Notes to Consolidated Financial Statements
(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 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 allows the
Company to align technology developments with the diverse needs of the Companys 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 networking/communications infrastructure
products, smartphones and touchscreen tablets, as well as the aerospace and defense, automotive components,
high-end
computing, and medical, industrial and instrumentation related products. The Companys
customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers.
The
Company operates on a 52 or 53 week year ending on the Monday nearest December 31. Fiscal 2016 consisted of 53 weeks ended on January 2, 2017 with the additional week included in the fourth quarter. Fiscal 2015 and 2014 were 52 weeks and
ended on December 28, 2015, and December 29, 2014, respectively. All references to years relate to fiscal years unless otherwise noted.
(2)
|
Summary of Significant Accounting Policies
|
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Such estimates include the sales return reserve; accounts receivable; inventories; goodwill; intangible assets and
other long-lived assets; self insurance reserves; product warranty liabilities; environmental liabilities; legal contingencies; income taxes; and others. These estimates and assumptions are based on managements best estimates and judgment.
Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the economic environment, which management believes to be reasonable under the circumstances. Management adjusts such
estimates and assumptions when facts and circumstances dictate. The actual results we experienced may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and actual results, our
future result of operations will be affected.
Principles of Consolidation
The consolidated financial statements include the accounts of TTM Technologies, Inc. and its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Foreign Currency Translation and Transactions
The functional currency of certain of the Companys subsidiaries is either the Chinese Renminbi (RMB) or the Hong Kong Dollar.
Accordingly, assets and liabilities are translated into U.S. dollars using
period-end
exchange rates. Sales and expenses are translated at the average exchange rates in effect during the period. The resulting
translation gains or losses are recorded as a component of accumulated other comprehensive income in the consolidated statement of stockholders equity and the consolidated statement of comprehensive income (loss). Net gains resulting from
foreign currency remeasurements and transactions are included in income as a
74
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
component of other, net in the consolidated statements of operations and totaled $13,538, $6,766, and $2,378 for the years ended January 2, 2017, December 28, 2015 and December 29,
2014, respectively.
Cash Equivalents
The Company considers highly liquid investments with insignificant interest rate risk and original maturities to the Company of three months or less to be cash equivalents. Cash equivalents consist
primarily of interest-bearing bank accounts and money market funds.
The Company considers highly liquid investments with an
effective maturity to the Company of more than three months and less than one year to be short-term investments.
As of
December 28, 2015, the Company had $3,530 of restricted cash related to the collaterization of certain letter of credit arrangements. As of January 2, 2017, all such letter of credit arrangements requiring collaterization had expired.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reflected at estimated net realizable value, do not bear interest and do not generally require collateral. The
Company performs credit evaluations of its customers and adjusts credit limits based upon payment history and the customers current creditworthiness. The Company maintains an allowance for doubtful accounts based upon a variety of factors. The
Company reviews all open accounts and provides specific reserves for customer collection issues when it believes the loss is probable, considering such factors as the length of time receivables are past due, the financial condition of the customer,
and historical experience. The Company also records a reserve for all customers, excluding those that have been specifically reserved for, based upon evaluation of historical losses.
The following summarizes the activity in the Companys allowance for doubtful accounts for the years ended January 2,
2017, December 28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
1,525
|
|
|
$
|
696
|
|
|
$
|
518
|
|
Additions charged to expense
|
|
|
1,560
|
|
|
|
854
|
|
|
|
214
|
|
Deductions
|
|
|
(223
|
)
|
|
|
(26
|
)
|
|
|
(34
|
)
|
Effect of foreign currency exchange rates
|
|
|
(11
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,851
|
|
|
$
|
1,525
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost (determined on a
first-in,
first-out
and weighted average basis) or market.
Assessments to value the inventory at the lower of the actual cost to purchase and / or manufacture the inventory, or the current estimated market value of the inventory, are based upon assumptions about future demand and market conditions. As a
result of the Companys assessments, when the market value of inventory is less than the carrying value, the inventory cost is written down to the market value and the write down is recorded as a charge to cost of goods sold.
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Assets recorded under leasehold
improvements are
75
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
amortized using the straight-line method over the lesser of their useful lives or the related lease term. The Company uses the following estimated useful lives:
|
|
|
Land use rights
|
|
50-99 years
|
Buildings and improvements
|
|
7-50 years
|
Machinery and equipment
|
|
3-12 years
|
Furniture and fixtures
|
|
3-7 years
|
Upon retirement or other disposition of property, plant and equipment, the cost and related accumulated
depreciation are removed from the accounts. The resulting gain or loss is included in the determination of operating income in the period incurred. Depreciation and amortization expense on property, plant and equipment was $156,229, $133,508, and
$95,349 for the years ended January 2, 2017, December 28, 2015 and December 29, 2014, respectively.
The Company
capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is amortized over the average useful lives of such assets, which primarily consist of buildings and machinery and equipment. The
Company capitalized interest costs of $1,876, $888, and $551 during the years ended January 2, 2017, December 28, 2015 and December 29, 2014, respectively, in connection with various capital projects.
Major renewals and betterments are capitalized and depreciated over their estimated useful lives while minor expenditures for maintenance
and repairs are included in operating income as incurred.
Goodwill
Goodwill represents the excess of purchase price of an acquisition over the fair value of net assets acquired. Goodwill is not amortized
but instead is assessed for impairment, at a reporting unit level, annually and when events and circumstances warrant an evaluation. In making this assessment, management relies on a number of factors, including expected future operating results,
business plans, economic projections, anticipated future cash flows, business trends and market conditions.
The Company has
two reportable operating segments consisting of four reporting units. The Company evaluates its goodwill on an annual basis in the fourth quarter or more frequently if it believes indicators of impairment exist. The Company first assesses
qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting units is less
than its carrying amount, it conducts a
two-step
quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their
carrying values. The Company estimates the fair values of its reporting units using a combination of the income and market approach. If the carrying amount of a reporting unit exceeds the reporting units fair value, the Company performs the
second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting units goodwill with the carrying value of that goodwill. The amount, by which the
carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. In the fourth quarter of 2016, the Company performed its annual impairment test qualitatively and concluded that goodwill was not impaired.
Intangible Assets
Intangible assets include customer relationships, technology and trade names, which are being amortized over their estimated useful lives using straight-line and accelerated methods. The estimated useful
lives of such intangibles range from 3 years to 10 years.
76
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Impairment of Long-lived Assets
Long-lived tangible assets, including property, plant and equipment, assets held for sale, and definite-lived intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset or asset groups may not be recoverable. The Company regularly evaluates whether events or circumstances have occurred that indicate
possible impairment and relies on a number of factors, including expected future operating results, business plans, economic projections, and anticipated future cash flows. The Company uses an estimate of the future undiscounted net cash flows of
the related asset or asset group over the remaining life in measuring whether the assets are recoverable. Measurement of the amount of impairment, if any, is based upon the difference between the assets carrying value and estimated fair value.
Fair value is determined through various valuation techniques, including cost-based, market and income approaches as considered necessary. See Note 4 for information regarding the impairment of long-lived assets during the years 2016 and 2014.
The Company classifies assets to be sold as assets held for sale when (i) Company management has approved and commits to
a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition and is ready for sale; (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated;
(iv) the sale of the asset is probable; (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) it is unlikely that significant changes to the plan will be made
or that the plan will be withdrawn. Assets classified as held for sale are recorded at the lower of the carrying amount or fair value less the cost to sell and are a component of prepaid expenses and other current assets in the consolidated balance
sheet.
The Company classifies assets held for use when a decision to dispose of an asset or a business is made and the held
for sale criteria are not met. Assets of the business are evaluated for recoverability in the following order: (i) assets other than goodwill, property and intangibles; (ii) property and intangibles subject to amortization; and
(iii) goodwill. In evaluating the recoverability of property and intangible assets subject to amortization, in a held for use business, the carrying value is first compared to the sum of the undiscounted cash flows expected to result from the
use and eventual disposition. If the carrying value exceeds the undiscounted expected cash flows, then a fair value analysis is performed. An impairment charge is recognized if the carrying value exceeds the fair value.
Revenue Recognition
The Company derives its revenue primarily from the sale of PCBs using customer supplied engineering and design plans and recognizes revenue when: (i) persuasive evidence of a sales arrangement
exists; (ii) the sales terms are fixed or determinable; (iii) title and risk of loss have transferred; and (iv) collectability is reasonably assured generally when products are shipped to the customer, except in situations in
which title passes upon receipt of the products by the customer. In this case, revenues are recognized upon notification that customer receipt has occurred. The Company does not have customer acceptance provisions, but it does provide its customers
a limited right of return for defective PCBs. The Company accrues an estimated amount for sales returns and allowances related to defective PCBs at the time of sale based on its ability to estimate sales returns and allowances using current and
historical information. The reserve for sales returns and allowances is included as a reduction to revenue and accounts receivable, net. Shipping and handling fees and related freight costs and supplies associated with shipping products to customers
are included as a component of cost of goods sold. Incremental warranty costs that are not related to sales returns are recorded in accrued expenses and cost of goods sold.
77
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The following summarizes the activity in the Companys allowance for sales returns
and allowances for the years ended January 2, 2017, December 28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
7,789
|
|
|
$
|
6,890
|
|
|
$
|
6,028
|
|
Additions charged to expense
|
|
|
22,060
|
|
|
|
21,728
|
|
|
|
38,440
|
|
Deductions
|
|
|
(21,728
|
)
|
|
|
(20,832
|
)
|
|
|
(37,578
|
)
|
Effect of foreign currency exchange rates
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
8,119
|
|
|
$
|
7,789
|
|
|
$
|
6,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation
The Company recognizes stock-based compensation expense in its consolidated financial statements for its incentive compensation plan
awards.
The incentive compensation plan awards include performance-based restricted stock units, restricted stock units, and
stock options and the associated compensation expense is based on the grant date fair value of the awards, net of estimated forfeitures, as well as an assessment of probability of the performance-based awards vesting. Compensation expense for the
incentive compensation plan awards is recognized on a straight line basis over the vesting period of the awards. The fair value of performance-based restricted stock units is estimated on the grant date using a Monte Carlo simulation model based on
the underlying common stock closing price as of the date of grant, the expected term, stock price volatility, and risk-free interest rates. The fair value of restricted stock units is measured on the grant date based on the quoted closing market
price of the Companys common stock. The fair value of the stock options is estimated on the grant date using the Black-Scholes option pricing model based on the underlying common stock closing price as of the date of grant, the expected term,
stock price volatility, and risk-free interest rates.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets or liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled or realized. The effect on deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Deferred income tax assets are reviewed for recoverability, and the Company records a valuation allowance to reduce its deferred income tax assets when it is more likely than not
that all or some portion of the deferred income tax assets will not be realized.
The Company has various foreign subsidiaries
formed or acquired to conduct or support its business outside the United States. The Company does not provide for U.S. income taxes on undistributed earnings for certain foreign subsidiaries as management expects the foreign earnings will be
indefinitely reinvested in such foreign jurisdictions. For certain subsidiaries within China, indefinite investment of undistributed earnings has not been asserted between the respective subsidiaries and their foreign parent entity and therefore, a
deferred tax liability for the foreign tax impacts has been recorded on the undistributed earnings of these subsidiaries.
The
Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than
78
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
50 percent likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Estimated interest and penalties related to
underpayment of income taxes are recorded as a component of income tax provision in the consolidated statement of operations.
Self Insurance
The Company is primarily self insured in North America for group health insurance and workers compensation benefits provided to U.S. employees. The Company also purchases stop loss insurance to protect
against annual claims per individual and at an aggregate level. The individual insured stop loss on the Companys self insurance is $350 per individual for group health insurance and $250 per individual for workers compensation benefits.
Self insurance liabilities are estimated for claims incurred but not paid based on judgment, using the Companys historical claim data and information and analysis provided by actuarial and claim advisors, the Companys insurance carrier
and brokers. The Company has accrued $5,375 and $5,182 for self insurance liabilities as of January 2, 2017 and December 28, 2015, respectively, and these amounts are reflected within accrued salaries, wages and benefits in the
consolidated balance sheets.
Group health insurance and workers compensation benefits for the Companys plants in China
are fully insured with third parties.
Convertible Debt
The accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion require the debt
and equity components to be separately accounted for in a manner that reflects the Companys nonconvertible borrowing rate when interest expense is recognized in subsequent periods. The amount recorded as debt is based on the fair value of the
debt component as a standalone instrument, determined using an average interest rate for similar nonconvertible debt issued by entities with credit ratings comparable to the Companys at the time of issuance. The difference between the debt
recorded at inception and its principal amount is to be accreted to principal through interest expense through the estimated life of the note.
Value Added and Sales Tax Collected from Customers
As a part of the
Companys normal course of business, value added and sales taxes are collected from customers. Such taxes collected are remitted, in a timely manner, to the appropriate governmental tax authority on behalf of the customer. The Companys
policy is to present revenue and costs, net of value added and sales taxes.
Fair Value Measures
The Company measures at fair value certain of its financial and
non-financial
assets and
liabilities 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 levels of the fair value hierarchy are:
Level 1 Quoted market prices in active markets for identical assets or liabilities;
Level 2 Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices
for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and
Level 3 Unobservable inputs in which there is little or no market data, which require the reporting unit to develop
its own assumptions.
79
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Environmental Accrual
Accruals for estimated costs for environmental obligations generally are recognized no later than the date when the Company identifies
what cleanup measures, if any, are likely to be required to address the environmental condition. Included in such obligations are the estimated direct costs to investigate and address the conditions, and the associated engineering, legal and
consulting costs. In making these estimates, the Company considers information that is currently available, existing technology, enacted laws and regulations, and its estimates of the timing of the required remedial actions. Such accruals are
initially measured on a discounted basis and are adjusted as further information becomes available or circumstances change and are accreted to the payable amount over time.
Earnings Per Share
Basic earnings per common share excludes dilution and is computed by dividing net income attributable to TTM Technologies, Inc. stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share reflect the potential dilution that could occur if stock options, convertible senior notes or other common stock equivalents were exercised or converted into common stock. The dilutive effect of
stock options or other common stock equivalents is calculated using the treasury stock method, while the dilutive effect of convertible senior notes is calculated using the
if-converted
method.
Comprehensive Income
Comprehensive income includes changes to equity accounts that were not the result of transactions with stockholders. Comprehensive income is comprised of net income (loss), changes in the cumulative
foreign currency translation adjustments and realized and unrealized gains or losses on hedged derivative instruments and available for sale securities.
Noncontrolling Interest Holdings
As of January 2, 2017,
noncontrolling interest consists of a 5% equity interest in a manufacturing facility in Huiyang, China which was acquired along with other assets and liabilities of Viasystems.
Loss Contingencies
The Company establishes an accrual for an estimated loss contingency when it is both probable that an asset has been impaired or that a liability has been incurred and the amount of the loss can be
reasonably estimated. Any legal fees expected to be incurred in connection with a contingency are expensed as incurred.
Recently Adopted and Issued Accounting Standards
In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-16,
Income Taxes (Topic 740): Intra-Entity
Transfers of Assets Other Than Inventory.
The objective of this update is to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory by recognizing the income tax consequences when the
transfer occurs. This ASU is effective for fiscal years beginning after December 15, 2017, 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.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230)
. The objective of this update is to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is
effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods and is to be applied utilizing a retrospective approach. 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.
80
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
In March 2016, the FASB issued Accounting Standards Update (ASU)
2016-09,
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. The objective of this update is to simplify several aspects of the accounting for employee share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. Early adoption is permitted. The impact on the Companys consolidated financial statements is not expected to be material.
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. The Company is currently evaluating the new guidance to determine the impact it may have
on its consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU
2015-03,
Imputation of Interest
, as amended, which requires an entity to record debt issuance costs related to debt reported in the balance sheet as a direct deduction from the face amount of that debt. The
update is effective for annual periods ending after December 15, 2015. The standard requires the use of the retrospective transition method. The Company adopted the new standard in the first quarter of 2016. Accordingly, as of January 2,
2017, approximately $4,724 of unamortized debt issuance costs were presented as a reduction of long-term debt on the Companys consolidated balance sheets. Furthermore, the Company reclassified approximately $31,171 of unamortized debt issuance
costs that had been presented as other
non-current
assets as of December 28, 2015 as a reduction of long-term debt.
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers
, as amended, which requires an entity to recognize the amount of revenue to
which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company at the
beginning of fiscal year 2018, however application of the standard is allowed as early as the beginning of fiscal 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has assessed that
the impact of the new guidance will result in a change to the timing of revenue recognition for the Companys revenue stream from point in time upon physical delivery to an over time model and believes this transition
could have a material impact on the Companys consolidated financial statements upon adoption. As of January 2, 2017, management intends to apply the cumulative effect transition method. The Company has identified and is in the process of
implementing changes to its systems, processes and internal controls to meet the standard updates reporting and disclosure requirements.
(3)
|
Acquisition of Viasystems Group, Inc.
|
On May 31, 2015, the Company completed the acquisition of Viasystems Group, Inc. (Viasystems), for total consideration of $248,824 in cash and 15,082 shares of TTM common stock with a fair value of
$149,006, and thereby acquired all of the outstanding shares of capital stock and other equity rights of Viasystems. Additionally, in connection with the completion of the acquisition, the Company assumed and refinanced Viasystems debt, which
was approximately $669,024 as of May 31, 2015. Viasystems was a worldwide provider of complex multi-layer rigid, flexible, and rigid-flex PCBs and custom electronic assemblies.
Bank fees and legal, accounting, and other professional service costs associated with the acquisition of Viasystems of $1,688, $34,448 and
$5,981 for the years ended January 2, 2017, December 28, 2015 and December 29, 2014, respectively, have been expensed and recorded as general and administrative expense in the consolidated statements of operations.
81
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The following summarizes the components of the purchase price:
|
|
|
|
|
|
|
(In thousands)
|
|
Value of TTM common stock issued
|
|
$
|
149,006
|
|
Cash consideration
|
|
|
248,824
|
|
|
|
|
|
|
|
|
|
397,830
|
|
Debt assumed
|
|
|
669,024
|
|
|
|
|
|
|
Enterprise value
|
|
$
|
1,066,854
|
|
|
|
|
|
|
The value of the shares of the Companys common stock used in determining the purchase price was
$9.88 per share, the closing price of the Companys common stock on May 29, 2015, the last business day prior to the effective date of the acquisition.
The purchase price of the Viasystems acquisition was allocated to tangible and intangible assets acquired, liabilities assumed and noncontrolling interest based on the fair value at the date of the
acquisition (May 31, 2015). The excess of the purchase price over the fair value of net assets acquired and noncontrolling interest was allocated to goodwill. The fair value assigned to intangible assets acquired was based on estimates and
assumptions made by management at the time of acquisition. The Company finalized the allocation of the purchase price during the second quarter of 2016.
The fair values assigned are based on reasonable methods applicable to the nature of the assets acquired, liabilities assumed and noncontrolling interest. The following summarizes the final estimated fair
values of net assets acquired and noncontrolling interest:
|
|
|
|
|
|
|
(In thousands)
|
|
Cash
|
|
$
|
79,662
|
|
Restricted cash
|
|
|
3,510
|
|
Accounts and notes receivables ($216,259 contractual gross receivables)
|
|
|
209,196
|
|
Inventories
|
|
|
132,216
|
|
Prepaid expenses and other current assets
|
|
|
30,633
|
|
Property, plant and equipment
|
|
|
427,457
|
|
Identifiable intangible assets
|
|
|
150,500
|
|
Goodwill
|
|
|
360,494
|
|
Deposits and other noncurrent assets
|
|
|
1,157
|
|
Current liabilities
|
|
|
(256,705
|
)
|
Long-term debt
|
|
|
(669,024
|
)
|
Other liabilities
|
|
|
(63,966
|
)
|
Noncontrolling interest
|
|
|
(7,300
|
)
|
|
|
|
|
|
Total
|
|
$
|
397,830
|
|
|
|
|
|
|
Goodwill represents the excess of the Viasystems purchase price over the fair value of tangibles and
identifiable intangible assets acquired, liabilities assumed and noncontrolling interest. During the first two quarters of 2016, goodwill was adjusted to reflect:
|
|
|
an increase in current liabilities by $3,442 due to a reassessment of product claims and other contingent liabilities, and
|
82
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
|
|
|
an increase in other noncurrent liabilities by $22,182 primarily related to liabilities associated with certain tax positions at certain foreign
jurisdictions.
|
The goodwill acquired in the acquisition is not deductible for income tax purposes.
(4)
|
Restructuring and Impairment Charges
|
Consolidation Plan and Restructuring Activities
On September 29,
2015, the Company announced a consolidation plan that resulted in the closure of the Companys facilities in Cleveland, Ohio, Milpitas, California and Juarez, Mexico (the Consolidation Plan) and laid off approximately 480 employees at these
sites. The Consolidation Plan was part of the Companys integration strategy to improve total plant utilization, operational performance and customer focus following its acquisition of Viasystems. In accordance with the Consolidation Plan, the
Company has combined its Cleveland and Milpitas facilities into its North Jackson, Ohio and Silicon Valley, California facilities, respectively, and closed its Juarez, Mexico facility.
In connection with the Consolidation Plan and other global realignment restructuring efforts, the Company recognized employee separation
costs and contract termination and other costs during the years ended January 2, 2017 and December 28, 2015. Contract termination and other costs primarily represented plant closure costs for Cleveland, Ohio, Milpitas, California and
Juarez, Mexico, as well as costs related to building operating leases associated with the downsizing of the St. Louis, Missouri office.
The below table summarizes such restructuring costs by operating segment for the years ended January 2, 2017 and December 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended January 2, 2017
|
|
|
For the Year Ended December 28, 2015
|
|
|
|
Employee
separation/
severance
|
|
|
Contract
termination and
other costs
|
|
|
Total
|
|
|
Employee
separation/
severance
|
|
|
Contract
termination and
other costs
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB
|
|
$
|
1,548
|
|
|
$
|
2,141
|
|
|
$
|
3,689
|
|
|
$
|
2,050
|
|
|
$
|
|
|
|
$
|
2,050
|
|
E-M
Solutions
|
|
|
903
|
|
|
|
3,644
|
|
|
|
4,547
|
|
|
|
2,039
|
|
|
|
|
|
|
|
2,039
|
|
Corporate
|
|
|
(231
|
)
|
|
|
946
|
|
|
|
715
|
|
|
|
2,743
|
|
|
|
549
|
|
|
|
3,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,220
|
|
|
$
|
6,731
|
|
|
$
|
8,951
|
|
|
$
|
6,832
|
|
|
$
|
549
|
|
|
$
|
7,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The below table shows the utilization of the accrued restructuring costs during the years ended
January 2, 2017 and December 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Contract
Termination
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accrued at December 29, 2014
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charged to expense
|
|
|
6,832
|
|
|
|
549
|
|
|
|
7,381
|
|
Amount paid
|
|
|
(788
|
)
|
|
|
(14
|
)
|
|
|
(802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued at December 28, 2015
|
|
$
|
6,044
|
|
|
$
|
535
|
|
|
$
|
6,579
|
|
Charged to expense
|
|
|
2,495
|
|
|
|
6,698
|
|
|
|
9,193
|
|
Adjustments to estimate
|
|
|
(275
|
)
|
|
|
33
|
|
|
|
(242
|
)
|
Amount paid
|
|
|
(8,140
|
)
|
|
|
(6,224
|
)
|
|
|
(14,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued at January 2, 2017
|
|
$
|
124
|
|
|
$
|
1,042
|
|
|
$
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
As of January 2, 2017, the Company has incurred approximately $16,332 of
restructuring charges since the September 29, 2015 announcement. The company estimates that it will incur total charges related to the Consolidation Plan of approximately $20,000.
Additionally, the Company recognized $3,346 in impairment charges during the year ended January 2, 2017. As a result of the above
mentioned plant closures and other plant realignment efforts, $1,393 of impairment charges were recognized in the consolidated statement of operations related to machinery and equipment in the PCB operating segment. In addition, $1,953 of impairment
charges were recognized in the consolidated statement of operations related to capitalized software costs in the Corporate operating segment.
For the year ended December 28, 2015, the Company recorded other exit costs of $878 related to inventory write-downs associated with the consolidation of the Milpitas facility to other Silicon
Valley, California facilities. These costs have been recorded as a component of cost of goods sold in the consolidated statement of operations.
Impairment and Sale of Suzhou, China Manufacturing Facility
The Company
ceased manufacturing at its Meadville Aspocomp (Suzhou) Electronic Co., Ltd. subsidiary, which held its Suzhou, China manufacturing facility, and shut down its operations in 2013. As a result, the Company determined that certain long-lived assets
were impaired and as such, recorded charges of $1,845 for the year ended December 29, 2014 primarily related to machinery and equipment held for sale.
During the year ended December 28, 2015, the Company sold its Meadville Aspocomp (Suzhou) Electronic Co., Ltd. subsidiary for $21,275 and recognized a gain of $2,504. The Suzhou, China manufacturing
facility is included in the PCB operating segment.
84
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
(5)
|
Composition of Certain Consolidated Financial Statement Captions
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
|
(In thousands)
|
|
Inventories:
|
|
|
|
|
Raw materials
|
|
$
|
73,497
|
|
|
$
|
70,577
|
|
Work-in-process
|
|
|
105,094
|
|
|
|
97,193
|
|
Finished goods
|
|
|
90,621
|
|
|
|
101,153
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
269,212
|
|
|
$
|
268,923
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
Land and land use rights
|
|
$
|
69,487
|
|
|
$
|
91,571
|
|
Buildings and improvements
|
|
|
436,822
|
|
|
|
446,763
|
|
Machinery and equipment
|
|
|
1,053,267
|
|
|
|
1,058,565
|
|
Construction-in-progress,
furniture and fixtures
and other
|
|
|
54,521
|
|
|
|
39,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,614,097
|
|
|
|
1,636,449
|
|
Less: Accumulated depreciation
|
|
|
(647,459
|
)
|
|
|
(533,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
966,638
|
|
|
$
|
1,103,067
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
927
|
|
|
$
|
14,473
|
|
Equipment payable
|
|
|
12,430
|
|
|
|
14,251
|
|
Other
|
|
|
96,275
|
|
|
|
73,024
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,632
|
|
|
$
|
101,748
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2016, the Company commenced the process of selling buildings and related land and
land use rights associated with the Cleveland, Ohio and Hong Kong, China facilities and has classified and aggregate total of $23,397 as assets held for sale at January 2, 2017. Assets held for sale are included in prepaids and other current
assets in the January 2, 2107 consolidated balance sheets.
As of
January 2, 2017 and December 28, 2015, goodwill was as follows:
|
|
|
|
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance as of December 29, 2014
|
|
$
|
12,111
|
|
Goodwill recognized during the year
|
|
|
334,870
|
|
Foreign currency translation adjustment
|
|
|
9
|
|
|
|
|
|
|
Balance as of December 28, 2015
|
|
|
346,990
|
|
Goodwill recognized during the year
|
|
|
25,624
|
|
Foreign currency translation adjustment
|
|
|
(5
|
)
|
|
|
|
|
|
Balance as of January 2, 2017
|
|
$
|
372,609
|
|
|
|
|
|
|
85
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Goodwill balances include foreign currency translation adjustments related to foreign
subsidiaries with functional currencies other than the U.S. Dollar. All of the Companys goodwill is included as a component of the PCB reportable operating segment.
In the fourth quarter of 2016, the Company performed its annual impairment test qualitatively and concluded that it was more likely than not that there was no impairment to goodwill. The Company will
continue to evaluate its goodwill on an annual basis during its fourth fiscal quarter and whenever events or changes in circumstances such as significant adverse changes in business climate or operating results, changes in management
strategy, coupled with a decline in the market price of our stock and market capitalization indicate that there may be a potential impairment. 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 may result in an impairment charge.
(7)
|
Definite-lived Intangibles
|
As of January 2, 2017 and December 28, 2015, 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)
|
|
January 2, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
203,563
|
|
|
$
|
(78,473
|
)
|
|
$
|
119
|
|
|
$
|
125,209
|
|
|
|
8.1
|
|
Technology
|
|
|
3,000
|
|
|
|
(1,596
|
)
|
|
|
|
|
|
|
1,404
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206,563
|
|
|
$
|
(80,069
|
)
|
|
$
|
119
|
|
|
$
|
126,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
91,492
|
|
|
$
|
(80,152
|
)
|
|
$
|
426
|
|
|
$
|
11,766
|
|
|
|
9.2
|
|
Trade name
|
|
|
10,302
|
|
|
|
(10,313
|
)
|
|
|
11
|
|
|
|
|
|
|
|
6.0
|
|
Acquired intangibles from Viasystems acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
147,500
|
|
|
|
(10,815
|
)
|
|
|
|
|
|
|
136,685
|
|
|
|
8.1
|
|
Technology
|
|
|
3,000
|
|
|
|
(577
|
)
|
|
|
|
|
|
|
2,423
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
252,294
|
|
|
$
|
(101,857
|
)
|
|
$
|
437
|
|
|
$
|
150,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The January 2, 2017 and December 28, 2015 definite-lived intangible balances include foreign
currency translation adjustments related to foreign subsidiaries with functional currencies other than the U.S. Dollar and the removal of fully amortized intangibles reducing the gross amounts reported.
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 $24,252, $18,888, and $8,387 for the years ended January 2,
2017, December 28, 2015 and December 29, 2014, respectively.
86
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Estimated aggregate amortization for definite-lived intangible assets for the next five
years and thereafter is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
23,647
|
|
2018
|
|
|
22,880
|
|
2019
|
|
|
18,746
|
|
2020
|
|
|
18,746
|
|
2021
|
|
|
18,746
|
|
Thereafter
|
|
|
23,848
|
|
|
|
|
|
|
|
|
$
|
126,613
|
|
|
|
|
|
|
(8)
|
Long-term Debt and Letters of Credit
|
The following table summarizes the long-term debt of the Company as of January 2, 2017 and December 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Effective
Interest Rate
as of January 2,
2017
|
|
|
January 2,
2017
|
|
|
Average Effective
Interest Rate
as of December 28,
2015
|
|
|
December 28,
2015
|
|
|
|
(In thousands)
|
|
Term loan due May 2021
|
|
|
5.25
|
%
|
|
$
|
700,000
|
|
|
|
|
|
|
|
|
|
Term loan due May 2021
|
|
|
|
|
|
|
|
|
|
|
6.00
|
%
|
|
$
|
947,625
|
|
U.S. ABL revolving loan due May 2020
|
|
|
2.27
|
%
|
|
|
80,000
|
|
|
|
2.17
|
%
|
|
|
80,000
|
|
Asia ABL revolving loan due May 2020
|
|
|
2.17
|
%
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes due December 2020
|
|
|
1.75
|
%
|
|
|
250,000
|
|
|
|
1.75
|
%
|
|
|
250,000
|
|
Capital lease
|
|
|
6.43
|
%
|
|
|
1,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061,798
|
|
|
|
|
|
|
|
1,277,625
|
|
Less: Long-term debt unamortized discount
|
|
|
|
|
|
|
(37,392
|
)
|
|
|
|
|
|
|
(75,668
|
)
|
Long-term debt unamortized debt issuance costs
|
|
|
|
|
|
|
(4,724
|
)
|
|
|
|
|
|
|
(31,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,019,682
|
|
|
|
|
|
|
|
1,170,786
|
|
Less: current maturities
|
|
|
|
|
|
|
(110,652
|
)
|
|
|
|
|
|
|
(157,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
|
|
|
$
|
909,030
|
|
|
|
|
|
|
$
|
1,013,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The fiscal calendar maturities of long-term debt through 2021 and thereafter are as
follows:
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
110,652
|
|
2018
|
|
|
358
|
|
2019
|
|
|
381
|
|
2020
|
|
|
250,407
|
|
2021
|
|
|
700,000
|
|
|
|
|
|
|
|
|
$
|
1,061,798
|
|
|
|
|
|
|
Term and Revolving Loans
On May 31, 2015, in conjunction with the acquisition of Viasystems, the Company entered into a $950,000 Term Loan Credit Agreement
(Term Loan). Additionally, the Company entered into a $150,000 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 Company drew $80,000
of the U.S. ABL at the closing of the acquisition of Viasystems.
On September 27, 2016, the Company issued new $775,000
Term B Loans (Term Loan B) at an interest rate of LIBOR, with a 1.0% LIBOR floor, plus 4.25%, a reduction of 75 basis points from its previous Term Loans, and repaid in full the remaining outstanding balance of the May 31, 2015 Term Loan. This
transaction was accounted for as an extinguishment of debt and accordingly, the Company recognized a loss of $47,767 primarily associated with the write off of the remaining unamortized debt discount and issuance costs.
Additionally, on September 27, 2016, the Company amended its U.S. ABL credit facility to increase the amount available to $200,000,
reduce the applicable margin by 25 basis points for both Eurodollar loans and ABR loans, and reduce the Letters of Credit Facilities to $50,000. On December 22, 2016, the Company amended its Asia ABL credit facility to reduce the interest
margin by 35 basis points.
The Term Loan B bears interest at a floating rate of LIBOR, with a 1.0% LIBOR floor, plus an
applicable interest margin of 4.25%, or JP Morgan Chase Banks prime rate, with a 2% floor, plus a margin of 3.25%, at the Companys option. At January 2, 2017, the weighted average interest rate on the outstanding borrowings under
the Term Loan was 5.25%. There is no provision, other than an event of default, for the interest margin to increase. The Term Loan B will mature on May 31, 2021. The Term Loan B is secured by a significant amount of the assets of the Company
and a pledge of 65% of voting stock of the Companys first tier foreign subsidiaries and is structurally senior to the Companys convertible senior notes. See Convertible Senior Notes below.
The amended U.S. ABL consists of three tranches comprised of a revolving credit facility of up to $200,000, a letter of credit facility of
up to $50,000, and swingline loans of 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 150 basis points or JP Morgan Chase Banks prime rate plus a margin of 50 basis points, at the
Companys option. At January 2, 2017, the weighted average interest rate on the outstanding borrowings under the U.S. ABL was 2.27%. 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 Banks 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 Companys domestic cash, receivables and inventories as well as by a second position against a significant amount of the assets of the Company and a
pledge of 65% of voting stock of the Companys first tier foreign subsidiaries and
88
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
are structurally senior to the Companys convertible senior notes. See Convertible Senior Notes below. At January 2, 2017, $80,000 of the U.S. ABL was outstanding. The Company and its
domestic subsidiaries have fully and unconditionally guaranteed the full and timely payment of all Term Loan B and U.S. ABL related obligations.
The Asia ABL consists of two tranches comprised of a revolving credit facility of up to $150,000 and a letter of credit facility of 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 January 2, 2017, the weighted average interest rate on the outstanding borrowings under the Asia ABL was 2.17%. 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 Companys Asia Pacific cash and receivables and are structurally senior to the Companys domestic obligations, including the convertible
senior notes. See Convertible Senior Notes below. The Companys Asia Pacific subsidiary and certain of its subsidiaries have fully and unconditionally guaranteed the full and timely payment of all Asia ABL related obligations. At
January 2, 2017, $30,000 of the Asia ABL was outstanding.
During the year ended January 2, 2017, the Company made
net debt principal payments totaling $217,625 representing normal principal payments as well as additional prepayments of principal. The Company is not required to make quarterly scheduled payments of the outstanding Term Loan B balance due to
mandatory payments and optional loan prepayments applied to date. Based on certain parameters defined in the Term Loan B agreement, including a secured leverage ratio, the Company may be required to make an additional principal payment on an annual
basis. Any remaining outstanding balances under the Term Loan B are due at the maturity date of May 31, 2021. Borrowings under the Term Loan B are subject to financial and operating covenants including maintaining a maximum total leverage
ratio. Under the occurrence of certain events, the U.S. ABL and the Asia ABL are subject to financial and operational covenants, including maintaining minimum fixed charge coverage ratios. At January 2, 2017, the Company was in compliance with
the covenants under the Term Loan B, the U.S. ABL and the Asia ABL.
As of January 2, 2017, remaining unamortized debt
issuance costs of $977 related to the Term Loan B. As of December 28, 2015, remaining unamortized debt discount of $30,242 and debt issuance costs of $26,619 related to the Term Loan. There was no unamortized debt discount for the Term Loan B
at January 2, 2017. These debt discount and debt issuance costs are recorded as a reduction of the Term Loan B and the Term Loan at January 2, 2017 and December 28, 2015, respectively, and are amortized over the duration of the Term
Loan B and Term Loan into interest expense using an effective interest rate of 5.29% and 7.50%, respectively.
Additionally,
remaining unamortized debt issuance costs related to the ABL Revolving Loans were $3,423 and $4,303 as of January 2, 2017 and December 28, 2015, respectively. These debt issuance costs 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 January 2, 2017, the remaining amortization period for the unamortized debt issuance costs for both the Term Loan B and the ABL
Revolving Loans was 3.6 years.
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 based on utilization levels. Additionally, the Company also paid commitment fees of 0.5% per annum on the unused portion of the $90,000 senior secured revolving loan associated with the terminated 2012 credit
agreement for the years ended December 28, 2015 and December 29, 2014. The Company incurred total commitment fees related to unused borrowing availability of $709, $763, and $600 for the years ended January 2, 2017,
December 28, 2015, and December 29, 2014, respectively. As of January 2, 2017, the outstanding amount of the Term Loan B was $700,000, which is included as long-term debt. Additionally,
89
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
$80,000 of the U.S. ABL and $30,000 of the Asia ABL were outstanding as of January 2, 2017, which were classified as short-term debt. Available borrowing capacity under the U.S. ABL and Asia
ABL was $113,003 and $111,663, which includes letters of credit outstanding of $6,997 and $8,337 mentioned below, respectively, at January 2, 2017.
Letters of Credit
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 mentioned above. As of January 2, 2017, letters of credit in the amount of $6,997 were outstanding under the U.S. ABL and $8,337 were outstanding under the Asia
ABL with various expiration dates through December 2017.
At December 28, 2015, certain letters of credit were securitized
by cash collateral. As such the Company had recorded such cash as restricted cash on the consolidated balance sheet as of December 28, 2015. As of January 2, 2017, none of the letters of credit were securitized by cash collateral.
Convertible Senior Notes
Convertible Senior Notes due 2020
The Company issued 1.75% convertible
senior notes due December 15, 2020, in a public offering for an aggregate principal amount of $250,000 in 2014. 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 Companys future unsecured senior indebtedness and are senior in right of payment to any of the Companys
future subordinated indebtedness.
Conversion:
At any time prior to
March 15, 2020, holders may convert their convertible senior notes into cash and, if applicable, into shares of the Companys common stock based on a conversion rate of 103.7613 shares of the Companys common stock per $1 principal
amount of convertible senior notes, subject to adjustment, under the following circumstances: (1) during any calendar quarter beginning after March 31, 2015 (and only during such calendar quarter), if the last reported sale price of our
common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable
trading day of such preceding calendar quarter; (2) during the five business day period after any 10 consecutive trading day period in which the trading price per note for each day of that 10 consecutive trading day period was less than 98% of
the product of the last reported sale price of the Companys common stock and the conversion rate on such day; or (3) upon the occurrence of specified corporate transactions described in the indenture governing the notes. As of
January 2, 2017, the conversion criteria had been met allowing holders to give notice of conversion in the first quarter of 2017.
On or after March 15, 2020 until the close of business on the third scheduled trading day preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing
circumstances. Upon conversion, for each $1 principal amount of notes, the Company will pay shares of our common stock, cash or a combination of cash and shares of our common stock at its election, if applicable, based on a daily conversion value
calculated on a proportionate basis for each day of the 80 trading day observation period. All conversions occurring on the same date or on or after March 15, 2020 shall be settled using the same settlement method. Additionally, in the event of
a fundamental change as defined in the indenture governing the notes, or other conversion rate adjustments such as share splits or combinations, other distributions of shares, cash or other assets to stockholders, including self-tender transactions
(Other Conversion Rate Adjustments), the conversion rate may be modified to adjust the number of shares per $1 principal amount of the notes. As of January 2, 2017, none of the criteria for a fundamental change or a conversion rate adjustment
had been met.
The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject
to Other Conversion Rate Adjustments, would be 32,425.
90
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Note Repurchase:
The Company is not
permitted to redeem the convertible senior notes at any time prior to maturity. In the event of a fundamental change or certain default events, as defined in the indenture governing the notes, holders may require the Company to repurchase for cash
all or a portion of their convertible senior notes at a price equal to 100% of the principal amount, plus any accrued and unpaid interest.
Convertible Note Hedge and Warrant Transaction:
In connection with the issuance of the convertible senior notes due 2020, the Company entered into a
convertible note hedge and warrant transaction (Call Spread Transaction), with respect to the Companys common stock. The convertible note hedge consists of the Companys option to purchase up to 25,940 common stock shares at a price of
$9.64 per share. The hedge expires on December 15, 2020 and can only be executed upon the conversion of the above mentioned convertible senior notes due 2020. Additionally, the Company sold warrants to purchase 25,940 shares of its common stock
at a price of $14.26 per share. The warrants expire ratably from March 2021 through January 2022. The 2020 Call Spread Transaction has no effect on the terms of the convertible senior notes due 2020 and reduces potential dilution by effectively
increasing the conversion price of the convertible senior notes due 2020 to $14.26 per share of the Companys common stock.
Convertible Senior Notes due 2015
The Company issued 3.25% convertible
senior notes due on May 15, 2015, in a public offering for an aggregate principal amount of $175,000. In May 2015, the outstanding principal of $32,395 plus accrued interest was paid in full.
As of January 2, 2017 and December 28, 2015, the following summarizes the equity components of the convertible senior notes
included in additional
paid-in
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 2, 2017 and December 28, 2015
|
|
|
|
Embedded
conversion
option
Convertible
Senior
Notes
|
|
|
Embedded
conversion
option
Convertible
Senior
Notes
Issuance
Costs
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Convertible senior notes due 2020
|
|
$
|
60,227
|
|
|
$
|
(1,916
|
)
|
|
$
|
58,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The components of interest expense resulting from the convertible senior notes for the
years ended January 2, 2017, December 28, 2015 and December 29, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Contractual coupon interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes due 2020
|
|
$
|
4,375
|
|
|
$
|
4,375
|
|
|
$
|
4,367
|
|
Convertible Senior Notes due 2015
|
|
|
|
|
|
|
395
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,375
|
|
|
$
|
4,770
|
|
|
$
|
5,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes due 2020
|
|
$
|
8,034
|
|
|
$
|
7,532
|
|
|
$
|
7,102
|
|
Convertible Senior Notes due 2015
|
|
|
|
|
|
|
554
|
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,034
|
|
|
$
|
8,086
|
|
|
$
|
8,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes due 2020
|
|
$
|
805
|
|
|
$
|
755
|
|
|
$
|
712
|
|
Convertible Senior Notes due 2015
|
|
|
|
|
|
|
56
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
805
|
|
|
$
|
811
|
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 2, 2017 and December 28, 2015, remaining unamortized debt discount of $37,392 and
$45,426, respectively, and debt issuance costs of $3,747 and $4,552, respectively, related to the convertible senior notes. These debt discount and debt issuance costs are recorded as a reduction of the convertible senior notes and are being
amortized to interest expense over the term of the convertible senior notes using the effective interest rate method. At January 2, 2017, the remaining weighted average amortization period for the unamortized senior convertible note discount
and debt issuance costs was 4 years.
For the years ended January 2, 2017, December 28, 2015 and December 29,
2014, the amortization of the convertible senior notes due 2020 debt discount and debt issuance costs was based on an effective interest rate of 6.48%. For the years ended December 28, 2015 and December 29, 2014, the amortization of the
convertible senior notes due 2015 debt discount and debt issuance costs was based on an effective interest rate of 8.37%.
Loss on Extinguishment of Debt
During the year ended January 2, 2017 and as mentioned previously, the Company repaid the remaining outstanding balances of its Term Loan. As a result, the Company recognized losses of $47,767
primarily associated with the write off of the remaining unamortized debt discount and debt issuance costs.
During the year
ended December 28, 2015, the Company paid in full the remaining outstanding amount of $225,700 under an existing 2012 credit agreement. As a result, the Company recognized losses of approximately $802 resulting from the write off of the
remaining unamortized debt issuance costs associated with the terminated 2012 credit agreement.
During the year ended
December 29, 2014, the Company repurchased $6,541 of its convertible senior notes due 2015 at approximately 103.4% of their principal amounts. The repurchases were accounted for as extinguishments of debt and, accordingly, the Company
recognized losses of approximately $506 primarily associated with the premium paid to repurchase the convertible senior notes and the recognition of related unamortized debt discount and issuance costs.
92
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
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 $30,200 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 2018. As of January 2, 2017, the Chinese Revolver had not been drawn upon.
The
components of income (loss) before income taxes for the years ended January 2, 2017, December 28, 2015 and December 29, 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
United States
|
|
$
|
(85,323
|
)
|
|
$
|
(104,068
|
)
|
|
$
|
(3,201
|
)
|
Foreign
|
|
|
152,325
|
|
|
|
113,044
|
|
|
|
25,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
67,002
|
|
|
$
|
8,976
|
|
|
$
|
22,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects its foreign earnings attributable to all foreign subsidiaries will be indefinitely
reinvested in such foreign jurisdictions and, therefore, no deferred tax liabilities for U.S. income taxes on undistributed earnings are recorded. The undistributed earnings of the foreign subsidiaries amounted to approximately $717,854 as of
January 2, 2017. The determination of unrecognized deferred tax liability related to these undistributed earnings is not practicable. Foreign earnings attributable to certain manufacturing subsidiaries within China may be repatriated to the
parent holding company located in Hong Kong, and therefore, a deferred tax liability of approximately $6,903 for the foreign tax impact has been recorded on the undistributed earnings of these subsidiaries.
The components of income tax provision for the years ended January 2, 2017, December 28, 2015 and December 29, 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Current (provision) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(342
|
)
|
|
$
|
477
|
|
|
$
|
1,717
|
|
State
|
|
|
(512
|
)
|
|
|
(345
|
)
|
|
|
(216
|
)
|
Foreign
|
|
|
(29,672
|
)
|
|
|
(19,379
|
)
|
|
|
(5,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(30,526
|
)
|
|
|
(19,247
|
)
|
|
|
(3,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (provision) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
715
|
|
|
|
(10,084
|
)
|
|
|
(829
|
)
|
State
|
|
|
|
|
|
|
(2,184
|
)
|
|
|
133
|
|
Foreign
|
|
|
(1,616
|
)
|
|
|
(3,079
|
)
|
|
|
(3,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(901
|
)
|
|
|
(15,347
|
)
|
|
|
(3,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
(31,427
|
)
|
|
$
|
(34,594
|
)
|
|
$
|
(7,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The following is a reconciliation of the provision for income taxes at the statutory
federal income tax rate compared to the Companys provision for income taxes for the years ended January 2, 2017, December 28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Statutory federal income tax
|
|
$
|
(22,780
|
)
|
|
$
|
(3,052
|
)
|
|
$
|
(7,579
|
)
|
State income taxes, net of federal benefit and state tax credits
|
|
|
906
|
|
|
|
(345
|
)
|
|
|
(84
|
)
|
Foreign deemed dividends
|
|
|
(4,585
|
)
|
|
|
(5,691
|
)
|
|
|
|
|
Acquisition related expenses
|
|
|
(591
|
)
|
|
|
(7,692
|
)
|
|
|
|
|
Intercompany profit in inventory elimination
|
|
|
(335
|
)
|
|
|
596
|
|
|
|
|
|
Permanently reinvested earnings assertion
|
|
|
|
|
|
|
8,281
|
|
|
|
|
|
Foreign tax differential on foreign earnings
|
|
|
17,530
|
|
|
|
15,543
|
|
|
|
(6,243
|
)
|
Change in valuation allowance
|
|
|
(19,119
|
)
|
|
|
(39,148
|
)
|
|
|
5,321
|
|
Uncertain tax positions
|
|
|
(3,464
|
)
|
|
|
(3,911
|
)
|
|
|
|
|
Federal research and development credits
|
|
|
1,270
|
|
|
|
1,270
|
|
|
|
1,020
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(259
|
)
|
|
|
(445
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
(31,427
|
)
|
|
$
|
(34,594
|
)
|
|
$
|
(7,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the net deferred income tax assets as of January 2, 2017 and December 28, 2015 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
|
(In thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
212,553
|
|
|
$
|
223,456
|
|
Reserves and accruals
|
|
|
32,420
|
|
|
|
36,137
|
|
Tax credit carryforwards
|
|
|
18,148
|
|
|
|
19,719
|
|
Stock-based compensation
|
|
|
4,965
|
|
|
|
4,609
|
|
Original issue discount on convertible senior notes
|
|
|
15,329
|
|
|
|
18,876
|
|
Property, plant and equipment
|
|
|
13,398
|
|
|
|
12,945
|
|
Other deferred income tax assets
|
|
|
2,036
|
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298,849
|
|
|
|
318,914
|
|
Less: valuation allowance
|
|
|
(221,951
|
)
|
|
|
(234,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
76,898
|
|
|
|
84,722
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Discount on convertible senior notes
|
|
|
(13,410
|
)
|
|
|
(16,495
|
)
|
Repatriation of foreign earnings
|
|
|
(6,903
|
)
|
|
|
(4,776
|
)
|
Property, plant and equipment basis differences
|
|
|
(32,582
|
)
|
|
|
(34,716
|
)
|
Goodwill and intangible amortization
|
|
|
(36,097
|
)
|
|
|
(41,790
|
)
|
Other deferred income tax assets
|
|
|
(1,955
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities
|
|
$
|
(14,049
|
)
|
|
$
|
(13,148
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities, net:
|
|
|
|
|
|
|
|
|
Current deferred income taxes
|
|
$
|
|
|
|
$
|
|
|
Noncurrent deferred income taxes
|
|
|
(14,049
|
)
|
|
|
(13,148
|
)
|
As of January 2, 2017, the Company had the following net operating loss (NOL)
carryforwards: $510,093 in the U.S. for federal, $561,708 in various U.S. states, $51,694 in China, $36,205 in Hong Kong and $164 in the Netherlands. The U.S. federal NOLs expire in 2019 through 2036, the various U.S. states NOLs expire in
2017 through 2036, the China NOLs expire in 2017 through 2021, the Hong Kong NOLs carryforward indefinitely, and the Netherlands NOLs expire in 2017. Further, the Companys tax credits were approximately $26,451 of which $8,481 carryforward
indefinitely.
In connection with the Companys acquisition of Viasystems, there was more than a 50% change in ownership
under Section 382 of the Internal Revenue Code of 1986, as amended, and regulations issued there under. As a consequence, the utilization of the acquired Viasystems U.S. NOLs is limited to approximately $9,826 per year. In addition, the Company
recognized certain gains built in at the time of the ownership change, which increase the limitation by approximately $47,463 for each of the first 5 years after the acquisition. Any unused limitation in a year can be carried over to succeeding
years.
A valuation allowance is provided when it is more likely than not that all or some portion of the deferred income tax
assets will not be realized. Based on historical performance and future expectations, the Company has
95
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
a full valuation allowance on its net U.S. deferred tax assets. Certain subsidiaries within China continue to have NOL carryforwards in various tax jurisdictions that the Company has determined
are not more likely than not to be utilized. As a result, a full valuation allowance has been recorded for these subsidiaries at January 2, 2017. For the remaining net deferred income tax asset, management has determined that it is more likely
than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax asset.
The following summarizes the activity in the Companys valuation allowance for the years ended January 2, 2017, December
28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Balance at beginning of year
|
|
$
|
234,192
|
|
|
$
|
38,839
|
|
|
$
|
44,160
|
|
(Reduction) additions related to acquisition
|
|
|
(18,234
|
)
|
|
|
177,699
|
|
|
|
|
|
Additions charged to expense
|
|
|
5,993
|
|
|
|
39,149
|
|
|
|
6,458
|
|
Reduction related to sale of foreign subsidiary
|
|
|
|
|
|
|
(21,495
|
)
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
(11,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
221,951
|
|
|
$
|
234,192
|
|
|
$
|
38,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain entities within China operated under the high and new technology enterprise (HNTE) status enabling
those entities to enjoy certain tax holidays, which were effective for the years ended January 2, 2017, December 28, 2015 and December 29, 2014. The tax holidays as well as enhanced research and development (R&D) deductions
decreased Chinese taxes by $7,666, $7,600 and $1,877, which (decreased) increased both basic and dilutive (loss) earnings per share by $(0.08), $(0.08) and $0.02, for the years ended January 2, 2017, December 28, 2015 and December 29,
2014, respectively. HTNE status and the related tax holidays expire at various dates through 2017, but the Company expects to continue to file for renewal of such HNTE status for the foreseeable future.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, exclusive of accrued interest and penalties, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Beginning balance
|
|
$
|
15,404
|
|
|
$
|
2,441
|
|
|
$
|
2,298
|
|
Additions related to acquisition
|
|
|
22,182
|
|
|
|
11,293
|
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
|
5,389
|
|
|
|
3,349
|
|
|
|
220
|
|
Additions for tax positions of prior years
|
|
|
1,545
|
|
|
|
14
|
|
|
|
286
|
|
Reductions for tax positions of prior years
|
|
|
(2,286
|
)
|
|
|
(1,371
|
)
|
|
|
|
|
Lapse of statute
|
|
|
(2,507
|
)
|
|
|
(322
|
)
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
39,727
|
|
|
$
|
15,404
|
|
|
$
|
2,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 2, 2017 and December 28, 2015, the Company recorded unrecognized tax benefits of
$28,037 and $10,649, respectively, as well as interest and penalties of $10,754 and $12,202, respectively, to other long-term liabilities. The Company has also recorded unrecognized tax benefits of $11,689 and $4,755 against certain deferred tax
assets as of January 2, 2017 and December 28, 2015, respectively. The amount of unrecognized tax benefits that would, if recognized, reduce the Companys effective income tax rate in any future periods is
96
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
$38,791 including interest and penalties. The Company expects its unrecognized tax benefits to decrease by $641 along with related interest of $987 over the next 12 months due to expiring
statutes.
As of January 2, 2017, the Company is subject to (i) U.S. federal income tax examination and / or NOL
adjustment for tax years from 1999 to 2016, (ii) state and local income tax examination for tax years 1999 to 2016, and (iii) foreign income tax examinations generally for tax years from 2006 to 2016.
(10)
|
Accumulated Other Comprehensive Income
|
The following provides a summary of the components of accumulated other comprehensive income (loss), net of tax as of January 2, 2017, December 28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
|
|
|
Gains (Losses)
on Cash
Flow
Hedges
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Ending balance at December 29, 2014
|
|
$
|
32,439
|
|
|
$
|
(1,424
|
)
|
|
$
|
31,015
|
|
Other comprehensive loss before reclassifications
|
|
|
(27,758
|
)
|
|
|
(20
|
)
|
|
|
(27,778
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(1,786
|
)
|
|
|
172
|
|
|
|
(1,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net year to date period other comprehensive income (loss)
|
|
|
(29,544
|
)
|
|
|
152
|
|
|
|
(29,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 28, 2015
|
|
|
2,895
|
|
|
|
(1,272
|
)
|
|
|
1,623
|
|
Other comprehensive loss before reclassifications
|
|
|
(46,044
|
)
|
|
|
(83
|
)
|
|
|
(46,127
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
175
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net year to date period other comprehensive income (loss)
|
|
|
(46,044
|
)
|
|
|
92
|
|
|
|
(45,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at January 2, 2017
|
|
$
|
(43,149
|
)
|
|
$
|
(1,180
|
)
|
|
$
|
(44,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following provides a summary of reclassifications out of accumulated other comprehensive income, net
of tax for the years ended January 2, 2017, December 28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from
Accumulated Other Comprehensive
Income
For the Year Ended
|
|
Details about Accumulated Other
Comprehensive Income
Components
|
|
Statement of Operations Location
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
Loss on foreign currency forwards cash flow hedges
|
|
Depreciation expense, net of tax
|
|
$
|
175
|
|
|
$
|
172
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on foreign currency translation
|
|
Gain on sale of assets, net of tax
|
|
$
|
|
|
|
$
|
(1,786
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on available for sale securities
|
|
Other, net, net of tax
|
|
$
|
|
|
|
$
|
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
Significant Customers and Concentration of Credit Risk
|
In the normal course of business, the Company extends credit to its customers, which are concentrated primarily in the automotive, cellular phone, computer, networking and communications and aerospace and
defense industries. Most customers to which the Company extends credit are located outside the United States, with the exception of certain customers in the aerospace and defense industries. The Company performs ongoing
97
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
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 Companys customers include both OEMs and EMS companies. The Companys OEM customers often direct a significant
portion of their purchases through EMS companies. While the Companys 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 years ended January 2, 2017, December 28, 2015 and December 29, 2014, one customer accounted for approximately 15%,
20% and 21%, respectively, of the Companys net sales. There were no other customers that accounted for 10% or more of net sales for the years ended January 2, 2017, December 28, 2015 and December 29, 2014.
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 Companys financial instruments as of January 2, 2017 and
December 28, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
January 2, 2017
|
|
|
December 28, 2015
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Term and Revolving Loans
|
|
$
|
809,023
|
|
|
$
|
818,750
|
|
|
$
|
970,764
|
|
|
$
|
935,000
|
|
Convertible Senior Notes due 2020
|
|
|
208,861
|
|
|
|
380,875
|
|
|
|
200,022
|
|
|
|
230,950
|
|
Capital lease
|
|
|
1,798
|
|
|
|
1,798
|
|
|
|
|
|
|
|
|
|
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 January 2, 2017 and December 28, 2015, which are considered Level 1 and Level 2 inputs.
The fair value of the convertible senior notes was estimated based on quoted market prices of the securities on an active exchange, which are considered Level 1 and Level 2 inputs.
As of January 2, 2017 and December 28, 2015, the Companys other financial instruments also included cash and cash
equivalents, accounts receivable, accounts payable and equipment payables. Due to short-term maturities, the carrying amount of these instruments approximates fair value. Our cash and cash equivalents at January 2, 2017 consisted of $50,227
held in the U.S., with the remaining $206,050 held by foreign subsidiaries.
The majority of the Companys
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
instruments 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.
98
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
For the years ended January 2, 2017 and December 29, 2014, the following
assets were measured at fair value on a nonrecurring basis using the type of inputs shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
January 2,
2017
|
|
|
Level 1 Inputs
|
|
|
Level 2 Inputs
|
|
|
Level 3 Inputs
|
|
|
Total Losses for
the year Ended
January 2,
2017
|
|
|
|
(In thousands)
|
|
Long-lived assets held and use
|
|
$
|
2,254
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,254
|
|
|
$
|
1,953
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
December 29,
2014
|
|
|
Level 1 Inputs
|
|
|
Level 2 Inputs
|
|
|
Level 3 Inputs
|
|
|
Total Losses for
the Year Ended
December 29,
2014
|
|
|
|
(In thousands)
|
|
Assets held for sale
|
|
$
|
21,031
|
|
|
$
|
|
|
|
$
|
21,031
|
|
|
$
|
|
|
|
$
|
1,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no impairment of long-lived assets recognized in the year ended December 28, 2015.
The fair values of assets held for sale were primarily determined using appraisals and comparable prices of similar assets,
which are considered to be Level 2 inputs.
Additionally, the Company has capitalized software costs in accordance with
U.S. GAAP. During the year ended January 2, 2017, the Company determined that certain capitalized costs no longer had benefit primarily as a result of the Viasystems acquisition. Because the primary determination of fair value was based on
managements assumptions and estimates of capitalized costs to dispose, the resulting fair value is considered a Level 3 input.
(13)
|
Commitments and Contingencies
|
Operating Leases
The Company leases some of its manufacturing and
assembly plants, a sales office and equipment under noncancellable operating leases that expire at various dates through 2050. Certain real property leases contain renewal provisions at the Companys option. Most of the leases require the
Company to pay for certain other costs such as property taxes and maintenance. Certain leases also contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step
rents is recognized on a straight-line basis over the minimum lease term.
99
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The following is a schedule of future minimum lease payments as of January 2, 2017:
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
7,893
|
|
2018
|
|
|
4,375
|
|
2019
|
|
|
3,156
|
|
2020
|
|
|
2,351
|
|
2021
|
|
|
1,699
|
|
Thereafter
|
|
|
5,016
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
24,490
|
|
|
|
|
|
|
Total rent expense for the years ended January 2, 2017, December 28, 2015, and December 29,
2014, was approximately $10,329, $7,362 and $3,731, respectively.
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 Companys financial condition, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the
ultimate potential loss could have a material adverse effect on the Companys financial condition or results of operations in a particular period. The Company has accrued amounts for its loss contingencies which are probable and estimable as of
January 2, 2017 and December 28, 2015. However, these amounts are not material to the consolidated financial statements of the Company.
Environmental Matters
The process to manufacture PCBs requires
adherence to city, county, state, federal, and foreign environmental regulations regarding the storage, use, handling and disposal of chemicals, solid wastes and other hazardous materials, as well as compliance with air quality standards and
chemical use reporting. The Company believes that its facilities in the United States and Canada comply in all material respects with applicable environmental laws and regulations. In China, governmental authorities have adopted new rules and
regulations governing environmental issues. An update to the Chinese environmental waste water law was issued in late 2012, allowing for an interim period in which plants subject to such law may install equipment that meets the new regulatory
regime. Some of the Companys plants in China are not yet in full compliance with the updated environmental regulations. The Company believes it has developed plans acceptable to the Chinese government and is in the process of implementing
these plans. The Company does not anticipate any immediate risk of government fines or temporary closure of its Chinese plants. The Company has established and enacted an investment plan related to the efforts to come into full compliance with the
new regulations. The 2017 capital expenditure costs expected for these plans are included in the Companys capital expenditure projections.
(14)
|
Stock-Based Compensation
|
Incentive Compensation Plan
The Company maintains a 2014 Incentive Compensation Plan (the Plan), which allowed for the issuance of up to 5,288 shares. In May 2016, the Plan was amended to increase the amount allowed for issuance by
5,000 shares, revising the maximum allowed for issuance to 10,288 through its expiration date of February 2024.
The Plan
provides for the grant of incentive stock options and nonqualified stock options to the Companys key employees,
non-employee
directors and consultants. Other types of awards such as performance-based
100
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
restricted stock units (PRUs), restricted stock units (RSUs), and stock appreciation rights are also permitted. The exercise price for options and awards is determined by the compensation
committee of the board of directors and, for options intended to qualify as incentive stock options, may not be less than the fair market value as determined by the closing stock price at the date of the grant. Each option and award shall vest and
expire as determined by the compensation committee of the board of directors, with options, PRUs and RSUs generally vesting over three years for employees and one year for
non-employee
directors. Options, PRUs
and RSUs do not have voting rights. Options expire no later than ten years from the grant date. All grants provide for accelerated vesting if there is a change in control, as defined in the Plan. Upon the exercise of outstanding stock options or
vesting of RSUs and PRUs, the Companys practice is to issue new registered shares that are reserved for issuance under the Plan.
As of January 2, 2017, 697 PRUs, 3,104 RSUs and 87 stock options were outstanding under the Plan. Included in the 697 PRUs outstanding as of January 2, 2017 are 291 vested but not yet released.
Included in the 3,104 RSUs outstanding as of January 2, 2017 are 396 vested but not yet released RSUs associated with
non-employee
directors. These RSUs vest over one year with release of the underlying
shares of common stock deferred until retirement from the board of directors, (or until one year after retirement in the case of certain prior grants).
Performance-based Restricted Stock Units
The Company maintains a
long-term incentive program for executives that provides for the issuance of PRUs, representing hypothetical shares of the Companys common stock that may be issued. Under the PRU program, a target number of PRUs is awarded at the beginning of
each three-year performance period. The number of shares of common stock released at the end of the performance period may range from zero to 2.4 times the target number depending on performance during the period. The performance metrics of the PRU
program are based on (a) annual financial targets, which are based on revenue and EBITDA (earnings before interest, tax, depreciation, and amortization expense), each equally weighted, and (b) an overall modifier based on the
Companys total stockholder return (TSR) relative to a group of peer companies selected by the Companys compensation committee, over the three-year performance period.
Under the PRU program, financial goals are set at the beginning of each fiscal year and performance is reviewed at the end of that year.
The percentage to be applied to each participants target award ranges from zero to 160% based upon the extent to which the annual financial performance goals are achieved. If specific performance threshold levels for the annual financial goals
are met, the amount earned for that element will be applied to
one-third
of the participants PRU award to determine the number of units earned.
At the end of the three-year performance period, the total units earned, if any, are adjusted by applying a modifier, ranging from zero to
150% based on the Companys TSR based on stock price changes relative to a group of peer companies selected by the Companys compensation committee for the same three-year period.
The TSR modifier is intended to ensure that there are limited or no payouts under the PRU program if the Companys stock performance
is significantly below the median TSR of a group of peer companies selected by the Companys compensation committee over the three-year performance period. Where the annual financial goals have been met and where there has been strong relative
TSR performance over the three-year performance period, the PRU program may provide substantial rewards to participants with a maximum payout of 2.4 times the initial PRU award. However, even if all of the annual financial metric goals are achieved
in each of the three years, there will be no payouts if the Companys stock performance is below that of the 10th percentile for PRUs granted in 2016, and 20th percentile for PRUs granted prior to 2016, of the group of peer companies selected
by the Companys compensation committee, as appropriate.
Recipients of PRU awards generally must remain employed by the
Company on a continuous basis through the end of the three-year performance period in order to receive any amount of the PRUs covered by that award.
101
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
In events such as death, disability or retirement, the recipient may be entitled to
pro-rata
amounts of PRUs as defined in the Plan. Target shares subject
to PRU awards do not have voting rights of common stock until earned and issued following the end of the three-year performance period.
The Company records stock-based compensation expense for PRU awards granted based on managements periodic assessment of the probability of the PRU awards vesting. As of January 2, 2017,
management determined that vesting of the PRU awards was probable. PRU activity for the year ended January 2, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
Outstanding target shares at December 28, 2015
|
|
|
301
|
|
|
$
|
8.58
|
|
Granted
|
|
|
346
|
|
|
|
6.46
|
|
Vested
|
|
|
(291
|
)
|
|
|
6.01
|
|
Change in units due to annual performance achievement
|
|
|
50
|
|
|
|
6.08
|
|
|
|
|
|
|
|
|
|
|
Outstanding target shares at January 2, 2017
|
|
|
406
|
|
|
$
|
8.31
|
|
|
|
|
|
|
|
|
|
|
The fair value of PRUs granted is calculated using a Monte Carlo simulation model, as the TSR modifier
contains a market condition. For the years ended January 2, 2017, December 28, 2015 and December 29, 2014, the following assumptions were used in determining the fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017(1)
|
|
|
December 28,
2015(2)
|
|
|
December 29,
2014(3)
|
|
Weighted-average fair value
|
|
$
|
6.46
|
|
|
$
|
7.22
|
|
|
$
|
5.80
|
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
40
|
%
|
|
|
37
|
%
|
|
|
41
|
%
|
Expected term in months
|
|
|
24
|
|
|
|
22
|
|
|
|
23
|
|
(1)
|
Reflects the weighted-averages for the third year of the three-year performance period applicable to PRUs granted in 2014, the second year of the three-year performance
period applicable to PRUs granted in 2015 and the first year of the three-year performance period applicable to PRUs granted in 2016.
|
(2)
|
Reflects the weighted-averages for the third year of the three-year performance period applicable to PRUs granted in 2013, the second year of the three-year performance
period applicable to PRUs granted in 2014 and the first year of the three-year performance period applicable to PRUs granted in 2015.
|
(3)
|
Reflects the weighted-averages for the third year of the three-year performance period applicable to PRUs granted in 2012, second year of the three-year performance
period applicable to PRUs granted in 2013 and for the first year of the three-year performance period applicable to PRUs granted in 2014.
|
The expected term of the PRUs reflects the performance period for the PRUs granted. Expected volatility is calculated using the Companys historical stock price. The risk-free interest rate for the
expected term of PRUs is based on the U.S Treasury yield curve in effect at the time of grant.
102
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Restricted Stock Units
RSU activity for the year ended January 2, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
Non-vested
RSUs outstanding at December 28, 2015
|
|
|
1,975
|
|
|
$
|
8.77
|
|
Granted
|
|
|
1,827
|
|
|
|
6.78
|
|
Vested
|
|
|
(906
|
)
|
|
|
8.65
|
|
Forfeited
|
|
|
(188
|
)
|
|
|
8.59
|
|
|
|
|
|
|
|
|
|
|
Non-vested
RSUs outstanding at January 2, 2017
|
|
|
2,708
|
|
|
$
|
7.48
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 2, 2017
|
|
|
2,980
|
|
|
$
|
7.79
|
|
|
|
|
|
|
|
|
|
|
The fair value of the Companys RSUs is determined based upon the closing common stock price on the
grant date. The weighted average fair value per unit of RSUs granted was $6.78, $9.15 and $7.98 for the years ended January 2, 2017, December 28, 2015 and December 29, 2014, respectively. The total fair value of RSUs vested for the
years ended January 2, 2017, December 28, 2015 and December 29, 2014 was $7,834, $6,396 and $7,195, respectively.
Stock Options
During the year ended January 2, 2017, the
Company granted 20 stock options to a newly appointed member of the board which were estimated to have a fair value per share of $6.78. No stock options were granted by the Company for the years ended December 28, 2015 or December 29,
2014. The fair value calculation is based on stock options granted during the period using the Black-Scholes option-pricing model on the date of grant. For the year ended January 2, 2017 the fair value was determined using 1.7% as the risk-free
interest rate, 51% as the expected volatility, 8.5 years as the expected term and no dividend yield.
The Company determines
the expected term of its stock option awards by periodic review of its historical stock option exercise experience. This calculation considers
pre-vesting
forfeitures and uses assumed future exercise patterns
to account for option holders expected exercise and post-vesting termination behavior for outstanding stock options over their remaining contractual terms. Expected volatility is calculated by weighting the Companys historical stock
price to calculate expected volatility over the expected term of each grant. The risk-free interest rate for the expected term of each option granted is based on the U.S. Treasury yield curve in effect at the time of grant with a period that
approximates the expected term of the options.
103
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Option activity under the Plan for the year ended January 2, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
Outstanding at December 28, 2015
|
|
|
420
|
|
|
$
|
12.37
|
|
|
|
1.7
|
|
|
$
|
4
|
|
Granted
|
|
|
20
|
|
|
|
11.83
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(159
|
)
|
|
|
10.97
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(194
|
)
|
|
|
14.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 2, 2017
|
|
|
87
|
|
|
$
|
10.99
|
|
|
|
5.0
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 2, 2017
|
|
|
87
|
|
|
$
|
10.99
|
|
|
|
5.0
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 2, 2017
|
|
|
67
|
|
|
$
|
10.74
|
|
|
|
3.5
|
|
|
$
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the
difference between Companys closing stock price on the last trading day of the 2016 fiscal year and the exercise price, multiplied by the number of
in-the-money
options) that would have been received by the option holders had all option holders exercised their options on January 2, 2017. This amount changes based on the fair market value of the Companys stock. The total intrinsic value of options
exercised for the years ended January 2, 2017 and December 28, 2015 was $127 and $131, respectively. There were no options exercised for the year ended December 29, 2014. There were no options vested for the years ended
January 2, 2017 and December 28, 2015. The total fair value of the options vested for the year ended December 29, 2014 was $110.
Stock-based Compensation Expense and Unrecognized Compensation Costs
For the years ended January 2, 2017, December 28, 2015 and December 29, 2014, the amounts recognized in the consolidated
financial statements with respect to the stock-based compensation plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Cost of goods sold
|
|
$
|
1,630
|
|
|
$
|
1,117
|
|
|
$
|
866
|
|
Selling and marketing
|
|
|
1,054
|
|
|
|
1,135
|
|
|
|
1,109
|
|
General and administrative
|
|
|
8,406
|
|
|
|
7,409
|
|
|
|
5,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized
|
|
|
11,090
|
|
|
|
9,661
|
|
|
|
7,800
|
|
Income tax benefit recognized
|
|
|
|
|
|
|
|
|
|
|
(2,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense recognized
|
|
$
|
11,090
|
|
|
$
|
9,661
|
|
|
$
|
5,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company may become entitled to a deduction in its tax returns upon the future exercise of incentive
stock options under certain circumstances; however, the value of this deduction will be recorded as an increase to additional
paid-in
capital and not as an income tax benefit. For the years ended
December 28, 2015 and December 29, 2014, a net tax shortfall of $247 and $1,015, respectively, related to fully vested stock option awards exercised and vested RSUs was recorded as a decrease to additional
paid-in
capital. For the year ended
104
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
January 2, 2017, the Company did not record a net tax shortfall. Additionally, for the year ended January 2, 2017 and December 28, 2015, the Company did not record an income
tax benefit as a result of a full valuation allowance on its deferred tax assets.
The following is a summary of total
unrecognized compensation costs as of January 2, 2017:
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Stock-Based
Compensation Cost
|
|
|
Remaining Weighted
Average Recognition
Period
|
|
|
|
(In thousands)
|
|
|
(In years)
|
|
RSU awards
|
|
$
|
11,822
|
|
|
|
1.3
|
|
PRU awards
|
|
|
1,631
|
|
|
|
1.5
|
|
Stock options
|
|
|
114
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15)
|
Employee Benefit and Deferred Compensation Plans
|
As of January 2, 2017, the Company has three separate retirement benefit plans: one in North America and two in China. In North America, the Company has a 401(k) savings plan (the Savings Plan) in
which eligible full-time domestic employees can participate and contribute a percentage of compensation subject to the maximum allowed by the Internal Revenue Service. The Savings Plan provides for a partial match by the employer of the first 5% of
employee contributions (100% of the first 3% and 50% of the following 2% of employee contributions). In China, the Company contributes to either separate trust-administered funds or various government-sponsored pension plans on a mandatory basis.
For all retirement plans, the Company has no further payment obligation once the required contributions have been made. The Company recorded contributions to retirement benefit plans of $36,172, $35,427 and $18,953 during the years ended
January 2, 2017, December 28, 2015 and December 29, 2014, respectively.
The Company also maintains a deferred
compensation plan (the Compensation Plan). The Compensation Plan is an unfunded, nonqualified deferred compensation plan and is limited to selected employees, including our named executive officers and our directors. The Compensation Plan allows
participants to defer up to 100% of their annual bonus and between 5% and 100% of their annual director fees. Amounts deferred under the Compensation Plan will be credited to accounts maintained by the Company for each participant and will be
credited or debited with the participants proportionate share of any gains or losses attributable to the performance of investment options selected by the participant.
The
board of directors has the authority, without action by stockholders, to designate and issue preferred stock in one or more series. The board of directors may also designate the rights, preferences and privileges of each series of preferred stock,
any or all of which may be superior to the rights of the common stock. As of January 2, 2017, no shares of preferred stock were outstanding.
(17)
|
Distribution of profits
|
As stipulated by the relevant laws and regulations of China applicable to the Companys subsidiaries in China, each of such
subsidiaries is required to make appropriations from its net income as determined in accordance with accounting principles and the relevant financial regulations of China (PRC GAAP) to a
non-distributable
reserve, also referred to as statutory surplus reserve. The appropriations to the statutory surplus reserve are required to be made at not less than 10% of the profit after tax as determined under PRC GAAP and are required until the balance reaches
50% of its registered capital. The statutory surplus reserve is used to offset future or past losses. These Chinese subsidiaries may, upon a resolution passed by their respective shareholders, convert the statutory surplus reserve into capital.
105
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
There were appropriations of approximately $6,037, $4,576 and $2,544 to the statutory
surplus reserve of the Companys Chinese subsidiaries for the years ended January 2, 2017, December 28, 2015 and December 29, 2014, respectively.
The
operating segments reported below are the Companys 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. The Company has reviewed its reportable operating segments and determined it continues to have two reportable operating segments: PCB and
E-M
Solutions. The PCB reportable segment is comprised of
multiple operating segments. This determination was made based on the criteria of earning revenues and incurring expenses, the Companys organizational structure which has segment managers who report to the chief operating decision maker,
discrete financial information, and the aggregation of similar operating segments into reportable operating segments. Factors considered to determine whether operating segments can be aggregated into reportable segments included similarity regarding
economic characteristics, products, production processes, type or classes of customers, distribution methods, and regulatory environments.
The Company, including the chief operating decision maker, evaluates segment performance based on operating 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.
The Company accounts for inter-segment sales and transfers consistent with the Companys revenue recognition policy. The
inter-segment sales for the year ended January 2, 2017 are sales primarily from the PCB to the
E-M
Solutions operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB
|
|
$
|
2,346,554
|
|
|
$
|
1,944,041
|
|
|
$
|
1,251,665
|
|
E-M
Solutions
|
|
|
198,483
|
|
|
|
158,655
|
|
|
|
76,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
2,545,037
|
|
|
|
2,102,696
|
|
|
|
1,328,210
|
|
Inter-segment sales
|
|
|
(11,678
|
)
|
|
|
(7,208
|
)
|
|
|
(2,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,533,359
|
|
|
$
|
2,095,488
|
|
|
$
|
1,325,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB
|
|
$
|
285,046
|
|
|
$
|
172,227
|
|
|
$
|
77,092
|
|
E-M
Solutions
|
|
|
4,684
|
|
|
|
1,424
|
|
|
|
3,855
|
|
Corporate
|
|
|
(92,025
|
)
|
|
|
(93,421
|
)
|
|
|
(26,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating segment income
|
|
|
197,705
|
|
|
|
80,230
|
|
|
|
54,926
|
|
Amortization of definite-lived intangibles
|
|
|
(24,252
|
)
|
|
|
(18,888
|
)
|
|
|
(8,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
173,453
|
|
|
|
61,342
|
|
|
|
46,539
|
|
Total other expense
|
|
|
(106,451
|
)
|
|
|
(52,366
|
)
|
|
|
(24,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
67,002
|
|
|
$
|
8,976
|
|
|
$
|
22,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Depreciation Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB
|
|
$
|
149,466
|
|
|
$
|
130,339
|
|
|
$
|
95,027
|
|
E-M
Solutions
|
|
|
2,540
|
|
|
|
2,079
|
|
|
|
183
|
|
Corporate
|
|
|
4,223
|
|
|
|
1,090
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation expense
|
|
$
|
156,229
|
|
|
$
|
133,508
|
|
|
$
|
95,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB
|
|
$
|
74,318
|
|
|
$
|
72,036
|
|
|
$
|
73,779
|
|
E-M
Solutions
|
|
|
3,206
|
|
|
|
4,006
|
|
|
|
400
|
|
Corporate
|
|
|
5,873
|
|
|
|
1,523
|
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
83,397
|
|
|
$
|
77,565
|
|
|
$
|
76,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Segment Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
PCB
|
|
$
|
1,791,829
|
|
|
$
|
1,943,577
|
|
|
$
|
1,334,648
|
|
E-M
Solutions
|
|
|
127,826
|
|
|
|
143,779
|
|
|
|
43,255
|
|
Corporate
|
|
|
580,421
|
|
|
|
552,777
|
|
|
|
223,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,500,076
|
|
|
$
|
2,640,133
|
|
|
$
|
1,601,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporate category 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 and acquisition and
integration costs associated with the acquisition of Viasystems. Bank fees and legal, accounting, and other professional service costs associated with the acquisition of Viasystems of $1,688, $34,448 and $5,981 for the years ended January 2,
2017, December 28, 2015, and December 29, 2014, respectively, are included in Corporate.
During the year ended
January 2, 2017, the Company recorded impairment charges of $1,393 and $1,953 for the impairment of long-lived assets related to its PCB operating segment and Corporate operating segment, respectively. During the year ended December 29,
2014, the Company recorded impairment charges of $1,845 for the impairment of long-lived assets related to its PCB operating segment. There were no impairment charges for the year ended December 28, 2015.
107
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
The Company markets and sells its products in approximately 65 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 Companys total net sales. Net sales and long-lived assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Net Sales
|
|
|
Long-Lived
Assets
|
|
|
Net Sales
|
|
|
Long-Lived
Assets
|
|
|
Net Sales
|
|
|
Long-Lived
Assets
|
|
|
|
(In thousands)
|
|
United States
|
|
$
|
1,119,086
|
|
|
$
|
661,058
|
|
|
$
|
960,146
|
|
|
$
|
654,579
|
|
|
$
|
568,796
|
|
|
$
|
103,340
|
|
China
|
|
|
646,844
|
|
|
|
781,678
|
|
|
|
547,999
|
|
|
|
923,219
|
|
|
|
352,385
|
|
|
|
682,739
|
|
Other
|
|
|
767,429
|
|
|
|
23,124
|
|
|
|
587,343
|
|
|
|
23,133
|
|
|
|
404,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,533,359
|
|
|
$
|
1,465,860
|
|
|
$
|
2,095,488
|
|
|
$
|
1,600,931
|
|
|
$
|
1,325,717
|
|
|
$
|
786,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales are attributed to countries by country invoiced.
The
following is a reconciliation of the numerator and denominator used to calculate basic earnings (loss) per share and diluted earnings (loss) per share for the years ended January 2, 2017, December 28, 2015 and December 29, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands, except per share amounts)
|
|
Net income (loss) attributable to TTM Technologies, Inc. stockholders
|
|
$
|
34,861
|
|
|
$
|
(25,882
|
)
|
|
$
|
14,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
100,099
|
|
|
|
92,675
|
|
|
|
83,238
|
|
Dilutive effect of performance-based stock units, restricted stock units and stock options
|
|
|
1,383
|
|
|
|
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
101,482
|
|
|
|
92,675
|
|
|
|
83,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to TTM Technologies, Inc. stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.35
|
|
|
$
|
(0.28
|
)
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.34
|
|
|
$
|
(0.28
|
)
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended January 2, 2017 and December 29, 2014, performance-based stock units
(PRUs), restricted stock units (RSUs) and stock options to purchase 892 and 1,233 shares of common stock, respectively, were not considered in calculating diluted earnings per share because the options exercise prices or the total expected
proceeds under the treasury stock method for performance-based stock units, restricted stock units or stock options was greater than the average market price of common shares during the applicable year and, therefore, the effect would be
anti-dilutive.
For the year ended December 28, 2015, potential shares of common stock, consisting of stock options to
purchase approximately 420 shares of common stock at exercise prices ranging from $5.78 to $16.82 per share, 2,294 RSUs, and 572 PRUs were not included in the computation of diluted earnings per share because the Company incurred a net loss from
operations and, as a result, the impact would be anti-dilutive.
108
TTM TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (Continued)
Additionally, for the years ended January 2, 2017, December 28, 2015 and
December 29, 2014, the effect of shares of common stock related to the Companys convertible senior notes were not included in the computation of dilutive earnings per share as the impact would be anti-dilutive.
Outstanding warrants for the years ended January 2, 2017, December 28, 2015 and December 29, 2014, 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 Companys common stock were greater than the average market price of common shares during the applicable year, and
therefore, the effect would be anti-dilutive.
The below is a summary of amounts convertible to common stock related to
convertible senior notes and related warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
January 2,
2017
|
|
|
December 28,
2015
|
|
|
December 29,
2014
|
|
|
|
(In thousands)
|
|
Common stock related to convertible senior notes
|
|
|
25,940
|
|
|
|
25,940
|
|
|
|
27,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
25,940
|
|
|
|
26,408
|
|
|
|
28,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20)
|
Related Party Transactions
|
In the normal course of business, the Companys foreign subsidiaries purchase laminate and prepreg from related parties in which a
significant shareholder of the Company holds an equity interest. The Company purchased laminate and prepreg from these related parties in the amount of $55,649, $63,605 and $47,446 for the years ended January 2, 2017, December 28, 2015 and
December 29, 2014, respectively.
Dongguan Shengyi Electronics Ltd. (SYE) is also a related party as it is a wholly owned
subsidiary of an entity in which a significant shareholder of the Company holds an equity interest. The Company sells PCBs to SYE and purchases PCBs including various services relating to PCB manufacturing from SYE. Sales to SYE for the years ended
January 2, 2017, December 28, 2015 and December 29, 2014 were $991, $4,709 and $24,120, respectively. Purchases of PCBs including various services relating to PCB manufacturing for the years ended December 28, 2015 and
December 29, 2014 were $1,948 and $1,671, respectively. There were no purchases from SYE for the year ended January 2, 2017.
As of January 2, 2017 and December 28, 2015, the Companys consolidated balance sheets included $15,836 and $29,306, respectively, in accounts payable due to related parties for purchases
of laminate and prepreg and various PCB manufacturing services and such balances are included as a component of accounts payable on the consolidated balance sheets. Additionally, the Companys consolidated balance sheets included $192 and
$1,999, respectively, in accounts receivable due from a related party for sales of PCBs to SYE, as mentioned above, and such balances are included as a component of accounts receivable, net on the consolidated balance sheets.
109