TTMI

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: TTM is a leading provider of time-critical, technologically complex printed circuit boards (PCBs) and backplane assemblies. The company serves high-end commercial and aerospace/defense markets, including networking/communications, high-end computing, defense, and industrial/medical sectors. Operations are conducted through nine facilities (eight in the U.S., one in Shanghai, China).
Strategic Development: On November 16, 2009, TTM entered into a definitive agreement to acquire four PCB subsidiaries of Meadville Holdings Limited (the "PCB Combination"). The transaction involves $114.0 million in cash, 36.3 million shares of TTM common stock, and the assumption of approximately $450 million in debt. Stockholders approved the issuance of shares in March 2010.

Key Financial Metrics (Year Ended Dec 31, 2009)

Note: 2008 results included a $117.0 million goodwill impairment charge. 2009 results included $12.8 million in impairment charges and $5.5 million in restructuring charges.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 14.5% to $582.5 million, driven by reduced global demand and the closure of the Redmond, Washington (March 2009) and Los Angeles, California (November 2009) facilities. PCB Manufacturing sales fell $84.2 million, while Backplane Assembly sales declined $16.7 million.
• Margin Compression: Gross margin decreased from 20.2% to 17.7%. This was primarily due to lower fixed cost absorption on reduced volumes and inventory write-offs associated with facility closures, despite a 9% price increase driven by a shift toward high-technology products.
• Profitability Recovery: The company returned to profitability with $4.9 million in net income, a significant improvement from the $36.9 million loss in 2008. The 2008 loss was heavily impacted by a $117.0 million goodwill impairment charge which did not recur in 2009.
• Restructuring: TTM recorded $5.5 million in restructuring charges in 2009 related to the layoff of approximately 850 employees and contract termination costs for facility closures.
• Customer Concentration: Sales to the five largest OEM customers increased to 34% of net sales in 2009 from 29% in 2008, reflecting industry consolidation.

Guidance, Outlook, Risks, and Contingencies

• Acquisition Outlook: Management expects the PCB Combination to broaden product offerings, capture high-volume business, and create a one-stop global solution. Upon closing, TTM will assume approximately $450 million in additional debt.
• Capital Expenditures: The 2010 capital expenditure plan is approximately $15 million, focused on expanding technological capabilities and replacing aging equipment.
• Key Risks:
  • Customer Concentration: The top 10 customers accounted for 52% of net sales in 2009. Loss of a major customer could materially harm operations.
  • Competition: Intense competition from Asian manufacturers with lower production costs poses pricing pressure.
  • Environmental Liabilities: Ongoing remediation costs are estimated at $0.8 million to $1.3 million for Connecticut sites and $0.1 million for a Washington site. Failure to meet environmental commitments could result in enforcement actions.
  • Goodwill Impairment: While no impairment was recorded in 2009, future declines in market capitalization or cash flow expectations could trigger additional charges.
• Unusual Items: In 2008, the company recognized $3.7 million in income from a metal reclamation pricing reconciliation, a non-recurring item. In 2009, the company recorded a $0.3 million unrealized gain on a money market fund (Primary Fund) that had suspended redemptions.

Investor Verification Checklist

• PCB Combination Closing: Verify the final closing date and terms of the Meadville acquisition, including the exact debt assumption and share issuance.
• Facility Closures: Confirm the status of the Hayward, California facility closure (announced for Q1 2010) and associated contract termination costs ($0.4M - $0.7M).
• Debt Service Capacity: Assess the company's ability to service the existing $175 million convertible notes plus the anticipated $450 million in acquired debt post-merger.
• Customer Concentration: Monitor the stability of the top five OEM customers (Cisco, Huawei, Juniper, Northrop Grumman, Raytheon), which represent 34% of sales.
• Environmental Compliance: Track progress on the remaining $0.6 million capital improvement obligation for the Stafford, Connecticut rinse water recycling system.