TTM Technologies Inc (TTMI) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the TTM Technologies fourth quarter financial results conference call.

(OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded today, Tuesday, February the 10th, 2009.

I would now like to turn the conference over to Mr.

Kent Alder, Chief Executive Officer.

Please go ahead, sir.

Okay.

Thank you.

And good afternoon, and thanks for joining us for our 2008 fourth quarter conference call.

Joining me on today's call is TTM's CFO, Steve Richards.

Before we get into any details, 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 in various industries that the Company serves, and the impact of the current economic crisis and other risks described in TTM's most recent SEC filings.

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

Also, you'll note in our press release issued today that we provide GAAP and non-GAAP financial information.

Specifically with reference to EBITDA the reconciliation between GAAP and non-GAAP information is provided in the press release.

Now, as you know, because of the global market conditions we made the difficult decision to close our Redmond, Washington facility.

Shifting production from the underutilized Redmond facility to TTM's other plants will increase utilization and productivity in those facilities.

Equally as important, we have improved TTM's overall cost structure and strengthened our competitive position.

We also reduced headcount at four other facilities by approximately 140 employees.

While we are committed to continually evaluating our cost structure, we currently have no additional restructuring plans.

Now, let me provide a quick overview of the fourth quarter.

Despite the challenging business environment, I am pleased to report that we again delivered solid financial performance in the quarter.

We generated significant cash, exceeded our revenue guidance, and excluding impairment charges came in at the high end of guidance for both gross margin and earnings per share.

The Aerospace/Defense end market continued to be a major source of strength.

On a segment basis, Printed Circuit Boards Manufacturing recorded fourth quarter net sales of $144.2 million compared with $148 million in the third quarter.

Fourth quarter operating segment income, and this is excluding impairment charges of $120.6 million, was $13.1 million compared with income of $14.3 million in the third quarter.

Including impairment charges, our operating loss in this segment was $107.5 million.

Steve will discuss the details in his remarks.

On a sequential basis, average price per panel increased roughly 3% due primarily to a higher tech and product mix.

Panel production declined by approximately 6% sequentially due to softer orders from our commercial customers.

For the Backplane Assembly segment, fourth quarter net sales were $31.1 million compared with $29.3 million in the third quarter.

Fourth quarter operating segment income and, again, this is excluding an impairment charge of $2.7 million was $2.3 million compared to $2.1 million in the third quarter, including the impairment charge our operating loss in this segment was $0.4 million.

For the full year 2008 net sales were $681 million, an increase of $11.5 million or 1.7% over 2007 net sales of $669.5 million.

Now, let's look at our four end markets.

The main driver this quarter continued to be Aerospace and Defense.

Together with Networking and Communications, these two end markets again accounted for more than three-quarters of our net sales.

Aerospace and Defense increased from 39% of net sales in the third quarter to 40% in the fourth quarter based on continued strength with the majority of our customers in this end market.

In our Printed Circuit Board Manufacturing segment the Aerospace and Defense end market represents approximately half of our sales.

Networking and communications at 37% of net sales was down from 39% in the third quarter due primarily to softer sales from a key networking customer in the Printed Circuit Board segment.

In our Printed Circuit Board Manufacturing segment, networking and communication represents 27% of sales.

The Computing Storage and Peripheral end market increased to 12% of net sales, and Medical, Industrial Instrumentation remained steady with the prior quarter at 11% of net sales.

In the computing end market we saw renewed demand for high end servers from two well established customers, and we also had improved sales in storage equipment.

Now, our top five customers comprised 30% of fourth quarter net sales and represented a strategic mix of commercial and Aerospace/Defense customers.

No OEM customer represented more than 10% of sales for the quarter.

In alphabetical order, our top five OEM customers in the fourth quarter were Cisco, ITT, Juniper, Northrop Grumman, and Raytheon.

Operationally, our average [layer] account for the printed circuit boards in the fourth quarter was 13.7, compared to 13.8 in the third quarter.

We continue to maintain a very high average layer account, while improving our technological capabilities and increasing our high tech product mix with more HDI sequential lamination and rigid flex work.

Quick turn, as a percent of total revenue, was 12%.

This is a slight increase from 11% in the third quarter.

Lead times decreased slightly from the third quarter.

Lead times for our commercial customers ranged from three to five weeks, while lead times in our Aerospace and Defense are at five to six weeks.

Lead times for some of our high tech specialized Aerospace and Defense products are at 14 to 20 weeks.

At the end of December our Printed Circuit Board book-to-bill ratio was 0.92, which compares to the IPC book-to-bill ratio of 0.89 for the same period.

While TTM's book-to-bill has moved down, the continued strong contribution from Aerospace and Defense has helped us remain above the industry average.

On another note, we continue to evaluate acquisition opportunities that will further our business strategy and benefit our shareholders.

As we have in the past, we will act prudently and judiciously assess the merits and timing of any investment we make.

We believe our global strategy is the correct strategy, and we intend to make the right investment decision at the right time.

This is a challenging market environment, and we will respond accordingly and manage our business as we always have, with a tight focus on financial discipline, customer satisfaction, and a long-term view of future growth opportunities.

We remain confident in our business model.

Our recent capacity consolidation actions have solidified our Company and improved our ability to compete, and importantly we continue to generate cash.

Now, Steve will review our financial performance for the fourth quarter and the full year, and discuss our outlook for the quarter.

Thanks, Kent, and good afternoon, everyone.

As Kent noted, we are pleased to report solid operating results for the fourth quarter of 2008, which we're in line with our guidance when you exclude the goodwill and fixed asset impairment charges.

Fourth quarter net sales of $164.9 million decreased $4.1 million or 2.4% from third quarter net sales of $169 million.

The Aerospace/Defense and Networking Communications end markets continued to make strong contributions to the Company.

Gross margin for the quarter of 18.6% declined from third quarter gross margin of 19%.

Selling and marketing expense for the fourth quarter was $7.4 million or 4.5% of net sales, which is down slightly from third quarter selling and marketing expense of $7.6 million or 4.5% of net sales.

Fourth quarter G&A expense including amortization and intangibles was $8.8 million or 5.3% of net sales.

Third quarter G&A expense including amortization and intangibles was $9.1 million or 5.4% of net sales.

Fourth quarter G&A expense fell primarily due to lower incentive compensation expense.

In the fourth quarter we incurred stock based comp expense of $1.2 million, consistent with the third quarter expense.

The approximate percentage breakdowns are as follows -- 65% of the expense was recorded in G&A, 27% in cost of goods sold, and 8% in selling and marketing.

Our fourth quarter operating loss was $108.9 million.

As we noted in the press release, during the fourth quarter we reviewed the carrying value of our goodwill and intangible assets as required under FAS 142.

Due to the current economic downturn and a significant decline in our market capitalization recorded significant noncash impairment charges of $117 million related to goodwill and $6.3 million related to fixed assets in the fourth quarter.

Excluding these impairment charges our fourth quarter operating income was $14.5 million, compared to third quarter operating income of $15.5 million.

Noncash impairment charges do not affect our cash balance, liquidity, cash flow, or the terms of our debt.

Much of our goodwill balance arose with the October 2006 acquisition of the Tyco Printed Circuit Group.

Despite the impairment, these operations continue to perform well and generating cash and exceeding the expectations we had at the time of the acquisition.

Fourth quarter interest expense, which includes amortization of deferred financing costs, was $1.7 million as compared to $1.6 million in the third quarter.

Fourth quarter interest income was $223,000, down from $702,000 in the third quarter due to declining interest rates.

Fourth quarter other net was an expense of $416,000.

This compares to third quarter other net expense of $384,000 which included a $579,000 unrealized loss related to our investment in reserve primary fund.

As you may recall, this money market fund broke the buck last year.

Of the $20.1 million that we had invested in this fund as of September 15th, 2008, to date we've received back $15.8 million.

As fund holdings mature we expect to receive additional funds, and we will continue to update you on a quarterly basis as to the impact on the Company.

Our effective tax rate in the fourth quarter was 38.1%, compared with 33.7% in the third quarter.

The Company received a onetime tax benefit in the third quarter that reduced our effective tax rate.

Fourth quarter net loss was $68.5 million or $1.60 pre basic share.

Excluding the impairment charges we would have reported net income of $7.6 million and delivered EPS of $0.18 in the fourth quarter, which is in line with our guidance and compares with third quarter net income of $9.5 million or $0.22 per diluted share.

For the full year 2008 net sales were $681 million, an increase of $11.5 million or 1.7% from full year 2007 net sales of $669.5 million.

Full year 2008 net loss was $35.3 million or $0.83 per basic share.

Excluding impairment charges, full year 2008 net income was $40.9 million or $0.95 per diluted share, compared with full year 2007 net income of $34.7 million or $0.81 per diluted share.

As we noted in our press release, financial results for the fourth quarter and full year 2008 may be subject to change pending the resolution of certain accounting matters relating to the impairment of assets.

We continue to maintain a strong balance sheet.

We again generated significant cash during the quarter, and we have a manageable debt position.

We do not anticipate that the impairment charges recorded in the fourth quarter will have any impact on our ability to raise capital as needed in the future.

Cash and cash equivalents and short-term investments at the end of the fourth quarter totaled $152.1 million, an increase of $17.1 million from $135 million at the end of the third quarter.

In addition, cash grew by more than $10 million during the month of January.

Cash flow from operations was $21.4 million for the fourth quarter due primarily to solid net income, excluding impairment charges, and a significant decrease in working capital, especially inventory.

Net capital expenditures for the fourth quarter were approximately $4.2 million, and depreciation was $5.4 million.

Full year 2008 CapEx was $16.3 million, which is in line with our guidance given last quarter.

As we discussed, in light of current macroeconomic uncertainties we are gradually and prudently reducing our capital purchases to preserve cash on our balance sheet.

Looking ahead in the first quarter of 2009 we are projecting revenue in a range from $146 million to $154 million, and earnings in a range form $0.01 to $0.06 per diluted share.

The gross margin percentage for the first quarter is expected to be in a range from 14% to 16%.

We expect that selling and marketing expense will be approximately 4.7% of revenue, and that G&A expense including amortization of intangibles will be about 5.7% of revenue.

We expect our tax rate in the first quarter of 2009 to be approximately 37%.

As we noted in the press release, effective January 1st the accounting rules governing convertible debt changed.

As a result we will record interest expense of about $2.7 million in the first quarter of 2009.

Our $175 million convertible debt bears interest at 3.25% per year or about $1.4 million per quarter.

The additional interest expense of $1.3 million or about $0.02 per diluted share will be a noncash expense.

As previously disclosed, the Company is closing our Redmond, Washington facility.

We expect to record approximately $2.8 million or about $0.04 per diluted share in separation costs related to restructuring primarily in the first quarter of 2009.

In the fourth quarter we recorded an asset impairment charge of $1.8 million related to the Redmond closure.

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

Thank you, sir.

(OPERATOR INSTRUCTIONS.)

Our first question comes from the line of Shawn Harrison with Longbow Research.

Please go ahead.

Good evening, Steve and Kent.

Just wanted to get to the incremental margins that it looks like are being implied here with the guidance for the March quarter.

They look a little bit higher than normal, you know, somewhere in the kind of the 50% range.

And I was just wondering maybe if you could detail some of the factors behind that?

And then maybe some more details just on the timing of the roll-on from the savings of the closure of Redmond, and also kind of the other layoffs that you've implemented?

Yes, sure, Shawn.

As you know, in general our incremental margin on the PCB Manufacturing side is kind of at that 50% level, because obviously we're a fixed cost business so labor and capital equipment don't necessarily increase when we have to do incremental work.

And that's very true of the current scenario with the Redmond transfer.

The work that we will be sending to the other plants will increase utilization at those plants.

We effectively won't need to add any additional staff at those locations or equipment, at least in the near term to accommodate that work.

In terms of the run rate, we are looking at a run rate for 2009 for that Redmond plant of about $36 million a year or about $9 million per quarter.

Obviously, we don't expect that to just simply map over to the new plants that clearly, but we do have a fair amount of cross qualification of the customers in Redmond with our other plants.

So we expect to have about $6 million of revenue in the second quarter that comes from the Redmond plant and is being built at other locations, and about $7.5 million in the third and fourth quarter of this year.

Okay.

And then just maybe on the restructuring savings, when do you expect to see kind of a full run rate of that $20 million to $25 million, Steve?

That'd be Q2.

We'll probably see about $2 million of cost savings in the first quarter, and that's not mostly from Redmond, it's more from the other layoffs we did in January, mid January, of about 140 people.

So we'll see about probably $1.4 million in savings in the first quarter for labor expense and about $600,000 or lower depreciation expense due to the asset impairments we recorded.

And then and beginning in the second quarter based on our current plan to shut-down Redmond in the middle of March we should start seeing probably about $5 million of savings per quarter beginning in the second quarter.

Okay.

And then just on the pricing environment and then also raw materials, it sounds like the pricing environment was pretty benign here in the December quarter, maybe kind of what you're seeing out there now, and then what are you seeing in terms of just input cost right now?

Yes, Shawn, you know, our pricing was up 3.3% during the quarter.

That mainly, though, is a result of higher technology mix within the products that we produce.

Overall, it seems like pricing in the marketplace is holding pretty steady.

There has been some spotty price competition maybe this quarter that we didn't see last quarter, but it's certainly not a trend, it's just more on an isolated basis.

So pricing doesn't seem to be, at least at this point in time, an issue.

As far as material costs, we have been able to successfully negotiate lower material cost, kind of on an item by item basis.

So material costs are going down, and we think that we'll have some pretty nice savings going forward as far as material costs go.

And I'm not sure I want to quantify that, but it's -- it -- we are reducing our cost of materials.

Okay.

Thanks a lot.

Thank you, sir.

Our next question comes from the line of Steven Fox with Bank of America Merrill Lynch.

Please go ahead.

Hi, I'm curious, a little bit more about the pricing question.

If you look out over the next couple quarters are you encouraged by the amount of capacity that's coming out of the industry given how demand is weakening I guess ex defense and aerospace is there a chance that we could wind-up with significant excess that could cause pricing pressures maybe two quarters from now?

How would you describe the risk to potentially a worse case scenario I guess?

Yes, Steve, I wish I had a crystal ball on that, but we have taken some capacity out, as you know, within our TTM facilities.

The marketplace is still in a situation where there's excess capacity.

So how much excess capacity is and how that relates to future demand is kind of a big question mark.

As I look at our pricing and quoting and activity right now it's not an issue, and if you look at the capacity ratio, the excess capacity we have right now, you'd think it might even be more of an issue than it is.

So it's clear that we are not anticipating any increases in pricing, but I don't think it's going to get too much worse from where it's at right now.

There's some contracts we have in place that go quarter-over-quarter and some other things that we look at the pricing we get on some of the new technology.

Sometimes you're selling more than just a product, you're selling the engineering support and time and demand, and our Company is certainly well positioned to sell more than just a product.

So it's not as if you're just subject solely to capacity.

You have to have the capabilities that companies want, that your customers want, and be in a position to deliver on more than just a product.

So I think with TTM we have positioned our self well to operate in profitable niches, service customers and avoid some of the price competition that's created solely because of too much excess capacity.

Okay.

That's helpful.

And then just a little bit more detail on where you stand with potential acquisitions, from the standpoint given all that's going on from valuations and also the business environment when you consider it more or less likely that you consummate an acquisition over the next say six to nine months than say what you would have thought a few months ago?

Yes, you know, and with the downturn that kind of changes the environment and if you're looking at a company that is struggling it makes that company, it puts that company in a position to be more for sale than otherwise.

Our objective is to buy well run companies that are producing income and then enhance that company, so from the standpoint that we're looking at well run companies, this market situation has not been helpful.

It's probably delayed our acquisition opportunities.

We've been active in the acquisition front, or at least looking for companies for a number of years now, so we're pretty abreast of who we think would fit, but we don't have anything on the imminent horizon here, and the market condition has not been helpful.

Okay.

Thank you.

Thank you, sir.

Our next question comes from the line of Matt Sheerin with Thomas Weisel.

Please go ahead.

Yes, thanks.

Hi, Kent and Steve.

So just regarding your guidance, and I know that everyone within the whole supply chain is seeing softness in orders from customers, but could you be specific about where you're seeing the order cuts by segment?

Yes, Matt, let me talk a little bit about it in a little broader terms.

When we look into the first quarter we see our Backplane business decreasing by about I'd say 16%, 15%, 16%, and that's mostly in the U.S.

operation.

On the Commercial side of things our Commercial Printed Circuit Board business we anticipate to be down about 10%, and a lot of that is within the Redmond facility.

And Aerospace and Defense, that's going to be off a little bit in the first quarter, 2% or 3%, mainly due to some softness in the commercial aerospace.

The defense weapons, communication, radar systems, all of those programs are still pretty solid for us but there is some softness in commercial aerospace.

And then more directly on Networking and Communications going forward that's probably the end market that will be most negatively impacted by the macro market conditions.

Just companies just don't seem to be spending on IT.

So in the first quarter the Networking and Communications will take the biggest hit, if you will.

They'll be down dollar basis and a percent of sales.

Communication or Computing going forward, in the fourth quarter in the Computing segment we had some pretty nice orders come to us from high end servers and storage products, and there's some seasonality it seems like in that end market on the end of the year, but we did some rush orders at the end -- into the quarter, the Q4, and those probably won't return in Q1.

So while it won't be as healthy in Q1 as it was in Q4, that Computing segment will still be fairly steady.

Regarding the Medical, Industrial Instrumentation segment, that's going to be pretty flat going into the first quarter.

The medical portion is stable.

The industrial portion of that end market is pretty solid.

There's some projects we're involved on that are not impacted by the global recession with power plants, windmill controls, and so forth, that give that end market some stability.

The instrumentation portion of that end market is probably the one that's most negatively impacted as we look at demand for semiconductor test equipment and other test equipment within the marketplace.

Okay.

Thanks.

That's helpful.

And do you get a sense, at all, that things may start to improve later in the quarter or into June as customers work off their inventory and kind of deal with the demand situation, or is it just too hard to tell right now?

Yes, I don't think we have that visibility, Matt.

I wish we did, but it doesn't feel like it's an inventory situation, it's more related to this global market situation that we're in.

Okay.

And thank you.

And could you talk about the raw materials costs and particularly the copper laminate prices, are you starting to see it go down now with raw copper prices going down?

And are your customers asking you about that, and asking for price breaks because of that?

We're not necessarily getting pressure from customers that are out -- that's out of the ordinary.

Customers always would like to have lower prices and, of course, we always want lower prices from our suppliers.

But, yes, the answer to the commodity copper prices, yes, we have been able to achieve some lower material cost on those products that have copper involved with them.

But we're also going out to suppliers on other items that aren't involved with materials and talking about how we can reduce costs, and we're being quite successful in negotiating lower costs on a number of items.

And so our material cost is -- it'll be lower as we go throughout 2009.

Okay.

And just, lastly, with all these cost cutting efforts playing out in the next quarter or two, and if we were to assume that revenue would be down let's say in low to mid single digits sequentially in June, with the costs out, would the profitability still be sort of where it is at current revenue levels or would it still be negative leverage there?

Explain that question just a little bit?

Well, I'm just trying to get a sense of how much the savings that you're taking, the cost taking out, you know, how much will that help you in coming quarters even if demand continues to soften?

So, in other words, if the demand is down a little bit but you've taken costs out, can you still keep profitability at the rates that you're guiding to this quarter?

Yes, I mean with the leverage in our top line, if that goes down it's tough to get enough cost savings on the material side to compensate for that.

I mean every time we negotiate lower material cost, it's helpful, it goes right to the bottom line, but when you lose the top line just because of the high fixed cost business we're in.

Yes, but I guess my question, Kent, is regarding the fixed cost and the headcount reductions, that sort of thing.

I mean is that going to get you to a place where you're going to be able to be more profitable or give you more leverage when volumes do come back?

Yes, and I think a lot of it hinges on say how much we're down in Q2, you know, assuming we're going to be down in Q2, it's too early to say but based on your premise, how much we're down in Q2 and then also kind of which product line it is, because certainly we have certain product lines like quick turn and high tech that are more lucrative than others.

But I do see that we're going to see benefit in Q2 from a full quarter run rate of the cost savings on labor and to some degree on depreciation, as well, and that should help us start to plateau, I think.

But I do think that given the fixed cost nature of our business I wouldn't necessarily expect us to start bouncing back in Q2 but maybe start plateauing more.

Make sense?

Okay.

Okay.

That helps.

Thanks a lot.

Thank you, sir.

Our next question comes from the line of [Mitof Passif] with UBS.

Please go ahead.

Hi, thank you.

Can you guys hear me?

Yes.

Yes.

My first question was just on the Networking Communication segment.

I was hoping you could provide a little more color in terms of what you saw there with the major customers in this particular quarter, the fourth quarter?

With the American customers?

No, in the Networking Communication segment, just what the dynamics were with some of your major customers between U.S.

customers, your international customers, and then maybe between Com and Networking?

The -- in the Networking section, again, I mean because there was lower IT spending and this is both on the enterprise and the service provider side, we had lower demand in the Networking segment.

And it was from a couple of major customers.

Now, the Networking and Communication is a significant portion of our Backplane Assembly, too, it's almost like 90% of what we do in Backplane Assembly, but that was pretty healthy in the fourth quarter.

So it -- and that was driven mainly by one customer in China, and so in the Backplane we didn't have a decrease.

So most of the decrease came from the Printed Circuit Board segment with U.S.

customers and they were some of the major customers.

Now, and, Kent, just with respect to your customer in China, do you expect that to remain relatively strong going forward in the next couple of quarters?

Yes, yes.

Okay.

And then just one more question, if I look at our business excluding Aerospace and Defense, I think for the last five quarters we've actually seen negative year-over-year trends.

And I'm just wondering as you look at the Company from a strategy perspective, I mean how do you think we get growth outside of Aerospace and Defense?

I know you've talked about international expansion, but I'm just wondering if you can talk to your strategy again?

Because, as I said, it really seems like outside of Aerospace and Defense I mean the rest of the Company has been down for almost five quarters now in a row.

Yes, that's a good observation.

And when you look at the North American opportunity, again, we're struggling with the fact that there's too much competition in North America.

And so we have to grow by winning business and gaining market share in a shrinking marketplace.

And I think relatively speaking we've done quite well, because we have the right strategy, we've got the right management team to execute the strategy, but the marketplace just is not giving us much to work with.

So until we have some capacity come out of the marketplace it's really -- I mean the fact of the matter is it's going to be hard to grow organically until the marketplace will let us do so in the United States.

Got it.

Thank you.

I'll jump back in queue.

Thank you, sir.

Our next question comes from the line of [Jiuan Lee] with Sidoti & Company.

Please go ahead.

Yes, thanks.

First question is how should we be thinking about the Aerospace and Defense business beyond the first quarter with the kind of programs that you're involved in?

Yes, that's a good question.

And we look for through 2009 our Aerospace and Defense business to be up through 2009.

So even though we're going to have some softness in the first quarter, that's mainly related to the commercial aerospace portion of that end market segment, and maybe that continues on a little, that softness beyond the first quarter.

But overall when you look at the programs that we are involved with on the Defense side and the guidance and the radar systems, communication systems, and the programs that are already in place, plus some others that we anticipate winning, Aerospace and Defense through 2009 will increase for us.

Okay.

And has there been more noticeable competitive landscape change out of Asia recently that you could discuss with us?

Yes.

No, the answer is no.

We -- when we look at how we've been competing for the last two or three years, it just feels like we've competed on a global basis now for several years, and we win business as we compete in the United States, and we win business as we compete on a global basis because of our engineering capabilities, because of our flexibility in our manufacturing, because of all the customer service that we provide beyond the product, and then we're producing a high technology product, and we're producing a high mix product.

So when you add up our specific strengths of our Company, we win business because of this strategy, and we win business not only against U.S.

competitors but also on a global, global basis with Asia competitors.

And you would think that if we were going to have more competition from Asia we would have it now, because everyone needs to fill their facilities, but the Asian competition in the fourth quarter was no different than it was in the third quarter or the second quarter.

Okay.

And just to be clear on your EPS guidance, that is the GAAP number I think, no?

Yes, so that's why I wanted to make sure that we drew attention to the onetime charges and the new convert interest.

So when you take the $0.01 to $0.06 range on a GAAP basis, you'll want to at least consider the $0.02 increase in interest expense as noncash due to the new FASBE interpretation of APB14, and also we have $2.8 million or about $0.04 per share of onetime restructuring charges for the Redmond plant closure and the layoffs of the other employees.

So when you add back that $0.06 we will have say an effective range of say $0.07 to about $0.12.

We're also going to have probably a couple of cent impact this quarter from a rundown of work in process inventory from Redmond.

Obviously, as we close Redmond we'll finish up all the inventory they have and those costs will appear on our income statement in the first quarter.

And most of the other plants that are taking on Redmond work won't really start ramping up until the second quarter.

So you've got a lot of things happening in the first quarter that affects the results, but those are the key things.

And a lot of companies with this type of convertible debt have been fairly active in buying back a portion of it, is that something that you guys are interested or--?

Yes, it's like it's subject to much discussion internally, Jiuan.

As you can imagine, the prospect of paying $0.50 roughly now, which is where our convert is trading, for a dollar we got back in May is pretty tempting.

But, of course, given the downturn and some of the lack of visibility we have in our business we also want to be very cautious about using our cash for any purposes besides just ensuring ongoing business, security and viability.

So it's something we would not by any means rule out, but we also aren't watching for them to do that at this point either.

It's a topic we have visited and we'll continue to visit over the next quarter or two.

Okay.

Fair enough.

Thank you very much.

Sure.

Thank you, ma'am.

(OPERATOR INSTRUCTIONS.)

Our next question comes from the line of Rich Kugele with Needham & Company.

And please go ahead.

Thank you, good afternoon.

Could you give us a sense, you said you were talking about having lower CapEx this year, do you have a ballpark for what you think it might be, how low you think you can go?

Yes, our CapEx budget is about $13 million for this year, and we spent $16 million last year.

So that's what we have in the budget, and that's mainly for some technology improvements, but mostly just replacement equipment.

Now, we are going to save some money as we relocate some of the equipment out of Redmond into our other facilities and so forth, so I'm pretty optimistic that $13 million might be a little bit on the high end but that's what we have in our budget.

And from a capacity utilization standpoint, where do you see, let's say for example it's a flat quarter next quarter, off the midpoint of your guidance, what would your capacity utilization be now without Redmond at that level?

Yes, by closing down Redmond we are going to increase the capacity utilization in our other facilities that are accepting that work by about 8%, so Company as a whole without the Redmond closure would have a capacity utilization rate 6% lower than with the Redmond closure.

So I'm not sure exactly -- now, our capacity utilization rate in the last quarter was 72% to 75%, that's down slightly from say the third quarter.

So if we didn't, if we did not close Redmond we'd be about 8% lower in the fourth quarter, 6% to 8% lower.

Okay.

And then, Steve, from a gross margin standpoint, off of this 14% to 16%, again if we were to assume the midpoint would it be incorrect to increase the margin at all for the benefit of the restructuring?

If the premise here, as opposed to Matt's question earlier, if the premise here is that our revenue holds steady say from Q1 to Q2, and I'm assuming roughly the same mix of work, because that could make a big difference as well, I would assume that on the same level of revenue in Q2 we'd have a bit of an improvement in gross margin because of the cost savings for the asset impairments and for the labor savings from the Redmond closure.

Okay.

And has the restructuring changed what your long-term feeling is and what the business can generate from a margin perspective?

No, I think long-term, well, I mean honestly closing Redmond helps improve utilization elsewhere, but still I think we believe that we could operate where we have in the past and to say 20, 21, 22, 23, 24% range, but conditions would have to improve significantly to get there again.

Okay.

All right.

Thank you very much.

Thank you, sir.

And at this time there are no further questions in the queue.

I'd like to turn the conference back over to Mr.

Alder for any closing remarks.

Please go ahead, sir.

Okay.

Thank you very much.

We've got some interesting situations with the market that we have to deal with, but we'll let you know that we'll deal with those appropriately and continue to strengthen and build the Company.

And thank you very much for joining us, and we will see you next quarter.

Thank you.

Thank you much.

Thank you very much.

Ladies and gentlemen, this does conclude the TTM Technologies fourth quarter financial results conference call.

Thank you for your participation.

You may now disconnect.

Have a pleasant day.