TTMI

TTM Technologies, Inc. 10-Q Summary

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 27, 2010
Business Overview: TTM is a global manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving aerospace/defense, networking, and high-end computing markets. The reporting period is significantly impacted by the acquisition of the "PCB Subsidiaries" (Meadville Holdings) on April 8, 2010, which established the company's new Asia Pacific operating segment.

Key Financial Metrics

Note: Debt figures include current portion of long-term debt ($66,944), convertible senior notes ($143,890), and long-term debt ($312,859). No long-term debt was outstanding at Dec 31, 2009.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 157% in Q3 and 86% YTD compared to 2009. This growth is primarily driven by the inclusion of the Asia Pacific segment (PCB Subsidiaries) following the April 2010 acquisition. North America segment sales grew 6.6% in Q3 due to volume increases.
• Profitability: The company returned to profitability, posting a net income of $29.1 million for TTM stockholders in Q3 2010, compared to a net loss of $4.9 million in Q3 2009. Operating income improved from a loss of $5.4 million to a profit of $45.7 million.
• Expense Structure: Operating expenses increased significantly due to the acquisition, including higher amortization of intangibles ($3.7M vs $0.9M in Q3) and general/administrative costs. However, the company recorded no restructuring charges or significant impairment losses in Q3 2010, compared to $12.8 million in such charges in Q3 2009.
• Balance Sheet: Total assets grew from $543 million to $1.7 billion, driven by the acquisition of property, plant, and equipment ($701.5M) and goodwill ($200.2M). Liabilities increased to fund the acquisition and operations.

Guidance, Outlook, and Risks

• Outlook: Management expects the acquisition to create a leading global PCB company with diversified revenue and operating efficiencies. The company anticipates seasonal fluctuations in the Asia Pacific segment, typically resulting in higher sales in Q3 due to consumer electronics demand.
• Liquidity: The company maintains a Credit Agreement with a $350M term loan and $87.5M revolving facility. As of Sept 27, 2010, the full term loan was outstanding, and $62.7M of the letters of credit facility was used. Management believes cash flow and available credit are sufficient for the next 12 months.
• Risks & Contingencies:
  • Customer Concentration: The 10 largest OEM customers accounted for 42% of Q3 sales and 41% of YTD sales.
  • Legal/Environmental: A $2.5M settlement was reached in May 2010 regarding quality claims in China. Environmental remediation liabilities are estimated at $0.8M to $1.3M for sites in Connecticut, Washington, and California.
  • Debt Covenants: The company is subject to financial covenants (leverage, net worth) under its Credit Agreement. A waiver/amendment was obtained in August 2010, and the company is currently in compliance.

Investor Verification Checklist

• Acquisition Integration: Verify the realization of projected synergies and cost savings from the PCB Subsidiaries acquisition.
• Debt Servicing: Monitor compliance with the Credit Agreement covenants and the ability to service the $523M+ debt load, particularly the $350M term loan maturing in 2013.
• Customer Concentration: Assess the risk associated with the top 10 customers representing over 40% of revenue.
• Environmental Liabilities: Track the progress and final costs of environmental remediation at Connecticut, Washington, and California sites.
• Convertible Notes: Review the status of the $175M Convertible Senior Notes (due 2015) and potential dilution if conversion criteria are met.