Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: TTM is a leading global provider of time-critical and technologically complex printed circuit board (PCB) products and backplane assemblies. The company operates 15 specialized facilities in the United States and China, serving a diversified customer base in networking/communications, aerospace/defense, high-end computing, and consumer electronics (smartphones, tablets).
Key Event: In April 2010, TTM acquired the PCB manufacturing and distributing business of Meadville Holdings Limited (the "PCB Subsidiaries"). This acquisition significantly expanded the company's global footprint, particularly in China, and led to a restructuring of operating segments into North America and Asia Pacific.
Key Financial Metrics
| Metric (in thousands) | 2010 | 2009 | 2008 |
|---|---|---|---|
| Net Sales | $1,179,671 | $582,476 | $680,981 |
| Gross Profit | $254,405 | $103,209 | $137,240 |
| Gross Margin | 21.6% | 17.7% | 20.2% |
| Operating Income | $125,559 | $18,453 | $(49,872) |
| Net Income (Total) | $79,899 | $4,857 | $(36,911) |
| Net Income (Attributable to TTM) | $71,531 | $4,857 | $(36,911) |
| Diluted EPS | $1.01 | $0.11 | $(0.86) |
| EBITDA | $193,434 | $42,028 | $(25,065) |
| Operating Cash Flow | $125,819 | $73,977 | $75,632 |
| Total Debt (Long-term + Current) | $555,432 | $0 | $200,705 |
| Working Capital | $258,299 | $323,112 | $280,362 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 102.5% to $1.18 billion, driven almost entirely by the April 2010 acquisition of the PCB Subsidiaries. The legacy North America segment sales remained flat at approximately $582 million.
- Profitability: Operating income surged to $125.6 million from $18.5 million in 2009. This improvement was due to the high-margin Asia Pacific segment and cost savings from facility closures in the North America segment (Los Angeles and Hayward, CA).
- Debt Structure: Total indebtedness increased to approximately $555.4 million (40% of total capitalization) to finance the acquisition. This includes a $350 million term loan, $87.5 million revolving credit facility, and $175 million in convertible senior notes.
- Segment Mix: The acquisition shifted the geographic revenue mix. In 2010, China accounted for 42% of net sales compared to 16% in 2009, while U.S. sales dropped from 74% to 35%.
- Customer Base: The number of customers increased from 850 in 2009 to 1,160 in 2010. The top five OEM customers accounted for 28% of net sales in 2010 (down from 34% in 2009), indicating improved diversification.
Guidance, Outlook, and Risks
- Outlook: Management expects the combination of legacy operations and the PCB Subsidiaries to create a leading global PCB company with a diversified revenue mix. The company plans to invest approximately $136 million in capital expenditures in 2011, primarily in the Asia Pacific segment, to expand capacity and technological capabilities.
- Integration Risks: Significant risks remain regarding the successful integration of the PCB Subsidiaries, including the implementation of internal controls, retention of key personnel, and harmonization of business cultures.
- Market Risks: The company is heavily dependent on the global electronics industry, which is cyclical. Risks include raw material price volatility (copper, gold), currency fluctuations (RMB/HKD vs. USD), and potential shortages of utilities (electricity/water) in China.
- Regulatory Risks: Operations are subject to complex export controls (ITAR/EAR) and environmental regulations. The company relies on facility security clearances to perform classified contracts for the U.S. government.
- Forward-Looking Statements: The filing contains forward-looking statements regarding market trends and financial performance, which are subject to risks and uncertainties that could cause actual results to differ materially.
Key Facts for Investor Verification
- Acquisition Accounting: Verify the final purchase price allocation for the PCB Subsidiaries, specifically the valuation of goodwill ($183.3 million) and identifiable intangible assets ($96.6 million), and the status of the noncontrolling interest.
- Debt Covenants: Confirm continued compliance with the amended financial covenants (leverage ratio, tangible net worth) under the new Credit Agreement, which was amended in August 2010.
- Goodwill Impairment: Monitor the annual goodwill impairment testing for both the North America and Asia Pacific segments, given the significant increase in goodwill on the balance sheet.
- Customer Concentration: Track the revenue contribution of the top 10 customers (42% of sales in 2010) and the impact of any potential loss of major OEMs like Apple, Cisco, or Huawei.
- China Operations: Assess the impact of rising labor costs in China, potential utility shortages, and the legal status of land use certificates for certain facilities in Dongguan and Shanghai.