TTMI

TTM Technologies, Inc. - 10-Q Summary (Period Ended Sep 28, 2009)

Business Context and Reporting Period

TTM Technologies, Inc. is a manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving high-end commercial, aerospace, and defense markets. This report covers the quarterly period ended September 28, 2009, and the three quarters ended on that date. The company operates two reportable segments: PCB Manufacturing and Backplane Assembly. The reporting period was significantly impacted by a global economic downturn and the closure of the Redmond, Washington production facility in March 2009.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 17.7% in Q3 and 16.2% YTD compared to 2008. This was driven by reduced demand in commercial end markets and the shutdown of the Redmond facility. PCB volume declined approximately 25% in Q3, partially offset by a 7% price increase due to a shift toward high-technology products.
• Margin Compression: Gross margins declined due to lower fixed cost absorption on reduced revenue and costs associated with facility closures.
• Restructuring and Impairment: The company recorded $2.5 million in restructuring charges (Q3) and $10.3 million in impairment of long-lived assets (Q3). These charges relate to the closure of facilities in Redmond, Washington; Hayward, California; and Los Angeles, California, as well as a write-down of the Dallas, Oregon facility classified as held for sale.
• Accounting Change: The company adopted new accounting guidance for convertible debt instruments on January 1, 2009, requiring retrospective adjustment. This increased interest expense and reduced net income for the comparable 2008 periods.

Guidance, Outlook, and Risks

• Liquidity: The company maintains strong liquidity with $199.3 million in cash and cash equivalents. Management believes cash from operations and existing balances are sufficient to meet debt service and working capital needs for the next 12 months.
• Restructuring Outlook: Approximately $2.2 million in accrued separation costs remain for employees yet to be separated, expected to be paid by Q1 2010. Additional contract termination costs of $1.0 million to $2.0 million are expected for leased facility closures between Q4 2009 and Q1 2010.
• Investment Risk: The company holds $1.4 million in the Reserve Primary Fund, a money market fund that suspended redemptions. While the company expects to recover the carrying value, access to these funds is currently restricted.
• Market Risks: Significant risks include dependence on the cyclical electronics industry, concentration of sales (top 10 customers represent 54% of Q3 sales), and competition from lower-cost Asian manufacturers.

Key Facts for Investor Verification

• Facility Closures: Verify the timeline and cost completion for the closures of Redmond, Hayward, and Los Angeles facilities, including the expected $1-2 million in lease termination costs.
• Reserve Primary Fund: Monitor the status of the $1.4 million investment in the suspended money market fund and the timing of expected distributions.
• Convertible Notes: Review the terms of the $175 million 3.25% Convertible Senior Notes due 2015, including the effective interest rate of 8.37% and the associated hedge/warrant transaction.
• Deferred Tax Assets: Assess the realizability of the $40.9 million in net deferred tax assets, which could require a valuation allowance if future earnings forecasts decline.
• Customer Concentration: Evaluate the stability of the top 10 customers, who accounted for 54% of Q3 sales, and the impact of potential insolvency or order reductions.