TTM TECHNOLOGIES INC 10-Q

Item 1. Financial Statements (unaudited) TTM TECHNOLOGIES, INC. Consolidated Condensed Balance Sheets As of April 4, 2022 and January 3, 2022 As of April 4, January 3, 2022 2022 (Unaudited) (In thousands, except par value) ASSETS Current assets: Cash and cash equivalents $ 519,079 $ 537,678 Accounts receivable, net 412,432 386,347 Contract assets 318,713 324,862 Inventories 137,343 127,612 Prepaid expenses and other current assets 46,616 30,914 Total current assets 1,434,183 1,407,413 Property, plant and equipment, net 663,394 665,755 Operating lease right-of-use assets 19,503 20,802 Goodwill 637,324 637,324 Definite-lived intangibles, net 230,260 239,918 Deposits and other non-current assets 59,484 54,335 Total assets $ 3,044,148 $ 3,025,547 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 383,929 $ 361,484 Contract liabilities 22,524 14,189 Accrued salaries, wages and benefits 88,992 89,446 Other current liabilities 91,121 93,029 Total current liabilities 586,566 558,148 Long-term debt, net of discount and issuance costs 928,210 927,818 Operating lease liabilities 13,917 15,252 Other long-term liabilities 67,626 68,912 Total long-term liabilities 1,009,753 1,011,982 Commitments and contingencies (Note 14) Equity: Common stock, $ 0.001 par value; 300,000 shares authorized; 108,383 and 108,194 shares issued as of April 4, 2022 and January 3, 2022, respectively; 101,387 and 103,533 shares outstanding as of April 4, 2022 and January 3, 2022, respectively 108 108 Treasury stock – common stock at cost; 6,996 and 4,661 shares as of April 4, 2022 and January 3, 2022, respectively ( 93,467 ) ( 63,807 ) Additional paid-in capital 842,788 840,113 Retained earnings 723,504 706,258 Accumulated other comprehensive loss ( 25,104 ) ( 27,255 ) Total stockholders’ equity 1,447,829 1,455,417 Total liabilities and stockholders' equity $ 3,044,148 $ 3,025,547 See accompanying notes to consolidated condensed financial statements. 3 TTM TECHNOLOGIES, INC. Consolidated Condensed Statements of Operations For the Quarters Ended April 4, 2022 and March 29, 2021 Quarter Ended April 4, March 29, 2022 2021 (Unaudited) (In thousands, except per share data) Net sales $ 581,260 $ 526,432 Cost of goods sold 490,337 444,832 Gross profit 90,923 81,600 Operating expenses: Selling and marketing 18,272 16,282 General and administrative 32,954 31,527 Research and development 5,555 4,470 Amortization of definite-lived intangibles 8,274 9,521 Total operating expenses 65,055 61,800 Operating income 25,868 19,800 Other (expense) income: Interest expense ( 11,361 ) ( 11,389 ) Loss on extinguishment of debt — ( 15,217 ) Other, net 1,970 2,507 Total other expense, net ( 9,391 ) ( 24,099 ) Income (loss) before income taxes 16,477 ( 4,299 ) Income tax benefit 769 1,107 Net income (loss) $ 17,246 $ ( 3,192 ) Earnings (loss) per share: Basic earnings (loss) per share $ 0.17 $ ( 0.03 ) Diluted earnings (loss) per share $ 0.17 $ ( 0.03 ) See accompanying notes to consolidated condensed financial statements. 4 TTM TECHNOLOGIES, INC. Consolidated Condensed Statements of Comprehensive Income (Loss) For the Quarters Ended April 4, 2022 and March 29, 2021 Quarter Ended April 4, March 29, 2022 2021 (Unaudited) (In thousands) Net income (loss) $ 17,246 $ ( 3,192 ) Other comprehensive income, net of tax: Foreign currency translation adjustments, net ( 36 ) ( 3 ) Net unrealized gain on cash flow hedges: Unrealized gain (loss) on effective cash flow hedges during the period, net 153 ( 263 ) Loss realized in the statement of operations, net 2,034 2,052 Net 2,187 1,789 Other comprehensive income, net of tax 2,151 1,786 Comprehensive income (loss), net of tax $ 19,397 $ ( 1,406 ) See accompanying notes to consolidated condensed financial statements. 5 TTM TECHNOLOGIES, INC. Consolidated Condensed Statements of Stockholders’ Equity For the Quarters Ended April 4, 2022 and March 29, 2021 Common Stock Treasury Stock Additional Paid-In Retained Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Earnings (Loss) Income Equity (Unaudited) (In thousands) Balance, January 3, 2022 108,194 $ 108 ( 4,661 ) $ ( 63,807 ) $ 840,113 $ 706,258 $ ( 27,255 ) $ 1,455,417 Net income — — — — — 17,246 — 17,246 Other comprehensive income — — — — — — 2,151 2,151 Issuance of common stock for performance-based restricted stock units 182 — — — — — — — Issuance of common stock for restricted stock units 7 — — — — — — — Repurchases of common stock — — ( 2,373 ) ( 30,232 ) — — — ( 30,232 ) Fair value of warrants reclassified to warrant liabilities — — — — ( 987 ) — — ( 987 ) Issuance of stock from warrant exercises — — 38 572 ( 572 ) — — — Stock-based compensation — — — — 4,234 — — 4,234 Balance, April 4, 2022 108,383 $ 108 ( 6,996 ) $ ( 93,467 ) $ 842,788 $ 723,504 $ ( 25,104 ) $ 1,447,829 Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Total Stockholders' Shares Amount Capital Earnings (Loss) Income Equity Balance, December 28, 2020 106,770 $ 107 $ 830,971 $ 651,844 $ ( 38,913 ) $ 1,444,009 Net loss — — — ( 3,192 ) — ( 3,192 ) Other comprehensive income — — — — 1,786 1,786 Issuance of common stock for performance-based restricted stock units 135 — — — — — Issuance of common stock for restricted stock units 203 — — — — — Fair value of warrants reclassified to warrant liabilities — — ( 4,345 ) — — ( 4,345 ) Issuance of common stock from warrant exercises 5 — — — — — Stock-based compensation — — 4,209 — — 4,209 Balance, March 29, 2021 107,113 $ 107 $ 830,835 $ 648,652 $ ( 37,127 ) $ 1,442,467 See accompanying notes to consolidated condensed financial statements. 6 TTM TECHNOLOGIES, INC. Consolidated Condensed Statements of Cash Flows For the Quarters Ended April 4, 2022 and March 29, 2021 Quarter Ended April 4, 2022 March 29, 2021 (Unaudited) (In thousands) Cash flows from operating activities: Net income (loss) $ 17,246 $ ( 3,192 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 21,500 21,476 Amortization of definite-lived intangible assets 9,658 10,905 Amortization of debt discount and issuance costs 533 537 Loss on extinguishment of debt — 15,217 Deferred income taxes ( 3,298 ) 683 Stock-based compensation 4,234 4,209 Other ( 1,360 ) ( 534 ) Changes in operating assets and liabilities: Accounts receivable, net ( 26,085 ) 14,337 Contract assets 6,149 1,554 Inventories ( 9,731 ) ( 5,473 ) Prepaid expenses and other current assets ( 15,848 ) ( 6,495 ) Accounts payable 24,112 10,885 Contract liabilities 8,335 ( 768 ) Accrued salaries, wages and benefits ( 454 ) ( 15,067 ) Other current liabilities 1,000 ( 7,129 ) Net cash provided by operating activities 35,991 41,145 Cash flows from investing activities: Purchase of property, plant and equipment and other assets ( 23,445 ) ( 21,797 ) Proceeds from sale of property, plant and equipment and other assets 25 831 Net cash used in investing activities ( 23,420 ) ( 20,966 ) Cash flows from financing activities: Repurchases of common stock ( 30,232 ) — Cash used to settle warrants ( 887 ) — Proceeds from long-term debt borrowing — 500,000 Repayment of long-term debt borrowings — ( 425,838 ) Payment of debt issuance costs — ( 4,773 ) Other — ( 1,309 ) Net cash (used in) provided by financing activities ( 31,119 ) 68,080 Effect of foreign currency exchange rates on cash and cash equivalents ( 51 ) ( 176 ) Net (decrease) increase in cash and cash equivalents ( 18,599 ) 88,083 Cash and cash equivalents at beginning of period 537,678 451,565 Cash and cash equivalents at end of period $ 519,079 $ 539,648 Supplemental cash flow information: Cash paid, net for interest $ 17,563 $ 15,244 Cash paid, net for income taxes 3,259 713 Supplemental disclosure of noncash investing and financing activities: Property, plant and equipment recorded in accounts payable $ 31,656 $ 28,960 Issuance of common stock for warrant settlement 589 68 See accompanying notes to consolidated condensed financial statements. 7 TTM TECHNOLOGIES, INC. Notes to Consolidated Condensed Financial Statements (Unaudited) (Dollars and shares in thousands, except per share data) (1) Nature of Operations and Basis of Presentation TTM Technologies, Inc. (the Company or TTM) is a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically advanced PCBs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency (RF) and microwave/microelectronics components and assemblies. The Company provides time-to-market and volume production of advanced technology products and offers a one-stop design, engineering, and manufacturing solution to customers. This one-stop design, engineering, and manufacturing solution allows the Company to align technology developments with the diverse needs of the Company’s customers and to enable them to reduce the time required to develop new products and bring them to market. The Company serves a diversified customer base in various markets throughout the world, including aerospace and defense, data center computing, automotive components, medical, industrial and instrumentation related products, as well as networking/communications infrastructure products. The Company’s customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers. The accompanying consolidated condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated condensed financial statements and accompanying notes. Due, in part, to the on-going coronavirus (COVID-19) global pandemic, the global economy and financial markets have been volatile, and the pandemic has contributed to disruptions in global supply chains and labor shortages and high inflation, and there is a significant amount of uncertainty about the length and severity of the consequences caused by the ongoing pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. Actual results could differ materially from those estimates. The Company uses a 52/53 week fiscal calendar with the fourth quarter ending on the Monday nearest December 31. Recently Adopted and Issued Accounting Standards Recently Adopted Accounting Standards In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers , as if it had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company early adopted ASU 2021-08 on April 4, 2022 and any impact on the condensed consolidated financial statements will be dependent on the magnitude and nature of future acquired entities. Recently Issued Accounting Standards Not Yet Adopted In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance , which provides guidance on disclosures for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company does not anticipate the adoption will have a material impact on the consolidated financial statements and related disclosures. 8 (2) Share Repurchase Program On February 3, 2021, the Company’s Board of Directors authorized and approved a share repurchase program. Under the program, the Company may repurchase up to $ 100,000 in value of the Company’s outstanding shares of common stock from time to time through February 3, 2023 . The Company may repurchase shares through open market purchases, privately-negotiated transactions, or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) which sets certain restrictions on the method, timing, price, and volume of open market stock repurchases. In addition, the Company adopted a trading plan, which may be amended from time to time, in accordance with Rule 10b5-1 of the Exchange Act to facilitate certain purchases that may be effected under the share repurchase program. The timing, manner, price, and amount of any repurchases are determined at the Company’s discretion, and the share repurchase program may be suspended, terminated, or modified at any time for any reason. The repurchase program does not obligate the Company to acquire any specific number of shares. During the quarter ended April 4, 2022, the Company repurchased 2,373 shares of common stock for a total cost of $ 30,232 (including commissions). As of April 4, 2022, the remaining amount available to be repurchased under the Company’s share repurchase program was $ 5,184 . Subsequent to April 4, 2022, the Company repurchased 374 shares of common stock for a total cost of $ 5,192 (including commissions) and there are no amounts available for repurchase as of May 4, 2022. (3) Leases The Company leases some of its manufacturing and assembly plants, sales offices and equipment under non-cancellable operating leases and finance leases that expire at various dates through 2049 . The majority of the Company’s lease arrangements are comprised of fixed payments, and certain leases consist of variable payments based on equipment usage. These variable payments are not included in the measurement of the right-of-use (ROU) asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. Certain leases contain renewal provisions at the Company’s option. Most of the leases require the Company to pay for certain other costs such as property taxes and maintenance. Certain leases also contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents is recognized on a straight-line basis over the minimum lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants. The components of lease expense were as follows: Quarter Ended April 4, 2022 March 29, 2021 (In thousands) Operating lease cost $ 1,884 $ 2,208 Variable lease cost 246 234 Short-term lease cost 140 54 Finance lease costs: Amortization of right-of-use assets 344 — Interest on lease liabilities 98 — Supplemental cash flow information related to leases was as follows: Quarter Ended April 4, 2022 March 29, 2021 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 1,861 $ 2,159 Right-of-use assets obtained in exchange for new lease obligations: Operating leases 421 284 9 Supplemental balance sheet information related to leases was as follows: As of Balance Sheet Location April 4, 2022 January 3, 2022 (In thousands) Assets: Operating leases Operating lease right-of-use assets $ 19,503 $ 20,802 Finance leases Property, plant and equipment, net 14,415 14,759 Total lease assets $ 33,918 $ 35,561 Liabilities: Current: Operating leases Other current liabilities $ 6,423 $ 6,362 Finance leases Other current liabilities 702 698 Long-term: Operating leases Operating lease liabilities 13,917 15,252 Finance leases Other long-term liabilities 14,139 14,317 Total lease liabilities $ 35,181 $ 36,629 As of April 4, 2022 January 3, 2022 Weighted average remaining lease term (years): Operating leases 3.7 3.9 Finance leases 14.3 14.6 Weighted average discount rate: Operating leases 2.60 % 2.56 % Finance leases 2.68 % 2.68 % Maturities of lease liabilities were as follows: Operating Leases (1) Finance Leases (In thousands) Less than one year $ 5,195 $ 817 1 - 2 years 6,196 1,110 2 - 3 years 5,014 1,135 3 - 4 years 2,639 1,146 4 - 5 years 1,474 1,175 Thereafter 904 12,656 Total lease payments 21,422 18,039 Less imputed interest ( 1,082 ) ( 3,198 ) Total $ 20,340 $ 14,841 (1) Excludes $ 851 of legally binding minimum lease payments for leases signed but not yet commenced. 10 (4) Revenues As of April 4, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations for long-term contracts was $ 11,877 . The Company expects to recognize revenue on approximately 48 % of the remaining performance obligations for the Company’s long-term contracts over the next twelve months . Revenue from products and services transferred to customers over time and at a point in time accounted for 97 % and 3 %, respectively, of the Company’s revenue for the quarter ended April 4, 2022, and 98 % and 2 %, respectively, of the Company’s revenue for the quarter ended March 29, 2021. The following tables represent a disaggregation of revenue by principal end markets with the reportable segments: Quarter Ended April 4, 2022 PCB RF&S Components Total End Markets (In thousands) Aerospace and Defense $ 172,180 $ — $ 172,180 Automotive 115,236 — 115,236 Data Center Computing 91,784 — 91,784 Medical/Industrial/Instrumentation 120,362 1,538 121,900 Networking/Communications 63,643 13,757 77,400 Other 2,865 ( 105 ) 2,760 Total $ 566,070 $ 15,190 $ 581,260 Quarter Ended March 29, 2021 PCB RF&S Components Other (1) Total End Markets (In thousands) Aerospace and Defense $ 186,539 $ 6 $ — $ 186,545 Automotive 91,792 — 3,642 95,434 Data Center Computing 71,759 432 — 72,191 Medical/Industrial/Instrumentation 90,770 1,081 25 91,876 Networking/Communications 66,938 10,653 1 77,592 Other 2,688 518 ( 412 ) 2,794 Total $ 510,486 $ 12,690 $ 3,256 $ 526,432 (1) Other represents results from the now closed Shanghai (SH E-MS) and Shenzhen (SZ) facilities previously utilized by the Company’s former E-M Solutions business unit. 11 (5) Composition of Certain Consolidated Condensed Financial Statement Captions As of April 4, 2022 January 3, 2022 (In thousands) Inventories: Raw materials $ 123,322 $ 114,653 Work-in-process 9,424 9,620 Finished goods 4,597 3,339 $ 137,343 $ 127,612 Property, plant and equipment, net: Land and land use rights $ 62,080 $ 62,015 Buildings and improvements 434,308 429,344 Machinery and equipment 906,406 891,925 Furniture and fixtures and other 10,406 10,360 Construction-in-progress 23,277 25,554 1,436,477 1,419,198 Less: Accumulated depreciation ( 773,083 ) ( 753,443 ) $ 663,394 $ 665,755 Other current liabilities: Sales return and allowances $ 12,463 $ 12,853 Income taxes payable 10,531 7,162 Operating lease 6,423 6,362 Interest 1,948 8,741 Derivative liabilities 1,437 4,295 Finance leases 702 698 Other 57,617 52,918 $ 91,121 $ 93,029 Other long-term liabilities: Deferred income taxes $ 26,344 $ 28,361 Finance leases 14,139 14,317 Defined benefit pension plan liability 5,013 5,276 Other 22,130 20,958 $ 67,626 $ 68,912 (6) Goodwill As of April 4, 2022 and January 3, 2022, goodwill by reportable segment was as follows: PCB RF&S Components Total (In thousands) Balance as of January 3, 2022 and April 4, 2022 Goodwill $ 700,724 $ 177,200 $ 877,924 Accumulated impairment losses ( 171,400 ) ( 69,200 ) ( 240,600 ) $ 529,324 $ 108,000 $ 637,324 12 (7) Definite-lived Intangibles As of April 4, 2022 and January 3, 2022, the components of definite-lived intangibles were as follows: Gross Amount Accumulated Amortization Net Carrying Amount Weighted Average Amortization Period (In thousands) (In years) April 4, 2022 Customer relationships $ 366,071 $ ( 162,736 ) $ 203,335 11.3 Technology 47,650 ( 20,725 ) 26,925 9.5 $ 413,721 $ ( 183,461 ) $ 230,260 January 3, 2022 Customer relationships $ 366,071 $ ( 154,461 ) $ 211,610 11.3 Technology 47,650 ( 19,342 ) 28,308 9.5 $ 413,721 $ ( 173,803 ) $ 239,918 Definite-lived intangibles are amortized using the straight-line method of amortization over the useful life. Amortization expense was $ 9,658 and $ 10,905 for the quarters ended April 4, 2022 and March 29, 2021, respectively. For both the quarters ended April 4, 2022 and March 29, 2021, $ 1,384 of amortization expense is included in cost of goods sold. Estimated aggregate amortization for definite-lived intangible assets for the next five years and thereafter is as follows: (In thousands) Remaining 2022 $ 28,973 2023 36,699 2024 29,516 2025 25,397 2026 25,397 Thereafter 84,278 $ 230,260 (8) Long-term Debt and Letters of Credit The following table summarizes the long-term debt of the Company as of April 4, 2022 and January 3, 2022: Interest Rate as of April 4, 2022 Principal Outstanding as of April 4, 2022 Interest Rate as of January 3, 2022 Principal Outstanding as of January 3, 2022 (In thousands) Senior Notes due March 2029 4.00 % $ 500,000 4.00 % $ 500,000 Term Loan due September 2024 2.93 405,879 2.60 405,879 Asia ABL Revolving Loan due June 2024 1.83 30,000 1.50 30,000 935,879 935,879 Less: Long-term debt unamortized discount ( 555 ) ( 607 ) Long-term debt unamortized debt issuance costs ( 7,114 ) ( 7,454 ) 928,210 927,818 Less: current maturities — — Long-term debt, less current maturities $ 928,210 $ 927,818 Debt Covenants Borrowings under the Senior Notes due 2029 and Term Loan Facility 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, the U.S. Asset-Based Lending Credit Agreement (U.S. ABL) and Asia Asset-Based Lending Credit Agreement (Asia ABL) (collectively, the ABL Revolving Loans), are subject to various financial covenants, including leverage and fixed charge coverage ratios. 13 Debt Issuance and Debt Discount As of April 4 , 2022 and January 3, 2022, remaining unamortized debt discount and debt issuance costs for the Senior Notes due 2029 and Term Loan Facility are as follows: As of April 4, 2022 As of January 3, 2022 Debt Issuance Costs Debt Discount Effective Interest Rate Debt Issuance Costs Debt Discount Effective Interest Rate (In thousands, except interest rates) Senior Notes due March 2029 $ 5,280 $ — 4.18 % $ 5,444 $ — 4.18 % Term Loan due September 2024 1,834 555 4.66 2,010 607 4.66 $ 7,114 $ 555 $ 7,454 $ 607 The above debt discount and debt issuance costs are recorded as a reduction of the debt and are amortized into interest expense using an effective interest rate over the duration of the debt. Remaining unamortized debt issuance costs for the ABL Revolving Loans of $ 1,214 and $ 1,355 as of April 4 , 2022 and January 3, 2022, respectively, are included in other non-current assets and are amortized to interest expense over the duration of the ABL Revolving Loans using the straight-line method of amortization. As of April 4 , 2022 , the remaining weighted average amortization period for all unamortized debt discount and debt issuance costs was 5.1 years. Loss on Extinguishment of Debt During the quarter ended March 29, 2021, the Company recognized losses of $ 15,217 associated with the premium paid on extinguishment of debt and the write-off of the remaining unamortized debt issuance costs as a result of the repayment of the remaining outstanding balance of the Senior Notes due 2025. (9) Income Taxes The Company’s effective tax rate is impacted by tax rates in China and Hong Kong, the U.S. federal income tax rate, apportioned state income tax rates, generation of credits and deductions available to the Company as well as changes in valuation allowances and certain non-deductible items. Additionally, no tax benefit was recorded on the losses incurred in certain foreign jurisdictions as a result of corresponding increases in the valuation allowances in these jurisdictions. During the quarter ended April 4, 2022, the Company’s effective tax rate was impacted by a net discrete benefit of $ 2,047 . This is mainly related to the approval of the Company’s renewal application for High and New Tax Enterprise status for two of the Company’s manufacturing subsidiaries in China, and windfall tax benefit of the stock-based compensation releases, which are offset by accrued interest expense on existing uncertain tax positions. The Company has various foreign subsidiaries formed or acquired to conduct or support its business outside the United States. The Company expects its earnings attributable to most foreign subsidiaries may be repatriated back to the U.S. and so a deferred tax liability has been recorded for foreign withholding and the estimated federal/state tax impact. For those other companies with earnings currently being reinvested outside of the U.S., no deferred tax liabilities on undistributed earnings are recorded. (10) Financial Instruments Derivatives Interest Rate Swaps The Company’s business is exposed to risk resulting from fluctuations in interest rates on certain LIBOR-based variable rate debt. Increases in interest rates would increase interest expenses relating to the outstanding variable rate borrowings and increase the cost of debt. Fluctuations in interest rates can also lead to significant fluctuations in the fair value of the debt obligations. On May 15, 2018, the Company entered into a four-year pay-fixed, receive floating (1-month LIBOR), interest rate swap arrangement with a notional amount of $ 400,000 for the period beginning June 1, 2018 and ending on June 1, 2022 . Under the terms of the interest rate swap, the Company pays a fixed rate of 2.84 % against a portion of its LIBOR-based debt and receives floating 1-month LIBOR during the swap period. At inception, the Company designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was zero . As of April 4, 2022, the fair value of the interest rate swap was recorded as a liability in the amount of $ 1,385 and included as a component of other current liabilities. The change in the fair value of the interest rate swap is recorded as a component of accumulated other comprehensive loss, net of tax, in the Company’s consolidated condensed balance sheets. No ineffectiveness was recognized for the quarters ended April 4, 2022 and March 29, 2021. The interest rate swap increased interest expense by $ 2,706 and $ 2,740 for the quarters ended April 4, 2022 and March 29, 2021, respectively. 14 Foreign Exchange Contracts The Company’s foreign subsidiaries may at times purchase forward exchange contracts to manage their foreign currency risks in relation to certain purchases of machinery denominated in foreign currencies other than the Company’s functional currencies. The notional amount of the foreign exchange contracts as of April 4, 2022 was approximately $ 1,625 (Euro (EUR) 1.4 million). There were no foreign exchange contracts as of January 3, 2022. Commodity Price Risk Management The Company uses various raw materials in the manufacturing of PCBs. In particular, the Company has been experiencing increasing prices and lead times of copper clad laminates (CCLs), a key raw material for the manufacture of PCBs. CCLs are made from epoxy resin, glass cloth and copper foil, all of which are seeing limited supply and resulting increased prices. The Company only buys a small amount of copper directly. However, copper is a major driver of laminate cost. As such, the Company enters into commodity contracts to hedge copper as a proxy for hedging laminate. As of April 4, 2022, the Company has commodity contracts with a notional quantity of (i) 0.5 metric tonnes for the period beginning April 5, 2022 and ending on June 29, 2022 , (ii) 0.6 metric tonnes for the period beginning June 30, 2022 and ending on October 3, 2022 , (iii) 0.7 metric tonnes for the period beginning October 4, 2022 and ending on January 3, 2023 , and (iv) 0.7 metric tonnes for the period beginning January 1, 2023 and ending on March 31, 2023 . As of April 4, 2022, the fair value of the commodity contracts was recorded as an asset in the amount of $ 1,699 and included as a component of prepaid expenses and other current assets. The changes in the fair value of these commodity contracts are recorded in cost of goods sold in the consolidated condensed statements of operations. The commodity contracts decreased cost of goods sold by $ 1,402 for the quarter ended April 4, 2022. These commodity contracts are not designated as accounting hedges. The fair values of derivative instruments in the consolidated condensed balance sheets are as follows: Asset/(Liability) Fair Value Balance Sheet Location April 4, 2022 January 3, 2022 (In thousands) Cash flow derivative instruments designated as hedges: Interest rate swap Other current liabilities $ ( 1,385 ) $ ( 4,295 ) Cash flow derivative instruments not designated as hedges: Commodity contracts Prepaid expenses and other current assets 1,699 297 Foreign exchange contracts Other current liabilities ( 52 ) — The following table provides information about the amounts recorded in accumulated other comprehensive loss related to derivatives designated as cash flow hedges, as well as the amounts recorded in each caption in the consolidated condensed statements of operations when derivative amounts are reclassified out of accumulated other comprehensive loss for the quarters ended April 4, 2022 and March 29, 2021: Quarter Ended April 4, 2022 Quarter Ended March 29, 2021 Financial Statement Caption Gain Recognized in Other Comprehensive Income Loss Reclassified into Income Loss Recognized in Other Comprehensive Loss Loss Reclassified into Income (In thousands) Cash flow hedge: Interest rate swap Interest expense $ 204 $ ( 2,706 ) $ ( 351 ) $ ( 2,740 ) The following table provides a summary of the activity associated with the designated cash flow hedges reflected in accumulated other comprehensive loss for the quarters ended April 4, 2022 and March 29, 2021: Quarter Ended April 4, March 29, 2022 2021 (In thousands) Beginning balance, net of tax $ ( 3,223 ) $ ( 11,231 ) Changes in fair value gain (loss), net of tax 153 ( 263 ) Reclassification to earnings 2,034 2,052 Ending balance, net of tax $ ( 1,036 ) $ ( 9,442 ) Based on the current yield curve, the Company expects that losses of approximately $ 1,087 of the accumulated other comprehensive loss will be reclassified into the statement of operations, net of tax, in the next quarter since the interest rate swap arrangement is expiring on June 1, 2022. 15 (11) Accumulated Other Comprehensive Loss The following provides a summary of the components of accumulated other comprehensive loss, net of tax, as of April 4, 2022 and January 3, 2022: Foreign Currency Translation Pension Obligation (Losses) Gains on Cash Flow Hedges Total (In thousands) Ending balance as of January 3, 2022 $ ( 23,899 ) $ ( 133 ) $ ( 3,223 ) $ ( 27,255 ) Other comprehensive (loss) income before reclassifications ( 36 ) — 153 117 Amounts reclassified from accumulated other comprehensive loss — — 2,034 2,034 Other comprehensive (loss) income ( 36 ) — 2,187 2,151 Ending balance as of April 4, 2022 $ ( 23,935 ) $ ( 133 ) $ ( 1,036 ) $ ( 25,104 ) (12) Significant Customers and Concentration of Credit Risk In the normal course of business, the Company extends credit to its customers. Some customers to whom the Company extends credit are located outside the United States. The Company performs ongoing credit evaluations of customers, does not require collateral, and considers the credit risk profile of the entity from which the receivable is due in further evaluating collection risk. The Company’s customers include both OEMs and EMS companies. The Company’s OEM customers often direct a significant portion of their purchases through EMS companies. While the Company’s customers include both OEM and EMS providers, the Company measures customer concentration based on OEM companies, as they are the ultimate end customers. For the quarters ended April 4, 2022 and March 29, 2021, one customer accounted for approximately 10 % and 13 % of the Company’s net sales, respectively. (13) Fair Value Measures The Company measures at fair value its financial and non-financial assets by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The carrying amount and estimated fair value of the Company’s financial instruments as of April 4, 2022 and January 3, 2022 were as follows: As of As of April 4, 2022 January 3, 2022 Carrying Amount Fair Value Carrying Amount Fair Value (In thousands) Derivative assets, current $ 1,699 $ 1,699 $ 297 $ 297 Derivative liabilities, current 1,437 1,437 4,295 4,295 Senior Notes due March 2029 494,720 465,035 494,556 498,200 Term Loan due September 2024 403,490 404,357 403,262 406,135 ABL Revolving Loans 30,000 30,000 30,000 30,000 The fair value of the derivative instruments was determined using pricing models developed based on the LIBOR swap rate, foreign currency exchange rates, and other observable market data, including quoted market prices, as appropriate using Level 2 inputs. The values were adjusted to reflect non-performance risk of both the counterparty and the Company, as necessary. The fair value of the long-term debt was estimated based on quoted market prices or discounting the debt over its life using current market rates for similar debt as of April 4, 2022 and January 3, 2022, which are considered Level 2 inputs. As of April 4, 2022 and January 3, 2022, the Company’s other financial instruments included cash and cash equivalents, accounts receivable, contract assets, accounts payable, and contract liabilities. Due to short-term maturities, the carrying amount of these instruments approximates fair value. The Company’s cash and cash equivalents as of April 4, 2022 consisted of $ 332,757 held in the U.S., with the remaining $ 186,322 held by foreign subsidiaries. 16 The majority of the Company’s non-financial assets and liabilities, which include goodwill, intangible assets, inventories, and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or are tested at least annually in the case of goodwill) such that a non-financial instrument is required to be evaluated for impairment, based upon a comparison of the non-financial instrument’s fair value to its carrying value, an impairment is recorded to reduce the carrying value to the fair value, if the carrying value exceeds the fair value . (14) Commitments and Contingencies Legal Matters The Company is subject to various legal matters, which it considers normal for its business activities. While the Company currently believes that the amount of any reasonably possible loss for known matters would not be material to the Company’s financial condition, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on the Company’s financial condition or results of operations in a particular period. The Company has accrued amounts for its loss contingencies which are probable and estimable as of April 4, 2022 and January 3, 2022. However, these amounts are not material to the consolidated condensed financial statements of the Company. (15) Earnings (Loss) Per Share The following is a reconciliation of the numerator and denominator used to calculate basic earnings (loss) per share and diluted earnings (loss) per share for the quarters ended April 4, 2022 and March 29, 2021: Quarter Ended April 4, 2022 March 29, 2021 (In thousands, except per share amounts) Net income (loss) $ 17,246 $ ( 3,192 ) Basic weighted average shares 102,613 106,825 Dilutive effect of performance-based restricted stock units, restricted stock units and stock options 1,685 — Dilutive effect of outstanding warrants 6 — Diluted shares 104,304 106,825 Earnings (loss) per share: Basic $ 0.17 $ ( 0.03 ) Diluted $ 0.17 $ ( 0.03 ) Performance-based restricted stock units (PRUs), restricted stock units (RSUs), and stock options to purchase 975 shares of common stock for the quarter ended April 4, 2022 were not included in the computation of diluted earnings per share. The PRUs were not included in the computation of diluted earnings per share because the performance conditions had not been met at April 4, 2022, and for RSUs and stock options, the options’ exercise prices or the total expected proceeds under the treasury stock method was greater than the average market price of common stock during the applicable quarter and, as a result, the impact would be anti-dilutive. For the quarter ended March 29, 2021, potential shares of common stock, consisting of stock options to purchase approximately 60 shares of common stock at exercise prices ranging from $ 11.83 to $ 16.60 per share, 2,897 RSUs, and 289 PRUs were not included in the computation of diluted earnings per share because the Company incurred a net loss during that quarter and as a result, the impact would be anti-dilutive. Outstanding warrants for the quarter ended March 29, 2021 to purchase common stock were not included in the computation of dilutive earnings per share because the strike price of the warrants to purchase the Company’s common stock was greater than the average market price of common shares during the applicable quarter and because the Company incurred a net loss during that quarter, and therefore, the effect would be anti-dilutive. 17 (16) Stock-Based Compensation Stock-based compensation expense is recognized in the accompanying consolidated condensed statements of operations as follows: Quarter Ended April 4, March 29, 2022 2021 (In thousands) Cost of goods sold $ 1,276 $ 1,165 Selling and marketing 650 646 General and administrative 2,053 2,355 Research and development 255 43 Stock-based compensation expense recognized $ 4,234 $ 4,209 Summary of Unrecognized Compensation Costs The following is a summary of total unrecognized compensation costs as of April 4, 2022: Unrecognized Stock-Based Compensation Cost Remaining Weighted Average Recognition Period (In thousands) (In years) RSU awards $ 20,594 1.4 PRU awards 1,092 0.8 Stock options 25 0.5 $ 21,711 (17) Segment Information The reportable segments shown below are the Company’s segments for which separate financial information is available and upon which operating results are evaluated by the chief operating decision maker to assess performance and to allocate resources. The Company, including the chief operating decision maker, evaluates segment performance based on reportable segment income, which is operating income before amortization of intangibles. Interest expense and interest income are not presented by segment since they are not included in the measure of segment profitability reviewed by the chief operating decision maker. All inter-segment transactions have been eliminated. Quarter Ended April 4, 2022 March 29, 2021 (In thousands) Net Sales: PCB $ 566,070 $ 510,486 RF&S Components 15,190 12,690 Other (1) — 3,256 Total net sales $ 581,260 $ 526,432 Operating Segment Income (Loss): PCB $ 56,540 $ 57,232 RF&S Components 5,750 3,862 Corporate and Other (1) ( 26,764 ) ( 30,389 ) Total operating segment income 35,526 30,705 Amortization of definite-lived intangibles (2) ( 9,658 ) ( 10,905 ) Total operating income 25,868 19,800 Total other expense ( 9,391 ) ( 24,099 ) Income (loss) before income taxes $ 16,477 $ ( 4,299 ) 18 As of April 4, 2022 January 3, 2022 (In thousands) Segment Assets: PCB $ 1,634,299 $ 1,655,401 RF&S Components 213,139 216,737 Corporate and Other (1) 1,196,710 1,153,409 Total assets $ 3,044,148 $ 3,025,547 (1) Other represents results from the now closed SH E-MS and SZ facilities. (2) Amortization of definite-lived intangibles primarily relates to the PCB and RF&S Components reportable segments. For both the quarters ended April 4, 2022 and March 29, 2021, $ 1,384 of amortization expense is included in cost of goods sold. The Corporate category primarily includes operating expenses that are not included in the segment operating performance measures. Corporate consists primarily of corporate governance functions such as finance, accounting, information technology and human resources personnel, as well as global sales and marketing personnel, research and development costs, and acquisition and integration costs associated with acquisitions and divestitures. The Company markets and sells its products in approximately 50 countries. Other than in the United States and China, the Company does not conduct business in any country in which its net sales in that country exceed 10 % of the Company’s total net sales. Net sales are as follows: Quarter Ended April 4, 2022 March 29, 2021 (In thousands) Net Sales: United States $ 264,401 $ 268,467 China 77,205 81,709 Other 239,654 176,256 Total net sales $ 581,260 $ 526,432 Net sales are attributed to countries by country invoiced. (18) Subsequent Events On April 18, 2022 , the Company entered into a definitive share purchase agreement to purchase all of the issued and outstanding capital stock of Telephonics Corporation and ISC Farmingdale Corp. for an aggregate purchase price of $ 330,000 in cash, subject to customary working capital and certain other adjustments. The transaction is expected to close in the second quarter of 2022. 19