10-Q 1 ttmi-10q_20181001.htm 10-Q ttmi-10q_20181001.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 October 1, 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 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 November 1, 2018: 103,677,289

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

Page

PART I: FINANCIAL INFORMATION

 

3

Item 1. Financial Statements (unaudited)

 

3

Consolidated Condensed Balance Sheets as of October 1, 2018 and January 1, 2018

 

3

Consolidated Condensed Statements of Operations for the quarter and three quarters ended October 1, 2018 and October 2, 2017

 

4

Consolidated Condensed Statements of Comprehensive Income for the quarter and three quarters ended October 1, 2018 and October 2, 2017

 

5

Consolidated Condensed Statements of Cash Flows for the three quarters ended October 1, 2018 and October 2, 2017

 

6

Notes to Consolidated Condensed Financial Statements

 

7

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

 

26

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

33

Item 4. Controls and Procedures

 

35

PART II: OTHER INFORMATION

 

36

Item 1. Legal Proceedings

 

36

Item 1A. Risk Factors

 

36

Item 6. Exhibits

 

55

SIGNATURES

 

56

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TTM TECHNOLOGIES, INC.

Consolidated Condensed Balance Sheets

 

 

 

As of

 

 

 

October 1,

 

 

January 1,

 

 

 

2018

 

 

2018

 

 

 

(Unaudited)

 

 

 

(In thousands, except par value)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

207,952

 

 

$

409,326

 

Accounts receivable, net

 

 

569,215

 

 

 

483,903

 

Contract assets

 

 

296,836

 

 

 

 

Inventories

 

 

122,232

 

 

 

294,588

 

Prepaid expenses and other current assets

 

 

36,773

 

 

 

33,490

 

Total current assets

 

 

1,233,008

 

 

 

1,221,307

 

Property, plant and equipment, net

 

 

1,059,246

 

 

 

1,056,845

 

Goodwill

 

 

765,867

 

 

 

372,571

 

Definite-lived intangibles, net

 

 

394,825

 

 

 

102,950

 

Deposits and other non-current assets

 

 

36,280

 

 

 

28,209

 

 

 

$

3,489,226

 

 

$

2,781,882

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

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

 

$

40,000

 

 

$

4,578

 

Accounts payable

 

 

451,645

 

 

 

497,455

 

Contract liabilities

 

 

5,025

 

 

 

 

Accrued salaries, wages and benefits

 

 

86,601

 

 

 

103,638

 

Other accrued expenses

 

 

112,005

 

 

 

114,685

 

Total current liabilities

 

 

695,276

 

 

 

720,356

 

Long-term debt, net of discount and issuance costs

 

 

1,518,315

 

 

 

975,479

 

Other long-term liabilities

 

 

100,724

 

 

 

74,667

 

Total long-term liabilities

 

 

1,619,039

 

 

 

1,050,146

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

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

   103,677 and 101,820 shares issued and outstanding in

   2018 and 2017, respectively

 

 

104

 

 

 

102

 

Additional paid-in capital

 

 

792,163

 

 

 

777,025

 

Retained earnings

 

 

343,177

 

 

 

193,342

 

Statutory surplus reserve

 

 

37,348

 

 

 

37,508

 

Accumulated other comprehensive income

 

 

2,119

 

 

 

3,403

 

Total stockholders’ equity

 

 

1,174,911

 

 

 

1,011,380

 

 

 

$

3,489,226

 

 

$

2,781,882

 

 

See accompanying notes to consolidated condensed financial statements.

 

3


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Operations

For the Quarter and Three Quarters Ended October 1, 2018 and October 2, 2017

 

 

 

Quarter Ended

 

 

Three Quarters ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

755,837

 

 

$

666,814

 

 

$

2,136,306

 

 

$

1,919,243

 

Cost of goods sold

 

 

626,253

 

 

 

569,980

 

 

 

1,801,904

 

 

 

1,621,523

 

Gross profit

 

 

129,584

 

 

 

96,834

 

 

 

334,402

 

 

 

297,720

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

18,533

 

 

 

16,269

 

 

 

54,780

 

 

 

48,775

 

General and administrative

 

 

39,892

 

 

 

30,570

 

 

 

121,378

 

 

 

89,502

 

Amortization of definite-lived intangibles

 

 

16,609

 

 

 

5,905

 

 

 

41,959

 

 

 

17,727

 

Total operating expenses

 

 

75,034

 

 

 

52,744

 

 

 

218,117

 

 

 

156,004

 

Operating income

 

 

54,550

 

 

 

44,090

 

 

 

116,285

 

 

 

141,716

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(22,225

)

 

 

(13,598

)

 

 

(56,425

)

 

 

(40,116

)

Loss on extinguishment of debt

 

 

 

 

 

(768

)

 

 

 

 

 

(768

)

Other, net

 

 

2,213

 

 

 

(6,984

)

 

 

7,284

 

 

 

(14,519

)

Total other expense, net

 

 

(20,012

)

 

 

(21,350

)

 

 

(49,141

)

 

 

(55,403

)

Income before income taxes

 

 

34,538

 

 

 

22,740

 

 

 

67,144

 

 

 

86,313

 

Income tax benefit (provision)

 

 

(7,537

)

 

 

(1,205

)

 

 

53,958

 

 

 

(10,902

)

Net income

 

 

27,001

 

 

 

21,535

 

 

 

121,102

 

 

 

75,411

 

Less: Net income attributable to the noncontrolling interest

 

 

 

 

(82

)

 

 

 

 

(408

)

Net income attributable to TTM Technologies, Inc. stockholders

 

$

27,001

 

 

$

21,453

 

 

$

121,102

 

 

$

75,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to TTM Technologies, Inc.

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.26

 

 

$

0.21

 

 

$

1.17

 

 

$

0.74

 

Diluted earnings per share

 

$

0.22

 

 

$

0.19

 

 

$

0.98

 

 

$

0.65

 

 

See accompanying notes to consolidated condensed financial statements.

 

4


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Comprehensive Income  

For the Quarter and Three Quarters Ended October 1, 2018 and October 2, 2017

 

 

 

Quarter Ended

 

 

Three Quarters ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Net income

 

$

27,001

 

 

$

21,535

 

 

$

121,102

 

 

$

75,411

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net

 

 

(1,248

)

 

 

15,669

 

 

 

(2,327

)

 

 

34,307

 

Net unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on effective cash flow hedges during

     the period, net

 

 

1,641

 

 

 

30

 

 

 

(104

)

 

 

194

 

Loss realized in the statement of operations

 

 

764

 

 

 

43

 

 

 

1,147

 

 

 

130

 

Net

 

 

2,405

 

 

 

73

 

 

 

1,043

 

 

 

324

 

Other comprehensive (loss) gain, net of tax

 

 

1,157

 

 

 

15,742

 

 

 

(1,284

)

 

 

34,631

 

Comprehensive income, net of tax

 

 

28,158

 

 

 

37,277

 

 

 

119,818

 

 

 

110,042

 

Less: Comprehensive income attributable to the noncontrolling

     interest

 

 

 

 

 

(82

)

 

 

 

 

 

(408

)

Comprehensive income attributable to TTM Technologies, Inc.

     stockholders

 

$

28,158

 

 

$

37,195

 

 

$

119,818

 

 

$

109,634

 

 

See accompanying notes to consolidated condensed financial statements.

5


 

TTM TECHNOLOGIES, INC.

Consolidated Condensed Statements of Cash Flows

For the Three Quarters Ended October 1, 2018 and October 2, 2017

 

 

 

Three Quarters ended

 

 

 

October 1,

 

 

October 2,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

121,102

 

 

$

75,411

 

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

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

121,165

 

 

 

109,719

 

Amortization of definite-lived intangible assets

 

 

44,124

 

 

 

17,727

 

Amortization of debt discount and issuance costs

 

 

10,326

 

 

 

7,977

 

Deferred income taxes

 

 

(64,516

)

 

 

(4,936

)

Stock-based compensation

 

 

14,948

 

 

 

13,306

 

Loss on extinguishment of debt

 

 

 

 

 

768

 

Other

 

 

666

 

 

 

6,971

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(44,685

)

 

 

(42,268

)

Contract assets

 

 

(12,597

)

 

 

 

Inventories

 

 

5,399

 

 

 

(26,067

)

Prepaid expenses and other current assets

 

 

(2,453

)

 

 

(7,162

)

Accounts payable

 

 

(25,598

)

 

 

37,855

 

Contract liabilities

 

 

(2,753

)

 

 

 

Accrued salaries, wages and benefits and other accrued expenses

 

 

(43,758

)

 

 

(9,237

)

Net cash provided by operating activities

 

 

121,370

 

 

 

180,064

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition, net of cash acquired

 

 

(596,396

)

 

 

 

Purchase of property, plant and equipment and equipment deposits

 

 

(116,387

)

 

 

(118,933

)

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

 

 

262

 

 

 

27,052

 

Net cash used in investing activities

 

 

(712,521

)

 

 

(91,881

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term debt borrowings

 

 

600,000

 

 

 

725,000

 

Repayment of long-term debt borrowing

 

 

(44,378

)

 

 

(700,000

)

Repayment of assumed long-term debt in acquisition

 

 

(178,604

)

 

 

 

Proceeds from borrowings of revolving loan

 

 

23,000

 

 

 

 

Repayment of revolving loan

 

 

 

 

 

(63,000

)

Payment of debt issuance costs

 

 

(7,653

)

 

 

(5,330

)

Payment of original issue discount

 

 

(1,500

)

 

 

(1,750

)

Proceeds from exercise of stock options

 

 

192

 

 

 

74

 

Redemption of convertible notes

 

 

 

 

 

(15

)

Net cash provided by (used in) financing activities

 

 

391,057

 

 

 

(45,021

)

Effect of foreign currency exchange rates on cash and cash equivalents

 

 

(1,280

)

 

 

2,495

 

Net decrease in cash and cash equivalents

 

 

(201,374

)

 

 

45,657

 

Cash and cash equivalents at beginning of period

 

 

409,326

 

 

 

256,277

 

Cash and cash equivalents at end of period

 

$

207,952

 

 

$

301,934

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid, net for interest

 

$

52,074

 

 

$

32,855

 

Cash paid, net for income taxes

 

 

23,628

 

 

 

18,584

 

Noncash transactions:

 

 

 

 

 

 

 

 

Property, plant and equipment recorded in accounts payable

 

$

49,386

 

 

$

85,582

 

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, backplane assemblies and electro-mechanical solutions (E-M Solutions) as well as a global designer and manufacturer of RF and microwave components and assemblies. 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 certain of the Company’s revenue streams from “point in time” upon physical delivery to an “over time” model. Additionally, the Company 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 and three quarters ended October 2, 2017.

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 was as follows:

 

7


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

 

 

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 disclosure below summarizes the impact of the adoption of the new revenue standard on the Company’s consolidated condensed balance sheet as of October 1, 2018, statement of operations for the quarter and three quarters ended October 1, 2018 and statement of cash flows for the three quarters ended October 1, 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, for certain revenue streams, as appropriate.

 

 

 

October 1, 2018

 

 

 

As reported

 

 

Effect of

Change

Increase

(Decrease)

 

 

Balances

without New Revenue Standard Adjustment

 

 

 

(In thousands)

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

569,215

 

 

$

8,171

 

 

$

561,044

 

Contract assets

 

 

296,836

 

 

 

288,723

 

 

 

8,113

 

Inventories

 

 

122,232

 

 

 

(241,839

)

 

 

364,071

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued expenses

 

 

112,005

 

 

 

13,945

 

 

 

98,060

 

Other long-term liabilities

 

 

100,724

 

 

 

3,163

 

 

 

97,561

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

 

343,177

 

 

 

37,947

 

 

 

305,230

 

 

 

 

Quarter ended October 1, 2018

 

 

Three quarters ended October 1, 2018

 

 

 

As reported

 

 

Effect of

Change

Increase

(Decrease)

 

 

Balances

without New Revenue Standard Adjustment

 

 

As reported

 

 

Effect of

Change

Increase

 

 

Balances

without New Revenue Standard Adjustment

 

 

 

(In thousands)

 

 

(In thousands)

 

Net sales

 

$

755,837

 

 

$

(4,303

)

 

$

760,140

 

 

$

2,136,306

 

 

$

27,508

 

 

$

2,108,798

 

Cost of goods sold

 

 

626,253

 

 

 

(4,056

)

 

 

630,309

 

 

 

1,801,904

 

 

 

18,263

 

 

 

1,783,641

 

Gross profit

 

 

129,584

 

 

 

(247

)

 

 

129,831

 

 

 

334,402

 

 

 

9,245

 

 

 

325,157

 

Net income

 

 

27,001

 

 

 

(247

)

 

 

27,248

 

 

 

121,102

 

 

 

9,373

 

 

 

111,729

 

8


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

Included in the Effect of Change Increase (Decrease) columns for the three quarters ended October 1, 2018 are $14,408, $11,375 and $3,033 of net sales, cost of goods sold and gross profit, respectively, related to the opening balance sheet of Anaren Inc. which was acquired on April 18, 2018 (See Note 3), and not to the activity during the three quarters of 2018.    

 

 

Three Quarters ended October 1, 2018

 

 

 

As reported

 

 

Effect of

Change

Increase

(Decrease)

 

 

Balances

without New Revenue Standard Adjustment

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

121,102

 

 

$

9,373

 

 

$

111,729

 

Adjustments to reconcile net income to net cash

    used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

(64,516

)

 

 

(128

)

 

 

(64,388

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(44,685

)

 

 

 

 

 

(44,685

)

Contract assets

 

 

(12,597

)

 

 

(28,069

)

 

 

15,472

 

Inventories

 

 

5,399

 

 

 

18,263

 

 

 

(12,864

)

Accrued salaries, wages and benefits and other

    accrued expenses

 

 

(43,758

)

 

 

561

 

 

 

(44,319

)

 

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 adoption of this standard is not expected to have a material impact on the consolidated financial statements or 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. The FASB also provided a practical expedient transition method to adopt the new lease requirements by allowing entities to initially apply requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption that would enable the Company to not provide comparative period financial statements. Instead, the Company would apply the transition provisions of the lease standard at its effective date. The Company is planning  on electing the practical expedient transition method as well as the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, and is evaluating other practical expedients available under the guidance. The Company expects the impact of adopting this new accounting standard to be material to its consolidated balance sheet, but is still evaluating the impact to its consolidated statement of income.

 

(2) Summary of Significant Accounting Policies

Revenue Recognition

         The Company derives revenues primarily from the sale of PCBs, custom electronic assemblies using customer-supplied engineering and design plans as well as the design and manufacture of RF and microwave components and assemblies.  

For the PCBs and custom electronic assemblies, 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 control of the work in progress and finished goods throughout the PCB manufacturing process, 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, the Company records revenue in accordance with 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.

9


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

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.

Additionally, the Company has certain long-term contracts related to its manufacture of components, assemblies, and subsystems which service the aerospace and defense electronics market. These long-term contracts, many of which provide for periodic payments, are recognized over time under the percentage-of completion method. Estimated manufacturing cost-at-completion for these contracts are reviewed on a periodic basis, and adjustments are made periodically to the estimated cost-at-completion, based on actual costs incurred, progress made, and estimates of costs required to complete the contractual requirements. When the estimated manufacturing cost-at-completion exceeds the contract value, the contract is written down to its net realizable value and the loss resulting from the cost overruns are immediately recognized.

Finally, the Company manufactures components, assemblies, and subsystems which service its wireless communications customers. The Company recognizes revenue at a point in time as the customer does not simultaneously receive or consume the benefits provided by the Company’s performance and the asset being manufactured has alternative uses to the Company.

The Company provides customers a limited right of return for defective PCBs including components and subsystems, and 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 its 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.

(3) Acquisition of Anaren Inc.

On April 18, 2018, the Company completed its acquisition of all issued and outstanding common stock of Anaren Holding Corp. for a total consideration of $787,911, subject to customary working capital and certain other adjustments. Other than the equity interests of Anaren, Inc. (Anaren), Anaren Holding Corp. had no material assets or liabilities and has no material independent operations. Anaren is a leading provider of mission-critical RF solutions, microelectronics, and microwave components and assemblies for the wireless infrastructure and aerospace and defense electronics markets.

For the quarter and three quarters ended October 1, 2018, bank fees and legal, accounting, and other professional service costs associated with the acquisition of $312 and $11,137, respectively, have been expensed and recorded as general and administrative expense in the consolidated condensed financial statements. There were no bank fees or legal, accounting, or other professional service costs associated with the acquisition for the quarter and three quarters ended October 2, 2017.

The following summarizes the components of the purchase price:

 

 

 

(In thousands)

 

Cash consideration

 

$

596,396

 

Cash purchased

 

 

12,911

 

 

 

 

609,307

 

Debt assumed

 

 

178,604

 

Total consideration

 

$

787,911

 

 

Preliminary Purchase Price Allocation

The purchase price was allocated to tangible and intangible assets acquired, and liabilities assumed based on preliminary estimates of fair value at the date of the acquisition, April 18, 2018. The excess of the purchase price over the fair value of net assets acquired was allocated to goodwill. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management at the time of the acquisition.

10


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The fair values assigned are based on reasonable methods applicable to the nature of the assets acquired and liabilities assumed. The following summarizes the preliminary estimated fair values of net assets acquired:

 

 

 

(In thousands)

 

Cash

 

$

12,911

 

Trade and notes receivables

 

 

32,457

 

Contract assets

 

 

23,585

 

Inventories

 

 

56,619

 

Other current assets

 

 

1,373

 

Property, plant and equipment

 

 

45,115

 

Identifiable intangible assets

 

 

336,000

 

Other assets

 

 

300

 

Goodwill

 

 

393,296

 

Trade accounts payable

 

 

(14,623

)

Contract liabilities

 

 

(7,778

)

Other current liabilities

 

 

(7,643

)

Long-term debt

 

 

(178,604

)

Non-current deferred tax liabilities

 

 

(75,265

)

Other liabilities

 

 

(8,436

)

Total

 

$

609,307

 

 

The Company’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable measurement period, which is up to the point the Company obtains and analyzes the information that existed as of the date of the acquisition necessary to determine the fair values of the assets acquired and liabilities assumed, but in no case to exceed more than one year from the date of acquisition. As of October 1, 2018, the Company had not finalized the determination of fair values allocated to various assets and liabilities, including, but not limited to, deferred taxes, goodwill, tax uncertainties, income taxes payable and assumed liabilities. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in material adjustments to goodwill.

Inventories

The Company acquired $56,619 of inventories as a result of the acquisition. Finished goods were preliminarily valued at estimated selling prices less costs of disposal and a reasonable profit for the selling effort. Work-in-process inventory was valued at estimated selling prices less costs to complete, costs of disposal and a reasonable profit allowance for the completion and selling effort. Raw materials were preliminarily valued at estimated replacement cost.

Property, Plant and Equipment

The fair value of property, plant and equipment was preliminarily determined by utilizing three approaches: the cost, sales comparison, and income capitalization approaches, each including management assumptions. Each approach assumes valuation of the property at the property’s highest and best use.

11


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

Identifiable Intangible Assets

Acquired identifiable intangible assets include customer relationships, developed technology and backlog. The fair value of the identifiable intangible assets was preliminarily determined using various income approach methods including excess earnings to determine the present value of expected future cash flows for each identifiable intangible asset based on discount rates which incorporate a risk premium to take into account the risks inherent in those expected cash flows. The expected cash flows were estimated using available historical data adjusted based on the Company’s historical experience and the expectations of market participants. The preliminary estimated fair value assigned to each class of intangible assets and the related weighted average amortization periods are as follows:

 

 

 

Estimated fair

value

 

 

Weighted-

average

amortization

period

 

 

(In thousands)

 

 

 

Customer relationships

 

$

267,500

 

 

12.2 years

Developed technology

 

 

39,500

 

 

9.4 years

Backlog

 

 

29,000

 

 

0.9 years

 

 

$

336,000

 

 

 

 

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.

      During the quarter ended October 1, 2018, goodwill was adjusted to reflect a decrease of $2,214 in property, plant and equipment, a decrease of $1,000 in identifiable intangible assets and a net increase of $3,804 to liabilities due to additional information received regarding the valuation of certain property acquired, identifiable intangible assets, and others, respectively.

The Company has two reportable segments: PCB and E-M Solutions and has integrated Anaren into the PCB reportable segment. The excess purchase price over the fair value of assets acquired and liabilities assumed has been completely allocated to the PCB reportable segment.                                                            

The Company believes that the acquisition of Anaren will produce the following significant benefits:

 

Provide the Company with differentiated RF expertise in aerospace and defense and embedded technology that the Company believes is critical to wireless infrastructure markets.

 

Augment the Company’s strong aerospace and defense position and provide new opportunities for growth in the automotive and optical networking market.

 

Deepen the Company’s engagement and interaction with leading customers in the aerospace and defense and wireless communication infrastructure markets.

 

Strengthen the Company’s management and engineering teams with the addition of talented members having extensive experience in RF design;

The Company believes that these primary factors support the amount of goodwill recognized as a result of the purchase price paid for Anaren, in relation to other acquired tangible and intangible assets. The goodwill acquired in the acquisition is not deductible for income tax purposes.

Results of Operations

Included in the consolidated condensed statements of operations are net sales of $64,129 and $126,140, excluding intercompany sales, for the quarter and three quarters ended October 1, 2018, respectively. Pre-tax net income included in the consolidated condensed statements of operations from the Anaren operations for the quarter and three quarters ended October 1, 2018 have not been reported as it is impracticable to do so given the integration and other efficiency and cost saving measures in process during the third quarter ended October 1, 2018.

Pro forma Financial Information

The unaudited pro forma financial information below gives effect to this acquisition as if it had occurred at the beginning of fiscal 2017, or January 3, 2017. The pro forma financial information presented includes the effects of adjustments related to the amortization of acquired identifiable intangible assets and acquired inventory, depreciation of acquired fixed assets, and other non-recurring transactions costs directly associated with the acquisitions such as legal, accounting and banking fees.  

12


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the acquisition occurred at the beginning of the earliest period presented, or the results that may be achieved in future periods.

 

 

 

Quarter Ended

 

 

Three Quarters Ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

 

(In thousands)

 

Net sales

 

$

755,837

 

 

$

724,463

 

 

$

2,204,980

 

 

$

2,093,982

 

Net income attributable to TTM Technologies, Inc.

   stockholders

 

 

27,001

 

 

 

21,992

 

 

 

134,608

 

 

 

70,021

 

Basic earnings per share

 

$

0.26

 

 

$

0.22

 

 

$

1.30

 

 

$

0.69

 

Dilutive earnings per share

 

$

0.22

 

 

$

0.19

 

 

$

1.08

 

 

$

0.61

 

 

 

(4) Contract Asset and Liabilities

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. 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 subject to customer payment terms. Contract assets were $296,836 as of October 1, 2018 and represent unbilled amounts for work performed to date, plus a reasonable profit. There were no contract assets as of January 1, 2018.

A contract liability is recognized when the Company has received payment in advance for the future transfer of goods or services. The Company’s contract liabilities are generally converted to revenue within 90 days. Contract liabilities were $5,025 as of October 1, 2018 and represent customer advances for work yet to be performed, plus a reasonable profit. There were no contract liabilities as of January 1, 2018.

(5) Inventories

Inventories as of October 1, 2018 and January 1, 2018 consisted of the following:  

 

 

 

As of

 

 

 

October 1, 2018

 

 

January 1, 2018

 

 

 

(in thousands)

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

$

107,912

 

 

$

75,835

 

Work-in-process

 

 

11,604

 

 

 

120,031

 

Finished goods

 

 

2,716

 

 

 

98,722

 

 

 

$

122,232

 

 

$

294,588

 

 

 

(6) Goodwill

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

 

 

 

Total

 

 

 

(In thousands)

 

Balance as of January 1, 2018

 

 

 

 

Goodwill

 

$

543,971

 

Accumulated impairment losses

 

 

(171,400

)

 

 

 

372,571

 

 

 

 

 

 

Goodwill recognized during the three quarters ended October 1, 2018

 

 

393,296

 

Balance as of October 1, 2018

 

 

 

 

Goodwill

 

 

937,267

 

Accumulated impairment losses

 

 

(171,400

)

 

 

$

765,867

 

 

 

 

 

 

13


TTM TECHNOLOGIES, INC.

Notes to Consolidated Condensed Financial Statements—(Continued)

 

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

The assignment of goodwill related to the acquisition is preliminary and will be completed in conjunction with the final purchase price allocation.

 

(7) Definite-lived Intangibles

As of October 1, 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)