TTMI

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
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, and industrial/medical sectors. A defining event for the period was the full-year integration of the Tyco Printed Circuit Group (PCG) business, acquired in October 2006 for $226.8 million, which expanded TTM's footprint to become the largest PCB fabricator in North America.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 81.3% to $669.5 million, driven primarily by the inclusion of a full year of results from the PCG acquisition ($320.9 million contribution) and a 5% increase in pricing.
• Margin Compression: Gross margin declined from 25.2% in 2006 to 19.4% in 2007. This decrease is attributed to the inclusion of the Backplane Assembly segment (which has inherently lower margins) and slightly lower volume absorption of fixed costs in PCB manufacturing.
• Debt Reduction: Total indebtedness decreased significantly from $200.7 million to $85.0 million. The company used operating cash flow to repay $115.7 million of its senior secured term loan.
• Customer Concentration: Sales to the five largest OEM customers decreased from 39% of net sales in 2006 to 24% in 2007, reflecting diversification from the PCG acquisition.
• Segment Mix: The Backplane Assembly segment grew from $22.4 million in 2006 to $124.3 million in 2007, while PCB Manufacturing sales grew from $353.7 million to $578.8 million.

Guidance, Outlook, and Risks

• Capital Expenditures: The 2008 capital expenditure plan is expected to total approximately $23 million to fund equipment purchases for capacity expansion and technological upgrades.
• Liquidity: Management believes cash from operations and the $40 million revolving credit facility (with $39.7 million available) are adequate for the next 12 months. A universal shelf registration for up to $200 million in securities was filed in January 2008 to facilitate future acquisitions.
• Key Risks:
  • Customer Concentration: The top 10 customers accounted for 44% of net sales in 2007.
  • Competition: Intense competition from Asian manufacturers with lower labor costs, though TTM competes on technology and speed.
  • Environmental Liabilities: Ongoing obligations related to the PCG acquisition in Connecticut, including a Compliance Management Plan through July 2009 and estimated remediation costs of $0.8 million to $1.3 million.
  • Goodwill Impairment: The company holds $130.1 million in goodwill; future impairment charges could negatively impact earnings if market conditions deteriorate.

Investor Verification Checklist

• Margin Sustainability: Verify if the 19.4% gross margin is a new baseline due to the lower-margin Backplane Assembly mix or if it reflects temporary integration inefficiencies.
• Debt Covenant Compliance: Confirm continued compliance with leverage and interest coverage ratios under the senior secured credit facility, especially given the floating interest rate exposure on the remaining $85 million debt.
• Customer Retention: Monitor the stability of the top 10 customers (44% of sales) and the impact of the Solectron/Flextronics merger on future order volumes.
• Environmental Costs: Track the actual spend against the estimated $0.7 million to $1.3 million for environmental remediation and compliance in Connecticut.
• Quick-Turn Mix: Assess the shift in product mix, as quick-turn orders (higher margin) decreased from 17% of PCB sales in 2006 to 15% in 2007.