Business Context and Reporting Period
Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2004
Business Overview: TTM Technologies is a manufacturer of time-critical and technologically complex printed circuit boards (PCBs) serving high-end commercial markets, including networking/communications, high-end computing, and industrial/medical sectors. The company operates three specialized facilities in the United States (Santa Ana, CA; Redmond, WA; Chippewa Falls, WI) offering a "one-stop" solution from prototype to volume production.
Key Financial Metrics (Year Ended Dec 31, 2004)
| Metric | 2004 Value | 2003 Value |
|---|---|---|
| Net Sales | $240.7 million | $180.3 million |
| Gross Profit | $68.5 million | $34.6 million |
| Gross Margin | 28.5% | 19.2% |
| Operating Income | $41.2 million | $10.2 million |
| Net Income | $28.3 million | $7.4 million |
| Diluted EPS | $0.68 | $0.18 |
| Operating Cash Flow | $48.8 million | $18.6 million |
| Working Capital | $82.6 million | $52.4 million |
| Long-Term Debt | $0 (Paid in full) | $7.8 million |
| Cash & Equivalents | $43.2 million | $9.6 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 33.5% to $240.7 million, driven by a 52% contribution from price improvements (due to economic strengthening and a shift to higher-technology products) and a 48% contribution from increased production volume.
- Margin Expansion: Gross margin improved significantly from 19.2% to 28.5%. This was attributed to higher pricing, greater labor efficiency, lower per-unit material costs, and better absorption of fixed manufacturing overhead.
- Debt Elimination: The company paid off its entire term loan balance during 2004, resulting in zero long-term debt outstanding as of year-end. A $25 million revolving credit facility remains available with $19.3 million in borrowing capacity.
- Product Mix Shift: The average layer count of PCBs increased from 14.3 in 2003 to 15.6 in 2004. Quick-turn orders (delivery ≤ 10 days) decreased as a percentage of sales from 27% to 23% due to faster growth in standard lead-time products.
- Customer Concentration: Sales to the top 10 customers accounted for 65% of net sales in 2004 (up from 64% in 2003). Sales to Electronic Manufacturing Services (EMS) providers rose to 72% of total sales.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capacity Expansion: Phase one of an 85% capacity expansion at the Chippewa Falls, WI facility was completed in 2004, adding 55% physical capacity at a cost of roughly $10 million. Phase two (additional 30% capacity) is contingent on demand and market conditions.
- Future Earnings: Management expects to utilize deferred tax assets in future periods based on current forecasts. However, they caution that if future earnings estimates are lower than expected, additional valuation allowances may be required, reducing earnings per share.
- Accounting Changes: The company is evaluating the impact of SFAS No. 123R (Share-Based Payment), required to be adopted in Q3 2005, which is expected to have a material impact on consolidated results and EPS.
Risks and Contingencies
- Customer Concentration: Heavy reliance on a small number of OEM and EMS customers (top 5 OEMs accounted for 54% of sales). Loss of a major customer could materially harm operations.
- Competition: Intense competition from Asian manufacturers with lower labor costs, though TTM focuses on high-complexity boards less susceptible to price wars.
- Raw Material Costs: Fluctuations in raw material prices (e.g., laminates) can impact margins. A price increase in late 2004 reduced Q4 gross margins by approximately 1 percentage point.
- Legal Proceedings: The company is a defendant in a patent infringement lawsuit filed by the Lemelson Foundation. While a related Nevada court found the patents invalid in January 2004, the plaintiff has the right to appeal. Management does not expect a material impact but notes no assurance can be given.
Investor Verification Checklist
- Debt Status: Verify the complete payoff of the term loan and the terms of the remaining $25 million revolving credit facility (maturity Sept 2005).
- Customer Concentration: Review the specific sales mix to the top 5 customers (Cisco, HP, IBM, Juniper, Sun) and the top 2 EMS providers (Solectron, Celestica) to assess dependency risk.
- Deferred Tax Assets: Monitor the $9.1 million net deferred tax asset and the $14.5 million valuation allowance; assess the likelihood of future taxable income to realize these assets.
- Capacity Utilization: Track the utilization rates of the new Chippewa Falls capacity to ensure the $10 million investment yields expected returns without creating excess fixed costs.
- Stock-Based Compensation: Evaluate the projected impact of SFAS 123R adoption in 2005 on future earnings per share.