjusted to reflect:
|
|
|
|
|
a decrease in fair value of inventory by $358 as a result of
additional information received regarding the existence of
certain inventory;
|
|
|
|
a decrease in noncontrolling interests by $12,630 resulting from
the completion of the valuation for the noncontrolling interests;
|
|
|
|
a decrease in property, plant and equipment by $11,543 due to
the identification of an asset held for sale and the completion
of the valuation of certain property acquired;
|
|
|
|
a decrease in the related party financing obligation by $1,156
resulting from the completion of its valuation;
|
|
|
|
an increase in other current assets by $1,006 and other assets
by $2,326 due to completion of the compilation of deferred tax
assets and reclassification of non current deferred taxes of
$7,671 from other assets to other liabilities;
|
|
|
|
an increase in current liabilities of $914 and other liabilities
of $2,498 related to other lease obligations and non current
deferred tax liabilities, the reclassification of certain
equipment payables of approximately $7,936 to current
liabilities due to the short-term nature of these
obligations; and
|
|
|
|
an increase in identifiable intangible assets of $9,023 due to
completion of the valuation of such assets.
|
During the fourth quarter, the Company recorded a reduction in
the value of a partially idle facility and equipment to the
estimated fair values. As a result, the Company has finalized
the accounting for property, plant and equipment. As a direct
result of the change in property, plant and equipment,
additional changes in the fair values for intangible assets,
deferred income taxes and noncontrolling interests were required
to be revised as such fair values include the fair value of
property, plant and equipment as an input.
Goodwill represents the excess of the PCB Subsidiaries purchase
price over the fair value of assets acquired, liabilities
assumed and noncontrolling interests. Prior to the
Companys acquisition of the PCB Subsidiaries, the Company
had two operating segments, PCB Manufacturing and Backplane
Assembly, consistent with the nature of its operations. Due to
the acquisition, the Company has reassessed its operating
segments and determined that it has two operating segments based
primarily on geographical location of operations, North America
and Asia Pacific.
77
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The PCB Subsidiaries excess purchase price over the fair
value of assets acquired, liabilities assumed and noncontrolling
interests has been appropriately allocated to the Asia Pacific
operating segment.
The Company believes that the acquisition of the PCB
Subsidiaries produced the following significant benefits:
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Create a Leading Global PCB Company. The
combination of the Company and the PCB Subsidiaries has created
a leading global PCB company with high-technology capabilities
and highly diversified revenue mix by geographic region and end
market. Additionally, the combination resulted in a one-stop
global solution from quick-turn through volume production and a
focused facility specialization strategy.
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Increased Market Presence and
Opportunities. The combination of the Company and
the PCB Subsidiaries has created an opportunity to capture
additional business globally from both existing and new
customers, particularly in North America and Europe.
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Operating Efficiencies. The combination of the
Company and the PCB Subsidiaries has also provided the
opportunity for potential economies of scale, cost savings and
access to a highly trained PCB Subsidiaries workforce, resulting
from a global sales force and manufacturing platform;
complementary footprints, customers and end markets; and
talented management teams with leading expertise in the Asian
market.
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The Company believes that these primary factors support the
amount of goodwill recognized as a result of the purchase price
paid for the PCB Subsidiaries, in relation to other acquired
tangible and intangible assets. The goodwill acquired in the
acquisition is not deductible for income tax purposes.
Results
of Operations
Included in the consolidated statement of operations are net
sales of $597,842 and net income of $58,586 for the year ended
December 31, 2010 from the PCB Subsidiaries
operations.
Pro
forma Results of Operations
Unaudited pro forma operating results for the Company, assuming
the acquisition of the PCB Subsidiaries occurred on
January 1, 2010 and 2009 are as follows:
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For the Year Ended December 31,
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2010
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2009
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(In thousands, except per share data)
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Net sales
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$
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1,363,289
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$
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1,206,411
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Net income
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$
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78,210
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$
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24,205
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Basic earnings per share
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$
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0.98
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$
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0.30
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Dilutive earnings per share
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$
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0.97
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$
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0.30
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The pro forma information is not necessarily indicative of the
actual results that would have been achieved had the PCB
Subsidiaries acquisition occurred as of January 1, 2010 and
2009, or the results that may be achieved in future periods.
78
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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(4)
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Composition
of Certain Consolidated Financial Statement Captions
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December 31,
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2010
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2009
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(In thousands)
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