Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
Business Overview: TTM Technologies manufactures time-critical, technologically complex multilayer printed circuit boards (PCBs) for communications infrastructure, industrial/medical equipment, and high-end computing. The company operates a "one-stop" manufacturing model covering prototype, ramp-to-volume, mid-volume, and volume production across facilities in Santa Ana (CA), Redmond (WA), and Chippewa Falls (WI).
Key Financial Metrics (Year Ended Dec 31, 2002)
| Metric | 2002 Value | 2001 Value |
|---|---|---|
| Net Sales | $88.99 million | $128.99 million |
| Gross Profit | $9.50 million | $36.75 million |
| Gross Margin | 10.7% | 28.5% |
| Operating Income (Loss) | ($6.49 million) | $19.24 million |
| Net Income | $1.59 million | $10.99 million |
| EBITDA | $5.31 million | $32.34 million |
| Cash Flow from Operations | $10.01 million | $38.25 million |
| Total Debt (Long-term + Current) | $10.00 million | $32.63 million |
| Working Capital | $40.41 million | $29.10 million |
| Cash and Equivalents | $18.88 million | $24.49 million |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 31.0% to $89.0 million, driven by a significant downturn in the electronics industry, reduced order volumes, and lower pricing levels. Approximately $1.4 million of 2002 revenue was attributable to the late-year acquisition of Advanced Circuits.
- Margin Compression: Gross margin collapsed from 28.5% in 2001 to 10.7% in 2002. This was caused by lower absorption of fixed manufacturing expenses due to excess capacity, increased medical expenses, and higher depreciation.
- Restructuring: The company recorded $3.86 million in restructuring charges in 2002, primarily related to the closure of the Burlington, Washington facility and the layoff of 193 employees. This included a $1.84 million non-cash impairment charge.
- Acquisition: On December 26, 2002, TTM acquired Honeywell Advanced Circuits, Inc. for a nominal purchase price of $1. The transaction resulted in a $6.30 million extraordinary gain due to negative goodwill (fair value of net assets exceeded purchase cost).
- Debt Reduction: Long-term debt decreased significantly from $32.6 million to $10.0 million following a $14.5 million prepayment made to finance the Advanced Circuits acquisition.
Guidance, Outlook, and Risks
- Outlook: Management expects the networking/communications and high-end computing markets to become the majority of the sales mix in 2003. The acquisition of Advanced Circuits is expected to increase customer concentration and international sales.
- Liquidity: The company believes cash from operations and available credit ($10.0 million revolving capacity) will meet needs for the next 12 months. A credit facility amendment is expected to be concluded in April 2003.
- Key Risks:
- Industry Downturn: Heavy dependence on the electronics industry, which faces excess capacity and price competition, particularly from Asian manufacturers.
- Customer Concentration: The top 10 customers accounted for 41.8% of net sales in 2002; this concentration is expected to increase.
- Deferred Tax Assets: The company holds $16.3 million in net deferred tax assets. Continued losses could necessitate a valuation allowance, further impacting earnings.
- Integration Risk: Challenges in integrating Advanced Circuits and realizing synergies.
- Legal: The company is a defendant in a patent infringement lawsuit filed by the Lemelson Foundation, though management believes it has meritorious defenses.
Investor Verification Checklist
- Deferred Tax Realizability: Verify the sustainability of the $16.3 million net deferred tax asset given the operating loss before extraordinary items.
- Advanced Circuits Integration: Assess the progress of integrating the Chippewa Falls facility and the realization of cross-selling synergies.
- Customer Concentration: Monitor the impact of the top 10 customers (42% of sales) on revenue stability.
- Capacity Utilization: Evaluate whether fixed cost absorption improves as industry demand recovers to restore gross margins.
- Legal Exposure: Track the status of the Lemelson patent infringement litigation.