TTM Technologies, Inc. - 10-Q Summary (Period Ended Sep 30, 2002)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2002, and the three fiscal quarters ended on that date. TTM Technologies, Inc. provides time-critical, one-stop manufacturing services for highly complex printed circuit boards (PCBs) to original equipment manufacturers and electronic manufacturing services providers. The company operates in a cyclical electronics industry currently experiencing a significant downturn.
Key Financial Metrics
| Metric (in thousands) | Q3 2002 | Q3 2001 | YTD 3Q 2002 | YTD 3Q 2001 |
|---|---|---|---|---|
| Net Sales | $20,557 | $26,895 | $67,578 | $103,562 |
| Gross Profit | $2,841 | $5,874 | $7,148 | $31,931 |
| Gross Margin | 13.8% | 21.8% | 10.6% | 30.8% |
| Operating Income (Loss) | $(446) | $2,014 | $(2,510) | $18,376 |
| Net Income (Loss) | $(369) | $979 | $(1,931) | $10,718 |
| Cash & Equivalents | $35,255 | $24,083 | $35,255 | $24,083 |
| Long-Term Debt | $21,375 | $28,125 | $21,375 | $28,125 |
| Operating Cash Flow (YTD) | $7,590 | $33,046 | $7,590 | $33,046 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 23.4% in Q3 and 34.7% YTD compared to 2001, driven by a significant downturn in the electronics industry and reduced volume of PCBs sold.
- Margin Compression: Gross margins contracted sharply due to lower capacity utilization, higher unabsorbed fixed manufacturing overhead, and increased medical expenses. YTD gross margin fell from 30.8% to 10.6%.
- Profitability Shift: The company reported a net loss of $369,000 for Q3 and $1.9 million YTD, reversing the profitability seen in the prior year periods.
- Accounting Changes: Adoption of FASB No. 142 eliminated goodwill amortization effective Jan 1, 2002, reducing operating expenses by approximately $900,000 in Q3 compared to the prior year.
- Liquidity: Cash and cash equivalents increased to $35.3 million, bolstered by a secondary stock offering in February 2002 that raised approximately $15.3 million in net proceeds.
Guidance, Outlook, and Risks
- Restructuring: Management announced plans to close its Burlington facility by the end of 2002. The company expects to record significant restructuring charges between $3.3 million and $3.8 million in Q4 2002, including substantial impairment charges for property and equipment and severance for 51 employees.
- Outlook: Management anticipates continued volatility due to the electronics industry downturn. They believe current cash and credit facilities are sufficient for operations for the next 12 months.
- Stock Repurchase: On October 14, 2002, the Board authorized a $10 million stock repurchase program. As of November 5, 2002, approximately $0.2 million had been spent.
- Legal Risks: The company is a defendant in a patent infringement lawsuit filed by the Lemelson Medical, Education and Research Foundation. While management believes it has meritorious defenses, the outcome is uncertain.
- Goodwill Impairment: The company holds $63.2 million in goodwill. While no impairment was found upon adoption of FASB 142, future testing could result in charges if market conditions do not improve.
Investor Verification Checklist
- Verify the magnitude and timing of the expected $3.3M–$3.8M restructuring charges in Q4 2002.
- Monitor the impact of the Burlington facility closure on future capacity and fixed cost absorption.
- Assess the trajectory of gross margins given the current excess capacity and price competition from Asian manufacturers.
- Review the status of the Lemelson patent infringement litigation for potential financial exposure.
- Track the utilization of the $10 million stock repurchase authorization and its impact on share count.