TTM Technologies, Inc. — Q1 2012 Form 10-Q
Reporting period: Quarter ended March 26, 2012 (86 days), compared with the quarter ended March 28, 2011 (87 days). Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise. TTM manufactures printed circuit boards (PCBs) and backplane assemblies for communications, computing, aerospace/defense, and other markets.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales | $300.5 | $342.8 | Down 12.3% |
| Gross profit / margin | $56.5 / 18.8% | $81.9 / 23.9% | Down $25.4; margin down 5.1 percentage points |
| Operating income / margin | $21.8 / 7.3% | $45.7 / 13.3% | Down 52.3% |
| Net income | $12.3 | $29.1 | Down 57.6% |
| Net income attributable to TTM stockholders | $12.6 | $27.1 | Down 53.6% |
| Diluted EPS | $0.15 | $0.33 | Down $0.18 |
| Cash from operations | $33.5 | $37.1 | Down $3.6 |
| Capital spending, including equipment deposits | $26.7 | $26.5 | Approximately flat |
Operating cash flow less reported capital spending was approximately $6.8 million. Working-capital movements included a $22.9 million cash source from receivables and cash uses from inventory, payables, and accruals.
Segment trends and key changes
- North America: Sales were $130.0 million, down 8.6%. PCB sales volume fell 12%, partly offset by an 8% increase in average PCB selling price; backplane assembly demand declined 21%. Segment operating income was $12.9 million versus $16.8 million.
- Asia Pacific: External sales were approximately $170.5 million, down 15.0%. PCB shipments declined 27%, partly offset by a 16% higher average selling price from a richer advanced-HDI product mix. Segment operating income was $12.8 million versus $33.1 million.
- Consolidated gross margin fell amid higher labor costs, lower production and capacity absorption, and approximately $3.9 million of costs associated with the temporary closure of the Dongguan SYE facility. Lower sales and higher labor and depreciation costs also pressured Asia Pacific results.
- End-market mix shifted modestly: networking/communications represented 32% of sales versus 34% a year earlier; computing/storage/peripherals 24% versus 27%; aerospace/defense 17% versus 16%.
Liquidity, debt, and balance sheet
- Cash and cash equivalents were $223.8 million at March 26, 2012, up from $196.1 million at year-end. Net working capital was approximately $264.1 million, compared with $234.4 million at December 31, 2011. Management reported $80.9 million of cash in Asia, expected to remain for local operations.
- Debt principal was approximately $530.7 million: $355.7 million of bank and credit-agreement borrowings and $175.0 million principal on convertible notes. The notes’ balance-sheet carrying amount, net of discount, was $152.7 million. Gross debt less cash was approximately $306.9 million.
- About $121.0 million of debt payments were due within 12 months. The main credit agreement matures November 16, 2013; $245.0 million of term debt and $63.0 million of revolving debt were outstanding. Available revolving and factoring capacity was $24.5 million and $65.0 million, respectively. TTM said it was in compliance with debt covenants.
- Cash increased by $27.7 million in the quarter, including $69.8 million of long-term debt proceeds and $52.5 million of debt repayments. The filing reports $57.7 million of equipment payables at quarter-end and $66.0 million of accrued equipment purchases in its supplemental cash flow disclosure.
Outlook, risks, and unusual items
- Management expected most 2012 sales in the second half, based on customer input; the filing does not provide numerical full-year revenue or earnings guidance.
- SYE was temporarily closed for repairs and upgrades, with reopening expected in Q3 2012. TTM estimated the closure reduced Q1 Asia Pacific sales by about $2.5 million and would reduce Q2 sales by approximately $3.0–$6.0 million. The 2012 capital expenditure plan was approximately $135 million, including about $5 million for SYE repairs and upgrades.
- Management anticipated higher Asia Pacific labor costs from PRC-mandated wage increases and reduced overtime, likely lowering 2012 segment gross and operating margins.
- A majority-owned foreign subsidiary declared a dividend of approximately $47.6 million after quarter-end, including approximately $9.5 million for its noncontrolling shareholder; payment was expected by the end of Q3.
- Customer concentration is significant: Apple accounted for approximately 13% of sales in both comparative quarters, and the ten largest customers accounted for 49% of Q1 2012 sales. The ten largest also represented 52% of receivables at quarter-end.
- TTM identified exposure to variable interest rates and foreign currency movements. It estimated that a 1-percentage-point change in variable rates would change annual interest cost by approximately $2.3 million. A rate swap increased Q1 interest expense by $0.6 million.
- Environmental remediation was accrued at approximately $0.6 million for three sites; the company estimated undiscounted costs of $0.8–$1.3 million. Management did not expect the matter to materially affect its financial position, results, or cash flows. Other known legal loss accruals were described as immaterial, though adverse outcomes could affect a particular period.
- Management stated that available cash, operating cash generation, and borrowing capacity should meet anticipated needs for the next 12 months. It noted refinancing could be needed if substantial capital spending or acquisitions continue as debt approaches maturity in 2013.
Most important facts for investors to verify
- Whether demand and shipments recover in the second half, and whether that outlook offsets Q1’s sales and earnings declines.
- Whether SYE reopens on schedule and within budget, and the realized Q2 sales impact versus the estimated $3.0–$6.0 million.
- Whether labor cost increases, utilization, product mix, and capacity absorption improve or further pressure margins.
- How TTM will address approximately $121 million of debt payments due within 12 months and the November 2013 credit-agreement maturity, including covenant compliance and refinancing access.
- Customer concentration, especially the dependence on Apple and the top ten customers, and any changes in orders or receivable collection.
- Execution and funding of the approximately $135 million capital expenditure plan, including the post-quarter subsidiary dividend and its effect on cash available across regions.