TTM Technologies(TTMI)

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TTM Technologies(TTMI) - 2021 Q3 - Quarterly Report
2020-11-05 21:06
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q ☑ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 2020 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-31285 TTM TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organizatio ...
TTM Technologies(TTMI) - 2020 Q3 - Earnings Call Transcript
2020-10-29 00:24
TTM Technologies, Inc. (NASDAQ:TTMI) Q3 2020 Earnings Conference Call October 28, 2020 4:30 PM ET Company Participants Sameer Desai - Senior Director of Corporate Development & Investor Relations Tom Edman - Chief Executive Officer Todd Schull - Chief Financial Officer Conference Call Participants Mike Cikos - Needham & Company Srini Pajjuri - SMBC Nikko Securities Alvin Park - Stifel Mike Crawford - B. Riley Securities Woo Jin Ho - Bloomberg Intelligence Operator Good afternoon, ladies and gentlemen. Thank ...
TTM Technologies(TTMI) - 2021 Q2 - Quarterly Report
2020-08-06 20:06
Financial Performance - Total net sales increased by $43.4 million, or 8.2%, to $570.3 million for Q2 2020 from $526.9 million for Q2 2019, primarily driven by a $53.1 million increase in the PCB segment [121]. - The PCB reportable segment's gross margin increased to 20.3% for Q2 2020 from 19.6% for Q2 2019, while the E-M Solutions segment's gross margin decreased to (1.1%) from 7.3% [123][124]. - The company reported a net income from continuing operations of 1.6% for Q2 2020, down from 2.4% in Q2 2019 [120]. - Overall gross margin decreased to 17.0% for the first two quarters of 2020 from 18.0% for the same period in 2019 [125]. - The company experienced a decrease in net income from continuing operations of $12.6 million, resulting in $6.1 million for the first two quarters of 2020 [138]. Customer and Market Dynamics - Sales to the ten largest customers accounted for 36% of net sales for Q2 2020, down from 40% in Q2 2019, reflecting a diversification in customer base [108]. - The E-M Solutions segment saw a net sales reduction of $9.7 million, or 16.2%, to $50.2 million for Q2 2020, primarily due to lower demand in Automotive and Medical/Industrial markets [121]. - The company serves approximately 1,200 customers across various markets, including aerospace, defense, automotive, and medical sectors [105]. Operational Efficiency - Capacity utilization in Asia PCB facilities rose to 70% for Q2 2020 compared to 60% for Q2 2019, indicating improved production efficiency [126]. - Selling and marketing expenses decreased to $16.0 million for Q2 2020, representing 2.8% of net sales, down from 3.2% in Q2 2019, attributed to reduced travel expenses due to COVID-19 [127]. - Selling and marketing expenses decreased by $2.4 million to $32.1 million for the first two quarters of 2020, representing 3.0% of net sales compared to 3.2% in the same period of 2019 [128]. - General and administrative expenses increased by $19.2 million to $81.4 million for the first two quarters of 2020, accounting for 7.6% of net sales, up from 5.8% in the same period of 2019 [130]. Cash Flow and Debt Management - Cash flow provided by operating activities for continuing operations was $107.4 million for the first two quarters of 2020, down from $120.3 million in the same period of 2019 [138]. - As of June 29, 2020, the company had cash and cash equivalents of approximately $694.7 million, with $389.4 million held by foreign subsidiaries [141]. - Outstanding debt as of June 29, 2020, was $1,482.8 million, including $798.0 million of Term Loan debt due September 2024 [144]. - The company anticipates net capital expenditures and asset acquisitions in the range of $100.0 million to $110.0 million for 2020 [141]. Tax and Interest Rate Exposure - The effective tax benefit increased by $3.6 million to $2.3 million for the first two quarters of 2020, compared to a tax expense of $1.3 million in the same period of 2019 [134]. - The company is exposed to interest rate risk, with approximately 68.3% of total debt based on fixed rates as of June 29, 2020 [156]. - The average interest payout rate for interest rate swaps was 2.84%, with an interest payout amount of $5,741,000 and an average interest received rate of 1.10%, resulting in an interest received amount of $2,224,000 [162]. - The total amount of US$ fixed rate debt is $624,975,000, with a weighted average interest rate of 4.08% [161]. Foreign Exchange Management - As of June 29, 2020, the notional amount of foreign exchange contracts was approximately $1.4 million, down from $2.0 million as of December 30, 2019 [159]. - The estimated fair value of foreign currency forward contracts resulted in a net liability of $3,000 as of June 29, 2020, compared to a net liability of $2,000 as of December 30, 2019 [160]. - The company designated certain foreign exchange contracts as cash flow hedges to manage foreign currency risks [159]. - The company’s foreign subsidiaries may enter into forward exchange contracts to manage foreign currency risks related to machinery purchases [159].
TTM Technologies(TTMI) - 2020 Q2 - Earnings Call Presentation
2020-07-30 12:57
TTM Technologies, Inc. Investor Presentation August, 2020 Inspiring Innovation Disclaimers 2 Forward-Looking Statements This communication may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to the future business outlook, events, and expected performance of TTM Technologies, Inc. ("TTM", "we" or the "Company"). The words "anticipate," "believe," "plan," "forecast," "foresee," "estimate," "project," "expect," "seek ...
TTM Technologies(TTMI) - 2020 Q2 - Earnings Call Transcript
2020-07-30 02:53
TTM Technologies, Inc. (NASDAQ:TTMI) Q2 2020 Earnings Conference Call July 29, 2020 4:30 PM ET Company Participants Sameer Desai - Senior Director of Corporate Development and Investor Relations Tom Edman - Chief Executive Officer Todd Schull - Chief Financial Officer Conference Call Participants William Stein - SunTrust Matt Sheerin - Stifel Steve Fox - Fox Advisors Mike Crawford - B. Riley Mike Cikos - Needham & Company Paul Chung - JP Morgan Operator Good day, everyone and ladies and gentlemen, thank you ...
TTM Technologies (TTMI) Investor Presentation - Slideshow
2020-05-21 17:29
TTM Technologies, Inc. Annual Shareholder Meeting May 7th 2020 Inspiring Innovation Disclaimers 2 Forward-Looking Statements This communication may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements related to the future business outlook, events, and expected performance of TTM Technologies, Inc. ("TTM", "we" or the "Company"). The words "anticipate," "believe," "plan," "forecast," "foresee," "estimate," "project," "expect," ...
TTM Technologies(TTMI) - 2021 Q1 - Quarterly Report
2020-05-07 20:02
PART I: FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents TTM Technologies, Inc.'s unaudited Q1 2020 consolidated condensed financial statements, covering balance sheets, operations, comprehensive loss, equity, cash flows, and detailed notes [Consolidated Condensed Balance Sheets](index=3&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) The consolidated condensed balance sheets show a slight decrease in total assets and stockholders' equity from December 30, 2019, to March 30, 2020, while current assets increased significantly due to assets held for sale Consolidated Condensed Balance Sheets Key Metrics | Metric | March 30, 2020 (In thousands) | December 30, 2019 (In thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Total Assets | $3,524,118 | $3,560,933 | | Total Current Assets | $1,751,787 | $1,342,684 | | Current Assets Held for Sale | $522,974 | $67,572 | | Total Liabilities | $2,246,918 | $2,281,896 | | Total Stockholders' Equity | $1,277,200 | $1,279,037 | [Consolidated Condensed Statements of Operations](index=4&type=section&id=Consolidated%20Condensed%20Statements%20of%20Operations) For the quarter ended March 30, 2020, the company reported a net loss of **$1.174 million**, an improvement from the **$3.252 million** net loss in the prior year, with net sales decreasing but income from discontinued operations providing a positive contribution Consolidated Condensed Statements of Operations Key Metrics | Metric | Quarter Ended March 30, 2020 (In thousands) | Quarter Ended April 1, 2019 (In thousands) | | :------------------------------------------ | :------------------------------------ | :----------------------------------- | | Net sales | $497,646 | $536,445 | | Gross profit | $81,342 | $98,826 | | Operating income | $16,182 | $30,116 | | Net (loss) income from continuing operations | $(3,220) | $6,238 | | Income (loss) from discontinued operations, net of income taxes | $2,046 | $(9,490) | | Net loss | $(1,174) | $(3,252) | | Basic loss per share | $(0.01) | $(0.03) | | Diluted loss per share | $(0.01) | $(0.03) | [Consolidated Condensed Statements of Comprehensive Loss](index=5&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Loss) The company reported a comprehensive loss of **$6.672 million** for the quarter ended March 30, 2020, an increase from **$4.153 million** in the prior year, primarily driven by higher net unrealized losses on cash flow hedges and foreign currency translation adjustments Consolidated Condensed Statements of Comprehensive Loss Key Metrics | Metric | Quarter Ended March 30, 2020 (In thousands) | Quarter Ended April 1, 2019 (In thousands) | | :-------------------------------- | :------------------------------------ | :----------------------------------- | | Net loss | $(1,174) | $(3,252) | | Other comprehensive loss, net of tax | $(5,498) | $(901) | | Comprehensive loss, net of tax | $(6,672) | $(4,153) | [Consolidated Condensed Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity slightly decreased from December 30, 2019, to March 30, 2020, primarily due to the net loss and other comprehensive loss, partially offset by stock-based compensation Consolidated Condensed Statements of Stockholders' Equity Key Metrics | Metric | December 30, 2019 (In thousands) | March 30, 2020 (In thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $1,279,037 | $1,277,200 | | Net loss | $(1,174) | $(1,174) | | Other comprehensive loss | $(5,498) | $(5,498) | | Stock-based compensation | $4,835 | $4,835 | [Consolidated Condensed Statements of Cash Flows](index=7&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased in Q1 2020 compared to Q1 2019, while investing activities shifted from a net use to a net provision of cash, largely due to a refundable deposit related to the Mobility business unit sale, and financing activities had no cash flow impact in Q1 2020 Consolidated Condensed Statements of Cash Flows Key Metrics | Metric | Quarter Ended March 30, 2020 (In thousands) | Quarter Ended April 1, 2019 (In thousands) | | :------------------------------------------ | :------------------------------------ | :----------------------------------- | | Net cash provided by operating activities | $27,913 | $36,924 | | Net cash provided by (used in) investing activities | $2,891 | $(28,446) | | Net cash used in financing activities | $— | $(30,010) | | Net increase (decrease) in cash and cash equivalents | $30,283 | $(21,141) | | Cash and cash equivalents at end of period | $361,992 | $185,228 | [Notes to Consolidated Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) This section provides detailed notes on TTM Technologies, Inc.'s operations, accounting policies, discontinued operations, debt, and other financial instruments, supporting the unaudited consolidated condensed financial statements [(1) Nature of Operations and Basis of Presentation](index=8&type=section&id=(1)%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) TTM Technologies, Inc. manufactures PCBs, backplane assemblies, E-M Solutions, and RF/microwave components for diverse markets, with Mobility reclassified as discontinued operations and R&D expenses reclassified - TTM Technologies, Inc. is a leading global PCB manufacturer, focusing on quick-turn and volume production of technologically complex PCBs, backplane assemblies, E-M Solutions, and RF/microwave components[22](index=22&type=chunk) - The company serves diversified markets including aerospace and defense, automotive, medical, industrial, and networking/communications[23](index=23&type=chunk) - The Mobility business unit was sold on April 17, 2020, and its results are classified as discontinued operations for all presented periods[25](index=25&type=chunk) - Research and development expenses are now presented as a separate line item on the consolidated condensed statements of operations, previously included in general and administrative expense[27](index=27&type=chunk) [Recently Adopted and Issued Accounting Standards](index=9&type=section&id=Recently%20Adopted%20and%20Issued%20Accounting%20Standards) The company adopted ASU 2016-13 (Credit Losses) as of December 31, 2019, with no material impact, is evaluating ASU 2020-04 (Reference Rate Reform), and does not expect a material impact from ASU 2019-12 (Income Taxes) or ASU 2018-14 (Defined Benefit Plans) - Adopted ASU 2016-13 (Credit Losses) as of December 31, 2019, with no material impact on financial statements[29](index=29&type=chunk) - Evaluating ASU 2020-04 (Reference Rate Reform) for potential impact on financial statements[30](index=30&type=chunk) - Does not anticipate a material impact from ASU 2019-12 (Income Taxes) or ASU 2018-14 (Defined Benefit Plans)[31](index=31&type=chunk)[32](index=32&type=chunk) [(2) Discontinued Operations](index=9&type=section&id=(2)%20Discontinued%20Operations) The Mobility business unit was sold on April 17, 2020, for a base purchase price of **$550 million** in cash, plus an estimated **$95 million** in certain accounts receivable, with its results classified as discontinued operations, shifting from a net loss in Q1 2019 to a net income in Q1 2020 - Sale of Mobility business unit completed on April 17, 2020, for a base purchase price of **$550 million** in cash, plus an estimated **$95 million** in certain accounts receivable[33](index=33&type=chunk) - Mobility business unit results are classified as discontinued operations due to strategic shift[34](index=34&type=chunk) (2) Discontinued Operations Key Metrics | Metric | Quarter Ended March 30, 2020 (In thousands) | Quarter Ended April 1, 2019 (In thousands) | | :------------------------------------------ | :------------------------------------ | :----------------------------------- | | Net sales | $113,174 | $83,755 | | Gross profit | $4,749 | $(10,141) | | Operating income (loss) | $1,441 | $(12,626) | | Income (loss) from discontinued operations, net of income taxes | $2,046 | $(9,490) | | Basic earnings (loss) per share | $0.02 | $(0.09) | (2) Discontinued Operations Key Metrics | Assets Held for Sale | March 30, 2020 (In thousands) | December 30, 2019 (In thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Total assets classified as held for sale | $522,974 | $493,169 | | Total liabilities classified as held for sale | $170,735 | $186,921 | [(3) Leases](index=11&type=section&id=(3)%20Leases) The company leases manufacturing plants, offices, and equipment, with operating lease costs increasing in Q1 2020 compared to Q1 2019, and a weighted average remaining lease term of **4.2 years** with a discount rate of **3.24%** as of March 30, 2020 (3) Leases Key Metrics | Lease Expense Component | Quarter Ended March 30, 2020 (In thousands) | Quarter Ended April 1, 2019 (In thousands) | | :------------------------ | :------------------------------------ | :----------------------------------- | | Operating lease cost | $2,481 | $2,032 | | Variable lease cost | $106 | $159 | | Short-term lease cost | $229 | $41 | (3) Leases Key Metrics | Lease Metric | March 30, 2020 | | :-------------------------- | :------------- | | Weighted average remaining lease term | 4.2 years | | Weighted average discount rate | 3.24% | [(4) Revenues](index=12&type=section&id=(4)%20Revenues) The company expects to recognize **44%** of its long-term contract revenue within the next twelve months, with **98%** of total revenue from products and services transferred over time in Q1 2020, and Aerospace and Defense becoming the largest end market - Approximately **44%** of remaining performance obligations for long-term contracts are expected to be recognized as revenue over the next twelve months[44](index=44&type=chunk) - Revenue from products and services transferred over time accounted for **98%** of total revenue for Q1 2020 (**97%** in Q1 2019)[45](index=45&type=chunk) (4) Revenues Key Metrics | End Market | Q1 2020 Net Sales (In thousands) | Q1 2019 Net Sales (In thousands) | | :------------------------------ | :----------------------------- | :----------------------------- | | Aerospace and Defense | $184,451 | $164,801 | | Automotive | $68,884 | $101,358 | | Networking/Communications | $79,875 | $107,362 | | Total Net Sales | $497,646 | $536,445 | [(5) Composition of Certain Consolidated Condensed Financial Statement Captions](index=13&type=section&id=(5)%20Composition%20of%20Certain%20Consolidated%20Condensed%20Financial%20Statement%20Captions) Inventories increased slightly from December 30, 2019, to March 30, 2020, primarily due to an increase in raw materials, while property, plant, and equipment, net, saw a minor decrease over the same period (5) Composition of Certain Consolidated Condensed Financial Statement Captions Key Metrics | Inventory Component | March 30, 2020 (In thousands) | December 30, 2019 (In thousands) | | :------------------ | :----------------------------- | :------------------------------ | | Raw materials | $108,770 | $97,660 | | Work-in-process | $8,709 | $10,898 | | Finished goods | $3,470 | $5,195 | | Total Inventories | $120,949 | $113,753 | (5) Composition of Certain Consolidated Condensed Financial Statement Captions Key Metrics | Property, Plant & Equipment, Net | March 30, 2020 (In thousands) | December 30, 2019 (In thousands) | | :------------------------------- | :----------------------------- | :------------------------------ | | Total Property, Plant and Equipment, net | $666,611 | $678,201 | [(6) Goodwill](index=14&type=section&id=(6)%20Goodwill) Goodwill remained stable at **$706.524 million** as of March 30, 2020, with all goodwill related to the PCB reportable segment (6) Goodwill Key Metrics | Goodwill Component | March 30, 2020 (In thousands) | December 30, 2019 (In thousands) | | :----------------- | :----------------------------- | :------------------------------ | | Goodwill | $946,191 | $946,191 | | Accumulated impairment loss | $(171,400) | $(171,400) | | Goodwill in assets held for sale | $(68,267) | $(68,267) | | Total Goodwill | $706,524 | $706,524 | - All goodwill relates to the Company's PCB reportable segment[49](index=49&type=chunk) [(7) Definite-lived Intangibles](index=14&type=section&id=(7)%20Definite-lived%20Intangibles) Net definite-lived intangibles decreased to **$314.735 million** as of March 30, 2020, from **$325.680 million** at December 30, 2019, primarily due to amortization, with Q1 2020 amortization expense of **$10.945 million** (7) Definite-lived Intangibles Key Metrics | Intangible Asset | March 30, 2020 Net Carrying Amount (In thousands) | December 30, 2019 Net Carrying Amount (In thousands) | | :----------------------- | :------------------------------------------ | :------------------------------------------- | | Customer relationships | $276,635 | $284,998 | | Technology | $38,100 | $31,436 | | Acquired intangibles from acquisition in 2019 | N/A | $9,246 | | Total Definite-lived Intangibles, net | $314,735 | $325,680 | - Amortization expense was **$10.945 million** for the quarter ended March 30, 2020, and **$17.331 million** for the quarter ended April 1, 2019[50](index=50&type=chunk) (7) Definite-lived Intangibles Key Metrics | Year | Estimated Aggregate Amortization (In thousands) | | :---------------- | :------------------------------------ | | Remaining 2020 | $32,836 | | 2021 | $41,344 | | 2022 | $38,793 | | 2023 | $36,838 | | 2024 | $29,812 | | Thereafter | $135,112 | | Total | $314,735 | [(8) Long-term Debt and Letters of Credit](index=15&type=section&id=(8)%20Long-term%20Debt%20and%20Letters%20of%20Credit) Total long-term debt, net of discount and issuance costs, was **$1,229.372 million** as of March 30, 2020, with the company planning to use cash proceeds from the Mobility business unit sale for debt repayment and reinvestment, and remaining in compliance with all debt covenants (8) Long-term Debt and Letters of Credit Key Metrics | Debt Type | Principal Outstanding as of March 30, 2020 (In thousands) | Interest Rate as of March 30, 2020 | | :-------------------------------- | :------------------------------------------ | :--------------------------------- | | Term Loan due September 2024 | $805,879 | 3.48% | | Senior Notes due October 2025 | $375,000 | 5.63% | | Convertible Senior Notes due December 2020 | $249,975 | 1.75% | | U.S. ABL Revolving Loan due June 2024 | $40,000 | 2.23% | | Asia ABL Revolving Loan due June 2024 | $30,000 | 2.38% | | Total Principal Outstanding | $1,500,854 | | | Long-term debt, net of discount and issuance costs | $1,229,372 | | - The Company plans to use cash proceeds from the sale of the Mobility business unit for debt repayment and reinvestment[53](index=53&type=chunk) - The Company was in compliance with all debt covenants under the Term Loan, Senior Notes, and ABL Revolving Loans as of March 30, 2020[54](index=54&type=chunk)[55](index=55&type=chunk) [(9) Income Taxes](index=16&type=section&id=(9)%20Income%20Taxes) The effective tax rate is influenced by tax rates in China, Hong Kong, and the U.S., as well as credits, deductions, and valuation allowances, with a net discrete expense of **$2.053 million** recorded in Q1 2020 due to retroactive approval of High and New Tax Enterprise status in China and accrued interest on uncertain tax positions - Effective tax rate impacted by tax rates in China, Hong Kong, U.S. federal and state rates, credits, deductions, valuation allowances, and non-deductible items[59](index=59&type=chunk) - Net discrete expense of **$2.053 million** in Q1 2020 due to retroactive approval of High and New Tax Enterprise status for two China subsidiaries and accrued interest on uncertain tax positions[60](index=60&type=chunk) - Deferred tax liability recorded for expected repatriation of foreign subsidiary earnings to the U.S., but not for earnings being reinvested outside the U.S[61](index=61&type=chunk) [(10) Financial Instruments](index=16&type=section&id=(10)%20Financial%20Instruments) The company uses interest rate swaps to hedge LIBOR-based variable rate debt, with a notional amount of **$400 million**, and foreign currency forward contracts to mitigate foreign exchange rate risks, with the interest rate swap recorded as a **$19.341 million** liability as of March 30, 2020, and increasing interest expense by **$1.175 million** in Q1 2020 - Uses a four-year pay-fixed (**2.84%**), receive floating (1-month LIBOR) interest rate swap with a notional amount of **$400 million** to hedge interest rate risk[63](index=63&type=chunk) - As of March 30, 2020, the fair value of the interest rate swap was a liability of **$19.341 million**, increasing interest expense by **$1.175 million** in Q1 2020[64](index=64&type=chunk) - Enters into foreign currency forward contracts to mitigate foreign currency exchange rate risks, with notional amounts of approximately **$787 thousand** as of March 30, 2020[65](index=65&type=chunk) [(11) Accumulated Other Comprehensive Loss](index=17&type=section&id=(11)%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased to **$15.584 million** as of March 30, 2020, from **$10.086 million** at December 30, 2019, primarily due to other comprehensive loss before reclassifications, particularly from cash flow hedges (11) Accumulated Other Comprehensive Loss Key Metrics | Component | December 30, 2019 (In thousands) | March 30, 2020 (In thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Foreign Currency Translation | $1,115 | $748 | | Pension Obligation | $(1,584) | $(1,557) | | (Losses) Gains on Cash Flow Hedges | $(9,617) | $(14,775) | | Total Accumulated Other Comprehensive Loss | $(10,086) | $(15,584) | - Expects approximately **$6.564 million** of accumulated other comprehensive loss to be reclassified into the statement of operations, net of tax, in the next twelve months[68](index=68&type=chunk) [(12) Significant Customers and Concentration of Credit Risk](index=17&type=section&id=(12)%20Significant%20Customers%20and%20Concentration%20of%20Credit%20Risk) The company extends credit to customers globally and performs ongoing credit evaluations, with no single customer accounting for **10%** or more of net sales for the quarters ended March 30, 2020, and April 1, 2019 - No customers accounted for **10%** or more of net sales for the quarters ended March 30, 2020, and April 1, 2019[71](index=71&type=chunk) - Customer concentration is measured based on OEM companies, as they are the ultimate end customers[71](index=71&type=chunk) [(13) Fair Value Measures](index=18&type=section&id=(13)%20Fair%20Value%20Measures) The fair value of derivative instruments and long-term debt is determined using Level 2 inputs, such as LIBOR swap rates, foreign currency exchange rates, and quoted market prices, while the carrying amounts of short-term financial instruments approximate their fair values - Fair value of derivative instruments determined using pricing models based on LIBOR swap rate, foreign currency exchange rates, and other observable market data (Level 2 inputs)[74](index=74&type=chunk) - Fair value of long-term debt estimated based on quoted market prices or discounting using current market rates for similar debt (Level 2 inputs)[75](index=75&type=chunk) - Carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to short-term maturities[76](index=76&type=chunk) [(14) Commitments and Contingencies](index=18&type=section&id=(14)%20Commitments%20and%20Contingencies) The company is involved in various legal matters considered normal for its business, and while the outcome is difficult to predict, any reasonably possible loss is not expected to be material to the financial condition - The company is subject to various legal matters, which are considered normal for its business activities[78](index=78&type=chunk) - The amount of any reasonably possible loss for known matters is not expected to be material to the company's financial condition[78](index=78&type=chunk) [(15) (Loss) Earnings Per Share](index=19&type=section&id=(15)%20(Loss)%20Earnings%20Per%20Share) Basic and diluted loss per share from continuing operations was **$(0.03)** for Q1 2020, compared to earnings per share of **$0.06** for Q1 2019, with potential common shares excluded from diluted EPS calculation in Q1 2020 due to the net loss, making their impact anti-dilutive (15) (Loss) Earnings Per Share Key Metrics | Metric | Quarter Ended March 30, 2020 | Quarter Ended April 1, 2019 | | :------------------------------------------ | :--------------------------- | :-------------------------- | | Net (loss) income | $(3,220) | $6,238 | | Basic weighted average shares | 105,686 | 104,315 | | Basic (loss) earnings per share | $(0.03) | $0.06 | | Diluted (loss) earnings per share | $(0.03) | $0.06 | - Potential shares of common stock (stock options, RSUs, PRUs, Convertible Senior Notes) were not included in diluted EPS for Q1 2020 because the company incurred a net loss, making their impact anti-dilutive[81](index=81&type=chunk)[84](index=84&type=chunk) [(16) Stock-Based Compensation](index=19&type=section&id=(16)%20Stock-Based%20Compensation) Stock-based compensation expense increased to **$4.835 million** in Q1 2020 from **$3.926 million** in Q1 2019, primarily impacting general and administrative expenses, with total unrecognized compensation costs as of March 30, 2020, at **$17.655 million**, and a weighted average recognition period of **1.4 years** for RSU awards (16) Stock-Based Compensation Key Metrics | Expense Category | Quarter Ended March 30, 2020 (In thousands) | Quarter Ended April 1, 2019 (In thousands) | | :----------------------------- | :------------------------------------ | :----------------------------------- | | Cost of goods sold | $854 | $705 | | Selling and marketing | $469 | $466 | | General and administrative | $3,512 | $2,755 | | Total Stock-based compensation expense | $4,835 | $3,926 | (16) Stock-Based Compensation Key Metrics | Award Type | Unrecognized Stock-Based Compensation Cost (In thousands) | Remaining Weighted Average Recognition Period (In years) | | :----------------- | :------------------------------------------ | :------------------------------------------------------- | | RSU awards | $16,352 | 1.4 | | PRU awards | $1,090 | 1.2 | | Stock options | $213 | 1.5 | | Total | $17,655 | | [(17) Segment Information](index=20&type=section&id=(17)%20Segment%20Information) The company operates in two reportable segments: PCB and E-M Solutions, with total net sales decreasing by **7.2%** in Q1 2020, driven by a **41.2%** decline in E-M Solutions sales and a **3.6%** decrease in PCB sales, and operating segment income also decreased, with E-M Solutions reporting a loss - The company has two reportable segments: PCB and E-M Solutions[88](index=88&type=chunk) (17) Segment Information Key Metrics | Segment | Q1 2020 Net Sales (In thousands) | Q1 2019 Net Sales (In thousands) | | :-------------- | :----------------------------- | :----------------------------- | | PCB | $467,430 | $485,067 | | E-M Solutions | $30,216 | $51,378 | | Total net sales | $497,646 | $536,445 | (17) Segment Information Key Metrics | Segment | Q1 2020 Operating Segment Income (Loss) (In thousands) | Q1 2019 Operating Segment Income (Loss) (In thousands) | | :-------------- | :------------------------------------------ | :------------------------------------------ | | PCB | $61,626 | $70,494 | | E-M Solutions | $(4,329) | $1,179 | | Corporate | $(30,170) | $(24,226) | | Total operating segment income | $27,127 | $47,447 | [(18) Related Party Transactions](index=20&type=section&id=(18)%20Related%20Party%20Transactions) The company's foreign subsidiaries purchased laminate and prepreg from related parties, where a Board member holds an equity interest, totaling **$6.272 million** in Q1 2020 - Foreign subsidiaries purchased laminate and prepreg from related parties (where a Board member holds an equity interest) for **$6.272 million** in Q1 2020 and **$8.312 million** in Q1 2019[92](index=92&type=chunk) [(19) Subsequent Events](index=21&type=section&id=(19)%20Subsequent%20Events) On April 17, 2020, the company completed the sale of its Mobility business unit for **$550 million** cash plus an estimated **$95 million** in accounts receivable, and on April 29, 2020, announced a restructuring of the E-M Solutions business unit, involving the discontinuation of two facilities and integration of one into PCB operations, with estimated shutdown costs of **$17 million** and non-cash asset impairments of **$8 million** - Completed the sale of its Mobility business unit on April 17, 2020, for a base purchase price of **$550 million** in cash, plus an estimated **$95 million** in accounts receivable[96](index=96&type=chunk) - Announced restructuring of E-M Solutions business unit on April 29, 2020, discontinuing operations at two Chinese facilities (SH E-MS and SZ) and integrating one (SH BPA) into PCB operations[97](index=97&type=chunk) - Estimated cash outlay for severance and other shutdown costs is approximately **$17 million**, and non-cash asset impairments are estimated at **$8 million**, to be incurred over the next 12 to 15 months[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting the impact of the COVID-19 pandemic, the sale of the Mobility business unit, and the restructuring of E-M Solutions, detailing revenue and gross margin declines, changes in operating expenses, and the company's liquidity position, emphasizing the sufficiency of current resources for the next twelve months despite ongoing economic uncertainties [COMPANY OVERVIEW](index=22&type=section&id=COMPANY%20OVERVIEW) TTM Technologies is a global leader in PCB manufacturing, offering quick-turn and volume production of complex PCBs, backplane assemblies, and RF/microwave components, providing a one-stop design, engineering, and manufacturing solution to a diverse customer base across aerospace and defense, automotive, medical, industrial, and networking/communications markets - TTM Technologies is a leading global PCB manufacturer, specializing in quick-turn and volume production of complex PCBs, backplane assemblies, and electro-mechanical solutions (E-M Solutions), as well as RF and microwave components[99](index=99&type=chunk) - The company offers a one-stop design, engineering, and manufacturing solution to a diversified customer base of approximately 1,200 customers[99](index=99&type=chunk) - Key markets include aerospace and defense, automotive components, medical, industrial and instrumentation, and networking/communications infrastructure products[99](index=99&type=chunk) [RECENT DEVELOPMENTS](index=22&type=section&id=RECENT%20DEVELOPMENTS) The COVID-19 pandemic caused business disruptions, particularly in China, and poses significant macroeconomic, operational, and supply chain risks, while the company completed the sale of its Mobility business unit on April 17, 2020, for **$550 million** cash plus **$95 million** in accounts receivable, and approved a restructuring plan for the E-M Solutions business unit - The COVID-19 pandemic caused business disruption in China starting January 2020 and escalated globally by March 2020, creating significant uncertainty and risks[100](index=100&type=chunk) - Completed the sale of the Mobility business unit on April 17, 2020, for a base purchase price of **$550.0 million** in cash, with an estimated **$95.0 million** in cash from excluded accounts receivable[101](index=101&type=chunk) - Approved a restructuring plan for the E-M Solutions business unit on April 28, 2020, discontinuing operations at two Chinese facilities (SH E-MS and SZ) and integrating SH BPA into PCB operations[102](index=102&type=chunk) [FINANCIAL OVERVIEW](index=22&type=section&id=FINANCIAL%20OVERVIEW) The Mobility business unit's results are reported as discontinued operations, with sales to the top ten customers accounting for **42%** of net sales in Q1 2020, and revenue recognized primarily over time using the cost-to-cost method for custom electronic assemblies and at a point in time for wireless communication components, with detailed cost of goods sold and operating expenses - Results related to the Mobility business unit are reported as discontinued operations[103](index=103&type=chunk) - Sales to the ten largest OEM customers accounted for **42%** of net sales for Q1 2020 (**41%** for Q1 2019)[104](index=104&type=chunk) FINANCIAL OVERVIEW Key Metrics | End Markets | March 30, 2020 | April 1, 2019 | | :-------------------------- | :------------- | :------------ | | Aerospace and Defense | **37 %** | **31 %** | | Automotive | **14 %** | **19 %** | | Networking/Communications | **16 %** | **20 %** | | Total | **100 %** | **100 %** | - Revenues are primarily derived from the sale of PCBs, custom electronic assemblies, and RF/microwave components, with revenue recognized progressively over time (cost-to-cost method) or at a point in time[107](index=107&type=chunk)[108](index=108&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=23&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) The company's financial statements are prepared under U.S. GAAP, requiring management estimates and assumptions, with no material changes to critical accounting policies and estimates since December 30, 2019 - Financial statements are prepared in accordance with U.S. GAAP, requiring management estimates and assumptions[113](index=113&type=chunk) - No material changes to critical accounting policies and estimates since December 30, 2019[114](index=114&type=chunk) [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) Net sales decreased by **7.2%** to **$497.6 million** in Q1 2020, primarily due to a **41.2%** reduction in E-M Solutions sales and a **3.6%** decrease in PCB sales, with overall gross margin declining to **16.3%** from **18.4%**, impacted by lower volumes and additional inventory provisions, and general and administrative costs increasing due to acquisition/integration, bad debt, and consulting costs, while selling and marketing expenses decreased, resulting in a net loss from continuing operations of **$(3.2) million** RESULTS OF OPERATIONS Key Metrics | Metric (as % of Net Sales) | Quarter Ended March 30, 2020 | Quarter Ended April 1, 2019 | | :-------------------------------- | :--------------------------- | :-------------------------- | | Net sales | **100.0 %** | **100.0 %** | | Cost of goods sold | **83.7 %** | **81.6 %** | | Gross profit | **16.3 %** | **18.4 %** | | Total operating expenses | **13.0 %** | **12.8 %** | | Operating income | **3.3 %** | **5.6 %** | | Net (loss) income from continuing operations | **(0.6) %** | **1.2 %** | - Total net sales decreased **$38.8 million** (**7.2%**) to **$497.6 million** in Q1 2020, driven by a **$21.2 million** (**41.2%**) decrease in E-M Solutions and a **$17.6 million** (**3.6%**) decrease in PCB sales[116](index=116&type=chunk) - Overall gross margin decreased to **16.3%** in Q1 2020 from **18.4%** in Q1 2019, primarily due to lower volumes in commercially focused facilities and lower sales in E-M Solutions[117](index=117&type=chunk) - General and administrative expenses increased **$4.4 million** to **$34.7 million** in Q1 2020, primarily due to increased acquisition/integration, bad debt, and consulting costs[120](index=120&type=chunk) - The company recorded a net loss from continuing operations of **$(3.2) million** for Q1 2020[12](index=12&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash from operations, debt issuance, and revolving credit facilities, with cash flow from continuing operations decreasing to **$6.6 million** in Q1 2020, net cash used in investing activities for continuing operations at **$23.9 million**, and cash and cash equivalents of **$361.9 million** as of March 30, 2020, with **$325.5 million** held by foreign subsidiaries, and expects 2020 net capital expenditures to be **$100-120 million**, believing existing liquidity will be sufficient for the next twelve months despite ongoing economic uncertainties - Principal sources of liquidity are cash from operations, debt issuance, and borrowings under the Revolving Credit Facility[125](index=125&type=chunk) - Cash flow provided by operating activities for continuing operations was **$6.6 million** in Q1 2020, down from **$9.1 million** in Q1 2019[126](index=126&type=chunk) - Net cash used in investing activities for continuing operations was approximately **$23.9 million** in Q1 2020[127](index=127&type=chunk) - As of March 30, 2020, cash and cash equivalents were approximately **$361.9 million**, with **$325.5 million** held by foreign subsidiaries[128](index=128&type=chunk) - 2020 net capital expenditures and asset acquisitions are expected to be in the range of **$100.0 million** to **$120.0 million**[129](index=129&type=chunk) - Believes existing cash resources and liquidity will be sufficient for working capital requirements for at least the next twelve months, but warns of potential impacts from COVID-19[130](index=130&type=chunk) [Long-term Debt and Letters of Credit](index=26&type=section&id=Long-term%20Debt%20and%20Letters%20of%20Credit) As of March 30, 2020, total outstanding debt, net of discount and issuance costs, was **$1,479.3 million**, comprising Term Loan, Senior Notes, Convertible Senior Notes, and ABL Revolving Loans, with the company in compliance with all debt covenants - Outstanding debt, net of discount and debt issuance costs, was **$1,479.3 million** as of March 30, 2020[131](index=131&type=chunk) - Debt includes a **$805.9 million** Term Loan, **$369.9 million** Senior Notes, **$241.8 million** Convertible Senior Notes, **$40.0 million** U.S. ABL, and **$30.0 million** Asia ABL[131](index=131&type=chunk) - The company was in compliance with all covenants under its Term Loan Facility, Senior Notes Facility, and ABL Revolving Loans as of March 30, 2020[132](index=132&type=chunk) [Contractual Obligations and Commitments](index=26&type=section&id=Contractual%20Obligations%20and%20Commitments) There were no material changes to contractual obligations and commitments outside the ordinary course of business since December 30, 2019 - No material changes to contractual obligations and commitments since December 30, 2019[134](index=134&type=chunk) [Off Balance Sheet Arrangements](index=26&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts, thus not materially exposed to related risks - Does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[135](index=135&type=chunk) - Not materially exposed to financing, liquidity, market, or credit risk from such arrangements[135](index=135&type=chunk) [Seasonality](index=26&type=section&id=Seasonality) The company typically experiences seasonal fluctuations in the first quarter due to Chinese New Year holidays, leading to lower net sales from manufacturing facility shutdowns - Historically experiences seasonal fluctuations in the first quarter due to Chinese New Year holidays, resulting in lower net sales[136](index=136&type=chunk) [Recently Issued Accounting Standards](index=26&type=section&id=Recently%20Issued%20Accounting%20Standards) Information on recently adopted and issued accounting standards, including adoption dates and expected effects, is provided in Note 1 to the Consolidated Condensed Financial Statements - Refer to Note 1 for details on recently adopted and issued accounting standards[137](index=137&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate and foreign currency exchange rate risks, which it manages through derivative financial instruments like interest rate swaps and foreign currency forward contracts, monitoring these positions to ensure adequacy and effectiveness, acknowledging that hedging may not fully offset adverse impacts [Interest Rate Risks](index=27&type=section&id=Interest%20Rate%20Risks) The company is exposed to interest rate risk from LIBOR-based variable rate debt, with an interest rate swap with a notional amount of **$400 million** effectively fixing a portion of this debt, and as of March 30, 2020, **68.3%** of total debt was fixed-rate, and a **100 basis point** change in variable rates would alter annual interest cost by **$4.7 million**, with the potential phase-out of LIBOR by end of 2021 possibly requiring renegotiation of debt terms - Exposed to interest rate risk from fluctuations in LIBOR interest rates on variable rate debt[142](index=142&type=chunk) - Entered into a four-year pay-fixed (**2.84%**), receive floating (1-month LIBOR) interest rate swap for **$400.0 million**, expiring June 1, 2022, to hedge interest rate risk[143](index=143&type=chunk) - As of March 30, 2020, approximately **68.3%** of total debt was based on fixed rates[144](index=144&type=chunk) - A **100 basis point** change in variable rates would cause annual interest cost to change by **$4.7 million**[144](index=144&type=chunk) - The potential phase-out of LIBOR by the end of 2021 may require renegotiation of debt terms[145](index=145&type=chunk) [Foreign Currency Risks](index=27&type=section&id=Foreign%20Currency%20Risks) The company faces foreign currency risks from transactions denominated in non-functional currencies and translation adjustments, primarily with the Chinese Renminbi (RMB), using foreign currency forward contracts to mitigate these risks, with notional amounts of approximately **$0.8 million** as of March 30, 2020 - Exposed to foreign currency exchange rate risks from transactions in non-functional currencies and translation adjustments, primarily the Chinese Renminbi (RMB)[146](index=146&type=chunk) - Enters into foreign currency forward contracts to mitigate the impact of changes in foreign currency exchange rates[147](index=147&type=chunk) - Notional amount of foreign exchange contracts was approximately **$0.8 million** as of March 30, 2020[147](index=147&type=chunk) [Debt Instruments](index=28&type=section&id=Debt%20Instruments) As of March 30, 2020, the company's debt instruments included **$875.879 million** in US$ Variable Rate debt and **$624.975 million** in US$ Fixed Rate debt, totaling **$1,500.854 million** in principal outstanding, with the weighted average interest rate for variable rate debt at **3.39%** and for fixed rate debt at **4.08%** Debt Instruments Key Metrics | Debt Type | Total Principal Outstanding (In thousands) | Fair Market Value (In thousands) | Weighted Average Interest Rate | | :---------------- | :----------------------------------- | :------------------------------- | :----------------------------- | | US$ Variable Rate | $875,879 | $776,152 | **3.39%** | | US$ Fixed Rate | $624,975 | $588,196 | **4.08%** | | Total | $1,500,854 | $1,364,348 | | [Interest Rate Swap Contracts](index=28&type=section&id=Interest%20Rate%20Swap%20Contracts) As of March 30, 2020, the fair value of the interest rate swap was a liability of **$19.341 million**, and for Q1 2020, the average interest payout rate was **2.84%** (**$2.871 million** payout), and the average interest received rate was **2.15%** (**$1.696 million** received) - Fair value of the interest rate swap was a liability of **$19.341 million** as of March 30, 2020[150](index=150&type=chunk) Interest Rate Swap Contracts Key Metrics | Metric | Quarter Ended March 30, 2020 | | :------------------------ | :--------------------------- | | Average interest payout rate | **2.84%** | | Interest payout amount | $(2,871) | | Average interest received rate | **2.15%** | | Interest received amount | $1,696 | [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of March 30, 2020, concluding they were effective in providing reasonable assurance for timely and accurate information disclosure, with no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 30, 2020, providing reasonable assurance for timely and accurate information disclosure - CEO and CFO concluded that disclosure controls and procedures were effective as of March 30, 2020, providing reasonable assurance for timely and accurate information disclosure[151](index=151&type=chunk) [Changes in Internal Control Over Financial Reporting](index=29&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the quarter ended March 30, 2020 - No material changes in internal control over financial reporting during the quarter ended March 30, 2020[153](index=153&type=chunk) PART II: OTHER INFORMATION [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings, and while outcomes are uncertain, any reasonably possible or probable loss is not expected to be material to its financial statements - The company is subject to various legal matters arising in the ordinary course of business[156](index=156&type=chunk) - The amount of any reasonably possible or probable loss for known matters is not believed to be material to the financial statements[156](index=156&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) Outlines significant risks to the company's business, financial condition, and operations, covering global pandemics, international issues, economic uncertainties, industry challenges, debt, and regulatory compliance [Risks Related to our Business](index=30&type=section&id=Risks%20Related%20to%20our%20Business) This section details various risks inherent to the company's business, including global pandemics, international operations, economic uncertainties, industry-specific challenges, debt, operational dependencies, and regulatory compliance issues [Global pandemic and other similar risks, including without limitation, coronavirus (COVID-19), which could materially adversely af ect our business, financial condition, and results of operations](index=30&type=section&id=Global%20pandemic%20and%20other%20similar%20risks,%20including%20without%20limitation,%20coronavirus%20(COVID-19),%20which%20could%20materially%20adversely%20af%20ect%20our%20business,%20financial%20condition,%20and%20results%20of%20operations) Global pandemics like COVID-19 can disrupt business operations, supply chains, and demand, leading to increased costs, reduced sales, and potential lawsuits, with the duration and severity of these impacts being uncertain - Global pandemics (e.g., COVID-19) can disrupt business, supply chains, and demand, leading to increased costs, reduced sales, and potential lawsuits[159](index=159&type=chunk)[161](index=161&type=chunk) - Impacts include failure of third parties, supply chain risks, reduced workforces, temporary business closures, reduced demand, and government restrictions[161](index=161&type=chunk) [We serve customers and have manufacturing facilities outside the United States and are subject to the risks characteristic of international operations, including recently imposed tarif s](index=31&type=section&id=We%20serve%20customers%20and%20have%20manufacturing%20facilities%20outside%20the%20United%20States%20and%20are%20subject%20to%20the%20risks%20characteristic%20of%20international%20operations,%20including%20recently%20imposed%20tarif%20s) International operations, particularly in Asia and Canada, expose the company to risks such as governmental controls, unstable regulatory environments, currency fluctuations, inflation, political unrest, and increased tariffs, which could negatively impact revenue and profitability [Our operations in China subject us to risks and uncertainties relating to the laws and regulations of China](index=31&type=section&id=Our%20operations%20in%20China%20subject%20us%20to%20risks%20and%20uncertainties%20relating%20to%20the%20laws%20and%20regulations%20of%20China) Operations in China are subject to risks from an evolving legal system, uncertain enforcement of laws, and potential changes in government policies, which could adversely affect foreign investors and lead to protracted litigation or non-compliance with new rules [Uncertainty and adverse changes in the economy and financial markets could have an adverse impact on our business and operating results](index=32&type=section&id=Uncertainty%20and%20adverse%20changes%20in%20the%20economy%20and%20financial%20markets%20could%20have%20an%20adverse%20impact%20on%20our%20business%20and%20operating%20results) Economic uncertainty can lead to decreased demand for products, pressure to reduce prices, increased financing costs, and higher losses from bad debts, all of which could negatively impact financial performance [We participate in the competitive, cyclical automotive industry, which is subject to strict quality control standards. Failure to meet quality standards may adversely af ect our business, financial condition and results of operations](index=32&type=section&id=We%20participate%20in%20the%20competitive,%20cyclical%20automotive%20industry,%20which%20is%20subject%20to%20strict%20quality%20control%20standards.%20Failure%20to%20meet%20quality%20standards%20may%20adversely%20af%20ect%20our%20business,%20financial%20condition%20and%20results%20of%20operations) The company's sales to the cyclical telecommunications and automotive industries are subject to intense competition and demand fluctuations, and failure to meet strict automotive quality standards could lead to loss of customers, inability to regain business, and potential indemnification for warranty and recall costs [We have pursued and intend to continue to pursue potential divestitures of assets and acquisitions of other businesses and may encounter risks associated with these activities, which could harm our business and operating results](index=32&type=section&id=We%20have%20pursued%20and%20intend%20to%20continue%20to%20pursue%20potential%20divestitures%20of%20assets%20and%20acquisitions%20of%20other%20businesses%20and%20may%20encounter%20risks%20associated%20with%20these%20activities,%20which%20could%20harm%20our%20business%20and%20operating%20results) Divestitures and acquisitions carry risks such as integration difficulties, diversion of management attention, unforeseen expenses, loss of key employees or customers, insufficient revenues, and potential tax burdens or dis-synergies, with acquisitions of high-tech companies being inherently risky and potentially unsuccessful [If we are unable to maintain satisfactory capacity utilization rates, our business, financial condition, and results of operations would be materially adversely af ected](index=33&type=section&id=If%20we%20are%20unable%20to%20maintain%20satisfactory%20capacity%20utilization%20rates,%20our%20business,%20financial%20condition,%20and%20results%20of%20operations%20would%20be%20materially%20adversely%20af%20ected) Maintaining satisfactory capacity utilization is crucial due to high fixed operating costs, and decreases in utilization, caused by lower demand or inability to meet customer requirements, can significantly reduce gross margins, with persistent excess capacity potentially leading to facility closures, layoffs, restructuring charges, and supply disruptions [We have substantial outstanding indebtedness, and our outstanding indebtedness could adversely impact our liquidity and flexibility in obtaining additional financing, our ability to fulfill our debt obligations and our financial condition and results of operations](index=33&type=section&id=We%20have%20substantial%20outstanding%20indebtedness,%20and%20our%20outstanding%20indebtedness%20could%20adversely%20impact%20our%20liquidity%20and%20flexibility%20in%20obtaining%20additional%20financing,%20our%20ability%20to%20fulfill%20our%20debt%20obligations%20and%20our%20financial%20condition%20and%20results%20of%20operations) The company has substantial debt, including Term Loan, Senior Notes, and Convertible Senior Notes, leading to significant debt service obligations, which could limit liquidity, reduce cash for operations and investments, impair future financing, increase vulnerability to economic downturns, and place the company at a competitive disadvantage, with failure to comply with restrictive covenants potentially accelerating debt repayment [We have a significant amount of goodwill and other intangible assets on our consolidated condensed balance sheet. If our goodwill or other intangible assets become impaired in the future, we would be required to record a non-cash charge to earnings, which may be material and would also reduce our stockholders' equity](index=34&type=section&id=We%20have%20a%20significant%20amount%20of%20goodwill%20and%20other%20intangible%20assets%20on%20our%20consolidated%20condensed%20balance%20sheet.%20If%20our%20goodwill%20or%20other%20intangible%20assets%20become%20impaired%20in%20the%20future,%20we%20would%20be%20required%20to%20record%20a%20non-cash%20charge%20to%20earnings,%20which%20may%20be%20material%20and%20would%20also%20reduce%20our%20stockholders'%20equity) As of March 30, 2020, the company had **$1,021.3 million** in goodwill and definite-lived intangible assets, and impairment of these assets, triggered by reduced future cash flow expectations or stock price decline, would result in material non-cash charges to earnings and reduced stockholders' equity [We rely on suppliers and equipment manufacturers for the timely delivery of raw materials, components, equipment and spare parts used in manufacturing our PCBs and E-M Solutions. If a raw material supplier or equipment manufacturer goes bankrupt, liquidates, consolidates out of existence or fails to satisfy our product quality standards, it could harm our ability to purchase new manufacturing equipment, service the equipment we have, or timely produce our products, thereby af ecting our customer relationships](index=34&type=section&id=We%20rely%20on%20suppliers%20and%20equipment%20manufacturers%20for%20the%20timely%20delivery%20of%20raw%20materials,%20components,%20equipment%20and%20spare%20parts%20used%20in%20manufacturing%20our%20PCBs%20and%20E-M%20Solutions.%20If%20a%20raw%20material%20supplier%20or%20equipment%20manufacturer%20goes%20bankrupt,%20liquidates,%20consolidates%20out%20of%20existence%20or%20fails%20to%20satisfy%20our%20product%20quality%20standards,%20it%20could%20harm%20our%20ability%20to%20purchase%20new%20manufacturing%20equipment,%20service%20the%20equipment%20we%20have,%20or%20timely%20produce%20our%20products,%20thereby%20af%20ecting%20our%20customer%20relationships) The company's ability to produce products depends on timely delivery of raw materials, components, equipment, and spare parts, and supplier consolidations, bankruptcies, or quality failures can lead to adverse pricing, supply shortages, production delays, and negatively impact customer relationships and financial results [Our results of operations are often subject to demand fluctuations and seasonality. With a high level of fixed operating costs, even small revenue shortfalls would decrease our gross margins](index=35&type=section&id=Our%20results%20of%20operations%20are%20often%20subject%20to%20demand%20fluctuations%20and%20seasonality.%20With%20a%20high%20level%20of%20fixed%20operating%20costs,%20even%20small%20revenue%20shortfalls%20would%20decrease%20our%20gross%20margins) Operating results fluctuate due to demand variability, seasonality (e.g., Chinese New Year), and customer inventory practices, and high fixed costs mean that unexpected revenue shortfalls can significantly decrease gross margins, with past results not necessarily indicating future performance [Despite our current level of indebtedness, we and our subsidiaries may decide to incur substantially more debt. This could further exacerbate the risks to our financial condition described above](index=35&type=section&id=Despite%20our%20current%20level%20of%20indebtedness,%20we%20and%20our%20subsidiaries%20may%20decide%20to%20incur%20substantially%20more%20debt.%20This%20could%20further%20exacerbate%20the%20risks%20to%20our%20financial%20condition%20described%20above) The company may incur substantial additional debt, despite existing restrictions, which could intensify current debt-related risks and further strain financial condition [A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital](index=35&type=section&id=A%20lowering%20or%20withdrawal%20of%20the%20ratings%20assigned%20to%20our%20debt%20securities%20by%20rating%20agencies%20may%20increase%20our%20future%20borrowing%20costs%20and%20reduce%20our%20access%20to%20capital) A downgrade or withdrawal of the company's non-investment grade debt rating could increase borrowing costs and limit access to additional debt financing [Possible replacement of the LIBOR benchmark interest rate may have an impact on our financial condition or results of operations](index=35&type=section&id=Possible%20replacement%20of%20the%20LIBOR%20benchmark%20interest%20rate%20may%20have%20an%20impact%20on%20our%20financial%20condition%20or%20results%20of%20operations) The planned phase-out of LIBOR by the end of 2021 could require renegotiation of capital securities and credit instruments, potentially affecting the company's cost of capital and net investment income, with uncertain future impacts [We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets](index=35&type=section&id=We%20are%20exposed%20to%20the%20credit%20risk%20of%20some%20of%20our%20customers%20and%20to%20credit%20exposures%20in%20weakened%20markets) The company faces credit risk from customers, especially during economic downturns, and from a limited number of EMS providers through which OEMs direct sales, with insolvency or inability to pay by significant customers potentially materially adversely affecting financial results [We depend upon a relatively small number of OEM customers for a large portion of our sales, and a decline in sales to major customers would materially adversely af ect our business, financial condition, and results of operations](index=36&type=section&id=We%20depend%20upon%20a%20relatively%20small%20number%20of%20OEM%20customers%20for%20a%20large%20portion%20of%20our%20sales,%20and%20a%20decline%20in%20sales%20to%20major%20customers%20would%20materially%20adversely%20af%20ect%20our%20business,%20financial%20condition,%20and%20results%20of%20operations) A significant portion of sales comes from a small number of OEM customers (top five accounted for **28%** in Q1 2020), and loss of or decline in sales to these key customers, or their inability to meet payment obligations, would materially adversely affect the business [We are heavily dependent upon the worldwide electronics industry, which is characterized by economic cycles and fluctuations in product demand. A downturn in the electronics industry or prolonged global economic crisis could result in decreased demand for our manufacturing services and materially adversely af ect our business, financial condition, and results of operations](index=36&type=section&id=We%20are%20heavily%20dependent%20upon%20the%20worldwide%20electronics%20industry,%20which%20is%20characterized%20by%20economic%20cycles%20and%20fluctuations%20in%20product%20demand.%20A%20downturn%20in%20the%20electronics%20industry%20or%20prolonged%20global%20economic%20crisis%20could%20result%20in%20decreased%20demand%20for%20our%20manufacturing%20services%20and%20materially%20adversely%20af%20ect%20our%20business,%20financial%20condition,%20and%20results%20of%20operations) The company's revenue is largely tied to the electronics industry, which is highly competitive, cyclical, and has short product life cycles, and downturns or crises in this industry can significantly decrease demand for manufacturing services, impacting financial results with low visibility into future performance [Our manufacturing processes depend on the collective industry experience of our employees. If a significant number of these employees were to leave us, it could limit our ability to compete ef ectively and could materially adversely af ect our business, financial condition, and results of operations](index=36&type=section&id=Our%20manufacturing%20processes%20depend%20on%20the%20collective%20industry%20experience%20of%20our%20employees.%20If%20a%20significant%20number%20of%20these%20employees%20were%20to%20leave%20us,%20it%20could%20limit%20our%20ability%20to%20compete%20ef%20ectively%20and%20could%20materially%20adversely%20af%20ect%20our%20business,%20financial%20condition,%20and%20results%20of%20operations) The company relies on the collective experience of its manufacturing employees, as patent protection is limited, and significant employee attrition, particularly in China, could hinder technological innovation, impact yield and costs, and reduce competitive effectiveness [Changes in prices or availability of raw materials could have a material adverse ef ect on our business, financial condition, and results of operations and reduce our gross margins](index=36&type=section&id=Changes%20in%20prices%20or%20availability%20of%20raw%20materials%20could%20have%20a%20material%20adverse%20ef%20ect%20on%20our%20business,%20financial%20condition,%20and%20results%20of%20operations%20and%20reduce%20our%20gross%20margins) Fluctuations in prices or availability of raw materials (e.g., fiberglass, copper, chemicals, precious metals) and components can increase production costs and reduce gross margins, and supply limitations could impact the ability to meet customer demand, negatively affecting financial results [We depend on the U.S. government for a significant portion of our business, which involves unique risks. Changes in government defense spending or regulations could have a material adverse ef ect on our business, financial condition, and results of operations](index=37&type=section&id=We%20depend%20on%20the%20U.S.%20government%20for%20a%20significant%20portion%20of%20our%20business,%20which%20involves%20unique%20risks.%20Changes%20in%20government%20defense%20spending%20or%20regulations%20could%20have%20a%20material%20adversely%20af%20ect%20on%20our%20business,%20financial%20condition,%20and%20results%20of%20operations) A significant portion of revenue (**37%** in Q1 2020) comes from products ultimately sold to the U.S. government, exposing the company to risks from federal budget processes, strategic plan changes, contract terminations, and sequestration, with changes to the U.S. Munitions List potentially increasing competition from overseas manufacturers [We may be unable to hire and retain suf ficient qualified personnel, and the loss of any of our key executive of icers could materially adversely af ect our business, financial condition, and results of operations](index=37&type=section&id=We%20may%20be%20unable%20to%20hire%20and%20retain%20suf%20icient%20qualified%20personnel,%20and%20the%20loss%20of%20any%20of%20our%20key%20executive%20of%20icers%20could%20materially%20adversely%20af%20ect%20our%20business,%20financial%20condition,%20and%20results%20of%20operations) Future success depends on attracting and retaining highly skilled managerial and professional personnel, especially in engineering and sales/marketing, and intense competition for these employees and the potential loss of key executive officers or acquired company management could materially harm the business [Increasingly, our customers are requesting that we enter into supply agreements with them that have restrictive terms and conditions. These agreements typically include provisions that increase our financial exposure, which could result in significant costs to us](index=37&type=section&id=Increasingly,%20our%20customers%20are%20requesting%20that%20we%20enter%20into%20supply%20agreements%20with%20them%20that%20have%20restrictive%20terms%20and%20conditions.%20These%20agreements%20typically%20include%20provisions%20that%20increase%20our%20financial%20exposure,%20which%20could%20result%20in%20significant%20costs%20to%20us) Customer supply agreements often lack volume commitments but include restrictive terms that increase exposure to product liability and sales returns, and limit operational/pricing flexibility, potentially leading to higher costs and adverse impacts on cash flow and financial results [We may need additional capital in the future to fund investments in our operations, refinance our indebtedness, and to maintain and grow our business, and such capital may not be available on a timely basis, on acceptable terms, or at all](index=38&type=section&id=We%20may%20need%20additional%20capital%20in%20the%20future%20to%20fund%20investments%20in%20our%20operations,%20refinance%20our%20indebtedness,%20and%20to%20maintain%20and%20grow%20our%20business,%20and%20such%20capital%20may%20not%20be%20available%20on%20a%20timely%20basis,%20on%20acceptable%20terms,%20or%20at%20all) The capital-intensive business requires continuous investment, and if operating cash flows are insufficient, additional funds may be needed for capital expenditures, debt refinancing, and growth, with inability to secure such capital on favorable terms potentially materially adversely affecting the business [The Company may experience cash flow volatility](index=38&type=section&id=The%20Company%20may%20experience%20cash%20flow%20volatility) Cash flows fluctuate due to factors like client engagement types, seasonality, labor and raw material costs, product demand, billing cycles, and foreign exchange rates, and such volatility could impair the ability to meet financial obligations [Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly](index=38&type=section&id=Our%20variable%20rate%20indebtedness%20subjects%20us%20to%20interest%20rate%20risk,%20which%20could%20cause%20our%20debt%20service%20obligations%20to%20increase%20significantly) Variable rate debt (Term Loan, ABLs) exposes the company to interest rate risk, and while an interest rate swap mitigates some risk, increases in rates would still raise debt service obligations, reducing net income and cash flows [We are subject to risks of currency fluctuations](index=38&type=section&id=We%20are%20subject%20to%20risks%20of%20currency%20fluctuations) The company holds cash and assets in foreign currencies, primarily RMB, exposing it to exchange rate fluctuations that can affect balance sheet values, repatriation amounts, and revenues/costs, with China's currency controls adding further risk [If we are unable to respond to rapid technological change and process development, we may not be able to compete ef ectively](index=39&type=section&id=If%20we%20are%20unable%20to%20respond%20to%20rapid%20technological%20change%20and%20process%20development,%20we%20may%20not%20be%20able%20to%20compete%20
TTM Technologies(TTMI) - 2020 Q1 - Earnings Call Transcript
2020-04-30 10:24
TTM Technologies, Inc. (NASDAQ:TTMI) Q1 2020 Earnings Conference Call April 29, 2020 4:30 PM ET Company Participants Sameer Desai - Senior Director of Corporate Development and Investor Relations Tom Edman - Chief Executive Officer Todd Schull - Chief Financial Officer Conference Call Participants Jim Ricchiuti - Needham Steve Fox - Cross Research Will Stein - SunTrust Paul Chung - JPMorgan Matt Sheerin - Stifel Operator Good day, everyone and ladies and gentlemen, thank you for standing by. Welcome to the ...
TTM Technologies(TTMI) - 2019 Q4 - Annual Report
2020-02-25 23:09
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2019 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-31285 TTM TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of Incorporation or Organization) ...
TTM Technologies(TTMI) - 2020 Q3 - Quarterly Report
2019-11-07 21:07
[PART I: FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated condensed financial statements, management's discussion, and market risk disclosures [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated condensed financial statements of TTM Technologies, Inc. for the quarter and three quarters ended September 30, 2019, and October 1, 2018, including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, revenue disaggregation, debt, and other financial captions [Consolidated Condensed Balance Sheets](index=3&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) The balance sheet shows a slight increase in total assets and stockholders' equity from December 31, 2018, to September 30, 2019, driven by higher cash and accounts receivable, while total liabilities remained relatively stable | Metric (In thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $316,589 | $256,360 | | Accounts receivable, net | $529,942 | $523,165 | | Total current assets | $1,277,835 | $1,206,914 | | Total assets | $3,498,358 | $3,457,503 | | Total current liabilities | $666,673 | $673,214 | | Long-term debt, net | $1,472,578 | $1,462,425 | | Total stockholders' equity | $1,247,353 | $1,227,087 | [Consolidated Condensed Statements of Operations](index=4&type=section&id=Consolidated%20Condensed%20Statements%20of%20Operations) Net sales and net income decreased significantly for both the quarter and three quarters ended September 30, 2019, compared to the prior year, indicating a challenging operating environment | Metric (In thousands, except per share data) | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :----------------------------------------- | :----------- | :----------- | :----------- | :----------- | | Net sales | $716,817 | $755,837 | $1,970,055 | $2,136,306 | | Gross profit | $103,834 | $129,584 | $277,134 | $334,402 | | Operating income | $36,361 | $54,550 | $70,695 | $116,285 | | Net income | $15,870 | $27,001 | $16,042 | $121,102 | | Basic earnings per share | $0.15 | $0.26 | $0.15 | $1.17 | | Diluted earnings per share | $0.14 | $0.22 | $0.15 | $0.98 | [Consolidated Condensed Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Comprehensive income saw a notable decrease for both the quarter and three quarters ended September 30, 2019, primarily due to increased other comprehensive losses, particularly from net unrealized losses on cash flow hedges | Metric (In thousands) | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Net income | $15,870 | $27,001 | $16,042 | $121,102 | | Other comprehensive (loss) income, net of tax | $(2,256) | $1,157 | $(7,965) | $(1,284) | | Comprehensive income, net of tax | $13,614 | $28,158 | $8,077 | $119,818 | [Consolidated Condensed Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased from December 31, 2018, to September 30, 2019, primarily due to retained earnings from net income and stock-based compensation, despite an increase in accumulated other comprehensive loss | Metric (In thousands) | Dec 31, 2018 | Sep 30, 2019 | | :-------------------- | :----------- | :----------- | | Total Stockholders' Equity | $1,227,087 | $1,247,353 | | Retained Earnings | $433,008 | $449,050 | | Accumulated Other Comprehensive Loss | $(3,920) | $(11,885) | - Stock-based compensation contributed **$3,926 thousand**, **$3,602 thousand**, and **$4,662 thousand** to additional paid-in capital for the periods ending April 1, July 1, and September 30, 2019, respectively[18](index=18&type=chunk) [Consolidated Condensed Statements of Cash Flows](index=8&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased for the three quarters ended September 30, 2019, compared to the prior year, while net cash used in investing activities decreased substantially due to the absence of a major acquisition | Metric (In thousands) | YTD Q3 2019 | YTD Q3 2018 | | :-------------------- | :----------- | :----------- | | Net cash provided by operating activities | $181,789 | $121,370 | | Net cash used in investing activities | $(88,990) | $(712,521) | | Net cash (used in) provided by financing activities | $(31,649) | $391,057 | | Net increase (decrease) in cash and cash equivalents | $60,229 | $(201,374) | | Cash and cash equivalents at end of period | $316,589 | $207,952 | [Notes to Consolidated Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) These notes provide detailed explanations and disclosures for the consolidated condensed financial statements, covering the company's operations, significant accounting policies, recent accounting standard adoptions, revenue recognition, goodwill, intangible assets, debt, income taxes, financial instruments, customer concentrations, fair value measures, commitments, contingencies, earnings per share, stock-based compensation, segment information, related party transactions, and restructuring charges [(1) Nature of Operations and Basis of Presentation](index=9&type=section&id=%281%29%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) TTM Technologies, Inc. is a global PCB manufacturer and designer of RF/microwave components, serving diverse markets. The financial statements are unaudited and prepared under U.S. GAAP, reflecting normal recurring adjustments. The company adopted new lease accounting standards (ASU 2016-02 and ASU 2018-11) on January 1, 2019, recognizing ROU assets and lease liabilities, with a cumulative effect adjustment to retained earnings - TTM Technologies, Inc. is a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically complex PCBs, backplane assemblies, and electro-mechanical solutions (E-M Solutions), as well as a global designer and manufacturer of radio-frequency (RF) and microwave components and assemblies[26](index=26&type=chunk) - The Company adopted the new lease standard (ASU 2016-02 and ASU 2018-11) as of January 1, 2019, utilizing the retrospective cumulative effect adjustment transition method, resulting in the recognition of **$16,894 thousand** in Operating lease right-of-use assets and **$14,356 thousand** in Operating lease liabilities on the January 1, 2019, consolidated condensed balance sheet[32](index=32&type=chunk)[34](index=34&type=chunk) [(2) Summary of Significant Accounting Policies](index=11&type=section&id=%282%29%20Summary%20of%20Significant%20Accounting%20Policies) The company's significant accounting policies include determining if an arrangement is a lease at inception, recognizing operating lease ROU assets and liabilities based on the present value of lease payments, and accounting for lease and non-lease components as a single lease component - Operating leases are included in operating lease ROU assets, other current liabilities, and operating lease liabilities on the consolidated condensed balance sheets[42](index=42&type=chunk) - ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term, using the incremental borrowing rate when an implicit rate is not provided[43](index=43&type=chunk) [(3) Leases](index=11&type=section&id=%283%29%20Leases) The company leases manufacturing plants, offices, and equipment, with operating lease costs of $2,362 thousand for Q3 2019 and $6,886 thousand for the three quarters ended September 30, 2019. As of September 30, 2019, operating lease ROU assets totaled $23,670 thousand and total operating lease liabilities were $23,891 thousand, with a weighted average remaining lease term of 4.5 years | Lease Expense Component (In thousands) | Q3 2019 | YTD Q3 2019 | | :------------------------------------- | :------ | :---------- | | Operating lease cost | $2,362 | $6,886 | | Variable lease cost | $4,675 | $6,677 | | Short-term lease cost | $369 | $750 | | Lease-Related Balance Sheet Information (In thousands) | Sep 30, 2019 | | :----------------------------------------------------- | :----------- | | Operating lease right-of-use assets | $23,670 | | Operating lease liabilities | $16,727 | | Total operating lease liabilities | $23,891 | | Weighted average remaining lease term | 4.5 years | | Weighted average discount rate | 3.96% | [(4) Revenues](index=13&type=section&id=%284%29%20Revenues) The company's revenue is primarily recognized over time (98% for Q3 2019), with a small portion recognized at a point in time. Revenue disaggregation by end market shows Aerospace and Defense as the largest segment, with shifts in demand across various markets compared to the prior year - Revenue from products and services transferred to customers over time accounted for **98%** of the Company's revenue for the quarter ended September 30, 2019, and **97%** for the three quarters ended September 30, 2019[51](index=51&type=chunk) | End Market (In thousands) | Q3 2019 Total | Q3 2018 Total | YTD Q3 2019 Total | YTD Q3 2018 Total | | :------------------------ | :------------ | :------------ | :---------------- | :---------------- | | Aerospace and Defense | $171,904 | $160,189 | $512,272 | $446,360 | | Automotive | $117,952 | $115,957 | $326,571 | $388,020 | | Cellular Phone | $136,184 | $125,442 | $219,362 | $285,695 | | Computing/Storage/Peripherals | $84,501 | $108,049 | $260,709 | $307,097 | | Medical/Industrial/Instrumentation | $95,170 | $103,705 | $288,119 | $311,422 | | Networking/Communications | $94,791 | $126,912 | $312,056 | $352,277 | | Total | $716,817 | $755,837 | $1,970,055 | $2,136,306 | [(5) Composition of Certain Consolidated Condensed Financial Statement Captions](index=13&type=section&id=%285%29%20Composition%20of%20Certain%20Consolidated%20Condensed%20Financial%20Statement%20Captions) Inventories increased from $109,377 thousand at December 31, 2018, to $126,324 thousand at September 30, 2019, primarily driven by higher raw materials and finished goods. Property, plant and equipment, net, slightly decreased over the same period | Metric (In thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Inventories: | | | | Raw materials | $108,308 | $97,600 | | Work-in-process | $11,260 | $10,299 | | Finished goods | $6,756 | $1,478 | | Total Inventories | $126,324 | $109,377 | | Property, plant and equipment, net | $1,027,868 | $1,052,024 | [(6) Goodwill](index=14&type=section&id=%286%29%20Goodwill) Goodwill remained stable at $767,045 thousand as of September 30, 2019. The company performed a quantitative impairment analysis for its Communications and Computing and Automotive and Medical/Industrial/Instrumentation reporting units due to lower-than-anticipated results, concluding that fair value exceeded carrying value by 19% and 8%, respectively, thus no impairment was recognized | Goodwill (In thousands) | Sep 30, 2019 & Dec 31, 2018 | | :---------------------- | :-------------------------- | | Goodwill | $938,445 | | Accumulated impairment losses | $(171,400) | | Total | $767,045 | - The fair value of the Communications and Computing and Automotive and Medical/Industrial/Instrumentation reporting units exceeded their respective carrying values by **19%** and **8%**, respectively, as of September 30, 2019, following an impairment test triggered by lower-than-anticipated results[55](index=55&type=chunk)[57](index=57&type=chunk) [(7) Definite-lived Intangibles](index=15&type=section&id=%287%29%20Definite-lived%20Intangibles) Definite-lived intangibles, primarily customer relationships and technology, decreased to $334,116 thousand as of September 30, 2019, from $375,923 thousand at December 31, 2018, due to ongoing amortization. Amortization expense for the three quarters ended September 30, 2019, was $41,807 thousand | Definite-lived Intangibles (In thousands) | Sep 30, 2019 Net Carrying Amount | Dec 31, 2018 Net Carrying Amount | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Customer relationships | $301,501 | $80,112 (pre-acquisition) / $251,939 (acquired) | | Technology | $32,615 | $0 (pre-acquisition) / $36,155 (acquired) | | Total | $334,116 | $375,923 | - Amortization expense was **$11,355 thousand** for the quarter ended September 30, 2019, and **$41,807 thousand** for the three quarters ended September 30, 2019[60](index=60&type=chunk) [(8) Long-term Debt and Letters of Credit](index=16&type=section&id=%288%29%20Long-term%20Debt%20and%20Letters%20of%20Credit) Total long-term debt, net of discount and issuance costs, was $1,472,578 thousand as of September 30, 2019, slightly up from $1,462,425 thousand at December 31, 2018. This includes a Term Loan, Senior Notes, Convertible Senior Notes, and ABL Revolving Loans. The company amended its ABL facilities in June 2019, extending maturities and adjusting facility sizes | Debt Type (In thousands) | Sep 30, 2019 Principal Outstanding | Dec 31, 2018 Principal Outstanding | | :----------------------- | :------------------------------- | :------------------------------- | | Term Loan due Sep 2024 | $805,879 | $835,879 | | Senior Notes due Oct 2025 | $375,000 | $375,000 | | Convertible Senior Notes due Dec 2020 | $249,975 | $249,985 | | U.S. ABL Revolving Loan due Jun 2024 | $40,000 | $40,000 | | Asia ABL Revolving Loan due Jun 2024 | $30,000 | $30,000 | | Total Long-term Debt, net | $1,472,578 | $1,462,425 | - The U.S. ABL credit facility was amended to extend its maturity to **June 2024**, decrease the size to **$150,000 thousand**, and add a **$100,000 thousand** incremental facility[71](index=71&type=chunk) - The Asia ABL credit facility was amended to extend maturity to **June 2024** and add a **$50,000 thousand** incremental facility[71](index=71&type=chunk) - Available borrowing capacity under the U.S. ABL and Asia ABL was **$96,360 thousand** and **$95,478 thousand**, respectively, as of September 30, 2019[74](index=74&type=chunk) [(9) Income Taxes](index=18&type=section&id=%289%29%20Income%20Taxes) The effective tax rate is influenced by various factors including tax rates in China and Hong Kong, U.S. federal and state rates, and credits. For the three quarters ended September 30, 2019, the effective tax rate was impacted by a net discrete benefit of $2,067 thousand - The Company's effective tax rate is impacted by tax rates in China and Hong Kong, the U.S. federal income tax rate, apportioned state income tax rates, generation of credits and deductions, and changes in valuation allowances[80](index=80&type=chunk) - For the three quarters ended September 30, 2019, the effective tax rate was impacted by a net discrete benefit of **$2,067 thousand**, related to accrued interest expense on uncertain tax positions and return to provision expense, offset by the release of uncertain tax positions[81](index=81&type=chunk) [(10) Financial Instruments](index=19&type=section&id=%2810%29%20Financial%20Instruments) The company uses interest rate swaps to hedge LIBOR-based variable rate debt and foreign currency forward contracts to mitigate foreign exchange rate risks. As of September 30, 2019, the fair value of the interest rate swap was a $14,013 thousand liability, and foreign exchange contracts had a net asset fair value of $25 thousand - The Company uses a four-year pay-fixed, receive floating (1-month LIBOR) interest rate swap with a notional amount of **$400,000 thousand** to hedge interest rate risk, paying a fixed rate of **2.84%**[84](index=84&type=chunk) | Derivative Instrument (In thousands) | Balance Sheet Location | Sep 30, 2019 Fair Value | Dec 31, 2018 Fair Value | | :----------------------------------- | :--------------------- | :---------------------- | :---------------------- | | Interest rate swap | Other long-term liabilities | $(14,013) | $(4,735) | | Foreign exchange contracts (net) | Prepaid expenses and other current assets / Other current liabilities | $25 | $(139) | - The interest rate swap increased interest expense by **$1,308 thousand** for the three quarters ended September 30, 2019[85](index=85&type=chunk)[89](index=89&type=chunk) [(11) Accumulated Other Comprehensive Loss](index=20&type=section&id=%2811%29%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased significantly from $(3,920) thousand at December 31, 2018, to $(11,885) thousand at September 30, 2019, primarily due to increased losses on cash flow hedges | Component (In thousands) | Dec 31, 2018 | Sep 30, 2019 | | :----------------------- | :----------- | :----------- | | Foreign Currency Translation | $1,578 | $653 | | Pension Obligation | $(1,284) | $(1,288) | | Gains / (Losses) on Cash Flow Hedges | $(4,214) | $(11,250) | | Total | $(3,920) | $(11,885) | - The change in fair value loss, net of tax, for cash flow hedges was **$(8,164) thousand** for the three quarters ended September 30, 2019[89](index=89&type=chunk) [(12) Significant Customers and Concentration of Credit Risk](index=21&type=section&id=%2812%29%20Significant%20Customers%20and%20Concentration%20of%20Credit%20Risk) The company has significant customer concentration, with one customer accounting for approximately 20% of net sales for the quarter ended September 30, 2019, and 13% for the three quarters ended September 30, 2019 - One customer accounted for approximately **20%** of the Company's net sales for the quarter ended September 30, 2019, and **13%** for the three quarters ended September 30, 2019[95](index=95&type=chunk) [(13) Fair Value Measures](index=21&type=section&id=%2813%29%20Fair%20Value%20Measures) The fair value of financial instruments, including derivative liabilities and long-term debt, is determined using Level 2 inputs such as quoted market prices or discounting future cash flows with current market rates. Cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to short-term maturities | Financial Instrument (In thousands) | Sep 30, 2019 Fair Value | Dec 31, 2018 Fair Value | | :---------------------------------- | :---------------------- | :---------------------- | | Derivative liabilities, non-current | $14,013 | $4,735 | | Term Loan due Sep 2024 | $806,887 | $782,592 | | Senior Notes due Oct 2025 | $377,809 | $350,880 | | Convertible Senior Notes | $332,742 | $290,858 | | ABL Revolving Loans | $70,000 | $70,000 | - The fair value of derivative instruments and long-term debt is determined using Level 2 inputs, such as LIBOR swap rates, foreign currency exchange rates, and quoted market prices for similar debt[97](index=97&type=chunk)[98](index=98&type=chunk) [(14) Commitments and Contingencies](index=22&type=section&id=%2814%29%20Commitments%20and%20Contingencies) The company is involved in various legal matters considered normal for its business. While the outcome is difficult to predict, management believes any reasonably possible loss for known matters would not be material to the financial condition - The Company believes that the amount of any reasonably possible loss for known legal matters would not be material to its financial condition, though the outcome is inherently difficult to predict[103](index=103&type=chunk) [(15) Earnings Per Share](index=22&type=section&id=%2815%29%20Earnings%20Per%20Share) Basic earnings per share decreased to $0.15 for Q3 2019 from $0.26 for Q3 2018, and to $0.15 for the three quarters ended September 30, 2019, from $1.17 for the prior year period. Diluted EPS also saw a similar decline | Metric (In thousands, except per share amounts) | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :-------------------------------------------- | :------ | :------ | :---------- | :---------- | | Basic earnings per share | $0.15 | $0.26 | $0.15 | $1.17 | | Diluted earnings per share | $0.14 | $0.22 | $0.15 | $0.98 | | Basic weighted average shares | 105,492 | 103,676 | 105,092 | 103,246 | | Diluted shares | 132,412 | 136,435 | 106,065 | 134,871 | - Performance-based restricted stock units (PRUs), restricted stock units (RSUs), and stock options were excluded from diluted EPS computation if their impact was anti-dilutive[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [(16) Stock-Based Compensation](index=23&type=section&id=%2816%29%20Stock-Based%20Compensation) Stock-based compensation expense decreased to $4,662 thousand for Q3 2019 from $5,459 thousand for Q3 2018, and to $12,190 thousand for the three quarters ended September 30, 2019, from $14,948 thousand for the prior year period. The company maintains PRU and RSU programs, with unrecognized compensation costs totaling $26,017 thousand as of September 30, 2019 | Stock-Based Compensation Expense (In thousands) | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :---------------------------------------------- | :------ | :------ | :---------- | :---------- | | Cost of goods sold | $941 | $774 | $2,216 | $2,132 | | Selling and marketing | $593 | $520 | $1,455 | $1,439 | | General and administrative | $3,128 | $4,165 | $8,519 | $11,377 | | Total | $4,662 | $5,459 | $12,190 | $14,948 | | Unrecognized Compensation Costs (In thousands) | Sep 30, 2019 | | :--------------------------------------------- | :----------- | | RSU awards | $23,494 | | PRU awards | $2,252 | | Stock options | $271 | | Total | $26,017 | [(17) Segment Information](index=24&type=section&id=%2817%29%20Segment%20Information) The company operates in two reportable segments: PCB and E-M Solutions. Both segments experienced a decrease in net sales and operating segment income for the three quarters ended September 30, 2019, compared to the prior year, with PCB being the larger segment | Segment (In thousands) | Q3 2019 Net Sales | Q3 2018 Net Sales | YTD Q3 2019 Net Sales | YTD Q3 2018 Net Sales | | :--------------------- | :---------------- | :---------------- | :-------------------- | :-------------------- | | PCB | $649,104 | $696,356 | $1,791,047 | $1,967,832 | | E-M Solutions | $67,713 | $59,481 | $179,008 | $168,474 | | Total Net Sales | $716,817 | $755,837 | $1,970,055 | $2,136,306 | | | | | | | | Segment (In thousands) | Q3 2019 Operating Segment Income | Q3 2018 Operating Segment Income | YTD Q3 2019 Operating Segment Income | YTD Q3 2018 Operating Segment Income | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------------- | :----------------------------------- | | PCB | $73,230 | $98,039 | $182,761 | $242,467 | | E-M Solutions | $3,236 | $2,205 | $5,278 | $4,741 | | Corporate | $(28,750) | $(26,920) | $(75,537) | $(86,799) | | Total Operating Segment Income | $47,716 | $73,324 | $112,502 | $160,409 | [(18) Related Party Transactions](index=25&type=section&id=%2818%29%20Related%20Party%20Transactions) The company's foreign subsidiaries purchased laminate and prepreg from related parties, in which a board member holds an equity interest, totaling $8,005 thousand for Q3 2019 and $25,234 thousand for the three quarters ended September 30, 2019 | Related Party Purchases (In thousands) | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :------------------------------------- | :------ | :------ | :---------- | :---------- | | Laminate and prepreg | $8,005 | $10,437 | $25,234 | $35,695 | - Accounts payable due to related parties for these purchases were **$10,290 thousand** as of September 30, 2019[122](index=122&type=chunk) [(19) Restructuring Charges](index=25&type=section&id=%2819%29%20Restructuring%20Charges) The company incurred $52 thousand in restructuring charges for Q3 2019 and $4,442 thousand for the three quarters ended September 30, 2019, primarily for employee separation/severance costs within the PCB segment. Accrued restructuring costs totaled $1,870 thousand as of September 30, 2019 | Restructuring Costs (In thousands) | Q3 2019 Total | YTD Q3 2019 Total | | :--------------------------------- | :------------ | :---------------- | | PCB Segment | $45 | $4,258 | | Corporate | $7 | $184 | | Total | $52 | $4,442 | | Accrued Restructuring Costs (In thousands) | Dec 31, 2018 | Sep 30, 2019 | | :----------------------------------------- | :----------- | :----------- | | Accrued at period end | $3,551 | $1,870 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and results of operations, highlighting key trends, recent developments, critical accounting policies, and liquidity. It details the decrease in net sales and gross margin, changes in operating expenses, and the impact of tax provisions, while also discussing cash flow dynamics and debt compliance [COMPANY OVERVIEW](index=26&type=section&id=COMPANY%20OVERVIEW) TTM Technologies, Inc. is a global leader in PCB manufacturing and RF/microwave components, offering comprehensive design-to-production solutions to a diverse customer base across various markets, including aerospace and defense, automotive, and communications - TTM Technologies, Inc. is a leading global printed circuit board (PCB) manufacturer and a global designer and manufacturer of radio-frequency (RF) and microwave components and assemblies[126](index=126&type=chunk) - The company serves approximately **1,700 customers** in diverse markets including aerospace and defense, automotive, smartphones, high-end computing, medical, industrial, and networking/communications[126](index=126&type=chunk) [RECENT DEVELOPMENTS](index=26&type=section&id=RECENT%20DEVELOPMENTS) The company extended the maturity of its Chinese Revolver credit facility to July 2020, providing approximately $28 million in unsecured borrowing capacity - On July 18, 2019, the company extended the maturity of its revolving loan credit facility (Chinese Revolver) with a lender in China to **July 2020**, making approximately **$28 million** in unsecured borrowing available[127](index=127&type=chunk) [FINANCIAL OVERVIEW](index=26&type=section&id=FINANCIAL%20OVERVIEW) Sales to the top ten customers accounted for 52% of net sales for Q3 2019. Revenue is primarily recognized over time (98% for Q3 2019) using the cost-to-cost method. Key end markets include Aerospace and Defense (24% of Q3 2019 net sales) and Cellular Phone (19% of Q3 2019 net sales) - Sales to the ten largest customers accounted for **52%** of net sales for the quarter ended September 30, 2019, and **48%** for the three quarters ended September 30, 2019[128](index=128&type=chunk) | End Market | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :-------------------------- | :------ | :------ | :---------- | :---------- | | Aerospace and Defense | 24 % | 21 % | 26 % | 21 % | | Automotive | 17 | 15 | 17 | 18 | | Cellular Phone | 19 | 17 | 11 | 13 | | Computing/Storage/Peripherals | 12 | 14 | 13 | 14 | | Medical/Industrial/Instrumentation | 13 | 14 | 15 | 15 | | Networking/Communications | 13 | 17 | 16 | 17 | | Other | 2 | 2 | 2 | 2 | | Total | 100 % | 100 % | 100 % | 100 % | - Revenue is recognized progressively over time based on the cost-to-cost method for PCB and custom electronic assemblies, and at a point in time for wireless communications components[132](index=132&type=chunk)[133](index=133&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=27&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) The company's critical accounting policies and estimates remained largely unchanged since December 31, 2018, except for estimates used in the quantitative goodwill impairment analysis. This analysis, performed due to lower-than-anticipated results in certain reporting units, confirmed that fair values exceeded carrying values, thus no impairment was recorded - No material changes to critical accounting policies and estimates since December 31, 2018, except for estimates used in the quantitative goodwill impairment analysis performed as of September 30, 2019[139](index=139&type=chunk) - A quantitative goodwill impairment analysis was performed for the Communications and Computing (**$39.3 million** goodwill) and Automotive and Medical/Industrial/Instrumentation (**$185.5 million** goodwill) reporting units due to lower-than-anticipated results and sales declines[140](index=140&type=chunk) - Based on discounted cash flow and market analyses, the fair value of these reporting units exceeded their respective carrying values by **19%** and **8%**, indicating no impairment[142](index=142&type=chunk) [RESULTS OF OPERATIONS](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) Net sales decreased by 5.2% for Q3 2019 and 7.8% for the first three quarters of 2019, primarily due to lower demand in commercial end markets for the PCB segment. Gross margin declined to 14.5% for Q3 2019. Operating expenses saw minor changes, while other expense, net, decreased in Q3 2019 due to foreign currency gains. Income tax provision increased significantly for the first three quarters of 2019 due to the absence of a prior year valuation allowance release | Metric (as % of Net Sales) | Q3 2019 | Q3 2018 | YTD Q3 2019 | YTD Q3 2018 | | :------------------------- | :------ | :------ | :---------- | :---------- | | Net sales | 100.0 % | 100.0 % | 100.0 % | 100.0 % | | Cost of goods sold | 85.5 | 82.9 | 85.9 | 84.3 | | Gross profit | 14.5 | 17.1 | 14.1 | 15.7 | | Operating income | 5.1 | 7.1 | 3.6 | 5.4 | | Net income | 2.2 % | 3.6 % | 0.8 % | 5.7 % | - Total net sales decreased by **$39.0 million (5.2%)** to **$716.8 million** for Q3 2019 and by **$166.2 million (7.8%)** to **$1,970.1 million** for the first three quarters of 2019, primarily driven by lower demand in Networking/Communications, Computing/Storage/Peripherals, and Automotive end markets for the PCB segment[145](index=145&type=chunk)[146](index=146&type=chunk) - Overall gross margin decreased to **14.5%** for Q3 2019 (from 17.1% in Q3 2018) and to **14.1%** for the first three quarters of 2019 (from 15.7% in the prior year), mainly due to lower volumes in commercially focused facilities[147](index=147&type=chunk)[148](index=148&type=chunk) - Capacity utilization in Asia and North America PCB facilities declined in Q3 2019 compared to Q3 2018 (Asia: **71% vs 80%**; North America: **57% vs 60%**) due to decreased sales in commercial end markets[149](index=149&type=chunk) - Other expense, net, decreased by **$7.6 million** in Q3 2019 due to higher foreign currency gains from the depreciation of the Chinese Renminbi (RMB)[154](index=154&type=chunk) - The income tax provision increased by **$57.7 million** for the first three quarters of 2019, primarily due to the absence of a **$74.6 million** valuation allowance release in the prior year[156](index=156&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily from operations and debt. Cash flow from operating activities increased to $181.8 million for the first three quarters of 2019, while cash used in investing activities significantly decreased due to no major acquisitions. Net cash used in financing activities was $31.6 million, mainly for debt repayment. The company held $316.6 million in cash and cash equivalents, with $250.7 million held by foreign subsidiaries - Principal sources of liquidity are cash from operations, Convertible Senior Notes, Term Loan, Senior Notes, and Revolving Credit Facility borrowings[158](index=158&type=chunk) - Cash flow provided by operating activities increased to **$181.8 million** for the first three quarters of 2019, up from **$121.4 million** in the same period in 2018, primarily due to lower investment in working capital[159](index=159&type=chunk) - Net cash used in investing activities was **$89.0 million** for the first three quarters of 2019, significantly lower than **$712.5 million** in 2018, which included the Anaren acquisition[160](index=160&type=chunk) - Net cash used in financing activities was **$31.6 million** for the first three quarters of 2019, mainly for long-term debt repayment[161](index=161&type=chunk) - As of September 30, 2019, cash and cash equivalents totaled **$316.6 million**, with approximately **$250.7 million** held by foreign subsidiaries[162](index=162&type=chunk) [Long-term Debt and Letters of Credit](index=31&type=section&id=Long-term%20Debt%20and%20Letters%20of%20Credit) As of September 30, 2019, the company had $1,472.6 million in outstanding debt and was in compliance with all covenants under its Term Loan Facility, Senior Notes Facility, and ABL Revolving Loans - Outstanding debt, net of discount and debt issuance costs, was **$1,472.6 million** as of September 30, 2019[164](index=164&type=chunk) - The company was in compliance with all covenants under its Term Loan Facility, Senior Notes Facility, and ABL Revolving Loans as of September 30, 2019[165](index=165&type=chunk) [Contractual Obligations and Commitments](index=31&type=section&id=Contractual%20Obligations%20and%20Commitments) There were no material changes to contractual obligations and commitments outside the ordinary course of business since December 31, 2018, other than those related to the adoption of the new lease accounting standard - No material changes to contractual obligations and commitments since December 31, 2018, except for changes related to the adoption of the new lease accounting standard[167](index=167&type=chunk) [Off Balance Sheet Arrangements](index=31&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company does not have any material off-balance sheet arrangements or relationships with unconsolidated entities that would expose it to significant financing, liquidity, market, or credit risks - The company does not have any relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[168](index=168&type=chunk) [Seasonality](index=31&type=section&id=Seasonality) The company typically experiences higher net sales in the third and fourth quarters due to consumer electronics demand and lower sales in the first quarter due to Chinese New Year holidays - Higher net sales are historically experienced in the third and fourth quarters due to end customer demand for consumer electronics products[169](index=169&type=chunk) - Lower net sales typically occur in the first quarter due to Chinese New Year holidays, which cause shutdowns of manufacturing facilities[169](index=169&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk from variable-rate debt and foreign currency exchange rate risk, primarily with the RMB. It uses derivative financial instruments, such as interest rate swaps and foreign currency forward contracts, to manage these exposures, but cannot guarantee full offset of adverse impacts [Interest rate risk](index=31&type=section&id=Interest%20rate%20risk) The company is exposed to interest rate risk on its LIBOR-based variable rate debt. It uses a $400 million interest rate swap to fix a portion of this debt at 2.84%. A 100 basis point change in variable rates would alter annual interest cost by $4.8 million - The company's interest expense is sensitive to fluctuations in LIBOR interest rates[173](index=173&type=chunk) - A four-year pay-fixed, receive floating (1-month LIBOR) interest rate swap with a notional amount of **$400.0 million** was entered into on May 15, 2018, fixing a portion of variable rate debt at **2.84%**[174](index=174&type=chunk) - As of September 30, 2019, approximately **68.3%** of total debt was based on fixed rates, and a **100 basis point** change in variable rates would cause an annual interest cost change of **$4.8 million**[176](index=176&type=chunk) [Foreign currency risks](index=32&type=section&id=Foreign%20currency%20risks) The company is exposed to foreign currency exchange rate risks, primarily with the Chinese Renminbi (RMB), affecting operational costs and balance sheet translation. It uses foreign currency forward contracts to mitigate risks related to certain machinery purchases, with a notional amount of $2.5 million as of September 30, 2019 - Primary foreign exchange exposure is to the Chinese Renminbi (RMB), affecting employee-related costs, foreign currency denominated purchases, and translation of balance sheet accounts[177](index=177&type=chunk) - Foreign currency forward contracts are used to mitigate the impact of changes in foreign currency exchange rates, with a notional amount of approximately **$2.5 million** as of September 30, 2019[178](index=178&type=chunk) [Debt Instruments](index=33&type=section&id=Debt%20Instruments) The company's debt instruments as of September 30, 2019, include $875.9 million in US$ Variable Rate debt and $625.0 million in US$ Fixed Rate debt, with a weighted average interest rate of 4.43% and 4.08% respectively | Debt Type | Total (In thousands) | Fair Market Value (In thousands) | Weighted Average Interest Rate | | :----------- | :------------------- | :------------------------------- | :----------------------------- | | US$ Variable Rate | $875,879 | $876,887 | 4.43% | | US$ Fixed Rate | $624,975 | $710,551 | 4.08% | | Total | $1,500,854 | $1,587,438 | | [Interest Rate Swap Contracts](index=33&type=section&id=Interest%20Rate%20Swap%20Contracts) As of September 30, 2019, the interest rate swap contracts had an average interest payout rate of 2.84% and an average interest received rate of 2.41%, resulting in a fair value loss of $14,013 thousand | Interest Rate Swap Metrics | Value | | :------------------------- | :---- | | Average interest payout rate | 2.84% | | Interest payout amount (In thousands) | $(8,612) | | Average interest received rate | 2.41% | | Interest received amount (In thousands) | $7,304 | | Fair value loss as of Sep 30, 2019 (In thousands) | $(14,013) | [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019. The company is also continuing to implement an enterprise resource planning (ERP) system, which has led to changes in internal controls over financial reporting, but no other material changes occurred during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2019, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[182](index=182&type=chunk) - The company is expanding its enterprise resource planning (ERP) system, which has resulted in changes to processes, procedures, and internal controls over financial reporting, including the implementation of additional controls[184](index=184&type=chunk) - No other changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended September 30, 2019[185](index=185&type=chunk) [PART II: OTHER INFORMATION](index=34&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) This section details legal proceedings, comprehensive risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business. While outcomes are difficult to predict, management believes any reasonably possible or probable loss for known matters would not be material to the financial statements - The company is subject to various legal proceedings arising in the ordinary course of business[187](index=187&type=chunk) - Management believes that the amount of any reasonably possible or probable loss for known matters would not be material to the company's financial statements[187](index=187&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could materially affect the company's business, financial condition, and results of operations. These risks include those related to international operations, economic and industry-specific volatility, substantial indebtedness, potential goodwill impairment, supply chain dependencies, intense competition, technological changes, and compliance with various regulations [Risks Related to our Business](index=34&type=section&id=Risks%20Related%20to%20our%20Business) The company faces a wide array of business risks, including challenges from international operations (e.g., tariffs, regulatory instability), economic downturns, intense competition in the PCB market, and significant customer concentration. Other key risks involve substantial outstanding debt, potential impairment of goodwill, reliance on suppliers, the need for continuous technological adaptation, and the ability to attract and retain qualified personnel. Compliance with environmental laws, trade regulations, and the integration of acquisitions also pose material risks - The company has significant manufacturing operations and sales offices outside the United States, exposing it to risks such as tariffs, governmental controls, unstable regulatory environments, and fluctuations in local currencies[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - Uncertainty and adverse changes in the economy and financial markets could lead to a significant decline in demand for products and increase the cost of financing[194](index=194&type=chunk) - The company has substantial outstanding indebtedness (**$1.5 billion** as of Sep 30, 2019), which could adversely impact liquidity, flexibility in obtaining additional financing, and ability to fulfill debt obligations[200](index=200&type=chunk) - As of September 30, 2019, the consolidated balance sheet included **$1,101.2 million** of goodwill and definite-lived intangible assets, which are subject to impairment testing and potential non-cash charges to earnings[204](index=204&type=chunk) - The company relies on a relatively small number of OEM customers for a large portion of its sales; one customer accounted for approximately **20%** of net sales for Q3 2019[212](index=212&type=chunk) - The PCB industry is intensely competitive, highly fragmented, and rapidly changing, leading to constant pricing pressure and potential loss of market share[258](index=258&type=chunk)[268](index=268&type=chunk) - The company is subject to anti-corruption, anti-bribery, anti-kickback laws (e.g., FCPA), and export control laws (e.g., ITAR, EAR), with non-compliance potentially leading to fines, penalties, and reputational harm[275](index=275&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk) - Compliance with 'conflict minerals' rules (Dodd-Frank) results in additional costs and expenses for due diligence and potential reputational challenges if origins cannot be verified[294](index=294&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, CEO and CFO certifications (Sarbanes-Oxley Act), and Inline XBRL documents for financial data - Exhibits include the Registrant's Certificate of Incorporation and Bylaws, CEO and CFO Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and Inline XBRL documents[296](index=296&type=chunk) [SIGNATURES](index=54&type=section&id=SIGNATURES) The report is duly signed on November 7, 2019, by Thomas T. Edman, President and Chief Executive Officer, and Todd B. Schull, Executive Vice President and Chief Financial Officer, pursuant to the Securities Exchange Act of 1934 - The report was signed on **November 7, 2019**, by Thomas T. Edman (President and CEO) and Todd B. Schull (Executive Vice President and CFO)[302](index=302&type=chunk)