10-Q 1 ttmi-10q_20180402.htm 10-Q ttmi-10q_20180402.htm

 

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 April 2, 2018

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.)

1665 Scenic Avenue Suite 250, Costa Mesa, California 92626

(Address of principal executive offices)

(714) 327-3000

(Registrant’s telephone number, including area code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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. Check one:

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

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 1, 2018: 103,445,382

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

Page

PART I: FINANCIAL INFORMATION

 

3

Item 1. Financial Statements (unaudited)

 

3

Consolidated Condensed Balance Sheets as of April 2, 2018 and January 1, 2018

 

3

Consolidated Condensed Statements of Operations for the quarters ended April 2, 2018 and April 3, 2017

 

4

Consolidated Condensed Statements of Comprehensive Income for the quarters ended April 2, 2018 and April 3, 2017

 

5

Consolidated Condensed Statements of Cash Flows for the quarters ended April 2, 2018 and April 3, 2017

 

6

Notes to Consolidated Condensed Financial Statements

 

7

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

 

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

27

Item 4. Controls and Procedures

 

27

PART II: OTHER INFORMATION

 

28

Item 1. Legal Proceedings

 

28

Item 1A. Risk Factors

 

28

Item 6. Exhibits

 

47

SIGNATURES

 

48

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TTM TECHNOLOGIES, INC.

Consolidated Condensed Balance Sheets

 

 

 

As of

 

 

 

April 2,

 

 

January 1,

 

 

 

2018

 

 

2018

 

 

 

(Unaudited)

 

 

 

(In thousands, except par value)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

352,576

 

 

$

409,326

 

Accounts receivable, net

 

 

504,914

 

 

 

483,903

 

Contract assets

 

 

275,022

 

 

 

 

Inventories

 

 

82,116

 

 

 

294,588

 

Prepaid expenses and other current assets

 

 

32,966

 

 

 

33,490

 

Total current assets

 

 

1,247,594

 

 

 

1,221,307

 

Property, plant and equipment, net

 

 

1,039,751

 

 

 

1,056,845

 

Goodwill

 

 

372,571

 

 

 

372,571

 

Definite-lived intangibles, net

 

 

97,088

 

 

 

102,950

 

Deposits and other non-current assets

 

 

29,345

 

 

 

28,209

 

 

 

$

2,786,349

 

 

$

2,781,882

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term debt, including current portion of long-term debt

 

$

4,616

 

 

$

4,578

 

Accounts payable

 

 

487,818

 

 

 

497,455

 

Accrued salaries, wages and benefits

 

 

82,932

 

 

 

103,638

 

Other accrued expenses

 

 

102,162

 

 

 

114,685

 

Total current liabilities

 

 

677,528

 

 

 

720,356

 

Long-term debt, net of discount and issuance costs

 

 

977,413

 

 

 

975,479

 

Other long-term liabilities

 

 

77,078

 

 

 

74,667

 

Total long-term liabilities

 

 

1,054,491

 

 

 

1,050,146

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000 shares authorized,

   103,445 and 101,820 shares issued and outstanding in

   2018 and 2017, respectively

 

 

103

 

 

 

102

 

Additional paid-in capital

 

 

780,646

 

 

 

777,025

 

Retained earnings

 

 

232,013

 

 

 

193,342

 

Statutory surplus reserve

 

 

37,508

 

 

 

37,508

 

Accumulated other comprehensive income

 

 

4,060

 

 

 

3,403

 

Total TTM Technologies, Inc. stockholders’ equity

 

 

1,054,330

 

 

 

1,011,380

 

 

 

$

2,786,349

 

 

$

2,781,882

 

 

See accompanying notes to consolidated condensed financial statements.

 

3


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Operations

For the Quarters Ended April 2, 2018 and April 3, 2017

 

 

 

Quarter ended

 

 

 

April 2,

 

 

April 3,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

663,582

 

 

$

625,247

 

Cost of goods sold

 

 

574,904

 

 

 

520,228

 

Gross profit

 

 

88,678

 

 

 

105,019

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

17,628

 

 

 

16,655

 

General and administrative

 

 

35,188

 

 

 

29,882

 

Amortization of definite-lived intangibles

 

 

5,861

 

 

 

5,912

 

Total operating expenses

 

 

58,677

 

 

 

52,449

 

Operating income

 

 

30,001

 

 

 

52,570

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(13,747

)

 

 

(13,596

)

Other, net

 

 

(1,107

)

 

 

(1,710

)

Total other expense, net

 

 

(14,854

)

 

 

(15,306

)

Income before income taxes

 

 

15,147

 

 

 

37,264

 

Income tax provision

 

 

(5,050

)

 

 

(4,139

)

Net income

 

 

10,097

 

 

 

33,125

 

Less: Net income attributable to the noncontrolling interest

 

 

 

 

(166

)

Net income attributable to TTM Technologies, Inc. stockholders

 

$

10,097

 

 

$

32,959

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to TTM Technologies, Inc. stockholders:

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.10

 

 

$

0.33

 

Diluted earnings per share

 

$

0.09

 

 

$

0.28

 

 

See accompanying notes to consolidated condensed financial statements.

 

4


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Comprehensive Income  

For the Quarters Ended April 2, 2018 and April 3, 2017

 

 

 

Quarter ended

 

 

 

April 2,

 

 

April 3,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Net income

 

$

10,097

 

 

$

33,125

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

 

622

 

 

 

6,619

 

Net unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized (loss) gain on effective cash flow hedges during the period, net

 

 

(6

)

 

 

68

 

Loss realized in net earnings

 

 

41

 

 

 

44

 

Net

 

 

35

 

 

 

112

 

Other comprehensive income, net of tax

 

 

657

 

 

 

6,731

 

Comprehensive income

 

 

10,754

 

 

 

39,856

 

Less: Comprehensive income attributable to the noncontrolling interest

 

 

 

 

(166

)

Comprehensive income attributable to TTM Technologies, Inc. stockholders

 

$

10,754

 

 

$

39,690

 

 

See accompanying notes to consolidated condensed financial statements.

5


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Cash Flows

For the Quarters Ended April 2, 2018 and April 3, 2017

 

 

 

Quarter ended

 

 

 

April 2,

 

 

April 3,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,097

 

 

$

33,125

 

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

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

39,775

 

 

 

36,077

 

Amortization of definite-lived intangible assets

 

 

5,861

 

 

 

5,912

 

Amortization of debt discount and issuance costs

 

 

3,029

 

 

 

2,601

 

Stock-based compensation

 

 

3,622

 

 

 

3,628

 

Other

 

 

(439

)

 

 

394

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(12,840

)

 

 

13,448

 

Contract Assets

 

 

(14,368

)

 

 

Inventories

 

 

(11,104

)

 

 

(5,880

)

Prepaid expenses and other current assets

 

 

1,015

 

 

 

(3,582

)

Accounts payable

 

 

8,657

 

 

 

(9,475

)

Accrued salaries, wages and benefits and other accrued expenses

 

 

(47,566

)

 

 

(26,664

)

Net cash (used in) provided by operating activities

 

 

(14,261

)

 

 

49,584

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment and equipment deposits

 

 

(42,192

)

 

 

(33,259

)

Proceeds from sale of property, plant and equipment and assets held for sale

 

 

53

 

 

 

9,881

 

Net cash used in investing activities

 

 

(42,139

)

 

 

(23,378

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of long-term debt borrowing

 

 

(875

)

 

 

Proceeds from exercise of stock options

 

 

 

 

74

 

Net cash (used in) provided by financing activities

 

 

(875

)

 

 

74

 

Effect of foreign currency exchange rates on cash and cash equivalents

 

 

525

 

 

 

314

 

Net (decrease) increase in cash and cash equivalents

 

 

(56,750

)

 

 

26,594

 

Cash and cash equivalents at beginning of period

 

 

409,326

 

 

 

256,277

 

Cash and cash equivalents at end of period

 

$

352,576

 

 

$

282,871

 

 

 

 

 

 

 

 

 

 

Noncash transactions:

 

 

 

 

 

 

 

 

Property, plant and equipment recorded in accounts payable

 

 

65,927

 

 

$

44,560

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

6


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 complex PCBs and electro-mechanical solutions (E-M Solutions). The Company provides time-to-market and volume production of advanced technology products and offers a one-stop manufacturing solution to customers from engineering support to prototype development through final mass production. This one-stop manufacturing solution enables 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, automotive components, smartphones and touchscreen tablets, high-end computing, 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. 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. 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 results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 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. 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.

 

Recently Adopted and Issued Accounting Standards  

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces most existing revenue recognition guidance in U.S. GAAP, including industry specific requirements, and provides companies with a single revenue recognition model for recognizing revenue of contracts with customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The Company assessed the new guidance and adopted the new revenue standard on January 2, 2018, which resulted in a change to the timing of revenue recognition for the Company’s revenue stream from “point in time” upon physical delivery to an “over time” model. Additionally, the Company has elected the cumulative effect transition method with adjustment to the opening balance of retained earnings at January 2, 2018 for all open contracts as of January 1, 2018. Therefore, comparative information has not been adjusted and continues to be reported under previous U.S. GAAP guidance for the consolidated balance sheet at January 1, 2018 and the consolidated condensed statement of operations for the quarter ended April 3, 2017.

7


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The cumulative effect of the changes made to the Company’s January 2, 2018 consolidated condensed balance sheet for the adoption of the new revenue standard were as follows:

 

 

 

Balance at January 1, 2018

 

 

New Revenue Standard Adjustment

 

 

Balance at January 2, 2018

 

 

 

(In thousands)

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

483,903

 

 

$

8,171

 

 

$

492,074

 

Contract assets

 

 

 

 

 

260,654

 

 

 

260,654

 

Inventories

 

 

294,588

 

 

 

(223,576

)

 

 

71,012

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

 

114,685

 

 

 

13,384

 

 

 

128,069

 

Other long-term liabilities

 

 

74,667

 

 

 

3,291

 

 

 

77,958

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

193,342

 

 

 

28,574

 

 

 

221,916

 

 

As part of adoption of the new revenue standard, the Company recorded an estimated sales returns and allowance as well as a noncurrent deferred tax liability in the amount of $5,213 and $3,291, respectively, as of January 2, 2018.  Additionally, the Company reclassified its sales returns and allowance balance of $8,171 as of January 1, 2018, from trade accounts receivable to other accrued liabilities. Sales returns and allowances are recorded as a reduction of revenue and a component of accrued liabilities on the condensed consolidated balance sheet.

 

Additionally, the below disclosure summarizes the impact of the adoption of new revenue standard on the Company’s consolidated condensed balance sheet, statement of operations and statement of cash flows for the quarter ended April 2, 2018 for which the As Reported reflects the new revenue standard and Balances without New Revenue Standard Adjustment reflects the Company’s replaced revenue recognition policy of “point in time” and upon physical delivery.

 

 

 

April 2, 2018

 

 

 

As reported

 

 

Effect of

Change

Increase

(Decrease)

 

 

Balances

without New Revenue Standard Adjustment

 

 

 

(In thousands)

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

504,914

 

 

$

8,171

 

 

$

496,743

 

Contract assets

 

 

275,022

 

 

 

275,022

 

 

 

 

Inventories

 

 

82,116

 

 

 

(235,557

)

 

 

317,673

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

 

102,162

 

 

 

13,671

 

 

 

88,491

 

Other long-term liabilities

 

 

77,078

 

 

 

3,163

 

 

 

73,915

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

232,013

 

 

 

30,801

 

 

 

201,212

 

 

 

 

April 2, 2018

 

 

 

As reported

 

 

Effect of

Change

Increase

 

 

Balances

without New Revenue Standard Adjustment

 

 

 

(In thousands)

 

Net sales

 

$

663,582

 

 

$

14,081

 

 

$

649,501

 

Cost of goods sold

 

 

574,904

 

 

 

11,981

 

 

 

562,923

 

Gross profit

 

 

88,678

 

 

 

2,100

 

 

 

86,578

 

Net income

 

 

10,097

 

 

 

2,227

 

 

 

7,870

 

8


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

 

 

April 2, 2018

 

 

 

As reported

 

 

Effect of

Change

Increase

(Decrease)

 

 

Balances

without New Revenue Standard Adjustment

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,097

 

 

$

2,227

 

 

$

7,870

 

Adjustments to reconcile net income to net cash

    used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

(439

)

 

 

(127

)

 

 

(312

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(12,840

)

 

 

 

 

 

(12,840

)

Contract assets

 

 

(14,368

)

 

 

(14,368

)

 

 

 

Inventories

 

 

(11,104

)

 

 

11,981

 

 

 

(23,085

)

Accrued salaries, wages and benefits and other accrued expenses

 

 

(47,566

)

 

 

287

 

 

 

(47,853

)

 

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 also amends the guidance surrounding the recognition of the value of hedged instruments to include the entire change in value, rather than just the effective portion, in other comprehensive income and recognized in earnings at the same time that the hedged item affects earnings for cash flow and net investment hedges. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. While the Company continues to evaluate the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures, the primary effect of adopting this update will be to record assets and liabilities for existing operating leases.

 

(2) Summary of Significant Accounting Policies

Revenue Recognition

The Company derives revenues primarily from the sale of PCBs and custom electronic assemblies using customer-supplied engineering and design plans. Orders for products generally correspond to the production schedules of the Company’s customers and are supported with firm purchase orders. The Company’s customers have continuous transfer of control of the work in progress and finished goods as PCBs are being manufactured, as PCBs are built to customer specifications and do not have an alternative use. The customer typically controls the work in progress and finished goods as evidenced either by contractual termination clauses or by the Company’s rights to payment for work performed to date, plus a reasonable profit. As a result, in light of the Company’s adoption of the “over time” revenue standard as discussed in Note 1 Nature of Operations and Basis of Presentation─Recently Adopted and Issued Accounting Standards, beginning in the first quarter of 2018, the Company now recognizes revenue progressively over time based on the extent of progress towards completion of the performance obligation.

The selection of the method to measure progress toward completion requires judgment and is based on the type of PCB or customized electronic assemblies being manufactured. The Company uses the cost-to-cost method as it best depicts the transfer of control to the customer which takes place as we incur costs. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

The Company provides customers a limited right of return for defective PCBs and backplane assemblies. The Company accrues an estimate for sales returns and allowances progressively over time based on the extent of progress towards completion of the performance obligation using the Company’s judgment based on historical results and anticipated returns.  To the extent actual experience varies from our historical experience, revisions to the sales returns and allowances accrual may be required. Sales returns and allowances are recorded as a reduction of revenue and included as a component of accrued liabilities on the condensed consolidated balance sheet.

9


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The Company has two revenue streams which coincide with the Company’s reportable segments of PCB and E-M Solutions. See Note 14 Segment Information.

 

(3) Contract Asset

A contract asset is recognized when the Company has recognized revenue, but not issued an invoice for payment.  Contract assets are classified as current assets and transferred to receivables when the entitlement to payment becomes unconditional. All of the Company’s contract assets are generally converted to trade account receivables within 90 days, at which time the Company is entitled to payment of the fixed price upon delivery of the finished product. Contract assets were $275,022 as of April 2, 2108 and represent unbilled amounts for work performed to date, plus a reasonable profit. There were no contract assets as of January 1, 2018.

(4) Goodwill

As of April 2, 2018 and January 1, 2018, goodwill was as follows:

 

 

 

Total

 

 

 

(In thousands)

 

Balance as of January 1, 2018 and April 2, 2018

 

 

 

 

Goodwill

 

$

543,971

 

Accumulated impairment losses

 

 

(171,400

)

 

 

$

372,571

 

 

All goodwill relates to the Company’s PCB reportable segment.

(5) Definite-lived Intangibles

As of April 2, 2018 and January 1, 2018, the components of definite-lived intangibles were as follows:

 

 

 

Gross

Amount

 

 

Accumulated Amortization

 

 

Foreign

Currency

Translation

Adjustment

 

 

Net

Carrying

Amount

 

Weighted

Average

Amortization

Period

 

 

 

(In thousands)

 

(years)

 

April 2, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

203,634

 

 

$

(106,700

)

 

$

 

 

$

96,934

 

 

8.1

 

Technology

 

 

3,000

 

 

 

(2,846

)

 

 

 

 

 

154

 

 

3

 

 

 

$

206,634

 

 

$

(109,546

)

 

$

 

 

$

97,088

 

 

 

 

January 1, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

203,563

 

 

$

(101,089

)

 

$

72

 

 

$

102,546

 

 

8.1

 

Technology

 

 

3,000

 

 

 

(2,596

)

 

 

 

 

 

404

 

 

3

 

 

 

$

206,563

 

 

$

(103,685

)

 

$

72

 

 

$

102,950

 

 

 

 

 

The January 1, 2018 definite-lived intangible balances include foreign currency translation adjustments related to foreign subsidiaries with functional currencies other than the U.S. Dollar.

Definite-lived intangibles are generally amortized using the straight line method of amortization over the useful life, with the exception of certain customer relationship intangibles, which are amortized using an accelerated method of amortization based on estimated cash flows. Amortization expense was $5,861 and $5,912 for the quarters ended April 2, 2018 and April 3, 2017, respectively.

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

 

 

 

(In thousands)

 

Remaining 2018

 

$

17,001

 

2019

 

 

18,746

 

2020

 

 

18,746

 

2021

 

 

14,921

 

2022

 

 

12,329

 

Thereafter

 

 

15,345

 

 

 

$

97,088

 

10


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

(6) Long-term Debt and Letters of Credit

 

The following table summarizes the long-term debt of the Company as of April 2, 2018 and January 1, 2018:

 

 

Interest Rate

as of April 2,

2018

 

 

Principal

Outstanding as of

April 2, 2018

 

 

Interest Rate

as of January 1,

2018

 

 

Principal

Outstanding as of

January 1, 2018

 

 

 

(In thousands)

 

Term Loan due September 2024

 

4.38%

 

 

$

348,250

 

 

4.06%

 

 

$

349,125

 

Senior Notes due October 2025

 

5.63%

 

 

 

375,000

 

 

5.63%

 

 

 

375,000

 

Convertible Senior Notes due December 2020

 

1.75%

 

 

 

249,985

 

 

1.75%

 

 

 

249,985

 

U.S. ABL Revolving Loan due May 2020

 

3.13%

 

 

 

17,000

 

 

3.06%

 

 

 

17,000

 

Asia ABL Revolving Loan due May 2020

 

3.28%

 

 

 

30,000

 

 

2.96%

 

 

 

30,000

 

Capital Lease

 

6.43%

 

 

 

1,987

 

 

6.43%

 

 

 

1,919

 

 

 

 

 

 

 

 

1,022,222

 

 

 

 

 

 

 

1,023,029

 

Less: Long-term debt unamortized discount

 

 

 

 

 

 

(28,225

)

 

 

 

 

 

 

(30,513

)

Long-term debt unamortized debt issuance costs

 

 

 

 

 

 

(11,968

)

 

 

 

 

 

 

(12,459

)

 

 

 

 

 

 

 

982,029

 

 

 

 

 

 

 

980,057

 

Less: current maturities

 

 

 

 

 

 

(4,616

)

 

 

 

 

 

 

(4,578

)

Long-term debt, less current maturities

 

 

 

 

 

$

977,413

 

 

 

 

 

 

$

975,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan Facility

During the fiscal year 2017, the Company entered into a $350,000 Term Loan Facility due 2024. The Term Loan Facility, of which $3,500 is included in short-term debt and $344,750 is included in long-term debt, was issued at a discount at 99.5% and bears interest, at the Company’s option, at a floating rate of LIBOR, plus an applicable interest margin of 2.5%, or an alternate base rate, (defined as the greater of the JP Morgan prime, the New York Fed bank rate plus 0.9% or LIBOR plus 1.0%), subject to a 1.0% floor plus an applicable margin of 1.5%. At April 2, 2018 the interest rate on the outstanding borrowings under the Term Loan Facility was 4.38%. There is no provision, other than an event of default, for the interest margin to increase. The Term Loan Facility will mature on September 28, 2024. The Term Loan Facility is secured by a significant amount of the domestic assets of the Company and a pledge of 65% of voting stock of the Company’s first tier foreign subsidiaries and is structurally senior to the Company’s Senior Notes and Convertible Senior Notes. See Senior Notes and Convertible Senior Notes below.

The Company is required to make scheduled payments of the outstanding Term Loan Facility on a quarterly basis beginning January 1, 2018. Based on certain parameters defined in the Term Loan Facility, including a First Lien Leverage Ratio, the Company may be required to make an additional principal payment on an annual basis beginning after fiscal year 2018, if the Company’s First Lien Leverage Ratio is greater than 2.0. Any additional annual payments or prepayments would reduce future required scheduled payments. Any remaining outstanding balance under the Term Loan Facility are due at the maturity date of September 28, 2024.

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

Senior Notes

The $375,000 of Senior Notes, which is included in long-term debt, bear interest at a rate of 5.63% per annum. Interest is payable semiannually in arrears on April 1 and October 1 of each year beginning April 1, 2018. The Senior Notes will mature on October 1, 2025.

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

 

Convertible Senior Notes due 2020

The Company maintains 1.75% convertible senior notes in the amount of $249,985 due December 15, 2020. The convertible senior notes bear interest at a rate of 1.75% per annum. Interest is payable semiannually in arrears on June 15 and December 15 of each year. The convertible senior notes are senior unsecured obligations and rank equally to the Company’s future unsecured senior indebtedness and are senior in right of payment to any of the Company’s future subordinated indebtedness.

11


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

As of April 2, 2018 and January 1, 2018, the following summarizes the equity components of the convertible senior notes included in additional paid-in capital:

 

 

 

As of April 2, 2018 and January 1, 2018

 

 

 

Embedded

conversion

option —

Convertible

Senior Notes

 

 

Embedded

conversion

option —

Convertible

Senior Notes

Issuance

Costs

 

 

Total

 

 

 

(in thousands)

 

Convertible senior notes due 2020

 

$

60,216

 

 

$

(1,916

)

 

$

58,300

 

 

The components of interest expense resulting from the convertible senior notes for the quarters ended April 2, 2018 and April 3, 2017 are as follows:

 

 

 

Quarter Ended

 

 

 

April 2,

 

 

April 3,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Contractual coupon interest

 

$

1,094

 

 

$

1,094

 

Amortization of debt discount

 

$

2,230

 

 

$

2,091

 

Amortization of debt issuance costs

 

$

224

 

 

$

209

 

 

Asset-Based Lending Agreements

The Company maintains a $200,000 U.S. Asset-Based Lending Credit Agreement (U.S. ABL), and a $150,000 Asia Asset-Based Lending Credit Agreement (Asia ABL) (collectively the ABL Revolving Loans).

The U.S. ABL consists of three tranches comprised of a revolving credit facility for up to $200,000, a letter of credit facility for up to $50,000, and swingline loans for up to $30,000, provided that at no time may amounts outstanding under the tranches exceed in aggregate $200,000 or the applicable borrowing base, which is a percentage of the principal amount of Eligible Accounts, as defined in the U.S. ABL agreement. Borrowings under the U.S. ABL bear interest at either a floating rate of LIBOR plus a margin of 125 basis points or JP Morgan Chase Bank’s prime rate plus a margin of 25 basis points, at the Company’s option. At April 2, 2018, the interest rate on the outstanding borrowings under the U.S. ABL was 3.13%. The applicable margin can vary based on the remaining availability of the facility, from 125 to 175 basis points for LIBOR-based loans and from 25 to 75 basis points for JP Morgan Chase Bank’s prime rate-based loans. Other than availability and an event of default, there are no other provisions for the interest margin to increase. The U.S. ABL will mature on May 31, 2020. Loans made under the U.S. ABL are secured first by all of the Company’s domestic cash, receivables and certain inventories as well as by a second position against a significant amount of the domestic assets of the Company and a pledge of 65% of the voting stock of the Company’s first tier foreign subsidiaries and are structurally senior to the Company’s Senior Notes and Convertible Senior Notes. See Senior Notes and Convertible Senior Notes above. At April 2, 2018, $17,000 of the U.S. ABL was outstanding and classified as long-term debt, which is consistent with its maturity date.

The Asia ABL consists of two tranches comprised of a revolving credit facility for up to $150,000 and a letter of credit facility for up to $100,000, provided that at no time may amounts outstanding under both tranches exceed in aggregate $150,000 or the applicable borrowing base, which is a percentage of the principal amount of Eligible Accounts, as defined in the Asia ABL agreement. Borrowings under the Asia ABL bear interest at a floating rate of LIBOR plus 140 basis points. At April 2, 2018, the interest rate on the outstanding borrowings under the Asia ABL was 3.28%. There is no provision, other than an event of default, for the interest margin to increase. The Asia ABL will mature on May 22, 2020. Loans made under the Asia ABL are secured by a portion of the Company’s Asia Pacific cash and receivables and are structurally senior to the Company’s domestic obligations, including the Senior Notes and Convertible Senior Notes. See Senior Notes and Convertible Senior Notes above. At April 2, 2018, $30,000 of the Asia ABL was outstanding and classified as long-term debt, which is consistent with its maturity date.

The Company has up to $50,000 and $100,000 Letters of Credit Facilities under the U.S. ABL and the Asia ABL, respectively. As of April 2, 2018, letters of credit in the amount of $7,252 were outstanding under the U.S. ABL and $26,976 were outstanding under the Asia ABL with various expiration dates through June 2019. Available borrowing capacity under the U.S. ABL and the Asia ABL was $175,748 and $93,024, respectively, which considers letters of credit outstanding at April 2, 2018.

12


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The Company is required to pay a commitment fee of 0.25% to 0.375% per annum on any unused portion of the U.S. ABL or Asia ABL. The Company incurred total commitment fees related to unused borrowing availability of $241 and $187 for the quarters ended April 2, 2018 and April 3, 2017, respectively. Under the occurrence of certain events, the ABL Revolving Loans are subject to various financial and operational covenants, including maintaining minimum fixed charge coverage ratios.

Other Credit Facility

Additionally, the Company is party to a revolving loan credit facility (Chinese Revolver) with a lender in China. Under this arrangement, the lender has made available to the Company approximately $33,400 in unsecured borrowing with all terms of the borrowing to be negotiated at the time the Chinese Revolver is drawn upon. There are no commitment fees on the unused portion of the Chinese Revolver, and this arrangement expires in January 2019. As of April 2, 2018, the Chinese Revolver had not been drawn upon.

Debt Issuance and Debt Discount

As of April 2, 2018 and January 1, 2018, remaining unamortized debt discount and debt issuance costs for the Term Loan Facility, Senior Notes and Convertible Senior Notes are as follows:

 

 

 

As of April 2, 2018

 

 

As of January 1, 2018

 

 

 

Debt

Issuance Costs

 

 

Debt

Discount

 

 

Effective

Interest Rate

 

 

Debt

Issuance Costs

 

 

Debt

Discount

 

 

Effective

Interest Rate

 

 

 

(in thousands)

 

Term Loan due September 2024

 

$

2,695

 

 

$

1,636

 

 

 

3.96

%

 

$

2,788

 

 

$

1,691

 

 

 

3.96

%

Senior Notes due October 2025

 

 

6,608

 

 

 

 

 

5.92

%

 

 

6,782

 

 

 

 

 

5.92

%

Convertible Senior Notes

 

 

2,665

 

 

 

26,589

 

 

 

6.48

%

 

 

2,889

 

 

 

28,822

 

 

 

6.48

%

 

 

$

11,968

 

 

$

28,225

 

 

 

 

 

 

$

12,459

 

 

$

30,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 $2,171 and $2,421 as of April 2, 2018 and January 1, 2018, 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.

At April 2, 2018, the remaining weighted average amortization period for all unamortized debt discount and debt issuance costs was 3.8 years.

(7) 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 other credits and deductions available to the Company as well as changes in valuation allowances and certain non-deductible items.

During the quarter ended April 2, 2018, the Company’s effective tax rate was impacted by a net discrete expense of $746 related to accrued interest expense on existing uncertain tax positions. Additionally, no 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. The Company expects its earnings attributable to foreign subsidiaries will be indefinitely reinvested outside of the U.S., except as noted below and, therefore, no deferred tax liabilities for U.S. income taxes on undistributed earnings are recorded. Foreign earnings from certain subsidiaries may be repatriated to the parent holding company located in the Cayman Islands, and therefore, a deferred tax liability has been recorded on the undistributed earnings of these subsidiaries.

 

Effects of the Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was enacted. 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. Certain provisions of the Tax Act were effective September 27, 2017, others were effective or identified as of December 31, 2017 or January 1, 2018.

Given the timing of enactment of the Tax Act and the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period should not extend beyond one year from the Tax Act enactment date and is deemed to have ended when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting.

13


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. More specifically, SAB 118 summarizes a three-step process to be applied at each reporting period to account for and disclose the tax effects of the Tax Act. The steps are (1) to record the effects of the change in tax law for which accounting is complete; (2) to record provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but for which a reasonable estimate has been determined; and (3) where a reasonable estimate cannot yet be made, to continue to apply ASC 740 based on the tax law in effect prior to enactment of the Tax Act.

Amounts recorded where accounting is complete for the year ended January 1, 2018 primarily relate to the reduction in the U.S. corporate income tax rate to 21 percent. The Company revalued its ending gross deferred tax items, previously recorded at 35 percent, using the enacted 21 percent corporate tax rate. This change caused a reduction to the Company’s U.S. federal deferred tax assets fully offset by a reduction of its valuation allowance.

Effects of tax law changes where a reasonable estimate of the accounting effects cannot yet been made include the one-time mandatory repatriation transition tax on the net accumulated earnings and profits of the Company’s foreign subsidiaries earned post 1986. The Company has performed a preliminary earnings and profits analysis with consideration given to foreign loss carryforwards acquired as a result of the Company’s acquisitions and determined on a provisional basis that there should be no income tax effect in the current or any future period. The Company will continue to identify and evaluate data to more thoroughly identify the tax impact and record adjustments, if any, within the measurement period.

The Company has determined that the following provisions that are effective January 1, 2018 and relevant to the Company will not impact the current quarter tax expense, primarily as a result of the full valuation allowance in the U.S.: limitations on certain entertainment expenses, the inclusion of commissions and performance based compensation in determining the excessive compensation limitation, limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or GILTI). The Company is still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on foreign earnings that are expected to generate GILTI income when they reverse in future years.

For the quarter ended April 2, 2018, the Company has not made any changes to its previously provisional estimate of the impact U.S. Tax Reform and the Company continues to analyze and model the impact and will record said impact as it becomes more certain. This includes the mandatory repatriation tax, indefinite criterion assertion on foreign earnings, and deferred taxes on foreign earnings expected to generate GILTI.

(8) Accumulated Other Comprehensive Income  

The following provides a summary of the components of accumulated other comprehensive income as of April 2, 2018 and January 1, 2018:

 

 

 

Foreign

Currency

Translation

 

 

Gains (Losses)

on Cash  Flow

Hedges

 

 

Total

 

 

 

(In thousands)

 

Ending balance at January 1, 2018

 

$

4,145

 

 

$

(742

)

 

$

3,403

 

Other comprehensive income (loss) before reclassifications

 

 

622

 

 

 

(6

)

 

 

616

 

Amounts reclassified from accumulated other

   comprehensive income

 

 

 

 

 

41

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

622

 

 

 

35

 

 

 

657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance at April 2, 2018

 

$

4,767

 

 

$

(707

)

 

$

4,060

 

 

14


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

For the quarters ended April 2, 2018 and April 3, 2017, $41 and $44 net of tax, respectively, were reclassified out of accumulated other comprehensive income to depreciation expense related to cash flow hedges.

(9) Significant Customers and Concentration of Credit Risk

In the normal course of business, the Company extends credit to its customers. Most 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 both the quarters ended April 2, 2018 and April 3, 2017, one customer accounted for approximately 16% of the Company’s net sales. There were no other customers that accounted for 10% or more of net sales for the quarters ended April 2, 2018 and April 3, 2017.

(10) 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 at April 2, 2018 and January 1, 2018 were as follows:

 

 

 

April 2, 2018

 

 

January 1, 2018

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

 

 

(In thousands)

 

Term Loan due September 2024

 

$

343,919

 

 

$

349,556

 

 

$

344,646

 

 

$

346,943

 

Senior Notes due October 2025

 

 

368,392

 

 

 

374,130

 

 

 

368,218

 

 

 

384,769

 

Convertible Senior Notes

 

 

220,731

 

 

 

409,300

 

 

 

218,274