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TTMI TTM

Filed: 5 May 21, 4:07pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2021

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                          

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.)

200 East Sandpointe, Suite 400, Santa Ana, California 92707

(Address of principal executive offices)

(714) 327-3000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

TTMI

Nasdaq Global Select Market

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Number of shares of common stock, $0.001 par value, of registrant outstanding at May 3, 2021: 107,189,462

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

PART I: FINANCIAL INFORMATION

 

3

Item 1. Financial Statements (unaudited)

 

3

Consolidated Condensed Balance Sheets as of March 29, 2021 and December 28, 2020

 

3

Consolidated Condensed Statements of Operations for the quarters ended March 29, 2021 and March 30, 2020

 

4

Consolidated Condensed Statements of Comprehensive Loss for the quarters ended March 29, 2021 and
March 30, 2020

 

5

Consolidated Condensed Statements of Stockholders' Equity for the quarters ended March 29, 2021 and
March 30, 2020

 

6

Consolidated Condensed Statements of Cash Flows for the quarters ended March 29, 2021 and March 30, 2020

 

7

Notes to Consolidated Condensed Financial Statements

 

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4. Controls and Procedures

 

30

PART II: OTHER INFORMATION

 

31

Item 1. Legal Proceedings

 

31

Item 1A. Risk Factors

 

31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

45

Item 6. Exhibits

 

46

SIGNATURES

 

47

 

2


 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TTM TECHNOLOGIES, INC.

Consolidated Condensed Balance Sheets

As of March 29, 2021 and December 28, 2020

 

 

 

As of

 

 

 

March 29,

 

 

December 28,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

(In thousands, except par value)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

539,648

 

 

$

451,565

 

Accounts receivable, net

 

 

366,768

 

 

 

381,105

 

Contract assets

 

 

271,702

 

 

 

273,256

 

Inventories

 

 

121,124

 

 

 

115,651

 

Prepaid expenses and other current assets

 

 

33,397

 

 

 

27,181

 

Total current assets

 

 

1,332,639

 

 

 

1,248,758

 

Property, plant and equipment, net

 

 

651,194

 

 

 

650,435

 

Operating lease right-of-use assets

 

 

21,383

 

 

 

24,340

 

Goodwill

 

 

637,324

 

 

 

637,324

 

Definite-lived intangibles, net

 

 

270,402

 

 

 

281,307

 

Deposits and other non-current assets

 

 

52,886

 

 

 

53,780

 

Total assets

 

$

2,965,828

 

 

$

2,895,944

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

336,739

 

 

$

327,102

 

Contract liabilities

 

 

3,486

 

 

 

4,254

 

Accrued salaries, wages and benefits

 

 

82,201

 

 

 

97,268

 

Other current liabilities

 

 

86,728

 

 

 

89,422

 

Total current liabilities

 

 

509,154

 

 

 

518,046

 

Long-term debt, net of discount and issuance costs

 

 

926,128

 

 

 

842,853

 

Operating lease liabilities

 

 

15,658

 

 

 

17,211

 

Other long-term liabilities

 

 

72,421

 

 

 

73,825

 

Total long-term liabilities

 

 

1,014,207

 

 

 

933,889

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 shares authorized, 107,113 and 106,770

   shares issued and outstanding as of March 29, 2021 and December 28, 2020,

   respectively

 

 

107

 

 

 

107

 

Additional paid-in capital

 

 

830,835

 

 

 

830,971

 

Retained earnings

 

 

648,652

 

 

 

651,844

 

Accumulated other comprehensive loss

 

 

(37,127

)

 

 

(38,913

)

Total stockholders’ equity

 

 

1,442,467

 

 

 

1,444,009

 

Total liabilities and stockholders' equity

 

$

2,965,828

 

 

$

2,895,944

 

 

See accompanying notes to consolidated condensed financial statements.

3


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Operations

For the Quarters Ended March 29, 2021 and March 30, 2020

 

 

 

Quarter Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

526,432

 

 

$

497,646

 

Cost of goods sold

 

 

444,832

 

 

 

416,304

 

Gross profit

 

 

81,600

 

 

 

81,342

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

16,282

 

 

 

16,169

 

General and administrative

 

 

31,527

 

 

 

34,667

 

Research and development

 

 

4,470

 

 

 

4,762

 

Amortization of definite-lived intangibles

 

 

9,521

 

 

 

9,562

 

Total operating expenses

 

 

61,800

 

 

 

65,160

 

Operating income

 

 

19,800

 

 

 

16,182

 

Other (expense) income:

 

 

 

 

 

 

 

 

Interest expense

 

 

(11,389

)

 

 

(19,781

)

Loss on extinguishment of debt

 

 

(15,217

)

 

 

 

Other, net

 

 

2,507

 

 

 

2,502

 

Total other expense, net

 

 

(24,099

)

 

 

(17,279

)

Loss from continuing operations before income taxes

 

 

(4,299

)

 

 

(1,097

)

Income tax benefit (provision)

 

 

1,107

 

 

 

(2,123

)

Net loss from continuing operations

 

 

(3,192

)

 

 

(3,220

)

Income from discontinued operations, net of income taxes

 

 

 

 

 

2,046

 

Net loss

 

$

(3,192

)

 

$

(1,174

)

 

 

 

 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

Basic loss per share from continuing operations

 

$

(0.03

)

 

$

(0.03

)

Basic earnings per share from discontinued operations

 

 

 

 

 

0.02

 

Basic loss per share

 

$

(0.03

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

Diluted loss per share from continuing operations

 

$

(0.03

)

 

$

(0.03

)

Diluted earnings per share from discontinued operations

 

 

 

 

 

0.02

 

Diluted loss per share

 

$

(0.03

)

 

$

(0.01

)

 

See accompanying notes to consolidated condensed financial statements.

 

4


 

 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Comprehensive Loss

For the Quarters Ended March 29, 2021 and March 30, 2020

 

 

 

Quarter Ended

 

 

 

March 29,

 

 

March 30,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Net loss

 

$

(3,192

)

 

$

(1,174

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Pension obligation adjustments, net

 

 

 

 

 

27

 

Foreign currency translation adjustments, net

 

 

(3

)

 

 

(367

)

Net unrealized losses on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized loss on effective cash flow hedges during

     the period, net

 

 

(263

)

 

 

(6,018

)

Loss realized in the statement of operations, net

 

 

2,052

 

 

 

860

 

Net

 

 

1,789

 

 

 

(5,158

)

Other comprehensive income (loss), net of tax

 

 

1,786

 

 

 

(5,498

)

Comprehensive loss, net of tax

 

$

(1,406

)

 

$

(6,672

)

 

See accompanying notes to consolidated condensed financial statements.

5


 

 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Stockholders’ Equity

For the Quarters Ended March 29, 2021 and March 30, 2020

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Balance, December 28, 2020

 

 

106,770

 

 

$

107

 

 

$

830,971

 

 

$

651,844

 

 

$

(38,913

)

 

$

1,444,009

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,192

)

 

 

 

 

 

(3,192

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,786

 

 

 

1,786

 

Issuance of common stock for

   performance-based

   restricted stock units

 

 

135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for

   restricted stock units

 

 

203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of warrants

   reclassified to

   warrant liabilities

 

 

 

 

 

 

 

 

(4,345

)

 

 

 

 

 

 

 

 

(4,345

)

Issuance of common stock from

   warrant exercises

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,209

 

 

 

 

 

 

 

 

 

4,209

 

Balance, March 29, 2021

 

 

107,113

 

 

$

107

 

 

$

830,835

 

 

$

648,652

 

 

$

(37,127

)

 

$

1,442,467

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Balance, December 30, 2019

 

 

105,510

 

 

$

106

 

 

$

814,708

 

 

$

474,309

 

 

$

(10,086

)

 

$

1,279,037

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,174

)

 

 

 

 

 

(1,174

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,498

)

 

 

(5,498

)

Issuance of common stock for

   performance-based

   restricted stock units

 

 

187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for

   restricted stock units

 

 

520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,835

 

 

 

 

 

 

 

 

 

4,835

 

Balance, March 30, 2020

 

 

106,217

 

 

$

106

 

 

$

819,543

 

 

$

473,135

 

 

$

(15,584

)

 

$

1,277,200

 

 

See accompanying notes to consolidated condensed financial statements.

6


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Cash Flows

For the Quarters Ended March 29, 2021 and March 30, 2020

 

 

 

 

Quarter Ended

 

 

March 29, 2021

 

 

March 30, 2020

 

 

 

 

(Unaudited)

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,192

)

 

$

(1,174

)

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

21,476

 

 

 

42,632

 

 

Amortization of definite-lived intangible assets

 

 

10,905

 

 

 

11,620

 

 

Amortization of debt discount and issuance costs

 

 

537

 

 

 

3,552

 

 

Loss on extinguishment of debt

 

 

15,217

 

 

 

 

 

Deferred income taxes

 

 

683

 

 

 

(353

)

 

Stock-based compensation

 

 

4,209

 

 

 

4,835

 

 

Other

 

 

(534

)

 

 

876

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

14,337

 

 

 

45,019

 

 

Contract assets

 

 

1,554

 

 

 

1,572

 

 

Inventories

 

 

(5,473

)

 

 

(7,573

)

 

Prepaid expenses and other current assets

 

 

(6,495

)

 

 

(5,959

)

 

Accounts payable

 

 

10,885

 

 

 

(52,791

)

 

Contract liabilities

 

 

(768

)

 

 

(262

)

 

Accrued salaries, wages and benefits

 

 

(15,067

)

 

 

(16,382

)

 

Other current liabilities

 

 

(7,129

)

 

 

2,301

 

 

Net cash provided by operating activities

 

 

41,145

 

 

 

27,913

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Refundable deposit related to sale of the Mobility business unit

 

 

 

 

 

35,342

 

 

Purchase of property, plant and equipment and other assets

 

 

(21,797

)

 

 

(32,451

)

 

Proceeds from sale of property, plant and equipment and other assets

 

 

831

 

 

 

 

 

Net cash (used in) provided by investing activities

 

 

(20,966

)

 

 

2,891

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from long-term debt borrowing

 

 

500,000

 

 

 

 

 

Repayment of long-term debt borrowings

 

 

(425,838

)

 

 

 

 

Payment of debt issuance costs

 

 

(4,773

)

 

 

 

 

Other

 

 

(1,309

)

 

 

 

 

Net cash provided by financing activities

 

 

68,080

 

 

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

 

 

(176

)

 

 

(521

)

 

Net increase in cash and cash equivalents

 

 

88,083

 

 

 

30,283

 

 

Cash and cash equivalents at beginning of period

 

 

451,565

 

 

 

400,154

 

 

Cash and cash equivalents at end of period

 

 

539,648

 

 

 

430,437

 

 

Cash and cash equivalents in assets held for sale

 

 

 

 

 

(68,445

)

 

Cash and cash equivalents as presented on the consolidated condensed balance sheet

 

$

539,648

 

 

$

361,992

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid, net for interest

 

$

15,244

 

 

$

10,455

 

 

Cash paid, net for income taxes

 

 

713

 

 

 

4,367

 

 

Net cash provided by operating activities from discontinued operations

 

 

 

 

 

21,286

 

 

Net cash provided by investing activities from discontinued operations

 

 

 

 

 

26,823

 

 

Net cash used in financing activities from discontinued operations

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

 

Property, plant and equipment recorded in accounts payable

 

$

28,960

 

 

$

46,784

 

 

Issuance of common stock for warrant settlement

 

 

68

 

 

 

 

 

Supplemental disclosure of noncash investing activities from discontinued operations:

 

 

 

 

 

 

 

 

 

Property, plant and equipment recorded in accounts payable

 

$

 

 

$

6,673

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

7


 

TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

(Dollars and shares in thousands, except per share data)

(1) Nature of Operations and Basis of Presentation

TTM Technologies, Inc. (the Company or TTM) is a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically advanced PCBs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency (RF) and microwave components and assemblies. The Company provides time-to-market and volume production of advanced technology products and offers a one-stop design, engineering and manufacturing solution to customers. This one-stop design, engineering and manufacturing solution allows the Company to align technology developments with the diverse needs of the Company’s customers and to enable them to reduce the time required to develop new products and bring them to market.

The Company serves a diversified customer base in various markets throughout the world, including aerospace and defense, data center computing, automotive components, medical, industrial and instrumentation related products, as well as networking/communications infrastructure products. The Company’s customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers.

The accompanying consolidated condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated condensed financial statements and accompanying notes. Due to the coronavirus (COVID-19) global pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. Actual results could differ materially from those estimates. The Company uses a 13-week fiscal quarter accounting period with the fourth quarter ending on the Monday nearest December 31.

On January 19, 2020, the Company entered into a definitive equity interests purchase agreement with AKMMeadville Electronics (Xiamen) Co., Ltd (the Purchaser) for the sale of the Company’s following subsidiaries, which was completed on April 17, 2020: Shanghai Kaiser Electronics Co., Ltd. (SKE), Shanghai Meadville Electronics Co., Ltd. (SME), Shanghai Meadville Science & Technology Co., Ltd. (SP) and Guangzhou Meadville Electronics Co., Ltd. (GME) (collectively, the Mobility business unit). For all periods presented in the consolidated condensed statements of operations, all sales, costs, expenses, income taxes and gain on sale attributable to the Mobility business unit have been aggregated under the caption “Income (loss) from discontinued operations, net of income taxes”. Refer to Note 2, Discontinued Operations, for additional information.

Unless otherwise noted, amounts and disclosures throughout these notes to consolidated condensed financial statements relate to continuing operations. These consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Reclassifications

The Company currently has 2 reportable segments: PCB and RF and Specialty Components (RF&S Components). In fiscal 2020, subsequent to the quarter ended March 30, 2020, RF&S Components was added as a reportable segment. As a result, the Company had 3 reportable segments as of December 28, 2020: PCB, RF&S Components, and E-M Solutions. On April 29, 2020, the Company announced the restructuring of its E-M Solutions business unit. In prior periods, the Company’s E-M Solutions business unit consisted of 3 Chinese manufacturing facilities with 2 being in Shanghai (SH BPA and SH E-MS) and 1 in Shenzhen (SZ). The Company closed the SH E-MS and SZ facilities at the end of 2020 and integrated the SH BPA facility into its PCB operations. As of March 29, 2021, E-M Solutions no longer meets the criteria for segment reporting. As a result of the addition of the RF&S Components reportable segment and the restructuring of the E-M Solutions business unit, certain prior year amounts have been reclassified to conform to this new presentation.

Recently Adopted and Issued Accounting Standards

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes.

8


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU as of December 29, 2020 and it did not have a material impact on its consolidated condensed financial statements and related disclosures.

 

(2) Discontinued Operations

On January 19, 2020, the Company entered into a definitive equity interests purchase agreement for the sale of the Company’s Mobility business unit. The sale was completed on April 17, 2020 for a base purchase price of $550,000, subject to customary purchase price adjustments. The base purchase price does not include certain accounts receivable of the divested business, which were estimated to total approximately $95,000. Subsequently, the final purchase price was $569,246 after customary purchase price adjustments, which did not include approximately $83,000 accounts receivable of the divested business.

On April 18, 2020, the Company entered into a Transition Services Agreement (TSA) with the Purchaser pursuant to which the Purchaser is receiving certain services (the Services) to enable it to operate the Mobility business unit after the closing of the sale of the Mobility business unit. The Services include finance and accounting, human resources, legal and compliance, sales, information technology, and other corporate support services. Under the TSA, the Services are being provided at cost for a period of up to 24 months. In addition, the Company entered into a Manufacturing Supply Agreement with the Purchaser pursuant to which the Purchaser will supply products to a few customers of the Company. There was no material impact on the Company’s consolidated condensed financial statements.

Further, on June 29, 2020, the Company entered into a Sales Force Agreement with the Purchaser pursuant to which the Company’s sales representatives assist the Purchaser in selling PCBs manufactured by the Purchaser to certain customers for a commission for a period up to April 17, 2021. There was no material impact on the Company’s consolidated condensed financial statements.

As the sale of the Company’s Mobility business unit represents a strategic shift that will have a major effect on the Company’s operations and financial results, in accordance with the provisions of FASB authoritative guidance on the presentation of financial statements, Mobility business unit results are classified as discontinued operations in the consolidated condensed statements of operations for all periods presented.

9


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The following table summarizes the results of Mobility operations for the quarter ended March 30, 2020 prior to sale:

 

 

 

Quarter Ended

 

 

 

March 30,

 

 

 

2020

 

 

 

(In thousands)

 

Net sales

 

$

113,174

 

Cost of goods sold

 

 

108,425

 

Gross profit

 

 

4,749

 

Operating expenses:

 

 

 

 

Selling and marketing

 

 

1,176

 

General and administrative

 

 

1,310

 

Research and development

 

 

147

 

Amortization of definite-lived intangibles

 

 

675

 

Total operating expenses

 

 

3,308

 

Operating income

 

 

1,441

 

Other (expense) income:

 

 

 

 

Interest expense

 

 

(223

)

Other, net

 

 

1,571

 

Total other income, net

 

 

1,348

 

Income from discontinued operations

     before income taxes

 

 

2,789

 

Income tax provision

 

 

(743

)

Income from discontinued operations,

     net of income taxes

 

$

2,046

 

 

 

 

 

 

Earnings per share from discontinued operations:

 

 

 

 

Basic earnings per share

 

$

0.02

 

Diluted earnings per share

 

$

0.02

 

 

Depreciation expense related to the discontinued operations for the quarter ended March 30, 2020 was $18,265.

(3) Leases

The Company leases some of its manufacturing and assembly plants, sales offices and equipment under non-cancellable operating leases that expire at various dates through 2049. The majority of the Company’s lease arrangements are comprised of fixed payments and certain leases consist of variable payments based on equipment usage. These variable payments are not included in the measurement of the right-of-use (ROU) asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. Certain leases contain renewal provisions at the Company’s 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 lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease expense were as follows:

 

 

 

Quarter Ended

 

 

 

March 29, 2021

 

 

March 30, 2020

 

 

 

(In thousands)

 

Operating lease cost

 

$

2,208

 

 

$

2,481

 

Variable lease cost

 

 

234

 

 

 

106

 

Short-term lease cost

 

 

54

 

 

 

229

 

10


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Quarter Ended

 

 

 

March 29, 2021

 

 

March 30, 2020

 

 

 

(In thousands)

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2,159

 

 

$

2,171

 

Right-of-use assets obtained in exchange for new lease obligations:

 

 

 

 

 

 

 

 

Operating leases

 

 

284

 

 

 

1,876

 

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

As of

 

 

 

March 29, 2021

 

 

December 28, 2020

 

 

 

(In thousands)

 

Operating lease right-of-use assets

 

$

21,383

 

 

$

24,340

 

Other current liabilities

 

 

6,609

 

 

 

8,144

 

Operating lease liabilities

 

 

15,658

 

 

 

17,211

 

Total operating lease liabilities

 

$

22,267

 

 

$

25,355

 

 

 

 

As of

 

 

 

March 29, 2021

 

 

December 28, 2020

 

Weighted average remaining lease term

 

4.4 years

 

 

4.2 years

 

Weighted average discount rate

 

 

3.29

%

 

 

3.31

%

 

Maturities of operating lease liabilities were as follows (1):

 

 

 

(In thousands)

 

Less than one year

 

$

7,214

 

1 - 2 years

 

 

5,015

 

2 - 3 years

 

 

4,309

 

3 - 4 years

 

 

3,370

 

4 - 5 years

 

 

2,123

 

Thereafter

 

 

1,902

 

Total lease payments

 

 

23,933

 

Less imputed interest

 

 

(1,666

)

Total

 

$

22,267

 

 

 

(1)

Excludes $851 of legally binding minimum lease payments for leases signed but not yet commenced.

 

(4) Revenues

As of March 29, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations for long-term contracts was $12,850. The Company expects to recognize revenue on approximately 100% of the remaining performance obligations for the Company’s long-term contracts over the next twelve months.

Revenue from products and services transferred to customers over time and at a point in time accounted for 98% and 2%, respectively, of the Company’s revenue for the both the quarters ended March 29, 2021 and March 30, 2020.

11


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The following tables represent a disaggregation of revenue by principal end markets with the reportable segments:

 

 

 

Quarter Ended March 29, 2021

 

 

 

 

PCB

 

 

RF&S Components

 

 

Other (1)

 

 

Total

 

 

End Markets

 

(In thousands)

 

 

Aerospace and Defense

 

$

186,539

 

 

$

6

 

 

$

 

 

$

186,545

 

 

Automotive

 

 

91,792

 

 

 

 

 

 

3,642

 

 

 

95,434

 

 

Data Center Computing (2)

 

 

71,759

 

 

 

432

 

 

 

 

 

 

72,191

 

 

Medical/Industrial/Instrumentation

 

 

90,770

 

 

 

1,081

 

 

 

25

 

 

 

91,876

 

 

Networking/Communications

 

 

66,938

 

 

 

10,653

 

 

 

1

 

 

 

77,592

 

 

Other

 

 

2,688

 

 

 

518

 

 

 

(412

)

 

 

2,794

 

 

Total

 

$

510,486

 

 

$

12,690

 

 

$

3,256

 

 

$

526,432

 

 

 

 

 

Quarter Ended March 30, 2020

 

 

 

 

PCB

 

 

RF&S Components

 

 

Other (1)

 

 

Total

 

 

End Markets

 

(In thousands)

 

 

Aerospace and Defense

 

$

184,414

 

 

$

 

 

$

 

 

$

184,414

 

 

Automotive

 

 

61,858

 

 

 

 

 

 

7,013

 

 

 

68,871

 

 

Cellular Phone

 

 

2,775

 

 

 

 

 

 

 

 

 

2,775

 

 

Data Center Computing (2)

 

 

58,114

 

 

 

203

 

 

 

54

 

 

 

58,371

 

 

Medical/Industrial/Instrumentation

 

 

90,468

 

 

 

794

 

 

 

3,320

 

 

 

94,582

 

 

Networking/Communications

 

 

70,433

 

 

 

8,067

 

 

 

4,195

 

 

 

82,695

 

 

Other

 

 

5,940

 

 

 

377

 

 

 

(379

)

 

 

5,938

 

 

Total

 

$

474,002

 

 

$

9,441

 

 

$

14,203

 

 

$

497,646

 

 

 

(1)

Other represents SH E-MS and SZ results.

(2)

In the current period, the Computing/Storage/Peripherals end market was renamed to Data Center Computing to better reflect the customer mix and growth prospects. There was no change to the customers included in this end market.

12


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

(5) Composition of Certain Consolidated Condensed Financial Statement Captions

 

 

 

As of

 

 

 

March 29, 2021

 

 

December 28, 2020

 

 

 

(In thousands)

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

108,271

 

 

$

103,890

 

Work-in-process

 

 

9,259

 

 

 

7,841

 

Finished goods

 

 

3,594

 

 

 

3,920

 

 

 

$

121,124

 

 

$

115,651

 

Property, plant and equipment, net:

 

 

 

 

 

 

 

 

Land and land use rights

 

$

62,061

 

 

$

61,781

 

Buildings and improvements

 

 

402,361

 

 

 

398,540

 

Machinery and equipment

 

 

840,249

 

 

 

832,723

 

Furniture and fixtures and other

 

 

10,198

 

 

 

10,304

 

Construction-in-progress

 

 

36,911

 

 

 

33,191

 

 

 

 

1,351,780

 

 

 

1,336,539

 

Less: Accumulated depreciation

 

 

(700,586

)

 

 

(686,104

)

 

 

$

651,194

 

 

$

650,435

 

Other current liabilities:

 

 

 

 

 

 

 

 

Sales returns and allowances

 

$

12,669

 

 

$

13,015

 

Income taxes payable

 

 

5,553

 

 

 

2,428

 

Warrant liabilities

 

 

4,070

 

 

 

 

Restructuring

 

 

3,184

 

 

 

7,382

 

Interest

 

 

3,051

 

 

 

7,157

 

Other

 

 

58,201

 

 

 

59,440

 

 

 

$

86,728

 

 

$

89,422

 

Other long-term liabilities:

 

 

 

 

 

 

 

 

Deferred income taxes

 

$

23,782

 

 

$

23,704

 

Derivative liabilities

 

 

12,579

 

 

 

14,968

 

Defined benefit pension plan liability

 

 

9,605

 

 

 

9,986

 

Other

 

 

26,455

 

 

 

25,167

 

 

 

$

72,421

 

 

$

73,825

 

 

(6) Goodwill

As of March 29, 2021 and December 28, 2020, goodwill by reportable segment was as follows:

 

 

PCB

 

RF&S Components

 

Total

 

 

 

(In thousands)

 

Balance as of December 28, 2020 and March 29, 2021

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

700,724

 

$

177,200

 

$

877,924

 

Accumulated impairment losses

 

 

(171,400

)

 

(69,200

)

 

(240,600

)

 

 

$

529,324

 

$

108,000

 

$

637,324

 

 

13


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

(7) Definite-lived Intangibles

As of March 29, 2021 and December 28, 2020, the components of definite-lived intangibles were as follows:

 

 

Gross

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Weighted

Average

Amortization

Period

 

 

 

(In thousands)

 

 

(In years)

 

March 29, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

397,500

 

 

$

(159,663

)

 

$

237,837

 

 

 

10.9

 

Technology

 

 

47,650

 

 

 

(15,085

)

 

 

32,565

 

 

 

9.5

 

 

 

$

445,150

 

 

$

(174,748

)

 

$

270,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 28, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

397,500

 

 

$

(150,142

)

 

$

247,358

 

 

 

10.9

 

Technology

 

 

47,650

 

 

 

(13,701

)

 

 

33,949

 

 

 

9.5

 

 

 

$

445,150

 

 

$

(163,843

)

 

$

281,307

 

 

 

 

 

Definite-lived intangibles are amortized using the straight-line method of amortization over the useful life. Amortization expense was $10,905 and $10,945 for the quarters ended March 29, 2021 and March 30, 2020, respectively. For the quarters ended March 29, 2021 and March 30, 2020, $1,384 and $1,383, respectively, of amortization expense is included in cost of goods sold.

Estimated aggregate amortization for definite-lived intangible assets for the next five years and thereafter is as follows:

 

 

 

(In thousands)

 

Remaining 2021

 

$

30,274

 

2022

 

 

38,631

 

2023

 

 

36,713

 

2024

 

 

29,713

 

2025

 

 

25,397

 

Thereafter

 

 

109,674

 

 

 

$

270,402

 

 

(8) Long-term Debt and Letters of Credit

The following table summarizes the long-term debt of the Company as of March 29, 2021 and December 28, 2020:

 

 

Interest Rate as of

March 29, 2021

 

 

Principal

Outstanding

as of

March 29, 2021

 

 

Interest Rate as of

December 28, 2020

 

 

Principal

Outstanding

as of

December 28, 2020

 

 

 

(In thousands)

 

Senior Notes due March 2029

 

 

4.00

 

%

$

500,000

 

 

 

 

%

$

 

Term Loan due September 2024

 

 

2.61

 

 

 

405,879

 

 

 

2.65

 

 

 

405,879

 

Senior Notes due October 2025

 

 

 

 

 

 

 

 

5.63

 

 

 

375,000

 

U.S. ABL Revolving Loan due June 2024

 

 

 

 

 

 

 

 

1.40

 

 

 

40,000

 

Asia ABL Revolving Loan due June 2024

 

 

1.51

 

 

 

30,000

 

 

 

1.55

 

 

 

30,000

 

 

 

 

 

 

 

 

935,879

 

 

 

 

 

 

 

850,879

 

Less: Long-term debt unamortized discount

 

 

 

 

 

 

(763

)

 

 

 

 

 

 

(814

)

Long-term debt unamortized debt

issuance costs

 

 

 

 

 

 

(8,988

)

 

 

 

 

 

 

(7,212

)

 

 

 

 

 

 

 

926,128

 

 

 

 

 

 

 

842,853

 

Less: current maturities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

 

 

 

$

926,128

 

 

 

 

 

 

$

842,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company has twelve months from September 3, 2020 to reinvest the cash proceeds received from the sale of the Mobility business unit. If the proceeds are not reinvested, the Company is required to use the proceeds to prepay the Term Loan. The Company used a portion of the cash proceeds to repay $400,000 of the Term Loan during the year ended December 28, 2020 and plans to use

14


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

the remaining cash proceeds for reinvestment. Permitted investments, as defined in the Term Loan Credit Agreement, include extensions of trade credit in the ordinary course of business, investments in cash and cash equivalents, permitted acquisitions, investments in assets useful in the business of the Company and its restricted subsidiaries, investments in joint ventures and unrestricted subsidiaries among others.

 

Senior Notes due 2029

On March 10, 2021, the Company issued $500,000 of Senior Notes due 2029, which are included in long-term debt and bear interest at a rate of 4.0% per annum. Interest is payable semiannually in arrears on March 1 and September 1 of each year beginning September 1, 2021. The Senior Notes due 2029 will mature on March 1, 2029.

The Company used a portion of the net proceeds from the issuance of the Senior Notes due 2029 during the quarter ended March 29, 2021 to: (i) fund the early retirement of $375,000 Senior Notes due 2025, (ii) fund the repayment of $40,000 outstanding under the U.S. Asset-Based Lending Credit Agreement (U.S. ABL) Revolving credit facility (but not terminate the commitments thereunder), and (iii) pay related premiums, fees and expenses. The Company intends to use the remaining net proceeds for general corporate purposes.

Asset-Based Lending Agreements

As of March 29, 2021, letters of credit in the amount of $10,753 were outstanding under the U.S. ABL and $11,721 were outstanding under the Asia ABL with various expiration dates through July 2021. Available borrowing capacity under the U.S. ABL and the Asia ABL was $139,247 and $108,279, respectively, which considers letters of credit outstanding as of March 29, 2021.

 

Debt Covenants

Borrowings under the Term Loan and Senior Notes due 2029 are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments, dispositions, and share payments.

Under the occurrence of certain events, the U.S. ABL and Asia Asset-Based Lending Credit Agreement (Asia ABL) (collectively, the ABL Revolving Loans), are subject to various financial covenants, including leverage and fixed charge coverage ratios.

Debt Issuance and Debt Discount

As of March 29, 2021 and December 28, 2020, remaining unamortized debt discount and debt issuance costs for the Senior Notes due 2029, Term Loan Facility and Senior Notes due 2025 are as follows:

 

 

 

As of March 29, 2021

 

 

As of December 28, 2020

 

 

Debt

Issuance Costs

 

 

Debt

Discount

 

 

Effective

Interest Rate

 

 

Debt

Issuance Costs

 

 

Debt

Discount

 

 

Effective

Interest Rate

 

 

 

 

(In thousands, except interest rates)

Senior Notes due March 2029

 

$

6,462

 

 

$

 

 

 

4.19

 

%

$

 

 

$

 

 

 

 

%

Term Loan due September 2024

 

 

2,526

 

 

 

763

 

 

 

4.66

 

 

 

2,695

 

 

 

814

 

 

 

4.66

 

 

Senior Notes due October 2025

 

 

 

 

 

 

 

 

 

4,517

 

 

 

 

 

5.92

 

 

 

 

$

8,988

 

 

$

763

 

 

 

 

 

 

$

7,212

 

 

$

814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The above debt discount and debt issuance costs are recorded as a reduction of the debt and are amortized into interest expense using an effective interest rate over the duration of the debt.

Remaining unamortized debt issuance costs for the ABL Revolving Loans of $1,778 and $1,919 as of March 29, 2021 and December 28, 2020, respectively, are included in other non-current assets and are amortized to interest expense over the duration of the ABL Revolving Loans using the straight-line method of amortization.

As of March 29, 2021, the remaining weighted average amortization period for all unamortized debt discount and debt issuance costs was 5.9 years.

 

Loss on Extinguishment of Debt

During the quarter ended March 29, 2021, the Company recognized losses of $15,217 associated with the premium paid on extinguishment of debt and the write-off of the remaining unamortized debt issuance costs as a result of the repayment of the remaining outstanding balance of the Senior Notes due 2025.

15


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

(9) Income Taxes

The Company’s effective tax rate is impacted by tax rates in China and Hong Kong, the U.S. federal income tax rate, apportioned state income tax rates, generation of credits and deductions available to the Company as well as changes in valuation allowances and certain non-deductible items. Additionally, 0 tax benefit was recorded on the losses incurred in certain foreign jurisdictions as a result of corresponding increases in the valuation allowances in these jurisdictions.

During the quarter ended March 29, 2021, the Company’s effective tax rate was impacted by a net discrete benefit of $383. This benefit resulted from the approval of the Company’s renewal application for High and New Tax Enterprise status for two of the Company’s manufacturing subsidiaries in China, including the impact on the respective Company’s deferred tax amounts, partially offset by tax expense on stock based compensation releases and the accrued interest expense on existing uncertain tax positions.

The Company has various foreign subsidiaries formed or acquired to conduct or support its business outside the United States. The Company expects its earnings attributable to most foreign subsidiaries may be repatriated back to the U.S. and so a deferred tax liability has been recorded for foreign withholding and the estimated federal/state tax impact. For those other companies with earnings currently being reinvested outside of the U.S., 0 deferred tax liabilities on undistributed earnings are recorded.

(10) Financial Instruments

Derivatives

Interest Rate Swaps

The Company’s business is exposed to interest rate risk resulting from fluctuations in interest rates on certain LIBOR-based variable rate debt. Increases in interest rates would increase interest expenses relating to the outstanding variable rate borrowings and increase the cost of debt. Fluctuations in interest rates can also lead to significant fluctuations in the fair value of the debt obligations.

On May 15, 2018, the Company entered into a four-year pay-fixed, receive floating (1-month LIBOR), interest rate swap arrangement with a notional amount of $400,000 for the period beginning June 1, 2018 and ending on June 1, 2022. Under the terms of the interest rate swap, the Company pays a fixed rate of 2.84% against a portion of its LIBOR-based debt and receives floating 1-month LIBOR during the swap period.

At inception, the Company designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was 0. As of March 29, 2021, the fair value of the interest rate swap was recorded as a liability in the amount of $12,579 and included as a component of other long-term liabilities. The change in the fair value of the interest rate swap is recorded as a component of accumulated other comprehensive loss, net of tax. NaN ineffectiveness was recognized for the quarters ended March 29, 2021 and March 30, 2020. The interest rate swap increased interest expense by $2,740 and $1,175 for the quarters ended March 29, 2021 and March 30, 2020, respectively.

Foreign Exchange Contracts

The Company enters into foreign currency forward contracts to mitigate the impact of changes in foreign currency exchange rates and to reduce the volatility of purchases and other obligations generated in currencies other than its functional currencies. The Company’s foreign subsidiaries may at times purchase forward exchange contracts to manage their foreign currency risks in relation to certain purchases of machinery denominated in foreign currencies other than the Company’s functional currencies. The notional amount of the foreign exchange contracts as of March 29, 2021 and December 28, 2020 was approximately $1,852 (Japanese Yen (JPY) 196.3 million) and $1,181 (JPY 125.0 million), respectively. The Company has designated certain of these foreign exchange contracts as cash flow hedges.

The fair values of derivative instruments in the consolidated condensed balance sheets are as follows:

 

 

 

 

Asset/(Liability) Fair Value

 

 

 

Balance Sheet Location

 

March 29, 2021

 

 

December 28, 2020

 

 

 

 

 

(In thousands)

 

Cash flow derivative instruments designated as hedges:

 

 

 

 

 

 

 

 

Interest rate swap

 

Other long-term liabilities

 

$

(12,579

)

 

$

(14,968

)

Cash flow derivative instruments not designated as hedges:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and other current assets

 

 

 

 

 

28

 

Foreign exchange contracts

 

Other current liabilities

 

 

56

 

 

 

 

16


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

The following table provides information about the amounts recorded in accumulated other comprehensive loss related to derivatives designated as cash flow hedges, as well as the amounts recorded in each caption in the consolidated condensed statements of operations when derivative amounts are reclassified out of accumulated other comprehensive loss for the quarters ended March 29, 2021 and March 30, 2020:

 

 

 

Quarter Ended March 29, 2021

 

 

Quarter Ended March 30, 2020

 

 

 

 

Financial

Statement

Caption

Loss Recognized

in Other

Comprehensive Loss

 

 

Loss

Reclassified

into Income

 

 

Loss Recognized

in Other

Comprehensive Loss

 

 

Loss

Reclassified

into Income

 

 

 

 

 

(In thousands)

Cash flow hedge:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

Interest expense

$

(351

)

 

$

(2,740

)

 

$

(8,449

)

 

$

(1,175

)

 

 

The following table provides a summary of the activity associated with the designated cash flow hedges reflected in accumulated other comprehensive loss for the quarters ended March 29, 2021 and March 30, 2020:

 

 

Quarter Ended

 

 

March 29,

 

 

March 30,

 

 

 

 

2021

 

 

2020

 

 

 

 

(In thousands)

Beginning balance, net of tax

 

$

(11,231

)

 

$

(9,617

)

 

Changes in fair value loss, net of tax

 

 

(263

)

 

 

(6,018

)

 

Reclassification to earnings

 

 

2,052

 

 

 

860

 

 

Ending balance, net of tax

 

$

(9,442

)

 

$

(14,775

)

 

Based on the current yield curve, the Company expects that losses of approximately $8,092 of the accumulated other comprehensive loss will be reclassified into the statement of operations, net of tax, in the next twelve months.

 

(11) Accumulated Other Comprehensive Loss

The following provides a summary of the components of accumulated other comprehensive loss, net of tax, as of March 29, 2021 and December 28, 2020:

 

 

 

Foreign

Currency

Translation

 

 

Pension

Obligation

 

 

(Losses) Gains

on Cash Flow

Hedges

 

 

Total

 

 

 

(In thousands)

 

Ending balance as of December 28, 2020

 

$

(24,827

)

 

$

(2,855

)

 

$

(11,231

)

 

$

(38,913

)

Other comprehensive loss

    before reclassifications

 

 

(3

)

 

 

 

 

 

(263

)

 

 

(266

)

Amounts reclassified from accumulated

   other comprehensive loss

 

 

 

 

 

 

 

 

2,052

 

 

 

2,052

 

Other comprehensive (loss) income

 

 

(3

)

 

 

 

 

 

1,789

 

 

 

1,786

 

Ending balance as of March 29, 2021

 

$

(24,830

)

 

$

(2,855

)

 

$

(9,442

)

 

$

(37,127

)

 

(12) Significant Customers and Concentration of Credit Risk

In the normal course of business, the Company extends credit to its customers. Some customers to which the Company extends credit are located outside the United States. The Company performs ongoing credit evaluations of customers, does not require collateral, and considers the credit risk profile of the entity from which the receivable is due in further evaluating collection risk.

The Company’s customers include both OEMs and EMS companies. The Company’s OEM customers often direct a significant portion of their purchases through EMS companies. While the Company’s customers include both OEM and EMS providers, the Company measures customer concentration based on OEM companies, as they are the ultimate end customers.

For the quarter ended March 29, 2021, other than 1 customer that accounted for approximately 13% of the Company’s net sales, there were no other customers that accounted for 10% or more of net sales. For the quarter ended March 30, 2020, there were 0 customers that accounted for 10% or more of net sales.

17


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

(13) Fair Value Measures

The Company measures at fair value its financial and non-financial assets by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability.

The carrying amount and estimated fair value of the Company’s financial instruments as of March 29, 2021 and December 28, 2020 were as follows:

 

 

 

As of

 

 

As of

 

 

 

March 29, 2021

 

 

December 28, 2020

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

(In thousands)

 

Derivative assets, current

 

$

 

 

$

 

 

$

28

 

 

$

28

 

Derivative liabilities, current

 

 

56

 

 

 

56

 

 

 

 

 

 

 

Derivative liabilities, non-current

 

 

12,579

 

 

 

12,579

 

 

 

14,968

 

 

 

14,968

 

Warrant liabilities, current

 

 

4,070

 

 

 

4,070

 

 

 

 

 

 

 

Senior Notes due March 2029

 

 

493,538

 

 

 

493,425

 

 

 

 

 

 

 

Term Loan due September 2024

 

 

402,590

 

 

 

406,387

 

 

 

402,370

 

 

 

407,909

 

Senior Notes due October 2025

 

 

 

 

 

 

 

 

370,483

 

 

 

383,974

 

ABL Revolving Loans

 

 

30,000

 

 

 

30,000

 

 

 

70,000

 

 

 

70,000

 

The fair value of the derivative instruments was determined using pricing models developed based on the LIBOR swap rate, foreign currency exchange rates, and other observable market data, including quoted market prices, as appropriate using Level 2 inputs. The values were adjusted to reflect non-performance risk of both the counterparty and the Company, as necessary.

The fair value of the warrant liabilities was valued using the Black-Scholes model with the following weighted-average assumptions: expected term of 0.25 years, expected volatility of 35%, risk-free interest rate of 0.032%, and expected dividend yield of 0%. The inputs used in the warrant valuation are considered Level 3 inputs.

 

The fair value of the long-term debt was estimated based on quoted market prices or discounting the debt over its life using current market rates for similar debt as of March 29, 2021 and December 28, 2020, which are considered Level 2 inputs.

As of March 29, 2021 and December 28, 2020, the Company’s other financial instruments included cash and cash equivalents, accounts receivable, and accounts payable. Due to short-term maturities, the carrying amount of these instruments approximates fair value. The Company’s cash and cash equivalents as of March 29, 2021 consisted of $305,841 held in the U.S., with the remaining $233,807 held by foreign subsidiaries.

The majority of the Company’s non-financial assets and liabilities, which include goodwill, intangible assets, inventories, and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or are tested at least annually in the case of goodwill) such that a non-financial instrument is required to be evaluated for impairment, based upon a comparison of the non-financial instrument’s fair value to its carrying value, an impairment is recorded to reduce the carrying value to the fair value, if the carrying value exceeds the fair value.

(14) Commitments and Contingencies

Legal Matters

The Company is subject to various legal matters, which it considers normal for its business activities. While the Company currently believes that the amount of any reasonably possible loss for known matters would not be material to the Company’s 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 Company’s financial condition or results of operations in a particular period. The Company has accrued amounts for its loss contingencies which are probable and estimable as of March 29, 2021 and December 28, 2020. However, these amounts are not material to the consolidated condensed financial statements of the Company.

18


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

(15) Loss Per Share

The following is a reconciliation of the numerator and denominator used to calculate basic earnings per share and diluted earnings per share from continuing operations for the quarters ended March 29, 2021 and March 30, 2020:

 

 

 

Quarter Ended

 

 

 

March 29, 2021

 

 

March 30, 2020

 

 

 

(In thousands, except per share amounts)

 

Net loss from continuing operations

 

$

(3,192

)

 

$

(3,220

)

 

 

 

 

 

 

 

 

 

Basic weighted average shares

 

 

106,825

 

 

 

105,686

 

Dilutive effect of performance-based restricted stock units,

   restricted stock units and stock options

 

 

 

 

 

 

Diluted shares

 

 

106,825

 

 

 

105,686

 

Loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

 

$

(0.03

)

Diluted

 

$

(0.03

)

 

$

(0.03

)

 

For the quarter ended March 29, 2021, potential shares of common stock, consisting of stock options to purchase approximately 60 shares of common stock at exercise prices ranging from $11.83 to $16.60 per share, 2,897 restricted stock units (RSUs), and 289 performance-based restricted stock units (PRUs) were not included in the computation of diluted earnings per share because the Company incurred a net loss and as a result, the impact would be anti-dilutive. For the quarter ended March 30, 2020, potential shares of common stock, consisting of stock options to purchase approximately 100 shares of common stock at exercise prices ranging from $9.54 to $16.60 per share, 2,459 RSUs, and 216 PRUs were not included in the computation of diluted earnings per share because the Company incurred a net loss and, as a result, the impact would be anti-dilutive.

Outstanding warrants for the quarters ended March 29, 2021 and March 30, 2020, to purchase common stock were not included in the computation of dilutive earnings per share because the strike price of the warrants to purchase the Company’s common stock was greater than the average market price of common shares during the applicable quarter and because the Company incurred a net loss, and therefore, the effect would be anti-dilutive.

(16) Stock-Based Compensation

Stock-based compensation expense is recognized in the accompanying consolidated condensed statements of operations as follows:

 

 

 

Quarter Ended

 

 

March 29,

 

 

March 30,

 

 

 

 

2021

 

 

2020

 

 

 

 

(In thousands)

Cost of goods sold

 

$

1,165

 

 

$

850

 

 

Selling and marketing

 

 

646

 

 

 

451

 

 

General and administrative

 

 

2,355

 

 

 

3,477

 

 

Research and development

 

 

43

 

 

 

57

 

 

Stock-based compensation expense recognized

 

$

4,209

 

 

$

4,835

 

 

Summary of Unrecognized Compensation Costs

The following is a summary of total unrecognized compensation costs as of March 29, 2021:

 

 

 

Unrecognized Stock-Based Compensation Cost

 

 

Remaining Weighted Average

Recognition Period

 

 

 

(In thousands)

 

 

(In years)

 

RSU awards

 

$

17,102

 

 

 

1.4

 

PRU awards

 

 

3,974

 

 

 

1.4

 

Stock options

 

 

110

 

 

 

1.1

 

 

 

$

21,186

 

 

 

 

 

19


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

 

(17) Segment Information

The reportable segments shown below are the Company’s segments for which separate financial information is available and upon which operating results are evaluated by the chief operating decision maker to assess performance and to allocate resources. In fiscal 2020, subsequent to the quarter ended March 30, 2020, RF&S Components was added as a reportable segment. As a result, the Company had 3 reportable segments as of December 28, 2020: PCB, RF&S Components, and E-M Solutions. On April 29, 2020, the Company announced the restructuring of its E-M Solutions business unit. In prior periods, the Company’s E-M Solutions business unit consisted of 3 Chinese manufacturing facilities with 2 being in Shanghai (SH BPA and SH E-MS) and 1 in Shenzhen (SZ). The Company closed the SH E-MS and SZ facilities at the end of 2020 and integrated the SH BPA facility into its PCB operations. As of March 29, 2021, E-M Solutions no longer meets the criteria for segment reporting. As a result of the addition of the RF&S Components reportable segment and the restructuring of the E-M Solutions business unit, certain prior year amounts have been reclassified to conform to this new presentation.

The Company, including the chief operating decision maker, evaluates segment performance based on reportable segment income, which is operating income before amortization of intangibles. Interest expense and interest income are not presented by segment since they are not included in the measure of segment profitability reviewed by the chief operating decision maker. All inter-segment transactions have been eliminated.

 

 

 

Quarter Ended

 

 

 

March 29, 2021

 

 

March 30, 2020

 

 

 

(In thousands)

 

Net Sales:

 

 

 

 

 

 

 

 

PCB

 

$

510,486

 

 

$

474,002

 

RF&S Components

 

 

12,690

 

 

 

9,441

 

Other (1)

 

 

3,256

 

 

 

14,203

 

Total net sales

 

$

526,432

 

 

$

497,646

 

Operating Segment Loss:

 

 

 

 

 

 

 

 

PCB

 

$

57,232

 

 

$

60,238

 

RF&S Components

 

 

3,862

 

 

 

1,908

 

Corporate and Other (1)

 

 

(30,389

)

 

 

(35,019

)

Total operating segment income

 

 

30,705

 

 

 

27,127

 

Amortization of definite-lived intangibles (2)

 

 

(10,905

)

 

 

(10,945

)

Total operating income

 

 

19,800

 

 

 

16,182

 

Total other expense

 

 

(24,099

)

 

 

(17,279

)

Loss before income taxes

 

$

(4,299

)

 

$

(1,097

)

 

 

 

As of

 

 

 

March 29, 2021

 

 

December 28, 2020

 

 

 

(In thousands)

 

Segment Assets:

 

 

 

 

 

 

 

 

PCB

 

$

1,549,531

 

 

$

1,529,102

 

RF&S Components

 

 

225,233

 

 

 

227,990

 

Corporate and Other (1)

 

 

1,191,064

 

 

 

1,138,852

 

Total assets

 

$

2,965,828

 

 

$

2,895,944

 

 

(1)

Other represents SH E-MS and SZ results.

(2)

Amortization of definite-lived intangibles primarily relates to the PCB and RF&S Components reportable segments. For the quarters ended March 29, 2021 and March 30, 2020, $1,384 and $1,383, respectively, of amortization expense is included in cost of goods sold.

The Corporate category primarily includes operating expenses that are not included in the segment operating performance measures. Corporate consists primarily of corporate governance functions such as finance, accounting, information technology, facilities and human resources personnel, as well as global sales and marketing personnel, research and development costs, and acquisition and integration costs associated with acquisitions and divestitures.

20


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The Company markets and sells its products in approximately 46 countries. Other than in the United States and China, the Company does not conduct business in any country in which its net sales in that country exceed 10% of the Company’s total net sales. Net sales are as follows:

 

 

 

Quarter Ended

 

 

 

March 29, 2021

 

 

March 30, 2020

 

 

 

(In thousands)

 

Net Sales:

 

 

 

 

 

 

 

 

United States

 

$

268,467

 

 

$

262,279

 

China

 

 

81,709

 

 

 

74,929

 

Other

 

 

176,256

 

 

 

160,438

 

Total net sales

 

$

526,432

 

 

$

497,646

 

Net sales are attributed to countries by country invoiced.

(18) Restructuring Charges

On April 29, 2020, the Company announced the restructuring of its E-M Solutions business unit. The E-M Solutions business unit consisted of 3 Chinese manufacturing facilities with 2 being in Shanghai (SH BPA and SH E-MS) and 1 in Shenzhen (SZ). The Company ceased operations at the SH E-MS and SZ facilities while integrating the SH BPA facility into its PCB operations. The restructuring is another step in advancing the Company’s stated strategy of increasing its focus on differentiated higher margin products that more fully leverage the Company’s early engagement capabilities and industry leading engineering-based technology solutions. The Company closed the SH E-MS and SZ facilities at the end of 2020. As of March 29, 2021, the Company has incurred approximately $19,272 of restructuring charges and $6,702 of accelerated depreciation expense since the April 29, 2020 announcement.

In connection with the restructuring of its E-M Solutions business unit and other global realignment restructuring efforts, the Company recognized employee separation, contract termination and other costs during the quarters ended March 29, 2021 and March 30, 2020. Contract termination and other costs primarily represented plant closure costs.

The below table summarizes such restructuring costs by reportable segment, which are included as a component of general and administrative expenses in the consolidated condensed statements of operations, for the quarters ended March 29, 2021 and March 30, 2020:

 

 

 

Quarter Ended March 29, 2021

 

 

 

 

Employee

Separation/

Severance

 

 

Contract

Termination

and Other

Costs

 

 

Total

 

 

 

 

(In thousands)

 

 

Reportable Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

PCB

 

$

342

 

 

$

12

 

 

$

354

 

 

Corporate and Other (1)

 

 

359

 

 

 

2,519

 

 

 

2,878

 

 

 

 

$

701

 

 

$

2,531

 

 

$

3,232

 

 

 

 

 

Quarter Ended March 30, 2020

 

 

 

 

Employee

Separation/

Severance

 

 

Contract

Termination

and Other

Costs

 

 

Total

 

 

 

 

(In thousands)

 

 

Reportable Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

PCB

 

$

 

 

$

13

 

 

$

13

 

 

Corporate and Other (1)

 

 

309

 

 

 

6

 

 

 

315

 

 

 

 

$

309

 

 

$

19

 

 

$

328

 

 

 

(1)

Other represents SH E-MS and SZ results.

21


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

Accrued restructuring costs are included as a component of other current liabilities in the consolidated condensed balance sheet. The below table shows the utilization of the accrued restructuring costs during the quarter ended March 29, 2021:

 

 

 

Employee

Separation/

Severance

 

 

Contract

Termination

and Other

Costs

 

 

Total

 

 

 

(In thousands)

 

Accrued as of December 28, 2020

 

$

7,063

 

 

$

319

 

 

$

7,382

 

Charged to expense

 

 

701

 

 

 

2,531

 

 

 

3,232

 

Amount paid

 

 

(4,629

)

 

 

(2,801

)

 

 

(7,430

)

Accrued as of March 29, 2021

 

$

3,135

 

 

$

49

 

 

$

3,184

 

 

 

 

 

22


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated condensed financial statements and the related notes and the other financial information included in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of specified factors, including those set forth in Item 1A “Risk Factors” of Part II below and elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended December 28, 2020, filed with the SEC.

COMPANY OVERVIEW

We are a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically advanced PCBs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency (RF) and microwave components and assemblies. We focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design, engineering and manufacturing solution to our customers. This one-stop design, engineering and manufacturing solution allows us to align technology development with the diverse needs of our customers and to enable them to reduce the time required to develop new products and bring them to market. We serve a diversified customer base consisting of approximately 1,100 customers in various markets throughout the world, including aerospace and defense, data center computing, automotive components, medical, industrial and instrumentation related products, as well as networking/communications infrastructure products. Our customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers.

RECENT DEVELOPMENTS

The coronavirus (COVID-19) pandemic first caused business disruption in our operations in China in January 2020. By March 2020, the situation escalated as the scope of the COVID-19 pandemic worsened outside of the Asia-Pacific region, with Europe and North America being affected by the pandemic. Also, we experienced an increase in COVID-19 cases in our facilities in North America during the fourth quarter of 2020. As a result, we expect continued impacts on our production, as well as ongoing significant uncertainty relating to the actual and potential impacts of the COVID-19 pandemic, and we cannot reasonably estimate its duration or severity. The COVID-19 pandemic has created and continues to create various global macroeconomic, customer demand, operational and supply chain risks any one of which could have a material and adverse impact on our business going forward. See Item 1A, Risk Factors, of Part II below for further information related to the COVID-19 pandemic. We have taken active measures to protect our employees, suppliers and customers by implementing our pandemic recovery protocols, establishing situational leadership teams in Asia-Pacific and North America along with regularly scheduled executive review and planning calls, implementing global travel restrictions, and conforming to the guidance and direction of local governments and global health organizations. We are monitoring the impacts the COVID-19 pandemic has had, and continues to have, on our supply chain and are collaborating with our third-party partners with the goal of mitigating, to the extent reasonably practicable, significant delays in delivery of our products.

There have been increasing prices and lead times of copper clad laminates (CCLs), a key raw material for the manufacture of PCBs. CCLs are made from epoxy resin, glass cloth and copper foil, all of which are seeing limited supply and resulting in increased prices. We are actively managing higher raw materials costs by seeking to pass on the increase in costs to our customers, implementing ongoing operational efficiencies, and through supplier diversification.

FINANCIAL OVERVIEW

Results related to our Mobility business unit are reported as discontinued operations for all periods presented. See Part I, Item 1, Note 2, Discontinued Operations, of the Notes to Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for further information. Unless otherwise noted, amounts and disclosures throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to our continuing operations.

While our customers include both OEMs and EMS providers, we measure customers based on OEM companies, as they are the ultimate end customers. Sales to our ten largest customers collectively accounted for 45% and 42% of our net sales for the quarters ended March 29, 2021 and March 30, 2020, respectively. We sell to OEMs both directly and indirectly through EMS providers.

23


 

The following table shows the percentage of our net sales attributable to each of the principal end markets we served for the periods indicated:

 

 

Quarter Ended

 

 

End Markets (1)

 

March 29, 2021

 

 

 

March 30, 2020

 

 

Aerospace and Defense

 

 

35

 

%

 

 

37

 

%

Automotive

 

 

18

 

 

 

 

14

 

 

Data Center Computing (2)

 

 

14

 

 

 

 

12

 

 

Medical/Industrial/Instrumentation

 

 

17

 

 

 

 

19

 

 

Networking/Communications

 

 

15

 

 

 

 

17

 

 

Other (3)

 

 

1

 

 

 

 

1

 

 

Total

 

 

100

 

%

 

 

100

 

%

 

(1)

Sales to EMS companies are classified by the end markets of their OEM customers.

(2)

In the current period, the Computing/Storage/Peripherals end market was renamed to Data Center Computing to better reflect the customer mix and growth prospects. There was no change to the customers included in this end market.

(3)

Other end market reflects direct sales to EMS and distributor customers.

We derive revenues primarily from the sale of PCBs, custom electronic assemblies using customer-supplied engineering and design plans as well as our long-term contracts related to the design and manufacture of RF and microwave components, assemblies and subsystems. Orders for products generally correspond to the production schedules of our customers and are supported with firm purchase orders. Our customers have continuous control of the work in progress and finished goods throughout the PCB and custom electronic assemblies manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right of payment for work performed to date. As a result, we recognize revenue progressively over time based on the extent of progress towards completion of the performance obligation. We recognize revenue based on a cost method as it best depicts the transfer of control to the customer which takes place as we incur costs. Revenues are recorded proportionally as costs are incurred.

We also manufacture certain components, assemblies, and subsystems which service our RF and Specialty Components (RF&S Components) customers. We recognize revenue at a point in time upon transfer of control of the products to our customer. Point in time recognition was determined as our customers do not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us.

Net sales consist of gross sales less an allowance for returns, which typically have been approximately 2% of gross sales. We provide our customers a limited right of return for defective PCBs including components, subsystems and assemblies. We record an estimate for sales returns and allowances at the time of sale based on historical results and anticipated returns.

Cost of goods sold consists of materials, labor, outside services, and overhead expenses incurred in the manufacture and testing of our products. Shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold. Many factors affect our gross margin, including capacity utilization, product mix, production volume, and yield. While we have entered into supply assurance agreements with some of our key suppliers to maintain the continuity of supply of some of the key materials we use, we generally do not participate in any significant long-term contracts with suppliers, and we believe there are a number of potential suppliers for most of the raw materials we use.

Selling and marketing expenses consist primarily of salaries, labor related benefits, and commissions paid to our internal sales force, independent sales representatives, and our sales support staff, as well as costs associated with marketing materials and trade shows.

General and administrative costs primarily include the salaries for executive, finance, accounting, information technology, facilities, and human resources personnel, as well as expenses for accounting and legal assistance, incentive compensation expense, and gains or losses on the sale or disposal of property, plant and equipment.

Research and development expenses consist primarily of salaries and labor related benefits paid to our research and development staff, as well as material costs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated condensed financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 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.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December 28, 2020 for further discussion of critical accounting policies and estimates. There were no material changes to our critical accounting policies and estimates since December 28, 2020.

24


 

RESULTS OF OPERATIONS

The following table sets forth the relationship of various items to net sales in our consolidated condensed statements of operations:

 

 

 

Quarter Ended

 

 

March 29, 2021

 

 

 

March 30, 2020

 

 

Net sales

 

 

100.0

 

%

 

 

100.0

 

%

Cost of goods sold

 

 

84.5

 

 

 

 

83.7

 

 

Gross profit

 

 

15.5

 

 

 

 

16.3

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

3.1

 

 

 

 

3.2

 

 

General and administrative

 

 

6.0

 

 

 

 

7.0

 

 

Research and development

 

 

0.8

 

 

 

 

0.9

 

 

Amortization of definite-lived intangibles

 

 

1.8

 

 

 

 

1.9

 

 

Total operating expenses

 

 

11.7

 

 

 

 

13.0

 

 

Operating income

 

 

3.8

 

 

 

 

3.3

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2.2

)

 

 

 

(4.0

)

 

Loss on extinguishment of debt

 

 

(2.9

)

 

 

 

 

 

Other, net

 

 

0.5

 

 

 

 

0.5

 

 

Total other expense, net

 

 

(4.6

)

 

 

 

(3.5

)

 

Loss from continuing operations before income taxes

 

 

(0.8

)

 

 

 

(0.2

)

 

Income tax benefit (provision)

 

 

0.2

 

 

 

 

(0.4

)

 

Net loss from continuing operations

 

 

(0.6

)

%

 

 

(0.6

)

%

 

As of March 29, 2021, E-M Solutions no longer meets the criteria for segment reporting and the SH BPA facility is integrated into the PCB reportable segment. In fiscal 2020, subsequent to the quarter ended March 30, 2020, RF&S Components was added as a reportable segment. As a result, we reclassified prior periods to reflect the new segment.

Net Sales

Despite the closure of the two plants from our discontinued E-M Solutions segment, which accounted for $10.9 million reduction in net sales, total net sales increased $28.8 million, or 5.8%, to $526.4 million for the first quarter of 2021 from $497.6 million for the first quarter of 2020. This increase in total net sales primarily resulted from an increase in net sales for the PCB reportable segment of $36.5 million, or 7.7%, to $510.5 million for the first quarter of 2021 from $474.0 million for the first quarter of 2020 primarily due to higher demand in our Automotive, Data Center Computing and Aerospace and Defense end markets, partially offset by lower demand in our Networking/Communications and Other end markets. In addition, these changes in the PCB reportable segment resulted in a 28.8% increase in the volume of PCB shipments, partially offset by a decrease in the average price per square foot of 15.8%, driven mainly by product mix shift as compared to the first quarter of 2020. Also contributing to the increase in total net sales was an increase in net sales for the RF&S Components reportable segment of $3.2 million, or 34.4%, to $12.7 million for the first quarter of 2021 from $9.4 million for the first quarter of 2020 primarily due to higher demand in our Networking/Communications end market.

Gross Margin

Overall gross margin decreased to 15.5% for the first quarter of 2021 from 16.3% for the first quarter of 2020. This decrease was primarily driven by a decrease in gross margin for the PCB reportable segment to 15.7% for the first quarter of 2021 from 17.6% for the first quarter of 2020. This decline was due to approximately $13.0 million of additional costs related to a stronger Chinese currency, higher raw material costs due to increased commodity prices, primarily copper, and continued costs and production inefficiencies due to COVID-19. We were able to mitigate most of these costs through higher revenue, and production and spending efficiencies. Gross margin for the RF&S Components reportable segment increased to 47.5% for the first quarter of 2021 from 45.8% for the first quarter of 2020, primarily due to higher sales.

Capacity utilization is a key driver for us, which is measured by actual production as a percentage of maximum capacity. This measure is particularly important in our high-volume facilities in Asia, as a significant portion of our operating costs are fixed in nature. Capacity utilization for the first quarter of 2021 in our Asia and North America PCB facilities was 80% and 55%, respectively, compared to 52% and 67%, respectively, for the first quarter of 2020. The increase in capacity utilization in our Asia PCB facilities was due to an increase in production resulting from increased sales in our Automotive and Data Center Computing end

25


 

markets. The decrease in our capacity utilization in our North America PCB facilities was due to production inefficiencies caused by COVID-19.

Selling and Marketing Expenses

Selling and marketing expenses increased $0.1 million, to $16.3 million for the first quarter of 2021 from $16.2 million for the first quarter of 2020. As a percentage of net sales, selling and marketing expenses was 3.1% for the first quarter of 2021, as compared to 3.2% for the first quarter of 2020. The increase in selling and marketing expense for the first quarter of 2021 was primarily due to an increase in commission expense, partially offset by reduced travel expense due to the COVID-19 pandemic, which has decreased travel on a temporary basis.

General and Administrative Expenses

General and administrative expenses decreased $3.1 million to $31.5 million, or 6.0% of net sales, for the first quarter of 2021 from $34.7 million, or 7.0% of net sales, for the first quarter of 2020. This decrease was primarily due to a decrease in bad debt and acquisition/integration costs.

Other Expense

Other expense, net increased $6.8 million to $24.1 million for the first quarter of 2021 from $17.3 million for the first quarter of 2020. This increase was primarily the result of $15.2 million of loss on extinguishment of debt associated with the premium paid on extinguishment of debt and the write-off of the remaining unamortized debt issuance costs related to the repayment of the Senior Notes due in 2025. This increase is partially offset by a decrease in interest expense of $8.4 million due to overall lower levels of debt outstanding.

Income Taxes

Income tax expense decreased by $3.2 million to $1.1 million of tax benefit for the first quarter of 2021 from $2.1 million of tax expense for the first quarter of 2020. The decrease in income tax expense for the first quarter of 2021 was primarily due to a decrease in pre-tax income from continuing operations and the approval of the Company’s renewal application for High and New Enterprise status for two of the Company’s manufacturing subsidiaries in China.

Our effective tax rate is primarily impacted by tax rates in China and Hong Kong, the U.S. federal income tax rate, apportioned state income tax rates, the generation of credits and deductions available to the Company as well as changes in valuation allowances and certain non-deductible items. We had a net deferred income tax asset of approximately $16.0 million and $24.5 million as of March 29, 2021 and March 30, 2020, respectively.

On March 11, 2021, the President of the United States signed the American Rescue Plan (ARP) providing additional economic relief to the disruptions caused by the COVID-19 pandemic. Accounting Standard Codification (ASC) 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment regardless of the effective date of those tax law changes. We considered the impact to our financial statements of the corporate income tax aspects of the ARP and determined the impact is not material to our financial statements.

Liquidity and Capital Resources

Our principal sources of liquidity have been cash provided by operations, the issuance of debt, and borrowings under our Revolving Credit Facilities. Our principal uses of cash have been to finance capital expenditures, finance acquisitions, fund working capital requirements, and to repay existing debt. We anticipate that financing capital expenditures, financing acquisitions, funding working capital requirements, servicing debt, and potential share repurchases will be the principal demands on our cash in the future.

Cash flow provided by operating activities for continuing operations during the first quarter of 2021 was $41.1 million as compared to cash flow provided by operating activities for continuing operations of $6.6 million in the same period in 2020. The increase in cash flow was primarily due to less investment in working capital.

Net cash used in investing activities for continuing operations was approximately $21.0 million for the first quarter of 2021, reflecting $21.8 million for purchases of property, plant and equipment and other assets less $0.8 million for proceeds from sale of property, plant and equipment and other assets. Net cash used in investing activities for continuing operations was approximately $23.9 million for the first quarter of 2020, reflecting purchases of property, plant and equipment and other assets.

Net cash provided by financing activities for continuing operations during the first quarter of 2021 was $68.1 million, primarily reflecting proceeds from long-term debt borrowing of $500.0 million, less the repayment of long-term debt borrowings of $425.8 million and payment of debt issuance costs of $4.8 million. There was no activity related to cash flows from financing activities for the first quarter of 2020.

As of March 29, 2021, we had cash and cash equivalents of approximately $539.6 million, of which approximately $233.8 million was held by our foreign subsidiaries, primarily in China. Should we choose to remit cash to the United States from our

26


 

foreign locations, we may incur tax obligations which would reduce the amount of cash ultimately available to the United States. However, we believe there would be no material tax consequences not previously accrued for on the repatriation of this cash.

Our total 2021 capital expenditures are expected to be in the range of $70.0 million to $90.0 million.

Long-term Debt and Letters of Credit

As of March 29, 2021, we had $926.1 million of outstanding debt, net of discount and debt issuance costs, composed of $493.5 million of Senior Notes due March 2029, $402.6 million of Term Loan due September 2024, and $30.0 million under the Asia Asset-Based Lending Credit Agreement (Asia ABL).

Pursuant to the terms of the Term Loan Facility and Senior Notes due 2029, we are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments, dispositions, and share payments. Under the occurrence of certain events, as a result of the U.S. Asset-Based Lending Credit Agreement (U.S. ABL) and Asia ABL (collectively, the ABL Revolving Loans), we are also subject to various financial covenants, including leverage and fixed charge coverage ratios. As of March 29, 2021, we were in compliance with the covenants under the Term Loan Facility, Senior Notes due 2029 and ABL Revolving Loans.

Based on our current level of operations, we believe that cash generated from operations, cash on hand and cash from the issuance of term and revolving debt will be adequate to meet our currently anticipated capital expenditure, debt service, and working capital needs for the next twelve months. Additional information regarding our indebtedness, including information about the credit available under our debt facilities, interest rates and other key terms of our outstanding indebtedness, is included in Part I, Item 1, Note 8, Long-term Debt and Letters of Credit, of the Notes to Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Contractual Obligations and Commitments

The following table provides information on our contractual obligations as of March 29, 2021:

 

 

 

Total

 

 

Less Than

1 Year

 

 

1 - 3

Years

 

 

4 - 5

Years

 

 

After

5 Years

 

Contractual Obligations (1)

 

(In thousands)

 

Long-term debt obligations

 

$

935,879

 

 

$

 

 

$

 

 

$

435,879

 

 

$

500,000

 

Interest on debt obligations

 

 

198,548

 

 

 

32,488

 

 

 

62,325

 

 

 

45,346

 

 

 

58,389

 

Derivative liabilities

 

 

13,716

 

 

 

10,975

 

 

 

2,741

 

 

 

 

 

 

 

Purchase obligations

 

 

136,925

 

 

 

110,845

 

 

 

17,247

 

 

 

725

 

 

 

8,108

 

Total contractual obligations

 

$

1,285,068

 

 

$

154,308

 

 

$

82,313

 

 

$

481,950

 

 

$

566,497

 

 

(1)

Unrecognized uncertain tax benefits of $2.8 million are not included in the table above as the settlement timing is uncertain. Operating leases are not included in the table above – see Part I, Item 1, Note 3, Leases, of the Notes to Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for further details.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.

Seasonality

Orders for our products generally correspond to the production schedules of our customers. We historically experience seasonal fluctuations in the first quarter due to the Chinese New Year holidays, which typically results in lower net sales for that quarter. We attribute this decline to shutdowns of our customers’ and our own China based manufacturing facilities surrounding the Chinese New Year public holidays, which normally occur in January or February of each year.

Recently Issued Accounting Standards

For a description of recently adopted and issued accounting standards, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part I, Item 1, Note 1, Nature of Operations and Basis of Presentation, of the Notes to Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

27


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business operations, we are exposed to risks associated with fluctuations in interest rates and foreign currency exchange rates. We address these risks through controlled risk management that includes the use of derivative financial instruments to economically hedge or reduce these exposures. We do not enter into derivative financial instruments for trading or speculative purposes.

We have not experienced any losses to date on any derivative financial instruments due to counterparty credit risk.

To ensure the adequacy and effectiveness of our interest rate and foreign exchange hedge positions, we continually monitor our interest rate swap positions and foreign exchange forward positions, both on a stand-alone basis and in conjunction with their underlying interest rate and foreign currency exposures, from an accounting and economic perspective. However, given the inherent limitations of forecasting and the anticipatory nature of the exposures intended to be hedged, we cannot be assured that such programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in either interest or foreign exchange rates. In addition, the timing of the accounting for recognition of gains and losses related to mark-to-market instruments for any given period may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect our consolidated operating results and financial position.

Interest Rate Risks

Our business is exposed to interest rate risk resulting from fluctuations in interest rates. Our interest expense is more sensitive to fluctuations in the general level of LIBOR interest rates than to changes in rates in other markets. Increases in interest rates would increase interest expense relating to our outstanding variable rate borrowings and increase the cost of debt. Fluctuations in interest rates can also lead to significant fluctuations in the fair value of our debt obligations.

On May 15, 2018, we entered into a four-year pay-fixed, receive floating (1-month LIBOR), interest rate swap arrangement with a notional amount of $400.0 million for the period beginning June 1, 2018 and ending on June 1, 2022. Under the terms of the interest rate swap, we pay a fixed rate of 2.84% against the first interest payments of a portion of our LIBOR-based debt and receive floating 1-month LIBOR during the swap period. At inception, we designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was zero. As of March 29, 2021, the fair value of the interest rate swap was recorded as a liability and as a component of other long-term liabilities in the amount of $12.6 million. No ineffectiveness was recognized for the quarter ended March 29, 2021. During the quarter ended March 29, 2021, the interest rate swap increased interest expense by $2.7 million.

See Liquidity and Capital Resources and Long-term Debt and Letters of Credit appearing in Part I, Item 2 of this Quarterly Report on Form 10-Q for further discussion of our financing facilities and capital structure. As of March 29, 2021, approximately 96.2% of our total debt was based on fixed rates. Based on our borrowings as of March 29, 2021, an assumed 100 basis point increase in variable rates would cause our annual interest cost to increase by $0.4 million and an assumed 100 basis point decrease in variable rates would cause our annual interest cost to decrease by $0.1 million.

On July 27, 2017, the Financial Conduct Authority (FCA) announced the desire to phase out the use of LIBOR by the end of 2021. More recently, on March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative. Specifically, this will occur immediately after December 31, 2021, in the case of all Sterling, Euro, Swiss franc and Japanese yen (JPY) settings, and the 1-week, and 2-month U.S. dollar settings; and immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. However, U.S. banking regulators have made clear that U.S.-dollar LIBOR originations should end by no later than December 31, 2021, and that new LIBOR originations prior to that date must provide for an alternative reference rate or a hardwired fallback. In accordance with recommendations from the Alternative Reference Rates Committee (ARRC), U.S.-dollar LIBOR is expected to be replaced with the Secured Overnight Financing Rate (SOFR), a new index calculated by reference to short-term repurchase agreements for U.S. Treasury securities. Further, the International Swaps and Derivatives Association, Inc. recently announced fallback language for LIBOR-referencing derivatives contracts that also provides for SOFR as the primary replacement rate in the event of a LIBOR cessation.

The market transition from LIBOR to SOFR is expected to be complicated, including the development of term SOFR rates and credit adjustments to accommodate differences between LIBOR and SOFR. During the transition period, LIBOR may exhibit increased volatility or become less representative, and the overnight Treasury repurchase market underlying SOFR may also experience disruptions from time to time, which may result in unexpected fluctuations in SOFR. The use of an alternative reference rate such as SOFR (and the transition to that rate) will likely create challenges for us with respect to our asset liability management activities including, but not limited to, managing the transition-related basis risk. While market activity in SOFR-linked financial instruments has continued to increase, there can be no assurance that SOFR-linked products will be available to meet our needs in a timely manner. Due to these uncertainties, we are unable to predict at this time the impact the transition from LIBOR to an alternative reference rate (or rates) could have on our business, risk management practices (including, but not limited to, our hedging activities), financial condition and results of operations.

28


 

Foreign Currency Risks

In the normal course of business, we are exposed to risks associated with fluctuations in foreign currency exchange rates related to transactions that are denominated in currencies other than our functional currencies, as well as the effects of translating amounts denominated in a foreign currency to the U.S. Dollar as a normal part of our financial reporting process. Most of our foreign operations have the U.S. Dollar as their functional currency, however, two of our China facilities utilize the Renminbi (RMB), which results in recognition of translation adjustments included as a component of other comprehensive loss. Our foreign exchange exposure results primarily from employee-related and other costs of running our operations in foreign countries, foreign currency denominated purchases and translation of balance sheet accounts denominated in foreign currencies. Our primary foreign exchange exposure is to the RMB. Except for certain equipment purchases, we do not engage in hedging to manage foreign currency risk. However, we may consider the use of derivatives in the future. In general, our Chinese customers pay us in RMB, which partially mitigates this foreign currency exchange risk.

We enter into foreign currency forward contracts to mitigate the impact of changes in foreign currency exchange rates and to reduce the volatility of purchases and other obligations generated in currencies other than our functional currencies. Our foreign subsidiaries may at times enter into forward exchange contracts to manage foreign currency risks in relation to certain purchases of machinery denominated in foreign currencies other than our functional currencies. The notional amount of the foreign exchange contracts as of March 29, 2021 and December 28, 2020 was approximately $1.9 million (JPY 196.3 million) and $1.2 million (JPY 125.0 million), respectively. We designated certain of these foreign exchange contracts as cash flow hedges.

 

Debt Instruments

The table below presents the fiscal calendar maturities of long-term debt through 2025 and thereafter of our debt instruments as of March 29, 2021:

 

 

As of March 29, 2021

 

 

 

Remaining 2021

 

 

2022

 

 

2023

 

 

2024 (1)

 

 

2025

 

 

Thereafter

 

 

Total

 

 

Fair Market

Value

 

 

Weighted

Average

Interest Rate

 

 

 

(In thousands)

 

 

 

 

 

US$ Variable Rate

 

$

 

 

$

 

 

$

 

 

$

435,879

 

 

$

 

 

$

 

 

$

435,879

 

 

$

436,387

 

 

2.53%

 

US$ Fixed Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

 

 

 

500,000

 

 

 

493,425

 

 

4.00%

 

Total

 

$

 

 

$

 

 

$

 

 

$

435,879

 

 

$

 

 

$

500,000

 

 

$

935,879

 

 

$

929,812

 

 

 

 

 

 

(1)

Interest rate swap effectively fixed $400,000 of variable rate debt.

 

Interest Rate Swap Contracts

As of March 29, 2021, the fair value of the interest rate swap was recorded as a liability in the amount of $12.6 million. The table below presents information regarding our interest rate swap during the quarter ended March 29, 2021:

 

 

Quarter Ended

March 29, 2021

 

 

 

 

(In thousands, except interest rates)

 

 

Average interest payout rate

 

 

2.84

%

 

Interest payout amount

 

$

(2,871

)

 

Average interest received rate

 

 

0.13

%

 

Interest received amount

 

 

130

 

 

 

 

 

 

 

 

29


 

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based on this evaluation, our CEO and CFO have concluded that, as of March 29, 2021, such disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

We continue to expand our implementation of an enterprise resource planning (ERP) system on a worldwide basis, which is expected to improve the efficiency of the financial reporting and related transaction processes. We have completed the implementation with respect to the next phase and as a result, we made changes to our processes and procedures which, in turn, resulted in changes to our internal control over financial reporting, including the implementation of additional controls. We continue to roll out the ERP system to our remaining locations.

There have been no other changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended March 29, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

30


 

PART II. OTHER INFORMATION

From time to time, we may become a party to various legal proceedings arising in the ordinary course of our business. There can be no assurance that we will prevail in any such litigation. We believe that the amount of any reasonably possible or probable loss for known matters would not be material to our financial statements; however, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on our financial condition, results of operations, or cash flows in a particular period.

Item 1A. Risk Factors

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. The risk factors described below are not the only ones we face. Risks and uncertainties not known to us currently, or that may appear immaterial, also may have a material adverse effect on our business, financial condition, and results of operations.

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 Business

We serve customers and have manufacturing facilities throughout the world and are subject to global pandemic and other similar risks, including without limitation, COVID-19, which could materially adversely affect our business, financial condition, and results of operations.

Global pandemics or other disasters or public health concerns in regions of the world where we have operations or source material or sell products could result in the disruption of our business. Specifically, these pandemics, disasters and health concerns can result in increased travel restrictions and extended shutdowns of certain businesses in the region, as well as social, economic, or labor instability. Disruptions in our product shipments or impacts on our manufacturing in affected regions over a prolonged period could have a material adverse impact on our business and our financial results.

On March 11, 2020, the World Health Organization announced that COVID-19 infections had become a pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. Widespread infection in the United States and abroad has the potential for catastrophic impact. National, state and local authorities have recommended social distancing and at times have imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, had, and in the future may have, serious adverse impacts on domestic and foreign economies of uncertain severity and duration. The effectiveness of economic stabilization efforts, including proposed government payments to affected citizens and industries, is uncertain.

In particular, our business may be negatively impacted by the fear of exposure to or actual effects of COVID-19 and other disease outbreaks, epidemics, pandemics and similar widespread public health concerns. These impacts include but are not limited to:

 

failure of third parties on which we rely, including, without limitation, our suppliers, commercial banks, and other external business partners, to meet their obligations to us, caused by significant disruptions in their ability to do so or their own financial or operational difficulties;

 

supply chain risks such as scrutiny or embargoing of goods produced in infected areas;

 

reduced workforces, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates;

 

temporary business closures due to reduced workforces or government mandates;

 

reduced demand for our products and services caused by, but not limited to, the effect of quarantine or other travel restrictions or financial hardship on the businesses in the industries we service;

 

restrictions to our business as a result of federal or state laws, regulations, orders or other governmental or regulatory actions, if adopted; or

 

lawsuits from employees and others exposed to COVID-19 at our facilities, which may involve large demands or substantial defense costs that our professional and general liability insurance may not cover.

Any of the foregoing factors, or other cascading effects that are not currently foreseeable, could materially increase our costs, negatively impact our sales or damage the Company’s financial condition, results of operations, cash flows and its liquidity position,

31


 

possibly to a significant degree. The duration of any such impacts cannot be predicted because of the sweeping, on-going and uncertain nature of the circumstances involving the COVID-19 pandemic.

We serve customers and have manufacturing facilities outside the United States and are subject to the risks characteristic of international operations, including recently imposed tariffs.

We have significant manufacturing operations in Asia and Canada and sales offices located in Asia and Europe. We continue to consider additional opportunities to make foreign investments and construct new foreign facilities.

For the quarter ended March 29, 2021, we generated approximately 53% of our net sales from non-U.S. operations, and a significant portion of our manufacturing material was provided by international suppliers during this period. The United States’ trade policies and those of foreign countries are subject to change which could adversely affect our ability to purchase and sell goods and materials without significant tariffs, taxes or duties that may be imposed on the materials we purchase or the goods we sell, thereby increasing the cost of such materials and potentially decreasing our margins. Further, our revenues could be impacted if our customers’ ability to sell their goods is reduced by such tariffs, taxes or duties. Both the U.S. and Chinese governments have included PCBs among items subjected to tariffs imposed on imports from such countries, which may negatively impact our revenue and profitability. In addition, we are subject to risks relating to significant international operations, including but not limited to:

 

managing international operations;

 

imposition of governmental controls;

 

unstable regulatory environments;

 

compliance with employment laws;

 

implementation of disclosure controls, internal controls, financial reporting systems, and governance standards to comply with U.S. accounting and securities laws and regulations;

 

limitations on imports or exports of our product offerings;

 

fluctuations in the value of local currencies;

 

inflation or changes in political and economic conditions;

 

public health crises, such as the COVID-19 pandemic;

 

labor unrest, rising wages, difficulties in staffing, and geographical labor shortages;

 

government or political unrest;

 

longer payment cycles;

 

language and communication barriers, as well as time zone differences;

 

cultural differences;

 

increases in duties and taxation levied on our products;

 

other potentially adverse tax consequences;

 

imposition of restrictions on currency conversion or the transfer of funds;

 

travel restrictions;

 

expropriation of private enterprises;

 

the potential reversal of current favorable policies encouraging foreign investment and trade;

 

the potential for strained trade relationships between the United States and its trading partners, including trade tariffs which could create competitive pricing risk; and

 

government imposed sanction laws and regulations.

We rely on suppliers and equipment manufacturers for the timely delivery of raw materials, components, equipment and spare parts used in manufacturing our PCBs. If a raw material supplier or equipment manufacturer goes bankrupt, liquidates, consolidates out of existence or fails to satisfy our product quality standards, or if the prices or availability of raw materials change, it could harm our ability to purchase new manufacturing equipment, service the equipment we have, or timely produce our products, thereby affecting our customer relationships.

To manufacture PCBs, we use raw materials such as laminated layers of fiberglass, copper foil, chemical solutions, gold, copper and other commodity products, which we order from our suppliers. For RF components, we use various high-performance

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materials such as ceramics and printed circuit board materials. 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.

Consolidations and restructuring in our supplier base and equipment fabricators related to our raw materials purchases or the manufacturing equipment we use to fabricate our products may result in adverse changes in pricing of materials due to reduction in competition among our raw material suppliers or an elimination or shortage of equipment and spare parts from our manufacturing equipment supply base. Suppliers and equipment manufacturers may be impacted by other events outside our control including macro-economic events, financial instability, environmental occurrences, or supplier interruptions due to fire, natural catastrophes, public health crises (including, but not limited to, the COVID-19 pandemic) or otherwise. Suppliers and equipment manufacturers may 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 and negatively impact our financial results. In addition, in extreme circumstances, the suppliers we purchase from could cease production due to a fire, natural disaster, consolidation or liquidation of their businesses. As such, this may impact our ability to deliver our products on a timely basis, harm our customer relationships and negatively impact our financial results.

If raw material and component prices increase or if there is inflationary pressure on the cost of the metals that we use to produce our product, especially if the prices of copper, gold, palladium and other precious metals we use to manufacture our products increase, it may reduce our gross margins. Should the supply of materials used in the above manufacturing processes become limited, our ability to obtain the quantities necessary to meet our customers’ demand may be impacted which could cause us to encounter reduced revenue levels or price increases which would impact our profit margins. If either of these situations occurs, our financial condition and results of operations could be negatively impacted.

We are subject to risks of currency fluctuations.

A portion of our cash, other current assets and current liabilities is held in currencies other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect the value of these assets or liabilities as re-measured to U.S. dollars on 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. Additionally, we have revenues and costs denominated in currencies other than the U.S. dollar (primarily the Renminbi (RMB)). Fluctuations in the exchange rates between the U.S. dollar and the RMB could result in increases or decreases in our costs or revenues which could negatively impact our business, financial condition, and results of operations. Significant inflation or disproportionate changes in foreign exchange rates could occur as a result of general economic conditions, acts of war or terrorism, changes in governmental monetary or tax policy, or changes in local interest rates Further, China’s government imposes controls over the convertibility of RMB into foreign currencies, which subjects us to further currency exchange risk.

Rising labor costs, including due to employee strikes and other labor-related disruptions may materially adversely affect our business, financial condition, and results of operations.

Our business is labor intensive, utilizing large numbers of engineering and manufacturing personnel. There is uncertainty with respect to rising labor costs. Furthermore, labor disputes and strikes based partly on wages have in the past slowed or stopped production by certain manufacturers in China. In some cases, employers have responded by significantly increasing the wages of workers at such plants. Any increase in labor costs due to minimum wage laws or customer requirements about scheduling and overtime that we are unable to recover in our pricing to our customers could materially adversely affect our business, financial condition, and results of operations. In addition, the high turnover rate and our difficulty in recruiting and retaining qualified employees and the other labor trends we are noting in China could result in a potential for defects in our products, production disruptions or delays, or the inability to ramp production to meet increased customer orders, resulting in order cancellation or imposition of customer penalties if we are unable to deliver products in a timely manner.

To respond to competitive pressures and customer requirements, we may further expand internationally in lower-cost locations. If we pursue such expansions, we may be required to make additional capital expenditures. In addition, the cost structure in certain countries that are now considered to be favorable may increase as economies develop or as such countries join multinational economic communities or organizations, causing local wages to rise. As a result, we may need to continue to seek new locations with lower costs and the employee and infrastructure base to support PCB manufacturing. We cannot assure investors that we will realize the anticipated strategic benefits of our international operations or that our international operations will contribute positively to our operating results.

In North America, we are experiencing wage inflation pressures, some of which are mandated by local and state governments. Further, we are experiencing rising health care costs. While we strive to manage these challenges, there can be no assurance that our efforts will succeed which would result in higher costs and lower profits.

Strikes or labor disputes with our unionized employees, primarily in China, may adversely affect our ability to conduct our business. If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements, we may be subject to work interruptions or stoppages. Any of these events could be disruptive

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to our operations and could result in negative publicity, loss of contracts, and a decrease in revenues. We may also become subject to additional collective bargaining agreements in the future if more employees or segments of our workforce become unionized, including any of our employees in the United States.

We have pursued and intend to continue to pursue potential divestitures of assets and acquisitions of other businesses and may encounter risks associated with these activities, which could harm our business and operating results. If we are unable to manage our growth effectively, our business, financial condition, and results of operations could be materially adversely affected.

As part of our business strategy, we expect that we will continue to align our strategy by pursuing potential divestitures of assets and acquisitions of businesses, technologies, assets, or product lines that complement or expand our business. Risks related to such activities 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 management’s 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 or assets;

 

difficulties in managing production and coordinating operations at new sites;

 

the potential loss of key employees of acquired or divested 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 inability to consummate a potential divestiture due to regulatory constraints;

 

the separation of business infrastructure involved in a potential divestiture may create disruption in our business;

 

the tax burden related to the divestiture may be larger than expected;

 

the potential divestiture of assets or product lines could create dis-synergies and change our profitability;

 

the potential need to restructure, modify, or terminate customer relationships of the acquired or divested assets or company;

 

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 intangible assets that will be subject to impairment testing and potential periodic impairment charges;

 

become subject to litigation and environmental issues, which include product material content certifications related to conflict minerals;

 

incur unanticipated costs;

 

incur large and immediate write-offs; and

 

incur substantial transaction-related costs, whether or not a proposed acquisition is consummated.

Acquisitions of high technology companies and assets are inherently risky, and no assurance can be given that our recent or future acquisitions will be successful. Failure to manage and successfully integrate acquisitions we make could have a material adverse effect on our business, financial condition, and results of operations. 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 any such acquisition.

As we continue to experience growth in the scope and complexity of our operations, we may be required to continue to implement additional operating and financial controls and hire and train additional personnel. There can be no assurance that we will

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be able to do so in the future, and failure to do so could jeopardize our expansion plans and seriously harm our operations. In addition, growth in our capacity could result in reduced capacity utilization and a corresponding decrease in gross margins.

Uncertainty and adverse changes in the economy and financial markets, including the worldwide electronics industry, could have an adverse impact on our business and operating results.

Uncertainty or adverse changes in the economy could lead to a significant decline in demand for the end products manufactured by our customers, which, in turn, could result in a decline in the demand for our products and pressure to reduce our prices. Any decrease in demand for our products could have an adverse impact on our financial condition, operating results and cash flows. Uncertainty and adverse changes in the economy could also increase the cost and decrease the availability of potential sources of financing and increase our exposure to losses from bad debts, either of which could have a material adverse effect on our financial condition, operating results and cash flows.

A majority of our revenue is generated from the electronics industry, which is characterized by intense competition, relatively short product life cycles, and significant fluctuations in product demand. The industry is subject to economic cycles and recessionary periods. 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. Consequently, our past operating results, earnings, and cash flows may not be indicative of our future operating results, earnings, and cash flows.

If we are unable to maintain satisfactory capacity utilization rates, our business, financial condition, and results of operations would be materially adversely affected.

Given the high fixed costs of our operations, decreases in capacity utilization rates can have a significant effect on our business. Accordingly, our ability to maintain or enhance gross margins will continue to depend, in part, on maintaining satisfactory capacity utilization rates. In turn, our ability to maintain satisfactory capacity utilization will depend on the demand for our products, the volume of orders we receive, and our ability to offer products that meet our customers’ requirements at competitive prices. If current or future production capacity fails to match current or future customer demands, our facilities would be underutilized, our sales may not fully cover our fixed overhead expenses, and we would be less likely to achieve expected gross margins. If forecasts and assumptions used to support the realizability of our long-lived assets change in the future, significant impairment charges could result that would materially adversely affect our business, financial condition, and results of operations.

In addition, we generally schedule our quick turnaround 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, as well as potentially causing disruptions in our ability to supply customers.

We have a significant amount of goodwill and other intangible assets on our consolidated condensed balance sheet. If our goodwill or other intangible assets become impaired in the future, we would be required to record a non-cash charge to earnings, which may be material and would also reduce our stockholders’ equity.

As of March 29, 2021, our consolidated condensed balance sheet included $907.7 million of goodwill and definite-lived intangible assets. We periodically evaluate whether events and circumstances have occurred, such that the potential for reduced expectations for future cash flows coupled with further decline in the market price of our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable. If factors indicate that assets are impaired, we would be required to reduce the carrying value of our goodwill and definite-lived intangible assets, which could harm our results during the periods in which such a reduction is recognized.

Our 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.

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.

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A significant portion of our operating expenses is relatively fixed in nature, and planned expenditures are based in part on anticipated orders. Accordingly, unexpected revenue shortfalls may decrease our gross margins. In addition, we have experienced sales fluctuations due to seasonal patterns in the capital budgeting and purchasing cycles, as well as inventory management practices of our customers and the end markets we serve. 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 that may 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.

We participate in the competitive, cyclical automotive industry, which is subject to strict quality control standards. Failure to meet quality standards may adversely affect our business, financial condition and results of operations.

A significant portion of our sales are to customers within the automotive industry. The automotive industry has historically experienced multi-year cycles of growth and decline. If sales of automobiles should decline or go into a cyclical down turn, our sales could decline and this could have a materially adverse impact on our business, financial condition and result of operations.

In addition, for safety reasons, automotive customers have strict quality standards that generally exceed the quality requirements of other customers. If such products do not meet these quality standards, our business, financial condition, and results of operations may be materially adversely affected. These automotive customers may require long periods of time to evaluate whether our manufacturing processes and facilities meet their quality standards. If we were to lose automotive customers due to quality control issues, we might not be able to regain those customers or gain new automotive customers for long periods of time, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, we may be required under our contracts with automotive industry customers to indemnify them for the cost of warranties and recalls relating to our products.

The prominence of EMS companies as our customers could reduce our gross margins, potential sales, and customers.

Sales to EMS companies represented approximately 35% of our net sales for both the quarters ended March 29, 2021 and March 30, 2020. 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 has in the past, and could in the future, result in increased price competition or the loss of existing OEM customers. In addition, some EMS providers, including some of our customers, have the ability to directly manufacture PCBs and create backplane assemblies. If a significant number of our other EMS customers were to acquire these abilities, our customer base might shrink, and our sales might decline substantially. Moreover, if any of our OEM customers outsource the production of PCBs and creation of backplane assemblies to these EMS providers, our business, financial condition, and results of operations may be materially adversely affected.

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 would materially adversely affect our business, financial condition, and results of operations.

A small number of customers are responsible for a significant portion of our sales. Our five largest OEM customers collectively accounted for approximately 32% and 28% of our net sales for the quarters ended March 29, 2021 and March 30, 2020, respectively. Furthermore, our business has benefited from OEMs deciding to outsource their PCB manufacturing and backplane assembly needs to us, and our future revenue growth partially depends on new outsourcing opportunities from OEMs. 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 would materially adversely affect our business, financial condition, and results of operations. 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 business, financial condition, and results of operations would be materially adversely affected.

In addition, during industry downturns, we may need to reduce prices to limit the level of order losses, and we may be unable to collect payments from our customers. There can be no assurance that key customers would not cancel orders, that they would continue to place orders with us in the future at the same levels as experienced by us in prior periods, that they would be able to meet their payment obligations, or that the end-products that use our products would be successful. This concentration of customer base may materially adversely affect our business, financial condition, and results of operations due to the loss or cancellation of business from any of these key customers, significant changes in scheduled deliveries to any of these customers, or decreases in the prices of the products sold to any of these customers.

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We depend on the U.S. government for a significant portion of our business, which involves unique risks. Changes in government defense spending or regulations could have a material adverse effect on our business, financial condition, and results of operations.

A significant portion of our revenues is derived from products and services that are ultimately sold to the U.S. government by our OEM and EMS customers and is therefore affected by, among other things, the federal government 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. The contracts between our direct customers and the government end user are subject to political and budgetary constraints and processes, changes in short-range and long-range strategic plans, the timing of contract awards, the congressional budget authorization and appropriation processes, the government’s 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.

For the quarter ended March 29, 2021, aerospace and defense sales accounted for approximately 35% of our total net sales. The substantial majority of aerospace and defense sales are related to both U.S. and foreign military and defense programs. While we do not sell any significant volume of products directly to the U.S. government, we are a supplier to OEMs that sell to the U.S. government and its agencies, as well as foreign governments and agencies. Consequently, our sales are affected by changes in the defense budgets of the U.S. and foreign governments and may be affected by federal budget sequestration measures.

The domestic and international threat of terrorist activity, emerging nuclear states, and conventional military threats have led to an increase in demand for defense products and services and homeland security solutions in the recent past. Although a two-year budget agreement was approved by the U.S. government in 2019 that budget agreement included sustained spending on defense programs, 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, financial condition, and results of operations.

Future changes to the U.S. Munitions List could reduce or eliminate restrictions that currently apply to some of the products we produce. If these regulations or others are changed in a manner that reduces restrictions on products being manufactured overseas, we would likely face an increase in the number of competitors and increased price competition from overseas manufacturers, who are restricted by the current export laws from manufacturing products for U.S. defense systems.

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.

Additionally, our OEM customers often direct a significant portion of their purchases through a relatively limited number of EMS companies. Sales to EMS companies represented approximately 35% of our net sales for both the quarters ended March 29, 2021 and March 30, 2020. 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 business, financial condition, and results of operations would be materially adversely affected.

Our business, financial condition, and results of operations could be materially adversely affected by climate change initiatives.

Our manufacturing processes require that we purchase significant quantities of energy from third parties, which results in the generation of greenhouse gases, either directly on-site or indirectly at electric utilities. Both domestic and international legislation to address climate change by reducing greenhouse gas emissions could create increases in energy costs and price volatility. Considerable international attention is now focused on development of an international policy framework to guide international action to address climate change. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could affect our energy sources and supply choices, as well as increase the cost of energy and raw materials that are derived from sources that generate greenhouse gas emissions.

Competition in the PCB market is intense, and we could lose market share, or our profit margins may decrease, if we are unable to maintain our current competitive position in end markets using our quick-turn, high technology, and high-mix manufacturing services.

The PCB industry is intensely competitive, highly fragmented, and rapidly changing. We expect competition to continue, which could result in price reductions, reduced gross margins, and loss of market share. In addition, we increasingly compete on an international basis, and new and emerging technologies may result in new competitors entering our markets.

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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 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 would cause our gross margins to decline.

We and some of our competitors have reduced average selling prices in the past. In addition, competitors may reduce their average selling prices faster than our ability to reduce costs, which can also accelerate the rate of decline of our selling prices. When prices decline, we may also be required to write down the value of our inventory.

If we are unable to adapt our design and production processes in response to rapid technological change and process development, we may not be able to compete effectively.

The markets for our products and manufacturing services are characterized by rapidly changing technology and continual implementation of new designs and production processes. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities, to design and manufacture products that meet changing customer needs, and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. We expect that the investment necessary to maintain our technological position will increase as customers make demands for products and services requiring more advanced technology on a quicker turnaround basis. For example, in 2021 in our PCB segment, we expect to continue to make significant capital expenditures to expand our HDI, RF technology, and other advanced manufacturing capabilities while in our RF&S Components segment, we are designing products that we hope our customers adopt and incorporate into their products. We may not be able to obtain access to additional sources of funds in order to respond to technological changes as quickly as our competitors. In addition, our failure to adopt and implement technological improvements quickly may cause inefficiencies in our production process as our product yields or quality may decrease, resulting in increased costs, and may lead to customers not adopting our product designs.

We also could encounter competition from new or revised manufacturing, production and design technologies that render existing manufacturing, production and design 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 or if we are not able to design new products acceptable to customers to remain competitive, the development, acquisition, and implementation of those designs, technologies and equipment may require us to make significant capital investments.

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. Since our products are used in products that are integral to our customers’ businesses, errors, defects, or other performance problems could result in financial or other damages to our customers beyond the cost of the PCB, for which we may be liable. Although our invoices and sales arrangements generally contain provisions designed to limit our exposure to product liability and related claims, existing or future laws or unfavorable judicial decisions could negate these limitation of liability provisions. In addition, we manufacture products for a range of automotive customers. If any of our products are or are alleged to be defective, we may be required to participate in a recall of such products. As suppliers become more integral to

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the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contributions when faced with product liability claims or recalls. In addition, vehicle manufacturers, which have traditionally borne the costs associated with warranty programs offered on their vehicles, are increasingly requiring suppliers to guarantee or warrant their products and may seek to hold us responsible for some or all of the costs related to the repair and replacement of parts supplied by us to the vehicle manufacturer.

We may be unable to hire and retain sufficient qualified personnel, and the loss of any of our key executive officers could materially adversely affect our business, financial condition, and results of operations.

We believe that our future success will depend in large part on our ability to attract and retain highly skilled, knowledgeable, sophisticated, and qualified managerial and professional personnel. Furthermore, we have limited patent or trade secret protection for our manufacturing processes and rely on the collective experience of our employees involved in our manufacturing processes to ensure that we continuously evaluate and adopt new technologies in our industry. We may not be able to retain our executive officers and key personnel or attract additional qualified management in the future. We can make no assurances that future changes in executive management will not have a material adverse effect on our business, financial condition, or results of operations. 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.

Infringement of our intellectual property rights could negatively affect us, and we may be exposed to intellectual property infringement claims from third parties that could be costly to defend, could divert management’s attention and resources, and if successful, could result in liability.

We rely on a combination of copyright, patent, trademark, and trade secret laws, confidentiality procedures, contractual provisions, and other measures to establish and protect our proprietary and confidential information. All of these measures afford only limited protection. These measures may be invalidated, circumvented, breached, or challenged, and others may develop intellectual property, technologies or processes that are similar, or superior to, our intellectual property or technology. We may not have adequate controls and procedures in place to protect our proprietary and confidential information. Despite our efforts to protect our intellectual property and proprietary rights, unauthorized parties may attempt to copy, and succeed in copying, our products or may obtain or use information that we regard as proprietary or confidential. If it becomes necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome, costly, and distracting to management, and we may not prevail. Further, adequate remedies may not be available in the event of an unauthorized use or disclosure of our proprietary or confidential information. Failure to successfully establish or enforce our intellectual property rights could materially and adversely affect our business, financial condition, and results of operations. Furthermore, there is a risk that we may infringe on the intellectual property rights of others. As is the case with many other companies in the PCB industry, we from time to time receive communications from third parties asserting patent rights over our products and enter into discussions with such third parties. Irrespective of the validity or the successful assertion of such claims, we could incur costs in either defending or settling any intellectual property disputes alleging infringement. If any claims, whether or not they have merit, are brought against our customers for such infringement, we could be required to expend significant resources in defending such claims, developing non-infringing alternatives or obtaining licenses. We may not be successful in developing such alternatives or in obtaining such licenses on reasonable terms, or at all, and may be required to modify or cease marketing our products or services, which could disrupt the production processes, damage our reputation, and materially and adversely affect our business, financial condition, and results of operations.

Foreign laws may not afford us sufficient protections for our intellectual property, and we may not be able to obtain patent protection outside of the United States.

Certain nations that we operate in may not grant us certain intellectual property rights that are customarily granted in more developed legal systems. Patent law reform in the United States and other countries may also weaken our ability to enforce our patent rights or make such enforcement financially unattractive. For example, despite continuing international pressure on the Chinese government, intellectual property rights protection continues to present significant challenges to foreign investors and, increasingly, Chinese companies. Chinese commercial law is relatively undeveloped compared to the commercial law in our other major markets and only limited protection of intellectual property is available in China as a practical matter. Although we have taken precautions in the operations of our Chinese subsidiaries and in our joint venture agreements to protect our intellectual property, any local design or manufacture of products that we undertake in China could subject us to an increased risk that unauthorized parties will be able to copy or otherwise obtain or use our intellectual property, which could harm our business. We may also have limited legal recourse in the event we encounter patent or trademark infringement. Uncertainties with respect to the Chinese legal system may adversely affect the operations of our Chinese subsidiaries. China has put in place a comprehensive system of intellectual property laws; however, incidents of infringement are common, and enforcement of rights can, in practice, be difficult. If we are unable to manage our intellectual property rights, our business and operating results may be seriously harmed.

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Damage to our manufacturing facilities due to fire, natural disaster, or other events could materially adversely affect our business, financial condition, and results of operations.

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, other natural disasters, required maintenance, or other events could harm us financially, increasing our costs of doing business and limiting our ability to deliver our manufacturing services on a timely basis.

Our insurance coverage with respect to damages to our facilities or our customers’ products caused by natural disasters is limited and is subject to deductibles and coverage limits. Such coverage may not be adequate or continue to be available at commercially reasonable rates and terms.

In the event one or more of our facilities is closed on a temporary or permanent basis as a result of a natural disaster, required maintenance or other event, our operations could be significantly disrupted. Such events could delay or prevent product manufacturing and shipment for the time required to transfer production or repair, rebuild or replace the affected manufacturing facilities. This time frame could be lengthy and result in significant expenses for repair and related costs. While we have disaster recovery plans in place, there can be no assurance that such plans will be sufficient to allow our operations to continue in the event of every natural or man-made disaster, required repair or other extraordinary event. Any extended inability to continue our operations at unaffected facilities following such an event would reduce our revenue and potentially damage our reputation as a reliable supplier.

Risks Related to Our Indebtedness

We have substantial outstanding indebtedness, and our outstanding indebtedness could adversely impact our liquidity and flexibility in obtaining additional financing, our ability to fulfill our debt obligations and our financial condition and results of operations.

We have substantial debt and, as a result, we have significant debt service obligations. We maintain $405.9 million outstanding in a Term Loan Facility due 2024 (Term Loan Facility) at a floating rate of LIBOR plus 2.5%, $500.0 million of Senior Notes due 2029 (Senior Notes due 2029) at an interest rate of 4.0%, and $30.0 million outstanding under a $150.0 million Asia Asset-Based Lending Credit Agreement (Asia ABL). We and a number of our direct and indirect subsidiaries also have various credit facilities and letters of credit. Such agreements also contain certain financial covenants which require us to maintain, under the occurrence of certain events, a consolidated fixed charge coverage ratio.

Subject to the limits contained in the credit agreements governing the Term Loan Facility, the U.S. ABL, the Asia ABL, the indenture governing the Senior Notes due 2029, and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences to us and our shareholders. For example, it could:

 

make it more difficult for us to satisfy our obligations with respect to our indebtedness, which could in turn result in an event of default on such indebtedness;

 

require us to use a substantial portion of our cash flow from operations for debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other investments or general corporate purposes, which may limit our ability to execute our business strategy;

 

diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally and restrict us from exploiting business opportunities or making acquisitions;

 

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or the general economy;

 

increase our vulnerability to general adverse economic and industry conditions, including movements in interest rates, which could result in increased borrowing costs;

 

limit management’s discretion in operating our business; and

 

place us at a competitive disadvantage as compared to our competitors that have less debt as it could limit our ability to capitalize on future business opportunities and to react to competitive pressures or adverse changes.

In addition, the indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility, the U.S. ABL and the Asia ABL contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.

Furthermore, we and our subsidiaries may decide to incur significant additional indebtedness in the future. Although the indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility, the U.S. ABL and the

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Asia ABL will contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness.

Servicing our debt requires a significant amount of cash and we may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.

Based on certain parameters defined in the Term Loan Facility, including a First Lien Leverage Ratio, we may be required to make an additional principal payment on an annual basis if our First Lien Leverage Ratio is greater than 2.0.

Our ability to make scheduled payments on or to refinance our debt obligations and to fund planned capital expenditures and expansion efforts depends on our ability to generate cash in the future and our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain regulatory, competitive, financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional capital (which could include obtaining additional equity capital on terms that may be onerous or highly dilutive) or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The credit agreements governing the Term Loan Facility, the U.S. ABL and the Asia ABL and the indenture governing the Senior Notes due 2029 will restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

In addition, we conduct certain of our operations through our subsidiaries. Accordingly, repayment of our indebtedness may be dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of the Senior Notes due 2029 or our other indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility, the U.S. ABL and the Asia ABL will limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations under our indebtedness.

If we cannot make scheduled payments on our debt, we will be in default and holders of the Senior Notes due 2029 could declare all outstanding principal and interest to be due and payable, the lenders under the Term Loan Facility, the U.S. ABL and the Asia ABL could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.

Regulatory Risks

We are subject to the requirements of the National Industrial Security Program Operating Manual (NISPOM) for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. government.

A facility security clearance is required in order to be awarded and perform on classified contracts for the Department of Defense and certain other agencies of the U.S. government. As a cleared entity, we must comply with the requirements of the NISPOM, and any other applicable U.S. government industrial security regulations. Further, due to the fact that a portion of our voting equity is owned by a non-U.S. entity, we are required to be governed by and operate in accordance with the terms and requirements of a Special Security Agreement (SSA). The terms of the SSA have been previously disclosed in our SEC filings.

If we were to violate the terms and requirements of the SSA, the NISPOM, or any other applicable U.S. government industrial security regulations (which may apply to us under the terms of classified contracts), we could lose our security clearance. We cannot be certain that we will be able to maintain our security clearance. If for some reason our security clearance is invalidated or terminated, we may not be able to continue to perform on classified contracts and would not be able to enter into new classified contracts, which could materially adversely affect our business, financial condition, and results of operations.

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Our operations in China and Hong Kong subject us to risks and uncertainties relating to the laws and regulations of China and Hong Kong.

Under its current leadership, the government of China has been pursuing economic reform policies, including the encouragement of foreign trade and investment. No assurance can be given, however, that the government of China will continue to pursue such policies, that such policies will be successful if pursued, or that such policies will not be significantly altered from time to time, particularly in light of the increasingly tense trade climate with the United States. Despite progress in developing its legal system, China does not have a comprehensive and highly developed system of laws, particularly with respect to foreign investment activities and foreign trade. Enforcement of existing and future laws and contracts is uncertain, and implementation and interpretation thereof may be inconsistent. As the Chinese legal system develops, the promulgation of new laws, changes to existing laws, and the preemption of local regulations by national laws may adversely affect foreign investors. Further, any litigation in China may be protracted and may result in substantial costs and diversion of resources and management’s attention. Also, the evolving landscape of the interrelation between China and Hong Kong may have an adverse impact on our operations in Hong Kong and may impact our ability to attract and maintain necessary talent in that area. In addition, though changes in government policies and rules are timely published or communicated, there is usually no indication of the duration of any grace period before which full implementation and compliance will be required. As a result, it is possible that we might operate our business in violation of new rules and policies before full compliance can be achieved. These uncertainties could limit the legal protections available to us and adversely impact our results of operations.

We are subject to risks for the use of certain metals from “conflict minerals” originating in the Democratic Republic of the Congo.

During the third quarter of 2012, the SEC adopted rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). These rules impose diligence and disclosure requirements regarding the use of “conflict minerals” mined from the Democratic Republic of Congo and neighboring countries. While these new rules continue to be the subject of ongoing litigation and, as a result, uncertainty, we submitted a conflict minerals report on Form SD with the SEC for the past seven years, most recently on May 29, 2020. Compliance with these rules results in additional costs and expenses, including costs and expenses incurred for due diligence to determine and verify the sources of any conflict minerals used in our products, in addition to the costs and expenses of remediation and other changes to products, processes, or sources of supply as a consequence of such verification efforts. These rules may also affect the sourcing and availability of minerals used in the manufacture of our PCBs, as there may be only a limited number of suppliers offering “conflict free” minerals that can be used in our products. There can be no assurance that we will be able to obtain such minerals in sufficient quantities or at competitive prices. Also, since our supply chain is complex, we may, at a minimum, face reputational challenges with our customers, stockholders, and other stakeholders if we are unable to sufficiently verify the origins of the minerals used in our products. We may also encounter customers who require that all of the components of our products be certified as conflict free. If we are not able to meet customer requirements, such customers may choose to disqualify us as a supplier, which could impact our sales and the value of portions of our inventory.

Our failure to comply with the requirements of environmental laws could result in litigation, fines, revocation of permits necessary to our manufacturing processes, or debarment from our participation in federal government contracts.

Our operations are regulated under a number of domestic 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, recycling, 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, the Toxic Substances Control Act, and the Federal Motor Carrier Safety Improvement Act, as well as analogous state, local, and foreign laws. Compliance with these environmental laws is a major consideration for us because our manufacturing processes use and generate materials classified as hazardous. Because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if we fully comply with applicable environmental laws and are not directly at fault for the contamination, we may still be liable. The wastes we generate include spent ammoniacal and cupric etching solutions, metal stripping solutions, waste acid solutions, waste alkaline cleaners, waste oil, and waste waters that contain heavy metals such as copper, tin, lead, nickel, gold, silver, cyanide, and fluoride, and both filter cake and spent ion exchange resins from equipment used for on-site waste treatment.

Environmental law violations, including the failure to maintain required environmental permits, could subject us to fines, penalties, and other sanctions, including the revocation of our effluent discharge permits. This could require us to cease or limit production at one or more of our facilities and could have a material adverse effect on our business, financial condition, and results of operations. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend.

Environmental laws have generally become more stringent and we expect this trend to continue over time, especially in developing countries, imposing greater compliance costs and increasing risks and penalties associated with violation. We operate in

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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 relocation to another global location where prohibitive regulations do not exist. It is possible that environmental compliance costs and penalties from new or existing regulations may materially adversely affect our business, financial condition, and results of operations.

We are increasingly required to certify compliance with various material content restrictions in our products based on laws of various jurisdictions or territories such as the Restriction of Hazardous Substances (RoHS) and Registration, Evaluation, Authorization and Restriction of Chemicals, or REACH directives in the European Union and China’s RoHS legislation. Similar laws have been adopted in other jurisdictions and may become increasingly prevalent. In addition, we must also certify as to the non-applicability of the EU’s Waste Electrical and Electronic Equipment directive for certain products that we manufacture. The REACH directive requires the identification of Substances of Very High Concern, or SVHCs periodically. We must survey our supply chain and certify to the non-presence or presence of SVHCs to our customers. 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 also subject to an increasing variety of environmental laws and regulations in China, which impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage, and disposal of solid and hazardous wastes for us and our vendors that assist us in managing the waste generated by our manufacturing processes. The manufacturing of our products generates gaseous chemical wastes, liquid wastes, waste water, and other industrial wastes from various stages of the manufacturing process. Production sites, waste collectors, and vendors in China are subject to increasing regulation and periodic monitoring by the relevant environmental protection authorities. Environmental claims or the failure to comply with current or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production, or cessation of operations.

The process to manufacture PCBs requires adherence to city, county, state, federal, and foreign environmental laws and regulations regarding the storage, use, handling, and disposal of chemicals, solid wastes, and other hazardous materials, as well as compliance with wastewater and air quality standards. We rely on our vendors for the transportation and disposal of our solid and hazardous wastes generated by our manufacturing processes. If we are not able to find such services, our ability to conduct our business and our results of operations may be adversely impacted. In China, the government has a history of changing legal requirements with no or minimal notice. We believe that our facilities in China comply in all material respects with current applicable environmental laws and regulations and have resources in place to maintain compliance to them. The capital expenditure costs expected for environmental improvement initiatives are included in our annual capital expenditure projections.

Our international sales are subject to laws and regulations relating to corrupt practices, trade, and export controls and economic sanctions. Any non-compliance could have a material adverse effect on our business, financial condition, and results of operations.

We operate on a global basis and are subject to anti-corruption, anti-bribery, and anti-kickback laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act (FCPA). The FCPA and similar anti-corruption, anti-bribery, and anti-kickback laws in other jurisdictions generally prohibit companies and their intermediaries and agents from making improper payments to government officials or any other persons for the purpose of obtaining or retaining business. We operate and sell our products in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-corruption, anti-bribery, and anti-kickback laws may conflict with local customs and practices. We also, from time to time, undertake business ventures with state-owned companies or enterprises.

Our global business operations must also comply with all applicable domestic and foreign export control laws, including International Traffic In Arms Regulations (ITAR) and Export Administration Regulations (EAR). Some items we manufacture are controlled for export by the U.S. Department of Commerce’s Bureau of Industry and Security under EAR.

We train our employees concerning anti-corruption, anti-bribery, and anti-kickback laws and compliance with international regulations regarding trades and exports, and we have policies in place that prohibit employees from making improper payments. We cannot provide assurances that our internal controls and procedures will guarantee compliance by our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption, anti-bribery, or anti-kickback laws in international jurisdictions or for violations of ITAR, EAR, or other similar regulations regarding trades and exports, either due to our own acts or out of inadvertence, or due to the inadvertence of others, we could suffer criminal or civil fines or penalties or other repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations.

Our global business operations also must be conducted in compliance with applicable economic sanctions laws and regulations, such as laws administered by the U.S. Department of the Treasury’s Office of Foreign Asset Control, the U.S. State Department, and the U.S. Department of Commerce. We must comply with all applicable economic sanctions laws and regulations of the United States and other countries. Imposition of economic sanction laws and regulations on a company or country could impact our revenue levels. Violations of these laws or regulations could result in significant additional sanctions including criminal or civil fines or

43


 

penalties, more onerous compliance requirements, more extensive debarments from export privileges, or loss of authorizations needed to conduct aspects of our international business.

In certain countries, we may engage third-party agents or intermediaries, such as customs agents, to act on our behalf, and if these third-party agents or intermediaries violate applicable laws, their actions may result in criminal or civil fines or penalties or other sanctions being assessed against us. We take specific measures designed to ensure our compliance with U.S. export and economic sanctions laws, anti-corruption laws and regulations, and export control laws. However, it is possible that some of our products were sold or will be sold to distributors or other parties, without our knowledge or consent, in violation of applicable law. There can be no assurances that we will be in compliance in the future. Any such violation could result in significant criminal or civil fines, penalties, or other sanctions and repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations.

Other Risks

We may need additional capital in the future to fund investments in our operations, refinance our indebtedness, and to maintain and grow our business, and such capital may not be available on a timely basis, on acceptable terms, or at all.

Our business is capital-intensive, and our ability to increase revenue, profit, and cash flow depends upon continued capital spending. To the extent that the funds generated by our ongoing operations are insufficient to cover our liquidity requirements, we may need to raise additional funds through financings. If we are unable to fund our operations and make capital expenditures as currently planned or if we do not have sufficient liquidity to service the interest and principal payments on our debt, it would have a material adverse effect on our business, financial condition, and results of operations. If we do not achieve our expected operating results, we would need to reallocate our sources and uses of operating cash flows. This may include borrowing additional funds to service debt payments, which may impair our ability to make investments in our business. Looking ahead at long-term needs, we may need to raise additional funds for a number of purposes, including the following:

 

to fund capital equipment purchases to increase production capacity, upgrade and expand our technological capabilities and replace aging equipment or introduce new products;

 

to refinance our existing indebtedness;

 

to fund our current or planned operations;

 

to fund working capital requirements for future growth that we may experience;

 

to enhance or expand the range of services we offer;

 

to increase our sales and marketing activities; or

 

to respond to competitive pressures or perceived opportunities, such as investment, acquisition, and international expansion activities.

Should we need to raise funds through incurring additional debt, we may become subject to covenants even more restrictive than those contained in our current debt instruments. There can be no assurance that additional capital, including any future equity or debt financing, would be available on a timely basis, on favorable terms, or at all. If such funds are not available to us when required or on acceptable terms, our business, financial condition, and results of operations could be materially adversely affected.

Outages, computer viruses, break-ins, and similar events could disrupt our operations, and breaches of our security systems may cause us to incur significant legal and financial exposure.

We rely on information technology networks and systems, some of which are owned and operated by third parties, to collect, process, transmit, and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing, and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, hacking, terrorist attacks, and similar events. In addition, in the ordinary course of our business, we collect and store sensitive data in our data centers and on our networks, including intellectual property, our proprietary and confidential business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees. The secure collection, processing, storage, maintenance and transmission of this information is critical to our operations. Despite the implementation of network security measures, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins, cyber-attacks, attacks by hackers or breaches due to employee or third party (including suppliers and business partners) error, malfeasance or other disruptions. If we or our vendors are unable to prevent such outages and breaches, our operations could be disrupted. If unauthorized parties gain access to our information systems or such information is used in an unauthorized manner, misdirected, altered, lost, or stolen during transmission, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers that we have not performed our contractual obligations, loss of customers, litigation by affected parties, and possible financial obligations for

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damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business, financial condition, and results of operations.

Issues arising during the upgrade of our enterprise resource planning system could affect our operating results and ability to manage our business effectively.

We are continuing the process of upgrading our enterprise resource planning, or ERP, management system to enhance operating efficiencies and provide more effective management of our business operations. We are investing significant financial and personnel resources into this project. However, there is no assurance that the system upgrade will meet our current or future business needs or that it will operate as designed. The transition to the new ERP system will affect numerous systems necessary for our operation. If we fail to correctly implement one or more components of the ERP system, we could experience significant disruption to our operations. Such disruptions could include, among other things, temporary loss of data, inability to process certain orders, failure of systems to communicate with each other and the inability to track or reconcile key data. We are heavily dependent on automated management systems, and any significant failure or delay in the system upgrade could cause a substantial interruption to our business and additional expense, which could result in an adverse impact on our operating results, cash flows or financial condition.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal, state and foreign income tax purposes is subject to limitations, and future transfers of shares of our common stock could cause us to experience an “ownership change” that could further limit our ability to utilize our net operating losses.

Under U.S. federal income tax law, a corporation’s ability to utilize its net operating losses (NOL’s) to offset future taxable income may be significantly limited if it experiences an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended. In general, an ownership change will occur if there is a cumulative change in a corporation’s ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period.

A corporation that experiences an ownership change will generally be subject to an annual limitation on its pre-ownership change NOLs equal to the value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate (subject to certain adjustments). The annual limitation for a taxable year is generally increased by the amount of any “recognized built-in gains” for such year and the amount of any unused annual limitation in a prior year. As a result of our acquisition of Viasystems, the NOLs acquired were subject to this limitation. Future transfers or sales of our common stock during a rolling three-year period by any of our “5-percent shareholders” could cause us to experience an ownership change under Section 382, which could further limit our use of NOL.

If our net earnings do not remain at or above recent levels, or we are not able to predict with a reasonable degree of probability that they will continue, we may have to record a valuation allowance against our net deferred income tax assets.

Our U.S. entities and certain of our foreign subsidiaries have deferred income tax assets. Based on our forecast for future taxable earnings, we believe we will utilize the deferred income tax assets in future periods except with respect to certain amounts where we have recorded valuation allowances. If our estimates of future earnings decline, we may have to increase our valuation allowance against our net deferred income tax assets, resulting in a higher income tax provision, which would reduce our results of operations.

Unanticipated changes in our tax rates or in our assessment of the realizability of our deferred income tax assets or exposure to additional income tax liabilities could affect our business, financial condition, and results of operations.

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 materially adversely affected by changes in the mix of earnings in countries and states with differing statutory tax rates, changes in the valuation of deferred income tax assets and liabilities, changes in tax laws, as well as other factors. Our tax determinations are regularly subject to audit by tax authorities, and developments in those audits could adversely affect our income tax provision. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions, which could materially adversely affect our business, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 3, 2021, we announced that our Board of Directors authorized and approved a share repurchase program. Under the program, we may repurchase up to $100.0 million in value of our outstanding shares of common stock from time to time through February 3, 2023. No shares have been purchased under the program. This program will continue until the maximum is reached or the program is terminated by further action of our Board of Directors.

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Item 6. Exhibits

 

Exhibit
Number 

 

Exhibits 

 

 

 

3.1(a)

 

Registrant’s Certificate of Incorporation, as amended June 3, 2011 (1(a))

3.1(b)

 

Registrant’s Certificate of Amendment of Certificate of Incorporation, dated May 12, 2016 (1(b))

3.2

 

Registrant’s Fourth Amended and Restated Bylaws, as amended March 2, 2016 (2)

4.1

 

Indenture dated as of March 10, 2021, by and among the Company, the Guarantors named therein, and Wilmington Trust, National Association, as Trustee (3)

4.2

 

Form of 4.000% Senior Notes due 2029 (4)

4.3

 

Second Supplemental Indenture dated as of March 9, 2021 by and among the Company, the Guarantors named therein, and Wilmington Trust, National Association, as Trustee (3)

31.1*

 

CEO Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002

31.2*

 

CFO Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002

32.1*

 

CEO Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002

32.2*

 

CFO Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Documents

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Documents

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Documents

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Documents

 

 

 

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

(1)

Incorporated by reference (a) to the Registrant’s Current Report on Form 8-K as filed with the Commission on June 6, 2011 and (b) to the Registrant’s Form 8-K as filed with the Commission on May 18, 2016.

(2)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on March 8, 2016.

(3)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the Commission on March 10, 2021.

(4)

Included as exhibits to the Indenture filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed with the Commission on March 10, 2021.

*

Filed herewith

 

 

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SIGNATURES

Pursuant to the requirements 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.

 

 

 

 

 

/s/  Thomas T. Edman

 

 

 

Dated: May 5, 2021

 

Thomas T. Edman

 

 

President and Chief Executive Officer

 

 

 

 

 

/s/  Todd B. Schull

 

 

 

Dated: May 5, 2021

 

Todd B. Schull

 

 

Executive Vice President and Chief Financial Officer

 

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