TTM Technologies, Inc. — 2015 Form 10-K
Business context and reporting period. TTM manufactures printed circuit boards (PCBs) and electro-mechanical solutions for electronics markets worldwide. This 10-K covers the 52-week fiscal year ended December 28, 2015; reported 2015 results include Viasystems only from its May 31, 2015 acquisition date. The filing also presents unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net sales | $2,095.5 million | $1,325.7 million |
| Gross profit / margin | $310.1 million / 14.8% | $194.7 million / 14.7% |
| Operating income / margin | $61.3 million / 2.9% | $46.5 million / 3.5% |
| Net income (loss) attributable to TTM stockholders | $(25.9) million | $14.7 million |
| Diluted earnings (loss) per share | $(0.28) | $0.18 |
| Adjusted EBITDA (non-GAAP) | $285.7 million | $166.0 million |
| Cash from operating activities | $237.5 million | $129.8 million |
| Cash used in investing activities | $(247.7) million | $(108.6) million |
- Fourth-quarter 2015 sales were $668.9 million, gross profit $108.3 million, pretax income $20.3 million, net income $9.7 million, and diluted EPS $0.09.
- Year-end cash and cash equivalents were $259.1 million, including $176.6 million held by foreign subsidiaries. Working capital was $277.5 million, down from $302.1 million.
- Reported debt, including current maturities and net of discount, was $1,202.0 million, versus $502.7 million a year earlier. This includes a $947.6 million term loan, $80.0 million drawn on the U.S. ABL, and $250.0 million of 1.75% convertible notes due 2020. Unused borrowing availability was approximately $65.4 million under the U.S. ABL and $142.0 million under the Asia ABL.
- Gross margin was nearly unchanged year over year; higher interest expense, acquisition costs and income-tax expense contributed to the annual net loss. The 2015 tax provision was $34.6 million, including a full valuation allowance on existing U.S. deferred tax assets.
Material changes versus the prior year
- Sales increased 58.1%, principally from Viasystems, which contributed $664.3 million of consolidated sales for the post-acquisition period. Higher cellular-phone demand also helped, while networking/communications demand was lower. PCB average selling price fell 25%, largely reflecting the acquired product mix.
- The acquisition added scale and automotive exposure: automotive represented 13% of 2015 sales versus 2% in 2014, while networking/communications fell to 25% from 33%. The five largest OEM customers accounted for 37% of sales; Apple alone accounted for 20%.
- Interest expense rose to $59.8 million from $23.8 million, primarily following acquisition financing. General and administrative expense included $34.4 million of Viasystems-related transaction costs.
- Operating cash flow improved by $107.7 million. Investing outflow included $169.2 million for the acquisition, net of cash acquired. Year-end cash declined by $19.9 million.
Outlook, commentary and risks
- Management expected 2016 capital expenditures of $110–$120 million, including investment in advanced manufacturing capacity and environmental compliance. It stated that available cash, operating cash generation and borrowing sources should meet anticipated needs for the next 12 months.
- TTM planned closures/consolidations at Cleveland, Ohio; Milpitas, California; and Juarez, Mexico, affecting approximately 480 employees. It recorded $7.4 million of restructuring charges in 2015 and estimated total plan charges of $10–$15 million; management expected a negative impact on first-quarter 2016 results. The company identified $55 million in expected annual Viasystems cost savings, targeted within 12 months of closing, but cautioned that savings and timing were not assured.
- A required $61.1 million additional term-loan principal payment was due in March 2016; TTM also intended to repay another $10–$20 million at that time. The company was in compliance with debt covenants at year-end. Its term loan had a 6.0% weighted-average rate; management estimated a 100-basis-point change in variable rates would change annual interest cost by $6.5 million.
- Key risks include high debt and refinancing/interest-rate exposure; integration and execution of expected acquisition savings; customer concentration and order volatility; competition and pricing pressure; foreign-exchange and China operating risks; and environmental compliance. Some Chinese plants were not yet fully compliant with updated wastewater regulations; the company was implementing a compliance plan and did not anticipate immediate fines or closures.
- Known legal matters were described as ordinary-course and accrued losses were not material, but outcomes remain uncertain and an adverse outcome could materially affect a particular period. Management reported effective disclosure controls and internal control over financial reporting; the acquired Viasystems controls, covering 32% of consolidated assets and sales, were excluded from the 2015 assessment pending integration.
Most important facts for investors to verify
- Whether Viasystems integration delivers the targeted $55 million annual savings and whether closure costs remain within the $10–$15 million estimate.
- Post-acquisition earnings and cash generation after interest, taxes, capital spending and required debt repayments; distinguish reported results from acquisition-period and non-GAAP effects.
- Debt balances, borrowing availability, covenant headroom and the company’s ability to meet the March 2016 payment and reduce leverage.
- Whether customer concentration—especially Apple’s 20% sales share—and end-market demand remain manageable.
- Progress on Chinese environmental compliance and completion of the acquired company’s internal-control integration.