Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
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, defense, high-end computing, and industrial/medical sectors. As of December 31, 2008, the company operated 11 facilities (10 in the U.S., 1 in China) and employed 3,585 people.
Key Financial Metrics
| Metric | 2008 | 2007 | 2006 |
|---|---|---|---|
| Net Sales | $680.98 million | $669.46 million | $369.32 million |
| Gross Profit | $137.00 million | $130.17 million | $93.15 million |
| Gross Margin | 20.1% | 19.4% | 25.2% |
| Operating Income (Loss) | ($49.86 million) | $63.58 million | $55.03 million |
| Net Income (Loss) | ($35.27 million) | $34.68 million | $35.04 million |
| Diluted EPS | ($0.83) | $0.81 | $0.83 |
| Operating Cash Flow | $75.52 million | $73.98 million | $32.78 million |
| Total Debt | $175.00 million | $85.00 million | $200.71 million |
| Working Capital | $280.40 million | $98.84 million | $127.41 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 1.7% to $681.0 million in 2008, driven by increased demand from aerospace/defense customers and higher pricing in the PCB Manufacturing segment, despite an 11% decrease in PCB sales volume (panels shipped).
- Significant Impairment Charges: The company recorded a non-cash impairment charge of $123.3 million in Q4 2008. This consisted of a $117.0 million goodwill impairment (PCB Manufacturing segment) and a $6.3 million long-lived asset impairment (Oregon, Washington, and California facilities).
- Profitability Shift: The company swung from a net income of $34.7 million in 2007 to a net loss of $35.3 million in 2008, primarily due to the impairment charges.
- Debt Restructuring: In May 2008, the company issued $175 million in 3.25% Convertible Senior Notes due 2015 and used the proceeds to pay off its previous $85 million senior secured term loan. Total indebtedness rose to $175 million.
- Liquidity Improvement: Working capital increased significantly to $280.4 million, largely due to cash proceeds from the convertible note offering.
Guidance, Outlook, Risks, and Unusual Items
- Restructuring and Facility Closures: On January 15, 2009, the company announced the closure of its Redmond, Washington facility, laying off approximately 370 employees, plus 140 layoffs at other U.S. sites. The company expects to record approximately $2.8 million in separation and exit costs in Q1 2009.
- Financial Crisis Impact: The company had invested $20.1 million in the Reserve Primary Fund, which suspended redemptions. As of March 12, 2009, the company had received $17.2 million in distributions, with $3.7 million remaining on the balance sheet at year-end. The company expects to recover substantially all holdings.
- Market Risks: Management cites the global economic downturn, reduced capacity utilization, and the credit crisis as significant risks. The company anticipates further consolidation in the domestic PCB industry.
- Environmental Liabilities: The company has ongoing obligations related to environmental remediation at Connecticut sites acquired from Tyco, with estimated costs of $0.8 million to $1.3 million over the next 12 to 84 months.
- Capital Expenditures: The 2009 capital expenditure plan is expected to total approximately $13 million.
Key Facts for Investor Verification
- Impairment Validity: Verify the assumptions used in the $123.3 million goodwill and asset impairment test, specifically regarding future cash flow projections and market multiples in a recessionary environment.
- Reserve Primary Fund Recovery: Monitor the final recovery rate of the $3.7 million remaining investment in the Reserve Primary Fund.
- Restructuring Costs: Track the actual costs incurred for the Redmond facility closure and other layoffs announced in January 2009 against the estimated $2.8 million.
- Customer Concentration: The top 10 customers accounted for 50% of net sales in 2008. Verify the stability of these relationships, particularly in the commercial sector which is sensitive to economic downturns.
- Convertible Note Conversion: Monitor stock price performance relative to the conversion price ($15.96) and the effective conversion price ($18.15) to assess potential future dilution.