TTM Technologies, Inc. — 2011 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2011; it is an annual report, not a standalone fourth-quarter filing. TTM manufactures printed circuit boards, IC substrates and backplane assemblies, with North America and Asia Pacific operating segments. Results include a full year of the PCB Subsidiaries acquired in April 2010, compared with only nine months of those operations in 2010, limiting comparability.
Key financial results
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net sales | $1,428.6 million | $1,179.7 million |
| Gross profit / margin | $301.3 million / 21.1% | $254.4 million / 21.6% |
| Operating income / margin | $91.1 million / 6.4% | $125.6 million / 10.6% |
| Net income | $47.2 million | $79.9 million |
| Net income attributable to TTM shareholders | $41.9 million; diluted EPS $0.51 | $71.5 million; diluted EPS $1.01 |
| Cash from operating activities | $179.3 million | $125.8 million |
| Capital expenditures | $142.8 million | $68.5 million |
FY 2011 fourth-quarter net sales were $361.5 million; net income attributable to TTM shareholders was $11.2 million, or $0.14 diluted EPS. Quarterly results were uneven: second-quarter net loss attributable to shareholders was $20.9 million, including a $48.1 million long-lived-asset impairment.
Liquidity, debt and operating trends
- Year-end cash and cash equivalents were $196.1 million; working capital was $234.4 million, down from $258.3 million.
- Total debt was approximately $513.3 million, including $338.3 million of long-term debt and $175.0 million principal of 3.25% convertible notes. Approximately $120.9 million of long-term debt was due within 12 months; term debt matures in 2013 and the notes in 2015.
- TTM reported $87.5 million of revolving-loan capacity and $65.0 million of factoring capacity available at year-end 2011. At February 22, 2012, the revolving loan had approximately $78.0 million drawn and $9.5 million available. The company said it was compliant with credit-agreement covenants at year-end.
- Sales increased 21.1%, but shareholder net income fell 41.5%. The filing attributes the margin decline chiefly to higher China labor costs and Asia Pacific depreciation, and the operating-income decline to impairment charges and higher expenses.
- North America sales declined 2.7%, with PCB volume down 13% and average selling prices up 9%. Asia Pacific sales rose, partly because 2011 included a full year of acquired operations; daily PCB production fell about 14%, while prices rose about 22% with a richer advanced-HDI mix. Advanced HDI sales rose from about 6% to 20% of Asia Pacific sales.
- Operating-segment income before intangible amortization fell to $108.4 million from $139.2 million: North America contributed $45.4 million and Asia Pacific $63.0 million.
Material changes, outlook and risks
- TTM recorded $48.1 million of Asia Pacific long-lived-asset impairment and $15.2 million of goodwill impairment in the North America segment. The latter related to the Shanghai backplane assembly reporting unit amid weaker demand and pricing pressure from a key customer.
- Backlog was $173.4 million at December 31, 2011, down from $207.8 million a year earlier; substantially all was expected to convert to sales during 2012.
- Management expected most 2012 sales in the second half. It estimated the temporary closure of the Dongguan SYE facility for repairs and upgrades would reduce Asia Pacific sales by $3–6 million in each of the first two quarters of 2012. The facility was expected to reopen around June 2012, with production and some workers shifted to other South China sites.
- Planned 2012 capital expenditures were approximately $120 million, including about $100 million in Asia Pacific, principally for advanced HDI and rigid-flex capacity, technology upgrades and equipment replacement. Management believed cash, operating cash flow and available borrowings would cover anticipated needs over the next 12 months, while noting that refinancing may be needed if high capital spending or acquisitions continue.
- Key exposures include substantial debt and near-term maturities, variable interest rates, customer concentration (Apple represented 11% of 2011 sales; the five largest OEMs 33%), electronics-market cyclicality, price and capacity pressure, rising China labor and commodity costs, China utility interruptions, foreign-exchange and regulatory risks, and dependence on government-related business and security clearances.
- Environmental remediation liabilities were estimated at $0.6 million; management did not expect known legal or environmental matters to materially affect the company overall. Management and the auditor reported effective internal control over financial reporting at year-end.
Important facts for investors to verify
- Whether the SYE facility returned to service on schedule and whether the estimated quarterly sales impact was realized.
- Whether 2012 demand, backlog conversion and the anticipated second-half sales weighting supported management’s outlook.
- Whether the planned capital spending generated adequate utilization, margins and cash flow, given 2011 capex exceeded operating cash flow.
- Debt repayment and refinancing plans, covenant headroom, available revolver capacity and the ability to fund the 2013 term-loan maturity.
- Further impairment risk at underperforming facilities and progress in improving Asia Pacific operating performance.
- Customer concentration, especially Apple and key EMS relationships, as well as related-party laminate purchases of $110.1 million in 2011 and related-party payables of $36.9 million at year-end.