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, 2008
Commission file number 0-31285
TTM
TECHNOLOGIES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
|
|
|
Delaware
|
|
91-1033443
|
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
2630 South Harbor Boulevard,
Santa Ana, California
|
|
92704
(Zip Code)
|
(Address of Principal Executive
Offices)
|
|
|
(714) 327-3000
(Registrants telephone
number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange
Act:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
Common Stock, $0.001 par value
|
|
Nasdaq Global Select Market
|
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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer þ
|
|
Non-accelerated
filer o
|
|
Smaller reporting
company o
|
|
|
|
|
|
|
|
|
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of Common Stock held by
non-affiliates of the registrant (based on the closing price of
the registrants Common Stock as reported on the Nasdaq
Global Select Market on June 30, 2008, the last business
day of the most recently completed second fiscal quarter), was
$565,001,357. For purposes of this computation, all officers,
directors, and 10% beneficial owners of the registrant are
deemed to be affiliates of the registrant. Such determination
should not be deemed to be an admission that such officers,
directors, or 10% beneficial owners are, in fact, affiliates of
the registrant.
As of March 10, 2009, there were outstanding
42,997,386 shares of the registrants Common Stock,
$0.001 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
its 2009 Annual Meeting of Stockholders are incorporated by
reference into Part III of this report.
TTM
TECHNOLOGIES, INC.
ANNUAL
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
Statement
Regarding Forward-Looking Statements
This report on
Form 10-K
contains forward-looking statements regarding future events or
our future financial and operational performance.
Forward-looking statements include statements regarding markets
for our products; trends in net sales, gross profits and
estimated expense levels; liquidity and anticipated cash needs
and availability; and any statement that contains the words
anticipate, believe, plan,
forecast, foresee, estimate,
project, expect, seek,
target, intend, goal and
other similar expressions. The forward-looking statements
included in this report reflect our current expectations and
beliefs, and we do not undertake publicly to update or revise
these statements, even if experience or future changes make it
clear that any projected results expressed in this report,
annual or quarterly reports to stockholders, press releases or
company statements will not be realized. In addition, the
inclusion of any statement in this report does not constitute an
admission by us that the events or circumstances described in
such statement are material. Furthermore, we wish to caution and
advise readers that these statements are based on assumptions
that may not materialize and may involve risks and
uncertainties, many of which are beyond our control, that could
cause actual events or performance to differ materially from
those contained or implied in these forward-looking statements.
These risks and uncertainties include the business and economic
risks described in Item 1A, Risk Factors.
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. In 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. As
of December 31, 2008, we operated a total of 11 facilities,
10 of which are located in the United States and one of which is
located in Shanghai, China.
Industry
Background
Printed circuit boards are manufactured from sheets of laminated
material, called panels. Each panel is typically subdivided into
multiple PCBs, each consisting of a pattern of electrical
circuitry etched from copper to provide an electrical connection
between the components mounted to it.
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/defense electronic systems. Generally, consumer
electronics products utilize commodity-type PCBs with lower
layer counts, less complexity and larger production runs.
High-end commercial equipment and aerospace/defense products
require more customized, multilayer PCBs using advanced
technologies. In addition, most high-end commercial and
aerospace/defense end markets have low volume requirements that
demand a highly flexible manufacturing environment. As
production of sophisticated circuit boards becomes more complex,
high-end manufacturers must continually invest in advanced
production equipment, engineering and process technology, and a
skilled workforce. Backplane assemblies also exhibit these
characteristics.
According to Prismark Partners LLC, the worldwide market for
PCBs was approximately $48 billion in 2008 with the
Americas producing 10%, or approximately $5 billion. The
market is divided between a few large companies and many small
companies. According to Prismark Partners LLC, there were
approximately 400 manufacturers in 2008. As a result of the
economic downturn in late 2008, many of these companies have
experienced reduced capacity utilization at their facilities. We
anticipate further consolidation in the domestic PCB
1
industry and believe that we are well positioned to benefit in
this environment due to our strong financial position and
well-capitalized facilities.
Several trends are impacting the PCB manufacturing and backplane
assembly industries. These trends include:
Short electronic product life
cycles. Continual advances in technology have
shortened the life cycles of complex commercial electronic
products, placing greater pressure on OEMs to quickly bring new
products to market. The accelerated time-to-market and
ramp-to-volume needs of OEMs for high-end commercial equipment
create opportunities for PCB manufacturers that can offer
engineering support in the prototype stage and manufacturing
scalability throughout the production life cycle.
Increasing complexity of electronic
products. OEMs are continually designing higher
performance electronic products, which require technologically
complex PCBs that can accommodate higher speeds and component
densities. These complex PCBs often require very high layer
counts, advanced manufacturing processes and materials, and
high-mix production capabilities, which involve processing small
lots in a flexible manufacturing environment. OEMs increasingly
rely upon larger PCB manufacturers, which possess the financial
resources necessary to invest in advanced manufacturing process
technologies and sophisticated engineering staff, often to the
exclusion of smaller PCB manufacturers that do not possess such
technologies or resources.
Increasing competition from Asian
manufacturers. In recent years, many electronics
manufacturers have moved their commercial production to Asia to
take advantage of its exceptionally large, low-cost labor pool.
This is particularly true for consumer electronics producers
that utilize commodity-type PCBs with low layer counts and
complexity. These less sophisticated PCBs are generally mass
produced and have experienced significant pricing pressures from
Asian manufacturers. Printed circuit boards requiring complex
technologies, advanced manufacturing processes and materials,
quick turnaround times, or high-mix production are subject to
less competition from low-cost regions. In addition, many of the
unique challenges involved in successfully designing and
manufacturing highly complex PCBs and the ongoing
capital investment required to maintain state-of-the-art
capabilities have effectively served as barriers to
entry in these high-mix and high-complexity segments of the
domestic PCB industry.
Decreased reliance on multiple printed circuit board
manufacturers by OEMs. OEMs traditionally have
relied on multiple printed circuit board manufacturers to
provide different services as an electronic product moves
through its life cycle. The transfer of a product among
different printed circuit board manufacturers often results in
increased costs and inefficiencies due to incompatible
technologies and manufacturing processes and production delays.
In addition, OEMs find it easier to manage fewer printed circuit
board manufacturers. As a result, OEMs are reducing the number
of printed circuit board manufacturers and backplane assembly
service providers on which they rely, presenting an opportunity
for those that can offer one-stop manufacturing
capabilities from prototype to volume production.
Increasing demand for aerospace/defense
products. The aerospace/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
aerospace/defense market is generally achieved only after
manufacturers demonstrate the long-term ability to pass
extensive OEM and government certification processes, numerous
product inspections, audits for quality and performance, and
extensive administrative requirements associated with
participation in government programs. Export controls represent
a barrier to entry for international competition as they
restrict the overseas export of defense-related materials,
services, and sensitive technologies that are associated with
government programs. In addition, the complexity of the end
products serves as a barrier to entry to potential new suppliers.
End market demand for backplane assembly and sub-system
products has increased in emerging and developing countries
which is changing the historical locations where these products
are manufactured and sold. OEM customers continue
to increase their reliance on outsourcing their backplane and
sub-system requirements as they streamline their own supply
chains. OEMs increasingly are migrating to EMS companies
2
that provide the vertical integration model that allows OEMs to
reduce further the number of supply chain participants. This is
quickly becoming the trend world-wide as the larger EMS
companies have global footprints that allow them to provide
local support wherever required. Some EMS companies provide
their own internal backplane and sub-system capabilities and
others rely on support from the historical suppliers of these
products. Because of the logistical challenges associated with
larger backplanes and sub-systems, manufacturing is migrating to
low cost regions throughout the world, such as Mexico, China and
several Eastern European countries. In addition, manufacturing
and assembly of these products continues to transition to Asia
not only for lower costs, but also to support a growing base of
new business in the region. This has begun to affect even
high-end systems that in the past have been primarily delivered
to North American and European customers. New product
introduction continues in North America with requirements for
local support, small lot and quick turn requirements.
The TTM
Solution
We manufacture PCBs and backplane assemblies that satisfy all
stages of an electronic products life cycle
from prototype to volume production. Key aspects of our solution
include:
|
|
|
|
|
One-stop manufacturing solution. We offer a
one-stop manufacturing solution to our customers through our
specialized and integrated facilities, some of which focus on
different stages of an electronic products life cycle.
This one-stop solution allows us to provide a broad array of
services and technologies to meet the rapidly evolving needs of
our customers.
|
|
|
|
Quick-turn services. We deliver highly complex
PCBs to customers in significantly compressed lead times. This
rapid delivery service enables OEMs to develop sophisticated
electronic products quickly and reduce their time to market. In
addition, our quick-turn services provide us with an opportunity
to cross-sell our other services, including high-mix and volume
production in our targeted end markets.
|
|
|
|
Strong process and technology expertise. We
deliver time-critical and highly complex manufacturing services
through our advanced manufacturing processes and material and
technology expertise. We regularly manufacture PCBs with layer
counts in excess of 30 layers.
|
|
|
|
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.
|
|
|
|
Complementary backplane assembly. We provide
backplane and sub-system assembly products as a natural
extension of our commercial and aerospace/defense PCB offerings.
This segment is a full service provider of complex backplane
assembly, sub-system assembly, electro-mechanical integration
and design services.
|
Our
Manufacturing Services
Quick-turn
We refer to our rapid turnaround services as
quick-turn because we provide custom-fabricated PCBs
to our customers within as little as 24 hours to
10 days. As a result of our ability to rapidly and reliably
respond to the critical time requirements of our customers, we
generally receive a premium for our quick-turn services as
compared to standard lead time prices.
|
|
|
|
|
Prototype production. In the design, testing,
and launch phase of a new electronic products life cycle,
our customers typically require limited quantities of PCBs in a
very short period of time. We satisfy this need by manufacturing
prototype PCBs in small quantities, with delivery times ranging
from as little as 24 hours to 10 days.
|
|
|
|
Ramp-to-volume production. After a product has
successfully completed the prototype phase, our customers
introduce the product to the market and require larger
quantities of PCBs in a short period of time. This transition
stage between low-volume prototype production and volume
production is known as ramp-to-volume. Our ramp-to-volume
services typically include manufacturing up to a few hundred
PCBs per order with delivery times ranging from 5 to
15 days.
|
3
For the years ended December 31, 2008 and 2007, orders with
delivery requirements of 10 days or less represented
approximately 12% and 15% of our PCB revenue, respectively.
Quick-turn orders decreased as a percentage of our PCB revenue
in 2008 due to higher demand for our standard lead-time and high
technology production 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 2008, the average layer count of our
PCBs increased to 13.9 from 13.6 in 2007 due to increasing
levels of high technology aerospace/defense and high density
interconnect printed circuit board products which are not
necessarily characterized by higher layer counts. 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 desirable markets, such as the
aerospace/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 multiple layers of circuitry,
using intense heat and pressure under vacuum. Vertical
connections between layers are achieved by drilling and plating
through small holes, called vias. Vias are made by highly
specialized drilling equipment capable of achieving extremely
fine tolerances with high accuracy. We specialize in high layer
count printed circuit boards with extremely fine geometries and
tolerances. Because of the tolerances involved, we employ clean
rooms in certain manufacturing processes where tiny particles
might otherwise create defects on the circuit patterns. We also
use automated optical inspection systems and electrical testing
systems to ensure consistent quality of the circuits we produce.
We believe that our highly specialized equipment and advanced
manufacturing processes enable us to reliably produce printed
circuit boards with the following characteristics:
|
|
|
|
|
High layer count. Manufacturing printed
circuit boards with a large number of layers is difficult to
accomplish due to the accumulation of manufacturing tolerances
and registration systems required. We regularly manufacture
printed circuit boards with more than 30 layers on a quick-turn
and volume basis. Approximately 59% of our 2008 PCB revenue
involved the manufacture of printed circuit boards with at least
12 layers, compared with 57% in 2007. Printed circuit boards
with at least 20 layers represented 27% of PCB revenue in 2008,
up from 26% in 2007, due to increasing levels of high technology
aerospace/defense and high density interconnect printed circuit
board products which are not necessarily characterized by higher
layer counts.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Fine line traces and spaces. Traces are the
connecting copper lines between the different components of the
printed circuit board and spaces are the distances between
traces. The smaller the traces and the tighter the spaces, the
higher the density on the printed circuit board and the greater
the expertise required to achieve a desired final yield on an
order. We are able to provide 0.003 inch traces and spaces.
|
|
|
|
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.
|
|
|
|
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
|
5
|
|
|
|
|
copper foil laminated on either side. The thickness of
inner-layer cores is typically determined by the overall
thickness of the printed circuit board and the number of layers
required. The demand for thinner cores derives from the
requirements for thinner printed circuit boards, higher layer
counts and various electrical parameters. Core thickness in our
printed circuit boards ranges from as little as
0.002 inches up to 0.062 inches.
|
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
Advanced materials. We manufacture circuit
boards using a wide variety of advanced insulating materials.
These high-performance materials offer electrical, thermal, and
long-term reliability advantages over conventional materials but
are more difficult to manufacture. We are certified by
Underwriters Laboratories to manufacture printed circuit boards
using many types and combinations of these specialty materials.
This wide offering allows us to manufacture complex boards for
niche and high-end commercial and aerospace/defense markets.
|
|
|
|
Advanced backplane assembly and system
integration. We provide specialized assembly
services for highly complex and large form-factor backplanes.
These services provide additional value for many of the high
technology backplane circuit boards produced in our printed
circuit board manufacturing facilities. The manufacture of
backplane assemblies involves mounting various electronic
components to large PCBs. Components include, but are not
limited to, connectors, capacitors, resistors, diodes,
integrated circuits, hardware and a variety of other parts. We
also assemble backplanes and sub-systems and provide full
systems integration of backplane assemblies, cabling, power,
thermal, and other complex electromechanical parts into chassis
and other enclosures. In addition to assembly services, we
provide a full range of inspection and testing services such as
automated optical inspection (AOI) and X-ray inspection to
ensure that all components have been properly placed and
electrical circuits are complete.
|
|
|
|
Flexible circuits. We manufacture circuits on
flexible substrates that can be installed in three-dimensional
applications for electronic packaging systems. Use of flexible
circuitry enables improved reliability, improved electrical
performance, reduced weight and reduced assembly costs when
compared with traditional wire harness or ribbon cable
packaging. We can combine these flexible substrates with rigid
laminates to create highly reliable, high layer count rigid-flex
products.
|
|
|
|
High frequency circuits. We have the ability
to produce and test specialized circuits used in radio-frequency
or microwave emission and collection applications. These
products are typically used for radar, transmit/receive antennas
and similar wireless applications. Markets for these products
include defense, avionics, satellite, and commercial. The
manufacture of these products requires advanced materials,
equipment, and methods that are highly specialized and distinct
from conventional printed circuit manufacturing techniques. We
also offer specialized radio-frequency assembly and test
services.
|
|
|
|
Thermal management. Increased component
density on circuit boards often requires improved thermal
dissipation to reduce operating temperatures. We have the
ability to produce printed circuits with electrically passive
heat sinks laminated externally on a circuit board or between
two circuit boards
and/or
electrically active thermal cores.
|
6
|
|
|
|
|
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.
|
Customers
and Markets
Our customers include both OEMs and EMS companies that primarily
serve the networking/communications, aerospace/defense, high-end
computing and industrial/medical 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, 2008 and 2007, we had
approximately 860 and 900 customers, respectively.
The following table shows the percentage of our net sales in
each of the principal end markets we served for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
End Markets(1)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Networking/Communications
|
|
|
40
|
%
|
|
|
42
|
%
|
|
|
43
|
%
|
Aerospace/Defense
|
|
|
37
|
|
|
|
30
|
|
|
|
16
|
|
Computing/Storage/Peripherals
|
|
|
12
|
|
|
|
14
|
|
|
|
29
|
|
Medical/Industrial/Instrumentation/Other
|
|
|
11
|
|
|
|
14
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sales to EMS companies are classified by the end markets of
their OEM customers. |
Sales attributable to our five largest OEM customers, which can
vary from year to year, accounted for 29%, 24% and 39% of our
net sales in 2008, 2007 and 2006, 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 2008 were, in alphabetical order, Cisco
Systems, ITT, Juniper Networks, Northrop Grumman and Raytheon.
Sales attributed to OEMs include sales made through EMS
providers. Sales to EMS providers comprised approximately 52%,
53% and 65% of our net sales in 2008, 2007 and 2006,
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 2008 were, in alphabetical order,
Celestica, Flextronics, Jabil, Plexus and Stellar
Microelectronics.
During 2008, 2007 and 2006 net sales by country were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
|
74
|
%
|
|
|
75
|
%
|
|
|
68
|
%
|
China
|
|
|
12
|
|
|
|
9
|
|
|
|
|
|
Malaysia
|
|
|
5
|
|
|
|
6
|
|
|
|
12
|
|
Other
|
|
|
9
|
|
|
|
10
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to other countries, individually, for the years ended
December 31, 2008, 2007 and 2006 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
7
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 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, Firan Technology Group,
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 Viasystems.
We believe we compete favorably based on the following
competitive factors:
|
|
|
|
|
status as largest North American PCB fabricator;
|
|
|
|
ability to offer the most comprehensive PCB product offering;
|
|
|
|
ability to offer one-stop manufacturing capabilities;
|
|
|
|
specialized and integrated manufacturing facilities;
|
|
|
|
ability to offer time-to-market capabilities;
|
|
|
|
capability and flexibility to produce technologically complex
products;
|
|
|
|
leading edge aerospace/defense capabilities;
|
|
|
|
flexibility to manufacture low volume, high-mix products;
|
|
|
|
consistent high-quality product; and
|
|
|
|
outstanding customer service.
|
In addition, we believe our continuous evaluation and early
adoption of new manufacturing and production technologies give
us a competitive advantage. We believe that our ability to
manufacture PCBs using advanced technologies, such as blind and
buried vias, larger panel 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 believe our business depends on the effectiveness of our
fabrication techniques and our ability to continue to improve
our manufacturing processes. We have limited patent or trade
secret protection for our manufacturing processes. We rely on
the collective experience of our employees in the manufacturing
process to ensure that we continuously evaluate and adopt the
new technologies available in our industry. In addition, we
depend on training, recruiting, and retaining our employees, who
are required to have sufficient know-how to operate advanced
equipment and to conduct complicated manufacturing processes.
Governmental
Regulation
Our operations are subject to federal, state, and local
regulatory requirements relating to environmental compliance,
waste management, and health and safety matters. In particular,
we are subject to regulations promulgated by:
|
|
|
|
|
the U.S. Occupational Safety and Health Administration
(OSHA), and state OSHA and Department of Labor laws pertaining
to health and safety in the workplace;
|
|
|
|
the U.S. Environmental Protection Agency (U.S. EPA),
pertaining to air emissions, wastewater discharges, the use,
storage, discharge, and disposal of hazardous chemicals used in
the manufacturing processes;
|
|
|
|
the Department of Homeland Security (DHS) regarding the storage
of certain chemical interests;
|
|
|
|
corresponding state laws and regulations, including site
investigation and remediation;
|
|
|
|
corresponding U.S. county and city agencies; and
|
|
|
|
corresponding agencies in China for our Shanghai facility;
|
|
|
|
the U.S. Departments of Commerce and State regarding export
compliance; and
|
|
|
|
material content directives and laws that ban or restrict
certain hazardous substances in products sold in member states
of the European Union, China, other countries, and New York City.
|
To date, the costs of compliance and environmental remediation
have not been material to us. These costs include investigation
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. EPA and to the State
of Connecticut regarding settlement of enforcement actions
against the PCG Stafford, Connecticut facilities. 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, 2008, we had 3,585 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, 3,236 were involved in
manufacturing and engineering, 48 worked in sales and marketing,
and 301 worked in accounting,
9
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.
Management
The following table, together with the accompanying text,
presents certain information as of February 28, 2009, with
respect to each of our executive officers.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s) Held With the Company
|
|
Kenton K. Alder
|
|
|
59
|
|
|
Chief Executive Officer, President and Director
|
Steven W. Richards
|
|
|
44
|
|
|
Executive Vice President, Chief Financial Officer and Secretary
|
Douglas L. Soder
|
|
|
48
|
|
|
Executive Vice President
|
Shane S. Whiteside
|
|
|
43
|
|
|
Executive Vice President and Chief Operating Officer
|
Kenton K. Alder has served as our Chief Executive
Officer, President and Director since March 1999. From January
1997 to July 1998, Mr. Alder served as Vice President of
Tyco Printed Circuit Group Inc., a printed circuit board
manufacturer. Prior to that time, Mr. Alder served as
President and Chief Executive Officer of ElectroStar, Inc.,
previously a publicly held printed circuit board manufacturing
company, from December 1994 to December 1996. From January 1987
to November 1994, Mr. Alder served as President of Lundahl
Astro Circuits Inc., a predecessor company to ElectroStar.
Mr. Alder holds a Bachelor of Science degree in Finance and
a Bachelor of Science degree in Accounting from Utah State
University.
Steven W. Richards has served as our Chief Financial
Officer since December 2005 and Executive Vice President since
November 2006. Mr. Richards has served as our Secretary
since September 2005, a Vice President since October 2003 and
our Treasurer from May 2000 to December 2005. From June 1996 to
April 2000, Mr. Richards worked in a variety of financial
planning and analysis roles at Atlantic Richfield Corporation, a
multinational oil and gas company. Mr. Richards holds a
Bachelor of Journalism degree from the University of Missouri,
Columbia and a Master of Business Administration degree from the
University of Southern California. Mr. Richards is a
Chartered Financial Analyst charterholder.
Douglas L. Soder has served as our Executive Vice
President since November 2006. Prior to joining our company,
Mr. Soder held the position of Executive Vice President for
Tyco Electronics from January 2001 to November 2006, at which
time we acquired the company. During an almost
24-year
career at Tyco Electronics, Mr. Soder served in a variety
of sales, sales management, and operations management positions
at its AMP Incorporated and PCG subsidiaries. From November 1996
to January 2001, Mr. Soder was Vice President of Sales and
Marketing for PCG. Mr. Soder holds a Bachelor of Arts
degree in Political Science from Dickinson College.
Shane S. Whiteside has served as an Executive Vice
President since November 2006 and our Chief Operating Officer
since December 2002. From January 2001 to November 2002,
Mr. Whiteside was the Vice President of
Operations Santa Ana Division and our Director of
Operations Santa Ana Division from July 1999 to
December 2000. From March 1998 to June 1999, Mr. Whiteside
was our Director of Operations of Power Circuits.
Mr. Whiteside holds a Bachelor of Arts degree in Economics
from the University of California at Irvine.
Availability
of Reports Filed with the Securities and Exchange
Commission
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports are available without charge on
our website at www.ttmtech.com/investors/investors.jsp, as soon
as reasonably practicable after they are filed electronically
with the Securities and Exchange Commission (SEC). Copies are
also available without charge by (i) telephonic request by
calling our Investor Relations Department at
(714) 241-0303,
(ii) e-mail
request to investor@ttmtech.com, or (iii) a written request
to TTM Technologies, Inc., Attention: Investor Relations, 2630
South Harbor Blvd., Santa Ana, CA 92704.
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 report 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 has been
negatively affected by the current contraction in the
U.S. economy and in the worldwide electronics market.
Moreover, due to the uncertainty in the end markets served by
most of our customers, we have a low level of visibility with
respect to future financial results. The current credit crisis
and related turmoil in the financial system has negatively
impacted the global economy and could result in a significant
downturn in the electronics industry. 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.
The
global financial crisis may impact our business and financial
condition in ways that we currently cannot
predict.
The continued credit crisis and related turmoil in the global
financial system has had and may continue to have an impact on
our business and financial condition. For example, we are
currently unable to access cash invested in the Reserve Primary
Fund, a money market fund that has suspended redemptions and is
being liquidated. We had invested approximately
$20.1 million in the Reserve Primary Fund. Despite making
redemption requests for the entire amount of our investment, we
have only received a partial distribution of $17.2 million
as of March 12, 2009, of which $15.9 million was
received in the fourth quarter of 2008 and $1.3 million in
the first quarter of 2009. The fair value of our remaining
investment in the Reserve Primary Fund was $3.7 million at
December 31, 2008. We expect to receive substantially all
of our current holdings in the Reserve Primary Fund.
In addition to the impact that the global financial crisis has
already had on us, we may face significant challenges if
conditions in the financial markets do not improve or continue
to worsen. For example, continuation of the credit crisis could
adversely impact overall demand in the electronics industry,
which could have a negative effect on our revenues and
profitability. In addition, our ability to access the capital
markets may be severely restricted at a time when we would like,
or need, to do so, which could have an impact on our flexibility
to react to changing economic and business conditions or our
ability to pursue acquisitions.
11
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, 2008, we had total indebtedness of
approximately $175 million, which represented approximately
36% of our total capitalization.
Our indebtedness could have significant negative consequences,
including:
|
|
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
limiting our ability to obtain additional financing;
|
|
|
|
requiring the use of a substantial portion of any cash flow from
operations to service our indebtedness, thereby reducing the
amount of cash flow available for other purposes, including
capital expenditures;
|
|
|
|
limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we
compete; and
|
|
|
|
placing us at a possible competitive disadvantage to less
leveraged competitors and competitors that have better access to
capital resources.
|
Our
acquisition strategy involves numerous risks.
As part of our business strategy, we expect that we will
continue to grow by pursuing acquisitions of businesses,
technologies, assets, or product lines that complement or expand
our business. Risks related to an acquisition may include:
|
|
|
|
|
the potential inability to successfully integrate acquired
operations and businesses or to realize anticipated synergies,
economies of scale, or other expected value;
|
|
|
|
diversion of managements attention from normal daily
operations of our existing business to focus on integration of
the newly acquired business;
|
|
|
|
unforeseen expenses associated with the integration of the newly
acquired business;
|
|
|
|
difficulties in managing production and coordinating operations
at new sites;
|
|
|
|
the potential loss of key employees of acquired operations;
|
|
|
|
the potential inability to retain existing customers of acquired
companies when we desire to do so;
|
|
|
|
insufficient revenues to offset increased expenses associated
with acquisitions;
|
|
|
|
the potential decrease in overall gross margins associated with
acquiring a business with a different product mix;
|
|
|
|
the inability to identify certain unrecorded liabilities;
|
|
|
|
the potential need to restructure, modify, or terminate customer
relationships of the acquired company;
|
12
|
|
|
|
|
an increased concentration of business from existing or new
customers; and
|
|
|
|
the potential inability to identify assets best suited to our
business plan.
|
Acquisitions may cause us to:
|
|
|
|
|
enter lines of business
and/or
markets in which we have limited or no prior experience;
|
|
|
|
issue debt and be required to abide by stringent loan covenants;
|
|
|
|
assume liabilities;
|
|
|
|
record goodwill and
non-amortizable
intangible assets that will be subject to impairment testing and
potential periodic impairment charges;
|
|
|
|
become subject to litigation and environmental issues;
|
|
|
|
incur unanticipated costs;
|
|
|
|
incur large and immediate write-offs;
|
|
|
|
issue common stock that would dilute our current
stockholders percentage ownership; and
|
|
|
|
incur substantial transaction-related costs, whether or not a
proposed acquisition is consummated.
|
Acquisitions of high technology companies are inherently risky,
and no assurance can be given that our recent or future
acquisitions 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.
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 29% and 24% of our net sales for the years
ended December 31, 2008 and 2007, respectively. Sales
attributed to OEMs include both direct sales as well as sales
that the OEMs place through EMS providers. Our customer
concentration could fluctuate, depending on future customer
requirements, which will depend in large part on market
conditions in the electronics industry segments in which our
customers participate. The loss of one or more significant
customers or a decline in sales to our significant customers
could harm our business, results of operations, and financial
condition and lead to declines in the trading price of our
common stock. In addition, we generate significant accounts
receivable in connection with providing manufacturing services
to our customers. If one or more of our significant customers
were to become insolvent or were otherwise unable to pay for the
manufacturing services provided by us, our results of operations
would be harmed.
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, which would reduce our gross margins.
13
A
trend toward consolidation among our customers could adversely
affect our business.
Recently, some of our large customers have consolidated and
further consolidation of customers may occur. Depending on which
organization becomes the controller of the supply chain function
following the consolidation, we may not be retained as a
preferred or approved supplier. In addition, product duplication
could result in the termination of a product line that we
currently support. While there is potential for increasing our
position with the combined customer, there does exist the
potential for decreased revenue if we are not retained as a
continuing supplier. We also face the risk of increased pricing
pressure from the combined customer because of its increased
market share.
Our
failure to comply with the requirements of environmental laws
could result in litigation, fines and revocation of permits
necessary to our manufacturing processes. Failure to operate in
conformance with environmental laws could lead to debarment from
our participation in federal government contracts.
Our operations are regulated under a number of federal, state,
local, and foreign environmental and safety laws and regulations
that govern, among other things, the discharge of hazardous
materials into the air and water, as well as the handling,
storage, and disposal of such materials. These laws and
regulations include the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Superfund Amendment
and Reauthorization Act, the Comprehensive Environmental
Response, Compensation and Liability Act, and the Federal Motor
Carrier Safety Improvement Act as well as analogous state,
local, and foreign laws. Compliance with these environmental
laws is a major consideration for us because our manufacturing
processes use and generate materials classified as hazardous.
Because we use hazardous materials and generate hazardous wastes
in our manufacturing processes, we may be subject to potential
financial liability for costs associated with the investigation
and remediation of our own sites, or sites at which we have
arranged for the disposal of hazardous wastes, if such sites
become contaminated. Even if we fully comply with applicable
environmental laws and are not directly at fault for the
contamination, we may still be liable. The wastes we generate
include spent ammoniacal and cupric etching solutions, metal
stripping solutions, waste acid solutions, waste alkaline
cleaners, waste oil, and waste waters that contain heavy metals
such as copper, tin, lead, nickel, gold, silver, cyanide, and
fluoride; and both filter cake and spent ion exchange resins
from equipment used for
on-site
waste treatment.
Any material violations of environmental laws or failure to
maintain required environmental permits could subject us to
fines, penalties, and other sanctions, including the revocation
of our effluent discharge permits, which could require us to
cease or limit production at one or more of our facilities, and
harm our business, results of operations, and financial
condition. Even if we ultimately prevail, environmental lawsuits
against us would be time consuming and costly to defend.
Prior to our acquisition of our PCG business, PCG made legal
commitments to the U.S. EPA and to the State of Connecticut
regarding settlement of enforcement actions related to the PCG
operations in Connecticut. The obligations include fulfillment
of a Compliance Management Plan through at least July 2009 and
installation of two rinse water recycling systems at the
Stafford, Connecticut facilities. 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
various jurisdictions or territories such as the Restriction of
Hazardous Substances (RoHS) and Registration, Evaluation,
Authorization and Restriction of Chemicals (REACH) directives in
the European Union and Chinas RoHS legislation. New York
City has adopted identical restrictions and many
U.S. states are considering similar rules and legislation.
In addition, we must also certify as to the non-applicability to
the EUs
14
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 50% and 44%
of our net sales for the years ended December 31, 2008 and
2007, respectively. Additionally, our OEM customers often direct
a significant portion of their purchases through a relatively
limited number of EMS companies. Our contractual relationship is
often with the EMS companies, who are obligated to pay us for
our products. Because we expect our OEM customers to continue to
direct our sales to EMS companies, we expect to continue to be
subject to this credit risk with a limited number of EMS
customers. If one or more of our significant customers were to
become insolvent or were otherwise unable to pay us, our results
of operations would be harmed.
Some of our customers are EMS companies located abroad. Our
exposure has increased as these foreign customers continue to
expand. With the primary exception of sales from our facility in
China and a portion of sales from our Ireland sales office, our
foreign sales are denominated in U.S. dollars and are
typically on the same open credit basis and terms
described above. Our foreign receivables were approximately 17%
of our net accounts receivable as of December 31, 2008 and
are expected to continue to grow as a percentage of our total
receivables. We do not utilize credit insurance as a risk
management tool.
We
rely on suppliers for the timely delivery of raw materials and
components used in manufacturing our printed circuit boards and
backplane assemblies, and an increase in industry demand or the
presence of a shortage for these raw materials or components may
increase the price of these raw materials or components and
reduce our gross margins. If a raw material supplier fails to
satisfy our product quality standards, it could harm our
customer relationships.
To manufacture printed circuit boards, we use raw materials such
as laminated layers of fiberglass, copper foil, chemical
solutions, gold, and other commodity products, which we order
from our suppliers. Although we have preferred suppliers for
most of these raw materials, the materials we use are generally
readily available in the open market, and numerous other
potential suppliers exist. In the case of backplane assemblies,
components include connectors, sheet metal, capacitors,
resistors and diodes, many of which are custom made and
controlled by our customers approved vendors. These
components for backplane assemblies in some cases have limited
or sole sources of supply. From time to time, we may experience
increases in raw material or component prices, based on demand
trends, which can negatively affect our gross margins. In
addition, consolidations and restructuring in our supplier base
may result in adverse materials pricing due to reduction in
competition among our suppliers. Furthermore, if a raw material
or component supplier fails to satisfy our product quality
standards, it could harm our customer relationships. Suppliers
may from time to time extend lead times, limit supplies, or
increase prices, due to capacity constraints or other factors,
which could harm our ability to deliver our products on a timely
basis. We have recently experienced an increase in the price we
pay for gold. In general, we are able to pass this price
increase on to our customers, but we cannot be certain we will
continue to be able to do so in the future.
If we
are unable to respond to rapid technological change and process
development, we may not be able to compete
effectively.
The market for our manufacturing services is characterized by
rapidly changing technology and continual implementation of new
production processes. The future success of our business will
depend in large part upon our ability to maintain and enhance
our technological capabilities, to manufacture products that
meet changing
15
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, Firan Technology Group, 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, Sanmina-SCI, Simclar, TT
Electronics, and Viasystems. In addition, we increasingly
compete on an international basis, and new and emerging
technologies may result in new competitors entering our markets.
Some of our competitors and potential competitors have
advantages over us, including:
|
|
|
|
|
greater financial and manufacturing resources that can be
devoted to the development, production, and sale of their
products;
|
|
|
|
more established and broader sales and marketing channels;
|
|
|
|
more manufacturing facilities worldwide, some of which are
closer in proximity to OEMs;
|
|
|
|
manufacturing facilities that are located in countries with
lower production costs;
|
|
|
|
lower capacity utilization, which in peak market conditions can
result in shorter lead times to customers;
|
|
|
|
ability to add additional capacity faster or more efficiently;
|
|
|
|
preferred vendor status with existing and potential customers;
|
|
|
|
greater name recognition; and
|
|
|
|
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.
16
Our
results of operations are often subject to demand fluctuations
and seasonality. With a high level of fixed operating costs,
even small revenue shortfalls would decrease our gross margins
and potentially cause the trading price of our common stock to
decline.
Our results of operations fluctuate for a variety of reasons,
including:
|
|
|
|
|
timing of orders from and shipments to major customers;
|
|
|
|
the levels at which we utilize our manufacturing capacity;
|
|
|
|
price competition;
|
|
|
|
changes in our mix of revenues generated from quick-turn versus
standard delivery time services;
|
|
|
|
expenditures, charges or write-offs, including those related to
acquisitions, facility restructurings, or asset
impairments; and
|
|
|
|
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 operating results in the past and may continue to do so
in the future. Results of operations in any period should not be
considered indicative of the results to be expected for any
future period. In addition, our future quarterly operating
results may fluctuate and may not meet the expectations of
securities analysts or investors. If this occurs, the trading
price of our common stock likely would decline.
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:
|
|
|
|
|
customer attempts to manage inventory;
|
|
|
|
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;
|
|
|
|
variation in demand for our customers products; and
|
|
|
|
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 52% and 53% of
our net sales for the years ended December 31, 2008 and
2007, respectively. Sales to EMS providers include sales
directed by OEMs as well as orders placed with us at the EMS
providers discretion. EMS providers source on a global
basis to a greater extent than OEMs. The growth of EMS providers
increases the purchasing power of such providers and could
result in increased price competition or the loss of existing
OEM customers. In addition, some EMS providers, including
17
some of our customers, have the ability to directly manufacture
printed circuit boards and create backplane assemblies. If a
significant number of our other EMS customers were to acquire
these abilities, our customer base might shrink, and our sales
might decline substantially. Moreover, if any of our OEM
customers outsource the production of PCBs and creation of
backplane assemblies to these EMS providers, our business,
results of operations, and financial condition may be harmed.
If
events or circumstances occur in our business that indicate that
our goodwill and definite-lived intangibles may not be
recoverable, we could have impairment charges that would
negatively affect our earnings.
As of December 31, 2008, our consolidated balance sheet
reflected $32.5 million of goodwill and definite-lived
intangible assets. We evaluate whether events and circumstances
have occurred, such the potential for reduced expectations for
future cash flows coupled with further decline in the market
price of our stock and market capitalization that may indicate
that the remaining balance of goodwill and definite-lived
intangible assets may not be recoverable. If factors indicate
that assets are impaired, we would be required to reduce the
carrying value of our goodwill and definite-lived intangible
assets, which could harm our results during the periods in which
such a reduction is recognized. Our goodwill and definite-lived
intangible assets may increase in future periods if we
consummate other acquisitions. Amortization or impairment of
these additional intangibles would, in turn, harm our earnings.
Damage
to our manufacturing facilities due to fire, natural disaster,
or other events could harm our financial results.
We have U.S. manufacturing and assembly facilities in
California, Connecticut, Utah, 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, flood, tornado, earthquake, lightning, or other
natural disaster could harm us financially, increasing our costs
of doing business and limiting our ability to deliver our
manufacturing services on a timely basis.
Our
manufacturing processes depend on the collective industry
experience of our employees. If a significant number of these
employees were to leave us, it could limit our ability to
compete effectively and could harm our financial
results.
We have limited patent or trade secret protection for our
manufacturing processes. We rely on the collective experience of
our employees involved in our manufacturing processes to ensure
we continuously evaluate and adopt new technologies in our
industry. Although we are not dependent on any one employee or a
small number of employees, if a significant number of our
employees involved in our manufacturing processes were to leave
our employment, and we were not able to replace these people
with new employees with comparable experience, our manufacturing
processes might suffer as we might be unable to keep up with
innovations in the industry. As a result, we may lose our
ability to continue to compete effectively.
We may
be exposed to intellectual property infringement claims by third
parties that could be costly to defend, could divert
managements attention and resources, and if successful,
could result in liability.
We 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 resulting
from any such allegations, our business could be harmed.
18
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 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:
|
|
|
|
|
managing international operations;
|
|
|
|
export license requirements;
|
|
|
|
fluctuations in the value of local currencies;
|
|
|
|
labor unrest and difficulties in staffing;
|
|
|
|
government or political unrest;
|
|
|
|
longer payment cycles;
|
|
|
|
language and communication barriers as well as time zone
differences;
|
|
|
|
cultural differences;
|
19
|
|
|
|
|
increases in duties and taxation levied on our products;
|
|
|
|
imposition of restrictions on currency conversion or the
transfer of funds;
|
|
|
|
limitations on imports or exports of our product offering;
|
|
|
|
travel restrictions;
|
|
|
|
expropriation of private enterprises; and
|
|
|
|
the potential reversal of current favorable policies encouraging
foreign investment and trade.
|
Our
operations in the Peoples Republic of China (PRC) 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 PRC 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 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, 2008, we had approximately $30.3 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.
20
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
financial results and future growth could be adversely affected.
We may
not be able to fully recover our costs for providing design
services to our customers, which could harm our financial
results.
Although we enter into design service activities with purchase
order commitments, the cost of labor and equipment to provide
these services may in fact exceed what we are able to fully
recover through purchase order coverage. We also may be subject
to agreements with customers in which the cost of these services
is recovered over a period of time or through a certain number
of units shipped as part of the ongoing product price. While we
may make contractual provisions to recover these costs in the
event that the product does not go into production, the actual
recovery can be difficult and may not happen in full. In other
instances, the business relationship may involve investing in
these services for a customer as an ongoing service not directly
recoverable through purchase orders. In any of these cases, the
possibility exists that some or all of these activities are
considered costs of doing business, are not directly
recoverable, and may adversely impact our operating results.
Unanticipated
changes in our tax rates or in our assessment of the
realizability of our deferred tax assets or exposure to
additional income tax liabilities could affect our operating
results and financial condition.
We are subject to income taxes in the United States and various
foreign jurisdictions. Significant judgment is required in
determining our provision for income taxes and, in the ordinary
course of business, there are many transactions and calculations
in which the ultimate tax determination is uncertain. Our
effective tax rates could be adversely affected by changes in
the mix of earnings in countries and states with differing
statutory tax rates, changes in the valuation of deferred 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, 2008, we had net deferred tax assets of
approximately $54.7 million. Based on our forecast for
future taxable 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.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
21
The following table describes our principal manufacturing
facilities and administrative offices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
Owned
|
|
|
Total
|
|
Location(1)
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Square Feet
|
|
|
Chippewa Falls, WI
|
|
|
|
|
|
|
280,400
|
|
|
|
280,400
|
|
Dallas, OR(2)
|
|
|
|
|
|
|
127,700
|
|
|
|
127,700
|
|
Hopkins, MN (office)
|
|
|
8,700
|
|
|
|
|
|
|
|
8,700
|
|
Inglewood, CA
|
|
|
65,137
|
|
|
|
|
|
|
|
65,137
|
|
Logan, UT
|
|
|
|
|
|
|
124,104
|
|
|
|
124,104
|
|
Redmond, WA(3)
|
|
|
|
|
|
|
102,200
|
|
|
|
102,200
|
|
San Diego, CA
|
|
|
37,500
|
|
|
|
|
|
|
|
37,500
|
|
Santa Ana, CA
|
|
|
8,287
|
|
|
|
82,600
|
|
|
|
90,887
|
|
Santa Clara, CA
|
|
|
36,448
|
|
|
|
36,245
|
|
|
|
72,693
|
|
Shanghai, China
|
|
|
81,000
|
|
|
|
|
|
|
|
81,000
|
|
Stafford, CT
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Stafford Springs, CT
|
|
|
10,000
|
|
|
|
53,000
|
|
|
|
63,000
|
|
Staffordville, CT
|
|
|
|
|
|
|
56,000
|
|
|
|
56,000
|
|
Union City, CA
|
|
|
116,993
|
|
|
|
|
|
|
|
116,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
364,065
|
|
|
|
962,249
|
|
|
|
1,326,314
|
|
Logan, UT (vacant land)
|
|
|
|
|
|
|
2.5 acres
|
|
|
|
|
|
Stafford, CT (vacant land)
|
|
|
|
|
|
|
2.5 acres
|
|
|
|
|
|
|
|
|
(1) |
|
All locations pertain to our PCB Manufacturing segment with the
exception of Shanghai, China and Union City, California, which
pertain to our Backplane Assembly segment. |
|
(2) |
|
We ceased production at the Dallas, Oregon facility during the
second quarter 2007. We are in the process of selling the owned
property. |
|
(3) |
|
On January 15, 2009, we announced the closure of the
Redmond, Washington facility. We intend to cease production by
May 2009. |
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we may become a party to various legal
proceedings arising in the ordinary course of our business.
There can be no assurance that we will prevail in any such
litigation.
Prior to our acquisition of PCG in October 2006, PCG made legal
commitments to the U.S. EPA and the State of Connecticut
regarding settlement of enforcement actions against the PCG
operations in Connecticut. On August 17, 2004, PCG was
sentenced for Clean Water Act violations and was ordered to pay
a $6 million fine and an additional $3.7 million to
fund environmental projects designed to improve the environment
for Connecticut residents. In September 2004, PCG agreed to a
stipulated judgment with the Connecticut Attorney Generals
office and the Connecticut Department of Environmental
Protection (DEP) under which PCG paid a $2 million civil
penalty and agreed to implement capital improvements of
$2.4 million to reduce the volume of rinse water discharged
from its manufacturing facilities in Connecticut. The
obligations to the U.S. EPA 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, 2008,
one recycling system was completed and placed into operation,
and approximately $0.7 million remains to be expended in
the form of capital improvements to meet the second rinse water
recycling system requirement. We have assumed these legal
commitments as part of our purchase of PCG. Failure to meet
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 sales prices of our common stock as
reported on the Nasdaq Global Select Market for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.99
|
|
|
$
|
7.83
|
|
Second Quarter
|
|
$
|
15.76
|
|
|
$
|
11.43
|
|
Third Quarter
|
|
$
|
14.11
|
|
|
$
|
9.81
|
|
Fourth Quarter
|
|
$
|
10.11
|
|
|
$
|
3.76
|
|
2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
12.23
|
|
|
$
|
9.15
|
|
Second Quarter
|
|
$
|
13.64
|
|
|
$
|
8.93
|
|
Third Quarter
|
|
$
|
14.24
|
|
|
$
|
9.75
|
|
Fourth Quarter
|
|
$
|
14.61
|
|
|
$
|
10.90
|
|
As of March 10, 2009, there were approximately 309 holders
of record of our common stock. The closing sale price of our
common stock on the Nasdaq Global Select Market on
March 10, 2009 was $4.43 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. We presently intend to retain any future earnings to
finance future operations and the expansion of our business.
23
Equity
Compensation Plan Information
The following table sets forth information with respect to our
common stock that may be issued upon the exercise of stock
options, warrants, and rights under our 2006 Equity Incentive
Plan as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
(a)
|
|
|
|
|
|
Remaining Available
|
|
|
|
Number of
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Securities to be
|
|
|
(b)
|
|
|
Under Equity
|
|
|
|
Issued Upon
|
|
|
Weighted Average
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
(Excluding
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Securities
|
|
|
|
Options, Warrants,
|
|
|
Options, Warrants,
|
|
|
Reflected in Column
|
|
Plan Category
|
|
and Rights(1)
|
|
|
and Rights(2)
|
|
|
(a))
|
|
|
Equity Compensation Plans Approved by Stockholders
|
|
|
2,927,759
|
|
|
$
|
12.35
|
|
|
|
5,619,152
|
|
Equity Compensation Plans Not Approved by Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,927,759
|
|
|
$
|
12.35
|
|
|
|
5,619,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 817,980 restricted stock units |
|
(2) |
|
The weighted average exercise prices does not take into account
the 817,980 restricted stock units |
24
PERFORMANCE
GRAPH
The following graph compares, for the period from
December 31, 2003 to December 31, 2008, 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, 2003, 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 12/31/03 in stock & index-including
reinvestment of dividends.
Fiscal year ending December 31.
25
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)(2)
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
|
$
|
240,209
|
|
|
$
|
240,650
|
|
Cost of goods sold
|
|
|
543,977
|
|
|
|
539,289
|
|
|
|
276,168
|
|
|
|
186,453
|
|
|
|
172,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
137,004
|
|
|
|
130,169
|
|
|
|
93,148
|
|
|
|
53,756
|
|
|
|
68,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
30,436
|
|
|
|
29,835
|
|
|
|
16,473
|
|
|
|
11,977
|
|
|
|
12,032
|
|
General and administrative
|
|
|
33,003
|
|
|
|
32,628
|
|
|
|
19,656
|
|
|
|
14,135
|
|
|
|
13,223
|
|
Amortization of definite-lived intangibles
|
|
|
3,799
|
|
|
|
4,126
|
|
|
|
1,786
|
|
|
|
1,202
|
|
|
|
1,202
|
|
Impairment of goodwill and long-lived assets(3)
|
|
|
123,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal reclamation
|
|
|
(3,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges(4)
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
186,860
|
|
|
|
66,589
|
|
|
|
38,114
|
|
|
|
27,314
|
|
|
|
27,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(49,856
|
)
|
|
|
63,580
|
|
|
|
55,034
|
|
|
|
26,442
|
|
|
|
41,235
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,423
|
)
|
|
|
(13,828
|
)
|
|
|
(3,394
|
)
|
|
|
(251
|
)
|
|
|
(515
|
)
|
Interest income
|
|
|
1,370
|
|
|
|
1,379
|
|
|
|
4,419
|
|
|
|
2,126
|
|
|
|
664
|
|
Other, net
|
|
|
(1,804
|
)
|
|
|
137
|
|
|
|
43
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(58,713
|
)
|
|
|
51,268
|
|
|
|
56,102
|
|
|
|
28,317
|
|
|
|
41,513
|
|
Income tax benefit (provision)
|
|
|
23,443
|
|
|
|
(16,585
|
)
|
|
|
(21,063
|
)
|
|
|
2,524
|
|
|
|
(13,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(35,270
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
$
|
28,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.83
|
)
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.69
|
|
Diluted
|
|
$
|
(0.83
|
)
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
|
$
|
0.74
|
|
|
$
|
0.68
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,681
|
|
|
|
42,242
|
|
|
|
41,740
|
|
|
|
41,232
|
|
|
|
40,780
|
|
Diluted
|
|
|
42,681
|
|
|
|
42,568
|
|
|
|
42,295
|
|
|
|
41,770
|
|
|
|
41,868
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$
|
21,308
|
|
|
$
|
22,772
|
|
|
$
|
12,178
|
|
|
$
|
9,290
|
|
|
$
|
8,213
|
|
|
|
|
(1) |
|
Our results for the year ended December 31, 2006, include
65 days of activity of PCG, which we acquired on
October 27, 2006. |
|
(2) |
|
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. |
|
(3) |
|
We recorded an impairment of goodwill and long-lived assets in
2008 as a result of our annual goodwill impairment test and the
write-down of certain long-lived assets associated with specific
plant facilities and assets held for sale. |
|
(4) |
|
We recorded restructuring charges in 2004 related to the closure
of our Burlington, Washington facility and sale of the building.
The charges were to further write down the value of the building
and equipment. We recorded a |
26
|
|
|
|
|
restructuring charge in 2006 for severance for certain sales and
administrative employees of the acquired business. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
280,399
|
|
|
$
|
98,839
|
|
|
$
|
127,405
|
|
|
$
|
111,224
|
|
|
$
|
82,645
|
|
Total assets
|
|
|
556,250
|
|
|
|
498,798
|
|
|
|
573,698
|
|
|
|
273,143
|
|
|
|
235,770
|
|
Convertible senior notes
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities
|
|
|
|
|
|
|
85,000
|
|
|
|
200,705
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
305,997
|
|
|
|
328,594
|
|
|
|
287,315
|
|
|
|
243,952
|
|
|
|
211,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
(25,065
|
)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
$
|
39,176
|
|
|
$
|
51,560
|
|
Cash flows provided by operating activities
|
|
|
75,518
|
|
|
|
73,984
|
|
|
|
32,784
|
|
|
|
31,027
|
|
|
|
48,810
|
|
Cash flows used in investing activities
|
|
|
(21,167
|
)
|
|
|
(1,705
|
)
|
|
|
(234,579
|
)
|
|
|
(13,583
|
)
|
|
|
(9,276
|
)
|
Cash flows provided by (used in) financing activities
|
|
|
74,793
|
|
|
|
(113,828
|
)
|
|
|
200,027
|
|
|
|
626
|
|
|
|
(5,989
|
)
|
|
|
|
(1) |
|
EBITDA means earnings before interest expense,
income taxes, depreciation and amortization. We present EBITDA
to enhance the understanding of our operating results. EBITDA is
a key measure we use to evaluate our operations. We provide our
EBITDA because we believe that investors and securities analysts
will find EBITDA to be a useful measure for evaluating our
operating performance and comparing our operating performance
with that of similar companies that have different capital
structures and for evaluating our ability to meet our future
debt service, capital expenditures, and working capital
requirements. However, EBITDA should not be considered as an
alternative to cash flows from operating activities as a measure
of liquidity or as an alternative to net income as a measure of
operating results in accordance with accounting principles
generally accepted in the United States. The following provides
a reconciliation of EBITDA to the financial information in our
consolidated statement of operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net (loss) income
|
|
$
|
(35,270
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
$
|
30,841
|
|
|
$
|
28,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
|
(23,443
|
)
|
|
|
16,585
|
|
|
|
21,063
|
|
|
|
(2,524
|
)
|
|
|
13,183
|
|
Interest expense
|
|
|
8,423
|
|
|
|
13,828
|
|
|
|
3,394
|
|
|
|
251
|
|
|
|
515
|
|
Depreciation of property, plant and equipment
|
|
|
21,308
|
|
|
|
22,772
|
|
|
|
12,178
|
|
|
|
9,290
|
|
|
|
8,213
|
|
Amortization of intangibles
|
|
|
3,917
|
|
|
|
4,242
|
|
|
|
1,903
|
|
|
|
1,318
|
|
|
|
1,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,205
|
|
|
|
57,427
|
|
|
|
38,538
|
|
|
|
8,335
|
|
|
|
23,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
(25,065
|
)
|
|
$
|
92,110
|
|
|
$
|
73,577
|
|
|
$
|
39,176
|
|
|
$
|
51,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This financial review presents our operating results for each of
our three most recent fiscal years and our financial condition
at December 31, 2008. 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, defense, high-end computing, 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.
In 2006, we completed the acquisition of the Tyco Printed
Circuit Group business from Tyco International Ltd. The total
purchase price of the 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, 2008, we had approximately 860
customers and approximately 900 as of December 31, 2007.
Sales to our 10 largest customers accounted for 50% and 44% of
our net sales in 2008 and 2007, respectively. We sell to OEMs
both directly and indirectly through EMS companies. Sales
attributable to our five largest OEM customers accounted for
approximately 29% and 24% of our net sales in 2008 and 2007,
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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Networking/Communications
|
|
|
40
|
%
|
|
|
42
|
%
|
|
|
43
|
%
|
Aerospace/Defense
|
|
|
37
|
|
|
|
30
|
|
|
|
16
|
|
Computing/Storage/Peripherals
|
|
|
12
|
|
|
|
14
|
|
|
|
29
|
|
Medical/Industrial/Instrumentation/Other
|
|
|
11
|
|
|
|
14
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sales to EMS companies are classified by the end markets of
their OEM customers. |
28
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
15% of PCB revenue in 2007 to 12% of PCB revenue in 2008 due to
higher demand for our standard lead-time and high technology
production services. We also deliver a large percentage of
compressed lead-time work with lead times of 11 to 20 days.
We receive a premium price for this work as well. Purchase
orders may be 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.
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 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; realizability of deferred tax assets; and
determining stock-based compensation expense, self-insured
reserves, asset retirement obligations and environmental
liabilities. A detailed description of these estimates and our
policies to account for them is included in Note 2 to our
consolidated financial statements included in this report.
29
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 with those customers.
Although this inventory is typically supported by valid purchase
orders, should these customers ultimately not purchase these
inventories, our results of operations and financial condition
would be adversely affected.
Revenue
Recognition
We derive revenues primarily from the sale of printed circuit
boards and backplane assemblies using customer-supplied
engineering and design plans 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, assets held for
sale, definite-lived intangibles, and goodwill. We review these
assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. In addition, we perform an impairment
test related to goodwill at least annually. Our goodwill and
intangibles are largely attributable to our acquisitions of
other businesses. We have two reporting units, which are also
our operating segments, and both contained goodwill prior to our
annual impairment testing.
During the fourth quarter 2008, we performed our annual
impairment assessment of goodwill, which requires the use of a
fair-value based analysis. We determined the fair value of our
operating segments based on discounted cash flows and market
approach analyses and considered factors such as a weakening
economy, reduced expectations for future cash flows coupled with
a decline in the market price of our stock and market
capitalization for a sustained period, as indicators for
potential goodwill impairment. In conjunction with our annual
assessment of goodwill, we also assessed other long-lived
assets, specifically definite-lived intangibles and property,
plant and equipment, for potential impairment given similar
impairment indicators. The completion of our impairment
assessment determined that the carrying value of our goodwill
and certain long-lived assets at production facilities exceeded
their fair value. As a result, a charge of $117.0 million
and $6.3 million were recorded for the impairment of
goodwill and of long-lived assets, respectively, as of
December 31, 2008.
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
goodwill and other long-lived assets change in the future,
significant impairment charges could result that would adversely
affect our results of operations and financial condition.
Income
Taxes
Deferred income tax assets are reviewed for recoverability, and
valuation allowances are provided, when necessary, to reduce
deferred tax assets to the amounts expected to be realized. At
December 31, 2008, we have net deferred income tax assets
of $54.7 million and no valuation allowance. Should our
expectations of taxable income
30
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, 2008, 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.
Share-Based
Awards
Effective January 1, 2006, we adopted the fair value
recognition provisions of Statement of Financial Accounting
Standards No. 123R, Share-Based Payments,
(SFAS 123R) using the modified prospective transition
method. 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.
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 8%. 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, 2008, share-based compensation expense was
$5.1 million. At December 31, 2008, total unrecognized
estimated compensation expense related to non-vested stock
options was $2.3 million, which is expected to be
recognized over a weighted-average period of 0.8 years. At
December 31, 2008, $5.3 million of total unrecognized
compensation cost related to restricted stock units is expected
to be recognized over a weighted-average period of
0.9 years.
Self
Insurance
We are self-insured for group health insurance and workers
compensation benefits provided to our employees, and we purchase
insurance to protect against claims at the individual and
aggregate level. The insurance carrier adjudicates and processes
employee claims and is paid a fee for these services. We
reimburse our insurance carriers for paid claims subject to
variable monthly limitations. We estimate our exposure for
claims incurred but not paid at the end of each reporting period
and use historical information supplied by our insurance
carriers and brokers on an annual basis to estimate our
liability for these claims. This liability is subject to an
aggregate stop-loss that ranges between $100,000 and $250,000
per individual. Our actual claims experience may differ from our
estimates.
Asset
Retirement Obligations and Environmental
Liabilities
We establish liabilities for the costs of asset retirement
obligations when a legal or contractual obligation exists to
dispose of or restore an asset upon its retirement and the
timing and cost of such work can be reasonably estimated. We
record such liabilities only when such timing and costs are
reasonably determinable. In addition, we accrue an 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 also
are required to estimate the amount of any probable recoveries,
including insurance recoveries.
31
RESULTS
OF OPERATIONS
The following table sets forth the relationship of various items
to net sales in our consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
79.9
|
|
|
|
80.6
|
|
|
|
74.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20.1
|
|
|
|
19.4
|
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
4.5
|
|
|
|
4.4
|
|
|
|
4.5
|
|
General and administrative
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
5.3
|
|
Amortization of definite-lived intangibles
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.5
|
|
Impairment of goodwill and long-lived assets
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
Metal reclamation
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
27.4
|
|
|
|
9.9
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7.3
|
)
|
|
|
9.5
|
|
|
|
14.9
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1.2
|
)
|
|
|
(2.0
|
)
|
|
|
(0.9
|
)
|
Interest income
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
1.2
|
|
Other, net
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(1.3
|
)
|
|
|
(1.8
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(8.6
|
)
|
|
|
7.7
|
|
|
|
15.2
|
|
Income tax benefit (provision)
|
|
|
3.4
|
|
|
|
(2.5
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(5.2
|
)%
|
|
|
5.2
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have two reportable segments: PCB Manufacturing and Backplane
Assembly. These reportable segments are managed separately
because they distribute and manufacture distinct products with
different production processes. PCB Manufacturing fabricates
printed circuit boards. Backplane Assembly is a contract
manufacturing business that specializes in assembling backplanes
into sub-assemblies and other complete electronic devices. PCB
Manufacturing customers are either EMS companies or OEM
companies, while Backplane Assembly customers are usually OEMs.
Our Backplane Assembly segment includes our Hayward, California
and Shanghai, China plants and our Ireland sales and
distribution infrastructure. Our PCB Manufacturing segment is
comprised of eight domestic PCB fabrication plants, and a
facility that provides follow-on value-added services primarily
for one of the PCB Manufacturing plants. The following table
compares net sales by reportable segment for the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB Manufacturing
|
|
$
|
590,515
|
|
|
$
|
578,840
|
|
|
$
|
353,734
|
|
Backplane Assembly
|
|
|
124,048
|
|
|
|
124,337
|
|
|
|
22,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
714,563
|
|
|
|
703,177
|
|
|
|
376,091
|
|
Inter-company sales
|
|
|
(33,582
|
)
|
|
|
(33,719
|
)
|
|
|
(6,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
The years ended December 31, 2008 and 2007 include 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 of Tyco Printed Circuit Group occurred on
October 27, 2006.
Net
Sales
Net sales increased $11.5 million, or 1.7%, from
$669.5 million for the year ended December 31, 2007 to
$681.0 million for the year ended December 31, 2008.
This revenue increase is substantially due to increased demand
from aerospace/defense customers and higher pricing from the PCB
Manufacturing segment, while Backplane Assembly segment sales
remained relatively consistent with 2007. This revenue increase
was achieved in spite of the closure of our Dallas, Oregon
facility in April 2007. The Dallas, Oregon facility contributed
approximately $11.8 million of revenue to the PCB
Manufacturing segment during 2007. Excluding revenue derived
from our Dallas, Oregon facility, revenue from the PCB
Manufacturing segment in 2008 improved by $23.3 million
from 2007 due to increased net sales at our other PCB
Manufacturing facilities. PCB sales volume, measured by panels
shipped, decreased approximately 11% for the year ended
December 31, 2008 as compared to the year ended 2007.
Prices rose approximately 13% due to a shift in production mix
toward more high technology production. Our quick-turn
production, which we measure as orders placed and shipped within
10 days, decreased from 15% of PCB revenue for the year
ended December 31, 2007 to 12% of PCB revenue for the year
ended December 31, 2008. The increasingly complex nature of
our quick-turn work requires more time to manufacture, thereby
extending some of these orders beyond the
10-day
delivery window.
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, and an increase of
$6.2 million from our historical operations, partially
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 facilities in our PCB
Manufacturing segment accounted for the remaining
$226.5 million. PCB sales volume, measured by panels
shipped, increased approximately 43% due to the inclusion of a
full year of the PCG operations. Pricing increased approximately
5% primarily due to the inclusion of 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.
Cost
of Goods Sold
Cost of goods sold increased $4.7 million, or 0.9%, from
$539.3 million for the year ended December 31, 2007 to
$544.0 million for the year ended December 31, 2008.
Cost of goods sold increased mainly due to increased sales but
was also impacted by increased labor and overhead costs. For the
year ended December 31, 2008, cost of goods sold, as a
percentage of sales, decreased to 79.9% from 80.6% for the year
ended December 31, 2007, primarily due to a shift in
production mix toward more high technology production and higher
pricing.
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, which 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.
Gross
Profit
Gross profit increased $6.8 million, or 5.2%, from
$130.2 million for the year ended December 31, 2007 to
$137.0 million for the year ended December 31, 2008
with gross margin increasing from 19.4% for the year ended
33
December 31, 2007 to 20.1% for the year ended
December 31, 2008. The change in our gross margin for 2008
was primarily due to a shift in production mix toward more high
technology production and higher pricing.
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.
Selling
and Marketing Expenses
Selling and marketing expenses increased $0.6 million, or
2.0%, from $29.8 million for the year ended
December 31, 2007 to $30.4 million for the year ended
December 31, 2008. The increase for the year ended 2008 is
primarily due to increased labor expenses. As a percentage of
net sales, selling and marketing expenses increased slightly to
4.5% for the year ended December 31, 2008 from 4.4% for the
year ended December 31, 2007. The components of selling and
marketing expenses as a percent of net sales did not change
significantly from 2007 to 2008.
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.
General
and Administrative Expense
General and administrative expenses increased $0.4 million
from $32.6 million, or 4.9% of net sales, for the year
ended December 31, 2007 to $33.0 million, or 4.8% of
net sales, for the year ended December 31, 2008. The
increase in expenses resulted primarily from higher incentive
bonus expense and stock-based compensation expense for
restricted stock unit and stock option awards, partially offset
by lower accounting and consulting expenses.
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 compliance with the Sarbanes Oxley
Act of 2002. General and administrative expenses decreased as a
percentage of net sales, primarily due to greater absorption of
these costs over a larger revenue base.
Amortization
of Definite-lived Intangibles
Amortization expense related to definite-lived intangibles
decreased $0.3 million to $3.8 million in 2008
compared to $4.1 million in 2007. Amortization expense
related to definite-lived intangibles increased
$2.3 million to $4.1 million in 2007 compared to
$1.8 million in 2006. The decrease in amortization expense
for 2008 as compared to 2007 is primarily due to the gradual
decline in strategic customer relationship intangibles related
to the PCG acquisition in October 2006. The prior increase in
amortization expense for 2007 as compared to 2006 is primarily
due to the increase in strategic customer relationship
intangibles related to the PCG acquisition in October 2006.
Impairment
of Goodwill and Long-Lived Assets
During the fourth quarter of 2008, we recorded impairment
charges of $123.3 million, consisting of a goodwill
impairment of $117.0 million and a long-lived asset
impairment of $6.3 million. As a result of our annual
goodwill impairment testing, giving consideration to factors
such as a weakening economy, reduced expectation for future cash
flows coupled with the decline in the market price of our stock
and market capitalization for a sustained period,
34
as indicators for potential goodwill impairment, we determined
that the carrying value of our PCB Manufacturing segments
goodwill exceeded its implied fair value, resulting in an
impairment charge of $117.0 million.
We also completed an assessment of our long-lived assets,
including assets held for sale, and recorded a $6.3 million
asset impairment charge related to our Oregon, Washington, and
Hayward, California production facilities. Our Oregon facility
has been classified as held for sale since June 30, 2007.
We continue to actively market this facility at a price that is
indicative of the facilitys intent and ability to sell. An
impairment was also recorded for our Hayward facility, which is
part of our Backplane Assembly segment, as it is expected to
produce slower growth and lower future production. Finally, as a
result of our January 15, 2009 announcement of our plan to
close the Washington production facility, we determined that
specific long-lived assets at this production facility were
impaired. The Washington production facility is part of the PCB
Manufacturing operating segment.
If forecasts and assumptions used to support the realizability
of our goodwill and other long-lived assets change in the
future, significant impairment charges could result that would
adversely affect our results of operations and financial
condition.
Metal
Reclamation
During the first quarter of 2008, we recognized
$3.7 million of income related to a pricing reconciliation
of metal reclamation activity attributable to a single vendor.
As a result of the pricing reconciliation, we discovered that
the vendor had inaccurately compensated us for gold reclamations
over the last several years. While pricing reconciliations of
this nature occur periodically, we do not expect to recognize a
similar amount in future periods.
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 expense decreased by $3.4 million from
$12.3 million for the year ended December 31, 2007 to
$8.9 million for the year ended December 31, 2008. The
net decrease consists of a $5.4 million decrease in
interest expense, offset by a $2.0 million increase in
other, net. Interest expense of $8.4 million for 2008
includes debt service interest costs and the amortization of
related debt issuance costs. Debt service interest and related
debt issuance costs for 2008 decreased by $4.4 million and
$1.0 million, respectively, as compared to 2007, resulting
from a combination of overall lower outstanding debt balances
under our credit agreement with UBS Securities in 2008, our
repayment in full of the credit agreement in May 2008 and a
lower interest rate on our outstanding 3.25% Convertible
Notes due May 15, 2015 (Convertible Notes) issued in May
2008. This decrease was offset by the increase in other, net
expense of $2.0 million primarily related to the realized
loss on the settlement of a derivative of $1.2 million
during the quarter ended June 30, 2008 associated with the
repayment in full of the Credit Agreement, the $0.6 million
estimated loss on a money market fund that suspended redemptions
and is being liquidated and other of $0.2 million.
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.
Income
Taxes
The provision for income taxes decreased $40.0 million from
a $16.6 million tax provision for the year ended
December 31, 2007 to a $23.4 million tax benefit for
the year ended December 31, 2008. Our effective tax rate
was 39.9% in 2008 and 32.3% for 2007. The decrease in the
provision is due to the decrease in pretax income. The increase
in our effective tax rate is due to the addition of state tax
credits and the decrease in production activities deductions.
Our effective tax rate is primarily impacted by the federal
income tax rate, apportioned state income tax
35
rates, utilization of other credits and deductions available to
us, and certain non-deductible items. Additionally, as of
December 31, 2008, we had net deferred tax assets of
approximately $54.7 million. Based on our forecast for
future taxable earnings, we believe we will utilize the deferred
tax asset in future periods.
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 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 was 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.
Liquidity
and Capital Resources
Our principal sources of liquidity have been cash provided by
operations, the issuance of Convertible Notes, and exercises of
employee stock options. Our principal uses of cash have been to
meet debt service requirements, finance capital expenditures,
and fund working capital requirements. We anticipate that
servicing debt, funding working capital requirements, financing
capital expenditures, and potential acquisitions will continue
to be the principal demands on our cash in the future.
As of December 31, 2008, we had net working capital of
approximately $280.4 million, compared to
$98.8 million as of December 31, 2007. The increase in
working capital is primarily attributable to the growth in cash
balances resulting from the Convertible Notes offering during
the second quarter of 2008.
Our 2009 capital expenditure plan is expected to total
approximately $13 million and will fund capital equipment
purchases to expand our technological capabilities throughout
our facilities and replace aging equipment.
Net cash provided by operating activities was $75.5 million
in 2008 compared to $74.0 million in 2007 and
$32.8 million in 2006. Our 2008 operating cash flow of
$75.5 million reflects a net loss of $35.3 million,
$123.3 million of an impairment of goodwill and long-lived
assets, $27.9 million of depreciation and amortization,
$5.1 million of stock-based compensation, and
$0.1 million other, offset by an increase in net deferred
income tax assets of $37.0 million and a net increase in
working capital of $8.6 million. 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.
Net cash used in investing activities was $21.2 million in
2008, compared to $1.7 million in 2007 and
$234.6 million in 2006. In 2008, we made net purchases of
approximately $17.5 million of property, plant, and
equipment, redesignated $19.5 million from cash and cash
equivalents to short-term investments and received
$15.9 million in proceeds from the redemption of short-term
investments. At December 31, 2008, the fair value of our
investment in the Reserve Primary Fund, a money market fund that
has suspended redemptions and is being liquidated, was
$3.7 million. We have requested redemption of our
investment in the Reserve Primary Fund and expect distribution
to occur as the Reserve Primary Funds assets mature or are
sold. We have received total distributions of $17.2 million, of
which $15.9 million was received during the fourth quarter
2008 and $1.3 million was received during the first quarter
2009. We expect to receive substantially all of our current
holdings in the Reserve Primary Fund. 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.
Net cash provided by financing activities was $74.8 million
in 2008, compared to cash used of $113.8 million in 2007
and cash provided of $200.0 million in 2006. Our 2008
financing net cash proceeds primarily reflect cash proceeds from
the issuance of Convertible Notes of $175.0 million,
proceeds from warrants of $26.2 million and exercises of
employee stock options of $2.4 million, partially offset by
debt repayment of $85.0 million, payment for the
convertible note hedge of $38.3 million and debt issuance
costs of $5.8 million. Our 2007 financing net cash used
reflects repayments of $115.7 million of debt, partially
offset by proceeds of $1.7 million from employee stock
option exercises and $0.2 million from other factors.
36
In May 2008, we issued our Convertible Notes in a public
offering with an aggregate principal amount of
$175.0 million. The Convertible Notes bear interest at a
rate of 3.25% per annum. Interest is payable semiannually in
arrears on May 15 and November 15 of each year, beginning
November 15, 2008. The Convertible Notes are senior
unsecured obligations and will rank equally to our future
unsecured senior indebtedness and senior in right of payment to
any of our future subordinated indebtedness. We received
proceeds of $169.2 million after the deduction of offering
expenses of $5.8 million. These offering expenses are being
amortized to interest expense over the term of the Convertible
Notes.
At any time prior to November 15, 2014, holders may convert
their Convertible Notes into cash and, if applicable, into
shares of our common stock based on a conversion rate of
62.6449 shares of our common stock per $1,000 principal
amount of Convertible Notes, subject to adjustment, under the
following circumstances: (1) during any calendar quarter
beginning after June 30, 2008 (and only during such
calendar quarter), if the last reported sale price of our common
stock for at least 20 trading days during the 30 consecutive
trading days ending on the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of
the applicable conversion price on each applicable trading day
of such preceding calendar quarter; (2) during the five
business day period after any 10 consecutive trading day period
in which the trading price per note for each day of that 10
consecutive trading day period was less than 98% of the product
of the last reported sale price of our common stock and the
conversion rate on such day; or (3) upon the occurrence of
specified corporate transactions described in the prospectus
supplement related to the Convertible Notes, which can be found
on the SECs website at www.sec.gov. As of
December 31, 2008, none of the conversion criteria had been
met.
On or after November 15, 2014 until the close of business
on the third scheduled trading day preceding the maturity date,
holders may convert their notes at any time, regardless of the
foregoing circumstances. Upon conversion, for each $1,000
principal amount of notes, we will pay cash for the lesser of
the conversion value or $1,000 and shares of our common stock,
if any, based on a daily conversion value calculated on a
proportionate basis for each day of the 60 trading day
observation period. Additionally, in the event of a fundamental
change as defined in the prospectus supplement, or other
conversion rate adjustments such as share splits or
combinations, other distributions of shares, cash or other
assets to stockholders, including self-tender transactions
(Other Conversion Rate Adjustments), the conversion rate may be
modified to adjust the number of shares per $1,000 principal
amount of the notes.
The maximum number of shares issuable upon conversion, including
the effect of a fundamental change and subject to Other
Conversion Rate Adjustments, would be approximately
14 million shares.
We are not permitted to redeem the notes at any time prior to
maturity. In the event of a fundamental change or certain
default events, as defined in the prospectus supplement, prior
to November 15, 2014, holders may require us to repurchase
for cash all or a portion of their notes at a price equal to
100% of the principal amount, plus any accrued and unpaid
interest.
In connection with the issuance of the Convertible Notes, we
entered into a convertible note hedge and warrant transaction
(Call Spread Transaction), with respect to our common stock. The
convertible note hedge, which cost an aggregate
$38.3 million and was recorded, net of tax, as a reduction
of additional paid-in capital, consists of our option to
purchase up to 11.0 million shares of common stock at a
price of $15.96 per share. This option expires on May 15,
2015 and can only be executed upon the conversion of the
Convertible Notes. Additionally, we sold warrants for the option
to purchase 11.0 million shares of our common stock at a
price of $18.15 per share. The warrants expire on
August 17, 2015. The proceeds from the sale of warrants of
$26.2 million was recorded as an addition to additional
paid-in capital. The Call Spread Transaction has no effect on
the terms of the Convertible Notes and reduces potential
dilution by effectively increasing the conversion price of the
Convertible Notes to $18.15 per share of our common stock.
As of December 31, 2008, we had two outstanding standby
letters of credit: a $1.0 million standby letter of credit
expiring May 1, 2009 related to the lease of one of our
production facilities and a $0.8 million standby letter of
credit expiring December 31, 2009 associated with our
workers compensation insurance program.
On January 15, 2009, we announced a plan to close our
Redmond, Washington facility and lay off approximately
370 employees at this site. In addition, we laid off about
140 employees at various other
37
U.S. facilities. As a result, we expect to record
approximately $2.8 million in separation and other exit
costs related to this restructuring primarily in the first
quarter of 2009. In addition to transferring assets to other
sites, we also expect to sell some of the Redmond property,
plant and equipment. The plant closure and headcount reductions
are primarily due to the global economic downturn, which has
weakened demand for commercial PCBs.
In connection with the PCG acquisition, we are involved in
various stages of investigation and cleanup related to
environmental remediation at two Connecticut sites and are
obligated to investigate a third Connecticut site. We currently
estimate that we 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, we have
obligations to the Connecticut DEP 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 our capital
expenditure plan for 2009. Lastly, we are required to maintain a
compliance management plan through July 2009 under a compliance
agreement with the U.S. EPA that we assumed from Tyco.
Based on our current level of operations, we believe that cash
generated from operations, available cash and the proceeds from
the issuance of Convertible Notes will be adequate to meet our
currently anticipated debt service, capital expenditures, and
working capital needs for the next 12 months and beyond.
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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations(1)(2)
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
4 - 5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Debt obligations
|
|
$
|
175,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175,000
|
|
Interest on debt obligations
|
|
|
36,969
|
|
|
|
5,688
|
|
|
|
11,375
|
|
|
|
11,375
|
|
|
|
8,531
|
|
Operating leases
|
|
|
7,170
|
|
|
|
3,312
|
|
|
|
2,288
|
|
|
|
509
|
|
|
|
1,061
|
|
Purchase obligations
|
|
|
2,761
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
221,900
|
|
|
$
|
11,761
|
|
|
$
|
13,663
|
|
|
$
|
11,884
|
|
|
$
|
184,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
FIN 48 unrecognized tax benefits of $0.1 million are
not included in the table above as we are not sure when the
amount will be paid. |
|
(2) |
|
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. |
Off
Balance Sheet Arrangements
We do not currently have, or have we ever had, any relationships
with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. In addition, we do not
engage in trading activities involving non-exchange traded
contracts. As a result, we are not materially exposed to any
financing, liquidity, market, or credit risk that could arise if
we had engaged in these relationships.
Impact of
Inflation
We believe that our results of operations are not dependent upon
moderate changes in the inflation rate as we expect that we
generally will be able to continue to pass along component price
increases to our customers.
38
Recently
Issued Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), (FSP APB
14-1). FSP
APB 14-1
specifies that issuers of convertible debt instruments that may
be settled in cash upon conversion (including partial cash
settlement) should separately account for the liability and
equity components in a manner that will reflect the
entitys nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods. FSP APB
14-1 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Upon adoption, FSP APB
14-1
requires retrospective application back to the issuance date of
convertible debt, which for us was 2008. We estimate that the
implementation of FSP APB
14-1 will
increase interest expense for 2008 and 2009 by approximately
$2.8 million and $4.7 million, respectively. Early
adoption of FSP APB
14-1 is not
permitted.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of Statement of
Financial Accounting Standards No. 133,
(SFAS 161). This statement is intended to improve
transparency in financial reporting by requiring enhanced
disclosures of an entitys financial position, financial
performance, and cash flow. SFAS 161 applies to derivative
instruments within the scope of Statement of Financial
Accounting Standards 133, Accounting for Derivative
Instruments and Hedging Activities, (SFAS 133) as
well as related hedged items, bifurcated derivatives, and
non-derivative instruments that are designated and qualify as
hedging instruments. Entities with instruments subject to
SFAS 161 must provide more robust qualitative disclosure
and expanded quantitative disclosures. SFAS 161 is
effective prospectively for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. The
adoption of the provisions of SFAS 161 is not anticipated
to materially impact our consolidated financial position or
results of operations.
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 September 2006, the FASB issued Statement of Financial
Accounting Standards 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. Additionally, in
October 2008 the FASB issued FASB Staff Position
SFAS 157-3,
Determining the Fair Value of a Financial Asset When the Market
for That Asset is Not Active, (FSP
SFAS 157-3)
which clarifies the application of SFAS 157 in a market
that is not active. 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 were originally to be effective
beginning January 1, 2008 and FSP
SFAS 157-3
is effective for the year ended December 31, 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 implemented the provisions SFAS 157 and
39
FSP
FAS 157-3
for financial assets and financial liabilities reported or
disclosed at fair value effective January 1, 2008 and
December 31, 2008, respectively. 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.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Interest Rate Risk. Our interest income is
more sensitive to fluctuation in the general level of
U.S. interest rates than to changes in rates in other
markets. Changes in U.S. interest rates affect the interest
earned on cash and cash equivalents. Our outstanding debt bears
a fixed interest rate and therefore is not subject to the
effects of interest rate fluctuation.
Foreign Currency Exchange Risk. We are subject
to risks associated with transactions that are denominated in
currencies other than the U.S. dollar, as well as the
effects of translating amounts denominated in a foreign currency
to the U.S. dollar as a normal part of the reporting
process. Our Chinese operations utilize the Chinese Yuan or RMB
as the functional currency, which results in our recording a
translation adjustment that is included as a component of
accumulated other comprehensive income within our statement of
stockholders equity. Net foreign currency transaction
gains or losses on transactions denominated in currencies other
than the U.S. dollar were $0.1 million loss,
$0.1 million gain and $0.1 million loss during the
fiscal years ended December 31, 2008, 2007 and 2006,
respectively. We currently do not utilize any derivative
instruments to hedge foreign currency risks.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Reference is made to the financial statements, the report
thereon, and the notes thereto, and the supplementary data
commencing at
page 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, 2008 and 2007 have
been derived from our 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 report. The operating
results for the quarters presented are not necessarily
indicative of the operating results of any future period. We use
a 13-week fiscal quarter accounting period with the first
quarter ending on the Monday closest to April 1 and the fourth
quarter always ending on December 31. The first and fourth
quarters of 2008 contained 91 and 93 days, respectively,
and for 2007, the first and fourth quarters contained 92 and
91 days, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
174,071
|
|
|
$
|
172,975
|
|
|
$
|
169,019
|
|
|
$
|
164,916
|
|
Gross profit
|
|
|
37,602
|
|
|
|
36,580
|
|
|
|
32,146
|
|
|
|
30,676
|
|
Income (loss) before income taxes
|
|
|
22,885
|
|
|
|
14,924
|
|
|
|
14,267
|
|
|
|
(110,789
|
)(a)
|
Net income (loss)
|
|
|
14,372
|
|
|
|
9,444
|
|
|
|
9,458
|
|
|
|
(68,544
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
0.22
|
|
|
$
|
0.22
|
|
|
$
|
(1.60
|
)
|
Diluted
|
|
$
|
0.34
|
|
|
$
|
0.22
|
|
|
$
|
0.22
|
|
|
$
|
(1.60
|
)
|
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
|
|
Income before income taxes
|
|
|
13,455
|
|
|
|
9,927
|
|
|
|
12,867
|
|
|
|
15,019
|
|
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
|
|
|
|
|
(a) |
|
Includes impairment charges of $123.3 million consisting of
a goodwill impairment of $117.0 million and a long-lived
asset impairment of $6.3 million. |
40
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
An evaluation was performed under the supervision of and with
the participation of our management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of
the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act
Rules 13(a)-15(e)
and 15(d)-15(e)) as of December 31, 2008. Based on that
evaluation, our management, including the CEO and CFO, concluded
that our disclosure controls and procedures (as defined in
Rule 13(a)-15(e)
and 15(d)-15(e) of the Exchange Act), are effective to ensure
that information required to be disclosed by us in reports that
we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported as
specified in the SECs rules and forms.
Changes
in Internal Control Over Financial Reporting
There has been no change in our internal control over financial
reporting during the year ended December 31, 2008 that has
materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
internal control over financial reporting (as such item is
defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f))
to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control
Integrated Framework, our management concluded that our internal
control over financial reporting is effective as of
December 31, 2008.
Our independent registered public accounting firm, KPMG LLP, has
issued an attestation report on our internal control over
financial reporting, which is included on
page 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
41
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 2009 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 2009 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 2009 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 2009 Annual
Meeting of Stockholders.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2009 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
42
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibits
|
|
|
1
|
.1
|
|
Underwriting Agreement, dated May 8, 2008, among the
Registrant, J.P. Morgan Securities Inc. and UBS Securities
LLC.(1)
|
|
2
|
.1
|
|
Form of Plan of Reorganization.(2)
|
|
2
|
.2
|
|
Stock and Asset Purchase Agreement by and among Tyco Printed
Circuit Group LP, Tyco Electronics Corporation, Raychem
International, Tyco Kappa Limited, Tyco Electronics Logistics
AG, and TTM (Ozarks) Acquisition, Inc. dated as of
August 2, 2006.(3)
|
|
3
|
.1
|
|
Registrants Certificate of Incorporation.(4)
|
|
3
|
.2
|
|
Registrants Second Amended and Restated Bylaws.(5)
|
|
4
|
.1
|
|
Indenture, dated as of May 14, 2008, between the Registrant
and American Stock Transfer and Trust Company.(1)
|
|
4
|
.2
|
|
Supplemental Indenture, dated as of May 14, 2008, between
the Registrant and American Stock Transfer and
Trust Company.(1)
|
|
4
|
.2
|
|
Form of Registrants common stock certificate.(4)
|
|
10
|
.1
|
|
Call Option Transaction Confirmation, dated as of May 8,
2008, between TTM Technologies, Inc. and JPMorgan Chase Bank,
National Association.(1)
|
|
10
|
.2
|
|
Warrant Transaction Confirmation, dated as of May 8, 2008,
between TTM Technologies, Inc. and JPMorgan Chase Bank, National
Association.(1)
|
|
10
|
.3
|
|
Call Option Transaction Confirmation, dated as of May 8,
2008, between TTM Technologies, Inc. and UBS AG.(1)
|
|
10
|
.4
|
|
Warrant Transaction Confirmation, dated as of May 8, 2008,
between TTM Technologies, Inc. and UBS AG.(1)
|
|
10
|
.5
|
|
Call Option Transaction Confirmation, dated as of May 16,
2008, between TTM Technologies, Inc. and JPMorgan Chase Bank,
National Association.(2)
|
|
10
|
.6
|
|
Warrant Transaction Confirmation, dated as of May 16, 2008,
between TTM Technologies, Inc. and JPMorgan Chase Bank, National
Association.(2)
|
|
10
|
.7
|
|
Call Option Transaction Confirmation, dated as of May 16,
2008, between TTM Technologies, Inc. and UBS AG.(2)
|
|
10
|
.8
|
|
Warrant Transaction Confirmation, dated as of May 16, 2008,
between TTM Technologies, Inc. and UBS AG.(2)
|
|
10
|
.9
|
|
Employment Agreement dated as of December 31, 2005 between
the Registrant and Kenton K. Alder.(7)
|
|
10
|
.10
|
|
Form of Executive Change in Control Severance Agreement and
schedule of agreements entered into on December 1, 2005.(7)
|
|
10
|
.11
|
|
Employment Agreement dated as of October 28, 2006 between
the Registrant and Douglas L. Soder.(8)
|
|
10
|
.12
|
|
2006 Incentive Compensation Plan.(8)
|
|
10
|
.13
|
|
Form of Stock Option Agreement.(8)
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Award Agreement.(8)
|
|
10
|
.15
|
|
Form of Indemnification Agreement with directors.(2)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.(8)
|
|
23
|
.1
|
|
Consent of KPMG LLP, independent registered public accounting
firm.(9)
|
|
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.(9)
|
|
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.(9)
|
|
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.(9)
|
|
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.(9)
|
43
|
|
|
(1) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Securities and Exchange Commission (the
Commission) on May 14, 2008. |
|
(2) |
|
Incorporated by reference to the Registration Statement on
Form S-1
(Registration
No. 333-39906)
declared effective September 20, 2000. |
|
(3) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on August 4, 2006. |
|
(4) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on August 30, 2005. |
|
(5) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on February 19, 2009. |
|
(6) |
|
Incorporated by reference to the Registrants
Form 8-K
as filed with the Commission on May 22, 2008. |
|
(7) |
|
Incorporated by reference to the Registrants
Form 10-K
as filed with the Commission on March 15, 2006. |
|
(8) |
|
Incorporated by reference to the Registrants
Form 10-K
as filed with the Commission on March 16, 2007. |
|
(9) |
|
Filed herewith. |
44
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 13, 2009
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 13, 2009
|
|
|
|
|
|
/s/ STEVEN
W. RICHARDS
Steven
W. Richards
|
|
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 13, 2009
|
|
|
|
|
|
/s/ ROBERT
E. KLATELL
Robert
E. Klatell
|
|
Chairman of the Board
|
|
March 13, 2009
|
|
|
|
|
|
/s/ THOMAS
T. EDMAN
Thomas
T. Edman
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ JAMES
K. BASS
James
K. Bass
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ RICHARD
P. BECK
Richard
P. Beck
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ JOHN
G. MAYER
John
G. Mayer
|
|
Director
|
|
March 13, 2009
|
45
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
S-1
|
|
|
|
|
S-2
|
|
F-1
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, 2008, 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, 2008, 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, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2008, and
our report dated March 13, 2009 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
Salt Lake City, Utah
March 13, 2009
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, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2008.
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, 2008 and 2007,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, 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, 2008, 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 13, 2009 expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
/s/ KPMG LLP
Salt Lake City, Utah
March 13, 2009
F-3
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
148,465
|
|
|
$
|
18,681
|
|
Short-term investments
|
|
|
3,657
|
|
|
|
|
|
Accounts receivable, net of allowances of $4,911 in 2008 and
$5,704 in 2007
|
|
|
115,232
|
|
|
|
118,581
|
|
Inventories
|
|
|
71,011
|
|
|
|
65,675
|
|
Prepaid expenses and other current assets
|
|
|
2,581
|
|
|
|
3,665
|
|
Income taxes receivable
|
|
|
3,432
|
|
|
|
2,237
|
|
Asset held for sale
|
|
|
3,250
|
|
|
|
5,000
|
|
Deferred income taxes
|
|
|
5,502
|
|
|
|
6,097
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
353,130
|
|
|
|
219,936
|
|
Property, plant and equipment, net
|
|
|
114,931
|
|
|
|
123,647
|
|
Debt issuance costs, net
|
|
|
5,297
|
|
|
|
2,195
|
|
Deferred income taxes
|
|
|
49,183
|
|
|
|
|
|
Goodwill
|
|
|
14,149
|
|
|
|
130,126
|
|
Definite-lived intangibles, net
|
|
|
18,330
|
|
|
|
22,128
|
|
Deposits and other non-current assets
|
|
|
1,230
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
556,250
|
|
|
$
|
498,798
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
48,750
|
|
|
$
|
53,632
|
|
Accrued salaries, wages and benefits
|
|
|
21,596
|
|
|
|
21,601
|
|
Current portion long-term debt
|
|
|
|
|
|
|
40,000
|
|
Other accrued expenses
|
|
|
2,385
|
|
|
|
5,864
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
72,731
|
|
|
|
121,097
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
|
175,000
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
|
|
|
|
45,000
|
|
Deferred income taxes
|
|
|
|
|
|
|
1,688
|
|
Other long-term liabilities
|
|
|
2,522
|
|
|
|
2,419
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
177,522
|
|
|
|
49,107
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 100,000 shares
authorized, 42,811 and 42,380 shares issued and outstanding
in 2008 and 2007, respectively
|
|
|
43
|
|
|
|
42
|
|
Additional paid-in capital
|
|
|
183,721
|
|
|
|
173,365
|
|
Retained earnings
|
|
|
119,067
|
|
|
|
154,337
|
|
Accumulated other comprehensive income
|
|
|
3,166
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
305,997
|
|
|
|
328,594
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
556,250
|
|
|
$
|
498,798
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
680,981
|
|
|
$
|
669,458
|
|
|
$
|
369,316
|
|
Cost of goods sold
|
|
|
543,977
|
|
|
|
539,289
|
|
|
|
276,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
137,004
|
|
|
|
130,169
|
|
|
|
93,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
30,436
|
|
|
|
29,835
|
|
|
|
16,473
|
|
General and administrative
|
|
|
33,003
|
|
|
|
32,628
|
|
|
|
19,656
|
|
Amortization of definite-lived intangibles
|
|
|
3,799
|
|
|
|
4,126
|
|
|
|
1,786
|
|
Impairment of goodwill and long-lived assets
|
|
|
123,322
|
|
|
|
|
|
|
|
|
|
Metal reclamation
|
|
|
(3,700
|
)
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
186,860
|
|
|
|
66,589
|
|
|
|
38,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(49,856
|
)
|
|
|
63,580
|
|
|
|
55,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,423
|
)
|
|
|
(13,828
|
)
|
|
|
(3,394
|
)
|
Interest income
|
|
|
1,370
|
|
|
|
1,379
|
|
|
|
4,419
|
|
Other, net
|
|
|
(1,804
|
)
|
|
|
137
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income, net
|
|
|
(8,857
|
)
|
|
|
(12,312
|
)
|
|
|
1,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(58,713
|
)
|
|
|
51,268
|
|
|
|
56,102
|
|
Income tax benefit (provision)
|
|
|
23,443
|
|
|
|
(16,585
|
)
|
|
|
(21,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(35,270
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.83
|
)
|
|
$
|
0.82
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.83
|
)
|
|
$
|
0.81
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
TTM
TECHNOLOGIES, INC.
For the
Years Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax of $838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,378
|
|
Unrealized loss on effective cash flow hedges, net of tax
benefit of $386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
743
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle related to
income 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
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,270
|
)
|
|
|
|
|
|
|
(35,270
|
)
|
|
$
|
(35,270
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax of $982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672
|
|
Unrealized loss on effective cash flow hedges, net of tax
benefit of $64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
Reclassification for realized losses on cash flow hedges net of
tax of $442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,316
|
|
|
|
2,316
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(32,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of convertible note hedge, net of tax of $14,633
|
|
|
|
|
|
|
|
|
|
|
(23,624
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,624
|
)
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
|
|
|
|
|
|
26,197
|
|
|
|
|
|
Exercise of common stock options
|
|
|
277
|
|
|
|
1
|
|
|
|
2,394
|
|
|
|
|
|
|
|
|
|
|
|
2,395
|
|
|
|
|
|
Income tax benefit from options exercised
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
|
Issuance of common stock for restricted stock units
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
42,811
|
|
|
$
|
43
|
|
|
$
|
183,721
|
|
|
$
|
119,067
|
|
|
$
|
3,166
|
|
|
$
|
305,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
TTM
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(35,270
|
)
|
|
$
|
34,683
|
|
|
$
|
35,039
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
21,308
|
|
|
|
22,804
|
|
|
|
12,178
|
|
Amortization of definite-lived intangible assets
|
|
|
3,917
|
|
|
|
4,242
|
|
|
|
1,903
|
|
Amortization of debt issuance costs
|
|
|
2,649
|
|
|
|
3,692
|
|
|
|
374
|
|
Non-cash interest imputed on other long-term liabilities
|
|
|
131
|
|
|
|
122
|
|
|
|
25
|
|
Income tax benefit from stock options exercised
|
|
|
(210
|
)
|
|
|
(341
|
)
|
|
|
(1,072
|
)
|
Deferred income taxes
|
|
|
(37,026
|
)
|
|
|
1,831
|
|
|
|
4,925
|
|
Stock-based compensation
|
|
|
5,076
|
|
|
|
3,361
|
|
|
|
1,553
|
|
Impairment of goodwill and long-lived assets
|
|
|
123,322
|
|
|
|
|
|
|
|
|
|
Net loss (gain) on sale of property, plant and equipment
|
|
|
252
|
|
|
|
84
|
|
|
|
(48
|
)
|
Amortization of premiums and discounts on short-term
investments, net
|
|
|
|
|
|
|
(4
|
)
|
|
|
(322
|
)
|
Changes in operating assets and liabilities net of effect of
acquired businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
4,547
|
|
|
|
7,129
|
|
|
|
(8,704
|
)
|
Inventories
|
|
|
(4,854
|
)
|
|
|
1,628
|
|
|
|
(623
|
)
|
Prepaid expenses and other current assets
|
|
|
1,104
|
|
|
|
184
|
|
|
|
(430
|
)
|
Income taxes receivable
|
|
|
(1,195
|
)
|
|
|
(1,520
|
)
|
|
|
(717
|
)
|
Accounts payable
|
|
|
(5,695
|
)
|
|
|
2,308
|
|
|
|
(7,931
|
)
|
Accrued salaries, wages and benefits and other accrued expenses
|
|
|
(2,538
|
)
|
|
|
(6,219
|
)
|
|
|
(3,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
75,518
|
|
|
|
73,984
|
|
|
|
32,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment and equipment deposits
|
|
|
(17,675
|
)
|
|
|
(14,040
|
)
|
|
|
(13,949
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
165
|
|
|
|
1,335
|
|
|
|
214
|
|
Redesignation of cash and cash equivalents to short-term
investments
|
|
|
(19,522
|
)
|
|
|
|
|
|
|
|
|
Proceeds from the redemption of short-term investments
|
|
|
15,865
|
|
|
|
|
|
|
|
|
|
Purchases of
held-to-maturity
short-term investments
|
|
|
|
|
|
|
|
|
|
|
(40,909
|
)
|
Proceeds from redemptions of
held-to-maturity
short-term investments
|
|
|
|
|
|
|
11,000
|
|
|
|
51,335
|
|
Cash paid in business acquisition net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(230,920
|
)
|
Purchase of intangibles
|
|
|
|
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(21,167
|
)
|
|
|
(1,705
|
)
|
|
|
(234,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible senior notes
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(85,000
|
)
|
|
|
(115,705
|
)
|
|
|
(111
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Proceeds from warrants
|
|
|
26,197
|
|
|
|
|
|
|
|
|
|
Payment of convertible note hedge
|
|
|
(38,257
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
210
|
|
|
|
341
|
|
|
|
1,072
|
|
Proceeds from exercise of common stock options
|
|
|
2,394
|
|
|
|
1,712
|
|
|
|
4,957
|
|
Payment of debt issuance costs
|
|
|
(5,751
|
)
|
|
|
(176
|
)
|
|
|
(5,886
|
)
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
74,793
|
|
|
|
(113,828
|
)
|
|
|
200,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
640
|
|
|
|
570
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
129,784
|
|
|
|
(40,979
|
)
|
|
|
(1,598
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
18,681
|
|
|
|
59,660
|
|
|
|
61,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
148,465
|
|
|
$
|
18,681
|
|
|
$
|
59,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
6,031
|
|
|
$
|
9,346
|
|
|
$
|
2,912
|
|
Cash paid, net for income taxes
|
|
|
15,001
|
|
|
|
15,543
|
|
|
|
17,310
|
|
Supplemental disclosures of noncash investing and financing
activities:
At December 31, 2008 and 2007 accrued purchases of
equipment totaled $1,470 and $1,557, respectively.
During 2008 and 2007, the Company recognized an unrealized loss
on a derivative instrument of $108 and $635, net of tax,
respectively.
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
TTM
TECHNOLOGIES, INC.
(Dollars and shares in thousands, except per share
data)
|
|
(1)
|
Nature of
Operations and Basis of Presentation
|
TTM Technologies, Inc. (the Company or TTM) is a manufacturer of
complex printed circuit boards (PCBs) used in sophisticated
electronic equipment and provides backplane and
sub-system
assembly services for both standard and specialty products in
defense and commercial operations. The Company sells to a
variety of customers located both within and outside of the
United States of America. The Companys customers include
both original equipment manufacturers (OEMs) and electronic
manufacturing services (EMS) companies. The Companys OEM
customers often direct a significant portion of their purchases
through EMS companies.
On October 27, 2006, the Company 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. Such estimates include the
valuation of sales returns and allowances, short-term
investments, accounts receivable, inventories, goodwill,
intangible assets and other long-lived assets, self insurance
reserves, asset retirement obligations and environmental
liabilities, legal contingencies, and assumptions used in the
calculation of stock-based compensation and income taxes, among
others. These estimates and assumptions are based on
managements best estimates and judgment. Management
evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including
economic environment, which management believes to be reasonable
under the circumstances. We adjust such estimates and
assumptions when facts and circumstances dictate. Illiquid
credit markets and recent declines in OEM and EMS spending have
increased the uncertainty inherent in such estimates and
assumptions. As future events and their effects cannot be
determined with precision, actual results could differ from
those estimates.
Principles
of Consolidation
The consolidated financial statements include the accounts of
TTM Technologies, Inc. and its wholly-owned subsidiaries: Power
Circuits, Inc., TTM Advanced Circuits, Inc., TTM Technologies
International, Inc., TTM Printed Circuit Group, Inc., TTM
Technologies (Shanghai) Co. Ltd. (formerly Tyco Packaging
Systems (Shanghai) Co. Ltd.), TTM Iota, Ltd. (formerly 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 TTM Technologies
(Shanghai) Co. Ltd. subsidiary is the local currency, the
Chinese RMB. Accordingly, assets and liabilities are translated
into U.S. dollars using period-end exchange rates. Sales
and expenses are translated at the average exchange rates in
effect during the period. The resulting translation gains or
losses are recorded as a component of accumulated other
comprehensive income in the consolidated statement of
stockholders equity and comprehensive income (loss). Gains
and losses resulting
F-8
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
from foreign currency transactions are included in income as a
component of other, net in the consolidated statements of
operations and totaled $69 loss, $100 gain and $99 loss for the
years ended December 31, 2008, 2007 and 2006, respectively.
Cash
Equivalents and Short-Term Investments
The Company considers highly liquid investments with
insignificant interest rate risk and original maturities to the
Company of three months or less to be cash equivalents. Cash
equivalents consist primarily of interest-bearing bank accounts,
money market funds and short-term debt securities.
The Company considers highly liquid investments with an
effective maturity to the Company of more than three months and
less than one year to be short-term investments.
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). Short-term
investments are comprised of an investment in The Reserve
Primary Fund (Primary Fund), a money market fund that has
suspended redemptions and is being liquidated. In accordance
with SFAS 115, the Company has recorded these investments
as trading securities and at fair market value. These securities
will be marked to market each reporting period with any gains or
losses in fair value recorded as a component of other, net in
the consolidated statements of operations.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are reflected at estimated net realizable
value, do not bear interest nor do they generally require
collateral. The Company performs credit evaluations of its
customers and adjusts credit limits based upon payment history
and the customers current creditworthiness. The Company
maintains an allowance for doubtful accounts based upon a
variety of factors. The Company reviews all open accounts and
provides specific reserves for customer collection issues when
it believes the loss is probable, considering such factors as
the length of time receivables are past due, the financial
condition of the customer, and historical experience. The
Company also records a reserve for all customers, excluding
those that have been specifically reserved for, based upon
evaluation of historical losses, which exceeded the specific
reserves the Company had established.
Inventories
Inventories are stated at the lower of cost (determined on a
first-in,
first-out basis) or market. Provisions to value the inventory at
the lower of the actual cost to purchase and / or
manufacture the inventory, or the current estimated market value
of the inventory, are based upon assumptions about future demand
and market conditions. The Company also performs evaluations of
inventory and records a provision for estimated excess and
obsolete items based upon forecasted demand, and any other known
factors at the time.
Property,
Plant and Equipment, Net
Property, plant and equipment are recorded at cost. Depreciation
expense is computed using the straight-line method over the
estimated useful lives of the assets. Assets recorded under
leasehold improvements are amortized using the straight-line
method over the lesser of their useful lives or the related
lease term. The Company uses the following estimated useful
lives:
|
|
|
|
|
Buildings and improvements
|
|
|
7-40 years
|
|
Machinery and equipment
|
|
|
3-12 years
|
|
Furniture and fixtures
|
|
|
3-7 years
|
|
Automobiles
|
|
|
5 years
|
|
F-9
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 $21,308, $22,772 and $12,178
for the years ended December 31, 2008, 2007 and 2006,
respectively.
The Company capitalizes interest on borrowings during the active
construction period of major capital projects. Capitalized
interest is amortized over the average useful lives of such
assets, which primarily consist of machinery and equipment. The
Company capitalized interest costs of $162 and $286 in 2008 and
2007, respectively, in connection with various capital projects.
There were no capitalized interest costs in 2006.
Major renewals and betterments are capitalized and depreciated
over their estimated useful lives while minor expenditures for
maintenance and repairs are charged to expense as incurred.
Debt
Issuance Costs
Debt issuance costs are amortized to expense over the period of
the underlying convertible senior notes or credit facility using
the effective interest rate method, adjusted to give effect to
any early repayments. At December 31, 2008 and 2007,
unamortized debt issuance costs were $5,297 and $2,195,
respectively. Amortization expense for the years ended
December 31, 2008, 2007 and 2006 was $2,649, $3,692 and
$374, respectively.
Business
Combinations and Goodwill
The Company accounts for business combinations and goodwill
according to Statement of Financial Accounting
Standards No. 141, Business Combinations,
(SFAS 141) and Statement of Financial Accounting
Standards 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, at a reporting unit level, annually and
when events and circumstances warrant an evaluation. Goodwill is
tested for impairment using a two-step process. The first step
of the goodwill impairment test, used to identify potential
impairment, compares the estimated fair value of the reporting
unit containing goodwill with the related carrying amount. 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 test, 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 making this assessment, management relies on a number of
factors including operating results, business plans, economic
projections, anticipated future cash flows, business trends and
market conditions.
The Company has two reporting units, which are also operating
segments, and both contained goodwill prior to the annual
impairment test. See Notes 4 and 7 for information
regarding the goodwill impairment recorded as a result of the
annual impairment test.
F-10
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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, including property, plant and
equipment, assets held for sale, and definite-lived intangible
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the 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 and relies on a number of factors, including
operating results, business plans, economic projections, and
anticipated future cash flows. The Company uses an estimate of
the future undiscounted net cash flows of the related asset or
asset group over the remaining life in measuring whether the
assets are recoverable. Measurement of the amount of impairment,
if any, is based upon the difference between the assets
carrying value and estimated fair value. See Note 4 for
information regarding the asset impairment recorded as a result
of specific events and changes in circumstances.
When assets are classified as held for sale, they are recorded
at estimated fair value, less the cost to sell.
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 PCBs 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 have
transferred, and (iv) collectibility is reasonably
assured generally when products are shipped to the
customer, except in situations in which title passes upon
receipt of the products by the customer. In this case, revenues
are recognized upon notification that customer receipt has
occurred. The Company does not have customer acceptance
provisions, but it does provide its customers a limited right of
return for defective PCBs. The Company accrues an estimated
amount for sales returns and allowances related to defective
PCBs at the time of sale based on its ability to estimate sales
returns and allowances using historical information. As of
December 31, 2008 and 2007, the reserve for sales returns
and allowances was $3,291 and $3,681, 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 Statement of Financial
Accounting Standards No. 123R, Share-Based
Payments, (SFAS 123R). The Company elected to use the
modified prospective transition method and, therefore,
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.
F-11
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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.
On January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) issued Interpretation 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 years ended
December 31, 2008 and 2007, the Company did not have any
such interest or penalties.
Self
Insurance
The Company is primarily self insured for group health insurance
and workers compensation benefits provided to employees. The
Company also purchases stop loss insurance to protect against
annual claims per individual and at an aggregate level. The
individual stop losses on the Companys self insurance
range from $100 to $250 per individual. 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 $4,814 and $4,916 for
self insurance liabilities at December 31, 2008 and 2007,
respectively, and these amounts are reflected within accrued
salaries, wages and benefits in the consolidated balance sheets.
Derivatives
and Hedging Transactions
The Company accounts for derivative financial instruments and
hedging activities in accordance with Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133), as amended by Statement of Financial
Accounting Standards No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of SFAS 133 and Statement of
Financial Accounting Standards No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities. The Company does not use derivative financial
instruments for trading or speculative purposes and recent
derivative financial instruments have been limited to interest
rate swap agreements.
When an interest rate swap derivative contract is executed, the
Company will designate the derivative instrument as a hedge of
the variability of cash flows to be paid (cash flow hedge). For
its hedging relationship, the Company will formally document the
hedging relationship and its risk management objective and
strategy for undertaking the hedge, the hedging instrument, the
hedged item, the nature of the risk being hedged, how the
hedging instruments effectiveness in offsetting the hedged
risk will be assessed, and a description of the method of
measuring ineffectiveness. The Company will also formally
assess, both at the hedges inception and on an ongoing
basis, whether the derivative that is used in hedging
transactions is highly effective in offsetting changes in cash
F-12
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
flows of hedged items. To the extent the interest rate swap
provides an effective hedge, the differences between the fair
value and the book value of the interest rate swap are
recognized in accumulated other comprehensive income, net of
tax, as a component of stockholders equity. To the extent
there is any hedge ineffectiveness, changes in fair value
relating to the ineffective portion are immediately recognized
in earnings as interest expense. The Company also evaluates
whether the risk of default by the counterparty to the interest
rate swap contract has changed.
As of December 31, 2008 the Company did not have any
derivative financial instruments outstanding.
Sales
Tax Collected from Customers
As a part of the Companys normal course of business, sales
taxes are collected from customers. Sales taxes collected are
remitted, in a timely manner, to the appropriate governmental
tax authority on behalf of the customer. The Companys
policy is to present revenue and costs, net of sales taxes.
Fair
Value Measures
The Company discloses fair value measures for financial assets
and financial liabilities reported or disclosed at fair value in
the consolidated financial statements on a recurring basis in
accordance with Statement of Financial Accounting Standards
No. 157, Fair Value Measures, (SFAS 157). The
Company prospectively implemented the provisions of
SFAS 157 for financial assets and financial liabilities as
of January 1, 2008 and elected to defer implementation of
the provisions of SFAS 157 for non-financial assets and
non-financial liabilities until January 1, 2009 as
permitted by FASB Staff Position
SFAS 157-2,
Effective Date of FASB Statement No. 157. In
accordance with SFAS 157, the Company discloses fair value
measures based on a hierarchy for categorizing inputs used to
measure fair value, whereby Level 1 represents quoted
market prices in active markets for identical assets or
liabilities; Level 2 represents significant other
observable inputs (e.g. quoted prices for similar items in
active markets, quoted prices for identical or similar items in
markets that are not active, inputs other than quoted prices
that are observable such as interest rate and yield curves, and
market-corroborated inputs); and Level 3 represents
unobservable inputs in which there is little or no market data
and requires the reporting unit to develop its own assumptions.
Asset
Retirement Obligations
The Company accounts for asset retirement obligations as
required by Statement of Financial Accounting
Standards 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. The liability is
initially measured at fair value and subsequently is adjusted
for accretion expense and changes in the amount of timing of the
estimated cash flows.
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, the Company considers information that is currently
available, existing technology, enacted laws and regulations,
and its estimates of the timing of the required remedial
actions. Such accruals are initially measured on a discounted
basis and are adjusted as further information becomes available,
or circumstances change and are accreted up over time.
F-13
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Earnings
Per Share
Basic earnings per common share excludes dilution and is
computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings
per common share reflect the potential dilution that could occur
if stock options or other common stock equivalents were
exercised or converted into common stock. The dilutive effect of
stock options or other common stock equivalents is calculated
using the treasury stock method.
Comprehensive
Income (Loss)
Comprehensive income (loss) includes changes to equity accounts
that were not the result of transactions with stockholders.
Comprehensive income (loss) is comprised of net income (loss),
changes in the cumulative foreign currency translation
adjustments and realized and unrealized gains or losses on
derivative instruments.
Loss
Contingencies
The Company establishes an accrual for an estimated loss
contingency when it is both probable that an asset has been
impaired or that a liability has been incurred and the amount of
the loss can be reasonably estimated. Any legal fees expected to
be incurred in connection with a contingency are expensed as
incurred.
Recent
Accounting Pronouncements
In May 2008, FASB issued FASB Staff Position APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), (FSP APB
14-1). FSP
APB 14-1
specifies that issuers of convertible debt instruments that may
be settled in cash upon conversion (including partial cash
settlement) should separately account for the liability and
equity components in a manner that will reflect the
entitys nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods. FSP APB
14-1 is
effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Upon adoption, FSP APB
14-1
requires retrospective application back to the issuance date of
convertible debt, which for the Company was 2008. The
implementation of FSP APB
14-1 is
estimated to increase interest expense for 2008 and 2009 by
$2,800 and $4,700, respectively. Early adoption of FSP APB
14-1 is not
permitted.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of Statement of
Financial Accounting Standards No. 133,
(SFAS 161). This statement is intended to improve
transparency in financial reporting by requiring enhanced
disclosures of an entitys financial position, financial
performance, and cash flow. SFAS 161 applies to derivative
instruments within the scope SFAS 133 as well as related
hedged items, bifurcated derivatives, and non-derivative
instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosure and expanded
quantitative disclosures. SFAS 161 is effective
prospectively for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with
early application permitted. The adoption of the provisions of
SFAS 161 is not anticipated to materially impact the
Companys consolidated financial position or results of
operations.
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
F-14
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
(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 September 2006, SFAS 157 was released and defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Additionally,
in October 2008 the FASB issued FASB Staff Position
SFAS 157-3,
Determining the Fair Value of a Financial Asset When the Market
for That Asset is Not Active, (FSP
SFAS 157-3)
which clarifies the application of SFAS 157 in a market
that is not active. SFAS 157 is applicable 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 were originally to
be effective beginning January 1, 2008 and FSP
SFAS 157-3
is effective for the year ended December 31, 2008.
Subsequently, the FASB provided for a one-year deferral of the
provisions 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. Effective
January 1, 2008 and December 31, 2008, the Company
implemented the provisions SFAS 157 and FSP
FAS 157-3,
respectively, for financial assets and financial liabilities
reported or disclosed at fair value. The adoption of
SFAS 157 and FSP
FAS 157-3
for financial assets and liabilities did not 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. The Tyco Printed Circuit Group (PCG) is a
leading producer of complex, high performance and specialty
PCBs, one of the major suppliers of aerospace/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
|
|
|
|
|
|
|
F-15
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 was 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.
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 finalized its
plan to close this facility. Production was ceased at the
Dallas, Oregon facility during the second quarter of 2007 and
the Company commenced the process of selling the building and
certain assets. Accordingly, the Company has classified the
Dallas, Oregon facility as held for sale. See Note 4 for
information regarding the impairment of this asset during the
fourth quarter 2008.
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 unaudited pro forma information below presents the results
of operations for 2006 as if the PCG acquisition occurred at the
beginning of the 2006 period, after giving effect to certain
adjustments, including depreciation and amortization of tangible
and intangible assets, removal of expenses related to assets not
acquired and liabilities not assumed, inclusion of 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 the 2006
period presented or of the results which may occur in the future.
|
|
|
|
|
|
|
2006
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Net sales
|
|
$
|
717,406
|
|
Net income
|
|
|
25,535
|
|
Basic earnings per share
|
|
$
|
0.62
|
|
Diluted earnings per share
|
|
$
|
0.60
|
|
|
|
(4)
|
Impairment
of Goodwill and Long-Lived Assets
|
During the fourth quarter of 2008, the Company recorded
impairment charges of $123,322, consisting of a goodwill
impairment of $117,018 and a long-lived asset impairment of
$6,304. These charges are presented as impairment of goodwill
and long-lived assets in the consolidated statements of
operations
The goodwill impairment, which relates to the PCB Manufacturing
operating segment, was incurred when the operating
segments carrying value exceeded its fair value during the
Companys annual goodwill impairment test. In conjunction
with the testing, the Company considered factors such as a
weakening economy, reduced expectations for future cash flows
coupled with a decline in the market price of the companys
stock and market capitalization for a sustained period, as
indicators for potential goodwill impairment. See Note 7
for additional information regarding the impairment of goodwill.
The long-lived asset impairment relates to the Companys
Oregon, Washington, and Hayward, California production
facilities. Following the Companys acquisition of PCG and
subsequent closure of the Oregon facility, the Company has held
this facility as an asset held for sale since June 30,
2007. As a result of the facility being held
F-16
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
for sale for an extended period of time and in consideration of
real estate market conditions, the Company recorded an asset
impairment charge of $1,750 as of December 31, 2008 to
reduce the carrying value to $3,250 which represents its current
estimate of fair value less costs to sell. The Company continues
to actively market this facility at a price that is indicative
of the facilitys intent and ability to sell. Additionally,
the Company determined that certain long-lived assets of its
Hayward, California production facility, which is part of the
Backplane Assembly operating segment, was impaired by $2,746 due
to slower growth and lower future production expectations.
Finally, as a result of the Companys January 15,
2009 announcement of its plan to close the Washington production
facility, the Company determined that approximately $1,808 of
this facilitys long-lived assets were impaired. The
Washington production facility is part of the PCB Manufacturing
operating segment.
If forecasts and assumptions used to support the realizability
of goodwill and other long-lived assets change in the future,
significant impairment charges could result that would adversely
affect the Companys results of operations and financial
condition.
|
|
(5)
|
Short-Term
Investments
|
Short-term investments are comprised of an investment in the
Primary Fund, a money market fund that has suspended redemptions
and is being liquidated. The Company records these investments
as trading securities and at fair market value in accordance
with SFAS 115.
The original cost of this investment was $20,101 and was
originally classified as cash and cash equivalents on the
Companys consolidated balance sheet. However, in the third
quarter 2008, the net asset value of the Primary Fund decreased
below $1 per share as a result of the Primary Funds
valuing at zero its holding of debt securities issued by Lehman
Brothers Holdings, Inc., which filed bankruptcy on
September 15, 2008. As a result, the Company recorded a
$579 loss, included in other, net in the Companys
consolidated statement of operations, to recognize its pro rata
share of the estimated loss in this investment.
The Company has requested redemption of its investment in the
Primary Fund and during the fourth quarter of 2008 received
partial distribution of funds in the amount of $15,865. The
Company expects continued distribution to occur as the Primary
Funds assets mature or are sold. The Company expects to
receive substantially all of its remaining holdings in the
Primary Fund. The Company classified its investment in the
Primary Fund as a short-term investment on the Companys
consolidated balance sheet. At December 31, 2008, the fair
value of the Companys remaining investment in the Primary
Fund was $3,657, (Note 11). Subsequent to December 31,
2008, the Company received another partial distribution of funds
in the amount of $1,335.
F-17
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
(6)
|
Composition
of Certain Consolidated Financial Statement Captions
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
25,998
|
|
|
$
|
23,386
|
|
Work-in-process
|
|
|
36,290
|
|
|
|
35,700
|
|
Finished goods
|
|
|
8,723
|
|
|
|
6,589
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,011
|
|
|
$
|
65,675
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
10,650
|
|
|
$
|
10,083
|
|
Buildings and improvements
|
|
|
53,423
|
|
|
|
46,296
|
|
Machinery and equipment
|
|
|
147,857
|
|
|
|
138,383
|
|
Construction-in-progress
|
|
|
2,887
|
|
|
|
4,119
|
|
Furniture and fixtures
|
|
|
658
|
|
|
|
610
|
|
Automobiles
|
|
|
367
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,842
|
|
|
|
199,782
|
|
Less: Accumulated depreciation
|
|
|
(100,911
|
)
|
|
|
(76,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
114,931
|
|
|
$
|
123,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
$
|
5,751
|
|
|
$
|
6,062
|
|
Less: Accumulated amortization
|
|
|
(454
|
)
|
|
|
(3,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
2,195
|
|
|
|
|
|
|
|
|
|
|
Other accrued expenses:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
711
|
|
|
$
|
829
|
|
Mark-to-market
value on derivative
|
|
|
|
|
|
|
1,021
|
|
Professional fees
|
|
|
193
|
|
|
|
1,650
|
|
Other
|
|
|
1,481
|
|
|
|
2,364
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,385
|
|
|
$
|
5,864
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
Goodwill
and Definite-lived Intangibles
|
As of December 31, 2008 and 2007, goodwill by operating
segment and the components of definite-lived intangibles were as
follows:
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
December 31,
|
|
Goodwill
|
|
Currency
|
|
December 31,
|
|
|
2007
|
|
Impairment
|
|
Rate Change
|
|
2008
|
|
|
(In thousands)
|
|
PCB Manufacturing
|
|
$
|
117,018
|
|
$
|
(117,018)
|
|
$
|
|
|
$
|
|
Backplane Assembly
|
|
|
13,108
|
|
|
|
|
|
1,041
|
|
|
14,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,126
|
|
$
|
(117,018)
|
|
$
|
1,041
|
|
$
|
14,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2008, the Company performed its
annual goodwill impairment test. In performing step one of the
annual impairment test, the Company determined the fair value of
its operating segments based on a combination of discounted cash
flow analysis and market approach and incorporated factors such
as a weakening economy, reduced expectations for future cash
flows coupled with a decline in the market price of the
Companys stock and market capitalization for a sustained
period, as indicators for potential goodwill impairment. The
failure of step one of the goodwill impairment test triggered a
step two impairment test for the PCB Manufacturing operating
segment only. As a result of step two impairment testing, the
Company determined the implied fair value of PCB Manufacturing
operating segments goodwill and concluded that the
carrying value of goodwill for this operating segment exceeded
its implied fair value as of December 31, 2008.
Accordingly, an impairment charge of $117,018 was recognized in
the fourth quarter of 2008. A tax benefit has been recognized on
a portion of this goodwill impairment. See Note 10 for
further details on the tax impact of the goodwill impairment.
There was no impairment recorded for the years ended
December 31, 2007 and 2006.
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 rate change.
Definite-lived
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Net
|
|
|
Average
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Currency
|
|
|
Carrying
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Rate Change
|
|
|
Amount
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
(years)
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic customer relationships
|
|
$
|
35,429
|
|
|
$
|
(17,410
|
)
|
|
$
|
253
|
|
|
$
|
18,272
|
|
|
|
12.0
|
|
Customer backlog
|
|
|
70
|
|
|
|
(71
|
)
|
|
|
1
|
|
|
|
|
|
|
|
0.7
|
|
Licensing agreement
|
|
|
350
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
58
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,849
|
|
|
$
|
(17,773
|
)
|
|
$
|
254
|
|
|
$
|
18,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The definite-lived intangibles related to strategic customer
relationships and customer backlog include the activity related
to a foreign subsidiary which operates in a currency other than
the U.S. dollar and therefore reflects a foreign currency
rate change.
Amortization expense was $3,917, $4,242 and $1,903 in 2008, 2007
and 2006, 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)
|
|
|
2009
|
|
$
|
3,499
|
|
2010
|
|
|
3,165
|
|
2011
|
|
|
3,019
|
|
2012
|
|
|
2,754
|
|
2013
|
|
|
2,688
|
|
|
|
|
|
|
|
|
$
|
15,125
|
|
|
|
|
|
|
|
|
(8)
|
Convertible
Senior Notes
|
In May 2008, the Company issued 3.25% Convertible Senior
Notes (Convertible Notes) due May 15, 2015, in a public
offering for an aggregate principal amount of $175,000. The
Convertible Notes bear interest at a rate of 3.25% per annum.
Interest is payable semiannually in arrears on May 15 and
November 15 of each year, beginning November 15, 2008. The
Convertible Notes are senior unsecured obligations and rank
equally to the Companys future unsecured senior
indebtedness and senior in right of payment to any of the
Companys future subordinated indebtedness. The Company
received proceeds of $169,249 after the deduction of offering
expenses of $5,751. These offering expenses are being amortized
to interest expense over the term of the Convertible Notes.
Conversion
At any time prior to November 15, 2014, holders may convert
their Convertible Notes into cash and, if applicable, into
shares of the Companys common stock based on a conversion
rate of 62.6449 shares of the Companys common stock
per $1 principal amount of Convertible Notes, subject to
adjustment, under the following circumstances: (1) during
any calendar quarter beginning after June 30, 2008 (and
only during such calendar quarter), if the last reported sale
price of our common stock for at least 20 trading days during
the 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter is greater than or
equal to 130% of the applicable conversion price on each
applicable trading day of such preceding calendar quarter;
(2) during the five business day period after any 10
consecutive trading day period in which the trading price per
note for each day of that 10 consecutive trading day period was
less than 98% of the product of the last reported sale price of
our common stock and the conversion rate on such day; or
(3) upon the occurrence of specified corporate transactions
described in the prospectus supplement. As of December 31,
2008, none of the conversion criteria had been met.
On or after November 15, 2014 until the close of business
on the third scheduled trading day preceding the maturity date,
holders may convert their notes at any time, regardless of the
foregoing circumstances. Upon conversion, for each $1 principal
amount of notes, the Company will pay cash for the lesser of the
conversion value or $1 and shares of our common stock, if any,
based on a daily conversion value calculated on a proportionate
basis for each day of the 60 trading day observation period.
Additionally, in the event of a fundamental change as defined in
the prospectus supplement, or other conversion rate adjustments
such as share splits or combinations, other distributions of
shares, cash or other assets to stockholders, including
self-tender transactions (Other Conversion Rate Adjustments),
the conversion rate may be modified to adjust the number of
shares per $1 principal amount of the notes.
The maximum number of shares issuable upon conversion, including
the effect of a fundamental change and subject to Other
Conversion Rate Adjustments, would be 13,978.
F-20
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Note
Repurchase
The Company is not permitted to redeem the Convertible Notes at
any time prior to maturity. In the event of a fundamental change
or certain default events, as defined in the prospectus
supplement, prior to November 15, 2014, holders may require
the Company to repurchase for cash all or a portion of their
Convertible Notes at a price equal to 100% of the principal
amount, plus any accrued and unpaid interest.
Convertible
Note Hedge and Warrant Transaction
In connection with the issuance of the Convertible Notes, the
Company entered into a convertible note hedge and warrant
transaction (Call Spread Transaction), with respect to the
Companys common stock. The convertible note hedge, which
cost an aggregate $38,257 and was recorded, net of tax, as a
reduction of additional paid-in capital, consists of the
Companys option to purchase up to 10,963 common stock
shares at a price of $15.96 per share. This option expires on
May 15, 2015 and can only be executed upon the conversion
of the above mentioned Convertible Notes. Additionally, the
Company sold warrants to purchase 10,963 shares of the
Companys common stock at a price of $18.15. This warrant
transaction expires on August 17, 2015. The proceeds from
the sale of warrants of $26,197 was recorded as an addition to
additional paid-in capital. The Call Spread Transaction has no
effect on the terms of the Convertible Notes and reduces
potential dilution by effectively increasing the conversion
price of the Convertible Notes to $18.15 per share of the
Companys common stock.
|
|
(9)
|
Long-term
Debt and Credit Agreement
|
The following table summarizes the long-term debt of the Company
as of December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Senior secured term loan
|
|
$
|
|
|
|
$
|
85,000
|
|
Less current maturities
|
|
|
|
|
|
|
(40,000
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
$
|
|
|
|
$
|
45,000
|
|
|
|
|
|
|
|
|
|
|
In May 2008, the Company paid in full all outstanding balances,
terminated all letter of credit arrangements and the related
interest rate swap associated with the Credit Agreement
consisting of a $200,000 senior secured term loan and a $40,000
senior secured revolving loan facility. The Company has no
further obligation or commitment related to this Credit
Agreement. Upon termination of the interest rate swap, the
Company realized a loss on settlement of $1,194 for the year
ended December 31, 2008. The loss was recorded as a
component of other, net in the consolidated statements of
operations. Additionally, the impact of the interest rate swap
to interest expense during the years ended December 31,
2008 and 2007 was a charge of $331 and a benefit of $59,
respectively. There was no impact on interest expense for the
year ended December 31, 2006.
The components of (loss) income before taxes for the years ended
December 31, 2008, 2007 and 2006 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
(67,329
|
)
|
|
$
|
44,415
|
|
|
$
|
55,374
|
|
Foreign
|
|
|
8,616
|
|
|
|
6,853
|
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
$
|
(58,713
|
)
|
|
$
|
51,268
|
|
|
$
|
56,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008, 2007 and 2006 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current benefit (provision):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(9,755
|
)
|
|
$
|
(12,009
|
)
|
|
$
|
(14,099
|
)
|
State
|
|
|
(2,203
|
)
|
|
|
(1,861
|
)
|
|
|
(1,911
|
)
|
Foreign
|
|
|
(1,625
|
)
|
|
|
(884
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(13,583
|
)
|
|
|
(14,754
|
)
|
|
|
(16,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit (provision):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
31,451
|
|
|
|
(5,021
|
)
|
|
|
(3,411
|
)
|
State
|
|
|
5,501
|
|
|
|
3,220
|
|
|
|
(1,503
|
)
|
Foreign
|
|
|
74
|
|
|
|
(30
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
37,026
|
|
|
|
(1,831
|
)
|
|
|
(4,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit (provision)
|
|
$
|
23,443
|
|
|
$
|
(16,585
|
)
|
|
$
|
(21,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation between the statutory federal
income tax rates and the Companys effective income tax
rates for the years ended December 31, 2008, 2007 and 2006,
which are derived by dividing the income tax benefit (provision)
by the income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
State income taxes, net of federal benefit and state tax credits
|
|
|
3.6
|
|
|
|
(3.0
|
)
|
|
|
(4.2
|
)
|
Domestic production activities deduction
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.7
|
|
Decrease in valuation allowance
|
|
|
|
|
|
|
4.7
|
|
|
|
0.2
|
|
Other
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit (provision) for income taxes
|
|
|
39.9
|
%
|
|
|
(32.3
|
)%
|
|
|
(37.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008 and 2007
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Goodwill and intangible amortization
|
|
$
|
37,331
|
|
|
$
|
11,577
|
|
Reserves and accruals
|
|
|
5,759
|
|
|
|
6,149
|
|
Net operating loss carryforwards
|
|
|
7
|
|
|
|
17
|
|
State tax credit carryforwards, net of federal benefit
|
|
|
2,856
|
|
|
|
2,439
|
|
Stock-based compensation
|
|
|
1,962
|
|
|
|
1,090
|
|
Original issue discount on Convertible Notes
|
|
|
13,597
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,512
|
|
|
|
21,658
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and intangible asset amortization
|
|
|
|
|
|
|
(14,711
|
)
|
Property, plant and equipment basis differences
|
|
|
(2,491
|
)
|
|
|
(388
|
)
|
Repatriation of foreign earnings
|
|
|
(4,336
|
)
|
|
|
(2,150
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
54,685
|
|
|
$
|
4,409
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset (liability):
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
5,502
|
|
|
$
|
6,097
|
|
Long-term portion
|
|
|
49,183
|
|
|
|
(1,688
|
)
|
At December 31, 2008 the Companys multiple state net
operating loss carryforwards for income tax purposes were
approximately $230. If not utilized, the state net operating
loss carryforwards will begin to expire in 2018. At
December 31, 2008, the Companys state tax credit
carryforwards were approximately $4,395 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. The Company believes that the results of future
operations will generate sufficient taxable income to realize
the deferred tax assets. As a result, the Company has determined
that a valuation allowance is not necessary.
Upon adoption of FIN 48 on January 1, 2007, the
Company recorded a decrease in the liability for unrecognized
tax benefits of $338 and an 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
F-23
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
accordance with the adoption, a reconciliation of the beginning
and ending amount of unrecognized tax benefits, exclusive of
accrued interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Balance at January 1
|
|
$
|
346
|
|
|
$
|
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
|
|
|
(251
|
)
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
95
|
|
|
$
|
346
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, the Company classified $116
and $373, respectively, of total unrecognized tax benefits,
which includes accrued interest and penalties of $21 and $27,
net of tax benefits for 2008 and 2007, respectively, as a
component of other long-term liabilities. This represents the
amount of unrecognized tax benefits that would, if recognized,
reduce the Companys effective income tax rate in any
future periods. The Company does not expect its unrecognized tax
benefits to change significantly over the next 12 months.
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. As of December 31, 2008, the
2002 2007 tax years remain subject to examination in
the U.S. federal tax, various state tax and foreign
jurisdictions.
|
|
(11)
|
Financial
Instruments
|
In the normal course of business, operations of the Company are
exposed to risks associated with fluctuations in
U.S. interest rates.
Fair
Value of Financial Instruments
At December 31, 2008 and 2007, the Companys financial
instruments included cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, derivatives,
convertible senior notes 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 amount and estimated fair value of the
Companys financial instruments at December 31, 2008
and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Short-term investments
|
|
$
|
3,657
|
|
|
$
|
3,657
|
|
|
|
|
|
|
|
|
|
Convertible senior notes
|
|
|
175,000
|
|
|
|
87,553
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
85,000
|
|
|
$
|
84,150
|
|
Interest rate swap derivative
|
|
|
|
|
|
|
|
|
|
|
1,021
|
|
|
|
1,021
|
|
The fair value of the convertible senior notes and the long-term
debt was estimated based on quoted market prices at year end.
The carrying amount of the Companys derivative financial
instruments was adjusted to fair value and represents the amount
the Company would pay to terminate the derivative taking into
account current market quotes and the current creditworthiness
of the counterparty.
F-24
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Fair
Value Measures
The Company discloses fair value measures for its financial
assets and financial liabilities reported or disclosed at fair
value in accordance with SFAS 157. SFAS 157
establishes the following hierarchy for categorizing inputs used
to measure fair value:
Level 1 Quoted market prices in active markets
for identical assets or liabilities;
Level 2 Significant other observable inputs
(e.g. quoted prices for similar items in active markets, quoted
prices for identical or similar items in markets that are not
active, inputs other than quoted prices that are observable such
as interest rate and yield curves, and market-corroborated
inputs); and
Level 3 Unobservable inputs in which there is
little or no market data, which require the reporting unit to
develop its own assumptions.
At December 31, 2008, the following financial asset was
measured at fair value on a recurring basis using the type of
inputs shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
December 31,
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
2008
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(In thousands)
|
|
|
Short-term investments
|
|
$
|
3,657
|
|
|
|
|
|
|
|
|
|
|
$
|
3,657
|
|
The Company values its short-term investments using the market
approach which utilizes prices and other relevant information
generated by market transactions involving identical or similar
comparable investments.
|
|
|
|
|
|
|
Fair Value Measurement
|
|
|
|
using Unobservable
|
|
|
|
Inputs (Level 3)
|
|
|
|
(In thousands)
|
|
|
Beginning balance at December 31, 2007
|
|
$
|
|
|
Transfers to level 3
|
|
|
20,101
|
|
Changes in fair value included in earnings
|
|
|
(579
|
)
|
Settlement
|
|
|
(15,865
|
)
|
|
|
|
|
|
Ending Balance at December 31, 2008
|
|
$
|
3,657
|
|
|
|
|
|
|
Losses included in earnings attributable to a change in
unrealized losses relating to assets still held at
December 31, 2008
|
|
$
|
(579
|
)
|
|
|
|
|
|
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
generally 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, 2008 and 2007, the 10 largest customers
in the aggregate accounted for 58% and 49%, 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.
F-25
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
(12)
|
Commitments
and Contingencies
|
Operating
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, 2008:
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
3,312
|
|
2010
|
|
|
1,771
|
|
2011
|
|
|
517
|
|
2012
|
|
|
346
|
|
2013
|
|
|
163
|
|
Thereafter
|
|
|
1,061
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
7,170
|
|
|
|
|
|
|
Total rent expense for the years ended December 31, 2008,
2007 and 2006 was approximately $4,598, $4,108, and $1,051,
respectively.
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 U.S. 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, 2008,
one recycling system was complete and placed into operation, and
approximately $742 remains to be expended in the form of capital
improvements to meet the second rinse water recycling system
requirement. 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, 2008 and 2007.
F-26
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Environmental
Matters
The process to manufacture PCBs 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 $908 and $879 as of
December 31, 2008 and 2007, 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, 2008, 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.
Standby
Letters of Credit
The Company maintains two letters of credit: a $1,000 standby
letter of credit expiring May 1, 2009 related to the lease
of one of its production facilities and a $764 standby letter of
credit expiring December 31, 2009 associated with its
insured workers compensation program.
|
|
(13)
|
Stock-Based
Compensation Plans
|
In 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, 2008, of the 2,110 options outstanding, 488
options were issued under the Plan and 1,622 options were issued
under the Prior Plan. Additionally, 818 RSUs were
outstanding under the Plan as of December 31, 2008,
F-27
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
which included 23 vested but not yet released RSUs associated
with non-employee directors. RSUs will vest over three years for
employees and one year for non-employee directors and 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 $6.81 and $7.33 for the years
ended December 31, 2008 and 2006, 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, 2008 and 2006 the
following assumptions were used in determining the fair value:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
2.9
|
%
|
|
|
4.7
|
%
|
Dividend yield
|
|
|
|
%
|
|
|
|
%
|
Expected volatility
|
|
|
69
|
%
|
|
|
65
|
%
|
Expected term in months
|
|
|
66
|
|
|
|
54
|
|
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 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, 2008, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2007
|
|
|
2,299
|
|
|
$
|
11.97
|
|
|
|
6.4
|
|
|
|
|
|
Granted
|
|
|
110
|
|
|
|
11.10
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(277
|
)
|
|
|
8.74
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(22
|
)
|
|
|
11.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
2,110
|
|
|
$
|
12.35
|
|
|
|
5.6
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
|
2,047
|
|
|
$
|
12.36
|
|
|
|
5.6
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
1,578
|
|
|
$
|
12.51
|
|
|
|
4.9
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
2008 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,
2008. 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, 2008, 2007 and
2006 was $1,433, $1,756 and $5,659, respectively. The total fair
value of the options vested for the years ended
December 31, 2008, 2007, and 2006 was $1,836, $2,061 and
$832, respectively. As of December 31, 2008, $2,340
F-28
TTM
TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
of total unrecognized compensation cost related to stock options
is expected to be recognized over a weighted-average period of
0.8 years.
A summary of options outstanding and options exercisable as of
December 31, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of Exercise
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|