e10vk
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, 2007
Commission file number 0-31285
TTM
TECHNOLOGIES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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91-1033443
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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2630 South Harbor Boulevard,
Santa Ana, California
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92704
(Zip Code)
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(Address of Principal Executive
Offices)
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(714) 327-3000
(Registrants telephone
number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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Nasdaq Global Select Market
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Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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, or a non-accelerated
filer or a small reporting company. See the definitions of
large accelerated filer, accelerated
filer and small reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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 nonaffiliates
of the registrant 42,123,321 based on the closing price of the
registrants Common Stock as reported on the Nasdaq Global
Select Market on June 30, 2007, was $547,603,173. For
purposes of this computation, all officers, directors, and 10%
beneficial owners of the registrant are deemed to be affiliates.
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 12, 2008, there were outstanding
42,539,942 shares of the registrants Common Stock,
$0.001 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
the 2008 Annual Meeting of Stockholders are incorporated by
reference into Part III of this
Form 10-K.
TTM
TECHNOLOGIES, INC.
ANNUAL
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
Statement
Regarding Forward-Looking Statements
This report on
Form 10-K
contains forward-looking statements regarding future events or
our future financial and operational performance.
Forward-looking statements include statements regarding markets
for our products; trends in net sales, gross profits and
estimated expense levels; liquidity and anticipated cash needs
and availability; and any statement that contains the words
anticipate, believe, plan,
forecast, foresee, estimate,
project, expect, seek,
target, intend, goal and
other similar expressions. The forward-looking statements
included in this report reflect our current expectations and
beliefs, and we do not undertake publicly to update or revise
these statements, even if experience or future changes make it
clear that any projected results expressed in this report,
annual or quarterly reports to stockholders, press releases or
company statements will not be realized. In addition, the
inclusion of any statement in this report does not constitute an
admission by us that the events or circumstances described in
such statement are material. Furthermore, we wish to caution and
advise readers that these statements are based on assumptions
that may not materialize and may involve risks and
uncertainties, many of which are beyond our control, that could
cause actual events or performance to differ materially from
those contained or implied in these forward-looking statements.
These risks and uncertainties include the business and economic
risks described in Item 1A, Risk Factors.
Overview
We are a one-stop provider of time-critical and technologically
complex printed circuit boards (PCBs) and backplane assemblies,
which serve as the foundation of sophisticated electronic
products. We serve high-end commercial and aerospace/defense
markets including the networking/communications
infrastructure, high-end computing, defense, and
industrial/medical markets-which are characterized by high
levels of complexity and moderate production volumes. Our
customers include both original equipment manufacturers (OEMs),
electronic manufacturing services (EMS) providers, and
aerospace/defense companies. Our time-to-market and high
technology focused manufacturing services enable our customers
to reduce the time required to develop new products and bring
them to market. On October 27, 2006, we completed the
acquisition of the Tyco Printed Circuit Group business (PCG)
from Tyco International Ltd. for a total purchase price of
$226.8 million, excluding acquisition costs. We acquired
six PCB fabrication facilities and three backplane assembly
facilities and during the second quarter of 2007 we ceased
production in one PCB fabrication facility in Dallas, Oregon.
Additionally, one assembly facility is located in Shanghai,
China, and the rest are located in the United States.
Industry
Background
Printed circuit boards are manufactured from sheets of laminated
material, or panels. Each panel is typically subdivided into
multiple printed circuit boards, each consisting of a pattern of
electrical circuitry etched from copper to provide an electrical
connection between the components mounted to it.
Printed circuit boards serve as the foundation for virtually all
electronic products, ranging from consumer products (such as
cellular telephones and personal computers) to high-end
commercial electronic equipment (such as medical equipment, data
communications routers, switches and servers), and aerospace and
defense electronic systems. Generally, consumer electronics
products utilize commodity-type printed circuit boards with
lower layer counts, less complexity and larger production runs.
High-end commercial equipment and aerospace and defense products
require more customized, multilayer printed circuit boards using
advanced technologies. In addition, most high-end commercial and
aerospace and defense end markets have low volume requirements
that demand a highly flexible manufacturing environment. As
production of sophisticated circuit boards becomes more complex,
high-end manufacturers must continually invest in advanced
production equipment, engineering and process technology, and a
skilled workforce. Backplane assemblies also exhibit these
characteristics.
According to Prismark Partners LLC, the worldwide market for
printed circuit boards was approximately $48 billion in
2007 with the Americas producing 10%, or approximately
$5 billion. As a result of consolidation and the slowdown
in the electronics industry in 2001 and 2002, many manufacturing
facilities were closed, reducing the Americas printed circuit
board manufacturing capacity by as much as 40%. This capacity
reduction combined with improved market demand led to higher
capacity utilization across the industry in 2003 and continuing
through 2007.
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Management believes this situation provides significant
opportunities for well-capitalized manufacturers that have
advanced technological capabilities.
Several trends are impacting the printed circuit board
manufacturing and backplane assembly industries. These trends
include:
Short electronic product life
cycles. Continual advances in technology have
shortened the life cycles of complex commercial electronic
products, placing greater pressure on OEMs to quickly bring new
products to market. The accelerated time-to-market and
ramp-to-volume needs of OEMs for high-end commercial equipment
create opportunities for printed circuit board manufacturers
that can offer engineering support in the prototype stage and
manufacturing scalability throughout the production life cycle.
Increasing complexity of electronic
products. OEMs are continually designing higher
performance electronic products, which require technologically
complex printed circuit boards that can accommodate higher
speeds and component densities. These complex printed circuit
boards often require very high layer counts, advanced
manufacturing processes and materials, and high-mix production
capabilities, which involve processing small lots in a flexible
manufacturing environment. OEMs increasingly rely upon larger
printed circuit board manufacturers, which possess the financial
resources necessary to invest in advanced manufacturing process
technologies and sophisticated engineering staff, often to the
exclusion of smaller printed circuit board manufacturers that do
not possess such technologies or resources.
Increasing competition from Asian
manufacturers. In recent years, many electronics
manufacturers have moved their commercial production to Asia to
take advantage of its exceptionally large, low-cost labor pool.
This is particularly true for consumer electronics producers
that utilize commodity-type printed circuit boards with low
layer counts and complexity. These less sophisticated printed
circuit boards are generally mass produced and have experienced
significant pricing pressures from Asian manufacturers. Printed
circuit boards requiring complex technologies, advanced
manufacturing processes and materials, quick turnaround times,
or high-mix production are subject to less competition from
low-cost regions. In addition, many of the unique challenges
involved in successfully designing and manufacturing highly
complex printed circuit boards and the ongoing
capital investment required to maintain state-of-the-art
capabilities have effectively served as barriers to
entry in these high-mix and high-complexity segments of the
domestic printed circuit board industry.
Decreased reliance on multiple printed circuit board
manufacturers by OEMs. OEMs traditionally have
relied on multiple printed circuit board manufacturers to
provide different services as an electronic product moves
through its life cycle. The transfer of a product among
different printed circuit board manufacturers often results in
increased costs and inefficiencies due to incompatible
technologies and manufacturing processes and production delays.
In addition, OEMs find it easier to manage fewer printed circuit
board manufacturers. As a result, OEMs are reducing the number
of printed circuit board manufacturers and backplane assembly
services providers on which they rely, presenting an opportunity
for those that can offer one-stop manufacturing
capabilities from prototype to volume production.
Increasing demand for aerospace and defense
products. The aerospace and defense market is
characterized by time-consuming and complex certification
processes, long product life cycles, and a unique combination of
demand for leading-edge technology with extremely high
reliability and durability. An increased focus on incorporating
leading-edge technology in products for reconnaissance and
intelligence combined with continued spending on military
communications, aerospace, and weapons systems applications are
anticipated to drive steady end market growth. Success in the
defense and aerospace market is generally achieved only after
manufacturers demonstrate the long-term ability to pass
extensive OEM and government certification processes, numerous
product inspections, audits for quality and performance, and
extensive administrative requirements associated with
participation in government programs. Export controls represent
a barrier to entry for international competition as they
restrict the overseas export of defense-related materials,
services, and sensitive technologies that are associated with
government programs. In addition, the complexity of the end
products serves as a barrier to entry to potential new suppliers.
Customers increasingly rely on manufacturing partners for
backplane assembly and sub-system assembly
services. OEM customers are increasingly relying
on either EMS companies or PCB manufacturers for backplane
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assembly and sub-system assembly services as they focus on
streamlining their own supply chains. As a result, OEMs
increasingly prefer close proximity to their assembly partners
as quick-turn and prototyping processes are more efficient with
readily accessible engineering teams and shorter shipping times.
Although some North American backplane assembly has migrated to
Asia in recent years, complex custom backplanes and sub-systems
have typically remained in North America. The large physical
size and complexity of many of these assemblies make them cost
prohibitive to ship from Asia to North America. Furthermore,
North American facilities are better able to service the small
lot and quick turn-around requirements of many North American
customers. Cost savings from migrating backplane assembly to
Asia are limited, particularly for more complex and technically
sophisticated large products.
The TTM
Solution
We manufacture printed circuit boards and backplane assemblies
that satisfy all stages of an electronic products life
cycle from prototype to volume production. Key
aspects of our solution include:
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One-stop manufacturing solution. We offer a
one-stop manufacturing solution to our customers through our
specialized and integrated facilities, some of which focus on
different stages of an electronic products life cycle.
This one-stop solution allows us to provide a broad array of
services and technologies to meet the rapidly evolving needs of
our customer base.
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Quick-turn services. We deliver highly complex
printed circuit boards to customers in significantly compressed
lead times. This rapid delivery service enables OEMs to develop
sophisticated electronic products quickly and reduce their time
to market. In addition, our quick-turn services provide us with
an opportunity to cross-sell our other services, including
high-mix and volume production in our targeted end markets.
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Strong process and technology expertise. We
deliver time-critical and highly complex manufacturing services
through our advanced manufacturing processes and material and
technology expertise. We regularly manufacture printed circuit
boards with layer counts in excess of 30 layers.
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Aerospace/defense capabilities. We provide a
comprehensive product offering in the aerospace/defense market
and provide customers with comprehensive PCB fabrication
capabilities, exotic material expertise and technological
experience.
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Complementary backplane assembly. We provide
backplane and sub-system assembly products as a natural
extension of our commercial and defense PCB offerings. This
segment is a full service provider of complex backplane
assembly, sub-system assembly, electro-mechanical integration
and design services.
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Our
Manufacturing Services
Quick-turn
We refer to our rapid turnaround services as
quick-turn because we provide custom-fabricated
printed circuit boards 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 a premium for our
quick-turn services as compared to standard lead time prices.
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Prototype production. In the design, testing,
and launch phase of a new electronic products life cycle,
our customers typically require limited quantities of printed
circuit boards in a very short period of time. We satisfy this
need by manufacturing prototype printed circuit boards 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 printed circuit boards 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 printed circuit boards per order with delivery times
ranging from 5 to 15 days.
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For the years ended December 31, 2007 and 2006, orders with
delivery requirements of 10 days or less represented
approximately 15% and 17%, respectively, of our gross PCB
sales. Quick-turn orders decreased as a percentage of our
gross PCB sales in 2007 due to both higher demand for our
standard lead-time, high technology production services as well
as the inclusion of the PCG facilities, which focus primarily on
standard lead-time services.
Standard
delivery
Our standard delivery time services focus on the high-mix and
complex technology requirements of our customers, with delivery
times typically ranging from four to six weeks. Our high
technology expertise is evidenced by our ability to regularly
produce complex printed circuit boards with more than 30 layers
in commercial volumes. In 2007, the average layer count of our
PCBs decreased to 13.6 from 15.5 in 2006 due to the inclusion of
PCG operations, which generally manufacture PCBs with lower
layer counts. In addition, many of our lower layer-count PCBs
are complex as a result of the incorporation of other
technologically advanced features, including high performance
materials, blind and buried vias, sequential lamination and
extremely fine geometries and tolerances. Although we provide
standard delivery time services to all customers, including
large OEMs, we do not target our standard delivery time services
to high-volume, consumer electronics applications such as
cellular telephones, personal computers, hand-held devices and
automotive products.
Strategy
Our goal is to be the leading provider of time-critical,
one-stop manufacturing services for highly complex printed
circuit boards and backplane assemblies. Key aspects of our
strategy include:
Leveraging our one-stop manufacturing
solution. Our quick-turn capabilities allow us to
establish relationships with customers early in a products
life cycle, giving us an advantage in securing preferred vendor
status for subsequent ramp-to-volume and volume production
opportunities. We also seek to gain quick-turn business from our
existing ramp-to-volume and volume customers.
Using our quick-turn capabilities to attract new customers
with high-growth potential. Our time-to-market
strategy focuses on the rapid introduction and short product
life cycle of advanced electronic products. We continue to
attract emerging companies to our quick-turn facilities and
believe that our ability to rapidly and reliably respond to the
critical time requirements of our customers provides us with a
significant competitive advantage.
Continuing to improve our technological capabilities and
manufacturing processes. We are consistently
among the first to adopt new developments in printed circuit
board manufacturing processes and technology. We continuously
evaluate new manufacturing processes, materials, and technology
to increase our capabilities and further reduce our delivery
times, improve quality, increase yields and decrease costs. We
continue to invest in technologies that are required by the
leading OEMs in the electronics industry.
Capitalizing on facility specialization to enhance operating
efficiency. We utilize a facility specialization
strategy in which each order is directed to the facility best
suited to the customers particular delivery time, product
complexity and volume needs. Our plants use compatible
technologies and manufacturing processes, allowing us generally
to move orders easily between plants to optimize operating
efficiency. This strategy provides customers with faster
delivery times and enhanced product quality and consistency.
Expanding our presence in targeted markets through internal
initiatives and selective acquisitions. We
actively target technologies and business opportunities that
enhance our competitive position in selected markets. Our 2006
acquisition of PCG exemplifies our ability to successfully
expand our business into markets, such as the desirable
aerospace and defense market. We intend to pursue high-end
commercial and defense customers that demand flexible and
advanced manufacturing processes, expertise with
high-performance specialty materials, and other high-mix and
complex technologies. In addition, we regularly evaluate and
pursue internal initiatives aimed at adding new customers and
better serving existing customers within our markets.
4
Manufacturing
Technology
The market for our products is characterized by rapidly evolving
technology. In recent years, the trend in the electronic
products industry has been to increase the speed, complexity,
and performance of components while reducing their size. We
believe our technological capabilities allow us to address the
needs of manufacturers who must bring complicated electronic
products to market faster.
To manufacture printed circuit boards, we generally receive
circuit designs directly from our customers in the form of
computer data files, which we review to ensure data accuracy and
product manufacturability. Processing these computer files with
computer aided manufacturing (CAM) technology, we generate
images of the circuit patterns that we then physically develop
on individual layers, using advanced photographic processes.
Through a variety of plating and etching processes, we
selectively add and remove conductive materials to form
horizontal layers of thin circuitry, which are separated by
electrical insulating material. A multilayer circuit board is
produced by laminating together a number of layers of circuitry,
using intense heat and pressure under vacuum. Vertical
connections between layers are achieved by drilling and plating
through small holes, called vias. Vias are made by highly
specialized drilling equipment capable of achieving extremely
fine tolerances with high accuracy. We specialize in high
layer-count printed circuit boards with extremely fine
geometries and tolerances. Because of the tolerances involved,
we employ clean rooms in certain manufacturing processes where
tiny particles might otherwise create defects on the circuit
patterns. We also use automated optical inspection systems and
electrical testing systems to ensure consistent quality of the
circuits we produce.
We believe that our highly specialized equipment and advanced
manufacturing processes enable us to reliably produce printed
circuit boards with the following characteristics:
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High layer count. Manufacturing printed
circuit boards with a large number of layers is difficult to
accomplish due to the accumulation of manufacturing tolerances
and registration systems required. We regularly manufacture
printed circuit boards with more than 30 layers on a quick-turn
and volume basis. For 2007, approximately 57% of our
gross PCB sales involved the manufacture of printed circuit
boards with at least 12 layers, compared with 65% in 2006.
Printed circuit boards with at least 20 layers represented 26%
of gross PCB sales in 2007, down from 37% in 2006, driven
by the inclusion of the PCG facilities which focus primarily on
lower layer count boards.
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Blind and buried vias. Vias are drilled holes
that provide electrical connectivity between layers of circuitry
in a printed circuit board. Blind vias connect the surface layer
of the printed circuit board to an internal layer and terminate
at the internal layer. Buried vias are holes that do not reach
either surface of the printed circuit board but allow inner
layers to be interconnected. Products with blind and buried vias
can be made thinner, smaller, lighter and with higher component
density and more functionality than products with traditional
vias.
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Embedded passives. Embedded passive technology
involves embedding either the capacitive or resistive elements
inside the printed circuit board, which allows for removal of
passive components from the surface of the printed circuit board
and thereby leaves more surface area for active components. Use
of this technology results in greater design flexibility and
products with higher component density and increased
functionality.
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Fine line traces and spaces. Traces are the
connecting copper lines between the different components of the
printed circuit board and spaces are the distances between
traces. The smaller the traces and tighter the spaces, the
higher the density on the printed circuit board and the greater
the expertise required to achieve a desired final yield on an
order. We are able to provide 0.003 inch traces and spaces.
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High aspect ratios. The aspect ratio is the
ratio between the thickness of the printed circuit board and the
diameter of a drilled hole. The higher the ratio, the greater
the difficulty to reliably form, electroplate and finish all the
holes on a printed circuit board. We are able to provide aspect
ratios of up to 15:1.
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Thin core processing. A core is the basic
inner-layer building block material from which printed circuit
boards are constructed. A core consists of a flat sheet of
material comprised of glass-reinforced resin with copper foil
laminated on either side. The thickness of inner-layer cores is
typically determined by the overall
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thickness of the printed circuit board and the number of layers
required. The demand for thinner cores derives from requirements
of thinner printed circuit boards, higher layer counts and
various electrical parameters. Core thickness in our printed
circuit boards ranges from as little as 0.002 inches up to
0.062 inches.
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Microvias. Microvias are small vias with
diameters generally between 0.001 inches and
0.005 inches after plating. These very small vias consume
much less space on the layers they interconnect, thereby
providing for greater wiring densities and closer spacing of
components and their attachment pads. The fabrication of printed
circuit boards with microvias requires specialized equipment,
such as laser drills, and highly developed process knowledge.
Applications such as handheld wireless devices employ microvias
to obtain a higher degree of functionality from a given surface
area.
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Advanced hole fill process. Our advanced hole
fill processes provide designers the opportunity to increase the
density of component placements by reducing the surface area
required to place many types of components. In traditional
design, components are routed from their surface interfaces
through via connections in order to access power and ground
connections and the internal circuitry used to connect to other
discrete components. Our advanced hole fill processes provide
methods to allow for vias to be placed inside their respective
surface mount pads by filling the vias with a thermoset epoxy
and plating flat copper surface mount pads directly over the
filled hole.
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Advanced materials. We manufacture circuit
boards using a wide variety of advanced insulating materials.
These high-performance materials offer electrical, thermal, and
long-term reliability advantages over conventional materials but
are more difficult to manufacture. We are certified by
Underwriters Laboratories to manufacture printed circuit boards
using many types and combinations of these specialty materials.
This wide offering allows us to manufacture complex boards for
niche and high-end commercial and aerospace and defense markets.
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Advanced backplane assembly and system
integration. We provide specialized assembly
services for highly complex and large form-factor backplanes.
These services provide additional value for many of the high
technology backplane circuit boards produced in our printed
circuit board manufacturing facilities. The manufacture of
backplane assemblies involves mounting various electronic
components to large PCBs. Components include, but are not
limited to, connectors, capacitors, resistors, diodes,
integrated circuits, hardware and a variety of other parts. TTM
also assembles backplanes and sub-systems and provides full
systems integration of backplane assemblies, cabling, power,
thermal, and other complex electromechanical parts into chassis
and other enclosures. In addition to assembly services, TTM
provides a full range of inspection and testing services such as
automated optical inspection (AOI) and X-ray inspection to
ensure that all components have been properly placed and
electrical circuits are complete.
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Flexible circuits. We manufacture circuits on
flexible substrates that can be installed in three-dimensional
applications for electronic packaging systems. Use of flexible
circuitry enables improved reliability, improved electrical
performance, reduced weight and reduced assembly costs when
compared with traditional wire harness or ribbon cable
packaging. We can combine these flexible substrates with rigid
laminates to create high reliability, high layer count
rigid-flex products.
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High frequency circuits. We have the ability
to produce and test specialized circuits used in radio-frequency
(RF) or microwave emission and collection applications. These
products are typically used for radar, transmit/receive antennas
and similar wireless applications. Markets 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 RF 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
heatsinks laminated externally on a circuit board or between two
circuit boards
and/or
electrically active thermal cores.
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Design Engineering Services. We have the
ability to offer both mechanical and electrical computer aided
design (CAD) services, which allows us to offer our customers
complete manufacturing opportunities for PCB, assembly and
system level products. We provide design services for both
defense and commercial applications. We also offer signal
integrity, thermal, and structural analysis services.
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Customers
and Markets
Our customers include both OEMs and EMS companies that primarily
serve the networking/communications, high-end computing,
industrial/medical and aerospace/defense end markets of the
electronics industry. We measure customers as those companies
that have placed at least two orders in the preceding
12-month
period. As of December 31, 2007 and 2006, we had
approximately 900 and 740 customers, respectively. This
significant increase is primarily due to the acquisition of PCG
in October, 2006.
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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End Markets(1)
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2007
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2006
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2005
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Networking/Communications
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42
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%
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43
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%
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46
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%
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Aerospace/Defense
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30
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16
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8
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Computing/Storage/Peripherals
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14
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29
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34
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Medical/Industrial/Instrumentation/Other
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14
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12
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12
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Total
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100
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%
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100
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%
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100
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%
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(1) |
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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 24%, 39% and 54% of our
net sales in 2007, 2006 and 2005, respectively. This improvement
in our customer concentration reflects our acquisition of PCG,
which allowed us to diversify our customer base. Our five
largest OEM customers in 2007 were, in alphabetical order, Cisco
Systems, Honeywell, Juniper Networks, Northrop Grumman and
Raytheon. Sales attributed to OEMs include sales made through
EMS providers. Sales to EMS providers comprised approximately
53%, 65% and 69% of our net sales in 2007, 2006 and 2005,
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, which
allow us to be awarded additional discretionary orders. Our five
largest EMS customers in 2007 were, in alphabetical order,
Celestica, Flextronics, Jabil, Plexus and Solectron. Sales to
our two largest EMS customers, Solectron and Flextronics, which
merged to form one company in October 2007, accounted for 8% and
7%, respectively, of our net sales in 2007.
During 2007, approximately 75% of our net sales were to
customers in the United States, 9% in China and the remainder to
other countries. In 2006, approximately 68% of our net sales
were to customers in the United States, 12% in Malaysia and the
remainder to other countries. In 2005, approximately 62% of our
net sales were to customers in the United States, 17% in
Malaysia and the remainder to other countries. Net sales to
other countries, individually, for the years ended
December 31, 2007, 2006 and 2005 did not exceed 10% of
total net sales.
Our marketing strategy focuses on building long-term
relationships with our customers engineering and new
product introduction personnel early in the product development
phase. As the product moves from the prototype stage through
ramp-to-volume and volume production, we shift our focus to the
customers procurement departments in order to capture
sales at each point in the products life cycle.
Our staff of engineers, sales support personnel, and managers
assist our sales representatives in advising customers with
respect to manufacturing feasibility, design review, and
technological capabilities through direct communication and
visits. We combine our sales efforts with customer service at
each facility to better serve our customers. Each large customer
is typically assigned an account manager to coordinate all of
the companys services across all its facilities.
Additionally, the largest and most strategic customers are also
supported by selected
7
program management and engineering resources. Our sales force is
comprised of direct salespeople, complemented by a large force
of commission-based, independent representatives.
Our international footprint includes a backplane and sub-system
assembly operation in Shanghai, China, and inventory hubs in
Belgium, Canada, Malaysia, Mexico, and Thailand. Our
international sales force services customers throughout North
America, Europe and Asia. We believe our international reach
enables us to access new customers and allows us to better serve
existing customers.
Suppliers
The primary raw materials we use in PCB manufacturing include
copper-clad laminate; chemical solutions such as copper and gold
for plating operations; photographic film; carbide drill bits;
and plastic for testing fixtures. The primary raw materials we
use in backplane assembly include PCBs, connectors, capacitors,
resistors, diodes, integrated circuits and formed sheet metal.
We typically use
just-in-time
procurement practices to maintain our raw materials inventory at
low levels and work closely with our suppliers to obtain
technologically advanced raw materials. Although we have
preferred suppliers for some raw materials, most of our raw
materials are generally readily available in the open market
from numerous other potential suppliers. In addition, we
periodically seek alternative supply sources to ensure that we
are receiving competitive pricing and service. Adequate amounts
of all raw materials have been available in the past, and we
believe this availability will continue into the foreseeable
future.
Competition
Despite industry consolidation, the printed circuit board
industry is fragmented and characterized by intense competition.
Our principal North American PCB competitors include Coretec,
DDi, Endicott Interconnect Technologies, FTG, ISU/Petasys,
Merix, Pioneer Circuits, and Sanmina-SCI. Our principal
international PCB competitors include Elec & Eltek,
Hitachi, Ibiden, and Multek. Our principal assembly competitors
include Amphenol, Sanmina-SCI, Simclair, TT Electronics, and Via
Systems.
We believe we compete favorably based on the following
competitive factors:
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status as largest North American PCB fabricator;
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ability to offer the most comprehensive PCB product offering;
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ability to offer one-stop manufacturing capabilities;
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specialized and integrated manufacturing facilities;
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ability to offer time-to-market capabilities;
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capability and flexibility to produce technologically complex
products;
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leading edge aerospace and 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.
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In addition, we believe our continuous evaluation and early
adoption of new manufacturing and production technologies give
us a competitive advantage. We believe that our ability to
manufacture PCBs using advanced technologies, such as blind and
buried vias, larger panel size, laser drilled microvias, exotic
materials, and smaller traces and spaces provides us with a
competitive advantage over manufacturers that do not possess
these advanced technological capabilities. Our future success
will depend in large part on our ability to maintain and enhance
our manufacturing capabilities and production technologies.
8
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.
Intellectual
Property
We have limited patent or trade secret protection for our
manufacturing processes. We believe our business depends on the
effectiveness of our fabrication techniques and our ability to
continue to improve our manufacturing processes. We rely on the
collective experience of our employees in the manufacturing
process to ensure we continuously evaluate and adopt new
technologies in our industry. In addition, we depend on
training, recruiting, and retaining our employees, who are
required to have sufficient know-how to operate advanced
equipment and to conduct complicated manufacturing processes.
Governmental
Regulation
Our operations are subject to federal, state, and local
regulatory requirements relating to environmental compliance,
waste management, and health and safety matters. In particular,
we are subject to regulations promulgated by:
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the U.S. Occupational Safety and Health Administration
(OSHA), and state OSHA and Department of Labor laws pertaining
to health and safety in the workplace;
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the Environmental Protection Agency, pertaining to air
emissions, wastewater discharges, the use, storage, discharge,
and disposal of hazardous chemicals used in the manufacturing
processes;
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corresponding state laws and regulations, including site
investigation and remediation;
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corresponding U.S. county and city agencies;
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corresponding agencies in China for the Shanghai
facility, and
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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.
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To date, the costs of compliance and environmental remediation
have not been material to us. These costs include investigation
and remediation of our three Connecticut sites as required by
the Connecticut Land Transfer Act. 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.
PCG made legal commitments to the U.S. Environmental
Protection Agency and to the State of Connecticut regarding
settlement of enforcement actions against the PCG Stafford
facilities in Connecticut. The obligations include fulfillment
of a Compliance Management Plan until at least July 2009, and
installation of rinse water recycling systems at the Stafford,
Connecticut facilities.
Employees
As of December 31, 2007, we had 3,609 employees. None
of our U.S. employees are represented by unions and in
China, our employees are represented by a labor union on a
national level. Of these employees, 3,321 were involved in
manufacturing and engineering, 152 worked in sales and
marketing, and 136 worked in accounting, systems and other
support capacities. We have not experienced any labor problems
resulting in a work stoppage and believe that we have good
relations with our employees.
9
Management
The following table, together with the accompanying text,
presents certain information as of February 29, 2008, with
respect to each of our executive officers.
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Name
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Age
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Position(s) Held With the Company
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Kenton K. Alder
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Chief Executive Officer, President and Director
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Steven W. Richards
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Executive Vice President, Chief Financial Officer and Secretary
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Douglas L. Soder
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Executive Vice President
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Shane S. Whiteside
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Executive Vice President and Chief Operating Officer
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Kenton K. Alder has served as our Chief Executive
Officer, President and Director since March 1999. From January
1997 to July 1998, Mr. Alder served as Vice President of
Tyco Printed Circuit Group Inc., a printed circuit board
manufacturer. Prior to that time, Mr. Alder served as
President and Chief Executive Officer of ElectroStar, Inc.,
previously a publicly held printed circuit board manufacturing
company, from December 1994 to December 1996. From January
1987 to November 1994, Mr. Alder served as President of
Lundahl Astro Circuits Inc., a predecessor company to
ElectroStar. Mr. Alder holds a Bachelor of Science degree
in Finance and a Bachelor of Science degree in Accounting from
Utah State University.
Steven W. Richards has served as our Chief Financial
Officer since December 2005 and Executive Vice President since
November 2006. Mr. Richards has served as our Secretary
since September 2005, a Vice President since October 2003 and
our Treasurer from May 2000 to December 2005. From June 1996 to
April 2000, Mr. Richards worked in a variety of financial
planning and analysis roles at Atlantic Richfield Corporation, a
multinational oil and gas company. Mr. Richards holds a
Bachelor of Journalism degree from the University of Missouri,
Columbia and a Master of Business Administration degree from the
University of Southern California. Mr. Richards is a
Chartered Financial Analyst charterholder.
Douglas L. Soder has served as our Executive Vice
President since November 2006. Prior to joining
TTM Technologies, Mr. Soder held the position of
Executive Vice President for Tyco Electronics
Printed Circuit Group from January 2001 to November 2006 at
which time the company was acquired by TTM Technologies.
During an almost
24-year
career at Tyco Electronics, Mr. Soder served in a variety
of sales, sales management, and operations management positions
at AMP Incorporated and PCG. 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 Senior Vice President since
October 2003 and our Vice President and 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 the 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
Our Annual Reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
registration statements, and amendments to those reports are
available without charge on our website,
http://www.ttmtech.com/ir/sec
filings, as soon as reasonably practicable after they are filed
electronically with the 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.
10
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
Form 10-Q
or the other documents we file with the SEC, or our annual or
quarterly reports to stockholders, future press releases, or
orally, whether in presentations, responses to questions, or
otherwise.
Risks
Related to Our Company
We are
heavily dependent upon the worldwide electronics industry, which
is characterized by significant economic cycles and fluctuations
in product demand. A significant downturn in the electronics
industry could result in decreased demand for our manufacturing
services and could lower our sales and gross
margins.
A majority of our revenues are 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 would be
negatively affected by contraction in the U.S. economy or
in the worldwide electronics market. Moreover, due to the
uncertainty in the end markets served by most of our customers,
we have a low level of visibility with respect to future
financial results. A lasting economic recession, excess
manufacturing capacity, or a 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
tax assets or recognize an impairment of our long-lived assets,
including goodwill and other intangible assets.
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
non-amortizable
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;
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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.
During
periods of excess global printed circuit board manufacturing
capacity, our gross margins may fall and/or we may have to incur
restructuring charges if we choose to reduce the capacity of or
close any of our facilities.
When we experience excess capacity, our sales revenues may not
fully cover our fixed overhead expenses, and our gross margins
will fall. In addition, we generally schedule our quick-turn
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.
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, 2007, we had total indebtedness of
approximately $85.0 million, which represented
approximately 21% of our total capitalization.
Our discretionary use of cash or cash flow is constrained by
certain leverage and interest coverage ratio tests required to
be met under the terms of our credit agreement. As a result, if
the financial performance of our business falls short of
expectations, then we might be required to repay additional debt
beyond current planned repayments. We also are required to apply
any excess cash flow, as defined by the credit agreement, to pay
down our debt.
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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We
depend upon a relatively small number of OEM customers for a
large portion of our sales, and a decline in sales to major
customers could harm our results of operations.
A small number of customers are responsible for a significant
portion of our sales. Our five largest OEM customers accounted
for approximately 24% of our net sales in 2007 and approximately
39% of our net sales in 2006. 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.
We
compete against manufacturers in Asia, where production costs
are lower. These competitors may gain market share in our key
market segments, which may have an adverse effect on the pricing
of our products.
We may be at a competitive disadvantage with respect to price
when compared to manufacturers with lower-cost facilities in
Asia and other locations. We believe price competition from
printed circuit board manufacturers in Asia and other locations
with lower production costs may play an increasing role in the
market. Although we do have a backplane assembly facility in
China, we do not have offshore facilities for PCB fabrication in
lower-cost locations such as Asia. While historically our
competitors in these locations have produced less
technologically advanced printed circuit boards, they continue
to expand their capacity and capabilities with advanced
equipment to produce higher technology printed circuit boards.
In addition, fluctuations in foreign currency exchange rates may
benefit these offshore competitors. As a result, these
competitors may gain market share, which may force us to lower
our prices, reducing our gross margins.
A
trend toward consolidation among our customers could adversely
affect our business.
Recently, some of our large customers have consolidated and
further consolidation of customers may occur. Depending on which
organization becomes the controller of the supply chain function
following the consolidation, we may not be retained as a
preferred or approved supplier. In addition, product duplication
could result in the termination of a product line that we
currently support. While there is potential for increasing our
position with the combined Company, there does exist the
potential for decreased revenue if we are not retained as a
continuing supplier. We also face the risk of increased pricing
pressure from the combined customer because of its increased
market share.
Our
failure to comply with the requirements of environmental laws
could result in litigation, fines and revocation of permits
necessary to our manufacturing processes. Failure to operate in
conformance with environmental laws could lead to debarment from
our participation in federal government contracts.
Our operations are regulated under a number of federal, state,
and foreign environmental and safety laws and regulations that
govern, among other things, the discharge of hazardous materials
into the air and water, as well as the handling, storage, and
disposal of such materials. These laws and regulations include
the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Superfund Amendment and
Reauthorization Act, the Comprehensive Environmental Response,
Compensation and Liability Act, and the Federal Motor Carrier
13
Safety Act as well as analogous state 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, such as ammoniacal
and cupric etching solutions, copper, nickel and other plating
baths, etc. 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, and 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. We believe that our operations substantially
comply with all applicable environmental laws. However, any
material violations of environmental laws by us could subject us
to revocation of our effluent discharge permits. Any such
revocations 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 the PCG business, PCG made legal
commitments to the U.S. Environmental Protection Agency 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
through at least July 2009 and installation of rinse water
recycling systems at the Stafford, Connecticut facility. Failure
to meet either 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 to various
material content restrictions in our products based on laws of
countries such as the European Unions Restriction of
Hazardous Substances (RoHS) directive and Chinas RoHS
legislation. New York City has adopted identical restrictions
and many US states are considering similar legislation. In
addition, we also certify non-applicability to the EUs
Waste Electrical and Electronic Equipment directive for certain
products that we manufacture. 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.
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 customers accounted for approximately 44% of our
net sales in 2007 and approximately 53% of our net sales in
2006. 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
the 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.
14
Some of our customers are EMS companies located abroad. Our
exposure has increased as these foreign customers continue to
expand. With the primary exception of sales from our facility in
China and a portion of sales from our Ireland sales office, our
foreign sales are denominated in U.S. dollars and are
typically on the same open credit basis and terms
described above. Our foreign receivables were approximately 13%
of our net accounts receivable as of December 31, 2007 and
are expected to continue to grow as a percentage of our total
receivables. We do not utilize credit insurance as a risk
management tool.
We
rely on suppliers for the timely delivery of raw materials and
components used in manufacturing our printed circuit boards and
backplane assemblies, and an increase in industry demand or the
presence of a shortage for these raw materials or components may
increase the price of these raw materials and reduce our gross
margins. If a raw material supplier fails to satisfy our product
quality standards, it could harm our customer
relationships.
To manufacture printed circuit boards, we use raw materials such
as laminated layers of fiberglass, copper foil, chemical
solutions, gold, and other commodity products, which we order
from our suppliers. Although we have preferred suppliers for
most of these raw materials, the materials we use are generally
readily available in the open market, and numerous other
potential suppliers exist. In the case of backplane assemblies,
components include connectors, sheet metal, capacitors,
resistors and diodes, many of which are custom made and
controlled by our customers approved vendors. These
components for backplane assemblies in some cases have limited
or sole sources of supply. From time to time, we may experience
increases in raw material prices, based on demand trends, which
can negatively affect our gross margins. In addition,
consolidations and restructuring in our supplier base may result
in adverse materials pricing due to reduction in competition
among our suppliers. Furthermore, if a raw material supplier
fails to satisfy our product quality standards, it could harm
our customer relationships. Suppliers may from time to time
extend lead times, limit supplies, or increase prices, due to
capacity constraints or other factors, which could harm our
ability to deliver our products on a timely basis. We have
recently experienced an increase in the price we pay for gold.
In general, we are able to pass this price increase on to our
customers, but we cannot be certain we will continue to be able
to do so in the future.
If we
are unable to respond to rapid technological change and process
development, we may not be able to compete
effectively.
The market for our manufacturing services is characterized by
rapidly changing technology and continual implementation of new
production processes. The future success of our business will
depend in large part upon our ability to maintain and enhance
our technological capabilities, to manufacture products that
meet changing customer needs, and to successfully anticipate or
respond to technological changes on a cost-effective and timely
basis. We expect that the investment necessary to maintain our
technological position will increase as customers make demands
for products and services requiring more advanced technology on
a quicker turnaround basis. We may not be able to raise
additional funds in order to respond to technological changes as
quickly as our competitors.
In addition, the printed circuit board industry could encounter
competition from new or revised manufacturing and production
technologies that render existing manufacturing and production
technology less competitive or obsolete. We may not respond
effectively to the technological requirements of the changing
market. If we need new technologies and equipment to remain
competitive, the development, acquisition, and implementation of
those technologies and equipment may require us to make
significant capital investments.
Competition
in the printed circuit board market is intense, and we could
lose market share if we are unable to maintain our current
competitive position in end markets using our quick-turn, high
technology and high-mix manufacturing services.
The printed circuit board industry is intensely competitive,
highly fragmented, and rapidly changing. We expect competition
to continue, which could result in price reductions, reduced
gross margins, and loss of market share. Our principal North
American PCB competitors include Coretec, DDi, Endicott
Interconnect Technologies, FTG, ISU/Petasys, Merix, Pioneer
Circuits, and Sanmina-SCI. Our principal international PCB
competitors include Elec & Eltek, Hitachi, Ibiden,
ISU/Petasys and Multek. Our principal assembly competitors
include Amphenol,
15
Sanmina-SCI, Simclar, TT Electronics, and Via Systems. 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.
|
In addition, these competitors may respond more quickly to new
or emerging technologies, or adapt more quickly to changes in
customer requirements, and devote greater resources to the
development, promotion, and sale of their products than we do.
We must continually develop improved manufacturing processes to
meet our customers needs for complex products, and our
manufacturing process technology is generally not subject to
significant proprietary protection. During recessionary periods
in the electronics industry, our strategy of providing
quick-turn services, an integrated manufacturing solution, and
responsive customer service may take on reduced importance to
our customers. As a result, we may need to compete more on the
basis of price, which could cause our gross margins to decline.
Periodically, printed circuit board manufacturers and backplane
assembly providers experience overcapacity. Overcapacity,
combined with weakness in demand for electronic products,
results in increased competition and price erosion for our
products.
Our
quarterly 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 quarterly 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.
|
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 affects the overall printed circuit
board industry. These seasonal trends have caused fluctuations
in our quarterly operating results in the past and may continue
to do so in the future. Results of operations in any quarterly
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
16
may not meet the expectations of securities analysts or
investors. If this occurs, the trading price of our common stock
likely would decline.
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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|
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customer attempts to manage inventory;
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|
changes in customers manufacturing strategies, such as a
decision by a customer to either diversify or consolidate the
number of printed circuit board manufacturers or backplane
assembly service providers used or to manufacture or assemble
its own products internally;
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|
variation in demand for our customers products; and
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|
changes in new product introductions.
|
We have periodically experienced terminations, reductions, and
delays in our customers orders. Further terminations,
reductions, or delays in our customers orders could harm
our business, results of operations, and financial condition.
The
increasing prominence of EMS providers in the printed circuit
board industry could reduce our gross margins, potential sales,
and customers.
Sales to EMS providers represented approximately 53% of our net
sales in 2007. Sales to EMS providers include sales directed by
OEMs as well as orders placed with us at the EMS providers
discretion. EMS providers source on a global basis to a greater
extent than OEMs. The growth of EMS providers increases the
purchasing power of such providers and could result in increased
price competition or the loss of existing OEM customers. In
addition, some EMS providers, including some of our customers,
have the ability to directly manufacture printed circuit boards
and create backplane assemblies. If a significant number of our
other EMS customers were to acquire these abilities, our
customer base might shrink, and our sales might decline
substantially. Moreover, if any of our OEM customers outsource
the production of printed circuit boards and creation of
backplane assemblies to these EMS providers, our business,
results of operations, and financial condition may be harmed.
If
events or circumstances occur in our business that indicate that
our goodwill and intangibles may not be recoverable, we could
have impairment charges that would negatively affect our
earnings.
As of December 31, 2007, our consolidated balance sheet
reflected $152.3 million of goodwill and intangible assets.
We evaluate whether events and circumstances have occurred that
indicate the remaining balance of goodwill and 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 intangible assets, which could harm our results
during the periods in which such a reduction is recognized. Our
goodwill and intangible assets may increase in future periods if
we consummate other acquisitions. Amortization or impairment of
these additional intangibles would, in turn, harm our earnings.
Damage
to our manufacturing facilities due to fire, natural disaster,
or other event could harm our financial results.
We have U.S. manufacturing and assembly facilities in
California, Connecticut, Utah, Washington, and Wisconsin. We
also have an assembly facility in China. The destruction or
closure of any of our facilities for a significant period of
time as a result of fire; explosion; blizzard; act of war or
terrorism; or 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.
17
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 in the 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.
Our
profitability is impacted by the global interest rate
environment.
We are exposed to interest rate risk relating to our senior
secured term loan and revolving credit facility, which bears
interest at either the Alternate Base Rate, as defined in our
credit agreement, plus an applicable margin or LIBOR plus an
additional margin. The interest rate on our senior secured term
loan is linked to LIBOR and re-prices at intervals of 30, 60,
90, or 180 days as selected by the Company. As of
December 31, 2007, a 1.0% increase in the interest rate
would result in an increase of approximately $0.3 million
in interest expense per year.
Our revolving credit facility bears interest at floating rates.
The revolving credit facility bears interest at rates ranging
from 1.75% to 2.25% per year plus the applicable LIBOR or from
0.75% to 1.25% per year plus the Alternate Base Rate. As of
December 31, 2007, we have no outstanding revolving loans.
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 could be subject to legal proceedings and claims for alleged
infringement by us of third-party proprietary rights, such as
patents, from time to time in the ordinary course of business.
It is possible that the circuit board designs and other
specifications supplied to us by our customers might infringe on
the patents or other intellectual property rights of third
parties, in which case our manufacture of printed circuit boards
according to such designs and specifications could expose us to
legal proceedings for allegedly aiding and abetting the
violation, as well as to potential liability for the
infringement. If we do not prevail in any litigation as a result
of any such allegations, our business could be harmed.
We
depend heavily on a single end customer, the U.S. government,
for a substantial portion of our business, including programs
subject to security classification restrictions on information.
Changes affecting the governments capacity to do business
with us or our direct customers or the effects of competition in
the defense industry could have a material adverse effect on our
business.
A significant portion of our revenues is derived from products
and services ultimately sold to the U.S. government and is
therefore affected by, among other things, the federal budget
process. We are a supplier, primarily as a subcontractor, to the
U.S. government and its agencies as well as foreign
governments and agencies. These contracts are subject to the
respective customers political and budgetary constraints
and processes, changes in customers short-range and
long-range strategic plans, the timing of contract awards, and
in the case of contracts with the U.S. government, the
congressional budget authorization and appropriation processes,
the governments ability to terminate contracts for
convenience or for default, as well as other risks such as
contractor suspension or debarment in the event of certain
violations of legal and regulatory requirements. The termination
or failure to fund one or more significant contracts by the
U.S. government could have a material adverse effect on our
business, results of operations or prospects.
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
18
business also depends on our continuing ability to recruit,
train, and retain highly qualified employees, particularly
engineering and sales and marketing personnel. The competition
for these employees is intense, and the loss of these employees
could harm our business. Further, our ability to successfully
integrate acquired companies depends in part on our ability to
retain key management and existing employees at the time of the
acquisition.
Increasingly,
our larger customers are requesting that we enter into supply
agreements with them that have increasingly restrictive terms
and conditions. These agreements typically include provisions
that increase our financial exposure, which could result in
significant costs to us.
Increasingly, our larger customers are requesting that we enter
into supply agreements with them. These agreements typically
include provisions that generally serve to increase our exposure
for product liability and warranty claims as
compared to our standard terms and conditions which
could result in higher costs to us as a result of such claims.
In addition, these agreements typically contain provisions that
seek to limit our operational and pricing flexibility and extend
payment terms, which can adversely impact our cash flow and
results of operations.
Our
backplane assembly operation serves customers and has a
manufacturing facility outside the United States and is subject
to the risks characteristic of international operations. These
risks include significant potential financial damage and
potential loss of the business and its assets.
Because we have manufacturing operations and sales offices
located in Asia and Europe, we are subject to the risks of
changes in economic and political conditions in those countries,
including but not limited to:
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managing international operations;
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|
|
export license requirements;
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|
fluctuations in the value of local currencies;
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|
|
labor unrest and difficulties in staffing;
|
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|
|
government or political unrest;
|
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|
|
longer payment cycles;
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|
|
language and communication barriers as well as time zone
differences;
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|
|
cultural differences;
|
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|
|
increases in duties and taxation levied on our products;
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|
|
imposition of restrictions on currency conversion or the
transfer of funds;
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|
limitations on imports or exports of our product offering;
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|
travel restrictions;
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|
expropriation of private enterprises; and
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|
the potential reversal of current favorable policies encouraging
foreign investment and trade.
|
Our
operations in the Peoples Republic of China subject us to
risks and uncertainties relating to the laws and regulations of
the Peoples Republic of China.
Under its current leadership, the Chinese government has been
pursuing economic reform policies, including the encouragement
of foreign trade and investment and greater economic
decentralization. No assurance can be given, however, that the
government of the Peoples Republic 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, the PRC does not have a comprehensive and highly
developed system of laws, particularly with respect to foreign
investment activities and foreign trade. Enforcement of existing
and future laws and contracts is uncertain, and implementation
and interpretation thereof may be inconsistent. As
19
the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the preemption of local regulations
by national laws may adversely affect foreign investors.
Further, any litigation in the PRC may be protracted and result
in substantial costs and diversion of resources and management
attention. In addition, some government policies and rules are
not timely published or communicated in the local districts, 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.
Products
we manufacture may contain design or manufacturing defects,
which could result in reduced demand for our services and
liability claims against us.
We manufacture products to our customers specifications,
which are highly complex and may contain design or manufacturing
errors or failures, despite our quality control and quality
assurance efforts. Defects in the products we manufacture,
whether caused by a design, manufacturing, or materials failure
or error, may result in delayed shipments, customer
dissatisfaction, a reduction or cancellation of purchase orders,
or liability claims against us. If these defects occur either in
large quantities or too frequently, our business reputation may
be impaired. Our sales mix has shifted towards standard delivery
time products, which have larger production runs, thereby
increasing our exposure to these types of defects. Since our
products are used in products that are integral to our
customers businesses, errors, defects, or other
performance problems could result in financial or other damages
to our customers beyond the cost of the printed circuit board,
for which we may be liable. Although our invoices and sales
arrangements generally contain provisions designed to limit our
exposure to product liability and related claims, existing or
future laws or unfavorable judicial decisions could negate these
limitation of liability provisions. Product liability litigation
against us, even if it were unsuccessful, would be time
consuming and costly to defend. Although we maintain technology
errors and omissions insurance, we cannot assure you that we
will continue to be able to purchase such insurance coverage in
the future on terms that are satisfactory to us, if at all.
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, 2007, we had approximately $24.5 million
of current assets denominated in Chinese RMB. Changes in
exchange rates among other currencies and the U.S. dollar
will affect the value of these assets as translated to
U.S. dollars in our balance sheet. To the extent that we
ultimately decide to repatriate some portion of these funds to
the United States, the actual value transferred could be
impacted by movements in exchange rates. Any such type of
movement could negatively impact the amount of cash available to
fund operations or to repay debt.
We
export defense and commercial products from the United States to
other countries. If we 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. 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
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
future growth could be adversely affected.
20
We may
not be able to fully recover our costs for providing design
services to our customers, which could harm our financial
results.
Although we enter into design service activities with purchase
order commitments, the cost of labor and equipment to provide
these services may in fact exceed what we are able to fully
recover through purchase order coverage. We also may be subject
to agreements with customers in which the cost of these services
is recovered over a period of time or through a certain number
of units shipped as part of the ongoing product price. While we
may make contractual provisions to recover these costs in the
event that the product does not go into production, the actual
recovery can be difficult and may not happen in full. In other
instances, the business relationship may involve investing in
these services for a customer as an ongoing service not directly
recoverable through purchase orders. In any of these cases, the
possibility exists that some or all of these activities are
considered costs of doing business, are not directly
recoverable, and may adversely impact our operating results.
Unanticipated
changes in our tax rates or in our assessment of the
realizability of our deferred tax assets or exposure to
additional income tax liabilities could affect our operating
results and financial condition.
We are subject to income taxes in both 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 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 tax assets.
As of December 31, 2007, we had net deferred tax assets of
approximately $4.4 million and no valuation allowance.
Should our expectations of taxable income change in future
periods, it may be necessary to reestablish a valuation
allowance, which would result in an additional income tax
provision and a deterioration of our results of operations.
Based on our forecast for future earnings, we believe we will
utilize the deferred tax asset 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 tax assets, which would reduce our earnings per
share.
|
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ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
21
The following table describes our principal manufacturing
facilities and administrative offices.
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Leased
|
|
|
Owned
|
|
|
Total
|
|
Location
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Chippewa Falls, WI
|
|
|
|
|
|
|
280,400
|
|
|
|
280,400
|
|
Dallas, OR(1)
|
|
|
14,000
|
|
|
|
127,700
|
|
|
|
141,700
|
|
Enfield, CT (office)(2)
|
|
|
11,563
|
|
|
|
|
|
|
|
11,563
|
|
Hopkins, MN (office)
|
|
|
8,700
|
|
|
|
|
|
|
|
8,700
|
|
Inglewood, CA
|
|
|
65,137
|
|
|
|
|
|
|
|
65,137
|
|
Logan, UT
|
|
|
|
|
|
|
124,104
|
|
|
|
124,104
|
|
Redmond, WA
|
|
|
|
|
|
|
102,200
|
|
|
|
102,200
|
|
San Diego, CA
|
|
|
37,500
|
|
|
|
|
|
|
|
37,500
|
|
Santa Ana, CA
|
|
|
8,287
|
|
|
|
98,000
|
|
|
|
106,287
|
|
Santa Clara, CA
|
|
|
36,448
|
|
|
|
36,245
|
|
|
|
72,693
|
|
Shanghai, China
|
|
|
81,000
|
|
|
|
|
|
|
|
81,000
|
|
Stafford, CT
|
|
|
|
|
|
|
89,696
|
|
|
|
89,696
|
|
Stafford Springs, CT
|
|
|
10,000
|
|
|
|
53,000
|
|
|
|
63,000
|
|
Staffordville, CT
|
|
|
|
|
|
|
43,056
|
|
|
|
43,056
|
|
Union City, CA
|
|
|
116,993
|
|
|
|
|
|
|
|
116,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
389,628
|
|
|
|
954,401
|
|
|
|
1,344,029
|
|
Logan, UT (vacant land)
|
|
|
|
|
|
|
2.5 acres
|
|
|
|
|
|
Stafford, CT (vacant land)
|
|
|
|
|
|
|
2.5 acres
|
|
|
|
|
|
Our owned facilities are subject to mortgages under our senior
credit facility.
|
|
|
(1) |
|
We ceased production at the Dallas, Oregon facility during the
second quarter and the Company terminated its lease in April
2007. The Company is in the process of selling the owned
property. |
|
(2) |
|
At the end of January 2007, we terminated the lease in our
Enfield office and moved our employees to our Stafford and
Stafford Springs facilities. |
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time we may become a party to various legal
proceedings arising in the ordinary course of our business.
There can be no assurance that we will prevail in any such
litigation.
Prior to our acquisition of PCG, PCG made legal commitments to
the U.S. Environmental Protection Agency (U.S. EPA)
and the State of Connecticut regarding settlement of enforcement
actions against the PCG operations in Connecticut. On
August 17, 2004, PCG was sentenced for Clean Water Act
violations and was ordered to pay a $6 million fine and an
additional $3.7 million to fund environmental projects
designed to improve the environment for Connecticut residents.
In September 2004, PCG agreed to a stipulated judgment with the
Connecticut Attorney Generals office and the Connecticut
Department of Environmental Protection (DEP) under which PCG
paid a $2 million civil penalty and agreed to implement
capital improvements of $2.4 million to reduce the volume
of rinse water discharged from its manufacturing facilities in
Connecticut. The obligations to the US EPA and Connecticut DEP
include the fulfillment of a Compliance Management Plan until at
least July 2009 and installation of rinse water recycling
systems at the Stafford, Connecticut, facilities. As of
December 31, 2007, approximately $0.7 million remains
to be expended in the form of capital improvements to meet the
rinse water recycling systems requirements. We have assumed
these legal commitments as part of our purchase of PCG. Failure
to meet either commitment could result in further costly
enforcement actions, including exclusion from participation in
federal contracts.
22
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
Not applicable.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
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 closing prices of our common stock as
reported on the Nasdaq Global Select Market for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
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High
|
|
|
Low
|
|
|
2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.81
|
|
|
$
|
9.43
|
|
Second Quarter
|
|
$
|
13.37
|
|
|
$
|
9.18
|
|
Third Quarter
|
|
$
|
14.15
|
|
|
$
|
10.02
|
|
Fourth Quarter
|
|
$
|
14.20
|
|
|
$
|
11.06
|
|
2006:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
15.29
|
|
|
$
|
9.68
|
|
Second Quarter
|
|
$
|
17.46
|
|
|
$
|
12.56
|
|
Third Quarter
|
|
$
|
14.24
|
|
|
$
|
10.00
|
|
Fourth Quarter
|
|
$
|
13.27
|
|
|
$
|
11.33
|
|
As of March 12, 2008, there were approximately
340 holders of record of our common stock. The closing sale
price of our common stock on the Nasdaq Global Select Market on
March 12, 2008 was $10.55 per share.
We have not declared or paid any dividends since 2000, and we do
not anticipate paying any cash dividends in the foreseeable
future. Additionally, our senior credit facility prohibits the
payment of dividends. We presently intend to retain any future
earnings to finance future operations and the expansion of our
business.
23
PERFORMANCE
GRAPH
The following graph compares, for the period from
December 31, 2002 to December 31, 2007, the cumulative
total stockholder return on our common stock against the
cumulative total return of:
|
|
|
|
|
the Nasdaq Composite Index; and
|
|
|
|
a peer group consisting of us and two other publicly traded
printed circuit board companies that we have selected.
|
The graph assumes $100 was invested in our common stock on
December 31, 2002, and an investment in each of the peer
group and the Nasdaq Composite Index, and the reinvestment of
all dividends. The companies included in the peer group are
Sanmina Corporation (Nasdaq NM: SANM) and Merix Corporation
(Nasdaq NM: MERX).
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
TTM Technologies, Inc., The NASDAQ Composite Index
And A Peer Group
* $100 invested on 12/31/02 in stock or index-including
reinvestment of dividends.
Fiscal year ending December 31.
24
|
|
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,
|
|
|
|
2007
|
|
|
2006(3)(4)
|
|
|
2005
|
|
|
2004
|
|
|
2003(1)
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
|
$
|
240,209
|
|
|
$
|
240,650
|
|
|
$
|
180,317
|
|
Cost of goods sold
|
|
|
539,289
|
|
|
|
276,168
|
|
|
|
186,453
|
|
|
|
172,103
|
|
|
|
145,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
130,169
|
|
|
|
93,148
|
|
|
|
53,756
|
|
|
|
68,547
|
|
|
|
34,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
29,835
|
|
|
|
16,473
|
|
|
|
11,977
|
|
|
|
12,032
|
|
|
|
10,858
|
|
General and administrative
|
|
|
32,628
|
|
|
|
19,656
|
|
|
|
14,135
|
|
|
|
13,223
|
|
|
|
11,696
|
|
Amortization of definite-lived intangibles
|
|
|
4,126
|
|
|
|
1,786
|
|
|
|
1,202
|
|
|
|
1,202
|
|
|
|
1,202
|
|
Restructuring charges(2)
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
855
|
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
66,589
|
|
|
|
38,114
|
|
|
|
27,314
|
|
|
|
27,312
|
|
|
|
24,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
63,580
|
|
|
|
55,034
|
|
|
|
26,442
|
|
|
|
41,235
|
|
|
|
10,218
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(13,828
|
)
|
|
|
(3,394
|
)
|
|
|
(251
|
)
|
|
|
(515
|
)
|
|
|
(680
|
)
|
Interest income
|
|
|
1,379
|
|
|
|
4,419
|
|
|
|
2,126
|
|
|
|
664
|
|
|
|
340
|
|
Other, net
|
|
|
137
|
|
|
|
43
|
|
|
|
|
|
|
|
129
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and extraordinary item
|
|
|
51,268
|
|
|
|
56,102
|
|
|
|
28,317
|
|
|
|
41,513
|
|
|
|
9,890
|
|
Income tax (provision) benefit
|
|
|
(16,585
|
)
|
|
|
(21,063
|
)
|
|
|
2,524
|
|
|
|
(13,183
|
)
|
|
|
(3,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary item
|
|
|
34,683
|
|
|
|
35,039
|
|
|
|
30,841
|
|
|
|
28,330
|
|
|
|
5,989
|
|
Extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
$
|
28,330
|
|
|
$
|
7,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share, before extraordinary item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.69
|
|
|
$
|
0.15
|
|
Diluted
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
|
$
|
0.68
|
|
|
$
|
0.15
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.69
|
|
|
$
|
0.19
|
|
Diluted
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
|
$
|
0.68
|
|
|
$
|
0.18
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,242
|
|
|
|
41,740
|
|
|
|
41,232
|
|
|
|
40,780
|
|
|
|
39,993
|
|
Diluted
|
|
|
42,568
|
|
|
|
42,295
|
|
|
|
41,770
|
|
|
|
41,868
|
|
|
|
41,123
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$
|
22,772
|
|
|
$
|
12,178
|
|
|
$
|
9,290
|
|
|
$
|
8,213
|
|
|
$
|
7,774
|
|
Restructuring charges for impairment of building and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
855
|
|
|
|
446
|
|
|
|
|
(1) |
|
On December 26, 2002, we acquired Advanced Circuits, Inc
and in 2003, we recorded extraordinary gains related to this
acquisition. |
|
(2) |
|
We recorded restructuring charges in 2003 and 2004 related to
the closure of our Burlington, Washington facility and sale of
the building. The charges in 2003 and 2004 were to further write
down the value of the |
25
|
|
|
|
|
building and equipment. We recorded a restructuring charge in
2006 for severance for certain sales and administrative
employees of the acquiring business. See Note 3 to our
consolidated financial statements included herein. |
|
(3) |
|
Our results for the year ended December 31, 2006, include
65 days of activity of PCG, which we acquired on
October 27, 2006. |
|
(4) |
|
Effective January 1, 2006, we adopted Statement of
Financial Accounting Standards No. 123R, Share Based
Payment and began recording expense related to our stock
options. See Note 2 to our consolidated financial
statements included herein. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
98,839
|
|
|
$
|
127,405
|
|
|
$
|
111,224
|
|
|
$
|
82,645
|
|
|
$
|
52,352
|
|
Total assets
|
|
|
498,798
|
|
|
|
573,698
|
|
|
|
273,143
|
|
|
|
235,770
|
|
|
|
205,857
|
|
Long-term debt, including current maturities
|
|
|
85,000
|
|
|
|
200,705
|
|
|
|
|
|
|
|
|
|
|
|
7,777
|
|
Stockholders equity
|
|
|
328,594
|
|
|
|
287,315
|
|
|
|
243,952
|
|
|
|
211,626
|
|
|
|
178,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
(In thousands)
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
$
|
39,176
|
|
|
$
|
51,560
|
|
|
$
|
21,057
|
|
Cash flows provided by operating activities
|
|
|
73,984
|
|
|
|
32,784
|
|
|
|
31,027
|
|
|
|
48,810
|
|
|
|
18,582
|
|
Cash flows used in investing activities
|
|
|
(1,705
|
)
|
|
|
(234,579
|
)
|
|
|
(13,583
|
)
|
|
|
(9,276
|
)
|
|
|
(13,181
|
)
|
Cash flows (used in) provided by financing activities
|
|
|
(113,828
|
)
|
|
|
200,027
|
|
|
|
626
|
|
|
|
(5,989
|
)
|
|
|
863
|
|
|
|
|
(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. EBITDA is also
a key component in two of our debt covenant calculations under
our credit agreement: the leverage ratio and minimum interest
coverage ratio. However, the EBITDA amount determined under our
credit agreement is further adjusted to exclude certain
transaction costs and other non-cash charges (see
Managements Discussion and Analysis of Financial Condition
and Results of Operations). In addition, 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. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
$
|
28,330
|
|
|
$
|
7,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
16,585
|
|
|
|
21,063
|
|
|
|
(2,524
|
)
|
|
|
13,183
|
|
|
|
3,901
|
|
Interest expense
|
|
|
13,828
|
|
|
|
3,394
|
|
|
|
251
|
|
|
|
515
|
|
|
|
680
|
|
Depreciation of property, plant and equipment
|
|
|
22,772
|
|
|
|
12,178
|
|
|
|
9,290
|
|
|
|
8,213
|
|
|
|
7,774
|
|
Amortization of intangibles
|
|
|
4,242
|
|
|
|
1,903
|
|
|
|
1,318
|
|
|
|
1,319
|
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
57,427
|
|
|
|
38,538
|
|
|
|
8,335
|
|
|
|
23,230
|
|
|
|
13,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
$
|
39,176
|
|
|
$
|
51,560
|
|
|
$
|
21,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This financial review presents our operating results for each of
the three years in the period ended December 31, 2007, and
our financial condition at December 31, 2007. 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 review
should be read in connection with the information presented in
our consolidated financial statements and the related notes to
our consolidated financial statements.
OVERVIEW
We are a one-stop provider of time-critical and technologically
complex printed circuit boards (PCBs) and backplane assemblies,
which serve as the foundation of sophisticated electronic
products. We serve high-end commercial and aerospace/defense
markets including the networking/communications
infrastructure, high-end computing, defense, and
industrial/medical markets which are characterized
by high levels of complexity and moderate production volumes.
Our customers include original equipment manufacturers (OEMs),
electronic manufacturing services (EMS) providers, and
aerospace/defense companies. Our time-to-market and high
technology focused manufacturing services enable our customers
to reduce the time required to develop new products and bring
them to market.
On October 27, 2006, we completed the acquisition of PCG
from Tyco International Ltd. The total purchase price of this
acquisition was $226.8 million, excluding acquisition
costs. This acquisition enhanced our business in the following
ways:
|
|
|
|
|
positioned us as the largest PCB fabricator in North America as
well as the largest PCB fabricator in the aerospace/defense end
market;
|
|
|
|
expanded and diversified our customer base;
|
|
|
|
added complementary commercial PCB fabrication facilities to our
historic three commercial PCB manufacturing sites;
|
|
|
|
added global backplane and sub-system assembly capability;
|
|
|
|
entered the backplane assembly market in China with a facility
in Shanghai; and
|
|
|
|
expanded our engineering and materials expertise.
|
We measure customers as those companies that have placed at
least two orders in the preceding
12-month
period. As of December 31, 2007, we had approximately 900
customers and approximately 740 as of December 31,
27
2006. Sales to our 10 largest customers accounted for 44% and
53% of our net sales in 2007 and 2006, respectively. We sell to
OEMs both directly and indirectly through EMS companies. Sales
attributable to our five largest OEM customers accounted for
approximately 24% and 39% of our net sales in 2007 and 2006,
respectively.
The following table shows the percentage of our net sales
attributable to each of the principal end markets we served for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
End Markets(1)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Networking/Communications
|
|
|
42
|
%
|
|
|
43
|
%
|
|
|
46
|
%
|
Aerospace/Defense
|
|
|
30
|
|
|
|
16
|
|
|
|
8
|
|
Computing/Storage/Peripherals
|
|
|
14
|
|
|
|
29
|
|
|
|
34
|
|
Medical/Industrial/Instrumentation/Other
|
|
|
14
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Quick-turn orders decreased from approximately
17% of net PCB sales in 2006 to 15% of net PCB sales
in 2007 due to both higher demand for our standard lead-time,
high technology production services as well as the inclusion of
the PCG facilities, which focus primarily on standard lead-time
services. We also deliver a large percentage of compressed
lead-time work with lead times of 11 to 20 days. We receive
a premium price for this work as well. Purchase orders may be
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 printed circuit
boards and backplane assemblies using customer-supplied
engineering and design plans. We recognize revenues when
persuasive evidence of a sales arrangement exists, the sales
terms are fixed and determinable, title and risk of loss have
transferred, and collectibility is reasonably
assured generally when products are shipped to the
customer. Net sales consist of gross sales less an allowance for
returns, which typically has been less than 2% of gross sales.
We provide our customers a limited right of return for defective
printed circuit boards and backplane assemblies. We record an
estimated amount for sales returns and allowances at the time of
sale based on historical information.
Cost of goods sold consists of materials, labor, outside
services, and overhead expenses incurred in the manufacture and
testing of our products as well as stock-based compensation
expense. Many factors affect our gross margin, including
capacity utilization, product mix, production volume, and yield.
We do not participate in any significant long-term contracts
with suppliers, and we believe there are a number of potential
suppliers for the raw materials we use.
Selling and marketing expenses consist primarily of salaries and
commissions paid to our internal sales force and independent
sales representatives, salaries paid to our sales support staff,
stock-based compensation expense as well as costs associated
with marketing materials and trade shows. We generally pay
higher commissions to our independent sales representatives for
quick-turn work, which generally has a higher gross profit
component than standard lead-time work.
General and administrative costs primarily include the salaries
for executive, finance, accounting, information technology,
facilities and human resources personnel, as well as insurance
expenses, expenses for accounting and legal assistance,
incentive compensation expense, stock-based compensation
expense, and bad debt expense.
28
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. Management
bases its estimates on historical experience, the use of
independent valuation firms and licensed environmental
professionals, 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.
Accounting policies for which significant judgments and
estimates are made include asset valuation related to bad debts
and inventory obsolescence; 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 and individual
liabilities assumed when we acquire other businesses;
determining stock-based compensation expense, self-insured
medical reserves, asset retirement obligations and environmental
liabilities. A detailed description of these estimates and our
policies to account for them is included in the notes to our
consolidated financial statements in this report.
Allowance
for Doubtful Accounts
We provide customary credit terms to our customers and generally
do not require collateral. We perform ongoing credit evaluations
of the financial condition of our customers and maintain an
allowance for doubtful accounts based upon historical
collections experience and expected collectibility of accounts.
Our actual bad debts may differ from our estimates.
Inventories
In assessing the realization of inventories, we are required to
make judgments as to future demand requirements and compare
these with current and committed inventory levels. Provision is
made to reduce excess and obsolete inventories to their
estimated net realizable value. Our inventory requirements may
change based on our projected customer demand, changes due to
market conditions, technological and product life cycle changes,
longer or shorter than expected usage periods, and other factors
that could affect the valuation of our inventories. We maintain
certain finished goods inventories near certain key customer
locations in accordance with agreements. Although this inventory
is typically supported by valid purchase orders, should these
customers ultimately not purchase these inventories, our results
of operations and financial condition would be adversely
affected.
Revenue
Recognition
We derive revenues primarily from the sale of printed circuit
boards and backplane assemblies using customer-supplied
engineering and design plans and 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. We provide our customers a limited right of return for
defective printed circuit boards and backplane assemblies. We
accrue an estimated amount for sales returns and allowances at
the time of sale based on historical information. To the extent
actual experience varies from our historical experience,
revisions to these allowances may be required.
Long-lived
Assets
We have significant long-lived tangible and intangible assets
consisting of property, plant and equipment, definite-lived
intangibles, and goodwill. We review these assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. In
addition, we perform an impairment test related to goodwill at
least annually, with the assistance of a third party valuation
firm. Our goodwill and intangibles are largely attributable to
our acquisitions of other businesses. During the fourth fiscal
29
quarter 2007, we performed an impairment assessment of our
goodwill, which requires the use of a fair-value based analysis
and determined that no impairment existed. At December 31,
2007, we determined that there were no events or changes in
circumstances that indicated that the carrying amount of
long-lived tangible assets and definite-lived intangible assets
may not be recoverable. We use an estimate of the future
undiscounted net cash flows in measuring whether our long-lived
tangible assets and definite-lived intangible assets are
recoverable. If forecasts and assumptions used to support the
realizability of our 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
We account for derivative financial instruments and hedging
activities in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment of FAS 133 and
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. We do not use
derivative financial instruments for trading or speculative
purposes and current derivative financial instruments are
limited to a single interest rate swap agreement.
When an interest rate swap derivative contract is executed, we
designate the derivative instrument as a hedge of the
variability of cash flows to be paid (cash flow hedge). For its
hedging relationship, 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 sheets with
measurement at fair value. On a quarterly basis, the fair value
of our interest rate swap is determined based on current market
quotes for the underlying LIBOR interest rate. These values
represent the estimated amount the Company would receive or pay
to terminate the agreement taking into consideration the
difference between the contract rate of interest and rates
currently quoted for agreements of similar terms and maturities.
The value of the actual difference between the market rate and
the hedged rate applied to the notional value of the hedge is
recorded to interest expense each period. To the extent the
interest rate swap provides an effective hedge, the differences
between the fair value and the book value of the interest rate
swap are recognized in accumulated other comprehensive income,
net of tax, as a component of stockholders equity.
Income
Taxes
Deferred income tax assets are reviewed for recoverability, and
valuation allowances are provided, when necessary, to reduce
deferred tax assets to the amounts expected to be realized. At
December 31, 2007, we have net deferred income tax assets
of $4.4 million and no valuation allowance. Should our
expectations of taxable income change in future periods, it may
be necessary to establish a valuation allowance, which could
affect our results of operations in the period such a
determination is made. In addition, we record income tax
provision or benefit during interim periods at a rate that is
based on expected results for the full year. If we reestablish a
valuation allowance subsequent to December 31, 2007, and
then determine that it is more likely than not that some or all
of our deferred income tax assets would be realizable in an
amount greater than what already is recorded, we would reverse
all or a portion of valuation allowance in the period the
determination is made. 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.
Business
Combinations
We apply the provisions of purchase accounting when recording
our acquisitions. Application of purchase accounting requires
that we estimate the fair value of the individual assets
acquired and liabilities assumed of a business. Determination of
the fair value of the assets involves a number of judgments and
estimates. In our acquisitions to date, we engaged an outside
valuation firm to provide us with an appraisal report, which we
utilized
30
in determining the purchase price allocation. The allocation of
the purchase price to different asset classes impacts the
depreciation and amortization expense we subsequently record.
The principal assets we have acquired to date are receivables,
inventory, real estate, property and equipment, as well as
intangible assets such as customer relationships. The principal
liabilities we have assumed to date are payables, asset
retirement obligations and future environmental remediation
obligations. The fair values assigned to the assets acquired and
liabilities assumed in our 2006 acquisition of Tyco Printed
Circuit Group have been finalized as of December 31, 2007.
Share-Based
Awards
Effective January 1, 2006, we adopted the fair value
recognition provisions of SFAS No. 123R,
Share-Based Payments, (SFAS 123R) using the modified
prospective transition method, and therefore have not restated
prior periods results. Under this method we recognize
compensation expense for all share-based payments granted on and
after January 1, 2006, and prior but not yet vested as of
January 1, 2006, in accordance with SFAS 123R. Under
the fair value recognition provisions of SFAS 123R, we
recognize stock-based compensation net of an estimated
forfeiture rate and only recognize compensation cost for those
shares expected to vest over the requisite service period of the
award using a straight-line method. Prior to
SFAS No. 123R adoption, we accounted for share-based
payments under APB No. 25, Accounting for Stock Issued
to Employees, and therefore we generally recognized
compensation expense only when we granted options with an
exercise price below the market price on the date of grant.
We estimate the value of share-based restricted stock unit
awards on the date of grant using the closing share price. We
estimate the value of share-based option awards on the date of
grant using the Black-Scholes option pricing model. Calculating
the fair value of share-based option payment awards requires the
input of highly subjective assumptions, including the expected
term of the share-based payment awards and expected stock price
volatility. The expected term represents the average time that
options that vest are expected to be outstanding. The expected
volatility rates are estimated based on a weighted average of
the historical volatilities of our common stock. The assumptions
used in calculating the fair value of share-based payment awards
represent our best estimates, but these estimates involve
inherent uncertainties and the application of our judgment. As a
result, if factors change and we use different assumptions, our
stock-based compensation expense could be materially different
in the future. In addition, we are required to estimate the
expected forfeiture rate and only recognize expense for those
shares expected to vest. We have currently estimated our
forfeiture rate to be 7 percent. If our actual forfeiture
rate is materially different from our estimate, the stock-based
compensation expense could be significantly different from what
we have recorded in the current period. For the year ended
December 31, 2007, share-based compensation expense was
$3.4 million. At December 31, 2007, total unrecognized
estimated compensation expense related to non-vested stock
options was $3.4 million, which is expected to be
recognized over a weighted-average period of 1.14 years. At
December 31, 2007, $3.3 million of total unrecognized
compensation cost related to restricted stock units is expected
to be recognized over a weighted-average period of
1.05 years.
Self
Insurance
We are self-insured for group health insurance benefits provided
to our employees, and we purchase insurance to protect against
claims at the individual and aggregate level. The insurance
carrier adjudicates and processes employee claims and is paid a
fee for these services. We reimburse our insurance carrier for
paid claims subject to variable monthly limitations. We estimate
our exposure for claims incurred but not paid at the end of each
reporting period and use historical information supplied by our
insurance carrier and broker on an annual basis to estimate our
liability for these claims. This liability is subject to an
aggregate stop-loss that varies based on employee enrollment and
factors that are established at each annual contract renewal.
Our actual claims experience may differ from our estimates.
Asset
Retirement Obligation and Environmental
Liabilities
We establish liabilities for the costs of asset retirement
obligations when a legal or contractual obligation exists to
dispose of or restore an asset upon its retirement and the
timing and cost of such work is reasonably estimable. We record
such liabilities only when such timing and costs are reasonably
determinable. In addition, we accrue an
31
estimate of the costs of environmental remediation for work at
identified sites where an assessment has indicated it is
probable that cleanup costs are or will be required and may be
reasonably estimated. In making these estimates, we consider
information that is currently available, existing technology,
enacted laws and regulations, and our estimates of the timing of
the required remedial actions, and we discount these estimates
at 8%. We may use outside environmental consultants to assist us
in making these estimates. We also are required to estimate the
amount of any probable recoveries, including insurance
recoveries.
RESULTS
OF OPERATIONS
The following table sets forth the relationship to net sales of
various items in our consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
80.6
|
|
|
|
74.8
|
|
|
|
77.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
19.4
|
|
|
|
25.2
|
|
|
|
22.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
5.0
|
|
General and administrative
|
|
|
4.9
|
|
|
|
5.3
|
|
|
|
5.9
|
|
Amortization of definite-lived intangibles
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9.9
|
|
|
|
10.3
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9.5
|
|
|
|
14.9
|
|
|
|
11.0
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2.0
|
)
|
|
|
(0.9
|
)
|
|
|
(0.1
|
)
|
Interest income
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
0.9
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(1.8
|
)
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7.7
|
|
|
|
15.2
|
|
|
|
11.8
|
|
Income tax (provisions) benefit
|
|
|
(2.5
|
)
|
|
|
(5.7
|
)
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5.2
|
%
|
|
|
9.5
|
%
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The year ended December 31, 2007 includes a full year of
results of operations from PCG facilities compared to only
65 days for the year ended December 31, 2006 as the
acquisition occurred on October 27, 2006. The acquisition
has had and will continue to have a significant effect on our
operations as discussed in the various comparisons noted below.
The Company has two reportable segments: PCB Manufacturing and
Backplane Assembly. Prior to our acquisition of PCG we had one
reportable segment. These reportable segments are managed
separately because they distribute and manufacture distinct
products with different production processes. PCB Manufacturing
fabricates printed circuit boards. Backplane Assembly is a
contract manufacturing business that specializes in assembling
backplanes into subassemblies and other complete electronic
devices. PCB Manufacturing customers are either EMS companies or
OEM companies, while Backplane Assembly customers are usually
OEMs. Our Backplane Assembly segment includes our Hayward,
California and Shanghai, China plants and our Ireland sales and
distribution infrastructure. Our PCB Manufacturing segment is
composed of nine domestic PCB fabrication plants, of which one
was closed during the second quarter 2007, and a facility which
provides follow on value-added
32
services primarily for one of the PCB Manufacturing plants. The
following table compares net sales by reportable segment for the
years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB Manufacturing
|
|
$
|
578,840
|
|
|
$
|
353,734
|
|
|
$
|
240,209
|
|
Backplane Assembly
|
|
|
124,337
|
|
|
|
22,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
703,177
|
|
|
|
376,091
|
|
|
|
240,209
|
|
Inter-company sales
|
|
|
(33,719
|
)
|
|
|
(6,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
|
$
|
240,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net sales increased $300.2 million, or 81.3%, from
$369.3 million in 2006 to $669.5 million in 2007 due
to several factors, including the addition of a full year of
results from the acquired PCG facilities, and higher pricing.
The increase in net sales reflects an increase of
$320.9 million from our PCG facilities, an increase of
$6.2 million from our historical operations, offset by a
$26.9 million increase in
inter-company
sales. The Backplane Assembly segment accounted for
$94.4 million of this net sales increase, and the PCG
printed circuit board operations accounted for the remaining
$226.5 million. Printed circuit board volume increased
approximately 43% due to the full year inclusion of the PCG
operations. Pricing increased approximately 5% primarily due to
a full year of results from the PCG facilities, which tend to
have higher average pricing. The increase in pricing was driven
equally by increases in quick-turn and standard product pricing.
Our quick-turn production, which generally is characterized by
higher prices, decreased from 17% of PCB revenue in 2006 to 15%
of PCB revenue in 2007 due to both higher demand for our
standard lead-time, high technology production services as well
as the full year inclusion of results from the PCG facilities,
which focus primarily on standard lead-time services.
Net sales increased $129.1 million, or 53.7%, from
$240.2 million in 2005 to $369.3 million in 2006 due
to several factors, including the addition of the PCG
facilities, and both increased prices and production volume at
the three historical TTM Technologies plants. Of the
$129.1 million increase in net sales, $72.9 million
resulted from our PCG acquisition, including $22.4 million
from the Backplane Assembly segment. Volume increased
approximately 26% primarily due to higher demand from our
customers for our products. Prices rose approximately 12% due to
increased demand for PCBs as well as a shift in production mix
toward more high technology production. Our quick-turn
production, which generally is characterized by higher prices,
decreased from 22% of PCB revenue in 2005 to 17% of PCB revenue
in 2006 due to both higher demand for our standard lead-time,
high technology production services as well as the inclusion of
the PCG facilities, which focus primarily on standard lead-time
services.
Cost
of Goods Sold
Cost of goods sold increased $263.1 million, or 95.3%, from
$276.2 million for 2006 to $539.3 million for 2007.
Cost of goods sold rose due to several factors, including the
addition of a full year of results for the PCG facilities,
especially from the Backplane Assembly operations, which have
inherently higher cost content and lower margins. Likewise,
higher material prices contributed to the increase in cost of
goods sold from 2006 to 2007. Cost of goods sold in 2006
included $4.0 million of manufacturing profit added to PCG
inventories at the acquisition date, that was expensed during
2006. A similar adjustment increased cost of goods sold for 2007
by $0.2 million. As a percentage of net sales, cost of
goods sold increased from 74.8% for 2006 to 80.6% for 2007.
Cost of goods sold increased $89.7 million, or 48.1%, from
$186.5 million for 2005 to $276.2 million for 2006.
Cost of goods sold rose due to several factors, including the
addition of the PCG facilities, and both increased material
prices and production volume at the three historic TTM
Technologies plants. Adding to this increase in cost of goods
sold was higher repair and maintenance costs, higher utilities
costs, and higher depreciation expense. The increase in cost of
goods sold included approximately $4.0 million for the
value of the manufacturing profit added to the PCG inventories
at the acquisition date. In addition, higher wage rates, greater
headcount, increased incentive
33
compensation, and the inclusion of stock option expense led to
increased labor costs. As a percentage of net sales, cost of
goods sold decreased from 77.6% for 2005 to 74.8% for 2006
primarily due to increased pricing and greater absorption of
fixed costs due to increased production.
Gross
Profit
As a result of the foregoing regarding cost of goods sold, gross
profit increased $37.1 million, or 39.8%, from
$93.1 million for 2006 to $130.2 million for 2007. Our
gross margin decreased from 25.2% in 2006 to 19.4% in 2007. The
decrease in our gross margin was largely due to inclusion of a
full year of results from our Backplane Assembly operations,
which have inherently lower gross margins. Additionally,
slightly lower volume at our PCB Manufacturing operations
reduced absorption of fixed costs at some of our plants further
reducing gross margin. Printed circuit board manufacturing is a
multi-step process that requires a certain level of equipment
and staffing for even minimal production volumes. As production
increases, our employees are able to work more efficiently and
produce more printed circuit boards without incurring
significant cost increases. However, at higher capacity
utilization rates, additional employees and capital may be
required.
For the year ended December 31, 2006, gross profit
increased $39.3 million, or 73.0%, from $53.8 million
for 2005 to $93.1 million for 2006. Our gross margin
increased from 22.4% in 2005 to 25.2% in 2006. The increase in
our gross margin was due to higher sale prices for our products
as well as lower cost of goods sold as a percent of net sales,
which increased due to the factors discussed above, partially
offset by Backplane Assembly sales, which have inherently lower
gross margins. This increase in gross margin was fueled by
increased absorption of fixed costs due to increased production.
Selling
and Marketing Expenses
Selling and marketing expenses increased $13.3 million, or
80.6%, from $16.5 million for 2006 to $29.8 million
for 2007, due to inclusion of a full year of results of the PCG
facilities in 2007. As a percentage of net sales, selling and
marketing expenses decreased slightly from 4.5% in 2006 to 4.4%
in 2007. The components of selling and marketing expenses as a
percent of net sales did not change significantly from 2006 to
2007.
Selling and marketing expenses increased $4.5 million, or
37.5%, from $12.0 million for 2005 to $16.5 million
for 2006, primarily due to the inclusion of the PCG facilities
in our results for 2006 as well as higher commission expense due
to higher revenue. As a percentage of net sales, selling and
marketing expenses decreased from 5.0% in 2005 to 4.5% in 2006
due to greater absorption of fixed costs. The mix of selling and
marketing expenses did not change significantly from 2005 to
2006.
General
and Administrative Expense
General and administrative expenses increased $12.9 million
from $19.7 million, or 5.3% of net sales, for 2006 to
$32.6 million, or 4.9% of net sales, for 2007. The increase
in expenses resulted primarily from the inclusion of the PCG
facilities in our results for the full year of 2007. Other
factors that increased general and administrative expense were
higher stock-based compensation expense from a greater number of
employees participating in our equity award program as well as
increased accounting, legal and consulting expenses related to
integration of the acquisition as well as bringing the newly
acquired PCG facilities into Sarbanes Oxley compliance during
2007. General and administrative expenses decreased as a
percentage of net sales, primarily due to greater absorption of
these costs over a larger revenue base.
General and administrative expenses increased $5.6 million
from $14.1 million, or 5.9% of net sales, for 2005 to
$19.7 million, or 5.3% of net sales, for 2006. The increase
in expenses resulted primarily from the inclusion of the PCG
facilities in our results for 2006. Other factors that increased
general and administrative expense were higher incentive
compensation and stock-based compensation expense as well as
increased accounting, legal fees and consulting expenses related
to completion and integration of the acquisition. General and
administrative expenses decreased as a percentage of net sales,
primarily due to greater absorption of these costs over a larger
revenue base.
34
Amortization
of
Definite-lived
Intangibles
Amortization expense related to definite-lived intangibles
increased $2.3 million to $4.1 million, or 0.6% of net
sales, in 2007 compared to $1.8 million, or 0.5% of net
sales, in 2006. Similarly, amortization expense related to
definite-lived intangibles increased $0.6 million to
$1.8 million, or 0.5% of net sales, in 2006 compared to
$1.2 million, or 0.5% of net sales, in 2005. The increase
in amortization expense for both 2007 and 2006 is primarily due
to the increase in strategic customer relationship intangibles
related to the PCG acquisition in October 2006.
Restructuring
Charges
In the fourth fiscal quarter 2006, we recorded a restructuring
charge of $0.2 million related to realigning certain sales
and administrative functions.
Other
Income (Expense)
Other income (expense) declined $13.4 million from income
of $1.1 million in 2006 to expense of $12.3 million in
2007. This net decrease resulted from an increase of
$10.4 million in interest expense and the accelerated
amortization of debt issuance costs related to our
$200 million senior secured term loan used to fund the
acquisition of PCG, and a decrease of $3.0 million in
interest income primarily from interest earned on lower balances
of cash and cash equivalents.
Other income (expense) declined $0.8 million from income of
$1.9 million in 2005 to income of $1.1 million in
2006. This net decrease resulted from an increase of
$3.1 million in interest expense and amortization of debt
issuance costs due to early repayment of outstanding principle
balance of our $200 million senior secured term loan used
to fund the acquisition of PCG, net of an increase of
$2.3 million from interest earned on higher balances in
cash and cash equivalents and short-term investments for most of
2006.
Income
Taxes
The provision for income taxes decreased from $21.1 million
for 2006 to $16.6 million for 2007. The decrease in income
tax provision from 2006 to 2007 resulted from the release of the
valuation allowance of $2.7 million to reflect the our
ability to utilize state tax credit carryforwards, lower pretax
income in 2007, and a lower effective tax rate for 2007. Our
effective tax rate was 37.5% in 2006 and our effective tax rate
is 32.3% in 2007. Excluding the favorable impacts to our tax
provision resulting from the decreases in our valuation
allowance in 2007, our effective tax rate in 2007 was 37.0%. Our
effective tax rate is primarily impacted by the federal income
tax rate; apportioned state income tax rates; utilization of
other credits and deductions available to us; and certain
non-deductible items.
The provision for income taxes increased from a
$2.5 million benefit for 2005 to a $21.1 million
provision for 2006. The change from an income tax benefit in
2005 to an income tax provision in 2006 resulted from a
favorable valuation allowance adjustment in 2005, higher pretax
income in 2006, and a higher effective tax rate for 2006. Our
effective tax benefit rate was 8.9% in 2005, and our effective
tax provision rate was 37.5% in 2006. Our effective tax rate is
primarily impacted by the federal income tax rate; apportioned
state income tax rates; utilization of other credits and
deductions available to us; and certain non-deductible items.
During 2006, reversal of approximately $0.1 million of
valuation allowance slightly impacted our effective tax rate.
Liquidity
and Capital Resources
Our principal sources of liquidity have been cash provided by
operations, borrowings under our senior secured credit facility,
and proceeds from employee exercises of stock options. Our
principal uses of cash have been to finance acquisitions, meet
debt service requirements, finance capital expenditures, and
fund working capital requirements. We anticipate that servicing
debt, funding working capital requirements, and financing
capital expenditures will continue to be the principal demands
on our cash in the future. On October 27, 2006, we
completed the PCG acquisition for $226.8 million, excluding
acquisition costs. This purchase price was paid using some of
our available cash and cash equivalents as well as proceeds from
our $200 million senior secured term loan. Additionally, we
supplemented the senior secured term loan with a
$40 million senior secured revolving credit facility.
35
As of December 31, 2007, we had net working capital of
approximately $98.8 million, compared to
$127.4 million as of December 31, 2006. The decrease
in working capital is primarily attributable to a reduction in
cash and short-term investments which was used to reduce our
overall debt outstanding.
Net cash provided by operating activities was $74.0 million
in 2007 compared to $32.8 million in 2006 and
$31.0 million in 2005. Our 2007 operating cash flow of
$74.0 million, which significantly benefited from the
acquisition of PCG, primarily reflects net income of
$34.7 million, $30.7 million of depreciation and
amortization, $3.4 million of stock-based compensation, a
decrease in net deferred income tax assets of $1.8 million,
and a net decrease in working capital of $3.5 million. Our
2006 operating cash flow of $32.8 million as compared to
2005 primarily reflects net income of $35.0 million,
$14.5 million of depreciation and amortization,
$1.6 million of stock-based compensation, a decrease in
deferred income tax assets of $4.9 million, partially
offset by a net increase in working capital of
$21.8 million, excluding cash and short-term investments.
Net cash used in investing activities was $1.7 million in
2007, compared to $234.6 million in 2006 and
$13.6 million in 2005. In 2006, we acquired the PCG
business and used cash of $230.9 million, which is net of
the cash acquired and includes the direct acquisition costs. In
2007, we made net purchases of approximately $12.7 million
of property, plant, and equipment, offset by proceeds of
$11.0 million from the redemption of short-term
investments. In 2006, we made net purchases of approximately
$14.1 million of property, plant, and equipment, offset by
a reduction of $10.4 million in our net short-term
investments.
Net cash used in financing activities was $113.8 million in
2007, compared to cash provided of $200.0 million in 2006
and $0.6 million in 2005. Our 2007 financing net cash used
reflects repayments of $115.7 million of debt, partially
offset by proceeds of $1.7 million from employee stock
option exercises and $0.2 million from other factors. Our
2006 financing net cash flow reflects proceeds of
$200.0 million from issuance of debt, approximately
$5.0 million from employee stock option exercises and
$0.9 million from a variety of other factors, partially
offset by payment of $5.9 million of debt issuance costs
for our senior secured term loan and revolving credit facility.
As of December 31, 2007, we had $85.0 million of
long-term debt obligations outstanding under our senior secured
term loan facility and no borrowing outstanding under our senior
secured revolving credit facility. Beginning with our adoption
of SFAS 123R on January 1, 2006, the excess of tax
benefits upon exercise of common stock options is reported as a
cash flow from financing activities.
Our 2008 capital expenditure plan is expected to total
approximately $23 million and will fund capital equipment
purchases to increase capacity and expand our technological
capabilities throughout our facilities.
In connection with the PCG acquisition, the Company is involved
in various stages of investigation and cleanup related to
environmental remediation at two Connecticut sites and is
obligated to investigate a third Connecticut site. The Company
currently estimates that it will incur remediation costs of
$0.8 million to $1.3 million over the next 12 to
84 months related to these matters. In addition, the
Company has obligations to the Connecticut Department of
Environmental Protection to make certain environmental asset
improvements to the waste water treatment systems in two
Connecticut plants. These costs are estimated to be
$0.7 million and have been considered in the Companys
capital expenditures plan for 2008. Lastly, we are required to
maintain a compliance management plan through July 2009 under a
compliance agreement with the US Environmental Protection Plan,
assumed from Tyco.
On October 27, 2006, we entered into a credit agreement
(the Credit Agreement) with certain lenders led by UBS
Securities LLC. The Credit Agreement consists of a
$200 million senior secured term loan, which matures in
October 2012 and a $40 million senior secured revolving
loan facility, which matures in October 2011. The Credit
Agreement is secured by substantially all of our domestic assets
and 65% of foreign assets. The senior secured revolving loan
facility also contains a $10 million letter of credit
sub-facility. The Credit Agreement is rated BB+ by Standard and
Poors and B1 by Moodys.
Borrowings under the Credit Agreement will bear interest at a
floating rate of either a base rate (the Alternate Base Rate)
plus an applicable interest margin or LIBOR plus an applicable
interest margin. The Alternate Base Rate is equal to the greater
of (i) the federal funds rate plus 0.50% or (ii) the
prime rate. Borrowings under the Credit Agreement, at our
option, will initially bear interest at a rate based on either:
(a) the Alternate Base Rate plus 1.25% or (b) LIBOR
plus 2.25%. For the senior secured revolving loan facility, the
applicable interest margins on both Alternate Base Rate and
36
LIBOR may decrease by up to 0.50% if our total leverage ratio
decreases as defined under the terms of the Credit Agreement.
There is no provision, other than an event of default, for these
interest margins to increase. At December 31, 2007 and 2006
the weighted average interest rate on the outstanding borrowings
was 7.34% and 8.51%, respectively.
Each calendar year we are required to repay 1% of the
outstanding senior secured term loan balance, subject to
specific adjustments, as defined in the Credit Agreement. We do
not have a contractual maturity payment due in 2008, however we
expect to repay $40 million during the next fiscal year.
Borrowings under the Credit Agreement are subject to certain
financial and operating covenants that include, among other
provisions, limitations on dividends, stock repurchases, and
stock redemptions in addition to maintaining maximum total
leverage ratios and minimum interest coverage ratios. We are in
compliance with these covenants at December 31, 2007.
We are also required to pay a commitment fee of 0.50% per annum
on the unused portion of the senior revolving loan facility. As
of December 31, 2007, $0.3 million of the standby
letter of credit was outstanding. Available borrowing capacity
under the senior secured revolving loan facility was
$39.7 million at December 31, 2007.
Based on our current level of operations, we believe that cash
generated from operations, available cash and amounts available
under our five-year senior secured $40 million revolving
credit facility will be adequate to meet our currently
anticipated debt service, capital expenditure, and working
capital needs for the next 12 months and beyond.
Additionally, on January 15, 2008, we submitted a universal
shelf registration statement with the U.S. Securities and
Exchange Commission (SEC) for the registration and potential
issuance of up to $200 million of securities, which may
include common stock, preferred stock, convertible debt or any
combination thereof. Upon being declared effective by the SEC,
the shelf registration statement will allow us to sell the
various securities in one or more offerings in the future. We
have no immediate plans to sell any securities under this shelf
registration. A prospectus supplement will describe the terms of
any particular offering made under the universal shelf
registration statement. We may use all or a portion of the net
proceeds to fund potential investments in, and acquisitions of,
companies, businesses, partnerships, minority investments,
products or technologies. Currently, there are no commitments or
agreements regarding any such acquisitions or investments.
Our principal liquidity needs for periods beyond the next
12 months are to meet debt service requirements as well as
for other contractual obligations as indicated in our
contractual obligations table below and for capital purchases
under our annual capital expenditure plan.
Contractual
Obligations and Commitments
The following table provides information on contractual
obligations as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations(1)(2)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
7,669
|
|
|
$
|
2,759
|
|
|
$
|
3,055
|
|
|
$
|
630
|
|
|
$
|
1,225
|
|
Purchase obligations
|
|
|
866
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
|
85,000
|
|
|
|
40,000
|
|
|
|
459
|
|
|
|
44,541
|
|
|
|
|
|
Interest on debt obligations(3)
|
|
|
17,553
|
|
|
|
4,810
|
|
|
|
6,701
|
|
|
|
6,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
111,088
|
|
|
$
|
48,435
|
|
|
$
|
10,215
|
|
|
$
|
51,213
|
|
|
$
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
FIN 48 unrecognized tax benefits of $0.4 million are
not included in the table above as we are not sure when the
amount will be paid. |
|
(2) |
|
Environmental liabilities of $0.9 million, not included in
the table above, are accrued and recorded as long-term
liabilities in the consolidated balance sheet. |
|
(3) |
|
For variable rate debt, interest is based upon the rates in
effect at December 31, 2007, adjusted for the impact of our
interest rate hedge. |
37
Impact of
Inflation
We believe that our results of operations are not dependent upon
moderate changes in the inflation rate as we expect that we
generally will be able to continue to pass along component price
increases to our customers.
Seasonality
We have historically experienced some seasonality in our second
and third fiscal quarters in our computing/storage/peripherals
end market.
Recently
Issued Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (SFAS 141(R)). SFAS 141(R) changes
the requirements for an acquirers recognition and
measurement of the assets acquired and the liabilities assumed
in a business combination. SFAS 141(R) is effective for
annual periods beginning after December 15, 2008 and should
be applied prospectively for all business combinations entered
into after the date of adoption. We expect the impact of
adopting SFAS 141(R) will depend on future acquisitions.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements an amendment of
ARB No. 51 (SFAS 160). SFAS 160 requires
(i) that noncontrolling (minority) interests be reported as
a component of shareholders equity, (ii) that net
income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statement
of operations, (iii) that changes in a parents
ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) that
any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair
value, and (v) that sufficient disclosures are provided
that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners.
SFAS 160 is effective for annual periods beginning after
December 15, 2008 and should be applied prospectively.
However, the presentation and disclosure requirements of the
statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of Statement
No. 160 is not anticipated to materially impact our
consolidated financial position and results of operations.
In February 2007, FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities
(SFAS 159), was released. SFAS 159 provides
companies with an option to report selected financial assets and
liabilities at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. FAS 159 will
be effective January 1, 2008. We are currently evaluating
the potential effect of SFAS 159 on our financial
statements. However, the adoption of SFAS 159 is not
expected to have an impact on our consolidated financial
statements as we have elected not to report selected financial
assets and liabilities at fair value.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, (SFAS 157), which defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS 157
applies under other accounting pronouncements that require or
permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS 157 are
effective beginning January 1, 2008. Subsequently, the FASB
provided for a one-year deferral of the provisions of
SFAS 157 for non-financial assets and liabilities that are
recognized or disclosed at fair value in the consolidated
financial statements on a non-recurring basis. We are currently
evaluating the impact of adopting the provisions of
SFAS 157 for non-financial assets and liabilities that are
recognized or disclosed on a non-recurring basis. The adoption
of SFAS 157 for financial assets and liabilities is not
anticipated to have a material impact on our consolidated
financial statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate Risk. Our interest income and
expense is more sensitive to fluctuation in the general level of
U.S. interest rates than to changes in rates in other
markets. Changes in U.S. interest rates affect the interest
earned on cash and cash equivalents and interest expense on debt.
38
On January 25, 2007, we entered into a three-year
pay-fixed, receive floating
(3-month
LIBOR), amortizing interest rate swap arrangement with a
notional amount of $70 million. The interest rate swap
applied a fixed interest rate against the first interest
payments of the portion of the $200 million six-year term
senior loan arrangement. The notional amount of the interest
rate swap amortizes to zero over its term, consistent with our
planned debt pay down and the Credit Agreements
requirement of maintaining interest rate protection on at least
40% of term senior loan debt for a minimum of three years. The
notional value underlying the hedge at December 31, 2007
was $56 million. Under the terms of the interest rate swap,
we pay a fixed rate of 5.21% and receive floating
3-month
LIBOR which was 5.08% at December 31, 2007. The fair value
of the interest rate swap as of December 31, 2007, was a
liability of $1.0 million.
At December 31, 2007, we had $85 million of variable
rate debt, of which $56 million is effectively fixed by our
three-year pay-fixed, receive floating interest rate swap. If
interest rates on the remaining $29 million variable rate
debt were to increase or decrease by 1% for the year, annual
interest expense would increase or decrease by approximately
$0.3 million based on the amount of outstanding variable
rate debt at December 31, 2007.
Foreign Currency Exchange Risk. We are subject
to risks associated with transactions that are denominated in
currencies other than the US dollar, as well as the effects of
translating amounts denominated in a foreign currency to the US
dollar as a normal part of the reporting process. Our Chinese
operations utilize the Chinese Yuan or RMB as the functional
currency, which results in the Company recording a translation
adjustment that is included as a component of accumulated other
comprehensive income within our statement of stockholders
equity. Net foreign currency transaction gains or losses on
transactions denominated in currencies other than the US dollar
were $0.1 million gain and $0.1 million loss during
the fiscal year ended December 31, 2007 and 2006,
respectively. There were no foreign currency transaction gains
or losses for the year ended December 31, 2005. We
currently do not utilize any derivative instruments to hedge
foreign currency risks.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Reference is made to the financial statements, the report
thereon, the notes thereto, and the supplementary data
commencing at
page F-1
of this report, which financial statements, report, notes, and
data are included herein.
The following unaudited selected quarterly results of operations
data for the years ended December 31, 2007 and 2006 have
been derived from the Companys unaudited consolidated
financial statements, which in the opinion of management have
been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the
information for the quarters presented. This information should
be read in conjunction with the consolidated financial
statements and the related notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included as part of this
Form 10-K.
The operating results for the quarters presented are not
necessarily indicative of the operating results of any future
period. The Company uses a 13-week fiscal quarter accounting
period with the first quarter ending on the Monday closest to
April 1 and the fourth quarter always ending on
December 31. The first and fourth quarters of 2007
contained 92 and 91 days, and for 2006, the first and
fourth quarters contained 93 and 90 days, respectively.
|
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|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
176,897
|
|
|
$
|
162,016
|
|
|
$
|
163,079
|
|
|
$
|
167,466
|
|
Gross profit
|
|
|
34,721
|
|
|
|
29,546
|
|
|
|
31,245
|
|
|
|
34,657
|
|
Net income
|
|
|
8,465
|
|
|
|
6,184
|
|
|
|
8,201
|
|
|
|
11,833
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.15
|
|
|
$
|
0.19
|
|
|
$
|
0.28
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.15
|
|
|
$
|
0.19
|
|
|
$
|
0.28
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
72,688
|
|
|
$
|
76,683
|
|
|
$
|
75,765
|
|
|
$
|
144,180
|
|
Gross profit
|
|
|
20,203
|
|
|
|
22,969
|
|
|
|
22,477
|
|
|
|
27,499
|
|
Net income
|
|
|
8,811
|
|
|
|
10,556
|
|
|
|
10,523
|
|
|
|
5,149
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.21
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.12
|
|
Diluted
|
|
$
|
0.21
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.12
|
|
During the fourth quarter of fiscal 2006, we acquired the
operations of PCG, which significantly affected our net sales,
gross profit, and net income for that period. We also incurred
significant operating costs related to integrating the PCG
acquisition that impacted net income for that period. Gross
profit was negatively impacted by approximately
$4.0 million for the value of the manufacturing profit
added to the PCG inventories at the acquisition date. These
inventories were substantially sold during the fourth quarter of
2006. Gross margins also were affected by the inclusion of
PCGs Backplane Assembly operations, which inherently carry
a lower gross margin than printed circuit board manufacturing.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
An evaluation was performed under the supervision of and with
the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rule 13(a)-15(e)) as of
December 31, 2007. Based on that evaluation, our
management, including the CEO and CFO, concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported as
specified in the SECs rules and forms. There has been no
change in our internal control over financial reporting during
the three months ended December 31, 2007, that has
materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
internal control over financial reporting (as such item is
defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f))
to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our
evaluation under the framework in
40
Internal Control Integrated Framework, our
management concluded that our internal control over financial
reporting is effective as of December 31, 2007.
The Companys independent registered public accounting
firm, KPMG LLP, has issued an attestation report on the
Companys internal control over financial reporting, which
is included on
page F-2
of this report.
Inherent
Limitations on Effectiveness of Controls
Our management, including our principal 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. The design of any system of controls is based in
part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with policies or
procedures.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not Applicable
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information required by this Item relating to our directors
is incorporated herein by reference to the definitive Proxy
Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2008 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 2008 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 2008 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 2008 Annual
Meeting of Stockholders.
41
|
|
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 2008 Annual
Meeting of Stockholders.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements and Financial Statement
Schedule
(1) Financial Statements are listed in the Index to
Financial Statements on
page F-1
of this Report.
(2) Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts are set forth
on
page S-2
of this Report.
Other schedules are omitted because they are not applicable, not
required, or because required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
(b) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibits
|
|
|
2
|
.1
|
|
Form of Plan of Reorganization(1)
|
|
2
|
.2
|
|
Stock and Asset Purchase Agreement by and among Tyco Printed
Circuit Group LP, Tyco Electronics Corporation, Raychem
International, Tyco Kappa Limited, Tyco Electronics Logistics
AG, and TTM (Ozarks) Acquisition, Inc. dated as of
August 2, 2006(2)
|
|
3
|
.1
|
|
Registrants Certificate of Incorporation.(3)
|
|
3
|
.2
|
|
Registrants Amended and Restated Bylaws.(4)
|
|
4
|
.1
|
|
Form of Registrants common stock certificate.(3)
|
|
10
|
.1
|
|
UBS Credit Agreement see ex. 10.1 to November 2, 2006
8-K(5)
|
|
10
|
.2
|
|
Employment Agreement dated as of December 31, 2005 between
the Registrant and Kenton K. Alder.(6)
|
|
10
|
.3
|
|
Form of Executive Change in Control Severance Agreement and
schedule of agreements entered into on December 1, 2005.(6)
|
|
10
|
.4
|
|
Employment Agreement dated as of October 28, 2006 between
the Registrant and Douglas L. Soder.(7)
|
|
10
|
.5
|
|
Form of Severance Agreement and schedule of agreements entered
into on December 1, 2006.(6)
|
|
10
|
.6
|
|
2006 Incentive Compensation Plan.(7)
|
|
10
|
.7
|
|
Form of Stock Option Agreement.(7)
|
|
10
|
.8
|
|
Form of Restricted Stock Unit Award Agreement.(7)
|
|
10
|
.9
|
|
Form of Indemnification Agreement with directors.(1)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant(7)
|
|
23
|
.1
|
|
Consent of KPMG LLP, independent registered public accounting
firm(8)
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.(8)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a),
promulgated under the Securities Exchange Act of 1934, as
amended.(8)
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(8)
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(8)
|
42
|
|
|
(1) |
|
Incorporated by reference to the Registration Statement on
Form S-1
(Registration
No. 333-39906)
declared effective September 20, 2000. |
|
(2) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Securities and Exchange Commission (the
Commission) on August 4, 2006. |
|
(3) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on August 30, 2005. |
|
(4) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on November 14, 2007. |
|
(5) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on November 2, 2006. |
|
(6) |
|
Incorporated by reference to the Registrants
Form 10-K
as filed with the Commission on March 15, 2006. |
|
(7) |
|
Incorporated by reference to the Registrants
Form 10-K
as filed with the Commission on March 16, 2007. |
|
(8) |
|
Filed herewith. |
43
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 17, 2008
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 17, 2008
|
|
|
|
|
|
/s/ STEVEN
W. RICHARDS
Steven
W. Richards
|
|
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 17, 2008
|
|
|
|
|
|
/s/ ROBERT
E. KLATELL
Robert
E. Klatell
|
|
Chairman of the Board
|
|
March 17, 2008
|
|
|
|
|
|
/s/ THOMAS
T. EDMAN
Thomas
T. Edman
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ JAMES
K. BASS
James
K. Bass
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ RICHARD
P. BECK
Richard
P. Beck
|
|
Director
|
|
March 17, 2008
|
|
|
|
|
|
/s/ JOHN
G. MAYER
John
G. Mayer
|
|
Director
|
|
March 17, 2008
|
44
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, 2007, 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, 2007, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2007, and our
report dated March 17, 2008 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
Salt Lake City, Utah
March 17, 2008
F-2
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, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2007. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2007 and 2006,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment and effective January 1,
2007, the Company adopted Financial Accounting Standards Board
Interpretation 48, Accounting for Uncertainty in Income
Taxes.
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, 2007, 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 17, 2008 expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
/s/ KPMG LLP
Salt Lake City, Utah
March 17, 2008
F-3
TTM
TECHNOLOGIES, INC.
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,681
|
|
|
$
|
59,660
|
|
Short-term investments
|
|
|
|
|
|
|
10,996
|
|
Accounts receivable, net of allowances of $5,704 in 2007 and
$7,201 in 2006
|
|
|
118,581
|
|
|
|
125,435
|
|
Inventories
|
|
|
65,675
|
|
|
|
67,020
|
|
Prepaid expenses and other current assets
|
|
|
3,665
|
|
|
|
3,924
|
|
Income taxes receivable
|
|
|
2,237
|
|
|
|
717
|
|
Asset held for sale
|
|
|
5,000
|
|
|
|
|
|
Deferred income taxes
|
|
|
6,097
|
|
|
|
3,996
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
219,936
|
|
|
|
271,748
|
|
Property, plant and equipment, net
|
|
|
123,647
|
|
|
|
150,837
|
|
Debt issuance costs, net
|
|
|
2,195
|
|
|
|
5,711
|
|
Deferred income taxes
|
|
|
|
|
|
|
2,685
|
|
Goodwill
|
|
|
130,126
|
|
|
|
115,627
|
|
Definite-lived intangibles, net
|
|
|
22,128
|
|
|
|
26,235
|
|
Deposits and other non-current assets
|
|
|
766
|
|
|
|
855
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
498,798
|
|
|
$
|
573,698
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion long-term debt
|
|
$
|
40,000
|
|
|
$
|
60,705
|
|
Accounts payable
|
|
|
53,632
|
|
|
|
49,276
|
|
Accrued salaries, wages and benefits
|
|
|
21,601
|
|
|
|
24,189
|
|
Other accrued expenses
|
|
|
5,864
|
|
|
|
10,173
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
121,097
|
|
|
|
144,343
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
45,000
|
|
|
|
140,000
|
|
Deferred income taxes
|
|
|
1,688
|
|
|
|
|
|
Other long-term liabilities
|
|
|
2,419
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
49,107
|
|
|
|
142,040
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 10) Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000 shares
authorized, 42,380 and 42,093 shares issued and outstanding
in 2007 and 2006, respectively
|
|
|
42
|
|
|
|
42
|
|
Additional paid-in capital
|
|
|
173,365
|
|
|
|
167,850
|
|
Retained earnings
|
|
|
154,337
|
|
|
|
119,316
|
|
Accumulated other comprehensive income
|
|
|
850
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
328,594
|
|
|
|
287,315
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
498,798
|
|
|
$
|
573,698
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
TTM
TECHNOLOGIES, INC.
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
|
$
|
240,209
|
|
Cost of goods sold
|
|
|
539,289
|
|
|
|
276,168
|
|
|
|
186,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
130,169
|
|
|
|
93,148
|
|
|
|
53,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
29,835
|
|
|
|
16,473
|
|
|
|
11,977
|
|
General and administrative
|
|
|
32,628
|
|
|
|
19,656
|
|
|
|
14,135
|
|
Amortization of definite-lived intangibles
|
|
|
4,126
|
|
|
|
1,786
|
|
|
|
1,202
|
|
Restructuring charges
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
66,589
|
|
|
|
38,114
|
|
|
|
27,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
63,580
|
|
|
|
55,034
|
|
|
|
26,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(13,828
|
)
|
|
|
(3,394
|
)
|
|
|
(251
|
)
|
Interest income
|
|
|
1,379
|
|
|
|
4,419
|
|
|
|
2,126
|
|
Other, net
|
|
|
137
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(12,312
|
)
|
|
|
1,068
|
|
|
|
1,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
51,268
|
|
|
|
56,102
|
|
|
|
28,317
|
|
Income tax (provision) benefit
|
|
|
(16,585
|
)
|
|
|
(21,063
|
)
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
TTM
TECHNOLOGIES, INC.
Consolidated
Statements of Stockholders Equity and Comprehensive
Income
For the Years Ended December 31, 2007, 2006 and
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Income
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2004
|
|
|
41,014
|
|
|
$
|
41
|
|
|
$
|
158,149
|
|
|
$
|
53,436
|
|
|
$
|
|
|
|
$
|
211,626
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,841
|
|
|
|
|
|
|
|
30,841
|
|
|
$
|
30,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock options
|
|
|
297
|
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
858
|
|
|
|
|
|
Income tax benefit from options exercised
|
|
|
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
41,311
|
|
|
|
41
|
|
|
|
159,634
|
|
|
|
84,277
|
|
|
|
|
|
|
|
243,952
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,039
|
|
|
|
|
|
|
|
35,039
|
|
|
$
|
35,039
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment, net of tax of $63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
107
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock options
|
|
|
782
|
|
|
|
1
|
|
|
|
4,956
|
|
|
|
|
|
|
|
|
|
|
|
4,957
|
|
|
|
|
|
Income tax benefit from options exercised
|
|
|
|
|
|
|
|
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
1,707
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
42,093
|
|
|
|
42
|
|
|
|
167,850
|
|
|
|
119,316
|
|
|
|
107
|
|
|
|
287,315
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,683
|
|
|
|
|
|
|
|
34,683
|
|
|
$
|
34,683
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment, net of$838 of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,378
|
|
Unrealized loss on effective cash flow hedges, net of $386 of
tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
743
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle related to
income taxes (FIN 48)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
Exercise of common stock options
|
|
|
287
|
|
|
|
|
|
|
|
1,712
|
|
|
|
|
|
|
|
|
|
|
|
1,712
|
|
|
|
|
|
Income tax benefit from options exercised
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
42,380
|
|
|
$
|
42
|
|
|
$
|
173,365
|
|
|
$
|
154,337
|
|
|
$
|
850
|
|
|
$
|
328,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
TTM
TECHNOLOGIES, INC.
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
22,804
|
|
|
|
12,178
|
|
|
|
9,290
|
|
Net loss (gain) on sale of property, plant and equipment
|
|
|
84
|
|
|
|
(48
|
)
|
|
|
|
|
Amortization of definite-lived intangible assets
|
|
|
4,242
|
|
|
|
1,903
|
|
|
|
1,318
|
|
Amortization of deferred stock-based compensation and
stock-based compensation
|
|
|
3,361
|
|
|
|
1,553
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
3,692
|
|
|
|
374
|
|
|
|
72
|
|
Amortization of premiums and discounts on short-term
investments, net
|
|
|
(4
|
)
|
|
|
(322
|
)
|
|
|
(125
|
)
|
Non-cash interest imputed on other long-term liabilities
|
|
|
122
|
|
|
|
25
|
|
|
|
64
|
|
Income tax benefit from stock options exercised
|
|
|
(341
|
)
|
|
|
(1,072
|
)
|
|
|
627
|
|
Deferred income taxes
|
|
|
1,831
|
|
|
|
4,925
|
|
|
|
(8,564
|
)
|
Changes in operating assets and liabilities net of effect of
acquired businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
7,129
|
|
|
|
(8,704
|
)
|
|
|
(2,853
|
)
|
Inventories
|
|
|
1,628
|
|
|
|
(623
|
)
|
|
|
(3,571
|
)
|
Prepaid expenses and other
|
|
|
184
|
|
|
|
(430
|
)
|
|
|
(1,213
|
)
|
Income taxes receivable
|
|
|
(1,520
|
)
|
|
|
(717
|
)
|
|
|
157
|
|
Accounts payable
|
|
|
2,308
|
|
|
|
(7,931
|
)
|
|
|
1,780
|
|
Accrued salaries, wages and benefits and other accrued expenses
|
|
|
(6,219
|
)
|
|
|
(3,366
|
)
|
|
|
3,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
73,984
|
|
|
|
32,784
|
|
|
|
31,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment and equipment deposits
|
|
|
(14,040
|
)
|
|
|
(13,949
|
)
|
|
|
(7,962
|
)
|
Purchase of intangibles
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
Purchases of available-for-sale short-term investments
|
|
|
|
|
|
|
|
|
|
|
(4,300
|
)
|
Proceeds from sales of available-for-sale short-term investments
|
|
|
|
|
|
|
|
|
|
|
17,150
|
|
Purchases of held-to-maturity short-term investments
|
|
|
|
|
|
|
(40,909
|
)
|
|
|
(64,615
|
)
|
Proceeds from redemptions of held-to-maturity short-term
investments
|
|
|
11,000
|
|
|
|
51,335
|
|
|
|
46,140
|
|
Cash paid in business acquisition net of cash
acquired
|
|
|
|
|
|
|
(230,920
|
)
|
|
|
|
|
Proceeds from sale of assets, property, plant and equipment
|
|
|
1,335
|
|
|
|
214
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,705
|
)
|
|
|
(234,579
|
)
|
|
|
(13,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(115,705
|
)
|
|
|
(111
|
)
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
341
|
|
|
|
1,072
|
|
|
|
|
|
Proceeds from exercise of common stock options
|
|
|
1,712
|
|
|
|
4,957
|
|
|
|
858
|
|
Payment of debt issuance costs
|
|
|
(176
|
)
|
|
|
(5,886
|
)
|
|
|
(232
|
)
|
Other financing activities
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(113,828
|
)
|
|
|
200,027
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
570
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(40,979
|
)
|
|
|
(1,598
|
)
|
|
|
18,070
|
|
Cash and cash equivalents at beginning of year
|
|
|
59,660
|
|
|
|
61,258
|
|
|
|
43,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
18,681
|
|
|
$
|
59,660
|
|
|
$
|
61,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
9,346
|
|
|
$
|
2,912
|
|
|
$
|
97
|
|
Cash paid, net for income taxes
|
|
|
15,543
|
|
|
|
17,310
|
|
|
|
3,121
|
|
Supplemental disclosures of noncash investing and financing
activities:
At December 31, 2007 accrued purchases of equipment totaled
$1,557.
During 2007, the Company recognized an unrealized loss on a
derivative instrument of $635, net of tax.
Effective January 1, 2007, the Company adopted the
provisions of Financial Accounting Standards Board issued
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, (FIN 48). As a result of the
implementation of FIN 48, we recognized a $338 decrease to
our liability for unrecognized tax benefits, and a corresponding
increase to our January 1, 2007 accumulated retained
earnings beginning balance.
During 2006, the Company purchased certain assets and assumed
certain liabilities of Tyco Printed Circuit Group. The total
purchase consideration included cash payments of $230,920, which
is net of $6,050 of cash acquired and the assumption of
liabilities of $69,771 (see Note 3).
See accompanying notes to consolidated financial statements.
F-7
(Dollars and shares in thousands, except per share
data)
|
|
(1)
|
Nature of
Operations and Basis of Presentation
|
TTM Technologies, Inc. (the Company or TTM) is a manufacturer of
complex printed circuit boards used in sophisticated electronic
equipment and provides backplane and sub-system assembly
services for both standard and specialty products in defense and
commercial operations. The Company sells to a variety of
customers located both within and outside of the United States
of America. The Companys customers include both original
equipment manufacturers (OEMs) and electronic manufacturing
services (EMS) companies. The Companys OEM customers
often direct a significant portion of their purchases through
EMS companies.
On October 27, 2006, TTM Technologies, Inc. acquired
certain assets, assumed certain liabilities and acquired certain
equity interests of Tyco Printed Circuit Group LP (PCG) from
Tyco International, Ltd. In this transaction, the stock of Tyco
Packaging Systems (Shanghai) Co. Ltd. and Tyco Iota, Ltd. were
purchased and the acquired assets and assumed liabilities were
placed into new, wholly-owned subsidiaries: TTM Printed Circuit
Group, Inc., TTM Technologies (Ireland) Ltd., TTM Technologies,
(Ireland) EU Ltd., and TTM Technologies, (Switzerland) GmbH
(Note 3). TTM Technologies, Inc. and its wholly-owned
subsidiaries are collectively referred to as the Company.
|
|
(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. Actual results could
differ from those estimates.
Principles
of Consolidation
The consolidated financial statements include the accounts of
TTM Technologies, Inc. and its wholly-owned subsidiaries: Power
Circuits, Inc., TTM Advanced Circuits, Inc., TTM Technologies
International, Inc., TTM Printed Circuit Group, Inc., Tyco
Packaging Systems (Shanghai) Co. Ltd., Tyco Iota, Ltd., TTM
Technologies (Ireland) Ltd., TTM Technologies (Ireland) EU Ltd.,
and TTM Technologies (Switzerland) GmbH. All intercompany
accounts and transactions have been eliminated in consolidation.
Foreign
Currency Translation and Transactions
The functional currency of the Companys Tyco Packaging
Systems (Shanghai) Co. Ltd. subsidiary is the local currency,
the Chinese RMB. Accordingly, assets and liabilities are
translated into U.S. dollars using period-end exchange
rates. Sales and expenses are translated at the average exchange
rates in effect during the period. The resulting translation
gains or losses are recorded as a component of accumulated other
comprehensive income in the consolidated statement of
stockholders equity and comprehensive income. 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 $100 gain and $99 loss for
the years ended December 31, 2007 and 2006, respectively.
As this foreign subsidiary was acquired in October 2006, there
were no foreign currency transaction gains or losses for the
year ended December 31, 2005.
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.
F-8
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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.
The Company evaluates short-term investments in marketable debt
securities in accordance with Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, (SFAS 115) and has
determined that they should be recorded as either
available-for-sale or held-to-maturity. Management determines
the appropriate classification of investments at the time of
purchase and reevaluates such designation as of each balance
sheet date. Debt securities that the Company has the ability and
intent to hold until maturity are accounted for as
held-to-maturity securities and are carried at amortized cost
while available-for-sale debt securities are carried at fair
value.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are reflected at the estimated net
realizable value, do not bear interest nor do they generally
require collateral. The Company performs credit evaluations of
its customers and adjusts credit limits based upon payment
history and the customers current creditworthiness. The
Company maintains an allowance for doubtful accounts based upon
a variety of factors. The Company reviews all open accounts and
provides specific reserves for customer-collection issues when
it believes the loss is probable, considering such factors as
the length of time receivables are past due, the financial
condition of customer, and historical experience. The Company
also records a reserve for all customers, excluding those that
have been specifically reserved for, based upon evaluation of
historical losses, which exceeded the specific reserves the
Company had established.
Inventories
Inventories are stated at the lower of cost (determined on a
first-in,
first-out basis) or market. Provisions to value the inventory at
the lower of the actual cost to purchase and / or
manufacture the inventory, or the current estimated market value
of the inventory, are based upon assumptions about future demand
and market condition. The Company also performs evaluations of
inventory and records a provision for estimated excess and
obsolete items based upon forecasted demand, and any other known
factors at the time.
Property,
Plant and Equipment
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
capital leases and 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:
|
|
|
Buildings and improvements
|
|
7-40 years
|
Machinery and equipment
|
|
3-12 years
|
Furniture and fixtures
|
|
3-7 years
|
Automobiles
|
|
5 years
|
Upon retirement or other disposition of property, plant and
equipment, the cost and related accumulated depreciation are
removed from the accounts. The resulting gain or loss is
included in the determination of income from operations in the
period incurred. Depreciation and amortization expense on
property, plant and equipment was $22,772, $12,178 and $9,290
for the years ended December 31, 2007, 2006 and 2005,
respectively.
Major renewals and betterments are capitalized and depreciated
over their estimated useful lives while minor expenditures for
maintenance and repairs are charged to expense as incurred.
F-9
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Debt
Issuance Costs
Debt issuance costs are amortized to expense over the period of
the underlying credit facility using the effective interest rate
method, adjusted to give effect to any early repayments. At
December 31, 2007 and 2006, unamortized debt issuance costs
were $2,195 and $5,711, respectively related to a credit
agreement entered into on October 27, 2006 (Note 7).
Amortization expense for the years ended December 31, 2007,
2006 and 2005 related to various credit agreements was $3,692,
$374 and $72, respectively.
Business
Combinations and Goodwill
The Company accounts for business combinations and goodwill
according to SFAS No. 141, Business
Combinations, (SFAS 141) and
SFAS No. 142, Goodwill and Other Intangible Assets,
(SFAS 142). SFAS 141 requires that the purchase
method of accounting be used for all business combinations and
that certain acquired intangible assets be recognized as assets
apart from goodwill. SFAS 142 provides that goodwill should
not be amortized but instead should be tested for impairment
annually at the reporting unit level. Goodwill is tested for
impairment using a two-step process. The first step of the
goodwill impairment test, used to identify potential impairment,
compares the estimated fair value of the reporting unit
containing goodwill with the related carrying amount. If the
estimated fair value of the reporting unit exceeds its carrying
amount, the reporting units goodwill is not considered to
be impaired, and the second step of the impairment test is
unnecessary. If the reporting units carrying amount
exceeds its estimated fair value, the second step test must be
performed to measure the amount of the goodwill impairment loss,
if any. The second step of the goodwill impairment test compares
the implied fair value of the reporting units goodwill,
determined in the same manner as the amount of goodwill
recognized in a business combination, with the carrying amount
of such goodwill. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to
that excess.
In performing the impairment tests, the fair value of the
Companys reporting units was determined using a
combination of the income approach and the market approach.
Under the income approach, the fair value of each reporting unit
is calculated based on the present value of estimated future net
cash flows. Under the market approach, fair value is estimated
based on market multiples of earnings or similar measures for
comparable companies and market transactions, when available.
The Company evaluates goodwill on an annual basis, as of the end
of the fourth quarter, and whenever events and changes in
circumstances indicate that there may be a potential impairment.
In the fourth quarter of 2007, the Company performed its annual
impairment test of goodwill and concluded that goodwill was not
impaired.
Intangible
Assets
Intangible assets include customer relationships, 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 six months to 15 years. Amortization expense related
to acquired licensing agreements is classified as cost of goods
sold.
Impairment
of Long-lived Assets
Long-lived tangible assets and definite-lived intangible assets
are reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset or asset
groups may not be recoverable. The Company evaluates, regularly,
whether events and circumstances have occurred that indicate
possible impairment. 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.
When assets are classified as held for sale, they are recorded
at estimated fair value, less the cost to sell.
F-10
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Revenue
Recognition
The Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, Revenue
Recognition, (SAB 104). The Company derives its revenue
primarily from the sale of printed circuit boards using customer
supplied engineering and design plans and recognizes revenues
when the criteria of SAB 104 have been met. The criteria to
meet this guideline are: (i) persuasive evidence of a sales
arrangement exists, (ii) the sales terms are fixed and
determinable, (iii) title and risk of loss has 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
printed circuit boards. The Company accrues an estimated amount
for sales returns and allowances related to defective printed
circuit boards at the time of sale based on its ability to
estimate sales returns and allowances using historical
information. As of December 31, 2007 and 2006, the reserve
for sales returns and allowances was $3,681 and $4,443,
respectively, which is included as a reduction to accounts
receivable, net. Shipping and handling fees are included as part
of net sales. The related freight costs and supplies associated
with shipping products to customers are included as a component
of cost of goods sold.
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123R,
Share-Based Payments, (SFAS 123R). The Company elected
to use the modified prospective transition method and,
therefore, has not restated any prior reported results. Under
this transition method, stock-based compensation expense for the
year ended December 31, 2006, included compensation expense
for all stock-based compensation awards granted prior to, but
not yet vested as of, December 31, 2005, based on the
grant-date fair value estimated in accordance with the original
provisions of SFAS 123. Stock-based compensation expense
for all stock-based compensation awards granted on and after
January 1, 2006, is based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123R.
The Company recognizes these compensation costs net of estimated
forfeitures on a straight-line basis over the requisite service
period of the award, which is generally the option vesting term.
The Company estimates the forfeiture rate based on its
historical experience.
In addition, prior to the adoption of SFAS 123R, the
Company presented the tax benefit from the exercise of common
stock option exercises as a component of cash flows from
operating activities. Upon the adoption of SFAS 123R, tax
benefits resulting from tax deductions in excess of the
compensation cost recognized for those options are classified as
a component of cash flows from financing activities. This
resulted in a decrease of $341 and $1,072 in cash flows from
operating activities and an increase of $341 and $1,072 in cash
flows from financing activities for the years ended
December 31, 2007, and 2006, respectively.
F-11
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Prior to the adoption of SFAS 123R, the Company accounted
for stock options issued to employees, officers and directors
under Accounting Principles Board Opinion No. 25 (APB
25) and the related interpretations and provided pro forma
disclosures as required by SFAS 123. The table below
reflects pro forma net income and basic and diluted net earnings
per share for the year ended December 31, 2005 had the
Company applied the fair value recognition provisions of
SFAS 123, as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
(In thousands,
|
|
|
|
except per share data)
|
|
|
Net income, as reported
|
|
$
|
30,841
|
|
Less: Stock-based compensation expense determined under the
fair-value-based method for all awards, net of related tax
effects
|
|
|
(8,872
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
21,969
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
As reported
|
|
$
|
0.75
|
|
Pro forma
|
|
$
|
0.53
|
|
Diluted earnings per share:
|
|
|
|
|
As reported
|
|
$
|
0.74
|
|
Pro forma
|
|
$
|
0.53
|
|
On September 14, 2005 and June 8, 2005, the
Compensation Committee of the Board of Directors of the Company
approved accelerating the vesting of approximately 211 and 986
unvested, out-of-the-money stock options,
respectively, awarded to employees, officers and non-employee
directors with exercise prices between $8.00 and $10.00 and
greater than $10.00, respectively. The September and June 2005
accelerated options had exercise prices ranging from $8.00 to
$9.75 and $10.15 to $16.00, respectively. The closing price of
the Companys common stock on September 14, 2005 and
June 8, 2005, was $7.34 and $8.48 per share, respectively.
As a result of these accelerated vestings, the Company
remeasured compensation expense for the accelerated options
under APB No. 25. Since the options for which vestings were
accelerated were out-of-the-money, no additional
compensation expense was recorded.
The Company accelerated these options in advance of the
effective date of, and in anticipation of the earnings effect
of, SFAS 123R. The accelerated vesting of these options
enabled the Company to avoid recognizing future compensation
cost associated with the accelerated stock options upon the
adoption of SFAS 123R. The accelerated vesting of these
options initially increased 2005 pro forma stock-based
compensation expense, before related tax effects, by
approximately $9,500 and decreased 2005 pro forma net income and
earnings per share.
Income
Taxes
The Company recognizes deferred tax assets or liabilities for
expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Under
this method, deferred tax assets or liabilities are determined
based upon the difference between the financial statement and
income tax basis of assets and liabilities using enacted tax
rates expected to apply when differences are expected to be
settled or realized. Deferred tax assets are reviewed for
recoverability and the Company records a valuation allowance to
reduce its deferred tax assets when it is more likely than not
that all or some portion of the deferred tax assets will not be
realized.
The Company has various foreign subsidiaries formed or acquired
to conduct or support its business outside the United States.
The Company provides for income taxes, net of applicable foreign
tax credits, on temporary differences in its investment in
foreign subsidiaries which are not considered to be permanently
invested outside of the United States.
F-12
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
On January 1, 2007, the Company adopted FIN 48,
Accounting for Uncertainty in Income Taxes,
(FIN 48) which defines the threshold for recognizing
the benefits of tax return positions in the financial statements
as more-likely-than-not to be sustained by the
taxing authority. A tax position that meets the
more-likely-than-not
criterion shall be measured at the largest amount of benefit
that is more than 50% likely of being realized upon ultimate
settlement. FIN 48 also provides guidance on derecognition,
classification, interest and penalties on income taxes,
accounting in interim periods and requires increased
disclosures. FIN 48 applies to all tax positions accounted
for under SFAS No. 109, Accounting for Income
Taxes. Estimated interest and penalties related to the
underpayment of income taxes are recorded as a component of
income tax provision in the consolidated statement of
operations. For the year ended December 31, 2007, the
Company did not have any such interest or penalties.
Self
Insurance
The Company is primarily self insured for group health insurance
benefits provided to employees. The Company also purchases stop
loss insurance to protect against annual claims per individual
and at an aggregate level. From October 27, 2006, through
December 31, 2006, former PCG employees who became TTM
employees were provided health insurance benefits under their
former PCG plans and TTM reimbursed the provider for the costs
of these plans. All PCG employees who became TTM employees
joined the Companys self insurance program effective
January 1, 2007.
The individual stop losses on the Companys self insurance
plan range from $100 to $125 per individual depending on the
health plans they select, and the aggregate thresholds are
dependent upon the total number of employees participating in
the plans. Self insurance liabilities are estimated for claims
incurred but not paid using historical information provided by
our insurance carrier and other professionals. The Company
accrued $4,916 and $5,276 for self insurance liabilities at
December 31, 2007 and 2006, respectively, and these amounts
are reflected within accrued salaries, wages and benefits in the
accompanying December 31, 2007 and 2006 consolidated
balance sheets.
Derivatives
and Hedging Transactions
The Company utilizes derivative instruments to manage its risk
associated with fluctuations in U.S. interest rates. The
Company is required by its lenders to address this risk through
controlled risk management that includes the use of interest
rate swap arrangements to economically hedge or reduce this
exposure. The Company does not enter into any derivative
financial instruments for trading or speculative purposes.
The Company enters into derivative financial instruments with
major, high credit quality financial institutions and therefore
management believes any loss related to credit risk is remote.
As of December 31, 2007, the Company has not experienced
any losses on its derivative financial instruments due to credit
risk.
In accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities,
(SFAS 133) the Company formally designates interest rate
swap arrangements as a cash flow hedge at inception. The Company
employs the dollar offset method by performing a shock test to
assess effectiveness. At inception, and at least quarterly
thereafter, on a retrospective basis, effectiveness testing of
the hedge relationship and measurement to quantify
ineffectiveness is performed using the hypothetical derivative
method. Quarterly prospective testing determines if the Company
expects the hedging relationship to continue to be highly
effective by comparing the key terms of the hedged item, the
hypothetical perfect swap, and the actual swap. The Company also
evaluates if any changes have occurred related to the terms of
the hedged debt and confirms that there are no changes in the
hypothetical derivative. The interest rate swaps are structured
to meet critical terms of the related debt instrument and
therefore the interest rate swaps are expected to remain highly
effective for the life of the hedge. The Company also evaluates
whether the risk of default by the counterparty to the interest
rate swap contract has changed.
F-13
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
To the extent the interest rate swaps 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.
Sales
Tax Collected from Customers
In June 2006, the Emerging Issues Task Force reached a consensus
on Issue
No. 06-03,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That is, Gross versus Net Presentation),
(EITF 06-03).
EITF 06-03
concluded that the presentation of taxes assessed by a
governmental authority that are directly imposed on a
revenue-producing transaction between a seller and a customer,
such as sales, use, value added and certain excise taxes is an
accounting policy decision that should be disclosed. As a part
of the Companys normal course of business, sales taxes are
collected from customers. Sales taxes collected are remitted, in
a timely manner, to the appropriate governmental tax authority
on behalf of the customer. The Companys policy is to
present revenue and costs, net of sales taxes.
Asset
Retirement Obligations
The Company accounts for asset retirement obligations as
required by SFAS No. 143, Accounting for Asset
Retirement Obligations, (SFAS 143) and FASB
Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, (FIN 47). Under these
standards, a liability is recognized 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.
Environmental
Accrual
The Company accrues for costs associated with environmental
obligations when such costs are probable and reasonably
estimable in accordance with Statement of Position
96-1,
Environmental Remediation Liabilities,
(SOP 96-1).
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. In accordance
with
SOP 96-1,
included in such obligations are the estimated direct costs to
investigate and address the conditions, including the associated
engineering, legal and consulting costs. In making these
estimates, we consider information that is currently available,
existing technology, enacted laws and regulations, and our
estimates of the timing of the required remedial actions. Such
accruals are initially measured on a discounted basis and are
adjusted as further information becomes available, circumstances
change and accreted up over time.
Earnings
Per Share
Basic earnings per common share excludes dilution and is
computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings
per common share reflect the potential dilution that could occur
if stock options or other common stock equivalents were
exercised or converted into common stock.
Comprehensive
Income
Comprehensive income includes changes to equity accounts that
were not the result of transactions with stockholders.
Comprehensive income is comprised of net income, changes in the
cumulative foreign currency translation adjustments and
unrealized gains or losses on derivative instruments.
F-14
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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.
Reclassifications
Certain reclassifications of prior year amounts have been made
to conform with the current year presentation.
Beginning in 2007, the Company reports interest income and
other, net on separate lines in the consolidated statement of
operations. Interest income as well as the other, net amounts
were previously included as components of interest income and
other, net in 2006 and 2005.
Additionally beginning in 2007, the Company reports interest
expense and the amortization of debt issuance costs in aggregate
as interest expense in the consolidated statement of operations.
These amounts were previously reported separately.
Recent
Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (SFAS 141(R)). SFAS 141(R) changes
the requirements for an acquirers recognition and
measurement of the assets acquired and the liabilities assumed
in a business combination. SFAS 141(R) is effective for
annual periods beginning after December 15, 2008 and should
be applied prospectively for all business combinations entered
into after the date of adoption. The Company expects the impact
of adopting SFAS 141(R) will depend on future acquisitions.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial Statements an amendment of
ARB No. 51 (SFAS 160). SFAS 160 requires
(i) that noncontrolling (minority) interests be reported as
a component of shareholders equity, (ii) that net
income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statement
of operations, (iii) that changes in a parents
ownership interest while the parent retains its controlling
interest be accounted for as equity transactions, (iv) that
any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair
value, and (v) that sufficient disclosures are provided
that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners.
SFAS 160 is effective for annual periods beginning after
December 15, 2008 and should be applied prospectively.
However, the presentation and disclosure requirements of the
statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of Statement
No. 160 is not anticipated to materially impact the
Companys consolidated financial position and results of
operations.
In February 2007, FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities
(SFAS 159), was released. SFAS 159 provides
companies with an option to report selected financial assets and
liabilities at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. SFAS 159 will
be effective January 1, 2008. The adoption of SFAS 159 is
not expected to have an impact on our consolidated financial
statements as the Company has elected not to report selected
financial assets and liabilities at fair value.
In September 2006, FASB Statement No. 157, Fair Value
Measurements, (SFAS 157), was released. SFAS 157
defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require
any new fair value measurements. The provisions of SFAS 157
are effective beginning January 1, 2008. Subsequently, the
FASB provided for a one-year deferral of the provisions of
SFAS 157
F-15
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
for non-financial assets and liabilities that are recognized or
disclosed at fair value in the consolidated financial statements
on a non-recurring basis. The Company is currently evaluating
the impact of adopting the provisions of SFAS 157 for
non-financial assets and liabilities that are recognized or
disclosed on a non-recurring basis. The adoption of
SFAS 157 for financial assets and liabilities is not
anticipated to have a material impact on the consolidated
financial statements.
|
|
(3)
|
Acquisition
of Tyco Printed Circuit Group
|
On October 27, 2006, the Company acquired substantially all
of the assets of the Printed Circuit Group business unit of Tyco
International Ltd. in accordance with the terms of the Stock and
Asset Purchase Agreement, dated August 2, 2006, by and
among Tyco Printed Circuit Group LP, Tyco Electronics
Corporation, Raychem International, Tyco Kappa Limited, Tyco
Electronics Logistics AG, and TTM Printed Circuit Group, Inc.
(Agreement). TTM Printed Circuit Group, Inc. (f/k/a TTM (Ozarks)
Acquisition, Inc.) is a wholly owned subsidiary of TTM
Technologies, Inc. The Tyco Printed Circuit Group (PCG) is a
leading producer of complex, high performance and specialty
printed circuit boards (PCBs), one of the major suppliers of
aerospace and defense PCBs in North America, and a provider of
backplane and sub-assembly services for both standard and
specialty products in defense and commercial operations. These
factors contributed to establishing the purchase price, which
resulted in the recognition of $66,072 of goodwill, $53,865 of
which is expected to be deductible for income taxes. The
purchase price was $226,784 in cash, which included adjustments
of $1,184 for working capital and capital expenditures. The
total cost of the acquisition, including transaction fees and
expenses, was approximately $236,970, which included $6,050 in
cash acquired.
The following sets forth the allocation of the purchase
consideration:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
6,050
|
|
Other current assets
|
|
|
132,945
|
|
Property, plant and equipment
|
|
|
83,886
|
|
Intangible assets
|
|
|
17,470
|
|
Goodwill
|
|
|
66,072
|
|
Other non-current assets
|
|
|
318
|
|
Liabilities assumed
|
|
|
(69,771
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
236,970
|
|
|
|
|
|
|
The excess of the purchase price over the estimated fair value
of the assets acquired and the liabilities assumed was initially
recorded as goodwill in the amount of $52,474. During 2007,
goodwill has been adjusted to reflect a decrease in the fair
value of accounts receivable, net, by $501 as a result of
additional information received regarding fair value of certain
receivables; a decrease in property, plant and equipment by
$13,850 due to completion of the compilation and appraisal of
property and equipment acquired at all plants; and a reduction
of certain liabilities assumed in the amount of $753. As a
result of these changes in purchase price allocations, the
Company recorded a net increase to goodwill of $13,598. The
allocation of the purchase consideration provided above reflects
the final asset allocation of the purchase price.
In accordance with EITF
No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination, the Company recorded as a cost of the
acquisition involuntary employee severance and other exit
activity liabilities of $3,225 associated with its plan to close
the PCG Dallas, Oregon facility, which is part of the PCB
Manufacturing segment, and terminate certain sales employees of
the acquired business. Prior to completing the acquisition, the
Company began assessing the need to close certain PCG
facilities, and on December 7, 2006, the Company finalized
its plan to close the Dallas facility. Production was ceased at
the Dallas facility during the
F-16
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
second quarter of 2007 and the Company commenced the process of
selling the building and certain assets. Accordingly, the
Company has classified the Dallas facility as held for sale.
Additionally during 2006, the Company recorded a charge of $199
to establish a restructuring reserve for a corporate
realignment. All amounts accrued as of December 31, 2006,
included in other accrued expenses, were paid during 2007. The
Company has no further obligation related to such exit or
corporate realignment activities. The table below shows the
utilization of the accrued exit and restructuring charges during
the year ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Exit
|
|
|
|
|
|
|
Severance
|
|
|
Charges
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Accrued at December 31, 2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Dallas facility closure charges
|
|
|
3,111
|
|
|
|
114
|
|
|
|
3,225
|
|
Non-PCG severance charges
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
Amount paid
|
|
|
(163
|
)
|
|
|
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued at December 31, 2006
|
|
$
|
3,147
|
|
|
$
|
114
|
|
|
$
|
3,261
|
|
Amount paid
|
|
|
(3,147
|
)
|
|
|
(114
|
)
|
|
|
(3,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unaudited pro forma information below presents the results
of operations for 2006 and 2005 as if the PCG acquisition
occurred at the beginning of each of the respective periods,
after giving effect to certain adjustments (depreciation and
amortization of tangible and intangible assets, to remove
expenses related to assets not acquired and liabilities not
assumed, interest expense and amortization of deferred financing
costs related to the acquisition debt and the related income tax
effects). The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made at the
beginning of each of the presented periods or of the results
which may occur in the future.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
717,406
|
|
|
$
|
584,509
|
|
Net income
|
|
|
25,535
|
|
|
|
16,549
|
|
Basic earnings per share
|
|
$
|
0.62
|
|
|
$
|
0.40
|
|
Diluted earnings per share
|
|
$
|
0.60
|
|
|
$
|
0.40
|
|
|
|
(4)
|
Short-Term
Investments
|
Short-term investments as of December 31, 2007 and 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
9,389
|
|
|
$
|
40,713
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
|
|
|
|
11,311
|
|
U.S. Treasury and federal agency securities
|
|
|
|
|
|
|
8,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,641
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
9,389
|
|
|
|
60,354
|
|
Amounts classified as cash equivalents
|
|
|
9,389
|
|
|
|
49,358
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as short-term investments
|
|
$
|
|
|
|
$
|
10,996
|
|
|
|
|
|
|
|
|
|
|
F-17
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
At December 31, 2006, the Company held debt securities in
the amount of $19,641 which were classified as held to maturity
and scheduled to mature in less than one year. The specific
identification method was used to compute the realized gains and
losses on such debt investments. As of December 31, 2007,
the Company held no debt securities.
At December 31, 2007 and 2006 the estimated fair value of
each investment approximated its amortized cost and therefore
realized gains and losses upon the sale or maturity were
insignificant for each of the years ended December 31,
2007, 2006 and 2005. Additionally, as unrealized gains and
losses on available-for-sale investments were insignificant for
all periods, the Company did not record any unrealized gains or
losses as a component of accumulated other comprehensive income.
The Company regularly monitors and evaluates the realizable
value of its investments. When assessing investments for
other-than-temporary declines in value, the Company considers
such factors as, among other things, how significant the decline
in value is as a percentage of the original cost, how long the
market value of the investment has been less than its original
cost, the collateral supporting the investments, insurance
policies which protect the Companys investment position,
and the credit rating issued for the securities by one or more
of the major credit rating agencies. There were no impairments
on investments as of December 31, 2007 and 2006.
|
|
(5)
|
Composition
of Certain Consolidated Financial Statement Captions
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
23,386
|
|
|
$
|
22,718
|
|
Work-in-process
|
|
|
35,700
|
|
|
|
37,804
|
|
Finished goods
|
|
|
6,589
|
|
|
|
6,498
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,675
|
|
|
$
|
67,020
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
10,083
|
|
|
$
|
11,761
|
|
Buildings and improvements
|
|
|
46,296
|
|
|
|
46,403
|
|
Machinery and equipment
|
|
|
138,383
|
|
|
|
137,111
|
|
Construction-in-progress
|
|
|
4,119
|
|
|
|
10,739
|
|
Furniture and fixtures
|
|
|
610
|
|
|
|
576
|
|
Automobiles
|
|
|
291
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,782
|
|
|
|
206,686
|
|
Less: Accumulated depreciation
|
|
|
(76,135
|
)
|
|
|
(55,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,647
|
|
|
$
|
150,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
$
|
$6,062
|
|
|
$
|
5,886
|
|
Less: Accumulated amortization
|
|
|
(3,867
|
)
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,195
|
|
|
$
|
5,711
|
|
|
|
|
|
|
|
|
|
|
Other accrued expenses:
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
1,650
|
|
|
$
|
1,562
|
|
Mark-to-market value on derivative
|
|
|
1,021
|
|
|
|
|
|
Accrued restructuring charges
|
|
|
|
|
|
|
3,261
|
|
Accrued commissions
|
|
|
|
|
|
|
1,110
|
|
Interest
|
|
|
829
|
|
|
|
142
|
|
Other
|
|
|
2,364
|
|
|
|
4,098
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,864
|
|
|
$
|
10,173
|
|
|
|
|
|
|
|
|
|
|
F-18
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
(6)
|
Goodwill
and Definite-lived Intangibles
|
As of December 31, 2007 and 2006, goodwill by operating
segment and the components of definite-lived intangibles were as
follows:
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
Foreign
|
|
|
|
|
|
|
December 31,
|
|
|
Price
|
|
|
Currency
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Adjustments
|
|
|
Rate Change
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
PCB Manufacturing
|
|
$
|
103,669
|
|
|
$
|
13,349
|
|
|
$
|
|
|
|
$
|
117,018
|
|
Backplane Assembly
|
|
|
11,958
|
|
|
|
249
|
|
|
|
901
|
|
|
|
13,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,627
|
|
|
$
|
13,598
|
|
|
$
|
901
|
|
|
$
|
130,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
Foreign
|
|
|
|
|
|
|
December 31,
|
|
|
Price
|
|
|
Currency
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Allocation
|
|
|
Rate Change
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
PCB Manufacturing
|
|
$
|
63,153
|
|
|
$
|
40,516
|
|
|
$
|
|
|
|
$
|
103,669
|
|
Backplane Assembly
|
|
|
|
|
|
|
11,958
|
|
|
|
|
|
|
|
11,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,153
|
|
|
$
|
52,474
|
|
|
$
|
|
|
|
$
|
115,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill expected to be fully deductible for tax purposes was
$117,018 and $103,669 as of December 31, 2007 and 2006,
respectively.
The increase in goodwill at December 31, 2007, was the
result of the completion of the purchase price allocation
related to the October, 2006 PCG acquisition (Note 3).
Goodwill was adjusted to reflect final fair values of certain
receivables, property, plant and equipment and certain
liabilities assumed. As a result of these changes in purchase
price allocations, the Company recorded a net increase to
goodwill of $13,598 during 2007.
Goodwill in the Backplane Assembly operating segment includes
the activity related to a foreign subsidiary which operates in a
currency other than the U.S. dollar and therefore reflects
a foreign currency change.
Definite-lived
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Net
|
|
|
Average
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Currency
|
|
|
Carrying
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Rate Change
|
|
|
Amount
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
(years)
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic customer relationships
|
|
$
|
35,429
|
|
|
$
|
(13,610
|
)
|
|
$
|
134
|
|
|
$
|
21,953
|
|
|
|
12.0
|
|
Customer backlog
|
|
|
70
|
|
|
|
(71
|
)
|
|
|
1
|
|
|
|
|
|
|
|
0.7
|
|
Licensing agreement
|
|
|
350
|
|
|
|
(175
|
)
|
|
|
|
|
|
|
175
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,849
|
|
|
$
|
(13,856
|
)
|
|
$
|
135
|
|
|
$
|
22,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic customer relationships
|
|
$
|
35,429
|
|
|
$
|
(9,538
|
)
|
|
$
|
|
|
|
$
|
25,891
|
|
|
|
12.0
|
|
Customer backlog
|
|
|
70
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
52
|
|
|
|
0.7
|
|
Licensing agreement
|
|
|
350
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
292
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,849
|
|
|
$
|
(9,614
|
)
|
|
$
|
|
|
|
$
|
26,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The definite-lived intangible related to strategic customer
relationships and customer backlog includes that activity
related to a foreign subsidiary which operates in a currency
other than the U.S. dollar and therefore reflects a foreign
currency change.
Amortization expense was $4,242, $1,903 and $1,318 in 2007, 2006
and 2005, respectively. Amortization expense related to acquired
licensing agreements is classified as cost of goods sold.
Estimated aggregate amortization for definite-lived intangible
assets for the next five years is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
3,879
|
|
2009
|
|
|
3,462
|
|
2010
|
|
|
3,133
|
|
2011
|
|
|
2,989
|
|
2012
|
|
|
2,728
|
|
|
|
|
|
|
|
|
$
|
16,191
|
|
|
|
|
|
|
(7) Long-term
Debt and Credit Agreement
The following table summarizes the long-term debt of the Company
as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Senior secured term loan due October 27, 2012
|
|
$
|
85,000
|
|
|
$
|
200,000
|
|
Capitalized leases (Note 10)
|
|
|
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
200,705
|
|
Less current maturities
|
|
|
(40,000
|
)
|
|
|
(60,705
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
$
|
45,000
|
|
|
$
|
140,000
|
|
|
|
|
|
|
|
|
|
|
The maturities of long-term debt through 2012 and thereafter are
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
40,000
|
|
2009
|
|
|
|
|
2010
|
|
|
459
|
|
2011
|
|
|
459
|
|
2012
|
|
|
44,082
|
|
|
|
|
|
|
|
|
$
|
85,000
|
|
|
|
|
|
|
On October 27, 2006, the Company entered into a credit
agreement (the Credit Agreement) with certain lenders led by UBS
Securities LLC. The Credit Agreement consists of a $200,000
senior secured term loan (Term Loan), which matures in October
2012 and a $40,000 senior secured revolving loan facility
(Revolving Loan), which matures in October 2011. The Credit
Agreement is secured by substantially all of the Companys
domestic assets and 65% of its foreign assets. The Revolving
Loan also contains a $10,000 letter of credit sub-facility.
Borrowings under the Credit Agreement will bear interest at a
floating rate of either a base rate (the Alternate Base Rate)
plus an applicable interest margin or LIBOR plus an applicable
interest margin. The Alternate Base Rate is equal to the greater
of (i) the federal funds rate plus 0.50% or (ii) the
prime rate. Borrowings under the Credit Agreement, at the
Companys option, will initially bear interest at a rate
based on either: (a) the Alternate Base Rate plus 1.25% or
(b) LIBOR plus 2.25%. For the Revolving Loan facility, the
applicable interest margins on both the
F-20
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Alternate Base Rate and LIBOR may decrease by up to 0.50% if the
Companys total leverage ratio decreases as defined under
the terms of the Credit Agreement. There is no provision, other
than an event of default, for these interest margins to
increase. At December 31, 2007 and 2006, the weighted
average interest rate on the outstanding borrowings was 7.34%
and 8.51%, respectively.
Each calendar year the Company is required to repay 1% of the
outstanding Term Loan balance, subject to specific adjustments,
as defined in the Credit Agreement. The Company does not have a
contractual maturity payment due in 2008, however it expects to
repay $40,000 during the next fiscal year. Borrowings under the
Credit Agreement are subject to certain financial and operating
covenants that include, among other provisions, limitations on
dividends, stock repurchases and stock redemptions in addition
to maintaining maximum total leverage ratios and minimum
interest coverage ratios.
The Company is also required to pay a commitment fee of 0.50%
per annum on the unused portion of the Revolving Loan. As of
December 31, 2007, $300 of the standby letter of credit was
outstanding. Available borrowing capacity under the Revolving
Loan was $39,700 at December 31, 2007.
On January 25, 2007, the Company entered into a three-year
pay-fixed, receive floating
(3-month
LIBOR), amortizing interest rate swap arrangement with an
initial notional amount of $70,000. The interest rate swap
applied a fixed interest rate against the first interest
payments of the portion of the $200,000 six-year Term Loan
arrangement. The notional amount of the interest rate swap
amortizes to zero over its term, consistent with the
Companys planned debt pay down and the Credit
Agreements requirement of maintaining interest rate
protection on at least 40% of Term Loan debt for a minimum of
three years. The notional value underlying the hedge at
December 31, 2007 was $56,000. Under the terms of the
interest rate swap, the Company pays a fixed rate of 5.21% and
receives floating
3-month
LIBOR, which was 5.08% at December 31, 2007.
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, 2007. At inception, the fair value of
the interest rate swap was zero. As of December 31, 2007,
the fair value of the swap was recorded as a liability of $1,021
in other accrued expenses. 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. The benefit to interest expense for the year
ending December 31, 2007 was $59.
The components of income before taxes for the years ended
December 31, 2007, 2006 and 2005 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
44,415
|
|
|
$
|
55,374
|
|
|
$
|
28,317
|
|
Foreign
|
|
|
6,853
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
51,268
|
|
|
$
|
56,102
|
|
|
$
|
28,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The components of the benefit (provision) for income taxes for
the years ended December 31, 2007, 2006 and 2005 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current benefit (provision):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(12,009
|
)
|
|
$
|
(14,099
|
)
|
|
$
|
(5,376
|
)
|
State
|
|
|
(1,861
|
)
|
|
|
(1,911
|
)
|
|
|
(664
|
)
|
Foreign
|
|
|
(884
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(14,754
|
)
|
|
|
(16,138
|
)
|
|
|
(6,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit (provision):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(5,021
|
)
|
|
|
(3,411
|
)
|
|
|
8,886
|
|
State
|
|
|
3,220
|
|
|
|
(1,503
|
)
|
|
|
(322
|
)
|
Foreign
|
|
|
(30
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(1,831
|
)
|
|
|
(4,925
|
)
|
|
|
8,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (provision) benefit
|
|
$
|
(16,585
|
)
|
|
$
|
(21,063
|
)
|
|
$
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation between the statutory federal
income tax rate and the Companys effective income tax
rates for the years ended December 31, 2007, 2006 and 2005,
which are derived by dividing the income tax benefit (provision)
by the income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal income tax rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes, net of federal benefit and state tax credits
|
|
|
(3.0
|
)
|
|
|
(4.2
|
)
|
|
|
(2.7
|
)
|
Federal extraterritorial income exclusion and domestic
production activities deduction
|
|
|
1.4
|
|
|
|
1.7
|
|
|
|
2.2
|
|
Decrease in valuation allowance
|
|
|
4.7
|
|
|
|
0.2
|
|
|
|
42.3
|
|
Other
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (provision) benefit for income taxes
|
|
|
(32.3
|
)%
|
|
|
(37.5
|
)%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2006 and 2005, the Company
derived a tax benefit from an exclusion provided under
U.S. income tax laws with respect to certain
extraterritorial income. However, this exclusion was repealed as
part of the American Jobs Creation Act of 2004 (the Act). The
Act provided a phase-out of the exclusion which limited the
Company to 60% and 80% of the amounts generated in 2006 and
2005, respectively. No exclusion was available in 2007 and no
exclusion will be available in the future. Further, the Act
makes a number of other changes to the income tax laws which
have and will continue to affect the Company in future years,
the most significant of which is a new deduction relating to
qualifying domestic production activities. The deduction equals
three percent of qualifying income for 2005 and 2006, six
percent for 2007 through 2009 and nine percent beginning in 2010.
F-22
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The significant components of the
net deferred tax assets as of December 31, 2007 and 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax goodwill related to recapitalization
|
|
$
|
11,577
|
|
|
$
|
13,613
|
|
Reserves and accruals
|
|
|
6,149
|
|
|
|
4,127
|
|
Net operating loss carryforwards
|
|
|
17
|
|
|
|
59
|
|
State tax credit carryforwards, net of federal benefit
|
|
|
2,439
|
|
|
|
2,400
|
|
Stock-based compensation
|
|
|
1,090
|
|
|
|
169
|
|
Unrealized loss on derivatives
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,658
|
|
|
|
20,368
|
|
Less valuation allowance
|
|
|
|
|
|
|
(2,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
21,658
|
|
|
|
17,968
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and intangible asset amortization
|
|
|
(14,711
|
)
|
|
|
(10,844
|
)
|
Property, plant and equipment basis differences
|
|
|
(388
|
)
|
|
|
(193
|
)
|
Repatriation of foreign earnings
|
|
|
(2,150
|
)
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
4,409
|
|
|
$
|
6,681
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset (liability):
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
6,097
|
|
|
$
|
3,996
|
|
Long-term portion
|
|
|
(1,688
|
)
|
|
|
2,685
|
|
The primary deferred tax asset, tax goodwill related to
recapitalization, is being amortized over a
15-year
period in accordance with the provisions of the Internal Revenue
Code (the Code). As a result of the Companys
recapitalization in 1998, the Company became a C Corporation and
the tax effect of all differences between the tax reporting and
financial reporting bases of the Companys net assets was
recorded as a net deferred tax asset. The most significant basis
difference resulted from a Code section 338(h)(10) tax
election made at the time of the recapitalization. This election
had the effect of characterizing the recapitalization and stock
purchase as an asset purchase for income tax purposes.
Therefore, the consideration paid to the former owner in excess
of tax basis of the net assets was recorded as tax-deductible
goodwill, even though no goodwill was reported for financial
reporting purposes.
As of December 31, 2006, the Company increased the
effective state tax rate applied to its existing net deferred
income tax asset as a result of the PCG acquisition. The tax
rate change resulted in an increase of $403 to net deferred tax
assets and a corresponding reduction in goodwill. This state
rate increase reflects the new rate that is expected to apply
when the deferred tax items are settled or realized.
At December 31, 2007 the Companys multiple state net
operating loss carryforwards for income tax purposes were
approximately $219. If not utilized, the state net operating
loss carryforwards will begin to expire in 2018. At
December 31, 2007, the Companys state tax credit
carryforwards were approximately $3,752 and have no expiration
date.
A valuation allowance is provided when it is more likely than
not that all or some portion of the deferred tax assets will not
be realized. At December 31, 2006, the valuation allowance
related specifically to state tax credit carryforwards that were
not more likely than not to be realized. This assessment was
made based on historical
F-23
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
activity and subjective, current year projections, that it would
generate new credits in excess of those that would be utilized
during the year. Based on this data, the Company had determined
that a valuation allowance was necessary for the state tax
credit carryforwards that were not more likely than not to be
realized at December 31, 2006. In 2007, using objective and
verifiable data, which includes an analysis of actual
utilization of credits that became available during the fourth
quarter, the Company has calculated that it will actually
utilize more state tax credits than it will generate. As a
result, the Company has determined that a valuation allowance is
no longer necessary for its state tax credit carryforwards and
the remaining valuation allowance was released as of
December 31, 2007.
Upon adoption of FIN 48, the Company recorded a decrease in
the liability for unrecognized tax benefits of $338 and a
increase to retained earnings of $338 representing the
cumulative effect of the change in accounting principle. No
change was recorded in the deferred income tax asset accounts.
In accordance with the adoption of FIN 48 on
January 1, 2007, a reconciliation of the beginning and
ending amount of unrecognized tax benefits, exclusive of accrued
interest and penalties, is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2007
|
|
$
|
346
|
|
Additions based on tax positions related to the current year
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Lapse of statute
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
346
|
|
|
|
|
|
|
At December 31, 2007, the Company classified $373 of total
unrecognized tax benefits, which includes accrued interest and
penalties of $27 net of tax benefits, as a component of
other long-term liabilities and represents the amount of
unrecognized tax benefits that would, if recognized, reduce the
Companys effective income tax rate in any future.
The Company and its subsidiaries are subject to
U.S. federal, state, local,
and/or
foreign income tax, and in the normal course of business its
income tax returns are subject to examination by the relevant
taxing authorities. The State of California Franchise Tax Board
has completed audits of the Companys income tax returns
for the 2000 2001 years. The State of Florida
Department of Revenue has completed audits of the Companys
income tax returns for the 2003 2005 years. As
of December 31, 2007, the 2002 2006 tax years
remain subject to examination in the U.S. federal tax,
various state tax and foreign jurisdictions. The Company does
not expect its unrecognized tax benefits to change significantly
over the next 12 months.
|
|
(9)
|
Financial
Instruments
|
In the normal course of business, operations of the Company are
exposed to risks associated with fluctuations in
U.S. interest rates. The Company is required by its lenders
to address this risk through controlled risk management that
includes the use of derivative instruments to economically hedge
or reduce these exposures.
Fair
Value of Financial Instruments
At December 31, 2007 and 2006, the Companys financial
instruments included cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, derivatives
and long-term debt. The carrying amount of cash and cash
equivalents, short-term investments, accounts receivable and
accounts payable approximate fair value due to the short-term
maturities of these instruments.
The carrying amounts of the Companys derivative financial
instruments were adjusted to fair value at December 31,
2007. The fair value of the derivative financial instrument is
the estimated amount the Company
F-24
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
would pay/receive to terminate it on December 31, 2007,
taking into account current market quotes and the current
creditworthiness of the counterparty. The fair value of
long-term debt was estimated based on quoted market prices at
year end.
The carrying amount and estimated fair value of the
Companys financial instruments at December 31, 2007
and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Long-term debt
|
|
$
|
85,000
|
|
|
$
|
84,150
|
|
|
$
|
200,000
|
|
|
$
|
201,000
|
|
Interest rate swap derivative
|
|
|
1,021
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
Concentration
of Credit Risk
In the normal course of business, the Company extends credit to
its customers, which are concentrated in the computer and
electronics instrumentation and aerospace/defense industries,
and some of which are located outside the United States. The
Company performs ongoing credit evaluations of customers and
does not require collateral. The Company also considers the
credit risk profile of the entity from which the receivable is
due in further evaluating collection risk.
As of December 31, 2007 and 2006, the 10
largest customers in the aggregate accounted for 49% and
47%, respectively, of total accounts receivable. If one or more
of the Companys significant customers were to become
insolvent or were otherwise unable to pay for the manufacturing
services provided, it would have a material adverse effect on
the Companys financial condition and results of operations.
|
|
(10)
|
Commitments
and Contingencies
|
Operating
and Capital Leases
The Company leases some of its manufacturing and assembly
plants, a sales office and equipment under noncancellable
operating leases that expire at various dates through 2020.
Certain real property leases contain renewal provisions at the
Companys option. Most of the leases require the Company to
pay for certain other costs such as property taxes and
maintenance. Certain leases also contain rent escalation clauses
(step rents) that require additional rental amounts in the later
years of the term. Rent expense for leases with step rents is
recognized on a straight-line basis over the minimum lease term.
The following is a schedule of future minimum lease payments as
of December 31, 2007:
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
2,759
|
|
2009
|
|
|
2,013
|
|
2010
|
|
|
1,042
|
|
2011
|
|
|
333
|
|
2012
|
|
|
297
|
|
Thereafter
|
|
|
1,225
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
7,669
|
|
|
|
|
|
|
Total rent expense for the years ended December 31, 2007,
2006 and 2005 was approximately $4,108, $1,051 and $254,
respectively. In addition, the Company has certain operating
leases that are on a short-term basis and the rent expense of
$1,187 for the year ended December 31, 2007 is reflected in
the total rent expense amount but not in
F-25
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
the minimum lease payment schedule. For the years ended
December 31, 2006 and 2005, the Company did not have
similar operating leases on a short-term basis.
Legal
Matters
Prior to the Companys acquisition of PCG, PCG made legal
commitments to the U.S. Environmental Protection Agency
(U.S. EPA) and the State of Connecticut regarding
settlement of enforcement actions against the PCG operations in
Connecticut. On August 17, 2004, PCG was sentenced for
Clean Water Act violations and was ordered to pay a $6,000 fine
and an additional $3,700 to fund environmental projects designed
to improve the environment for Connecticut residents. In
September 2004, PCG agreed to a stipulated judgment with the
Connecticut Attorney Generals office and the Connecticut
Department of Environmental Protection (DEP) under which PCG
paid a $2,000 civil penalty and agreed to implement capital
improvements of $2,400 to reduce the volume of rinse water
discharged from its manufacturing facilities in Connecticut. The
obligations to the US EPA and Connecticut DEP include the
fulfillment of a Compliance Management Plan until at least July
2009 and installation of rinse water recycling systems at the
Stafford, Connecticut, facilities. As of December 31, 2007,
approximately $690 remains to be expended in the form of capital
improvements to meet the rinse water recycling systems
requirements. The Company has assumed these legal commitments as
part of its purchase of PCG. Failure to meet either commitment
could result in further costly enforcement actions, including
exclusion from participation in federal contracts.
The Company is subject to various other legal matters, which it
considers normal for its business activities. While the Company
currently believes that the amount of any ultimate potential
loss for known matters would not be material to the
Companys financial condition, 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 the Companys financial condition or
results of operations in a particular period. The Company has
accrued amounts for its loss contingencies which are probable
and estimable at December 31, 2007 and 2006.
Environmental
Matters
The process to manufacture printed circuit boards requires
adherence to city, county, state and federal environmental
regulations regarding the storage, use, handling and disposal of
chemicals, solid wastes and other hazardous materials as well as
air quality standards. Management believes that its facilities
comply in all material respects with environmental laws and
regulations. The Company has in the past received certain
notices of violations and has been required to engage in certain
minor corrective activities. There can be no assurance that
violations will not occur in the future.
The Company is involved in various stages of investigation and
cleanup related to environmental remediation matters at two
Connecticut sites, and the ultimate cost of site cleanup is
difficult to predict given the uncertainties regarding the
extent of the required cleanup, the interpretation of applicable
laws and regulations, and alternative cleanup methods. The
Company has also investigated a third Connecticut site as a
result of the PCG acquisition under Connecticuts Land
Transfer Act. The Company concluded that it was probable that it
would incur remedial costs of approximately $879 and $875 as of
December 31, 2007 and 2006, respectively, the liability for
which is included in other long-term liabilities. This accrual
was discounted at 8% per annum based on the Companys best
estimate of the liability, which the Company estimated as
ranging from $839 to $1,274 on an undiscounted basis. The
liabilities recorded do not take into account any claims for
recoveries from insurance or third parties and none is
estimated. These costs are mostly comprised of estimated
consulting costs to evaluate potential remediation requirements,
completion of the remediation, and monitoring of results
achieved. As of December 31, 2007, the Company anticipates
paying these costs ratably over the next 12 to 84 months,
which timeframes vary by site. Subject to the imprecision in
estimating future environmental remediation costs, the Company
does not expect the outcome of the environmental remediation
matters, either individually or in the aggregate, to have a
material adverse effect on its financial position, results of
operations, or cash flows.
F-26
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Dispute
Resolution
From time to time, the Company is involved in various claims and
legal disputes in the normal course of its business. In October
2005, the Company reached an agreement in principle to resolve
an ongoing customer dispute concerning certain printed circuit
boards that were shipped between April 2002 and September 2003.
A definitive agreement was signed in December 2005. The
definitive agreement called for the Company to pay the customer
$3,150 upon receipt of required documentation from the customer
and contained certain mutual and unilateral covenants. Payments
of $3,150 were made to the customer during 2006 upon the receipt
of the required documentation. The Companys insurance
carrier reimbursed the Company $986 toward the cost of this
resolution. For the year ended December 31, 2005,
approximately $2,219 of expense, which is net of the insurance
recovery, is recorded in general and administrative expenses.
|
|
(11)
|
Stock-Based
Compensation Plans
|
In June 2006, the Company adopted the 2006 Incentive
Compensation Plan (the Plan). The Plan provides for the grant of
incentive stock options, as defined by the Internal Revenue Code
(the Code), and nonqualified stock options to our key employees,
non-employee directors and consultants. Other types of awards
such as restricted stock units (RSUs) and stock appreciation
rights are also permitted under the Plan. This Plan allows for
the issuance of 6,873 shares through the Plans
expiration date of June 22, 2016. Prior to the adoption of
the Plan, the Company adopted the Amended and Restated
Management Stock Option Plan (the Prior Plan) in 2000. The Prior
Plan provided for the grant of incentive stock options, as
defined by the Code, and nonqualified stock options to our key
employees, non-employee directors and consultants. Awards under
the Plan and the Prior Plan may constitute qualified
performance-based compensation as defined in
Section 162(m) of the Code. Under both the Plan and the
Prior Plan, the exercise price is determined by the compensation
committee of the Board of Directors and, for options intended to
qualify as incentive stock options, may not be less than the
fair market value as determined by the closing stock price at
the date of the grant. Each option and award shall vest and
expire as determined by the compensation committee, generally
four years for employees and three or four years for
non-employee directors. Options expire no later than ten years
from the grant date. All grants provide for accelerated vesting
if there is a change in control, as defined in the Plan. Awards
under the Prior Plan ceased as of June 22, 2006. As of
December 31, 2007, of the 2,299 options outstanding, 413
options were issued under the Plan and 1,886 options were issued
under the Prior Plan. Additionally, 487 RSUs were issued under
the Plan and were outstanding as of December 31, 2007.
These RSUs will vest over three years for employees and one year
for non-employee directors. The RSUs do not have voting rights.
Upon the exercise of outstanding stock options or vesting of
RSUs, the Companys practice is to issue new registered
shares that are reserved for issuance under the Plan and Prior
Plan.
Stock option awards granted were estimated to have a weighted
average fair value per share of $7.33 and $5.14 for the years
ended December 31, 2006 and 2005, respectively. No stock
options were granted by the Company in 2007. The fair value
calculation is based on stock options granted during the period
using the Black-Scholes option-pricing model on the date of
grant. For the years ended December 31, 2006 and 2005 the
following assumptions were used in determining the fair value:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
4.0
|
%
|
Dividend yield
|
|
|
|
%
|
|
|
|
%
|
Expected volatility
|
|
|
65
|
%
|
|
|
80
|
%
|
Expected term in months
|
|
|
54
|
|
|
|
55
|
|
The Company determines the expected term of its stock option
awards separately for employees and directors by periodic review
of its historical stock option exercise experience. This
calculation excludes pre-vesting forfeitures and uses assumed
future exercise patterns to account for option holders
expected exercise and
F-27
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
post-vesting termination behavior for outstanding stock options
over their remaining contractual terms. Expected volatility is
calculated by weighting the Companys historical stock
price to calculate expected volatility over the expected term of
each grant. The risk-free interest rate for the expected term of
each option granted is based on the U.S. Treasury yield
curve in effect at the time of grant.
Option activity under the Plan for the year ended
December 31, 2007, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
2,797
|
|
|
$
|
11.31
|
|
|
|
7.4
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(287
|
)
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(211
|
)
|
|
|
11.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,299
|
|
|
$
|
11.97
|
|
|
|
6.4
|
|
|
$
|
3,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2007
|
|
|
2,209
|
|
|
|
11.98
|
|
|
|
6.3
|
|
|
$
|
2,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
1,561
|
|
|
$
|
12.22
|
|
|
|
5.6
|
|
|
$
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above represent the
total pretax intrinsic value (the difference between
Companys closing stock price on the last trading day of
2007 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the
option holders had all option holders exercised their options on
December 31, 2007. This amount changes based on the fair
market value of the Companys stock. The total intrinsic
value of options exercised for the years ended December 31,
2007, 2006 and 2005 was $1,756, $5,659, and $2,132,
respectively. The total fair value of the options vested for the
years ended December 31, 2007, 2006 and 2005 was $2,061,
$832 and $11,389, respectively. As of December 31, 2007,
$3,447 of total unrecognized compensation cost related to stock
options is expected to be recognized over a weighted-average
period of 1.14 years.
A summary of options outstanding and options exercisable as of
December 31, 2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of Exercise
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
|
(In thousands)
|
|
|
(Years)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
$2.63-$4.99
|
|
|
148
|
|
|
|
4.8
|
|
|
$
|
3.34
|
|
|
|
114
|
|
|
$
|
2.91
|
|
$5.00-$9.99
|
|
|
414
|
|
|
|
7.1
|
|
|
|
7.99
|
|
|
|
247
|
|
|
|
8.17
|
|
$10.00-$14.99
|
|
|
1,272
|
|
|
|
6.9
|
|
|
|
12.68
|
|
|
|
874
|
|
|
|
13.12
|
|
$15.00 and over
|
|
|
465
|
|
|
|
5.0
|
|
|
|
16.33
|
|
|
|
326
|
|
|
|
16.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,299
|
|
|
|
6.4
|
|
|
|
11.97
|
|
|
|
1,561
|
|
|
$
|
12.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Non-vested RSU activity for the year ended December 31,
2007, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-vested RSUs outstanding at December 31, 2006
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
508
|
|
|
|
10.74
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(21
|
)
|
|
|
10.58
|
|
|
|
|
|
|
|
|
|
|
Non-vested RSUs outstanding at December 31, 2007
|
|
|
487
|
|
|
$
|
10.75
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at December 31, 2007
|
|
|
423
|
|
|
$
|
10.75
|
|
|
|
|
|
|
|
|
|
|
The Company did not grant any RSUs in 2006 or 2005.
The fair value of the Companys RSUs is determined based
upon the closing fair market value of the Companys common
stock on the grant date. As of December 31, 2007, $3,347 of
total unrecognized compensation cost related to restricted stock
units is expected to be recognized over a weighted-average
period of 1.05 years.
For the years ended December 31, 2007 and 2006 the amounts
recognized in the consolidated financial statements with respect
to the stock-based compensation plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of goods sold
|
|
$
|
950
|
|
|
$
|
479
|
|
Selling and marketing
|
|
|
175
|
|
|
|
130
|
|
General and administrative
|
|
|
2,236
|
|
|
|
944
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized
|
|
|
3,361
|
|
|
|
1,553
|
|
Income tax benefit recognized
|
|
|
(1,015
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense after income taxes
|
|
$
|
2,346
|
|
|
$
|
1,357
|
|
|
|
|
|
|
|
|
|
|
Many of the Companys stock option awards are intended to
qualify as incentive stock options as defined by the Code. Upon
the future exercise of incentive stock options which were vested
as of December 31, 2005, the Company may become entitled to
a deduction in its tax returns under certain circumstances;
however, the value of this deduction will be recorded as an
increase to additional paid-in capital and not as an income tax
benefit. For the year ended December 31, 2007 and 2006, a
tax benefit of $442 and $1,707, respectively, related to fully
vested stock option awards exercised, was recorded as an
increase to additional paid-in capital.
Cash received from option exercises during the year ended
December 31, 2007, 2006 and 2005, was $1,712, $4,957 and
$858, respectively.
|
|
(12)
|
Employee
Benefit Plan
|
The Company had two 401(k) savings plans under which all
eligible full-time employees could participate and contribute a
percentage of compensation subject to the maximum allowed by the
Code. There was a plan for the original employees of the Company
prior to the acquisition of PCG, and a plan for the employees of
the acquired PCG plants. During the fourth quarter of 2007,
these two plans were combined into a single plan (the Savings
Plan). This Savings Plan provides for a matching contribution of
employee contributions up to 5%; 100% up to the first 3%
F-29
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
and 50% of the following 2% of employee contributions. The
Company recorded contributions under the p