TTMI

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and three quarters ended October 2, 2000.
Business Overview: TTM provides time-critical, one-stop manufacturing services for highly complex printed circuit boards to original equipment manufacturers and electronic manufacturing services providers. The company completed its Initial Public Offering (IPO) on September 20, 2000, selling 7.5 million shares at $16 per share, with net proceeds of approximately $79.5 million. Subsequent to the period end, an over-allotment option was exercised for an additional 1.125 million shares.

Key Financial Metrics

Note: Total debt reflects the balance sheet position at October 2, 2000, following significant debt repayments using IPO proceeds.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 86.0% for the quarter and 95.2% for the three-quarter period compared to the prior year. Growth was driven by internal sales volume, a favorable mix of high-margin quick-turn boards, and the acquisition of Power Circuits (completed in July 1999).
• Profitability: The company transitioned from a net loss of $1.3 million in the prior year quarter to a net income of $10.2 million. This was significantly aided by a $14.7 million benefit from the elimination of a deferred tax asset valuation allowance.
• Debt Reduction: Long-term debt decreased from $132.5 million (Dec 31, 1999) to $59.0 million (Oct 2, 2000). IPO proceeds were used to repay approximately $50.4 million of the senior credit facility, $16.8 million of senior/subordinated notes, and $10.8 million of deferred retention bonus obligations.
• Operating Expenses: Expenses increased due to the Power Circuits acquisition, higher commissions, and a one-time $1.5 million fee to amend management agreements. However, management fees are expected to cease in future periods under the new agreement.
• Extraordinary Items: The company recorded a $6.8 million extraordinary loss (net of tax) related to the early extinguishment of debt and write-off of debt issuance costs.

Guidance, Outlook, and Risks

Management Commentary: Management expects interest expense to be significantly lower in subsequent periods due to debt repayment. The company anticipates a future effective tax rate of approximately 37%. Cash generated from operations and the amended credit facility are deemed sufficient for the next 12 months.

Key Risks and Contingencies:

• Customer Concentration: The top 10 customers accounted for 53.3% of net sales for the first three quarters of 2000. Loss of major customers (e.g., Solectron, Compaq) could materially harm results.
• Industry Dependence: Heavy reliance on the electronics industry, specifically networking and high-end computing, which are subject to economic cycles and short product life-cycles.
• Competition: Intense competition from companies with greater resources and lower-cost offshore facilities (e.g., in Asia).
• Intangible Assets: Significant portion of assets ($84.2 million) are intangibles (goodwill). Future acquisitions or impairment could negatively impact earnings.
• Legal/Environmental: Potential exposure to intellectual property claims and environmental liabilities related to hazardous materials used in manufacturing.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the amended and restated senior credit facility covenants, particularly given the high leverage prior to the IPO.
• Tax Valuation Allowance: Confirm the sustainability of the $14.7 million tax benefit; future reversals could significantly impact net income.
• Customer Retention: Monitor sales trends to top 10 customers, specifically Solectron and Compaq, to assess concentration risk.
• Interest Rate Exposure: Review the effectiveness of interest rate swap agreements covering the floating-rate debt.
• Capital Expenditures: Track the $8.8 million in property and equipment purchases to ensure alignment with capacity expansion plans.