江森自控 (JCI) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to the TTM Technologies third quarter earnings release conference call.

Today's call is being recorded.

Now for opening remarks and introductions I would like to turn the call over to the Chief Executive Officer, Kent Alder.

Please go ahead, sir.

Thank you, and good afternoon.

Thanks for joining us for our third quarter 2006 conference call.

I am here in Santa Ana with our CFO, Steve Richards.

We continue to be pleased with our financial performance and for the third quarter of 2006 we've posted revenues of $75.8 million and earnings per diluted share of $0.25.

But before we get into any detail, let me mention that during the course of this call we will make forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include but are not limited to fluctuations in quarterly and annual operating results; the volatility and cyclicality of the various industries that the Company serves; integration of the recently acquired Tyco Printed Circuit Group business; and other risks described in TTM's most recent 10-K.

The Company assumes no obligation to update the information provided in this call.

Now, as you read in our release, TTM generated another solid quarter.

Revenues of $75.8 million for the third quarter represented an increase of 24% year-over-year and sequentially, revenues declined 1% quarter-over-quarter.

On a year-over-year basis panel production per day increased 10% while the average price on a per panel basis, increased 14%.

Sequentially, panel production per day declined 4%.

The average panel price increased 4%.

The approved pricing was due to a combination of several factors -- the marketplace, product mix, higher layer count, and the pass-through of high raw material cost.

As for production, strong demand at our Chippewa Falls plant was offset by softness in the high mix segment of our business.

Market strength was broad-based and [accompanied] most market segments and customers.

We continued to add new customers, about 20 in the third quarter of 2006.

And we continued to build our technological and operational capabilities.

Products with 12 layers or more accounted for 70% of revenues, up from [68%] in the second quarter 2006.

Products with 20 layers or more increased to 43% of revenues compared with 38% in the second quarter of 2006.

Third quarter leadtimes were down slightly compared with the second quarter.

Leadtimes at about three weeks were unchanged at Santa Ana.

They increased at Redmond from three to four weeks in the second quarter to five to six weeks in the third quarter.

However, we reduced our leadtimes at Chippewa Falls to six to eight weeks.

The reduction in leadtimes at Chippewa Falls was due to the addition of equipment and staff during the second quarter which increased our capacity and output for the entire third quarter, helping us to better meet customer demand.

Overall, capacity utilization was in the low 80s for the third quarter.

As for customer concentration, sales to our five largest OEMs constituted 50% of revenues in the third quarter of 2006 compared with 48% in the second quarter.

Our top five customers in alphabetical order were Cisco, HP, IBM, Juniper, and Sun Microsystems.

Both Cisco and IBM represented more than 10% of our sales in the third quarter.

Now before I turn the call over to Steve, let me make a few comments about the acquisition of substantially all of the assets of the Tyco Printed Circuit Group which we completed last Friday, October 27.

As we've said before, the Tyco Printed Circuit Group provides us with an excellent fit for our existing operation and achieves several of the objectives we have established for our acquisition strategy.

Our plan for North America has always been to focus on time and technology and to enter the military/aerospace market as one of the industry leaders.

We have met several objectives with this purchase.

Together we form North America's largest printed circuit board manufacturer.

We have become a leader in the military/aerospace market.

We expand our service capabilities.

We diversify our end markets and expand our customer base, and we expand our material purchasing power.

As you probably know, the Tyco Printed Circuit Group currently has lower profit margins than our existing operations.

The Tyco Printed Circuit Group operation includes back plane assembly which is inherently less profitable than the printed circuit manufacturing segment.

However, with our exclusive focus on printed circuit boards, assemblies, and related technologies, we plan to bring greater operating efficiency and productivity to all aspects of the business.

We expect the acquisition to be accretive to earnings within a year.

We have been asked about our specific plans for the Tyco Printed Circuit Group facilities.

Let me remind you that we have been a combined company for three days.

Our first priority is to have a smooth, effective and successful integration.

As part of that integration process, we will focus on improving profit margins at each facility and throughout the entire company.

We will evaluate improving the allocation of work between our specialized facilities.

We will communicate with our suppliers and others associated with TTM concerning ways to reduce our cost.

We will improve operational productivity by sharing best practices throughout the company.

We will capture market share and grow our business by cross-selling the new opportunities of the combined Company to our expanded customer base.

We will evaluate opportunities for synergies to reduce costs across all areas of the Company.

And as in the past, we will expect all of our facilities to continually improve, satisfy our valued customers, and generate industry-leading profit margins.

In short, our immediate objective is to improve the profitability of each facility and maximize all aspects of the Company.

Now I will hand the call over to Steve.

Thanks, Kent.

I am going to quickly run through the highlights of our third quarter performance.

Then I will provide more details about the acquisition of substantially all of the assets from TPCG as well as our expectations for the fourth quarter.

TTM's gross margins remained at a healthy 29.7% in the third quarter of 2006, compared with 30% in the second quarter of 2006 and 23.2% in the year-ago quarter.

As Kent mentioned, we benefited from strong demand and generally were able to pass-through higher raw material costs to our customers.

Selling and marketing expense was $3.3 million or 4.4% of sales in the third quarter of 2006, compared with $3.5 million or 4.5% of sales in the second quarter of 2006.

General and administrative expense including amortization of intangibles was $4.1 million or 5.4% of sales in the third quarter of 2006.

That compared with $4 million or 5.2% of sales in the second quarter of 2006.

During the third quarter of 2006, we recorded stock-based compensation expense of $450,000.

We have included the breakdown of stock-based comp in the financial schedule of our earnings release.

Our balance sheet strengthened further during the quarter.

We generated strong cash flow from operations of $11.7 million.

As a result, we were able to fund net capital expenditures of $3 million while expanding our cash and short-term investment position by $9 million to end the third quarter at $110.3 million.

Depreciation was $2.3 million.

Moving onto the acquisition of substantially all of the assets of Tyco Printed Circuit Group.

We filed an 8-K on Monday.

That filing includes audited financial statements for Tyco Printed Circuit Group for the years ended September 30, 2004 and 2005 and for the nine month period ended June 30, 2006.

As you review the financials, please be aware of two factors -- first, the historical results include the Austin, Texas plant, which was closed during 2005.

Also certain items in TPCG's historic results, including but not limited to large intercompany debt and management fees, will not be taken by TTM.

Pro forma financial statements will be filed in a separate 8-K in early 2007.

We paid the purchase price of $226 million through a $200 million term loan and the use of $26 million of our own cash.

In addition, we paid about $8 million in fees related to the transaction.

The loan carries a rate of LIBOR plus 225 basis points.

The debt has been rated B1 by Moody's and W minus by S&P.

The debt does not have any pre-payment penalties and we will use excess cash flow to pay down the debt.

Post closing our cash balance at approximately $75 million and we have access to a new, untapped, $40 million revolving credit facility.

We have begun the process of allocating the purchase price to the acquired tangible and intangible assets, and are utilizing the services of an outside appraisal firm to assist us in that process.

As I will discuss in a moment, this will have an effect on our fourth quarter financial performance.

So let me talk about our expectations for the fourth quarter.

We foresee stable market conditions for the fourth quarter except for increased laminate prices, which will affect most of our facilities beginning this quarter.

Including the results from a TPCG business which will be part of TTM for roughly two months of the fourth quarter, we estimate revenues of $140 million to $148 million.

Our GAAP diluted earnings estimate is $0.13 to $0.19 per share.

Please understand that this earnings forecast reflects preliminary estimates of the effective purchase accounting, which will temporarily depress profitability in the fourth quarter.

As part of purchase accounting, TPCG's finished goods and work in process inventories will be recorded at fair value.

That means there will be minimal profit on anything sold out of inventory.

This purchase accounting adjustment should mostly impact results in the fourth quarter with some effect lingering into the first quarter of 2007.

In addition, costs to integrate the TPCG operations will reduce profits in the fourth quarter.

The final results of the appraisal of TPCG's tangible and intangible assets also are likely to affect depreciation and amortization expense during the fourth quarter and in the future.

With that, that's open the call to your questions.

(OPERATOR INSTRUCTIONS).

Matt Sheerin, Thomas Weisel Partners.

So, let's start with the core business.

Sounds like the core business in the September quarter is tracking sort of flat top a little bit which is what we normally see.

And would we see an increase in quick turn as a percent as well?

Yes, when we look at the fourth quarter, we are looking at a couple of issues that impact that fourth quarter.

Certainly the material pass-through is one thing.

And we are forecasting just for the core business, a slightly lower top line.

And with that top line comes a little bit less favorable (technical difficulty) [product mix].

So if you kind of go on an apples-to-apples basis, we would be down a couple of pennies per share when you compare us with the $0.25 of last quarter.

I think if you just went apples-to-apples we would probably be around $0.23 this quarter.

Now what we are seeing in our business is continued strength from our Tier 1 customers.

At the beginning of the quarter we were a little slow in the high mix segment; that has picked up pretty substantially now.

But our quick turn business, while it is good, it is not turbocharged by any means.

So we are looking at that to be just a little sluggish as we start this quarter.

So you combine all that together and plug that in and we are probably apples-to-apples just a couple of cents down on an earnings per share basis.

And on the rise -- the higher laminate costs I know you have been passing along increases.

Could you tell us where you are in terms of your suppliers increasing prices to you and you increasing prices at your customer level?

And has Tyco been keeping up with that as well and passing along price increases?

Yes, I will speak about TTM first.

We have had a price increase on our laminate every quarter this year.

And in total that adds up to about 18%.

And so we, because of the market conditions being as strong as they are and our ability to move into higher technologies and better product mixes, we have been able to move our pricing up.

So bottom line, we say we passed that along.

So we have been able to do that quite effectively.

And when I say the prices are up every quarter, that includes the one that's coming in November here.

So beyond that, I'm not sure where we go with the pricing.

But for this year we have been able to pass those prices on -- not necessarily because of price increases to our customer, which have been part of it, but also because of technologies and so forth.

Tyco -- I just don't have that answer for you now.

Steve has some information here.

I'll let --

Our price increase in raw materials, laminate and prepreg, takes effect basically today, November 1.

Tyco got an increase at the start of October.

I think that they have been able to pass-through the price increase onto customers as well.

But the same issue we have or at least have had this year, which is the long leadtime work tends to be harder to pass the price increase onto customers, because you price it in a quarter for production next quarter, but I think the conditions that have affected us have [not affected them] so far -- they have been able to pass it through.

I think when you look at the military business you have some long-term contracts in there.

So that makes it a little more difficult to pass that on.

But also in the commercial side of the business they would be faced with the same challenges that we have been faced with.

And then my last question -- regarding the integration of Tyco and potential cost-cutting initiatives.

Could you give us just a time frame for when you think you will be comfortable with talking about the heavy lifting that has to be done with Tyco?

How that's going to play out?

Yes, that's certainly a good question.

We have been able to hit the road running on the integration process.

As you recall, with HRIT and Finance, a lot of those corporate functions were performed by Tyco Electronics and Tyco International.

In preparation for the close, we worked quite closely with Tyco to get new systems and new processes in place.

So we are well down the road with that integration along those lines.

Now that we own the company, now we will move on to kind of the other areas, the sales and operations.

And our first order of business with regards to the integration will be kind of in the sales effort, because there we have two very strong salesforces coming together.

There is some duplication, some overlap there with customers and with sales coverage that we feel like it's important that we address that early.

So we have been working on that and that will be the first area that we attack.

So we will be doing that here very shortly.

And then we will move rapidly into the rest of the operations within the Company.

So we are going to hit the road running there.

We have hit the road running.

We are going to continue at a very rapid pace to have these two great companies function as one just as rapidly as we can.

Rich Kugele, Needham & Co.

Just a few questions, I guess.

Steve, is it possible to give us a sense what the fourth quarter would look like without some of these acquisition-related charges?

And what should we be assuming as they go forward, cleaned up operating expense level for the combined Company?

Yes, I can give you that.

As Kent mentioned, TTM's operations on a steady-state basis, would probably be about [$0.22, maybe] $0.23 for the fourth quarter.

So down a little bit.

I think probably mostly due to the higher laminate prices and similar revenue down slightly quarter-over-quarter maybe by $1 million or so.

That is kind of what TTM would look like on a stand-alone basis.

Obviously Tyco does bring to us positive earnings but of course we have higher interest expense and so forth there.

I've got -- kind of a combined basis on the operating expense line, our selling expense should be around 4.5 to 4.8, and G&A about 6%, give or take a tenth of a percent or so.

So a little bit higher G&A than we've seen thus far as a percent of sales.

But very similar selling expense.

Obviously, selling expenses rise and fall as it does for us based on revenue because we paid commissions to our reps.

But I think just a bit higher G&A in general for the [going] quarter.

That 6% does reflect some one-time costs in the G&A area that we'll have this quarter.

Largely, almost $1 million in accounting fees for the opening balance sheet audit.

We go from having say, our auditors fly to three plants to our auditors flying to 12 plants including Shanghai.

So it is going to be a fairly lengthy undertaking for the opening balance sheet and that is impounded in your 6% kind of G&A number for the fourth quarter.

So I think probably a little bit less going -- once we get behind those costs.

And then in terms of a go forward combined gross margin, obviously, Tyco had been running at a lower percentage, but your operations probably can have a positive effect on just the way they do business.

So what should we be assuming as a blended gross margin as a target for the company?

Well, let me tell you what it would be for the fourth quarter, which is depressed by, largely by the purchase accounting issue on inventories which I can discuss at length as needed.

But basically, our gross margins should be like in the 18% to 20% range for the fourth quarter and that is with Tyco's operations, the one-time cost and the inventory adjusted for purchase accounting, which basically makes your inventory relatively worthless on the P&L, it's all tied up in the balance sheet in the opening entries.

But going forward, I think I will let Kent field that, but certainly north of 20% is quite reasonable, I think, given that we can bring some efficiencies to them on the operating side.

Let me just add, in the fourth quarter we have two months of Tyco's performance included there.

And it is a November/December two month time frame.

And when you look at November you've got a couple of days vacation for Thanksgiving, you've got Christmas in December, you've got year end activities.

We have the, I guess, disruption of closing the business and kind of a lot of one-time costs.

So, it is not the best two months that we are putting into our forecast.

And even with that, we think that when you strip out all the one-time costs and kind of the purchase accounting treatment that we go through, it is still a fairly respectable quarter.

I might mention right here that when we looked at the trailing 12 months of Tyco in June, the trailing 12 EBITDA was $29 million -- I think a little more than 29.

Now we are replacing the old September quarter with the new September quarter, that EBITDA moves up to $34 million.

So we've replaced a much stronger quarter in '06 with a weaker quarter in '05, which moved the EBITDA up.

So I think that gives you some sense of once we get through the next quarter where we anticipate the Company to operate as it stands today.

And we look at when we bring the ability to just focus on printed circuit boards and back plane assemblies and move away from all the distractions that we have had of buying the business and Tyco has had of selling the business and closing Austin and selling Spain.

And we get back to a real focused operational business, we think that there is some upside potential in where we can go with margins and so forth.

I think that should help when you kind of look at where we are going on a long-term basis with the trailing 12 EBITDA through September of about $34 million.

Shawn Harrison, Longbow Research.

Just a follow-up on the prior question.

With that trailing 12 months EBITDA, that looks like they're operating about a 5% EBIT margin currently -- does that sound about right?

I think that's pretty close.

It seems a little low.

Let's see, I don't have that number.

But I think it was --

So we are essentially looking at kind of mid-single digits currently?

Yes, it's actually, it's going to be higher than that because if you look at the revenue kind of on a -- like the latest 12 month time frame although it does have a little bit of the Austin revenue, like $300 million dollars and EBITDA was about $23 million, $24 million -- probably more like, I would say probably 7% to 8% EBITDA margin.

EBITDA.

EBITDA margin.

I think EBIT's closer to the 5%.

Right around 5%, maybe slightly below.

And I guess as you look forward to generate the synergies going forward, it looks like it will be much more heavily weighted toward cost of goods sold than operating expenses, is that correct?

Yes.

Because certainly they have assembly operations in Shanghai, here in California and in Stanford Springs, Connecticut.

And so the cost component for the assembly is just generally much higher than in PCBs.

I think as we merge these two companies, the management team in place at Tyco is coming with us almost entirely at the top level.

And we are pretty excited about that.

And that certainly increases the depth that we have and helps us run this sizable company.

We need all the management that they have and they're coming over.

When we look at the salesforce now, I think I mentioned earlier there is some duplication there that we are going to look at pretty quickly.

And the one thing that we really haven't computed in this formula at all is material savings.

We just didn't get a chance to look at that through the due diligence process.

Now that we are a larger company, we will be talking with our vendors and the suppliers and others associated with TTM and working to have a win-win situation with more volumes going to specific customers.

And in return, we would like to get a price reduction.

So there's a lot of factors here that can help us on the upside.

Probably the one that I talked about earlier that is the biggest one is kind of an intangible where we just need to get focused on the business again and get running the business, get outside of the acquisition and then get the integration behind us and really focused on the business.

I think you'll see some nice results as we do that.

Just on the integration -- when you held the acquisition call, you mentioned integrating a new ERP system with the legacy asset at TTM.

Just wondering if you could provide maybe an update on the time frame for the new ERP system as well as the costs associated with it.

First we are going to make sure we get just the basic consolidation plans in place and the servers in place that it takes to run our HR systems, putting in a new HR system and make sure we get the basics in place.

As we then integrate the Company, get the management team working as they should together, then we will come back and look at the new ERP systems.

And I would imagine, my best guess would be sometime in the January/February/March time frame where we will be looking at how we replace the existing facilities.

We want to make sure that we have stabilized through the integration and that we are maximizing our efforts before we jump into that function.

But we all look forward to that.

I think we have some old archaic systems within TTM that certainly the operations folks and everyone is anxious to replace as rapidly as we can.

My final question is maybe a point of clarification -- you said high mix was a little bit weak.

What is that specifically referring to?

Was that referring to quick turn?

Or is quick turn separate from that?

Yes, that is, it's a little separate.

Usually as we talk about high mix, a lot of times we're talking about our Redmond facility and that's kind of in the industry/medical space.

We had one or two of our larger customers there just hit a little low in the operation, and so that impacted us there.

So yes, high mix is certainly separate from quick turn.

So with that, the IPC data was very weak in terms of bookings for September, which is at odds with kind of what everyone else is talking about in the market.

Could you maybe just talk about the general demand environment for military, since that is now 25% of your revenue base?

As well as kind of the networking communications and PC demand marketplace now.

First, when we looked, the Tyco Print and Circuit Board Group for the last two quarters, their book-to-bill has been around 1.

So it's pretty close to 1.

Well, the third quarter -- here it is, the third quarter was 1.02, and then the second quarter it was 1.11.

And it was very positive in the military side, probably in the assembly and then strong in back plane and then positive in the commercial side.

So it's positive in all areas but a little strongest in assembly, stronger in military.

That's the Tyco side.

When you look at TTM now, our book-to-bill for September was 0.96, that's down from 0.98 in June and a little bit below the IPC numbers.

Inside of that third quarter, September was certainly our lowest month, and sometimes our invoicing in September is our highest invoicing month of the quarter, so that makes it a little challenging to get the bookings in from that perspective.

So it is a little bit shaded when you just look at it in that perspective.

But even on an order pattern I think September was our lowest month.

October, however, our book-to-bill is back and we are just slightly over 1 now for October.

So I would like to also add that when you go back to the first quarter in March, our book-to-bill was 1.2.

We have some of that, 1.2 being booked in March that probably should have been spread out through at least the second quarter.

So we are not too concerned.

I think it says that the industry is not quite as turbo-charged as it has been in the first half of the year but it is still not in a bad spot.

We don't see signs that there is going to be much deterioration from here.

We're still seeing the orders come in.

I think one of the advantages we have now is getting our leadtime down in Chippewa Falls, and that should help us capture some more work -- not having to adjust customers and so forth.

So we are still, I guess, from an overall picture, still moderately positive about the future of the industry.

I mean, it's flattened out the last (technical difficulty) [couple of] quarters, so if this is kind of where it has flattened out then we are pretty happy with it.

Thanks a lot, congratulations.

Amit Daryanani, RBC Capital Markets.

Roughly speaking and looking at Tyco business contributed about $67 million of revenues in the December quarter, how much of that is sort of PCB business and how much of that is from back plane?

Generally the assembly operations are about 30% to 35% of their revenue.

I think that holds true for the two months that will have been our results in November and December.

It's about $30 million of contribution.

Could you just kind of remind me -- I know you said 5% corporate margins for the Tyco business -- how much of the PCB margin versus the back plane margins?

I don't have that number at the top of my head here.

Steve?

I know that the -- I know most of the gross margin, not the EBIT margins.

I can get that data for you, Amit, and get back to you.

And then just I think it would be really helpful looking at your EPS guidance if you could just quantify the integration costs that you guys are looking for in the December quarter, both in terms of purchase price, allocation and also general acquisition expenses you're going to have to flow through your P&L?

Sure.

Basically, it is like we already talked about TTM is kind of steady through the operations producing about say $0.22 of earnings per share.

The acquisition costs will be twofold -- basically we'll have interest expense, $200 million of debt at a rate of LIBOR plus [$225 million], so around 8% for two months.

That will be about $2.7 million.

And we expect to have about $1.5 million to $2 million of integration costs in the fourth quarter, the bulk of which will be -- the highest piece will be the audit.

But also we have IT costs and HR costs.

We're putting in new systems, buying new software licenses.

Some of that stuff is [capitalizable] but there's also our cost component.

So the effect of that kind of drops about $0.07 for the interest expense and the integration costs.

Then we have PCG's results, which is about $70 million in revenue.

But then of course that gets reduced by the inventory effect, which basically -- you tie up your balance sheet all the profit component of inventory, so when it flows to the P&L it flows through essentially almost no contribution to earnings.

That kind of hurts us.

Also we have depreciation expense.

We won't know the actual number yet plus amortization of intangibles yet because we're still waiting for the appraisal firm to get back to us with the property, plant, and equipment values.

But probably Tyco's results, which [works out to] Tyco, I guess, the PCG results net of those effects, probably be about $0.02 per share.

So kind of all in it gets towards the midpoint of our range of $0.13 to $0.19 in EPS.

Does that help you, Amit?

Is that what you are kind of looking for?

That is extremely helpful, sir.

And just one final question [I hadn't resolved] -- inventory for the quarter, it looks like they trended up a bit sequentially, 78%, I think, could you just talk about --

Do you have a question?

I mean we're actually talking about TTM questions?

This is delightful.

I've got the whole data right here.

Well, the combined company will be TTM, right?

That's true.

So they all are TTM questions.

I guess historic TTM questions.

Basically, inventory went up about $1 million quarter-over-quarter.

And it was actually mostly a little bit of raw materials, like $200,000 worth of raw at about $400,000 each in work in process, finished goods.

So the finished goods will end up the quarter at just over $2 million.

And of course, obviously, understanding our finished goods inventory is a big focus for the investors and the analysts, but the $2 million we currently have in finished goods is pretty much our normal finished goods rate.

We were down, about $1.9 million to $2 million in finished goods.

We are down to about $1.6 million at the end of the second quarter.

So this is more of a return to historical norms and not particularly worrisome for us.

But the Chippewa Falls business has been very strong.

So most of the increase in inventory in work in process [in] Chippewa Falls to their higher sales.

Maybe one more question if I could just ask you guys -- sounds like the quick turn business was weak in 3Q.

It's doing a little better in fourth quarter but doesn't sound like it is living up to your expectations.

Historically every time we've seen the PCB cycle turn around, the quick turn has tend to lead the way in that.

Is there a reason why this time may be any different as we've seen a quick-turn [we can sell].

Should we expect the entire PCB cycle to start weakening in the next quarter our two?

Or is it going to be different this time?

I think when we look at our activity on the quick turn side, the activity seems to still be pretty high.

Our capture rate has been just a little lower than normal.

So if you want to judge the industry by the activity rate, it's probably still pretty good.

So we're looking at -- when we did our forecast, we looked at the pricing and we put some flat pricing to slightly down because we think that because of the capture rate we might have priced ourselves just a little high.

So I don't think that the industry as a whole is significantly off.

I think there might be some company specifics to TTM that we need to look at and improve on.

And I think that is where we are going to focus.

Kevin Kessel, Bear, Stearns & Co.

So I just wanted to clarify a few things.

In terms of the impact, Steve, that you said for Tyco roughly you were expecting $70 million?

I guess that is the midpoint then, right?

Yes, $70 million of revenue -- give or take $1 million.

But that's kind of midpoint.

And so that implies that your core business is going to be down a couple of million in the fourth quarter.

No, actually we said 140 to 148 as our range.

So let's say 144 to 145 is kind of midpoint of that range.

We are at 75.8.

So yes, down probably about $1 million or so in the fourth quarter -- I think that is kind of what Kent has said earlier.

What about accretion?

You have spoken about it.

Are there any now that you -- you've obviously closed the deal, you've got the financing in place.

Are there any sort of targets out there or estimation in terms of how accretive you think this could be on a yearly basis?

We haven't looked at it on a full year basis how accretive it will be.

We looked at it kind of like when it will become accretive once we get beyond sort of the purchase accounting adjustments and the one-time integration costs.

But certainly it will be accretive in the coming year.

And I think it could be quite accretive.

I think a lot of what we have to spend money on now is kind of upfront infrastructure replacements.

Take on the IT burden that they had done it type of corporate into invest in software for consolidating our financial results across 12 plants and so forth.

I think once we get those behind us I think we will be in great shape and deliver a much better overall combined EPS.

I know it's a little bit hard to see right now with the purchase accounting treatment and the one-time cost that we have and we still have some of the depreciation that is outstanding.

But as we look at that, we are fairly close to being accretive in the near future here.

But certainly in the second half of the year, I think we will be accretive.

And just touching on what you said earlier, Kent, on Chippewa Falls, you said now lead times have been pulled into six to eight weeks -- so where were they -- was it 10 to 12 last quarter?

Yes.

We were probably 12 with some flexibility but beneath 12.

So now we're down to six to eight.

And part of that is we've added equipment and we have hired people so our capacity is up.

We still ran the quarter at Chippewa Falls at a capacity utilization rate of 90%.

So while we got our capacity up, we increased our throughput.

So that was all real positive.

But through that we were able to get our leadtimes down and that was important to us that we drive that down to the six to eight week window.

But Redman, you said even though it seemed kind of weak in the high mix, it seemed like their leadtimes stretched.

Their leadtimes stretched.

They were weak in the first part of the quarter.

And now as we have gone into the middle part of the quarter, the order pattern in Redman has picked up.

So we have been able to see the backlog improve there and the leadtimes extend.

And one of the things you see in this business is we talk about and then three or four weeks later some orders run in and it can change very positively, very quickly.

And that is what we had at Redman.

So their capacity utilization rate as we compute that drop during the quarter and now we're back to the leadtimes extending.

So we think some positive things are happening in Redman.

I think I might add too, that as we looked at Santa Ana and our quick turn, some positive things are happening there that give us some encouragement about being able to bring more work into our Santa Ana operations.

And speaking of quick turn, I think I might have missed this.

Did you give out the percentage of quick turn business in the third quarter?

I think it was 16.5% or 17%.

17%, I believe.

What was it last quarter, 20%?

Yes, 19.5%.

Last quarter.

What's the thought in terms of where that goes?

I know it's only two months of Tyco.

Where do you think that percentage goes in Q4?

That is going to be hard to say.

But as you evaluate Tyco, the percentage of quick turn within Tyco is significantly lower than it is at TTM.

Overall, that quick turn percentage will go down.

We don't have a feel for how far down that goes.

Now that we have made that statement, however, one of the areas that we believe will be a real positive for the combined companies is the quick turn capabilities that TTM has and our ability to cross-sell our ten day and less capabilities.

I think that was probably one of the missing components within the Tyco operation -- they had some quick turn capabilities.

But once you got below five days, it was challenging for the Tyco facilities to do that.

So we have a facility that can do five day turns on an ongoing basis -- that's what they are built for.

So as you lead with that quick turn capability and then are able to build from that, the other facilities, we think there's a lot of cross-selling that will take place within the expanded customer base.

So we are pretty excited about where we are going with the combined capabilities.

And just to clarify, the Chippewa Falls six to eight weeks lead time, is that for the full quarter or is that just ending?

That is where it is right now, actually.

We have always kind of looked at our -- when we presented our leadtimes we looked at it where it is at the end of the quarter plus a couple of weeks.

So we've got the most up-to-date information that we could as we went on the earnings call.

And is the same true there for then the book-to-bill?

You said 0.96 for September -- is that for the month of September or for the full quarter?

That is for the full quarter.

And then June the full quarter is 0.98?

That is correct.

You said September was your lowest month in the quarter -- was there any particular trend that you noticed or any particular reason customers were citing as a result of weak bookings in September?

There's no area that jumps out at us.

I do want to remind you, too, that in the third month of the quarter that is when our invoicing is usually the highest.

So if we have a consistent booking throughout the quarter, the last month of the quarter will be depressed because usually we have the highest booking month the last month of the quarter.

Excuse me -- billing month.

And then just housekeeping -- can you guys give us D&A and CapEx you're expected to be in the fourth quarter and if you have any sense on '07?

Depreciation from the fourth quarter is really tricky.

Our historic TTM plants will be about the same as it always is -- about 2.3 in the third quarter.

But because we aren't sure where the fair market values and useful lives that have come out, it is going to be a bit tricky to figure that out.

On a three quarter ending June basis for Tyco's plans, they are about $14 million for the three quarters or nine months ending June 30.

So that would be a run rate of about $4.5 million, I guess, to $5 million a quarter.

Whether that number stays the same or goes up or maybe possibly goes down a little bit will depend on the appraisals of the fair market value of the assets.

They have about $105 million or $106 million of net book value assets right now.

So it is a big asset gain.

I don't necessarily think that the fair market value is going to change a whole lot.

But we won't know until later in the quarter.

So I can't give you a better estimate at this point, unfortunately.

And what about CapEx?

CapEx for 2006 we estimate to be about $13.5 million.

And keep in mind that about $1 million of that is being generated by the acquisition as we buy new licenses and so forth from the IT segment of the business.

In 2005, Tyco was $12 million of CapEx.

I don't believe they will be that high in 2006.

So combined going forward we should be somewhere between the $20 million to $22 million range, just a rough guess right now.

And I just didn't catch CapEx in the quarter.

TTM's is $3 million.

Yes, $3 million.

[Bert Whitson, Riley Investment Management].

You mentioned possibly cross-selling between the quick turn in the Tyco business.

Can you kind of give us an idea of how much your quick turn business kind of went on to Tyco historically?

Do you have an idea of that?

Do you mean how much of our quick turn business that we did then went and Tyco manufactured after that?

Yes, yes.

I think very little.

I know of one customer, a network company, that they did some work for in their Hayward assembly plant.

So we would do circuit boards for them and then the Hayward plant would assemble them.

But that is the only customer I can think of.

That came out of our Santa Ana facility.

So it was quick turn work.

But it's not really -- it's not consequential.

No, it would be very insignificant.

And just within TTM, for the third quarter, do you have an idea of what the quick turn gross margins were versus the higher cash.

We never disclose gross margin by plant or by business line.

Can you give me an idea about the Tyco acquisition, the assembly part of the business?

Is that run as a separate division, the panel assembly?

Or is that kind of integrated into one?

There are three divisions within the assembly operation.

The assembly operation is 38% of the total revenue.

There is a Hayward facility, which is a commercial facility.

That is the largest of the three.

There is a Stafford Springs facility which is closely tied to Stafford and the military work, and they are very closely related.

And then the third facility is our Shanghai facility that is doing well and growing, and I'm very excited about Shanghai.

And now you mentioned that that business is inherently lower margins.

And we should expect blended margins to go down in the future.

Is there a reason to keep that assembly business around as part of the company?

Just kind of what you're thinking on whether this is an assembly business or going forward you guys want to be a PCB business?

That is a good question.

Certainly the back plane assembly business is different than just pure commercial assembly.

So it is a niche type business.

And there is some cross-selling that takes place between our printed circuitboard facilities and the assembly business.

And then you have the Stafford Springs that's tied in very closely with Stafford.

So Shanghai is growing well, so there's some reasons that we look at that business as a part of what we will try to improve going forward.

[Pat McMulland, Armadillo Capital].

It's been asked and answered.

Thanks.

Tom Dinges, JPMorgan.

This is [Agoshko] calling on behalf of Tom Dinges.

Just some modeling-related questions.

You initially mentioned tax rate as 36.5 for Q4.

Does this mean the same or change?

At this point we are going to go ahead and assume a 36.25% tax rate for the year.

That is our best estimate now.

We are still building our kind of consolidated tax model to factor in Tyco's spread of work among its various states and obviously they are in states that we are not in now, so that would affect our apportionment factors.

Right now I think our full year numbers are about 36.25%.

But we will have, of course, a much better feel for their tax position in the next couple of months.

I might have missed it, did you mention what are the leadtimes like at Tyco, in the Tyco business?

The Tyco leadtimes -- they are running, let's see, about six to eight weeks on the military.

The commercial business is approximately six weeks, and assembly is 10 to 14 weeks.

And you mentioned that price increases are difficult in the military because of the long-term nature of the contract?

We are saying that you enter into long-term agreements with the military side, similar to what we do with our tier one accounts on the commercial side.

And you have price increases in between the length of the contracts.

One more question.

This segment breakup that you had given as part of the acquisition call -- does that remain the same, the segment breakup going forward?

No, it will change, it will change.

Let me just run some numbers by you.

And these are a little bit dated but I think they will give you a feel for where we are at.

This is for the end of the second half, which is the latest data that we have.

On the network and communications -- TTM's at 44, Tyco is at 45, combined we remain at 44.

On the computing and peripheral -- TTM is at 32, Tyco is at 7, so combined, we're 18%.

Medical and industrial -- TTM at 12, Tyco at 14 -- combined, 13.

In the military/aerospace, TTM is at 12 and Tyco is 34, so on a combined basis we move to 25.

So I think from those numbers you can see that we definitely smooth out the end market segments which will give us a more consistent top line.

That was one of our objectives, is to be more balanced in the end market segments.

And we have certainly achieved that with the Tyco acquisition.

And just so that I make it clear, that was based on data through the first half of 2006.

[Jacob Muller, Aim Capital].

My question has been answered, thank you.

Amit Daryanani, and RBC Capital Markets.

Just a clarification, guys, on the book-to-bill numbers -- did you guys mention that October was actually about parity for you guys?

That is correct.

Book in October was just a little slightly above 1.

And that is with TTM.

And how is it for Tyco, please?

I don't have the information for Tyco in October.

I did mention, though, in the third quarter it was 1.02 and the second quarter, 1.11 for the Tyco segment.

One other issue why your book-to-bill has potentially been depressed for the last quarter, at least in addition to the billing aspect that you mentioned, could it also be the fact that your leadtimes are so stretched that your booking numbers tend to be higher now?

Yes, I think that's a good point.

Particularly at Chippewa Falls we might have suffered just a little bit there.

Although I think we were pretty flexible in keeping as many customers happy as we could.

We are in a much better position right now to certainly drive bookings than we were at the beginning of the quarter.

And then just in terms of the cash generation, TTM as a stand-alone has done a pretty good job at it.

What is the expectation in terms of cash generation for the combined entity through 2007?

Well, if you use EBITDA as a proxy for cash flow, which is reasonable although kind of a bit tricky, they made about [$34 million] of EBITDA for the 12 months ending in September, as Kent mentioned.

So that would be not the kind of level of cash generation that we have had necessarily but still very good cash generation.

Obviously ours has been $9 million to $10 million per quarter for the last several quarters.

Kevin Kessel, Bear, Stearns.

Kent, would you mind to just repeat what you said about the end market breakdowns?

I just didn't catch it all.

I'm looking at data from the first half and the reason we're presenting this is to give you an idea of what the combined company looks like.

So I'll run through it quickly.

In the network and communications for the first half of 2006, TTM was 44%, Tyco was 45%, on a combined basis it moves to 44%.

Computing, storage and peripherals was TTM, 32;

Tyco, 7; combined, 18.

Medical, industrial, instrumentation, TTM, 12;

Tyco, 14; on a combined basis, 13.

The military/aerospace TTM was at 12%, Tyco at 34, combined 25%.

So we certainly balance out the end markets segments.

That should give us a more consistent top line.

Do you guys expect to keep your same end market segmentation [scriptured] the way you have them today, like with the handheld and the peripherals?

Actually we are going to modify those a bit, and our sales and marketing folks and I had spent a lot of time kind of looking at that.

And certainly it's like going forward, the military and aerospace is going to be a much more significant portion of the combined company's business than it has been for just TTM alone.

Although it has been growing at TTM as well over the course of the last year.

So we will definitely do a military/aerospace carve-out as a separate end market.

We may kind of re-classify a few things, depending on the mix of work, we want to make sure we give you guys data that is representative of the markets the combined companies services.

Do you guys think that when you do that you'll be able to at least provide us with some historical data so we can --

Absolutely.

We'll be able to give you kind of pro forma sales by those end markets for comparative purposes for, let's say, fourth quarter would be a bit iffy only because we have just two months of their results and three months of our results.

Gets kind of messy.

But certainly for the first quarter of this year versus first quarter of next year, when we release our results for the first quarter next year we will be able to give kind of pro forma comparative numbers, you'll see how it has changed.

We've had the categories separated out and we've been keeping track of that for a year.

Obviously what we've not been able to do is do comparative purposes.

Now that we have that data for a year going forward we can go back.

So that will provide you with all the information that I think you will need and still give us the comparability year over year.

And just another clarification -- you guys said $34 million in EBITDA.

But earlier I thought in response to an EBIT question you said they have about $300 million in revenue at Tyco and $24 million in EBITDA.

Was that on a nine month basis?

Yes, that was nine months.

If you look at the audited financial [balance], the statements that were filed as part of our 8-K on Monday that showed their nine month ended June 30, they had I think about $279 million of revenue -- actually $299 million, although there is some sales numbers in there from the Austin plant that has close down as part of their operations and is not part of what we're acquiring from them.

But that number for the adjusted EBITDA number for that same nine month period is about $24 million.

I think that ties in what we're saying for the year to date of about a little more than $400 million in sales and $34.4 million of EBITDA.

Yes.

Because you just add on one more quarter to that number.

Right.

And that was the performance for the fourth quarter.

I think $105 million in sales or so and another $10 million to $12 million in EBITDA.

$10.5 million.

When you guys say $400 million in year-to-date sales, what is the seasonality of Tyco?

Because you're looking at $70 million or so in the December quarter --

That's two months.

Oh, excuse me, that's right.

Is there much seasonality though, in their business?

If we look back on the quarter-by-quarter, it was pretty flat.

It was pretty consistent as the Company as a whole.

They have experienced the same kind of upward momentum throughout this calendar year that we have as well.

But certainly their military ownership -- their military space -- is a lot more stable and not seasonal.

It's only the commercial business that would have a seasonal component.

And then have either you or Tyco started to see any sort of a noticeable pickup at all in push-outs or cancellations?

There's been -- I guess the best way to say it -- I mean, compared with earlier quarters where we were seeing a lot of activity booking rate, we were seeing activity.

We're working a little bit harder to get what we need.

There has been some push-outs but nothing major.

It's just some programs that pushed out in a couple of the larger customers.

And then lastly, you guys mentioned [Son] as a top five -- if I'm not mistaken, isn't this the first time in a while they have been a top five?

Yes, that is true.

Sun actually went about $1.3 million in sales in the second quarter to $1.8 million in the third quarter.

So, up by about 40% quarter-over-quarter -- so a nice pickup with them.

They have been a customer of ours largely at Chippewa Falls on again, off again throughout the time we've owned Chippewa Falls.

But there is nice uptick with them.

I think they replaced ITT and when you move down to like the number five spot, you have three or four or five candidates vying for that number five spot.

It could be any number of four or five customers that fit in there.

And just to understand again on this -- you kind of described the industrial/medical weakness being at Redmond with one or two customers.

And that explains why it was down 15%.

Your peripherals business -- I know it's tiny but it dropped about one-third.

And then on the flipside you had the handhelds pop up about 41%.

So was that just quick turn related?

What was the reason for that kind of the big swings on those small segments?

Yes, the computer peripherals, a lot of that is definitely in the quick turn segment of the business.

Same with the handheld.

Except for some large customers, I think we put ITT and some [Callus] work in there.

But generally, the peripheral -- if there is that decrease is basically related to some of the quick turn work.

Certainly in the peripheral segment, smart mods was down a little bit quarter-over-quarter.

And they had a pretty good quarter in the second quarter.

A little bit of softness in the third quarter.

That was kind of -- would account for some peripheral softness.

When we talk I mean it's clear that this is just with TTM.

The Company customers that we do business with, we're just talking about what happens within our segment.

Our customers could be very strong, but down with us.

Shawn Harrison, Longbow Research.

Just one final point of clarification.

The capture rate in the quick turn market -- is it safe to assume that it was just kind of the pricing environment with some of your peers led to a lower capture rate than anything internal at TTM?

Yes, that is exactly right.

Does it seem like that pricing environment is improving now that we are into the fourth quarter and that should hopefully improve the capture rate?

We have adjusted prices just slightly and I think that is helping the capture rate.

So when we look at where we are at right now, we shouldn't see our prices flatten out from our current state as to where we are at.

May have been just a few of your peers just not adding on the increase in raw material cost to their pricing base or something like that.

I just wouldn't know on that deal.

I know what we are doing and where we are at but I don't know what the competitors do.

There no further questions.

I would like to turn the conference back over to Mr. Kent Alder for any closing or additional remarks.

We certainly appreciate all the questions and all the interest in TTM.

This is a very exciting time in the history of our Company.

We are still, now that we have had a chance to look at Tyco, we are still very optimistic and very upbeat about the potential, and we are excited about the future going forward.

So I think as we move through the next couple of months and get through some of that purchase accounting and one-time charge and integration costs, it will become much more clear as to what the real potential that we have in front of us.

But it is pretty exciting for us.

So we will talk you again in three months and thanks for your interest in TTM.

Once again, that does conclude our conference today.

We thank you for your participation.