Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 29, 2009 (Second Quarter)
Business Overview: TTM is a manufacturer of complex printed circuit boards (PCBs) and backplane assemblies serving high-end commercial, aerospace, and defense markets. The company operates two reportable segments: PCB Manufacturing and Backplane Assembly.
Key Financial Metrics
| Metric (in thousands) | Q2 2009 | Q2 2008 (Adj) | YTD 2009 | YTD 2008 (Adj) |
|---|---|---|---|---|
| Net Sales | $144,480 | $172,975 | $293,477 | $347,046 |
| Gross Profit | $27,059 | $36,591 | $51,328 | $74,328 |
| Gross Margin | 18.7% | 21.2% | 17.5% | 21.4% |
| Operating Income | $12,177 | $19,054 | $17,209 | $43,490 |
| Net Income | $5,948 | $9,112 | $7,375 | $23,484 |
| Diluted EPS | $0.14 | $0.21 | $0.17 | $0.55 |
| Cash & Equivalents | $187,939 | $118,687 | $187,939 | $118,687 |
| Working Capital | $311,859 | $280,362 | $311,859 | $280,362 |
| Convertible Senior Notes (Net) | $137,347 | $134,914 | $137,347 | $134,914 |
Note: 2008 figures have been retrospectively adjusted for the adoption of FSP APB 14-1 regarding convertible debt accounting.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 16.5% in Q2 2009 compared to Q2 2008. This was driven by a global economic downturn and the closure of the Redmond, Washington facility in March 2009, which accounted for approximately $14.1 million of the revenue decline.
- Volume vs. Price: PCB volume declined approximately 32%, partially offset by a 15% increase in pricing due to a shift toward higher-technology production.
- Margin Compression: Gross margin decreased from 21.2% to 18.7% due to lower fixed cost absorption and costs associated with the Redmond facility shutdown.
- Restructuring: The company recorded $2.5 million in restructuring charges for the first two quarters of 2009 related to the layoff of approximately 510 employees (370 at Redmond, 140 at other U.S. sites).
- Asset Impairment: An additional impairment charge of $343,000 was recorded for long-lived assets at the Redmond facility.
- Cash Flow: Net cash provided by operating activities increased to $42.9 million for the first two quarters of 2009, compared to $33.8 million in the prior year period, driven by working capital reductions.
Guidance, Outlook, and Risks
- Liquidity: Management believes cash generated from operations and existing cash balances are adequate to meet debt service, capital expenditures, and working capital needs for the next 12 months and beyond.
- Capital Expenditures: The 2009 capital expenditure plan is expected to total approximately $13 million.
- Convertible Notes: The company has $175 million in 3.25% Convertible Senior Notes due May 2015. As of June 29, 2009, conversion criteria had not been met. The notes are accounted for with separate liability and equity components.
- Investment Liquidity Risk: The company holds $1.4 million in the Reserve Primary Fund, a money market fund that suspended redemptions. The company expects to receive substantially all holdings but currently cannot access the cash.
- Environmental Liabilities: The company estimates total remediation costs of $1.1 million over the next 12 to 84 months for sites in Connecticut and Washington. There is also a remaining obligation of approximately $0.7 million for capital improvements to rinse water recycling systems in Connecticut.
- Customer Concentration: The 10 largest customers accounted for 52% of net sales in Q2 2009. The five largest OEM customers accounted for 37% of net sales.
Investor Verification Checklist
- Redmond Facility Closure: Verify the timeline for the final separation of remaining employees and the status of the asset sale process for the Redmond buildings.
- Reserve Primary Fund: Monitor the status of the $1.4 million investment in the Reserve Primary Fund and the timeline for expected distributions.
- Environmental Compliance: Confirm the completion of the second rinse water recycling system in Connecticut by the July 1, 2009 deadline to avoid enforcement actions.
- Customer Concentration: Assess the financial health of the top 10 customers, which represent over half of the company's revenue.
- Convertible Note Conversion: Track the company's stock price relative to the conversion price ($15.96 effective price via hedge) to evaluate potential dilution or cash settlement obligations.