TTM Technologies Inc (TTMI) 2006 Q4 法說會逐字稿

Good day and welcome to this TTM Technologies fourth quarter earnings release conference call.

Today's call is being recorded.

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

Please go ahead, sir.

Thank you and good afternoon and thanks for joining us for our fourth-quarter 2006 conference call.

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

By now, you should have the press release we issued today announcing financial results for our 2006 fourth quarter and full year, as well as guidance for the first quarter of 2007.

During this call we will review our results and guidance and then open up the line for questions.

We are pleased with both the significant progress we have made on integration of the Printed Circuit Group in just a two-month period as well as our financial results for the fourth quarter.

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 risk 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, the integration of the recently acquired PCG business and other risks described in TTM's most recent 10-K.

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

Also, you will note in our press release issued today that we provide GAAP and non-GAAP financial information, specifically with reference to EBITDA.

A reconciliation between GAAP and the non-GAAP information is provided in the press release.

Now with that, I would like to turn to the results.

While Steve will provide an in-depth review of our financial results for the quarter, I would like to draw your attention to our financial and operating highlights.

For the fourth quarter of 2006, we posted revenue of $144.3 million and earnings per diluted share of $0.12.

Our net sales increased 90% over third quarter and 129% over the year-ago quarter.

In addition, we completed the acquisition of the Printed Circuit Group during the quarter, which I will elaborate on momentarily.

Purchase accounting adjustments and expenses related to the acquisition of the Printed Circuit Group, which we acquired from Tyco International on October 27, 2006, complicate the earnings picture.

Steve will break down these expenses in a few minutes so you can better understand our underlying performance.

For now, let me just say that, excluding purchase accounting adjustments and expenses associated with the integration of the Printed Circuit Group, we performed very much in line with expectations.

As we discussed, the PCG acquisition diversifies our customer base and broadens our in-market exposure.

Over the last few months, we have spoken with our customers, both old and new, and while the feedback varies, overall they are telling us that business is relatively stable.

Market conditions, while challenging, are again relatively stable in the following end markets -- Networking and Telecommunications, Military Aerospace and the Medical, Industrial and Instrumentation segments with softness in the High-end Computing market.

Now let us take a look at the Company.

Historically, we've given you metrics, including changes in price and volume, average layer count and the percentage of revenue from quick-turn shipments.

We are in the process of integrating reporting systems from the acquired PCG factories and identifying additional metrics that will provide investors with a clearer picture of the consolidated business.

For example, while average layer count has been a primary statistic, in the future it's likely that it will be just one of several metrics used to evaluate our performance.

Much of the PCG output is in the high-tech military applications, and average layer count is not the best measurement of the complexity of that work.

In addition, the acquisition brings us three backplane assembly plants and average layer count is not a major that is applicable to that work.

As we integrate the statistics from both organizations, we are evaluating and identifying new metrics that are more appropriate to the combined company and establish new performance benchmarks.

This is an ongoing process, and as we identify the appropriate metrics, we will add them to our discussions.

Also, you will note in the financial tables of the press release that the addition of PCG changes the penetration of our end market.

As a result, we have established four categories that more appropriately reflect our business.

Military Aerospace, for example, is a more significant part of our mix and now warrants its own category.

The four categories are -- one Networking Communications; two Military Aerospace; three, Computing, Storage, Peripherals; and four, Medical, Industrial, Instrumentation and Other.

Now to the business.

We continue to monitor the technological and operational capabilities of the combined PCB operations.

Products with 12 layers or more accounted for approximately 59% of revenues, down from 70% in the third quarter.

Products with 20 layers or more decreased to approximately 32% of revenues compared with 43% in the third quarter of 2006, and the average layer count decreased to approximately 4.6 in the fourth quarter compared to 16.6 in the third quarter of 2006 and 15.5 in the year-ago period.

These layer count decreases are due to the addition of the Printed Circuit Board Group.

Quick-turn as a percentage of PCB sales declined to about 13% sales, again, primarily due to the addition of the Printed Circuit Group.

However, the acquisition provides TTM with a significant opportunity to cross-sell our quick-turn capabilities to PCG's customer base.

Now let's look at lead times.

Fourth quarter lead times have been reduced from the third quarter.

Current lead times range from three to four weeks in our Commercial division to six to eight weeks in our High-tech and Military Aerospace divisions.

Our assembly operations are at four to eight weeks.

Capacity utilization ranges from 70% to the mid-80s in our printed circuit boards facilities with an overall average capacity utilization of approximately 80%.

Capacity utilization for our assembly operations is in the mid 50s.

In the past, we have provided a breakdown of lead times and capacity utilization on a plant-by-plant basis.

However, with the acquisition, we have a significantly expanded number of plants, so going forward we will provide these respective metrics on a consolidated basis.

Our customer base continues to be strong and increased by approximately 500 as a result of the PCG acquisition.

In addition, the combined company added about 30 new customers in the fourth quarter.

As for customer concentration, one of the many benefits of the PCG acquisition is that it diversifies our customer base and reduces our exposure to cyclical downturns within the various industries we serve.

Sales to our five largest OEMs constituted approximately 28% of revenues in the fourth quarter compared with 50% in the third quarter of 2006.

Our top five customers in alphabetical order were Cisco, IBM, Juniper, Motorola and Raytheon.

Now before I turn the call over to Steve, let me make a few comments regarding the progress we've made with the integration of the Printed Circuit Group.

All of the facilities acquired as part of PCG are executing to our integration plan.

As you know, in December, we announced plans to close the Dallas, Oregon plan.

We're in the process of having Dallas customers qualify at our other facilities to transfer these requirements as required.

Meeting with the former Tyco customers has been very productive.

We consolidated our sales force immediately after closing the acquisition, which in general has allowed us to continue to serve our customers both in the PCB and assembly areas in a smooth process without interruption.

We transitioned all operations to a common HRIS and timekeeping system and we're implementing new tools to consolidate financials.

As we have said in the past, we're confident that the acquisition will be accretive within the first year, and given our steady progress with the integration, we remain comfortable with this assessment.

In closing, the acquisition forms North America's largest printed circuit board manufacturer.

In addition to our quick-turn and technological leadership position, we have become a leader in the military aerospace market.

We have increased our service capabilities, diversified our customer base, broadened our end market exposure and expanded our purchasing power.

The rapid and significant progress we have made in bringing together two leaders in the printed circuit board industry underscores the excellent fit between the two operations and is a testament to our commitment to make TTM a world-class organization.

Now I will hand the discussion over to Steve.

Thanks, Kent.

I'm going to quickly run through the highlights of our four quarter performance and review the impact of integration expenses associated with the Printed Circuit Group acquisition, then I will provide some more details concerning our expectations for the first quarter of 2007.

As a reminder, fourth quarter 2006 results included two months of the operations in the Printed Circuit Group.

As Kent noted, net sales for the fourth quarter increased 90% subsequentially and 129% on a year-over-year basis.

Gross margin in the fourth quarter of 2006 was 18.9%.

As we discussed last quarter, due to purchase accounting for the Printed Circuit Group's inventories, there were minimal profits on anything sold out of that group's inventory.

The markup of PCG's inventory reduced gross profit by $4 million.

Gross profit also was affected by the inclusion of PCG's backplane assembly operations which inherently carry a lower gross margin than printed circuit board manufacturing.

But, as we said at the time of the acquisition, we're confident that TTM's exclusive focus on PCBs and backplane assembly will enable us to enhance operating efficiency and productivity at all facilities.

Also as previously discussed, we experienced another round of raw material price increases on November 1.

As always, our ability to pass through higher costs is a function of lead times.

Overall, we believe the raw material price increases did not have a significant impact on gross margins in the fourth quarter.

Sales and marketing expense was $6.3 million, or 4.4% of sales for the fourth quarter of 2006, which compares with $3.3 million, or 4.4% of sales, for the third quarter.

Fourth quarter 2006 general and administrative expense, including amortization of intangibles, was $9.5 million, or 6.6% of sales.

G&A expense in the fourth quarter included $885,000 of amortization of intangibles.

G&A expense for the fourth quarter of 2006 also included audit and consulting fees of approximately $700,000 related to our accounting for and integration of the Printed Circuit Group.

During the fourth quarter of 2006, we reported stock-based compensation expense of $514,000. 62% of this expenses was recorded to G&A, 30% to cost of goods sold and another 8% to selling.

Interest expense for the fourth quarter was $2.9 million.

The income tax rate for the fourth quarter was 45%, which is clearly out of the norm.

A tax rate adjustment during the fourth quarter was necessary to adjust the full-year rate to 38%.

We acquired additional domestic locations within different states that carry higher tax rates, most notably, California.

We anticipate that our tax rate for the first quarter and going forward will be in the neighborhood of 38%.

Our earnings for the fourth quarter of 2006 were $4.9 million, or $0.12 per diluted share.

As we noted in our release, financial results for the fourth quarter may be subject to change pending the resolution of certain accounting matters related to the acquisition of PCG.

As you can imagine, closing the books for 12 plants and conducting audit for a transaction of this size is a lengthy and time-consuming process involving complex purchase accounting issues.

Changes are likely to affect the fair value of the net assets acquired.

We do not expect any material changes to the income statement accounts.

As for our balance sheet, the $226 million purchase price for the Tyco Printed Circuit Group acquisition was financed with a $200 million six-year term loan with the remaining $26 million coming from cash on our balance sheet.

Cash and short-term investments at the end of the fourth quarter totaled $70.7 million compared with $110.3 million at the end of the third quarter.

The change in cash was primarily attributable to the Printed Circuit Group purchase price, plus related acquisition costs of approximately $34 million and CapEx of $5.1 million.

Depreciation for the quarter was $5 million.

This wraps up my discussion on the results of the quarter.

Now, I would like to talk to you about our first quarter 2007 guidance.

We project revenues in a range of $168 million to $174 million and earnings per diluted share in the range of $0.13 to $0.18.

Gross margin percentage for the first quarter is expected to be in the range from 18% to 20%.

In addition, we expect that sales expense will be approximately 4.7% of revenue and that G&A expense, including amortization of intangibles, will be approximately 6% of revenue.

Also, on January 2, we paid down $25 million of debt.

Accordingly, we anticipate that interest expense for the first quarter will be approximately $3.5 million.

In closing, this has been an exciting year for the Company and we look forward to seeing solid financial traction as we fully integrate the TTM and PCG operations.

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

(OPERATOR INSTRUCTIONS) Brian White, Jeffries.

I am wondering if you could talk a little bit about what you're seeing in the markets for the March quarter.

You mentioned high-end computing being soft it sounds like in the December quarter.

What are some of the trends you're seeing in the March quarter?

Because a lot of your customers in the MS industry have spoken about a pretty significant slowdown recently, but I don't sense that from your tone.

Good question, Brian.

I think you kind of summed up our feelings at that end of the question in that we are not seeing major decreases in any segment of the market industry.

There is some softness in the high-end computing, but when we look at the other segments, I would describe it kind of as stable with maybe a little spottiness, but more stable than anything.

Even in telecom?

Even in telecom.

Do you have any book-to-bill numbers or price changes sequentially, anything like that?

Sure.

Our 90-day book-to-bill at the end of December for TTM was 0.83.

The industry at the same time period was 0.92.

During the quarter, October was an okay month, so was December.

November was a very weak month that drug that number down.

The book-to-bill in January is significantly higher, so we're pretty optimistic about the January time frame.

I would not say that because our book-to-bill in January is significantly higher, that indicates a market turnaround; however, I believe that's more of a catch-up from some of the low numbers in the fourth quarter.

With regards to pricing, our pricing for the last quarter was flat to maybe down slightly.

As we look at pricing going forward, we're seeing some pressure, but not enough that I would forecast a significant decrease in the price.

I think we will hang in there with our prices and be able to not have an impact to our business from a pricing perspective.

Okay, good.

And just finally, the book-to-bill you said had snapped back in January, but it was still under 1, or was it over 1?

No, it was over 1, significantly over 1.

Thank you.

Shawn Harrison, Longbow Research.

I just wanted to get a few housekeeping questions quickly out of the way.

If you had CapEx and maybe your depreciation and amortization forecast for 2007?

Our CapEx for 2007, we're forecasting about $16 million.

That is what we put in the budget.

We are currently spending significantly below that, so we have $16 million in the budget right now.

I don't believe we'll spend that.

And on the depreciation front, you saw from our release and my comments that we had $5 million of depreciation this quarter.

Keep in mind, with two months of PCG's results as opposed to three, that's a little bit lower than we would see on a steady-state basis.

So I would expect about $6 million of depreciation per quarter going forward for the next few quarters.

And on the segment results, it would be helpful if you could maybe provide just some pro forma numbers going back a year in terms of just on a quarterly basis to get an understanding of the seasonality.

But my question kind of is more looking at gross margins and kind of operating expenses.

It looks like gross margins were about 21.5% if you back out the inventory charges in the fourth quarter, and operating expenses excluding amortization were about 10.5% or so.

What changes going into the first quarter -- are there additional kind of onetime charges to expect in addition to the severance that I should be looking for to kind of get that lower gross margin number and the increase in G&A (indiscernible)?

Keep in mind that the severance cost, if you're referring to severance cost for the employees we're laying off in Dallas, we are able to accrue those under EITF 95-3.

So for the most part, the severance costs we'll incur during the period will obviously hurt our cash flow, but it will not be not a P&L hit in the first quarter.

So that's one thing that may affect your understanding.

You are indeed right that when you back out the $4 million of purchase price inventory markup, you get about 21.5% gross margin for this quarter.

Keep in mind that the quarter because of the two months of PCG only had two months of their results affecting our gross margins.

As we talked about already because of the inclusion of backplane assembly work in their mix, which is a lower margin business, that number would be inherently lower if you had three months of their results in the quarters instead of two months.

I hope that makes clear sense to you.

I would be glad to field more questions if that doesn't.

And then on an operating expense basis, our guidance is for about 10.5% of sales for operating expenses in the quarter.

That includes a much higher amortization of intangible numbers than you guys have been used to in the past for our company.

You have been used to seeing about $300,000 of G&A expense for amortization of intangibles per quarter.

And as you know from this transaction, much of the value of buying the printed circuits from Tyco was in buying a dominant position in the military marketplace with those key customers.

So a great deal of value is ascribed to the intangible known as customer relationships.

So that will be for the next year at least amortizing on a combined basis with our old amortization of intangibles and new at about $1 million per quarter, so that is included when I say we're going to have about 6% of sales as G&A expense.

That includes the amortization of intangibles.

So I think on and operating expense basis, about 10.5% is a good number to use going forward.

We don't expect a whole lot of onetime costs in the first quarter due to the transaction.

Much of that was related this quarter to the opening balance sheet audit that was required when we bought the Company and we expensed that in the fourth quarter.

Does that answer your question?

That answers that, and maybe two follow-ups on profitability.

What were the operating losses in the Dallas facility, and when -- I guess that's the first part of the question, and I guess [recovery].

Dallas was basically on an EBIT or operating basis kind of near breakeven or below when we bought them.

They were kind of some quarters, they might make a little bit of like say a couple hundred thousand dollars EBIT, some quarters maybe a little bit negative, but basically breakeven and that is the rationale for us choosing to close that plant and consolidate those sales into our other operations.

Shawn, just to add quickly on the closure of the Dallas facility.

I certainly appreciate the employees that are still with us and working hard to make that closure a success.

But so far on our plan to move customers to our other facilities, I think we targeted between $15 to $20 million to move.

That is right on schedule, so we're three pretty pleased with the way that closure is going.

And those moves will be completed by the end of the first quarter?

No, I think the shutdown now has been extended out I think into the first week of April, and then we have built up some inventory for specific customers as they qualify different part numbers and different facilities to help our customers have a little time to do that.

Last question on margins.

We know copper (indiscernible) cost or prices in the market are down.

When do you expect to see that benefit your P&Ls?

I guess, I'm pretty sure you're already talking to your customers or your suppliers.

I know [Merricks] is.

How have those conversations gone?

Certainly, you're right there.

With the decrease in copper prices, that reduces some pressure on the desire to increase our prices, but basically when we look at our raw material prices from our suppliers, I think they're going to be fairly stable.

I don't think we anticipate any raw material price increases, but overall, I think they will be pretty stable.

We're talking about the first quarter, right?

First quarter, and then beyond that, it's a little challenging to see.

Some of our suppliers say there is a little lag time between the price of copper going up or going down, so we would take that into consideration.

Okay, thanks a lot.

Kevin Kessel, Bear Stearns.

Just going back again to the Dallas questions, I know that you plan to sell some of that equipment and some of it's also expected to be transferred.

Roughly how much do you expect to raise from the equipment you're going to sell?

We haven't put some numbers to that, Kevin.

The equipment that is available to use in our other facilities will distribute that out, probably save us about $3-$3.5 million on CapEx.

The rest of it, I don't have a number that we could generate with the sale of the excess equipment.

Okay.

And when you look at the impact of PCG on the quarter, maybe you can kind of -- on the revenue mind, that is -- maybe you could help us understand what that was and what the expectation I guess would be then in terms of Q1?

PCG, as you guys know from our prior discussions, was running at about a $400 million run rate per quarter prior to our ownership, and we certainly think that's still reasonable going forward.

So, about $100 million in revenue per quarter.

So obviously we had two months of their results in this quarter and you can kind of do the math yourself to assess what that contribution from PCG is versus our old plants.

I guess just a little more color on the forecast.

When we look at that high-end softness that we have -- high in computing softness we have referred to is more in our traditional TTM business.

So as you look forward, you have some adjustments there with an ongoing pattern within the Tyco Printed Circuit Group.

But then again, going back to the PCG, so Steve, it essentially came in line with the expectations of the $70-$71 million for the two months?

Well we certainly would say that the PCG operations really moved right on through the year.

We did not see any kind of interruption in revenue or performance from those plants really from our integration or acquisition.

So, yes.

And they can you remind us, in terms of the $100 million a quarter run rate they are on, how much of that was assembly?

What percentage was assembly?

For the first half of 2006, and I think the market is still about the same, about 35% of their overall revenue came from the assembly operations, and there were three plants that do back panel assembly work.

And then in terms of the -- maybe you guys can talk about the plans for the debt here.

You mentioned that you've paid down $25 million of the 200 in January.

What is the expectation going forward in terms of pay down?

We expect to pay down quite a bit of the debt throughout the course of this year.

We made a big step in that direction with the $25 million debt paydown on January 2.

So I would expect that we would pay down probably about $60 million to $75 million in 2007 with of course the $25 million included in that number.

So we will probably end the year with around $125 or $130 million in debt.

What I will tell you is that, along with that debt paydown, however, comes an acceleration of our amortization of debt issuance costs.

So it's one of the other items I want to make sure you guys will understand.

We paid down $25 million on January 2, we're apt to pay down some more this quarter.

So, along with that, we will have to pay down to amortize the debt issuance cost.

So I think that would be about $1.1 million this quarter to correspond to those debt paydowns.

And so that debt issuance cost number is going to be something I'm going to have to give you guys each quarter to help you guide for your results because that's going to change a lot based on debt paydown plans.

So for this quarter, we would probably pay down an additional $10 million or so I think this quarter, and so that would lead to about $1 million, $1.1 million in debt issuance costs.

Lastly, maybe Kent, you could give us a little bit more of an understanding in terms of when you say high-end computing softness, essentially what you guys are seeing, how consistent was it throughout the quarter and does it look like it's continuing into the forecast?

And then lastly, Steve, just a housekeeping.

Can you maybe give us a breakdown of inventory between PCG and TTM for the quarter?

That would be helpful.

I'll take the first part of the question, Kevin.

The softness in the High-end Computing segment was pretty consistent throughout the quarter.

In talking with customers who make up the majority of that end market, it does not look like it's going to have a recovery until sometime into the second quarter would be our best guess.

Now it becomes a little spotty here and there and it's hard to get an exact precise handle on that, but we don't anticipate that improving in the first quarter.

It will be sometime towards the end of the second quarter.

Kevin, obviously with the combination with the PCG operations, we're now one common company, so we don't really look back at the Company as say what TTM's plants were versus the PCG plants.

But I can give you on a combined basis about inventory, obviously, from our press release you saw that our balance was just a tad under $67 million of inventory at the end of the year.

Of that inventory, about 10% was finished goods, about 55% was work in process and about 35% was raw materials.

And I will also tell you that the assembly operations in general because of the nature of the business tend to have a lot more of that value in inventory.

There are a lot more complements added to the boards in the assembly process so that they carry more inventory valuation.

So you will probably expect to see higher inventory valuations in the Company as a whole as a result of these operations being included, and that is going to be why raw and work in process are so much higher than they were in the past.

Thank you.

[Noah Galabo], RBC Capital Markets.

My first question is on the raw material prices.

I guess two parts.

One would be last quarter, I believe you said that raw materials were up about 18% year-to-date.

I was just wondering if you could just give a quick update on how that ended up for the year.

And then secondly looking at the progress you guys have made in negotiating with some of your suppliers now that you are combined with Tyco, if you have negotiated better terms, if you've started to make any progress there and maybe kind of give some color on what methodology you're doing to do that.

The 18% number that we quoted last time was actually became the year number, so that was over the course of I think beyond a year.

I think that was more like six quarters when you looked at the average price increase.

And then we had another uptick the first of I think January.

And so we are feeling like, as I mentioned early, that raw material pricing has pretty much stabilized and with a decrease in copper, other metals and so forth, we don't expect any price increases from suppliers and so forth.

Now when you look at our operations and how we are doing to find win-win situations for us and our suppliers, I think we're making excellent progress on helping reduce our costs and so forth.

That is also a benefit to our suppliers.

So we have begun that part of the process.

With the integration, the first area of focus was in our sales operations and we moved very quickly to consolidate our sales forces.

We've been focusing the other parts of integration in our finance, HR, IT departments, making sure the infrastructure is in place to get the right information to make sure that we effectively run the Company and make the right decisions.

So I am very pleased with the integration and the nice progress and the steady progress that we're making.

And we've pulled the trigger on a lot of different programs in a two-month period of time and have probably executed on about five projects when you look at reorganizing sales and implementing the new payroll time system, a new consolidation system, closing the Dallas operation.

Those are events that happen probably once a year.

So we had a lot of events taking place initially, and that was by design.

That was part of our plan to move through the integration very rapidly, become one Company as rapidly as we can.

So when we look back at the progress, we're very pleased, we have some more progress to go.

As far as taking advantage of the strength of the two companies', the combination, we have yet to go out and really take advantage and start to cross-sell and so forth.

Those days are ahead of us.

So we are pretty optimistic with the progress, the way the Company is coming together, the management team and the position we're in right now relative to competitors.

We're excited about where we can go.

Then maybe just another quick question on the quick-turn business.

I recalled last quarter, you talked about pricing yourself out of some work there.

Just wondering if you can give an update on if that was corrected and what trends you see in that business going into 2007?

Good question.

I think that was more of a short-term aberration because we have since become more normalized now.

The quick-turn business, we're pretty happy with the dollars that we are capturing right now, the business we're capturing.

Our ability to service customers and provide them values continues to give us some advantages that we like to capitalize on.

So I am very pleased where we are at with the quick-turn portion of our business.

And, overall, I've mentioned earlier on the pricing, quarter-over-quarter, we're pretty flat, maybe down just slightly, but just almost flat.

So I think that kind of tells the story with numbers as to what's happening with our business, and particularly quick-turn.

Alberto Mann, Thomas Weisel Partners.

Steve, if you could just start out by discussing the impact in the guidance for Q1 of any purchase accounting or audits, if there is any?

Sure.

There's actually very minimal.

The good and bad news is that the write-up of inventory to fair value and the impact of that really all hit us in the fourth quarter.

We expect to have about $200,000 of impact to gross profit in the first quarter, and the rest of that inventory write-up, so pretty inconsequential.

Also, the audit for the opening balance sheet was all the expensed in the fourth quarter, so although audit fees may be a bit up in the first quarter, we did try to accrue for all those in the fourth quarter for the year-end audit for 2006.

So I think I'm thinking maybe $100-$200,000 in G&A for some consulting for various ongoing projects that we're doing to further integrate the financial reporting and so forth, but not a lot.

I think first quarter, we're kind of both optimistic will be our first quarter with some of this noise if you will out of the numbers.

Okay, thanks.

Can you give us maybe a ballpark of the gross margin and the assembly business, just maybe relative to the core business?

You know, I really don't want to kind of break things down in that nature at this point.

I may be able to provide some more data to you guys in the future on that, once we finalize our segment reporting.

But for right now, I think I want to keep that off.

Know that some of the business is just by definition though a lower-margin business.

It's not as difficult or as complex as the PC manufacturing process, and therefore, you don't get the kind of pricing differential from your customers that we do in PCBs.

And then, it looks like the first area you're really going to focus on in the cross-selling is in the quick-turn.

Do you have any plans to expand your capacity there, or where are you running in terms of utilization in quick-turn?

Our quick-turn, we have some upside with our quick-turn right now.

Our capacity, we're slightly below 70%, and we don't want to get too much above the 75% range.

We have the ability to also expand that capacity as necessary.

So when you look at our Company as a whole and the percentage that we have allocated to quick-turn, I think we're in pretty good shape there.

And some of the facilities that Tyco that came with the PCG acquisition also have quick-turn capabilities.

So we're in pretty good shape to cross-sell, capture market share, expand our top line and make that fall to the bottom line.

And then the last question.

You mentioned that November, the book-to-bill sort of fell off for the Company.

What was the impact of PCG on that?

Was that mostly in the core business on high-end computing, or was that partially due to the integration of PCG?

It was not due to the integration of PCG, it was mainly back to that high-end computing segment again almost exclusively, which focuses on some of the traditional TTM accounts.

Alright, thank you.

Tom Dinges, J.P. Morgan.

This is [Akash Gupta] calling in for Tom Dinges.

I missed this one.

So the current expectation is to pay down $10 million further debt this quarter?

Yes, I think so -- $10 to $50 million this quarter, on top of the $25 million we have already paid.

And you mentioned I guess previously that the implementation of the ERP system in the three old TDMI facilities -- so what's the schedule for that?

Where we are at with regards to the IT system is putting together a consolidation system.

We have been focused on the payroll side of things with the HRIS and so forth.

The ERP system has yet to come.

We are completely off of any transition services agreement that we had with Tyco and have been off of those services since mid-January, and most of them in the December time frame.

The ERP, the advantages of converting several facilities to the ERP system that the traditional Tyco has, has yet to -- we're yet to see the benefits of that.

That is to come.

And do you have the number for what was the cash flow from operations this quarter?

As you can mention, I mentioned in the script that we're still finalizing some of the purchase accounting entries, and that's going to be the opening balance sheet for some of the fixed assets and so forth.

Like I said, we don't expect any of those things to have a material impact on the P&L, but we're still finalizing the balance sheet in order to finalize the cash flow.

We will have that in our 10-K.

But given that, the balance sheet accounts that are likely to change are things like goodwill, so you can rely on cash, AR, inventories -- those balances are all accurate.

It's just going to be finalizing a few more purchase accounting entries between now and when we file our K. And at that point, we will have the cash flow as well.

And the last question, for the first quarter, you're targeting gross margin range of 18% to 20%.

Is this an expectation of what would be the gross margin trajectory in '07?

I think 18% to 20% for the first quarter is correct, and I think we can do better than that.

I think part of what we talked about before with investors and internally at the Company is ability to transfer best practices from our legacy plants to the PCG plants, and back and forth as well.

And I think liberating the plants from some of the bureaucratic strictures of Tyco will help in that process.

I think our gross margin can rise above 20% in the future, but for the first quarter, we still think that 18 to 20 is the most reasonable range.

So you expect it to be a gradual move throughout the year?

Yes, I think that that's the most reasonable case.

Certainly, (indiscernible) the biggest thing that affects our margin is fixed cost absorption because we have a large fixed cost base of capital and labor and so forth.

So, obviously, if we see some strengthening in pricing in the market environment overall, that can help our margins pretty quickly, as you have seen probably in the past by tracking our Company.

But I think we expect on a (indiscernible) basis to be more of a gradual trajectory throughout 2007.

Okay, thank you.

Rich Kugele, Needham & Company.

Ken, you mentioned that the backplane operations were running about 50% utilization rate.

Can you give us a sense on how that business has perhaps trended over time on a utilization basis, and now that it's yours, what your plans are to increase that utilization, how quickly you think you can get to a better number and what is a realistic target for whatever time frame you want -- six or 12 months?

Good question, Rich.

The utilization rate has, with the assembly businesses, has stayed fairly constant.

We don't see that business as having a significant growth, although we believe that with the team that we have in place there that we'll see some real positive things happening with that portion of our business.

Just by having the focus on the business rather than I guess I would say a bureaucratic approach under the prior owner, I think there's some freedoms here that will allow us to better operate the business.

So we're seeing some nice improvement.

The business itself is growing, but not at I guess an alarming rate.

So we look at that business as opportunistic.

We also have some circuit boards that we sell into there that are advantageous not only to TTM, but also our customers as we provide value add to our customers.

So I think there's some immediate improvements that we can make within that operation that will make that more profitable, and so we're pleased with that segment of our business.

Okay.

And just lastly, I know you have not commented beyond what you just said there, that you thought gross margins could tick up north of 20%, but is there any types of parameters you can put around what you think the ultimate accretion could be this year on a bottom-line basis?

I think 20% to 25% gross margins are the range of what we could hope to get to this year.

Keep in mind that the kind of 30% margin you saw from us on a legacy basis from Q2 and Q3 weren't impacted by the back panel assembly business because we did not have it.

So that's one of the biggest things that is kind of affecting the overall margin mix, I think.

I think, Rich, another thing to keep in mind is we're in our third month into a combined company, so the reality is, we're making great progress, but we're still finding our way a little bit as we combine two great companies of very similar sizes.

So as we smooth out with our operations and so forth, there's kind of an intangible benefit that's going to happen here, which makes it a little hard for us to forecast because it is of that nature.

And the second fact that you need to keep in mind is the marketplace, which has been a little soft for like six to eight months now.

So if the marketplace gets a little more healthy, that would be tremendous for us because we're accomplishing our objectives and moving the Company forward without a lot of help from the marketplace.

So I'm pretty pleased with where we are at and where we can be.

And as we mould together as one company, I think you're going to find a very strong company that will be able to service customers as good or better than anyone on a global basis.

Okay, thank you very much.

Shawn Harrison, Longbow Research.

I just wanted to quickly follow up on the production transfers from Dallas.

What would you estimate that would improve capacity utilization rates across the model to if you're kind of in the 80s right now?

Shawn, I haven't put a pencil that, but if we move $15 to $20 million into other facilities, and you can just go through a percentage of that $15 to $20 million over $173, that would boost it up proportionally.

Okay, so it's a mix of both quick-turn and standard leadtime production?

It's mostly standard leadtime production.

What end markets were they to, I guess, that Dallas was dealing with?

Was it principally military?

There were a lot of industrial, medical kind of marketplace.

I just want to get back to the question on raw materials again.

It looks like raw material costs cost you, although you have been able to offset it, about three points of gross margin over the past six quarters.

If you see copper costs normalize or come back down to where they were before, you start seeing price increases, is there any reason to believe that you should not be able to, given your greater purchasing power, recoup the majority of that lost gross margin?

I think with the purchasing power we have, we will be able to I guess achieve some of the lowest prices that can be achieved within our industry.

The pricing increase in copper will not put any further pricing pressure on us.

We cannot guarantee what our suppliers will do, but we are pretty confident that we are working with situations where the volume we can offer to our suppliers enables us to keep our material costs very low, very reasonable.

Also, when you look at our business on an operational basis, we continue to improve our operations.

And so, that is I think our responsibility to certainly get the lowest prices we can from our suppliers, but it's also our responsibility to operate our business as efficiently and productively and profitably as we can.

And that's what we are really focused on is running our business and executing so that we can provide our customers the best service and be as profitable as we can.

So, beyond some of these things that we all like to measure, we are operating with better yields, more productivity, better throughput and so forth, and we will continue to work all areas in making sure that we are as productive as possible.

Okay.

I just want to confirm one last thing.

You said the gross margin potential, depending upon how things move around this year, is in the range of 20% to 25%?

Yes, that's reasonable.

Obviously I think probably to get to the high side of that, it would require a strong market or a stronger market we're currently seeing.

We certainly can get north of 20% through operating efficiencies and best practice transfers and so forth.

But when you look at the high end of that range, it would require a strong market as well.

It's more strength than we've seen in the last three to five months.

Alright, thanks a lot.

Brian White, Jeffries.

Can you just give the average layer count again?

I missed that.

It was 14.6, I believe.

Yes, 14.6.

Okay.

And when we think about China, and obviously there's a lot of competition there, and you have spoken about China in the past, we didn't hear anything on his call, but what your general thoughts there?

I know you're busy integrating a big acquisition, but where are we in terms of thinking about China long-term?

I believe like you said, Brian, our first responsibility right here is to make sure that we follow through with the integration and that we maximize the potential of our existing operations, and that is our first and foremost objective.

And we have made excellent progress in three months and expect to continue to make excellent progress over the next three to four months.

Our next -- when you look at our acquisition strategy, we're fairly complete in North America.

We have all the quick-turn capability that I think that we need to execute our strategy.

We have the high-tech facilities, so we're the leader in those two segments, now we've become the leader in the military aerospace, so that is the right spot to be in.

Our next move would be to look for an acquisition in the low-cost regions of the world.

I think it's important that, when you look at acquisitions, it's more important the who and the how than the when.

And we are pretty active, going to become active on that front here in the next month or two.

We're looking at another trip over to China in the mid-March time frame.

So we will be I think picking up the progress in our activity, looking for the right company with the right capabilities that are synergistic to what we already have that complement what we have.

And, again, our strategy, just some general comments, high level -- we are not going to look for a four-layer or six-layer low technology shop with the idea that we can convert that to a high-tech shop.

I believe that is kind of a dream, if you will.

We're going to look for the right shop with the right fundamentals in place that can service our existing high-tech customers that are complementary to our existing facilities.

It's going to take us a little longer to find the right opportunity, but we are going to again kick that process up in the mid-March time frame.

Okay, and just on the assembly business here, your 50% utilized, does this business make money today?

Yes.

Okay.

Is there a strategic reason why -- I mean, assembly has been a very tough market over the past year.

Is there a reason why this make sense long-term to hang onto?

I think right now, we're looking at some opportunities to improve that business, so we are going to take the business that we currently have and work to make the best of that.

I think there are some -- with our facility back in Stafford Springs, it complements Stafford very nicely and provides the military aerospace customers with some value-added capabilities that competitors don't have.

So that is a nice tool that we have to capture market share, if you will.

Our Shanghai facility is growing pretty nicely and Hayward, we have some upside with our Hayward facility.

So right now, where we are at is continue to move forward, and we are optimistic about what can be done with those.

Finally -- did we have any customers over 10% in the quarter?

We had one at Cisco.

Do you have a percentage?

Yes, it was right at 10%.

10%, okay, thank you.

And it does appear we have no further questions at this time.

Now for closing remarks, I would like to turn the call over to Mr. Ken Alder.

Please go ahead, Sir.

I appreciate everyone's interest in TTM.

The integration is going well, we're moving along quite nicely there, very pleased that we're on schedule, that we have -- putting the systems in place, and as we look forward, we will be able to now take advantage of the combination.

So it has been an exciting year for us, it has been an exciting last three or four months and we're very optimistic about the future.

So thank you for your interest.

We will look forward to seeing you next quarter.

Thanks.

That does conclude today's conference.

We thank you for your participation and have a great day.