TTMI

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 28, 2010 (Second Quarter)
Business Overview: TTM is a global manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving aerospace/defense, networking, computing, and industrial markets. The reporting period is significantly impacted by the acquisition of the PCB Subsidiaries (Meadville) on April 8, 2010, which established a new Asia Pacific operating segment.

Key Financial Metrics

Note: Debt figures reflect the assumption of approximately $388 million in credit facilities and $30 million in bank loans associated with the PCB Subsidiaries acquisition.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 115% in Q2 2010 compared to Q2 2009, driven primarily by the inclusion of the Asia Pacific segment (PCB Subsidiaries) which contributed $173.1 million in sales. North America sales declined 4% due to facility closures (Los Angeles and Hayward) and a shift in product mix.
• Profitability: While total net income increased, net income attributable to TTM stockholders decreased from $5.9 million in Q2 2009 to $4.9 million in Q2 2010. This was due to $1.8 million of net income attributable to noncontrolling interests in the acquired subsidiaries and increased operating expenses.
• Expense Increases: General and administrative expenses rose significantly ($17.6 million increase in Q2) due to the acquisition and $7.0 million in transaction-related costs. Amortization of intangibles increased $3.7 million due to acquired assets.
• Balance Sheet: Total assets grew from $543 million to $1.7 billion. Goodwill increased from $14.1 million to $208.3 million. Long-term debt increased from zero to $347.8 million (excluding current portion) following the acquisition financing.

Guidance, Outlook, and Risks

• Outlook: Management expects the acquisition to create a leading global PCB company with diversified revenue and operating efficiencies. Capital expenditures for 2010 are projected at approximately $80 million, with $65 million allocated to the Asia Pacific segment.
• Seasonality: The company anticipates higher net sales in the third quarter due to seasonal demand in the computer and cellular phone industries.
• Key Risks:
  • Integration Risk: Challenges in integrating the newly acquired PCB Subsidiaries, including internal control over financial reporting.
  • Customer Concentration: The 10 largest OEM customers accounted for 42% of net sales in Q2 2010.
  • Debt Covenants: The company is subject to financial covenants (leverage, net worth, interest coverage) under its new Credit Agreement. A waiver and amendment were executed in August 2010 to adjust these covenants.
  • Environmental/Legal: Ongoing environmental remediation obligations in Connecticut (estimated $0.7 million) and a settled legal matter regarding quality claims in China ($2.5 million settlement).

Investor Verification Checklist

• Acquisition Accounting: Verify the finalization of the purchase price allocation for the PCB Subsidiaries, as fair value estimates for assets and liabilities are currently preliminary.
• Debt Structure: Review the terms of the new Credit Agreement ($350M Term Loan, $87.5M Revolver) and compliance with amended financial covenants.
• Noncontrolling Interest: Monitor the portion of net income attributable to noncontrolling interests ($1.8M in Q2) and its impact on diluted EPS.
• Inventory Valuation: Note the $6.7 million fair value markup of acquired inventory which impacted gross margin in the Asia Pacific segment.
• Facility Closures: Track the completion of restructuring charges and lease terminations for the Hayward and Los Angeles facilities.