TTMI

Business Context and Reporting Period

Company: TTM Technologies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2000
Business Overview: TTM Technologies provides time-critical, one-stop manufacturing services for highly complex printed circuit boards (PCBs). The company serves original equipment manufacturers (OEMs) and electronic manufacturing services providers in the networking, high-end computing, and industrial/medical sectors. Its strategy focuses on "time-to-market" capabilities, offering services ranging from rapid prototype production to high-volume manufacturing.

Key Financial Metrics (Year Ended Dec 31, 2000)

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 91.4% to $203.7 million, driven by $31.0 million from the full-year inclusion of the Power Circuits acquisition and $66.3 million from internal growth. Internal growth was fueled by higher unit volumes, pricing increases, and a favorable mix of high-margin quick-turn products.
• Margin Expansion: Gross margin improved significantly from 22.8% to 37.6%, attributed to a higher proportion of quick-turn and advanced technology PCBs, improved capacity utilization, and higher pricing levels.
• Profitability Turnaround: The company moved from a net loss of $227,000 in 1999 to a net income of $28.1 million in 2000. This was aided by a $14.8 million income tax benefit from the elimination of a deferred tax asset valuation allowance following the IPO.
• Debt Reduction: Total long-term obligations decreased by approximately $96.9 million (from $140.2 million to $43.3 million) due to the repayment of debt using proceeds from the September 2000 Initial Public Offering (IPO).
• Operating Expenses: Total operating expenses rose to $30.9 million from $11.0 million. Increases were driven by higher sales commissions, bad debt expenses, and the amortization of intangibles related to the Power Circuits acquisition.

Guidance, Outlook, and Risks

• Capital Resources: The company completed an IPO in September 2000, raising approximately $91.7 million in net proceeds. Management believes cash from operations and the new credit facility (a $45 million term loan and $25 million revolving commitment) are sufficient for the next 12 months.
• Outlook: Management anticipates lower interest expense in 2001 due to reduced debt levels. They expect to continue expanding quick-turn capacity and pursuing strategic acquisitions.
• Key Risks:
  • Customer Concentration: The top 10 customers accounted for 50.8% of net sales in 2000. The two largest customers (Solectron and Compaq) represented 13.8% and 13.3% respectively.
  • Industry Dependence: Heavy reliance on the electronics industry, specifically networking and high-end computing, which are subject to economic cycles and rapid technological changes.
  • Competition: Intense competition from manufacturers in Asia with lower production costs, which could pressure pricing for volume production.
  • Intangible Assets: The balance sheet includes $83.0 million in intangible assets (goodwill and customer relationships). Future acquisitions or impairment could negatively impact earnings.

Investor Verification Checklist

• Customer Concentration: Verify the stability of relationships with Solectron and Compaq, which together account for nearly 27% of revenue.
• Debt Covenants: Review the financial covenants in the amended senior credit facility to ensure compliance, particularly regarding leverage and interest coverage ratios.
• Deferred Tax Assets: Monitor the realization of the $21.8 million deferred tax asset; a future valuation allowance could significantly reduce net income.
• Quick-Turn Mix: Assess the sustainability of the 37.6% gross margin, which relies heavily on the high-margin quick-turn product mix.
• Acquisition Integration: Evaluate the integration progress of the Power Circuits acquisition and the implementation of new management information systems at the Santa Ana facility.