TTMI

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: First fiscal quarter ended April 3, 2006 (93 days).
Business Overview: Manufacturer of complex printed circuit boards (PCBs) for high-end commercial markets including networking/communications, high-end computing, and industrial/medical sectors. Operations are conducted through three specialized facilities in the United States (Santa Ana, CA; Chippewa Falls, WI; Redmond, WA).

Key Financial Metrics

Debt & Liquidity: The company maintains a $25 million revolving credit facility with no outstanding balances as of April 3, 2006. Total current liabilities were $27.5 million, while total current assets were $151.4 million.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 23.4% ($13.8 million) driven by a 17% increase in production volume and a 7% increase in pricing. Volume growth was attributed to higher demand for intermediate lead-time products.
• Margin Expansion: Gross margin improved from 23.0% to 27.8%. This was driven by favorable pricing trends in quick-turn work and greater operating efficiency (absorption of fixed costs), partially offset by higher labor and material costs.
• Profitability: Net income nearly doubled (97.6% increase) to $8.8 million. Operating income increased 89.9% to $13.0 million.
• Accounting Change: Effective January 1, 2006, the company adopted SFAS No. 123R (Share-Based Payments). This resulted in a $255,000 reduction in pre-tax income and a $247,000 reduction in net income for the quarter. Prior periods were not restated.
• Customer Concentration: Sales to the ten largest customers decreased slightly as a percentage of net sales from 68% in Q1 2005 to 60% in Q1 2006.

Guidance, Outlook, and Risks

Capital Plan: The 2006 capital plan is expected to total approximately $13 million to fund equipment purchases for capacity expansion and technological upgrades.

Management Commentary: Management attributes the strong performance to increased production volume and pricing power. They note that quick-turn orders remained constant at 21% of net sales. The company expects cash generated from operations and available cash to be adequate for the next 12 months.

Risks and Contingencies:

• Customer Concentration: The top five OEM customers accounted for approximately 45% of net sales in Q1 2006. Loss of major customers would have a material adverse effect.
• Competition: Intense competition from Asian manufacturers with lower production costs poses a risk to pricing and market share.
• Supply Chain: Reliance on suppliers for raw materials (copper, fiberglass) exposes the company to price fluctuations and shortages.
• Legal Proceedings: A pending patent infringement lawsuit filed by the Lemelson Medical, Education and Research Foundation, L.P. remains unresolved with no material developments since the previous annual report.
• Deferred Tax Assets: The company holds net deferred tax assets of $8.2 million (net of a $2.5 million valuation allowance). Future earnings shortfalls could require an increase in the valuation allowance.

Investor Verification Checklist

• SFAS 123R Impact: Verify the long-term impact of the new stock-based compensation accounting standard on future operating expenses and net income.
• Customer Concentration: Monitor the stability of the top five OEM customers, which represent nearly half of total revenue.
• Capacity Utilization: Assess whether the recent expansion of the Chippewa Falls facility aligns with sustained demand to avoid excess capacity charges.
• Raw Material Costs: Track copper and laminate prices to evaluate potential pressure on gross margins.
• Legal Exposure: Review updates on the Lemelson patent infringement litigation for potential liability.