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What changed in TTM TECHNOLOGIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TTM TECHNOLOGIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+425 added−347 removedSource: 10-K (2023-03-03) vs 10-K (2022-03-01)

Top changes in TTM TECHNOLOGIES INC's 2023 10-K

425 paragraphs added · 347 removed · 278 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

95 edited+58 added−19 removed76 unchanged
Biggest changeThe fast-paced nature of our business requires a disciplined approach to manufacturing that is rooted in continuous improvement. 4 Accelerate customer , end-market , and technology diversification through strategic mergers and acquisitions. We have a history of executing successful acquisitions that have been key to our growth and profitability.
Biggest changeWe strongly believe in the benefits of sharing best practices across our extensive manufacturing footprint and rely on stringent goals for throughput, quality and customer satisfaction to measure our effectiveness. The fast-paced nature of our business requires a disciplined approach to manufacturing that is rooted in continuous improvement. Accelerate customer, end-market, and technology diversification through strategic mergers and acquisitions.
Environmental Protection Agency regulations pertaining to air emissions; waste water discharges; and the use, storage, discharge, and disposal of hazardous chemicals used in the manufacturing processes; the reporting of chemical releases to the environment; and the reporting of chemicals manufactured in by-products that are beneficially recycled; 11 • Department of Homeland Security regulations regarding the storage of certain chemicals of interest; • corresponding state laws and regulations, including site investigation and remediation; • corresponding U.S., county and city agencies; • corresponding regulations and agencies in China for our Chinese facilities; • material content directives and laws that ban or restrict certain hazardous substances in products sold in member states of the European Union, China, and other countries and jurisdictions; • SEC rules that require reporting of the use of certain metals (conflict minerals) originating in the Democratic Republic of the Congo and the 9 countries surrounding it pursuant to Section 1502 of the Dodd-Frank Act; and • reporting requirements of the California Transparency in Supply Chains Act of 2010 that requires reporting on efforts to eradicate slavery and human trafficking in retailers’ and manufacturers’ supply chains.
Environmental Protection Agency regulations pertaining to air emissions; waste water discharges; and the use, storage, discharge, and disposal of hazardous chemicals used in the manufacturing processes; the reporting of chemical releases to the environment; and the reporting of chemicals manufactured in by-products that are beneficially recycled; • Department of Homeland Security regulations regarding the storage of certain chemicals of interest; • corresponding state laws and regulations, including site investigation and remediation; • corresponding U.S., county and city agencies; • corresponding regulations and agencies in China for our Chinese facilities; • material content directives and laws that ban or restrict certain hazardous substances in products sold in member states of the European Union, China, and other countries and jurisdictions; • SEC rules that require reporting of the use of certain metals (conflict minerals) originating in the Democratic Republic of the Congo and the 9 countries surrounding it pursuant to Section 1502 of the Dodd-Frank Act; and • reporting requirements of the California Transparency in Supply Chains Act of 2010 that requires reporting on efforts to eradicate slavery and human trafficking in retailers’ and manufacturers’ supply chains.
We also offer comprehensive benefit plans for eligible employees including mental health, employee assistance program (EAP), telemedicine offerings, several medical and dental plans with qualifying employer funded health savings accounts, life insurance, specialty programs for diabetes and weight loss, wellness challenges, and an on-site health & physical therapy center at our largest U.S. facility. Employee Health & Safety.
We also offer comprehensive benefit plans for eligible employees including mental health, employee assistance program (EAP), telemedicine offerings, several medical and dental plans with qualifying employer-funded health savings accounts, life insurance, specialty programs for diabetes and weight loss, wellness challenges, and an on-site health and physical therapy center at our largest U.S. facility.
We engage in regular talent reviews to calibrate on performance and potential development gaps and progress, and evaluate the depth 12 and strength of our integrated succession plans. Our approach to learning is a continuous one, regardless of experience level or tenure. We extend leadership development programs with individually tailored development plans anchored in dedicated coaching and separate internal mentors.
We engage in regular talent reviews to calibrate on performance, potential, development gaps and progress, and to evaluate the depth and strength of our integrated succession plans. Our approach to learning is a continuous one, regardless of experience level or tenure. We extend leadership development programs with individually tailored development plans anchored in dedicated coaching and separate internal mentors.
The foundation of TTM’s strategic vision is its corporate culture and its way of doing business with integrity, teamwork, clear communication, and performance excellence. We seek to demonstrate the importance we place on these values through our goal setting and performance management process as well as providing ethics training to employees every year.
Commitment to Values and Ethics. The foundation of TTM’s strategic vision is its corporate culture and its way of doing business with integrity, teamwork, clear communication, and performance excellence. We seek to demonstrate the importance we place on these values through our goal setting and performance management process as well as providing ethics training to employees every year.
Our advanced hole fill processes provide methods to allow for vias to be placed inside their respective surface mount pads by filling the vias with a thermoset epoxy and plating flat copper surface mount pads directly over the filled hole. • Advanced materials . We manufacture circuit boards using a wide variety of advanced dielectric materials.
Our advanced hole fill processes provide methods to allow for vias to be placed inside their respective surface mount pads by filling the vias with a thermoset epoxy and plating flat copper surface mount pads directly over the filled hole. 9 • Advanced materials . We manufacture circuit boards using a wide variety of advanced dielectric materials.
Vertical connections between layers are achieved by drilling and plating through small holes, called vias. Vias are made by highly specialized drilling equipment capable of achieving extremely fine tolerances with high accuracy. We specialize in high layer count 7 PCBs with extremely fine geometries and tolerances.
Vertical connections between layers are achieved by drilling and plating through small holes, called vias. Vias are made by highly specialized drilling equipment capable of achieving extremely fine tolerances with high accuracy. We specialize in high layer count PCBs with extremely fine geometries and tolerances.
Maintain our customer-driven culture and provide superior service to our customers in our core markets of aerospace and defense, automotive, data center computing, medical/industrial/instrumentation, and networking/communications. Our customer-oriented culture is designed to achieve extraordinary service, competitive differentiation, and superior execution.
Maintain our customer-driven culture and provide superior service to our customers in our core markets of aerospace and defense, automotive, data center computing, medical/industrial/instrumentation, and networking. Our customer-oriented culture is designed to achieve extraordinary service, competitive differentiation, and superior execution.
This one-stop solution allows us to better serve our customers, many of whom are based in time-critical high growth markets, enabling 10 our customers to reduce the time required to develop new products and bring them to market.
This one-stop solution allows us to better serve our customers, many of whom are based in time-critical high growth markets, enabling our customers to reduce the time required to develop new products and bring them to market.
In the medical end market, remote diagnostic systems and robotics are seeing increasing adoption. In networking/communications, investments in 5G infrastructure and advanced networking are seeing demand for more advanced PCBs, supporting an ever connected world.
In the medical end market, remote diagnostic systems and robotics are seeing increasing adoption. In networking, investments in 5G infrastructure and advanced networking are seeing demand for more advanced PCBs, supporting an ever connected world.
This trend began with PCBs used in portable devices such as smartphones and other mobile devices but has become an increasing trend in other end markets, such as automotive, networking/communications, medical, and aerospace and defense.
This trend began with PCBs used in portable devices such as smartphones and other mobile devices but has become an increasing trend in other end markets, such as automotive, networking, medical, and aerospace and defense.
Our SEC filings are also available to the public at www.sec.gov . Copies are also available without charge by (i) telephonic request by calling our Investor Relations Department at (714) 327-3000, (ii) e-mail request to investor@ttmtech.com, or (iii) a written request to TTM Technologies, Inc., Attention: Investor Relations, 200 East Sandpointe, Suite 400, Santa Ana, CA 92707. 14
Our SEC filings are also available to the public at www.sec.gov . Copies are also available without charge by (i) telephonic request by calling our Investor Relations Department at (714) 327-3000, (ii) e-mail request to investor@ttmtech.com, or (iii) a written request to TTM Technologies, Inc., Attention: Investor Relations, 200 East Sandpointe, Suite 400, Santa Ana, CA 92707. 16
We offer a wide range of PCB and RF products, including HDI PCBs, conventional PCBs, flexible PCBs, rigid-flex PCBs, custom assemblies, passive RF components, advanced ceramic RF components, hi-reliability multi-chip modules, beamforming and switching networks and integrated circuit (IC) substrates. We also offer certain value-added services to support our customers’ needs.
We offer a wide range of engineered systems, passive RF components, advanced ceramic RF components, hi-reliability multi-chip modules, beamforming and switching networks, integrated circuit (IC) substrates and PCB and RF products, including HDI PCBs, conventional PCBs, flexible PCBs, rigid-flex PCBs, and custom assemblies. We also offer certain value-added services to support our customers’ needs.
The primary raw materials we use in RF components, RF subsystems, backplane assemblies and other PCB assemblies are manufactured components such as PCBs, ceramic and ferrite substrates, connectors, capacitors, resistors, diodes and integrated circuits, many of which are custom made and controlled by our customers’ approved vendors.
The primary raw materials we use in engineered systems, RF components, RF subsystems, backplane assemblies and other PCB assemblies are manufactured components such as PCBs, ceramic and ferrite substrates, connectors, capacitors, resistors, diodes and integrated circuits, many of which are custom made and controlled by our customers’ approved vendors.
These include RF design to specification capability, design for manufacturability (DFM), PCB layout design, simulation and testing services, and QTA services. By providing these value-added services to customers, we are able to provide our customers with a “one-stop” manufacturing solution, which we believe enhances our relationships with our customers. Diversified business model.
These include RF design to specification capability, design for manufacturability (DFM), PCB layout design, simulation and testing services, and QTA services. By providing these value-added services to customers, we are able to provide our customers with a “one-stop” technology solution, which we believe enhances our relationships with our customers. Diversified business model.
The aerospace & defense industry in particular provides an opportunity for us as we combine our traditional market strength in core PCB technology with the advanced technologies and RF capabilities we offer for growing requirements in AESA radar systems for defense applications. One-stop solution for customers.
The aerospace & defense industry in particular provides an opportunity for us as we combine our traditional market strength in core PCB technology with the advanced technologies and RF capabilities and engineered systems we offer for growing requirements in both traditional and AESA radar systems for defense applications. One-stop solution for customers.
We report our worldwide operations based on two reportable segments: (1) PCB , which consists of fifteen domestic PCB and sub-system plants; six PCB fabrication plants in China; and one in Canada; and (2) RF&S Components , which consists of one domestic RF component plant and one RF component plant in China.
We report our worldwide operations based on two reportable segments: (1) PCB , which consists of eighteen domestic system, sub-system, and PCB plants; six PCB fabrication plants in China; and one in Canada; and (2) RF&S Components , which consists of one domestic RF component plant and one RF component plant in China.
In addition, in circumstances where our customers require time critical engineering and manufacturing services, we are able to meet our customers’ need with our quick-turn manufacturing capabilities. Our RF Engineering organization principally designs and manufactures state-of-the-art microwave-based hardware for use in advanced radar systems, advanced jamming systems, missiles and decoys, electronic surveillance systems and satellite and ground-based communication systems.
In addition, in circumstances where our customers require time critical engineering and manufacturing services, we are able to meet our customers’ need with our quick-turn manufacturing capabilities. Our Integrated Electronics Manufacturing organization principally designs and manufactures state-of-the-art microwave-based hardware for use in advanced radar systems, advanced jamming systems, missiles and decoys, electronic surveillance systems and satellite and ground-based communication systems.
Our core strategy includes the following elements: Provide differentiated capabilities beyond the base PCB by incorporating advanced design-to-specification engineering support, testing, components and specialized assembly into the value-added package provided to customers.
Our core strategy includes the following elements: Provide differentiated capabilities beyond the base PCB by incorporating advanced design-to-specification engineering support, testing, components and specialized assembly into the value-added solution provided to customers.
Along with supply of traditional and RF PCBs, we offer a variety of RF components and sub-assemblies, as well as our engineering services and assembly capabilities which allow us to bring additional value to our customers.
Along with supply of traditional and RF PCBs, we offer a variety of RF components and sub-assemblies, engineered systems, as well as our engineering services and assembly capabilities which allow us to bring additional value to our customers.
Products and Services We offer a wide range of PCB products, RF components, and backplane/custom assembly solutions, including conventional PCBs, RF and microwave circuits, HDI PCBs, flexible PCBs, rigid-flex PCBs, custom assemblies and system integration, IC substrates, passive RF components, advanced ceramic RF components, hi-reliability multi-chip modules, and beamforming and switching networks.
Products and Services We offer a wide range of engineered systems, RF and microwave assemblies, HDI PCBs, flexible PCBs, rigid-flex PCBs, custom assemblies and system integration, IC substrates, passive RF components, advanced ceramic RF components, hi-reliability multi-chip modules, beamforming and switching networks, PCB products, RF components, and backplane/custom assembly solutions, including conventional PCBs.
The process to manufacture PCBs requires adherence to city, county, state, federal, and foreign environmental laws and regulations regarding the storage, use, handling, and disposal of chemicals, solid wastes and other hazardous materials, as well as compliance with wastewater and air quality standards.
The process to manufacture PCBs and our other products requires adherence to city, county, state, federal, and foreign environmental laws and regulations regarding the storage, use, handling, and disposal of chemicals, solid wastes and other hazardous 13 materials, as well as compliance with wastewater and air quality standards.
Our radar beamforming solutions are realized through internal design, manufacturing and highly automated test processes for circulators, RF distrib ution and manifold assemblies. Automated pick-and-place, surface mount reflow, fully automated visual inspection and automated test stands ensure highly repeatable integrated microwave assembly performance.
Our radar beamforming solutions are realized through internal design, manufacturing and highly automated test processes for circulators, RF distribution and manifold assemblies. Automated pick-and-place, surface mount reflow, fully automated visual inspection and automated test stands ensure highly repeatable integrated microwave assembly performance.
In the design, testing, and launch phase of a new electronic product’s life cycle, our customers typically require limited quantities of PCBs in a very short period of time. We satisfy this need by manufacturing prototype PCBs in small quantities, with delivery times ranging from as little as 24 hours to ten days. • Ramp-to-volume production.
In the design, testing, and launch phase of a new electronic product, our customers typically require limited quantities of PCBs in a very short period of time. We satisfy this need by manufacturing prototype PCBs in small quantities, with delivery times ranging from as little as 24 hours to ten days. • Ramp-to-volume production.
We enjoy a large and diverse customer base with over 1,600 customers, as well as long-term relationships in excess of ten years with our ten largest customers. Furthermore, for fiscal 2021, our five largest customers were not concentrated in any single end market, but rather represented three of our end markets.
We enjoy a large and diverse customer base with over 1,500 customers, as well as long-term relationships in excess of ten years with our ten largest customers. Furthermore, for fiscal 2022, our five largest customers were not concentrated in any single end market, but rather represented three of our end markets.
We have also expanded and continue to develop our existing policies and training against harassment, bullying and the elimination of bias in the workplace. In 2021, we partnered with Morgan State University (A Minority Serving Institution) to extend four TTM scholarships to minority engineering students. We have plans to extend partnerships to additional schools in 2022.
We have also expanded and continue to develop our existing policies and training to address harassment, bullying and the elimination of bias in the workplace. In 2021, we partnered with Morgan State University (A Minority Serving Institution) to extend four TTM scholarships to minority engineering students. We have plans to extend partnerships to additional schools in 2023.
Along with the TTM Values and our Leadership Principles, we discuss and act in accordance with, and provide annual training for, our Code of Conduct (“Code of Conduct”), which outlines our expectations and provides guidance for all employees.
Along with the TTM Values and our Leadership Principles, we discuss and act in accordance with, and provide annual training for, our Code of Conduct, which outlines our expectations and provides guidance for our employees.
Several core manufacturing technology areas include: • Microwave Assembly Technology. Our Microwave product capabilities include simple isolator components for large scale phased array radars to very complex highly integrated Electronic Warfare Line Replaceable Units. All products are designed 8 internally to customer specifications using the latest versions of microwave design and simulation software, coupled with an extensive internal design library.
Our Microwave product capabilities include simple isolator components for large scale phased array radars to very complex highly integrated Electronic Warfare Line Replaceable Units. All products are designed internally to customer specifications using the latest versions of microwave design and simulation software, coupled with an extensive internal design library.
Focused on attractive end markets with a favorable growth outlook and dependence on sophisticated product capabilities. We believe that our global manufacturing footprint and breadth of capabilities enables us to serve multiple key end markets for the PCB industry.
Focused on attractive end markets with a favorable growth outlook and dependence on sophisticated product capabilities. We believe that our global manufacturing footprint and breadth of capabilities enables us to serve multiple key end markets for our technology solutions.
In regards to our RF products, the vast majority are proprietary and protected or covered by approximately forty patents and five currently pending patent applications directed towards products for both the wireless infrastructure and aerospace and defense markets.
In regards to our RF products, the vast majority are proprietary and protected or covered by approximately fifty-eight patents and thirteen currently pending patent applications directed towards products for both the wireless infrastructure and aerospace and defense markets.
Our North America footprint includes facilities from our PCB and RF&S Components reportable segments with sixteen PCB fabrication plants located in California, Colorado, Connecticut, New Hampshire, New York, Ohio, Oregon, Utah, Virginia, Wisconsin, and Ontario, Canada; and one RF component plant located in New York. Our China footprint includes facilities from our PCB and RF&S Components reportable segments.
Our North America footprint includes facilities from our PCB and RF&S Components reportable segments with nineteen PCB fabrication and engineered system plants located in California, Colorado, Connecticut, New Hampshire, New York, North Carolina, Ohio, Oregon, Utah, Virginia, Wisconsin, and Ontario, Canada; and one RF component plant located in New York.
In China, approximately 9,900 employees are members of the All-China Federation of Trade Unions and accordingly are considered to be represented by a labor union. We believe that our relations with both our union and non-union employees are generally satisfactory.
In China, approximately 10,700 employees are members of the All-China Federation of Trade 15 Unions and accordingly are considered to be represented by a labor union. We believe that our relations with both our union and non-union employees are satisfactory.
Customers and Markets Our customers include both OEMs and EMS companies that primarily serve the aerospace and defense, automotive, data center computing, medical/industrial/instrumentation, and networking/communications end markets of the electronics industry. Included in the end markets that our OEM and EMS customers serve is the U.S. government.
Customers and Markets Our customers include end-users, OEMs, EMS providers, ODMs and distributors that primarily serve the aerospace and defense, automotive, data center computing, medical/industrial/instrumentation, and networking end markets of the electronics industry. Included in the end markets that our OEM and EMS customers serve is the U.S. government.
By offering this wide range of PCB products, RF components and sub-systems and complementary value-added services, we are able to provide our customers with a “one-stop” manufacturing solution for their PCB and integration requirements. We believe this differentiates us from our competition and enhances our customer relationships.
By offering this wide range of engineered systems, RF components and sub-systems, PCB products, and complementary value-added services, we are able to provide our customers with a “one-stop” manufacturing solution for their hardware technology and integration requirements. We believe this differentiates us from our competition and enhances our customer relationships. Below we describe our product lines in more detail.
Continuously enhance the elements that make TTM an appealing employer. We aim to attract the right employees to TTM who align with our values and desire growth in their professional careers. Our employee engagement model, emphasis on communications and inclusion, commitment to career development and talent, and collaborative culture are the top reasons employees embrace TTM.
We aim to attract the right employees to TTM who align with our values and desire growth in their professional careers. We believe our employee engagement model, emphasis on communications and inclusion, commitment to career development and talent, and collaborative culture are the top reasons employees embrace TTM.
As our customers consolidate their supply chains, our objective is to differentiate ourselves as a strategic supplier with the technology breadth to meet most, if not all, of our customers’ PCB and RF related requirements. Address customer needs in all stages of the product life cycle.
As our customers consolidate their supply chains, our objective is to differentiate ourselves as a strategic supplier with the technology breadth to meet most, if not all, of our customers’ PCB and RF related requirements.
Each segment operates predominantly in the same industries with facilities that produce customized products for our customers and use similar means of product distribution. Additional information on our reportable segments and product information is contained in Note 17 of the Notes to Consolidated Financial Statements. Industry Overview PCBs are manufactured in panels from sheets of laminated material.
Each segment operates predominantly in the same industries with facilities that produce customized products for our customers and use similar means of product distribution. Additional information on our reportable segments and product information is contained in Note 17 of the Notes to Consolidated Financial Statements.
Each panel is typically subdivided into multiple PCBs, each consisting of a pattern of electrical circuitry etched from copper to provide an electrical connection between the components mounted to it.
PCBs are manufactured in panels from sheets of laminated material. Each panel is typically subdivided into multiple PCBs, each consisting of a pattern of electrical circuitry etched from copper to provide an electrical connection between the components mounted to it.
In addition, most of our markets have low volume requirements during the prototype stage that demand a highly flexible manufacturing environment which later transitions to a higher volume requirement during product ramp. 3 According to estimates in a November 2021 report by Prismark Partners, worldwide demand for PCBs is expected to be $ 80 . 0 billion in 20 2 1 .
In addition, most of our markets have low volume requirements during the prototype stage that demand a highly flexible manufacturing environment which later transition to a higher volume requirement during product ramp. According to estimates in a November 2022 report by Prismark Partners, worldwide demand for PCBs was expected to be $83.3 billion for 2022.
TTM has memberships with external partner organizations to attract diverse talent. Our sites actively participate in campus hiring and job fairs throughout the year, supporting various events within each region and driving recruitment campaigns that leverage our social media platforms; this is in addition to specific campaigns dedicated to diversity and veteran hiring.
Our sites actively participate in campus hiring and job fairs throughout the year, supporting various events within each region and driving recruitment campaigns that leverage our social media platforms; this is in addition to specific campaigns dedicated to diversity and veteran hiring.
The following elements underpin our culture: • Vision – Inspiring innovation as the preeminent technology solutions company, generating industry leading growth and profitability, driven by empowered employees, with an unwavering value system • Mission – Deliver superior value, growth and profit by providing customers with market leading, differentiated solutions and an extraordinary customer experience • The “TTM Values” that apply to all employees are: Integrity, Teamwork, Clear Communication and Performance Excellence. • Our people leaders are guided by our “Leadership Principles” which are: Communications, Collaboration, and Career Development. • “One TTM” – embodies our collective “team” approach to solving problems, working together, robust collaboration, and proactive communication throughout the organization to better serve our customers Commitment to Values and Ethics.
The following elements underpin our culture: • Vision – Inspire innovation as a global preeminent technology solutions company. • Mission – Provide customers with market leading, differentiated solutions and an extraordinary customer experience. • The “TTM Values” that apply to all employees are: Integrity, Teamwork, Clear Communication and Performance Excellence. • Our people leaders are guided by our “Leadership Principles” which are: Communications, Collaboration, and Career Development. • “One TTM” – embodies our collective “team” approach to solving problems, working together, robust collaboration, and proactive communication throughout the organization to better serve our customers.
We serve a diversified customer base consisting of approximately 1,600 customers in various markets throughout the world, including aerospace and defense, data center computing, automotive components, medical, industrial and instrumentation related products, as well as networking/communications infrastructure products. Our customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers.
We serve a diversified customer base consisting of approximately 1,500 customers in various markets throughout the world, including aerospace and defense, data center computing, automotive, medical, industrial and instrumentation, as well as networking and telecommunications. Our customers include original equipment manufacturers (OEMs), electronic manufacturing services (EMS) providers, original design manufacturers (ODMs), distributors and government agencies.
Prototype builds to verify design ensue, along with the early stages of production. As the product then matures from the prototype stage to volume production, we shift our focus to the customers’ procurement departments in order to capture sales at each point in the product’s life cycle.
As the product then matures from the prototype stage to volume production, we shift our focus to the customers’ 10 procurement departments in order to capture sales at each point in the product’s life cycle.
We collectively refer to all of these technologies as “advanced technologies,” and they generally have growth rates which are higher than conventional technologies.
Combined with the engineered systems and assemblies described earlier, we collectively refer to all of these technologies as “advanced technologies,” and they generally have growth rates which are higher than conventional technologies.
Our annual summer technical internship program in North America and now Asia continues to be a success in evaluating technical talent for full time positions. In 2021, we hosted over 100 interns across all of our factories around the globe . Diversity, Equity and Inclusion (DEI).
Our annual summer technical internship program in North America and now Asia continues to be a success in evaluating technical talent for full time positions. In 2022, we hosted over 100 interns in our factories around the globe and have extended offers of employment to most.
Of this worldwide demand for production in 20 2 1 , Prismark Partners reports that PCB production in the Americas accounted for approximately 4 % (approximately $ 3 . 2 billion), PCB production in China accounted for approximately 5 5 % (approximately $ 43.6 billion), and PCB production in the rest of the world accounted for approximately 4 1 % (approximately $ 33 . 2 billion).
Of this worldwide demand for production in 2022, Prismark Partners reports that PCB production in the Americas accounted for approximately 4% (approximately $3.3 billion), PCB production in China accounted for approximately 53% (approximately $44.2 billion), and PCB production in the rest of the world accounted for approximately 43% (approximately $35.8 billion).
As a result, we are a supplier, primarily as a subcontractor, to the U.S. government. See table in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for the percentage of our net sales in each of the principal end markets we served. Sales attributed to OEMs include sales made through EMS providers.
As a result, we are a supplier, primarily as a subcontractor, to the U.S. government. In addition, we also sell direct to government agencies, both domestic and foreign. See table in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for the percentage of our net sales in each of the principal end markets we serve.
IC substrates, also known as chip carriers, are highly miniaturized circuits manufactured by a process largely similar to that for PCBs but requiring the use of ultra-thin materials and including micron-scale features, because they must bridge the gap between sub-micron IC features and millimeter scale PCBs. 6 Consequently, IC substrates are generally manufactured in a clean room environment to ensure products are free of defects and contamination and employ advanced HDI processes and manufacturing approaches used in SLP technology .
IC substrates, also known as chip carriers, are highly miniaturized circuits manufactured by a process largely similar to that for PCBs but requiring the use of ultra-thin materials and including micron-scale features, because they must bridge the gap between sub-micron IC features and millimeter scale PCBs.
For information regarding credit to customers, see Note 11 of the Notes to Consolidated Financial Statements. 9 Suppliers The primary raw materials we use in PCB manufacturing include copper-clad laminate, chemical solutions such as copper and gold for plating operations, photographic film, carbide drill bits, and plastic for testing fixtures.
The primary raw materials we use in PCB manufacturing include copper-clad laminate, chemical solutions such as copper and gold for plating operations, photographic film, carbide drill bits, and plastic for testing fixtures.
We rely on the collective experience of our employees in the manufacturing process to ensure that we continuously evaluate and adopt new technologies available within our industry. In addition, we depend on robust training, recruiting, and retention of our employees, who are required to be knowledgeable in the operation of advanced equipment and complicated manufacturing processes.
In addition, we depend on robust training, recruiting, and retention of our employees, who are required to be knowledgeable in the operation of advanced equipment and complicated manufacturing processes.
To manufacture PCBs, we generally receive circuit designs directly from our customers in the form of computer data files, which we review to ensure data accuracy and product manufacturability.
We believe our technological capabilities allow us to address the needs of manufacturers to bring complicated electronic products to market faster. 8 To manufacture PCBs, we generally receive circuit designs directly from our customers in the form of computer data files, which we review to ensure data accuracy and product manufacturability.
For example, a simple consumer device such as a garage door controller may use a single-sided or double-sided PCB, while a high-end network router or computer server may use a PCB with 30 or more layers. RF and microwave circuits We design, produce, and test specialized circuits and components used in radio-frequency or microwave emission and collection applications.
For example, a simple consumer device such as a garage door controller may use a single-sided or double-sided PCB, while a high-end network router or computer server may use a PCB with 30 or more layers.
Applications such as handheld wireless devices employ microvias to obtain a higher degree of functionality from a given surface area. • Embedded passives. Embedded passive technology involves embedding either capacitive or resistive elements inside the PCB, which allows for removal of passive components from the surface of the PCB and thereby leaves more surface area for active components.
Embedded passive technology involves embedding either capacitive or resistive elements inside the PCB, which allows for removal of passive components from the surface of the PCB and thereby leaves more surface area for active components.
Department of Commerce regulations, including the Export Administration Regulations (EAR) located at 15 CFR Parts 730-744; • Office of Foreign Asset Control (OFAC) regulations located at 31 CFR Parts 500-599; • U.S. Occupational Safety and Health Administration (OSHA), and state OSHA and Department of Labor laws pertaining to health and safety in the workplace; • U.S.
Department of State regulations, including the Arms Export Control Act (AECA) and ITAR located at 22 CFR Parts 120-130; • U.S. Department of Commerce regulations, including the Export Administration Regulations (EAR) located at 15 CFR Parts 730-744; • Office of Foreign Asset Control (OFAC) regulations located at 31 CFR Parts 500-599; • U.S.
The trend in the electronic products industry continues to be to implement and develop means to increase the speed, complexity, and performance of components while reducing their size. We believe our technological capabilities allow us to address the needs of manufacturers to bring complicated electronic products to market faster.
The trend in the electronic products industry continues to be to implement and develop means to increase the speed, complexity, and performance of components while reducing their size.
Tang potentially being deemed to influence the Company to compromise classified information or adversely affect the performance of classified contracts. Other Governmental Regulations Our operations, particularly those in North America, are subject to a broad range of regulatory requirements relating to export control, environmental compliance, waste management, and health and safety matters.
Other Governmental Regulations Our operations, particularly those in North America, are subject to a broad range of regulatory requirements relating to export control, environmental compliance, waste management, and health and safety matters. In particular, we are subject to the following: • U.S.
We review employee turnover rates paying particular attention to supervisor and technical retention. We believe the emphasis we place on selecting, training and coaching supervisors positively impacts their ability to lead people. Our leadership principles of communications, collaboration and career development are designed to improve the employee experience and strengthen working relationships.
We believe the emphasis we place on selecting, training and coaching supervisors positively impacts their ability to lead people. Our leadership principles of communications, collaboration and career development are designed to improve the employee experience and strengthen working relationships. Through internal surveys, it is clear our employees value their relationships with their supervisors, career opportunities and the corporate culture.
Our competition for RF products include Cobham plc, Crane Aerospace & Electronics, Mercury Systems, Inc., RN2 Technologies Co., and Smiths Group plc. We believe that our key competitive strengths include: Leading global PCB manufacturer.
Our competition for RF products and engineered systems include BAE Systems plc, Cobham plc, Crane Aerospace & Electronics, Elta Systems Ltd., Hendsolt AG, Mercury Systems, Inc., RN2 Technologies Co., Selex ES (subsidiary of Leonardo S.p.A.), Smiths Group plc, and Thales Group. We believe that our key competitive strengths include: Leading global technology solutions manufacturer.
Our design to specification capabilities allow us to engage at the onset in the engineering cycle at critical aerospace and defense, automotive, telecommunications, and networking customers as they begin the process of specifying an RF requirement.
Our design-to-specification capabilities allow us to engage at the onset in the engineering cycle at critical aerospace and defense, automotive, telecommunications, and networking customers as they begin the process of specifying system requirements. At that stage, we support our customers by designing a solution as well as providing early prototyping and test support for that solution.
We also offer specialized radio-frequency assembly and test services. We have developed integrated solutions across our facilities and capabilities to provide sophisticated integrated electronics for numerous platforms, ranging from digital RF memory (DRFM) to frequency up/down converters (UDC) and channelized amplifiers for military and space applications.
We have developed integrated solutions across our facilities and capabilities to provide sophisticated integrated electronics for numerous platforms, ranging from digital RF memory (DRFM) to frequency up/down converters (UDC) and channelized amplifiers for military and space applications. Passive RF Components Our line of products consists of off-the-shelf surface mount microwave components which provide passive microwave signal distribution functions.
Although our contractual relationships are with the EMS companies, we typically negotiate price and volume requirements directly with the OEMs. In addition, we are on the approved vendor lists of several of our EMS providers. This positions us to participate in business that is awarded at the discretion of the EMS provider.
Sales attributed to OEMs include sales made through EMS providers and ODMs. Although our contractual relationships are often with the EMS or ODM companies, we typically negotiate price and volume requirements directly with the OEMs. In addition, we are on the approved vendor lists of several of our EMS providers.
Of our employees, approximately 14,600 were involved in manufacturing and engineering, approximately 500 worked in sales and marketing, approximately 300 worked in research and development, and approximately 700 worked in accounting, information systems and other support capacities. Of our 5,200 U.S. employees, none are represented by unions.
Employee Data As of January 2, 2023, we had approximately 17,800 employees. Of our employees, approximately 16,100 were involved in manufacturing and engineering, approximately 500 worked in sales and marketing, approximately 300 worked in research and development, and approximately 900 worked in accounting, information systems and other support capacities. Of our 6,100 U.S. employees, 55 are represented by unions.
We select several employees within each site who are respected, influential and representative of the employee base to serve as change agents. This network discusses and then communicates the key initiatives within the sites in addition to raising employee concerns. Additionally, these teams prioritize site initiatives around community activities, site improvement projects, recognition programs, and new communication methods.
This network discusses and then communicates the key initiatives within the sites in addition to raising employee concerns. Additionally, these teams prioritize site initiatives around community activities, site improvement projects, recognition programs, and new communication methods. We review employee turnover rates paying particular attention to supervisor and technical retention.
The NISPOM requires that a corporation with significant foreign ownership maintaining a facility security clearance take steps to prevent foreign control or influence, referred to as “FOCI.” Pursuant to these laws and regulations, effective October 2010, we entered into a Special Security Agreement (SSA) with the DoD; Su Sih (BVI) Limited, or Su Sih (a foreign owner of our capital stock), and Mr.
The NISPOM requires that a corporation with significant foreign ownership maintaining a facility security clearance take steps to prevent foreign control or influence, referred to as “FOCI.” In February of 2023, our Board of Directors passed a Special Board Resolution (SBR), replacing the Special Security Agreement (SSA) that we entered into with the Defense Counterintelligence and Security Agency (DCSA) in 2010.
Increasing complexity of electronic products, which requires technologically complex PCBs that can accommodate higher speeds and component densities, including HDI, flexible, and substrate-like PCBs as well as intricately engineered RF components and subsystems. Higher demand for reliable product manufactured in the U.S., encompassing better oversight on sub-tier supply chain materials and controls.
These trends include: Increasing complexity of electronic products, which requires technologically complex PCBs that can accommodate higher speeds and component densities, including HDI, flexible, and substrate-like PCBs as well as intricately engineered RF components and subsystems as well as completely designed engineered systems.
Barring end market demand changes, we now tend to experience modest seasonal softness in the first and third quarters due to holidays and vacation periods in China and North America, respectively, which limit production leading to stronger revenue levels in the second and fourth quarters.
Seasonality We tend to experience modest seasonal softness in the first and third quarters due to holidays and vacation periods in China and North America, respectively, which limit production leading to stronger revenue levels in the second and fourth quarters. 12 Intellectual Property Our intellectual property strategy remains deliberate and aimed at protecting the innovations critical to TTM’s business and the success of our customers and partnerships.
For ex ample, the acquisition of Anaren in 2018 added critical RF engineering, simulation and integration capabilities and the acquisition of certain assets of i3 Electronics, Inc. (i3) in 2019 allowed us to broaden our technology portfolio for high mix , low volume advanced technology PCBs.
For example, the acquisition of Anaren in 2018 added critical RF engineering, simulation and integration capabilities, the acquisition of certain assets of i3 Electronics, Inc.
According to the same report by Prismark Partners, worldwide demand for PCBs is forecast to grow at a 8 . 1 % compound annual growth rate (CAGR) from 2020 to 202 5 driven largely by strong electronics systems sales growth and overall average selling price increases .
According to the same report by Prismark Partners, worldwide demand for PCBs is forecast to grow at a 4.6% compound annual growth rate (CAGR) from 2021 to 2026 driven largely by strong demand for multilayer board market and growth of HDI technology and substrates.
We expect to achieve this by servicing our customers’ needs in higher-growth end markets in a cost-efficient and effective manner. We believe that this strategy will allow us to generate strong cash flows, which will provide us with the financial flexibility for continued growth investments and return of capital to shareholders.
We believe that this strategy will allow us to generate strong cash flows, which will provide us with the financial flexibility for continued investments for growth and return of capital to shareholders. 5 Continuously enhance the elements that make TTM an appealing employer.
Our customer-oriented strategies include engaging in co-development of new products, capturing new technology products for next generation equipment, and continuing investments to enhance our broad offering of PCB and RF/microwave technologies. We believe our ability to anticipate and meet customers’ needs is critical to retaining existing customers and attracting leading companies as new customers. Drive operational efficiency and productivity.
Our customer-oriented strategies include engaging in co-development of new products, capturing new technology products for next generation equipment, and continuing investments to enhance our broad offering of PCB and RF/microwave technologies from components through integrated mission systems.
Passive RF Components Our line of products consists of off-the-shelf surface mount microwave components which provide passive microwave signal distribution functions. These products were developed to provide a low-cost high performance signal distribution component, which could be placed on standard printed circuit boards with automated production equipment.
These products were developed to provide a low-cost high performance signal distribution component, which 6 could be placed on standard printed circuit boards with automated production equipment. The primary applications of these products are currently in equipment for cellular base stations and in WLAN, Bluetooth, and satellite television.
We continuously look for strategic opportunities that could facilitate our efforts to further diversify into other growing end markets as well as expand our presence in our existing end markets such as aerospace and defense . We will also look for strategic opportunities that further strengthen our leading - edge technology capabilities.
Now that we have a well-diversified end market mix, our focus is to expand our presence in our existing end markets, particularly aerospace and defense which has long product and program lifetimes. We will also look for strategic opportunities that further strengthen our leading-edge technology capabilities.
We delivered valuable DEI learning sessions to our North America leadership teams in addition to publishing three quarterly internal publications. Employee Engagement & Turnover. We periodically survey our employees and benefit from favorable participation rates to identify and act on specific opportunities to enhance our work environment, improve communications, and strengthen the connection between supervisors and employees.
We periodically survey our employees and benefit from favorable participation rates to identify and act on specific opportunities to enhance our work environment, improve communications, and strengthen the connection between supervisors and employees. In 2022, we deployed a full-scale engagement survey on 14 engagement drivers with 94% participation rate globally.
As our customers consolidate their supply base, we offer the technology breadth and scale to emerge as a preferred partner. Breadth of technology and products.
The PCB industry is highly fragmented with the top 40 PCB providers comprising approximately 75% of market share based on 2021 revenue, according to Prismark Partners. As our customers consolidate their supply base, we offer the technology breadth and scale to emerge as a preferred partner. Breadth of technology and products.
Many end markets that TTM serves have generally seen or otherwise are seeing a renaissance of growth opportunities due to the implementation of sophisticated electronics. In the defense market, solid-state radar systems referred to as active electronic scanned array (AESA) are being adopted in key new defense programs, replacing legacy mechanical systems.
Increasing use of hardware technology solutions in diverse end markets as advanced electronics enable new capabilities. Many end markets that TTM serves have generally seen or otherwise are seeing a renaissance of growth opportunities due to the implementation of sophisticated electronics.
Use of flexible circuitry can enable improved reliability and electrical performance, reduced weight and reduced assembly costs when compared with traditional wire harness or ribbon cable packaging. Flexible PCBs can provide for flexible electronic connectivity of an electrical device’s apparatus such as printer heads, cameras, TVs, mobile handsets, and tablets.
We manufacture circuits on flexible substrates that can be installed in three-dimensional applications for electronic packaging systems. Use of flexible circuitry can enable improved reliability and electrical performance, reduced weight and reduced assembly costs when compared with traditional wire harness or ribbon cable packaging.
We focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design, engineering and manufacturing solution to our customers.
In 2022, we generated approximately $2.5 billion in net sales and ended the year with approximately 17,800 employees worldwide. We currently operate a total of 27 specialized facilities in North America and China. We focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design, engineering and manufacturing solution to our customers.
Our sales and marketing strategy focuses on building long-term relationships with our customers’ engineering and new product introduction personnel early in the product development phase, frequently through strategic account management teams. Traditional build-to-print opportunities involve TTM engineering providing design for manufacture reviews and making recommendations for both manufacturability and cost reductions without impacting specifications.
This positions us to participate in business that is awarded at the discretion of the EMS provider. Our sales and marketing strategy focuses on building long-term relationships with our customers’ engineering and new product introduction personnel early in the product development phase, frequently through strategic account management teams.
We believe that PCB manufacturers which can offer one-stop manufacturing capabilities — from prototype to volume production — and integration capabilities have a competitive advantage in the market. Our Strategy Our continued goal is to be a leading global provider of time-critical, one-stop manufacturing services for highly complex PCBs, RF components and RF subsystems.
We believe that technology solution providers that can offer one-stop manufacturing capabilities — from prototype to volume production — and integration capabilities have a competitive advantage in the market. 4 Our Strategy Our vision is to inspire innovation as a global preeminent technology solutions company.
We typically use just-in-time procurement practices to maintain our raw materials inventory at low levels and work closely with our suppliers to obtain technologically advanced raw materials. In addition, we periodically seek alternative supply sources to ensure that we are receiving competitive pricing and service.
The material for these systems come from a variety of sources, including OEMs and Contract Manufacturers, and are often defined by the end customer. We typically use just-in-time procurement practices to maintain our raw materials inventory at low levels and work closely with our suppliers to obtain technologically advanced raw materials.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRising labor costs and labor shortages, including due to pandemics and other disasters, employee strikes and other labor-related disruptions may materially adversely affect our business, financial condition, and results of operations. Our business is labor intensive, utilizing large numbers of engineering and manufacturing personnel. There is uncertainty with respect to rising labor costs.
Biggest changeFurther, the conflict between Russia and Ukraine described in the previous risk factor, and the effects thereof, may adversely affect our manufacturing facilities and our customers. Rising labor costs and labor shortages, including due to pandemics and other disasters, employee strikes and other labor-related disruptions may materially adversely affect our business, financial condition, and results of operations.
In addition, we are subject to risks relating to significant international operations, including but not limited to: • managing international operations; • imposition of governmental controls; • unstable regulatory environments; • compliance with employment laws; • implementation of disclosure controls, internal controls, financial reporting systems, and governance standards to comply with U.S. accounting and securities laws and regulations; • limitations on imports or exports of our product offerings; • fluctuations in the value of local currencies; • inflation or changes in political and economic conditions; • public health crises, such as the COVID-19 pandemic; • labor unrest, rising wages, difficulties in staffing, and geographical labor shortages; • government or political unrest; • conflict or war between nations over territory that impacts the electronics supply chain leading to potential trade restrictions to and from the nations involved, including Russia, Ukraine and China; • longer payment cycles; • language and communication barriers, as well as time zone differences; • cultural differences; • increases in duties and taxation levied on our products; • other potentially adverse tax consequences; • imposition of restrictions on currency conversion or the transfer of funds; • travel restrictions; • expropriation of private enterprises; • the potential reversal of current favorable policies encouraging foreign investment and trade; • the potential for strained trade relationships between the United States and its trading partners, including trade tariffs which could create competitive pricing risk; and • government imposed sanction laws and regulations.
In addition, we are subject to risks relating to significant international operations, including but not limited to: • managing international operations; • imposition of governmental controls; • unstable regulatory environments; • compliance with employment laws; • implementation of disclosure controls, internal controls, financial reporting systems, and governance standards to comply with U.S. accounting and securities laws and regulations; • limitations on imports or exports of our product offerings; • fluctuations in the value of local currencies; • inflation or changes in political and economic conditions; • public health crises, such as the COVID-19 pandemic; • labor unrest, rising wages, difficulties in staffing, and geographical labor shortages; • government or political unrest; • conflict or war between nations over territory that impacts the electronics supply chain leading to potential trade restrictions to and from the nations involved, including Russia, Ukraine and China; • longer payment cycles; • language and communication barriers, as well as time zone differences; • cultural differences; • increases in duties and taxation levied on our products; • other potentially adverse tax consequences; • imposition of restrictions on currency conversion or the transfer of funds; • travel restrictions; 19 • expropriation of private enterprises; • the potential reversal of current favorable policies encouraging foreign investment and trade; • the potential for strained trade relationships between the United States and its trading partners, including trade tariffs which could create competitive pricing risk; and • government imposed sanction laws and regulations.
These impacts include but are not limited to: • failure of third parties on which we rely, including, without limitation, our suppliers, commercial banks, and other external business partners, to meet their obligations to us, caused by significant disruptions in their ability to do so or their own financial or operational difficulties; • supply chain risks such as disruptions of supply chains, excess demand on suppliers, and scrutiny or embargoing of goods produced in infected areas; • reduced workforces and labor shortages at all levels of our organization, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates and incentives; • temporary business closures due to reduced workforces or government mandates; • reduced demand for our products and services caused by, but not limited to, the effect of quarantine or other travel restrictions or financial hardship on the businesses in the industries we service; • restrictions to our business as a result of federal or state laws, regulations, orders or other governmental or regulatory actions, if adopted; or • lawsuits from employees and others exposed to COVID-19 at our facilities, which may involve large demands or substantial defense costs that our professional and general liability insurance may not cover.
These impacts include but are not limited to: • failure of third parties on which we rely, including, without limitation, our suppliers, commercial banks, and other external business partners, to meet their obligations to us, caused by significant disruptions in their ability to do so or their own financial or operational difficulties; • supply chain risks such as disruptions of supply chains, excess demand on suppliers, and scrutiny or embargoing of goods produced in infected areas; • reduced workforces and labor shortages at all levels of our organization, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, lockdowns, quarantine, or government mandates and incentives; 17 • temporary business closures due to reduced workforces or government mandates; • reduced demand for our products and services caused by, but not limited to, the effect of quarantine or other travel restrictions or financial hardship on our workforce, the businesses in the industries we service; • restrictions to our business as a result of federal or state laws, regulations, orders or other governmental or regulatory actions, if adopted; or • lawsuits from employees and others exposed to COVID-19 at our facilities, which may involve large demands or substantial defense costs that our professional and general liability insurance may not cover.
If we are found to be liable for violations of the FCPA or similar anti-corruption, anti-bribery, or anti-kickback laws 27 in international jurisdictions or for violations of ITAR, EAR, or other similar regulations regarding trades and exports, either due to our own acts or out of inadvertence, or due to the inadvertence of others, we could suffer criminal or civil fines or penalties or other repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations .
If we are found to be liable for violations of the FCPA or similar anti-corruption, anti-bribery, or anti-kickback laws in international jurisdictions or for violations of ITAR, EAR, or other similar regulations regarding trades and exports, either due to our own acts or out of inadvertence, or due to the inadvertence of others, we could suffer criminal or civil fines or penalties or other repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations.
The capital expenditure costs expected for environmental improvement initiatives are included in our annual capital expenditure projections. Our international sales are subject to laws and regulations relating to corrupt practices, trade, and export controls and economic sanctions. Any non-compliance could have a material adverse effect on our business, financial condition, and results of operations.
The capital expenditure costs expected for environmental improvement initiatives are included in our annual capital expenditure projections. 29 Our international sales are subject to laws and regulations relating to corrupt practices, trade, and export controls and economic sanctions. Any non-compliance could have a material adverse effect on our business, financial condition, and results of operations.
The termination or failure to fund one or more significant defense programs or contracts by the U.S. government could have a material adverse effect on our business, financial condition, and results of operations. Future changes to the U.S. Munitions List could reduce or eliminate restrictions that currently apply to some of the products we produce.
The termination or 23 failure to fund one or more significant defense programs or contracts by the U.S. government could have a material adverse effect on our business, financial condition, and results of operations. Future changes to the U.S. Munitions List could reduce or eliminate restrictions that currently apply to some of the products we produce.
If sales of automobiles should decline or go into a cyclical downturn, our sales could decline and this could have a materially adverse impact on our business, financial condition and result of operations. For safety reasons, automotive customers have strict quality standards that generally exceed the quality requirements of other customers.
If sales of automobiles should decline or go into a cyclical downturn, 22 our sales could decline, and this could have a materially adverse impact on our business, financial condition, and result of operations. For safety reasons, automotive customers have strict quality standards that generally exceed the quality requirements of other customers.
Because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become 26 contaminated.
Because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated.
Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.
Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct 27 legal entity, and under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness, which could in turn result in an event of default on such indebtedness; • require us to use a substantial portion of our cash flow from operations for debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions and other general corporate purposes; • impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other investments or general corporate purposes, which may limit our ability to execute our business strategy; • diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally and restrict us from exploiting business opportunities or making acquisitions; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or the general economy; • increase our vulnerability to general adverse economic and industry conditions, including movements in interest rates, which could result in increased borrowing costs; • limit management’s discretion in operating our business; and • place us at a competitive disadvantage as compared to our competitors that have less debt as it could limit our ability to capitalize on future business opportunities and to react to competitive pressures or adverse changes.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness, which could in turn result in an event of default on such indebtedness; • require us to use a substantial portion of our cash flow from operations for debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions and other general corporate purposes; 26 • impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other investments or general corporate purposes, which may limit our ability to execute our business strategy; • diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally and restrict us from exploiting business opportunities or making acquisitions; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or the general economy; • increase our vulnerability to general adverse economic and industry conditions, including increases in interest rates, that result in increased borrowing costs; • limit management’s discretion in operating our business; and • place us at a competitive disadvantage as compared to our competitors that have less debt as it could limit our ability to capitalize on future business opportunities and to react to competitive pressures or adverse changes.
Due to the uncertainty in the end markets served by most of our customers, we have a low level of visibility with respect to future financial results. Consequently, our past operating results, earnings, and cash flows may not be indicative of our future operating results, earnings, and cash flows.
Due to the uncertainty in the end markets served by most of our customers, we have a low level of visibility with respect to 21 future financial results. Consequently, our past operating results, earnings, and cash flows may not be indicative of our future operating results, earnings, and cash flows.
These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Superfund Amendment and Reauthorization Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and the Federal Motor Carrier Safety Improvement Act, as well as analogous state, local, and foreign laws.
These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery 28 Act, the Superfund Amendment and Reauthorization Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and the Federal Motor Carrier Safety Improvement Act, as well as analogous state, local, and foreign laws.
If any claims, regardless of whether they have merit, are brought against our customers for such infringement, we could be required to expend significant resources in defending such claims, developing non-infringing alternatives or obtaining licenses.
If any claims, regardless of whether they have merit, are brought against our customers for such infringement, we could be required to expend significant resources 25 in defending such claims, developing non-infringing alternatives, or obtaining licenses.
If one or more of our 21 significant customers were to become insolvent or were otherwise unable to pay us, our business, financial condition, and results of operations would be materially adversely affected . Our business, financial condition, and results of operations could be materially adversely affected by climate change initiatives.
If one or more of our significant customers were to become insolvent or were otherwise unable to pay us, our business, financial condition, and results of operations would be materially adversely affected. Our business, financial condition, and results of operations could be materially adversely affected by climate change initiatives.
In addition, in the ordinary course of our business, we collect and store sensitive data in our data centers 28 and on our networks, including intellectual property, our proprietary and confidential business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees.
In addition, in the ordinary course of our business, we collect and store sensitive data in our data centers and on our networks, including intellectual property, our proprietary and confidential business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees.
Uncertainty or adverse changes in the economy could lead to a significant decline in demand for the end products manufactured by our customers, which, in turn, could result in a decline in the demand for our products and increase pressure to reduce our prices.
Uncertainty, volatility or adverse changes in the economy could lead to a significant decline in demand for the end products manufactured by our customers, which, in turn, could result in a decline in the demand for our products and increase pressure to reduce our prices.
Risks related to such activities may include: • the potential inability to successfully integrate acquired operations and businesses or to realize anticipated synergies, economies of scale, or other expected value; • diversion of management’s attention from normal daily operations of our existing business to focus on integration of the newly acquired business; • unforeseen expenses associated with the integration of the newly acquired business or assets; • difficulties in managing production and coordinating operations at new sites; • the potential loss of key employees of acquired or divested operations; • the potential inability to retain existing customers of acquired companies when we desire to do so; • insufficient revenues to offset increased expenses associated with acquisitions; • the potential decrease in overall gross margins associated with acquiring a business with a different product mix; • the inability to identify certain unrecorded liabilities; • the inability to consummate a potential divestiture due to regulatory constraints; • the separation of business infrastructure involved in a potential divestiture may create disruption in our business; • the tax burden related to the divestiture may be larger than expected; • the potential divestiture of assets or product lines could create dis-synergies and change our profitability; 18 • the potential need to restructure, modify, or terminate customer relationships of the acquired or divested assets or company; • an increased concentration of business from existing or new customers; and • the potential inability to identify assets best suited to our business plan.
Risks related to such activities and transactions may include: • the potential inability to successfully integrate acquired operations and businesses or to realize anticipated synergies, economies of scale, or other expected value; • diversion of management’s attention from normal daily operations of our existing business to focus on integration of the newly acquired business; • unforeseen expenses associated with the integration of the newly acquired business or assets; • difficulties in managing production and coordinating operations at new sites; • the potential loss of key employees of acquired or divested operations; • the potential inability to retain existing customers of acquired companies when we desire to do so; • insufficient revenues to offset increased expenses associated with acquisitions; • the potential decrease in overall gross margins associated with acquiring a business with a different product mix; • the inability to identify certain unrecorded liabilities; • the inability to consummate a potential divestiture due to regulatory constraints or other closing conditions; • the separation of business infrastructure involved in a potential divestiture may create disruption in our business; • the tax burden related to the divestiture may be larger than expected; • the potential divestiture of assets or product lines could create dis-synergies and change our profitability; • the potential need to restructure, modify, or terminate customer relationships of the acquired or divested assets or company; • an increased concentration of business from existing or new customers; and • the potential inability to identify assets best suited to our business plan.
A significant portion of our operating expenses is relatively fixed in nature, and planned expenditures are based in part on anticipated orders. Accordingly, unexpected revenue shortfalls may decrease our gross margins.
A significant portion of our operating expenses are relatively fixed in nature, and planned expenditures are based in part on anticipated orders. Accordingly, unexpected revenue shortfalls may decrease our gross margins.
We may 23 also have limited legal recourse in the event we encounter patent or trademark infringement. Uncertainties with respect to the Chinese legal system may adversely affect the operations of our Chinese subsidiaries.
We may also have limited legal recourse in the event we encounter patent or trademark infringement. Uncertainties with respect to the Chinese legal system may adversely affect the operations of our Chinese subsidiaries.
In this competitive environment, our business could be adversely impacted by increases in labor costs, which could include increases in wages and benefits necessary to attract and retain high quality employees with the right skill sets, increases triggered by regulatory actions regarding wages, scheduling and benefits; increases in health care and workers’ compensation insurance costs; and increases in benefits and costs related to the COVID-19 pandemic and its resurgence.
In this competitive environment, our business could be adversely impacted by increases in labor costs, which could include increases in wages and benefits necessary to attract and retain high quality employees with the right skill sets, increases triggered by regulatory actions regarding wages, scheduling, and benefits; increases in health care and workers’ compensation insurance costs; and increases in benefits and costs related to the COVID-19 pandemic and its resurgence from time to time.
If we were to violate the terms and requirements of the SSA, the NISPOM, or any other applicable U.S. government industrial security regulations (which may apply to us under the terms of classified contracts), we could lose our security clearance. We cannot be certain that we will be able to maintain our security clearance.
If we were to violate the terms and requirements of the SBR, the NISPOM, or any other applicable U.S. government industrial security regulations (which may apply to us under the terms of classified contracts), we could lose our security clearance. We cannot be certain that we will be able to maintain our security clearance.
The process to manufacture PCBs requires adherence to city, county, state, federal, and foreign environmental laws and regulations regarding the storage, use, handling, and disposal of chemicals, solid wastes, and other hazardous materials, as well as compliance with wastewater and air quality standards.
The process to manufacture PCBs and our other products requires adherence to city, county, state, federal, and foreign environmental laws and regulations regarding the storage, use, handling, and disposal of chemicals, solid wastes, and other hazardous materials, as well as compliance with wastewater and air quality standards.
In addition, the indenture governing the Senior Notes due 2029, and the credit agreements governing the Term Loan Facility, the U.S. ABL and the Asia ABL contain restrictive covenants that will limit our ability to engage in activities that may be in our long- 24 term best interest.
In addition, the indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility, the U.S. ABL and the Asia ABL contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest.
ITEM 1A. RIS K FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the factors described below, in addition to those discussed elsewhere in this report, in analyzing an investment in our common stock.
ITEM 1A. RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the factors described below, in addition to those discussed elsewhere in this report, in analyzing an investment in our common stock.
We maintain $405.9 million outstanding in a Term Loan Facility due 2024 (Term Loan Facility) at a floating rate of LIBOR plus 2.5%, $500.0 million of Senior Notes due 2029 (Senior Notes due 2029) at an interest rate of 4.0%, and $30.0 million outstanding under a $150.0 million Asia Asset-Based Lending Credit Agreement (Asia ABL).
As of January 2, 2023, we maintain $405.9 million outstanding in a Term Loan Facility due 2024 (Term Loan Facility) at a floating rate of LIBOR plus 2.5%, $500.0 million of Senior Notes due 2029 (Senior Notes due 2029) at an interest rate of 4.0%, and $30.0 million outstanding under a $150.0 million Asia Asset-Based Lending Credit Agreement (Asia ABL).
Risks Related to our Business We serve customers and have manufacturing facilities throughout the world and are subject to risks caused by local and global pandemics and other similar risks, including without limitation, the COVID-19 pandemic, which could materially adversely affect our business, financial condition, and results of operations.
We serve customers and have manufacturing facilities throughout the world and are subject to risks caused by local and global pandemics and other similar risks, including without limitation, the on-going COVID-19 pandemic, which could materially adversely affect our business, financial condition, and results of operations.
Our business also depends on our continuing ability to recruit, train, and retain highly qualified employees, particularly engineering and sales and marketing personnel. The competition for these employees is intense, and the loss of these employees could harm our business. In addition, our industry experienced in 2021, and continues to experience, a shortage of workers.
Our business also depends on our continuing ability to recruit, train, and retain highly qualified employees, particularly engineering and sales and marketing personnel. The competition for these employees is intense, and the loss of these employees could harm our business. 20 In addition, our industry continues to experience, a shortage of workers.
Our business is capital-intensive, and our ability to increase revenue, profit, and cash flow depends upon continued capital spending. To the extent that the funds generated by our ongoing operations are insufficient to cover our liquidity requirements, we may need to raise additional funds through financings.
Our business is capital-intensive, and our ability to increase revenue, profit, and cash flow depends upon continued capital spending. To the extent that the funds generated by our on-going operations are insufficient to cover our liquidity requirements, we may need to raise additional funds through financings.
For example, in 2022 in our PCB segment, we expect to continue to make significant capital expenditures to expand our HDI, RF technology, and other advanced manufacturing capabilities while in our RF&S Components segment, we are designing products that we hope our customers adopt and incorporate into their products.
For example, in 2023 in our PCB segment, we expect to continue to make capital expenditures to expand our HDI, RF technology, and other advanced manufacturing capabilities while in our RF&S Components segment, we are designing products that we hope our customers adopt and incorporate into their products.
Regulatory Risks Because of power shortages in China, we may have to temporarily close our China operations, which would adversely impact our ability to manufacture our products, meet customer orders, and result in reduced revenues. China is currently facing a growing power supply shortage. Instability in electrical supply can cause sporadic outages among residential and commercial consumers.
Regulatory Risks Because of periodic power shortages in China, we may have to temporarily close our China operations, which would adversely impact our ability to manufacture our products, meet customer orders, and result in reduced revenues. China is facing a generally persistent and growing power supply shortage. Instability in electrical supply can cause sporadic outages among residential and commercial consumers.
As a result, the Chinese government is implementing power restrictions to ease the energy shortage. If we are required to make temporary closures of our facilities in China at any time, we may be unable to manufacture our products, and would then be unable to meet customer orders except from inventory on hand.
As a result, the Chinese government from time to time has implemented power restrictions to ease the energy shortage. If we are required to make temporary closures of our facilities in China at any time, we may be unable to manufacture our products, and would then be unable to meet customer orders except from inventory on hand.
If such funds are not available to us when required or on acceptable terms, our business, financial condition, and results of operations could be materially adversely affected. Outages, computer viruses, break-ins, and similar events could disrupt our operations, and breaches of our security systems may cause us to incur significant legal and financial exposure.
If such funds are not available to us when required or on acceptable terms, our business, financial condition, and results of operations could be materially adversely affected. Outages, computer viruses, cyber-attacks, and similar events could disrupt our operations, and breaches of our security systems may cause us to incur significant legal and financial exposure.
In light of the current challenging labor market conditions, due in part to the COVID-19 pandemic, our wages and benefits programs and any steps we take to increase our wages and benefits, may be insufficient to attract and retain talent at all levels of our organization.
In light of the current challenging labor market conditions, due in part to the on-going effects from COVID-19 pandemic, our wages and benefits programs and any steps we take to increase our wages and benefits, may be insufficient to attract and retain talent at all levels of our organization.
A majority of our revenue is generated from the electronics industry, which is characterized by intense competition, relatively short product life cycles, and significant fluctuations in product demand. The industry is subject to economic cycles and recessionary periods.
The worldwide electronics industry is intensely competitive and volatile. A majority of our revenue is generated from the electronics industry, which is characterized by intense competition, relatively short product life cycles, and significant fluctuations in product demand. The industry is subject to economic cycles and recessionary periods.
In addition, general labor shortages (such as occurred during 2021), a high turnover rate and our 16 difficulty in recruiting and retaining qualified employees at any level of our organization could result in a potential for defects in our products, production disruptions or delays, or the inability to ramp production to meet increased customer orders, resulting in order cancellation or imposition of customer penalties if we are unable to deliver products in a timely manner .
In addition, general labor shortages (which occurred during 2021 and that continued in 2022), a high turnover rate and our difficulty in recruiting and retaining qualified employees at any level of our organization could result in a potential for defects in our products, production disruptions or delays, or the inability to ramp production to meet increased customer orders, resulting in order cancellation or imposition of customer penalties if we are unable to deliver products in a timely manner.
Sales to EMS companies represented approximately 38%, 37% and 36% of our net sales for the years ended January 3, 2022, December 28, 2020, and December 30, 2019, respectively. Sales to EMS providers include sales directed by OEMs as well as orders placed with us at the EMS providers’ discretion.
Sales to EMS companies represented approximately 37%, 38% and 37% of our net sales for the years ended January 2, 2023, January 3, 2022 and December 28, 2020, respectively. Sales to EMS providers include sales directed by OEMs as well as orders placed with us at the EMS providers’ discretion.
Additionally, our OEM customers often direct a significant portion of their purchases through a relatively limited number of EMS companies. Sales to EMS companies represented approximately 38%, 37% and 36% of our net sales for the years ended January 3, 2022, December 28, 2020, and December 30, 2019, respectively.
Additionally, our OEM customers often direct a significant portion of their purchases through a relatively limited number of EMS companies. Sales to EMS companies represented approximately 37%, 38% and 37% of our net sales for the years ended January 2, 2023, January 3, 2022 and December 28, 2020, respectively.
Although we believe this shortage is due, in part, to the COVID-19 pandemic, the shortage may be systemic and may continue after the pandemic ends. We rely on maintaining a sufficient workforce at all levels of our organization to design, manufacture and distribute our products.
Although we believe this shortage is due, in part, to on-going repercussions of the COVID-19 pandemic, the shortage may prove to be systemic. We rely on maintaining a sufficient workforce at all levels of our organization to design, manufacture and distribute our products.
Acquisitions may cause us to: • enter lines of business and/or markets in which we have limited or no prior experience; • issue debt and be required to abide by stringent loan covenants; • assume liabilities; • record goodwill and intangible assets that will be subject to impairment testing and potential periodic impairment charges; • become subject to litigation and environmental issues, which include product material content certifications related to conflict minerals; • incur unanticipated costs; • incur large and immediate write-offs; and • incur substantial transaction-related costs, whether or not a proposed acquisition is consummated.
Acquisitions may cause us to: • enter lines of business and/or markets in which we have limited or no prior experience; • issue debt and be required to abide by stringent loan covenants; • assume liabilities; • record goodwill and intangible assets that will be subject to impairment testing and potential periodic impairment charges; • become subject to litigation and environmental issues, which include product material content certifications related to conflict minerals; • incur unanticipated costs and expenses, including with respect to our compliance obligations under U.S. federal securities laws; • incur large and immediate write-offs; and • incur substantial transaction-related costs, whether or not a proposed acquisition is consummated.
We may not respond effectively to the technological requirements of the changing market. If we need new technologies and equipment or if we are not able to design new products acceptable to customers to remain competitive, the development, acquisition, and implementation of those designs, technologies and equipment may require us to make significant capital investments .
If we need new technologies and equipment or if we are not able to design new products acceptable to customers to remain competitive, the development, acquisition, and implementation of those designs, technologies and equipment may require us to make significant capital investments.
Our five largest OEM customers accounted for approximately 30%, 29% and 27% of our net sales for the years ended January 3, 2022, December 28, 2020, and December 30, 2019, respectively, and one customer represented 10% of our net sales for the year ended January 3, 2022.
Our five largest OEM customers collectively accounted for approximately 33%, 30% and 29% of our net sales for the years ended January 2, 2023, January 3, 2022 and December 28, 2020, respectively, and one customer represented 10% of our net sales for the year ended January 2, 2023.
While we strive to manage these challenges, there can be no assurance that our efforts will succeed which would result in higher costs and lower profits. The competition for talent and labor in general is currently extremely high.
Further, we are experiencing rising health care costs. While we strive to manage these challenges, there can be no assurance that our efforts will succeed which would result in higher costs and lower profits. The competition for talent and labor in North America and in general is currently extremely high.
For the year ended January 3, 2022, aerospace and defense sales accounted for approximately 33% of our total net sales. The substantial majority of aerospace and defense sales are related to both U.S. and foreign military and defense programs.
For the year ended January 2, 2023, aerospace and defense sales accounted for approximately 35% of our total net sales. The substantial majority of aerospace and defense sales are related to both U.S. and foreign military and defense programs.
Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions, which could materially adversely affect our business, financial condition, and results of operations. 29
Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions, which could materially adversely affect our business, financial condition, and results of operations. ITEM 1B. UNRESOLVE D STAFF COMMENTS None. 32
For the year ended January 3, 2022, we generated approximately 56% of our net sales from non-U.S. operations, and a significant portion of our manufacturing material was provided by international suppliers during this period.
In addition, for the year ended January 2, 2023, we generated approximately 54% of our net sales from non-U.S. operations, and a significant portion of our manufacturing material was provided by international suppliers during this period.
If raw material and component prices increase or if there is inflationary pressure on the cost of the metals that we use to produce our product, especially if the prices of copper, gold, palladium and other precious metals we use to manufacture our products increase, it may reduce our gross margins.
If raw material and component prices remain elevated and the cost of the metals that we use to produce our product, especially if the prices of copper, gold, tin, palladium, and other precious metals we use to manufacture our products remain elevated or otherwise continue to increase, it may reduce our gross margins.
A significant portion of our revenues is derived from products and services that are ultimately sold to the U.S. government by our OEM and EMS customers and is therefore affected by, among other things, the federal government budget process.
A significant portion of our revenues is derived from products and services that are ultimately sold to the U.S. government by our OEM and EMS customers and is therefore affected by, among other things, the federal government budget process. We supply to defense prime companies, the U.S. government and its agencies, as well as foreign governments and agencies.
The ultimate impact of new variants, such as the Delta variant and Omicron variant, or other variants that may emerge, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines, and the response by governmental bodies to reinstate restrictive measures.
The ultimate impact of new variants that have emerged from time to time, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines, and the responses by governmental bodies to impose or reinstate restrictive measures from time to time.
Suppliers and equipment manufacturers may be impacted by other events outside our control including macro-economic events, financial instability, environmental occurrences, or supplier interruptions due to fire, natural catastrophes, p ublic health crises (including the on-going COVID-19 pandemic which contributed to supply chain constraints during 2021 ) or otherwise.
Suppliers and equipment manufacturers may be impacted by other events outside our control including macro-economic events, financial instability, environmental occurrences, or supplier interruptions due to fire, natural catastrophes, public health crises or otherwise. Several of these factors, including the on-going COVID-19 pandemic, have contributed to supply chain constraints we continue to experience.
Other Risks We may need additional capital in the future to fund investments in our operations, refinance our indebtedness, and to maintain and grow our business, and such capital may not be available on a timely basis, on acceptable terms, or at all.
We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. 30 Other Risks We may need additional capital in the future to fund investments in our operations, refinance our indebtedness, and to maintain and grow our business, and such capital may not be available on a timely basis, on acceptable terms, or at all.
We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt.
Given that our Asia ABL and our Term Loan Facility matures on June 2024 and September 2024, respectively, we cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt.
To manufacture PCBs, we use raw materials such as laminated layers of fiberglass, copper foil, chemical solutions, gold, copper, and other commodity products, which we order from our suppliers. For RF components, we use various high-performance materials such as ceramics and printed circuit board materials.
To manufacture PCBs, we use raw materials such as laminated layers of fiberglass, copper foil, chemical solutions, gold, copper, and other commodity products, which we order from our suppliers.
Our effective tax rates could be materially adversely affected by changes in the mix of earnings in countries and states with differing statutory tax rates, changes in the valuation of deferred income tax assets and liabilities, changes in tax laws, as well as other factors.
Our effective tax rates could be materially adversely affected by changes in the mix of earnings in countries and states with differing statutory tax rates, changes in the valuation of deferred income tax assets and liabilities, changes in tax laws or regulations such as those proposed by the Organization for Economic Co-operation and Development (OECD), as well as other factors.
Any increase in labor costs due to minimum wage laws or customer requirements about scheduling and overtime that we are unable to recover in our pricing to our customers could materially adversely affect our business, financial condition, and results of operations.
In some cases, employers have responded by significantly increasing the wages of workers at such plants. Any increase in labor costs due to minimum wage laws or customer requirements about scheduling and overtime that we are unable to recover in our pricing to our customers could materially adversely affect our business, financial condition, and results of operations.
If our goodwill or other intangible assets become impaired in the future, we would be required to record a non-cash charge to earnings, which may be material and would also reduce our stockholders’ equity. As of January 3, 2022, our consolidated balance sheet included $877.2 million of goodwill and definite-lived intangible assets.
We have a significant amount of goodwill and other intangible assets on our consolidated 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.
These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. Servicing our debt requires a significant amount of cash and we may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
Servicing our debt requires a significant amount of cash and we may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
As part of our business strategy, we expect that we will continue to implement and align our strategy by pursuing potential divestitures of assets and acquisitions of businesses, technologies, assets, or product lines that complement or expand our business.
As part of our business strategy, we expect that we will continue to implement and align our strategy by pursuing potential divestitures of assets and acquisitions of businesses, technologies, assets, or product lines that complement or expand our business, such as our acquisition of Gritel Holding Co., Inc. (Gritel) and ISC Farmingdale Corp. in June 2022.
If we conclude we have significant, long-term excess capacity, we may decide to permanently close one or more of our facilities and lay off some of our employees.
If we conclude we have significant, long-term excess capacity, we may decide to permanently close one or more of our facilities and lay off some of our employees, such as our decision announced in February 2023 to close certain facilities in Hong Kong and California.
We and a number of our direct and indirect subsidiaries also have various credit facilities and letters of credit. Such agreements also contain certain financial covenants which require us to maintain, under the occurrence of certain events, a consolidated fixed charge coverage ratio. Subject to the limits contained in the credit agreements governing the Term Loan Facility, the U.S.
Such agreements also contain certain financial covenants which require us to maintain, under the occurrence of certain events, a consolidated fixed charge coverage ratio. Subject to the limits contained in the credit agreements governing the Term Loan Facility, the U.S. Asset-Based Lending Credit Agreement (U.S.
We cannot assure investors that we will realize the anticipated strategic benefits of our international operations or that our international operations will contribute positively to our operating results. In North America, we are experiencing wage inflation pressures, some of which are mandated by local and state governments. Further, we are experiencing rising health care costs.
We cannot assure investors that we will realize the anticipated strategic benefits of our international operations, including our new plant, or that our international operations will contribute positively to our operating results. In North America, we are experiencing wage inflation pressures, as a result of labor shortages, and certain pressures which are also mandated by local and state governments.
Our failure to comply with the requirements of environmental laws could result in litigation, fines, revocation of permits necessary to our manufacturing processes, or debarment from our participation in federal government contracts.
These uncertainties could limit the legal protections available to us and adversely impact our results of operations. Our failure to comply with the requirements of environmental laws could result in litigation, fines, revocation of permits necessary to our manufacturing processes, or debarment from our participation in federal government contracts.
Closures or lay-offs could result in our recording 19 restructuring charges such as severance, other exit costs, and asset impairments, as well as potentially causing disruptions in our ability to supply customers . We have a significant amount of goodwill and other intangible assets on our consolidated balance sheet.
Closures or lay-offs could result in our recording restructuring charges such as severance, other exit costs, and asset impairments, as well as potentially causing disruptions in our ability to supply customers.
No assurance can be given, however, that the government of China will continue to pursue such policies, that such policies will be successful if pursued, or that such policies will not be significantly altered from time to time, particularly in light of the increasingly tense trade climate with the United States.
No assurance can be given that the government of China will continue to pursue policies that allow for open trade with foreign countries, that such policies will be successful if pursued, or that such policies will not be significantly altered from time to time, particularly in light of the trade and travel restrictions that the United States and China have implemented in recent months.
As we continue to experience growth in the scope and complexity of our operations, we may be required to implement additional operating and financial controls and hire and train additional personnel.
In addition, unforeseen issues might arise with respect to such products after any such acquisition. 18 As we continue to experience growth in the scope and complexity of our operations, we may be required to implement additional operating and financial controls and hire and train additional personnel.
As a result, we could lose sales, adversely impacting our revenues, and our relationships with our customers could suffer, impacting our ability to generate future sales. 25 We are subject to the requirements of the National Industrial Security Program Operating Manual (NISPOM) for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. government .
We are subject to the requirements of the National Industrial Security Program Operating Manual (NISPOM) for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. government.
In the case of backplane assemblies, components include connectors, sheet metal, capacitors, resistors and diodes, many of which are custom made and controlled by our customers’ approved vendors. 17 Consolidations and restructuring in our supplier base and equipment fabricators related to our raw materials purchases or the manufacturing equipment we use to fabricate our products may result in adverse changes in pricing of materials due to reduction in competition among our raw material suppliers or an elimination or shortage of equipment and spare parts from our manufacturing equipment supply base.
Consolidations and restructuring in our supplier base and equipment fabricators related to our raw materials purchases or the manufacturing equipment we use to fabricate our products may result in adverse changes in pricing of materials due to reduction in competition among our raw material suppliers or an elimination or shortage of equipment and spare parts from our manufacturing equipment supply base.
Even when an acquired company has already developed and marketed products, product enhancements may not be made in a timely fashion. In addition, unforeseen issues might arise with respect to such products after any such acquisition.
Even when an acquired company has already developed and marketed products, product enhancements may not be made in a timely fashion.
We have significant manufacturing operations in Asia and Canada and sales offices located in Asia and Europe. We continue to consider additional opportunities to make foreign investments and construct new foreign facilities.
We have manufacturing facilities and serve customers outside the United States and are subject to the risks characteristic of international operations, including tariffs. We have significant manufacturing operations in Asia and Canada and sales offices located in Asia and Europe. We continue to consider additional opportunities to make foreign investments and construct new foreign facilities.
Moreover, if any of our OEM customers outsource the production of PCBs and creation of backplane assemblies to these EMS providers, our business, financial condition, and results of operations may be materially adversely affected. 20 We depend upon a relatively small number of OEM customers for a large portion of our sales, and a decline in sales to major customers would materially adversely affect our business, financial condition, and results of operations .
Moreover, if any of our OEM customers outsource the production of PCBs and creation of backplane assemblies to these EMS providers, our business, financial condition, and results of operations may be materially adversely affected.
In addition, the cost structure in certain countries that are now considered to be favorable may increase as economies develop or as such countries join multinational economic communities or organizations, causing local wages to rise. As a result, we may need to continue to seek new locations with lower costs and the employee and infrastructure base to support PCB manufacturing.
In addition, the cost structure in certain countries that are now considered to be favorable may increase as economies develop or as such countries join multinational economic communities or organizations, causing local wages to rise.
President announced a National Emergency relating to the disease. Federal, state and local government responses to COVID-19 and our responses to the outbreak have all, at times, disrupted and will continue to disrupt our business.
President announced a National Emergency relating to the disease. Federal, state, and local government responses to COVID-19 and our responses to the outbreak have all, at times, disrupted and will likely continue to disrupt our business. Even as efforts to contain the pandemic have made progress and many restrictions have relaxed, new variants of the virus have arisen globally.
Uncertainty and adverse changes in the economy and financial markets, including the worldwide electronics industry, could have an adverse impact on our business and operating results.
Uncertainty, volatility and adverse changes in the global economy and financial markets, including those resulting from the conflict between Russia and Ukraine, could have an adverse impact on our business and operating results.
In addition, our failure to adopt and implement technological improvements quickly may cause inefficiencies in our production process as our product yields or quality may decrease, resulting in increased costs, and may lead to customers not adopting our product designs. 22 We also could encounter competition from new or revised manufacturing, production and design technologies that render existing manufacturing, production , and design technology less competitive or obsolete.
In addition, our failure to adopt and implement technological improvements quickly may cause inefficiencies in our production process as our product yields or quality may decrease, resulting in increased costs, and may lead to customers not adopting our product designs.
Suppliers and equipment manufacturers may extend lead times, limit supplies, or increase prices due to capacity constraints or other factors, which could harm our ability to deliver our products on a timely basis and negatively impact our financial results.
As a result, suppliers and equipment manufacturers have extended lead times, limited supplies, and/or increased prices due to capacity constraints and other factors. These have impacted our ability to deliver our products on a timely basis, our inventory levels and cash flow, and could negatively impact our financial results.
If our estimates of future earnings decline, we may have to increase our valuation allowance against our deferred income tax assets, resulting in a higher income tax provision, which would reduce our results of operations.
If our estimates of future earnings and analysis changes, we may change our decisions to have a valuation allowance against our deferred income tax assets, which will result in an increase or decrease to our income tax provision that can impact our results of operations.
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal, state and foreign income tax purposes is subject to limitations, and future transfers of shares of our common stock could cause us to experience an “ownership change” that could further limit our ability to utilize our net operating losses.
We are heavily dependent on automated management systems, and any significant failure or delay in the system upgrade could cause a substantial interruption to our business and additional expense, which could result in an adverse impact on our operating results, cash flows or financial condition. 31 Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal, state and foreign income tax purposes is subject to limitations, and future transfers of shares of our common stock could cause us to experience an “ownership change” that could further limit our ability to utilize our net operating losses.
While we do not sell any significant volume of products directly to the U.S. government or to foreign governments and agencies, we are a supplier to OEMs that sell to these entities. Consequently, our sales are affected by changes in the defense budgets of the U.S. and foreign governments and may be affected by federal budget sequestration measures.
Consequently, our sales are affected by changes in the defense budgets of the U.S. and foreign governments and may be affected by federal budget sequestration measures.
Based on our forecast for future taxable earnings, we believe we will utilize the deferred income tax assets in future periods except with respect to certain amounts where we have recorded valuation allowances.
Based on our forecast for future earnings and analysis, we believe we may not utilize our deferred income tax assets in future periods in the U.S. and certain subsidiaries in foreign jurisdictions and have established a valuation allowance against those deferred tax assets.
Considerable international attention is now focused on development of an international policy framework to guide international action to address climate change.
Considerable international attention is now focused on development of an international policy framework to guide international action to address climate change. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we report our climate related costs and activities and our customers and suppliers.
Our operations in China and Hong Kong subject us to risks and uncertainties relating to the laws and regulations of China and Hong Kong. Under its current leadership, the government of China has been pursuing economic reform policies, including the encouragement of foreign trade and investment.
Our operations in China and Hong Kong subject us to risks and uncertainties relating to the laws and regulations of China and Hong Kong and adverse effects of political tensions that arise from time to time with China. The government of China is adopting evolving policies regarding foreign and domestic trade.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocations Operating Segment Leased Square Feet Owned Square Feet Total Square Feet Anaheim, CA (ANA) PCB — 96,000 96,000 Chippewa Falls, WI (CF) PCB — 281,000 281,000 Forest Grove, OR (FG) PCB 12,774 217,950 230,724 Littleton, CO (DEN) PCB 54,590 63,210 117,800 Logan, UT (LG) PCB 12,000 118,448 130,448 North Jackson, OH (NJ) PCB 8,800 85,000 93,800 Salem, NH (SAL) PCB 43,700 — 43,700 San Diego, CA (SD) PCB 43,336 — 43,336 San Jose, CA (SJ) PCB 42,434 — 42,434 Santa Ana, CA (1) Headquarters 14,472 — 14,472 Santa Ana, CA (SA) PCB 9,416 82,550 91,966 Santa Clara, CA (SC) PCB 21,966 45,685 67,651 Stafford, CT (ST) PCB — 126,924 126,924 Stafford Springs, CT (SS) PCB 9,000 90,579 99,579 Sterling, VA (STE) (2) PCB 100,896 — 100,896 Syracuse, NY (SYR) (3) PCB and RF&S Components 37,639 160,000 197,639 Total 411,023 1,367,346 1,778,369 Foreign Locations Operating Segment Leased Square Feet Owned Square Feet Total Square Feet Canada Toronto (TOR) PCB 15,500 99,960 115,460 China Dongguan (DMC) PCB — 1,069,129 1,069,129 Guangzhou (GZ) PCB — 1,872,800 1,872,800 Hong Kong (1) Asia Headquarters — 24,640 24,640 Hong Kong (OPCM) PCB — 128,432 128,432 Huiyang (HY) PCB — 435,485 435,485 Shanghai (SH) PCB — 286,000 286,000 Suzhou (SUZ) RF&S Components 68,030 — 68,030 Zhongshan (ZS) PCB — 1,132,760 1,132,760 Total 83,530 5,049,206 5,132,736 We maintain our properties in good operating condition.
Biggest changeLocations Operating Segment Leased Square Feet Owned Square Feet Total Square Feet Anaheim, CA PCB — 96,000 96,000 Chippewa Falls, WI PCB — 281,000 281,000 Elizabeth City, NC PCB — 47,784 47,784 Farmingdale, NY PCB — 171,600 171,600 Forest Grove, OR PCB 12,774 217,950 230,724 Huntington, NY PCB 82,440 — 82,440 Littleton, CO PCB 54,590 63,210 117,800 Logan, UT PCB 12,000 118,448 130,448 North Jackson, OH PCB 8,800 85,000 93,800 Salem, NH PCB 43,700 — 43,700 San Diego, CA PCB 43,336 — 43,336 San Jose, CA PCB 42,434 — 42,434 Santa Ana, CA (1) Headquarters 14,472 — 14,472 Santa Ana, CA PCB 9,416 82,550 91,966 Santa Clara, CA PCB 21,966 45,685 67,651 Stafford, CT PCB — 126,924 126,924 Stafford Springs, CT PCB — 99,579 99,579 Sterling, VA (2) PCB 100,896 — 100,896 Syracuse, NY (3) PCB and RF&S Components 37,639 160,000 197,639 Total 484,463 1,595,730 2,080,193 Foreign Locations Operating Segment Leased Square Feet Owned Square Feet Total Square Feet Canada Toronto PCB 15,500 99,960 115,460 China Dongguan PCB — 1,069,129 1,069,129 Guangzhou PCB — 1,872,800 1,872,800 Hong Kong (1) Asia Headquarters — 24,640 24,640 Hong Kong PCB — 128,432 128,432 Huiyang PCB — 435,485 435,485 Shanghai PCB 85,745 — 85,745 Suzhou RF&S Components 68,030 — 68,030 Zhongshan PCB — 1,132,760 1,132,760 Total 169,275 4,763,206 4,932,481 (1) Location of our headquarters and not a manufacturing facility (2) In December 2021, we entered into a joint venture agreement with our landlord, O.J.B./1600 University Boulevard, LLC, Count Du Greenmonet, LLC and GFI#2/DII, LLC, to jointly own approximately 100,896 square feet of land and building.
We have a 50% ownership interest and we account for this joint venture under the equity method of accounting and do not consolidate our interest in the property. (3) Location includes two manufacturing facilities
We have a 50% ownership interest and we account for this joint venture under the equity method of accounting and do not consolidate our interest in the property. (3) Location includes two manufacturing facilities. We maintain our properties in good operating condition.
ITEM 2. PROPERTIES The following table describes our headquarters and our principal manufacturing facilities. U.S.
ITEM 2. P ROPERTIES The following table describes our headquarters and our principal manufacturing facilities. U.S.
Removed
(1) Location of our headquarters and not a manufacturing facility (2) In December 2021, we entered into a joint venture agreement with our landlord, O.J.B./1600 University Boulevard, LLC, Count Du Greenmonet, LLC and GFI#2/DII, LLC, to jointly own approximately 100,896 square feet of land and building.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on our financial condition, results of operations, or cash flows in a particular period. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 PART II
Biggest changeIn the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on our financial condition, results of operations, or cash flows in a particular period. 33 ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 34 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES 31 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 32 ITEM 6. RESERVED 33 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 34 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 42 ITEM 8.
Biggest changeITEM 4. MINE SAFETY DISCLOSURES 34 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 35 ITEM 6. RESERVED 36 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 37 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 45 ITEM 8.
Removed
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 43 ITEM 9A. CONTROLS AND PROCEDURES 44 ITEM 9B. OTHER INFORMATION 44

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among TTM Technologies, Inc., the NASDAQ Composite Index and the Dow Jones US Electrical Components & Equipment Index * $100 invested on January 2, 2017 in stock or index, including reinvestment of dividends. 1/2/2017 1/1/2018 12/31/2018 12/30/2019 12/28/2020 1/3/2022 TTM Technologies, Inc. $ 100.00 $ 114.97 $ 71.39 $ 109.17 $ 100.88 $ 111.08 NASDAQ Composite 100.00 129.64 125.96 172.17 249.51 304.85 Dow Jones US Electrical Components & Equipment 100.00 127.46 111.82 138.30 166.99 209.33 The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section.
Biggest changeCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among TTM Technologies, Inc., the Nasdaq Composite Index and the Dow Jones US Electrical Components & Equipment Index * $100 invested on January 1, 2018 in stock or index, including reinvestment of dividends. 1/1/2018 12/31/2018 12/30/2019 12/28/2020 1/3/2022 1/2/2023 TTM Technologies, Inc. $ 100.00 $ 62.09 $ 94.96 $ 87.75 $ 96.62 $ 96.23 Nasdaq Composite 100.00 97.16 132.81 192.47 235.15 158.65 Dow Jones US Electrical Components & Equipment 100.00 87.73 108.51 131.02 164.23 135.50 The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section.
We currently expect to retain future earnings for use in capital expenditures, for acquisitions, fund working capital requirements, repay existing debt, and potentially for share repurchases and do not anticipate paying cash dividends in the foreseeable future. Additionally, our ability to pay dividends is limited pursuant to covenants contained in our various debt agreements.
We currently expect to retain future earnings for capital expenditures, acquisitions, to fund working capital requirements, repay existing debt, and potentially for share repurchases and do not anticipate paying cash dividends in the foreseeable future. Additionally, our ability to pay dividends is limited pursuant to covenants contained in our various debt agreements.
The graph assumes $100 was invested in our common stock on January 2, 2017, and an investment in NASDAQ Composite Index and the Dow Jones US Electrical Components & Equipment Index. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock performance.
The graph assumes $100 was invested in our common stock on January 1, 2018, and an investment in Nasdaq Composite Index and the Dow Jones US Electrical Components & Equipment Index. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock performance.
STOCK PRICE PERFORMANCE GRAPH The performance graph below compares, for the period from January 2, 2017 to January 3, 2022, the cumulative total stockholder return on our common stock against the cumulative total return of: • the NASDAQ Composite Index; and • the Dow Jones U.S. Electrical Components & Equipment Index.
STOCK PRICE PERFORMANCE GRAPH The performance graph below compares, for the period from January 1, 2018 to January 2, 2023, the cumulative total stockholder return on our common stock against the cumulative total return of: • the Nasdaq Composite Index; and • the Dow Jones U.S. Electrical Components & Equipment Index.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been listed on the Nasdaq Global Select Market under the symbol “TTMI” since September 21, 2000. As of February 23, 2022, there were approximately 272 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been listed on the Nasdaq Global Select Market under the symbol “TTMI” since September 21, 2000. As of February 27, 2023, there were approximately 268 holders of record of our common stock.
The closing sale price of our common stock on the Nasdaq Global Select Market on February 23, 2022 was $12.26.
The closing sale price of our common stock on the Nasdaq Global Select Market on February 27, 2023 was $13.42.
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The performance graph above will not be deemed incorporated by reference into any filing of our company under the Securities Act of 1933, as amended, or the Exchange Act. 32 Issuer Purchases of Equity Securities The following table provides information about repurchases by us of shares of our common stock during the quarter ended January 3, 2022: Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased As Part of Publicly Announced Program (2) Maximum Value of Shares that May Yet be Purchased Under the Program (2) (In thousands, except average price paid per share) September 28, 2021 - October 25, 2021 1,276 $ 13.15 1,276 $ 48,174 October 26, 2021 - November 22, 2021 437 13.67 437 $ 42,209 November 23, 2021 - January 3, 2022 485 14.13 485 $ 35,369 Total for the quarter ended January 3, 2022 2,198 $ 13.47 2,198 (1) Includes commissions.
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The performance graph above will not be deemed incorporated by reference into any filing of our company under the Securities Act of 1933, as amended, or the Exchange Act. 35 Dividends We have never declared or paid cash dividends on our common stock.
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(2) On February 3, 2021, we announced that our Board of Directors authorized and approved a share repurchase program. Under the program, we may repurchase up to $100.0 million in value of our outstanding shares of common stock from time to time through February 3, 2023.
Removed
This program will continue until the maximum is reached or the program is terminated by further action of our Board of Directors. Dividends We have never declared or paid cash dividends on our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table sets forth the relationship of various items to net sales in our consolidated statements of operations: For the Year Ended January 3, 2022 December 28, 2020 December 30, 2019 Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 83.5 83.0 82.3 Gross profit 16.5 17.0 17.7 Operating expenses: Selling and marketing 2.8 3.0 3.2 General and administrative 5.5 5.8 6.1 Research and development 0.8 1.0 0.8 Amortization of definite-lived intangibles 1.6 1.8 2.2 Restructuring charges 0.2 0.8 0.3 Impairment of goodwill — 3.3 — Total operating expenses 10.9 15.7 12.6 Operating income 5.6 1.3 5.1 Other (expense) income: Interest expense (2.0 ) (3.5 ) (3.8 ) Loss on extinguishment of debt (0.7 ) — — Other, net 0.2 — 0.3 Total other expense, net (2.5 ) (3.5 ) (3.5 ) Income (loss) from continuing operations before income taxes 3.1 (2.2 ) 1.6 Income tax (provision) benefit (0.7 ) 1.4 (0.1 ) Net income (loss) from continuing operations 2.4 % (0.8 ) % 1.5 % During the year ended January 3, 2022, E-M Solutions no longer met the criteria for segment reporting and the SH BPA facility has been integrated into the PCB reportable segment.
Biggest changeThe following table sets forth the relationship of various items to net sales in our consolidated statements of operations: For the Year Ended January 2, 2023 January 3, 2022 December 28, 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 81.6 83.5 83.0 Gross profit 18.4 16.5 17.0 Operating expenses: Selling and marketing 3.0 2.8 3.0 General and administrative 6.4 5.5 5.8 Research and development 1.0 0.8 1.0 Amortization of definite-lived intangibles 1.5 1.6 1.8 Gain on sale of SH E-MS property (2.1 ) — — Restructuring charges 0.2 0.2 0.8 Impairment of goodwill — — 3.3 Total operating expenses 10.0 10.9 15.7 Operating income 8.4 5.6 1.3 Other (expense) income: Interest expense (1.8 ) (2.0 ) (3.5 ) Loss on extinguishment of debt — (0.7 ) — Other, net 0.7 0.2 — Total other expense, net (1.1 ) (2.5 ) (3.5 ) Income (loss) from continuing operations before income taxes 7.3 3.1 (2.2 ) Income tax (provision) benefit (3.5 ) (0.7 ) 1.4 Net income (loss) from continuing operations 3.8 % 2.4 % (0.8 ) % The Telephonics acquisition occurred on June 27, 2022.
Income Taxes The provision for income taxes increased $45.5 million to an income tax expense of $15.6 million for the year ended January 3, 2022 from an income tax benefit of $29.9 million for the year ended December 28, 2020.
The provision for income taxes increased $45.5 million to an income tax expense of $15.6 million for the year ended January 3, 2022 from an income tax benefit of $29.9 million for the year ended December 28, 2020.
Net cash used in financing activities for continuing operations during the year ended January 3, 2022 was $7.2 million, primarily reflecting repayment of long-term debt of $425.8 million, repurchases of common stock of $64.7 million, capital equipment financing of $7.5 million, payment of debt issuance costs of $6.0 million, and cash used to settle warrants of $3.2 million, less the proceeds from long-term debt borrowing of $500.0 million.
Net cash used in financing activities for continuing operations during the year ended January 3, 2022 was $7.2 million, primarily reflecting repayment of long-term debt of $425.8 million, repurchases of common stock of $64.7 million, capital equipment financing 43 of $7.5 million, payment of debt issuance costs of $6.0 million, and cash used to settle warrants of $3.2 million, less the proceeds from long-term debt borrowing of $500.0 million.
Net cash used in investing activities for continuing operations was approximately $84.1 million for the year ended January 3, 2022, primarily reflecting $82.0 million for purchases of property, plant and equipment and other assets, $3.2 million investment in unconsolidated joint venture, less $1.4 million for proceeds from sale of property, plant and equipment and other assets.
Net cash used in investing activities for continuing operations was approximately $84.1 million for the year ended January 3, 2022, primarily reflecting $82.0 million for purchases of property, plant and equipment and other assets, $3.2 million investment in an unconsolidated joint venture, less $1.4 million for proceeds from sale of property, plant and equipment and other assets.
Critical accounting estimates refers 35 to those estimates made in accordance with U.S. GAAP that have had or are reasonably likely to have a material impact on the amounts reported in the consolidated financial statements and the related notes due to the significant level of uncertainty involved in developing the estimate.
Critical accounting estimates refers to those estimates made in accordance with U.S. GAAP that have had or are reasonably likely to have a material impact on the amounts reported in the consolidated financial statements and the related notes due to the significant level of uncertainty involved in developing the estimate.
Also driving the increase in PCB net sales was an increase in the volume of PCB shipments of 24.3% as compared to the year ended December 28, 2020. The benefit of this volume increase, however, was partially offset by a 11.9% decrease in the average price per square foot.
Also driving the increase in PCB net sales was an increase in the volume of PCB shipments of 24.3% as compared to the year ended December 28, 2020. The benefit of this volume increase, however, was partially offset by an 11.9% decrease in the average price per square foot.
The increase in RF&S Components net sales was primarily due to increased demand in our Networking/Communications end market. Partially offsetting the PCB and RF&S Components increases was a $76.5 million reduction in net sales due to the closure of the two plants from our E-M Solutions segment .
The increase in RF&S Components net sales was primarily due to increased demand in our Networking end market. Partially offsetting the PCB and RF&S Components increases was a $76.5 million reduction in net sales due to the closure of the two plants from our E-M Solutions segment.
The increase in PCB net sales was primarily due to increased demand in our Automotive, Data Center Computing, and Medical/Industrial/Instrumentation end markets, partially offset by lower demand in our Aerospace and Defense and Networking/Communications end markets.
The increase in PCB net sales was primarily due to increased demand in our Automotive, Data Center Computing, and Medical/Industrial/Instrumentation end markets, partially offset by lower demand in our Aerospace and Defense and Networking end markets.
Recently Issued Accounting Standards For a description of recently adopted and issued accounting standards, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Note 1 of the Notes to Consolidated Financial Statements. 41
Recently Issued Accounting Standards For a description of recently adopted and issued accounting standards, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Note 1 of the Notes to Consolidated Financial Statements.
Also contributing to the increase in total net sales was an increase in net sales for the RF&S Components reportable segment of $13.9 million, or 31.2%, to $58.6 million for the year ended January 3, 37 2022 from $44.7 million for the year ended December 28, 2020.
Also contributing to the increase in total net sales was an increase in net sales for the RF&S Components reportable 41 segment of $13.9 million, or 31.2%, to $58.6 million for the year ended January 3, 2022 from $44.7 million for the year ended December 28, 2020.
Shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold. Many factors affect our gross margin, including capacity utilization, product mix, production volume, and yield.
Shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold. Many factors affect our gross margin, including capacity utilization, product mix, production volume, supply chain issues, and yield.
The following table shows the percentage of our net sales attributable to each of the principal end markets we serve for the periods indicated: For the Year Ended End Markets (1) January 3, 2022 December 28, 2020 December 30, 2019 Aerospace and Defense 33 % 36 % 33 % Automotive 18 15 19 Data Center Computing (2) 14 12 11 Medical/Industrial/Instrumentation 19 18 17 Networking/Communications 15 18 18 Other (3) 1 1 2 Total 100 % 100 % 100 % (1) Sales to EMS companies are classified by the end markets of their OEM customers.
The following table shows the percentage of our net sales attributable to each of the principal end markets we serve for the periods indicated: For the Year Ended End Markets (1) January 2, 2023 January 3, 2022 December 28, 2020 Aerospace and Defense 35 % 33 % 36 % Automotive 17 18 15 Data Center Computing (2) 15 14 12 Medical/Industrial/Instrumentation 20 19 18 Networking 13 15 18 Other (3) — 1 1 Total 100 % 100 % 100 % (1) Sales to EMS companies are classified by the end markets of their OEM customers.
We also manufacture certain components, assemblies, and subsystems which service our RF and Specialty Components (RF&S Components) customers. We recognize revenue at a point in time upon transfer of control of the products to our customer.
We also manufacture certain components, assemblies, subsystems, and completed systems which service our RF and Specialty Components (RF&S Components) customers and certain aerospace and defense customers. We recognize revenue at a point in time upon transfer of control of the products to our customer.
Our customers have continuous control of the work in progress and finished goods throughout the PCB and custom electronic assemblies manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right of payment for work performed to date.
Our customers have continuous control of the work in progress and finished goods throughout the PCB and engineered systems manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right of payment for work performed to date.
Customers have continuous control of the work in progress and finished goods throughout the PCB and custom electronic assemblies manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right to payment for work performed to date.
Customers have continuous control of the work in progress and finished goods throughout the PCB and engineered systems manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right to payment for work performed to date.
Point in time recognition was determined as the customer does not simultaneously receive or consume the benefits provided by the Company’s performance and the asset being manufactured has alternative uses to the Company. Goodwill and Intangible Assets We have significant goodwill and definite-lived intangibles.
Point in time recognition was determined as our customer does not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us. 39 Goodwill and Intangible Assets We have significant goodwill and definite-lived intangibles.
As a result, we expect continued impacts on our production, as well as ongoing significant uncertainty relating to the actual and potential impacts of the COVID-19 pandemic, and we cannot reasonably estimate its duration or severity.
We expect continued impacts on our production, as well as on-going significant uncertainty relating to the actual and potential impacts of the COVID-19 pandemic, and we cannot reasonably estimate its duration or severity.
A summary of our long-term debt obligations as of January 3, 2022 is included in Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
A summary of our long-term debt obligations as of January 2, 2023 is included in Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our business. FINANCIAL OVERVIEW Results related to our Mobility business unit are reported as discontinued operations for all periods presented. See Note 3, Discontinued Operations , of the Notes to Consolidated Financial Statements for further information.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our business. FINANCIAL OVERVIEW Results related to our Mobility business unit are reported as discontinued operations for 2020. See Note 9 of the Notes to Consolidated Financial Statements for further information.
We have been actively taking measures intended to manage both supply chain constraints and higher raw materials costs through such measures as supplier diversification, ongoing operational efficiency efforts and quotation adjustments to mitigate the impact on our business. We also continue to see more challenges in attracting and retaining labor in North America.
We have been actively taking measures intended to manage both supply chain constraints and higher raw materials costs, including, without limitation, through such measures as supplier diversification, on-going operational efficiency efforts and quotation adjustments to mitigate the impact on our business. 37 We also continue to see challenges in attracting and retaining labor in North America.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This financial review presents our operating results for each of our three most recent fiscal years and our financial condition as of January 3, 2022.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This financial review presents our operating results for each of our three most recent fiscal years and our financial condition as of January 2, 2023.
If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value exceeds the fair value is recognized as an impairment loss. We have two reportable segments: PCB and RF&S Components.
If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value exceeds the fair value is recognized as an impairment loss. We have two reportable segments: PCB and RF&S Components. Goodwill is attributable to both of our PCB and RF&S Components reportable segments.
Our 2022 capital expenditure plan is expected to be in the range of $90.0 million to $110.0 million. Share Repurchases On February 3, 2021, our board of directors authorized a share repurchase program allowing us to repurchase up to $100.0 million of our common stock.
Our 2023 capital expenditure plan is expected to be in the range of $140.0 million to $160.0 million. Share Repurchases On February 3, 2021, our board of directors authorized a share repurchase program allowing us to repurchase up to $100.0 million of our common stock.
We are monitoring the impacts the COVID-19 pandemic has had, and continues to have, on our supply chain and are collaborating with our third-party partners with the goal of mitigating, to the extent reasonably practicable, significant delays in delivery of our products.
We are monitoring the impacts the COVID-19 pandemic has had, and continues to have, on our supply chain, and our operations in China, and are collaborating with our third-party partners with the goal of mitigating, to the extent reasonably practicable, significant delays in delivery of our products. We continue to experience supply chain constraints and inflationary pressures.
Our aggregate interest on debt obligations as of January 3, 2022 amounted to $178.7 million, which are expected to be settled as follows: $31.1 million within 1 year, $59.2 million within 1-3 years, $40.0 million within 4-5 years, and $48.4 million after 5 years. For debt obligations based on variable rates, interest rates used are as of January 3, 2022.
Our aggregate interest on debt obligations as of January 2, 2023 amounted to $174.1 million, which are expected to be settled as follows: $46.6 million within 1 year, $59.1 million within 1-3 years, $40.0 million within 4-5 years, and $28.4 million after 5 years. For debt obligations based on variable rates, interest rates used are as of January 2, 2023.
Unless otherwise noted, amounts and disclosures throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to our continuing operations. We use a 52/53 week fiscal calendar with the fourth quarter ending on the Monday nearest December 31.
Unless otherwise noted, amounts and disclosures throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to our continuing operations. We use a 52/53 week fiscal calendar with the fourth quarter ending on the Monday nearest December 31. Fiscal year 2022 and 2020 were 52 weeks ended on January 2, 2023 and December 28, 2020, respectively.
We serve a diversified customer base consisting of approximately 1,600 customers in various markets throughout the world, including aerospace and defense, data center computing, automotive components, medical, industrial and instrumentation related products, as well as networking/communications infrastructure products. Our customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers.
We serve a diversified customer base consisting of approximately 1,500 customers in various markets throughout the world, including aerospace and defense, data center computing, automotive, medical, industrial and instrumentation, as well as networking and telecommunications. Our customers include original equipment manufacturers (OEMs), electronic manufacturing services (EMS) providers, original design manufacturers (ODMs), distributors and government agencies.
Based on the review of gross margins, we update our estimate to the model as necessary. If our estimates of performance obligations are inaccurate, we may recognize too much or too little revenue in a period. While experience has shown that trends in gross margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations.
If our estimates of gross margins are inaccurate, we may recognize too much or too little revenue in a period. While experience has shown that trends in gross margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations.
Long-term Debt and Letters of Credit As of January 3, 2022, we had $927.8 million of outstanding debt, net of discount and debt issuance costs, composed of $494.5 million of Senior Notes due March 2029, $403.3 million of a Term Loan due September 2024, and $30.0 million under the Asia Asset-Based Lending Credit Agreement (Asia ABL).
Long-term Debt and Letters of Credit As of January 2, 2023, we had $929.4 million of outstanding debt, net of discount and debt issuance costs, composed of $495.2 million of Senior Notes due March 2029, $404.2 million of a Term Loan due September 2024, and $30.0 million under the Asia Asset-Based Lending Credit Agreement (Asia ABL).
Our derivative liabilities of $4.3 million as of January 3, 2022 are expected to be settled within one year. We also have outstanding firm purchase orders with certain suppliers for the purchase of inventory. These purchase orders are generally short-term in nature. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty.
Our derivative liabilities of $1.6 million as of January 2, 2023 are expected to be settled within one year. We also have outstanding firm purchase orders with certain suppliers for the purchase of material and inventory. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty.
For PCBs and custom electronic assemblies, including pursuant to long-term contracts related to the manufacture of components, assemblies and subsystems, orders for products generally correspond to the production schedules of customers and are supported with firm purchase orders.
For PCBs and engineered systems, including pursuant to long-term contracts related to the manufacture of h ighly sophisticated intelligence, surveillance and communications solutions, components, assemblies and subsystems, orders for products generally correspond to the production schedules of customers and are supported with firm purchase orders.
As of January 3, 2022, we had cash and cash equivalents of approximately $537.7 million, of which approximately $201.8 million was held by our foreign subsidiaries, primarily in China.
As of January 2, 2023, we had cash and cash equivalents of approximately $402.7 million, of which approximately $161.7 million was held by our foreign subsidiaries, primarily in China.
Other expense, net decreased $0.9 million to $74.4 million for the year ended December 28, 2020 from $75.3 million for the year ended December 30, 2019.
Other expense, net decreased $18.4 million to $55.9 million for the year ended January 3, 2022 from $74.4 million for the year ended December 28, 2020.
As a result, we reclassified prior periods to reflect these changes to our segments. Net Sales Total net sales increased $143.4 million, or 6.8%, to $2,248.7 million for the year ended January 3, 2022 from $2,105.3 million for the year ended December 28, 2020.
Total net sales increased $143.4 million, or 6.8%, to $2,248.7 million for the year ended January 3, 2022 from $2,105.3 million for the year ended December 28, 2020.
RECENT DEVELOPMENTS The coronavirus (COVID-19) pandemic initially caused business disruption to our operations in China in January 2020. By March 2020, the situation escalated as the scope of the COVID-19 pandemic worsened outside of the Asia-Pacific region, with Europe and North America being affected by the pandemic.
We expect our total capital expenditures for the facility to be approximately $130.0 million through 2025. The coronavirus (COVID-19) pandemic initially caused disruption to our operations in China in January 2020. By March 2020, the situation escalated as the scope of the COVID-19 pandemic worsened outside of the Asia-Pacific region, with Europe and North America being affected by the pandemic.
Fiscal year 2021 consisted of 53 weeks ended on January 3, 2022, with the additional week included in the fourth quarter. We estimate the additional week contributed approximately $42.2 million of additional revenue and approximately $2.5 million of additional operating income for the year ended January 3, 2022.
We estimate the additional week contributed approximately $42.2 million of additional revenue and approximately $2.5 million of additional operating income for the year ended January 3, 2022.
Additional information regarding our indebtedness, including information about the credit available under our debt facilities, interest rates and other key terms of our outstanding indebtedness, is included in Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 40 Contractual Obligations and Commitments As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments.
Additional information regarding our indebtedness, including information about the credit available under our debt facilities, interest rates and other key terms of our outstanding indebtedness, is included in Note 7 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Fair value is determined through various valuation techniques, including cost-based, market and income approaches as considered necessary, which involve judgments related to future cash flows and the application of the appropriate valuation model. RESULTS OF OPERATIONS We operate on a 52 or 53 week year ending on the Monday nearest December 31.
Fair value is determined through various valuation techniques, including cost-based, market and income approaches as considered necessary, which involve judgments related to future cash flows and the application of the appropriate valuation model.
Gross margin for the RF&S Components reportable segment increased to 52.6% for the year ended January 3, 2022, from 45.9% for the year ended December 28, 2020, primarily due to higher sales. Overall gross margin decreased to 17.0% for the year ended December 28, 2020 from 17.7% for the year ended December 30, 2019.
Gross margin for the RF&S Components reportable segment increased to 62.3% for the year ended January 2, 2023, from 52.6% for the year ended January 3, 2022, primarily due to favorable product mix. Overall gross margin decreased to 16.5% for the year ended January 3, 2022 from 17.0% for the year ended December 28, 2020.
For revenue recorded on an over time basis, we apply a gross margin estimate to inventory in process of being manufactured for customers to determine how much of a contract asset should be recorded at period end. Contract assets totaled $324.9 million and $273.3 million for the years ended January 3, 2022 and December 28, 2020, respectively.
For revenue recorded on an over time basis, we apply a gross margin estimate to inventory in process of being manufactured for customers to determine how much of a contract asset or contract liability should be recorded at period end.
Selling and Marketing Expenses Selling and marketing expenses decreased $0.9 million to $63.0 million for the year ended January 3, 2022 from $63.9 million for the year ended December 28, 2020.
Selling and Marketing Expenses Selling and marketing expenses increased $12.2 million to $75.2 million for the year ended January 2, 2023 from $63.0 million for the year ended January 3, 2022.
General and administrative costs primarily include the salaries for executive, finance, accounting, information technology, and human resources personnel, as well as expenses for accounting and legal assistance, incentive compensation expense, and gains or losses on the sale or disposal of property, plant and equipment.
Selling and marketing expenses consist primarily of salaries, labor related benefits, and commissions paid to our internal sales force, independent sales representatives, and our sales support staff, as well as costs associated with marketing materials and trade shows. 38 General and administrative costs primarily include the salaries for executive, finance, accounting, information technology, and human resources personnel, as well as expenses for accounting and legal assistance, incentive compensation expense, and gains or losses on the sale or disposal of property, plant and equipment.
Barring end market demand changes, we now tend to experience modest seasonal softness in the first and third quarters due to holidays and vacation periods in China and North America, respectively, which limit production leading to stronger revenue levels in the second and fourth quarters.
Historically, we have not paid any such penalties, and as of January 2, 2023, no such penalties have been paid. Seasonality We tend to experience modest seasonal softness in the first and third quarters due to holidays and vacation periods in China and North America, respectively, which limit production leading to stronger revenue levels in the second and fourth quarters.
We derive revenues primarily from the sale of PCBs, custom electronic assemblies using customer-supplied engineering and design plans as well as our long-term contracts related to the design and manufacture of RF and microwave components, assemblies and subsystems. Orders for products generally correspond to the production schedules of our customers and are supported with firm purchase orders.
We derive revenues primarily from the sale of PCBs, engineered systems using customer-supplied engineering and design plans as well as our long-term contracts related to the design and manufacture of highly sophisticated intelligence, surveillance and communications solutions, RF and microwave/microelectronics components, assemblies, and subsystems.
Selling and marketing expenses decreased $5.3 million to $63.9 million for the year ended December 28, 2020 from $69.2 million for the year ended December 30, 2019. As a percentage of net sales, selling and marketing expenses were 3.0% for the year ended December 28, 2020 as compared to 3.2% for the year ended December 30, 2019.
As a percentage of net sales, selling and marketing expenses were 3.0% for the year ended January 2, 2023 as compared to 2.8% for the year ended January 3, 2022.
Pursuant to the terms of the Term Loan Facility and Senior Notes due 2029, we are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments, dispositions, and share payments. Under the occurrence of certain events, under the U.S. Asset-Based Lending Credit Agreement (U.S.
Subsequent to January 2, 2023, we made an optional debt principal prepayment of $50.0 million on our Term Loan Facility. Pursuant to the terms of the Term Loan Facility and Senior Notes due 2029, we are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments, dispositions, and share payments.
The increase of $51.6 million is primarily due to timing of progress on customer work orders at year-end. We use historical information to estimate the gross margin associated with performance obligations that are satisfied over time. We reevaluate our estimate of gross margins on a quarterly basis.
We use historical information to estimate the gross margin associated with performance obligations that are satisfied over time. We reevaluate our estimate of gross margins on a quarterly basis. Based on the review of gross margins, we update our estimate to the model as necessary.
ABL) and Asia ABL (collectively, the ABL Revolving Loans), we are also subject to various financial covenants, including leverage and fixed charge coverage ratios. As of January 3, 2022, we were in compliance with the covenants under the Term Loan Facility, Senior Notes due 2029 and ABL Revolving Loans.
As of January 2, 2023, we were in compliance with the covenants under the Term Loan Facility, Senior Notes due 2029 and ABL Revolving Loans.
These obligations impact our liquidity and capital resource needs. Our estimated future obligations consist of long-term debt obligations, interest on debt obligations, derivative liabilities, purchase obligations, and leases as of January 3, 2022.
Contractual Obligations and Commitments As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. Our estimated future obligations consist of long-term debt obligations, interest on debt obligations, derivative liabilities, purchase obligations, and leases as of January 2, 2023.
We focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design, engineering and manufacturing solution to our customers.
COMPANY OVERVIEW We are a leading global manufacturer of technology solutions, including engineered systems, radio frequency (RF) components and RF microwave/microelectronic assemblies, and printed circuit boards (PCB). We focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design, engineering and manufacturing solution to our customers.
The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities.
Management will continue to monitor the reporting units for changes in the business environment that could impact recoverability. The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities.
Net cash used in investing activities for continuing operations was approximately $93.6 million for the year ended December 28, 2020 comprised primarily of purchases of property, plant and equipment and other assets.
Net cash used in investing activities for continuing operations was approximately $395.5 million for the year ended January 2, 2023, primarily reflecting $298.3 million to fund the acquisition of Telephonics, $102.9 million for purchases of property, plant and equipment and other assets, less $6.0 million for proceeds from sale of property, plant and equipment and other assets.
Sales to our five largest customers accounted for 30 %, 2 9 % and 2 7 % of ou r net sales in fiscal years 202 1 , 2020 and 201 9 , respectively. We sell to OEMs both directly and indirectly through EMS providers.
While our customers include both OEMs and EMS providers, we measure customers based on OEM companies, as they are the ultimate end customers. Sales to our five largest customers accounted for 33%, 30% and 29% of our net sales in fiscal years 2022, 2021 and 2020, respectively. We sell to OEMs both directly and indirectly through EMS providers.
Impairment of Goodwill For the year ended December 28, 2020, we recorded a goodwill impairment charge of $69.2 million. See Note 5 of the Notes to Consolidated Financial Statements for further information. Other Expense Other expense, net decreased $18.4 million to $55.9 million for the year ended January 3, 2022 from $74.4 million for the year ended December 28, 2020.
We will receive the proceeds as follows: 50% before March 30, 2023, 40% before June 30, 2023, and 10% before December 30, 2023. 42 Impairment of Goodwill For the year ended December 28, 2020, we recorded a goodwill impairment charge of $69.2 million. See Note 5 of the Notes to Consolidated Financial Statements for further information.
The COVID-19 pandemic has created and continues to create various global macroeconomic, customer demand, operational and supply chain risks, any one of which could have a material and adverse impact on our business going forward. See Item 1A, Risk Factors , of Part I above for further information related to the COVID-19 pandemic.
The COVID-19 pandemic along with the conflict between Russia and Ukraine has created and continues to contribute to various global macroeconomic, customer demand, operational and supply chain risks and has contributed to high inflation, labor shortages in North America, and a potential recession, each of which could have a material and adverse impact on our business going forward.
Capacity utilization for the year ended January 3, 2022 in our Asia and North America PCB facilities was 86% and 51%, respectively, compared to 62% and 62%, respectively, for the year ended December 28, 2020.
This measure is particularly important in our high-volume PCB facilities in Asia, as a significant portion of our operating costs are fixed in nature. Capacity utilization for the year ended January 2, 2023 in our Asia and North America PCB facilities was 81% and 43%, respectively, compared to 86% and 51%, respectively, for the year ended January 3, 2022.
The decrease in selling and marketing expenses in 2020 was primarily due to reduced travel expense and other costs as a result of the COVID-19 pandemic, which has decreased travel on a temporary basis and commission expense. 38 General and Administrative Expenses General and administrative expenses increased $2.4 million to $124.9 million, or 5.5% of net sales, for the year ended January 3, 2022 from $122.5 million, or 5.8% of net sales, for the year ended December 28, 2020.
These increases were partially offset by gains on the sale of assets. General and administrative expenses increased $2.4 million to $124.9 million, or 5.5% of net sales, for the year ended January 3, 2022 from $122.5 million, or 5.8% of net sales, for the year ended December 28, 2020.
A summary of our lease obligations as of January 3, 2022 is included in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
A summary of our lease obligations as of January 2, 2023 is included in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 44 Offset Agreements Following the acquisition of Telephonics on June 27, 2022, we have and may continue to enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for our products and services from customers in foreign countries.
A decrease or increase of 200 basis points in gross margin estimates would have increased or decreased our contract assets by $0.6 million. In addition, the Company manufactures components, assemblies, and subsystems which service its RF&S Components customers. The Company recognizes revenue at a point in time upon transfer of control of the products to the customer.
In addition, we manufacture components, assemblies, subsystems, and completed systems which service our RF&S Components and certain aerospace and defense customers. We recognize revenue at a point in time upon transfer of control of the products to the customer.
This increase was primarily due to an increase in labor costs and other general and administrative spending, including increased consulting and legal costs. General and administrative expenses decreased $6.8 million to $122.5 million, or 5.8% of net sales, for the year ended December 28, 2020 from $129.3 million, or 6.1% of net sales, for the year ended December 30, 2019.
This increase was primarily due to an increase in labor costs and other general and administrative spending, including increased consulting and legal costs.
Total net sales decreased $27.9 million, or 1.3%, to $2,105.3 million for the year ended December 28, 2020 from $2,133.2 million for the year ended December 30, 2019.
Other Expense Other expense, net decreased $28.4 million to $27.5 million for the year ended January 2, 2023 from $55.9 million for the year ended January 3, 2022.
Gross Margin Overall gross margin decreased to 16.5% for the year ended January 3, 2022 from 17.0% for the year ended December 28, 2020.
The increase in overall gross margin was due to the increase in gross margin for the PCB reportable segment to 18.2% for the year ended January 2, 2023, from 16.3% for the year ended January 3, 2022.
The decrease in overall gross margin was due to the decrease in gross margin for the RF&S Components reportable segment to 45.9% for the year ended December 28, 2020 from 63.2% for the year ended December 30, 2019, primarily due to lower sales.
Net sales for the RF&S Components reportable segment decreased $1.5 million, or 2.5%, to $57.1 million for the year end January 2, 2023 from $58.6 million for the year ended January 3, 2022. The decrease in RF&S Components net sales was primarily due to lower demand.
We anticipate that financing capital expenditures, financing acquisitions, funding working capital requirements, servicing debt, and potential share repurchases will be the principal demands on our cash in the future. Cash flow provided by operating activities from continuing operations during the year ended January 3, 2022 was $176.6 million as compared to $247.7 million in the same period in 2020.
We anticipate that financing capital expenditures, financing acquisitions, funding working capital requirements, servicing debt, and repurchasing common stock will be the principal demands on our cash in the future.
Net cash used in financing activities for continuing operations was approximately $642.3 million for the year ended December 28, 2020, primarily reflecting repayment of long-term debt of $650.0 million.
Net cash used in financing activities for continuing operations during the year ended January 2, 2023 was $11.3 million, primarily reflecting repurchases of common stock of $35.4 million, cash used to settle warrants of $0.9 million, less customer deposits of $25.0 million.
We utilize the RMB at our China facilities for employee-related expenses, RMB denominated purchases, and other costs of running our operations in China.
The decrease in other expense, net was primarily due to: • an increase in other income of $17.8 million related to the weakening of the Chinese RMB, which we utilize at our China facilities for employee-related expenses, RMB denominated purchases, and other costs of running our operations in China, • the absence of $15.2 million of loss on extinguishment of debt, • partially offset by the decrease in other income of $4.1 million related to the change in fair value of warrant liabilities.
Fiscal year 2020 and 2019 were 52 weeks ended on December 28, 2020 and December 30, 2019, respectively.
Fiscal year 2022 and 2020 were 52 weeks ended on January 2, 2023 and December 28, 2020, respectively. Fiscal year 2021 consisted of 53 weeks ended on January 3, 2022, with the additional week included in the fourth quarter.
The increase in PCB net sales was primarily due to increased demand in our Aerospace and Defense, Medical/Industrial/Instrumentation, and Data Center Computing end markets, partially offset by lower demand in our Automotive end market. Also driving the increase in PCB net sales were changes in product mix, which resulted in a 15.2% increase in the average price per square foot.
This increase in PCB net sales was primarily due to the acquisition of Telephonics in June 2022, which accounted for $125.9 million in net sales for the year ended January 2, 2023 since the date of acquisition, as well as increased demand in our Medical/Industrial/Instrumentation, Data Center Computing, and Automotive end markets.
The provision for income taxes decreased $32.3 million to an income tax benefit of $29.9 million for the year ended December 28, 2020 from an income tax expense of $2.4 million for the year ended December 30, 2019.
Income Taxes Income tax expense increased $72.7 million to $88.3 million for the year ended January 2, 2023 from $15.6 million for the year ended January 3, 2022.
The benefit of this price increase, however, was partially offset by a 10.1% decrease in the volume of PCB shipments as compared to the year ended December 30, 2019. For information regarding net sales by country, see Note 17 of the Notes to Consolidated Financial Statements.
For information regarding net sales by country, see Note 17 of the Notes to Consolidated Financial Statements. Gross Margin Overall gross margin increased to 18.4% for the year ended January 2, 2023 from 16.5% for the year ended January 3, 2022.
Removed
COMPANY OVERVIEW We are a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically advanced PCBs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency (RF) and microwave components and assemblies.
Added
RECENT DEVELOPMENTS On February 8, 2023, we announced that we intend to close PCB manufacturing operations in Anaheim and Santa Clara, California, and Hong Kong and to consolidate the business from these impacted sites into our remaining facilities. The plant closures are expected to improve both facility and talent utilization across our footprint resulting in improved profitability.
Removed
With the development and deployment of vaccines, certain of the adverse societal and economic effects of the pandemic have declined. However, as new variants of the virus emerge and evolve, we could see a rebound in the severity of the adverse effects of the pandemic.
Added
We expect to record between $22.0 million and $28.0 million in separation, asset impairment and disposal costs related to this restructuring, primarily between now and the end of 2023. Approximately 80% of these costs are expected to be in the form of cash expenditures and the rest in the form of non-cash charges.
Removed
We have taken active measures to seek to protect our employees, suppliers and customers by implementing extensive pandemic related protocols, establishing situational leadership teams in Asia-Pacific and North America along with regularly scheduled executive reviews and planning calls, implementing global travel restrictions, and conforming to the guidance and direction of local governments and global health organizations.
Added
On December 22, 2022, our land, building, and relevant ancillary assets related to our former Shanghai E-MS (SH E-MS) manufacturing facility was expropriated by the Chinese government for a compensation fee of Renminbi (RMB) 477.6 million ($69.2 million as of January 2, 2023) generating a gain on the sale of $51.8 million.
Removed
During the year ended January 3, 2022, we experienced supply chain constraints and inflationary pressures, and expect those constraints and pressures to continue into 2022.
Added
We will receive the proceeds as follows: 50% before March 30, 2023, 40% before June 30, 2023, and 10% before December 30, 2023. On June 27, 2022, we completed our acquisition of all of the issued and outstanding common stock of Gritel Holding Co., Inc. (Gritel) and ISC Farmingdale Corp. for a total consideration of $298.3 million in cash.
Removed
Fiscal year 2020 and 2019 were 52 weeks ended on December 28, 2020 and December 30, 2019, respectively. 34 While our customers include both OEMs and EMS providers, we measure customers based on OEM companies, as they are the ultimate end customers .
Added
At the time of the acquisition, Telephonics Corporation was wholly-owned by Gritel, and as a result of the acquisition, became an indirect, wholly-owned subsidiary of the Company (collectively with ISC Farmingdale Corp., Telephonics).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

18 edited+2 added−5 removed11 unchanged
Biggest changeAs of January 3, 2022, we had commodity contracts with a notional quantity of (i) 500 metric tonnes for the period beginning January 4, 2022 and ending on March 31, 2022, (ii) 500 metric tonnes for the period beginning April 5, 2022 and ending on June 29, 2022, (iii) 630 metric tonnes for the period beginning June 30, 2022 and ending on October 3, 2022, and (iv) 700 metric tonnes for the period beginning October 4, 2022 and ending on January 3, 2023.
Biggest changeAs of January 2, 2023, we had commodity contracts with a notional quantity of 700 metric tonnes each for the periods: (i) beginning October 4, 2022 and ending on January 3, 2023, (ii) beginning January 1, 2023 and ending on March 31, 2023, (iii) beginning April 1, 2023 and ending on June 30, 2023, (iv) beginning July 1, 2023 and ending on September 30, 2023, and (v) beginning October 1, 2023 and ending on December 31, 2023.
However, given the inherent limitations of forecasting and the anticipatory nature of the exposures intended to be hedged, we cannot be assured that such programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in either interest, foreign exchange rates, or commodity prices.
However, given the inherent limitations of forecasting and the anticipatory nature of the exposures intended to be hedged, we cannot be assured that such programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in either foreign exchange rates or commodity prices.
On July 27, 2017, the Financial Conduct Authority (FCA) announced the desire to phase out the use of LIBOR by the end of 2021. More recently, on March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative.
On July 27, 2017, the Financial Conduct Authority (FCA) announced the desire to phase out the use of LIBOR by the end of 2021. More recently, on March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or 45 no longer be representative.
Foreign Currency Risks In the normal course of business, we are exposed to risks associated with fluctuations in foreign currency exchange rates related to transactions that are denominated in currencies other than our functional currencies, as well as the effects of translating amounts denominated in a foreign currency to the U.S.
Foreign Currency Rate Risks In the normal course of business, we are exposed to risks associated with fluctuations in foreign currency exchange rates related to transactions that are denominated in currencies other than our functional currencies, as well as the effects of translating amounts denominated in a foreign currency to the U.S.
Fluctuations in interest rates can also lead to significant fluctuations in the fair value of our debt obligations. On May 15, 2018, we entered into a four-year pay-fixed, receive floating (1-month LIBOR), interest rate swap arrangement with a notional amount of $400.0 million for the period beginning June 1, 2018 and ending on June 1, 2022.
Fluctuations in interest rates can also lead to significant fluctuations in the fair value of our debt obligations. On May 15, 2018, we entered into a four-year pay-fixed, receive floating (1-month LIBOR), interest rate swap arrangement with a notional amount of $400.0 million for the period beginning June 1, 2018 and ended on June 1, 2022.
Specifically, this occurred immediately after December 31, 2021, in the case of all Sterling, Euro, Swiss franc and Japanese yen (JPY) settings, and the 1-week, and 2-month U.S. dollar settings; and immediately after June 30, 2023, in the case of the remaining U.S. dollar settings.
Specifically, this occurred immediately after December 31, 2021, in the case of all Sterling, Euro (EUR), Swiss franc and Japanese yen settings, and the 1-week, and 2-month U.S. dollar settings; and immediately after June 30, 2023, in the case of the remaining U.S. dollar settings.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business operations, we are exposed to risks associated with fluctuations in interest rates, foreign currency exchange rates, and commodity prices. We address these risks through controlled risk management that includes the use of derivative financial instruments to economically hedge or reduce these exposures.
ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK In the normal course of business operations, we are exposed to risks associated with fluctuations in interest rates, foreign currency exchange rates, and commodity prices. We address these risks through controlled risk management that includes the use of derivative financial instruments to economically hedge or reduce these exposures.
In particular, we have been experiencing increasing prices and lead times of copper clad laminates (CCLs), a key raw material for the manufacture of PCBs. This may negatively affect our profitability. CCLs are made from epoxy resin, glass cloth and copper foil, all of which are seeing limited supply and resulting in increased prices.
In particular, we have been experiencing volatility in prices and increasing lead times of copper clad laminates (CCLs), a key raw material for the manufacture of PCBs. This may negatively affect our profitability. CCLs are made from epoxy resin, glass cloth and copper foil, all of which are seeing limited supply and volatility in prices.
Dollar as a normal part of our financial reporting process. Most of our foreign operations have the U.S. Dollar as their functional currency, however, two of our China facilities utilize the Renminbi (RMB), which 42 results in recognition of translation adjustments included as a component of other comprehensive income (loss).
Dollar as a normal part of our financial reporting process. Most of our foreign operations have the U.S. Dollar as their functional currency, however, one of our China facilities utilize the Renminbi (RMB), which results in recognition of translation adjustments included as a component of other comprehensive income (loss).
To ensure the adequacy and effectiveness of our interest rate, foreign exchange, and commodity price hedge positions, we continually monitor our interest rate swap positions, foreign exchange forward positions, and commodity hedge price positions, both on a stand-alone basis and in conjunction with their underlying interest rate, foreign currency, and commodity price exposures, from an accounting and economic perspective.
To ensure the adequacy and effectiveness of our foreign exchange and commodity price hedge positions, we continually monitor our foreign exchange forward positions and commodity hedge price positions, both on a stand-alone basis and in conjunction with their underlying foreign currency and commodity price exposures, from an accounting and economic perspective.
Under the terms of the interest rate swap, we pay a fixed rate of 2.84% against the first interest payments of a portion of our LIBOR-based debt and receive floating 1-month LIBOR during the swap period. At inception, we designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was zero.
During the term of the interest rate swap, we paid a fixed rate of 2.84% against the first interest payments of a portion of our LIBOR-based debt and received floating 1-month LIBOR during the swap period. At inception, we designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was zero.
Our foreign exchange exposure results primarily from employee-related and other costs of running our operations in foreign countries, foreign currency denominated purchases and translation of balance sheet accounts denominated in foreign currencies. Our primary foreign exchange exposure is to the RMB. Except for certain equipment purchases, we do not engage in hedging to manage this foreign currency risk.
Our foreign exchange exposure results primarily from employee-related and other costs of running our operations in foreign countries, foreign currency denominated purchases and translation of balance sheet accounts denominated in foreign currencies. We do not engage in hedging to manage this foreign currency risk, except for certain equipment purchases. However, we may consider the use of derivatives in the future.
As of January 3, 2022, the fair value of the commodity contracts was recorded as an asset in the amount of $0.3 million and included as a component of prepaid expenses and other current assets. We will continue to evaluate our commodity risks and may utilize commodity forward purchase contracts more frequently in the future.
As of January 2, 2023, the fair value of the commodity contracts was recorded as a liability in the amount of $1.5 million and included as a component of other current liabilities. We will continue to evaluate our commodity risks and may utilize commodity forward purchase contracts more frequently in the future.
The table below presents information regarding our interest rate swap for the year ended January 3, 2022: For the Year Ended January 3, 2022 (In thousands, except interest rates) Average interest payout rate 2.84 % Interest payout amount $ (11,703 ) Average interest received rate 0.10 % Interest received amount 431
The table below presents information regarding our interest rate swap for the year ended January 2, 2023: For the Year Ended January 2, 2023 (In thousands, except interest rates) Average interest payout rate 2.84 % Interest payout amount $ (4,669 ) Average interest received rate 0.34 % Interest received amount $ 564
As of December 28, 2020, the notional amount of the foreign exchange contracts was approximately $1.2 million (JPY 125.0 million). We designated certain of these foreign exchange contracts as cash flow hedges. Commodity Price Risks We are exposed to certain commodity risks associated with prices for various raw materials.
As of January 2, 2023, the notional amount of the foreign exchange contracts was approximately $1.6 million (EUR 1.4 million). There were no foreign exchange contracts as of January 3, 2022. We designated certain of these foreign exchange contracts as cash flow hedges. Commodity Price Risks We are exposed to certain commodity risks associated with prices for various raw materials.
Based on our borrowings as of January 3, 2022, an assumed 100 basis point increase in variable rates would cause our annual interest cost to increase by $0.4 million and an assumed 100 basis point decrease in variable rates would cause our annual interest cost to decrease by $0.1 million.
As of January 2, 2023, approximately 53.4% of our debt was based on fixed rates. Based on our borrowings as of January 2, 2023, an assumed 100 basis point change in variable rates would cause our annual interest cost to change by $4.4 million.
Debt Instruments The table below presents the fiscal calendar maturities of long-term debt through 2026 and thereafter of our debt instruments as of January 3, 2022: As of January 3, 2022 2022 2023 2024 (1) 2025 2026 Thereafter Total Fair Market Value Weighted Average Interest Rate (In thousands) US$ Variable Rate $ — $ — $ 435,879 $ — $ — $ — $ 435,879 $ 436,135 2.52% US$ Fixed Rate — — — — — 500,000 500,000 498,200 4.00% Total $ — $ — $ 435,879 $ — $ — $ 500,000 $ 935,879 $ 934,335 (1) Interest rate swap effectively fixed $400,000 of variable rate debt.
Debt Instruments The table below presents the fiscal calendar maturities of our debt instruments through 2027 and thereafter as of January 2, 2023: As of January 2, 2023 2023 2024 2025 2026 2027 Thereafter Total Fair Value Weighted Average Interest Rate (In thousands) US$ Variable Rate $ 50,000 $ 385,879 $ — $ — $ — $ — $ 435,879 $ 435,628 6.82% US$ Fixed Rate — — — — — 500,000 500,000 430,165 4.00% Total $ 50,000 $ 385,879 $ — $ — $ — $ 500,000 $ 935,879 $ 865,793 46 Interest Rate Swap Contracts Our interest rate swap arrangement ended on June 1, 2022.
Our foreign subsidiaries may at times enter into forward exchange contracts to manage foreign currency risks in relation to certain purchases of machinery denominated in foreign currencies other than our functional currencies. There were no forward exchange contracts as of January 3, 2022.
Our primary foreign exchange exposure is to the RMB. In general, our Chinese customers pay us in RMB, which partially mitigates this foreign currency exchange risk. Our foreign subsidiaries may at times enter into forward exchange contracts to manage foreign currency risks in relation to certain purchases of machinery denominated in foreign currencies other than our functional currencies.
Removed
As of January 3, 2022, the fair value of the interest rate swap was recorded as a liability in the amount of $4.3 million and included as a component of other current liabilities. No ineffectiveness was recognized for the year ended January 3, 2022.
Added
No ineffectiveness was recognized for the year ended January 2, 2023. During the year ended January 2, 2023, the interest rate swap increased interest expense by $4.1 million. Since June 1, 2022, our $400.0 million LIBOR-based variable debt has been more sensitive to fluctuations in interest rates due to the expiration of the interest rate swap arrangement.
Removed
During the year ended January 3, 2022, the interest rate swap increased interest expense by $11.3 million.
Added
We currently do not expect to enter into a new interest rate swap arrangement.
Removed
As of January 3, 2022, approximately 96.2% of our total debt was based on fixed rates.
Removed
However, we may consider the use of derivatives in the future. In general, our Chinese customers pay us in RMB, which partially mitigates this foreign currency exchange risk .
Removed
Interest Rate Swap Contracts As of January 3, 2022, the fair value of the interest rate swap was recorded as a liability in the amount of $4.3 million.

Other TTMI 10-K year-over-year comparisons