Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 30, 2009 (89 days)
Business Overview: TTM is a manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving high-end commercial, aerospace, and defense markets. The company operates two reportable segments: PCB Manufacturing and Backplane Assembly.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Sales | $148,997 | $174,071 |
| Gross Profit | $24,277 | $37,602 |
| Gross Margin | 16.3% | 21.6% |
| Operating Income | $5,032 | $24,436 |
| Net Income | $1,427 | $14,372 |
| Diluted EPS | $0.03 | $0.34 |
| Cash from Operations | $16,273 | $26,781 |
| Cash and Equivalents (End of Period) | $161,839 | $32,569 |
| Total Debt (Convertible Notes Principal) | $175,000 | $175,000 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 14.4% ($25.1 million) due to reduced global demand and the shutdown of the Redmond, Washington facility. PCB volume declined approximately 26%, partially offset by a 17% price increase driven by a shift toward high-technology production.
- Margin Compression: Gross margin fell from 21.6% to 16.3% primarily due to lower fixed cost absorption and costs associated with the Redmond facility closure.
- Restructuring and Impairment: The company recorded $2.46 million in restructuring charges (severance for ~510 employees) and $343,000 in impairment of long-lived assets related to the Redmond closure. These were non-existent in Q1 2008.
- Accounting Change: Adoption of FSP APB 14-1 regarding convertible debt increased interest expense by approximately $1.1 million and reduced net income by $678,000 for the quarter.
- Unusual Items: Q1 2008 included a $3.7 million gain from metal reclamation pricing reconciliation, which did not recur in Q1 2009.
Outlook, Risks, and Contingencies
- Liquidity: The company maintains strong liquidity with $161.8 million in cash. Management believes cash from operations and existing balances are sufficient to meet debt service and capital expenditure needs for the next 12 months.
- Convertible Notes: $175 million in 3.25% Convertible Senior Notes due 2015. Interest expense is elevated due to the amortization of the debt discount (effective rate 8.37%). Conversion criteria were not met as of March 30, 2009.
- Investment Risk: $2.3 million remains invested in The Reserve Primary Fund, a money market fund that suspended redemptions. The company expects to receive substantially all holdings but faces uncertainty regarding timing.
- Environmental Liabilities: Accrued liabilities of approximately $1.3 million for remediation at Connecticut and Washington sites. Additional capital improvements of ~$0.7 million are required for EPA compliance by July 2009.
- Customer Concentration: The top 10 customers accounted for 53% of net sales in Q1 2009. The top 5 OEM customers accounted for 35% of sales.
Investor Verification Checklist
- Redmond Facility Closure: Verify the timeline for employee separation and the utilization of the remaining $290,000 in accrued restructuring costs.
- Reserve Primary Fund: Monitor the status of the $2.3 million investment in the suspended money market fund and subsequent distributions.
- Debt Service: Confirm the impact of the FSP APB 14-1 accounting change on future interest expense and cash flow requirements.
- Environmental Compliance: Track progress on the $0.7 million capital improvement requirement for the Stafford, Connecticut facility to avoid federal contract exclusion.
- Customer Demand: Assess the sustainability of the shift toward high-technology, higher-priced PCBs amidst the broader economic downturn.