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Item 7. Management’s Discussion and Analysis

2022-03-16 compared with 2021-02-24 · 200 added, 225 removed, 209 unchanged (67% of the section changed)

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Risk Factors "

in Item 1A for a discussion of certain risks applicable to our business, financial condition, and results of operations.

This section of this Form 10-K discusses and compares the results of operations for 2020 and 2019.

The discussion and analysis comparing the results of operations for 2018 to 2019 are not included in this Form 10-K and can be found within Part II, Item 7 "Management’s Discussion and Analysis for Financial Condition and Results of Operations"

in Part I, Item 1A for a discussion of certain risks applicable to our business, financial condition, and results of operations.

The following section discusses our results of operations for 2021 and 2020 and year-to-year comparisons between those periods.

Discussions of 2019 and year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K and can be found within Part II, Item 7 "Management’s Discussion and Analysis for Financial Condition and Results of Operations"

in our 2020 Form 10-K for the year ended December 31, 2020.

We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power from the utility and convert it into various types of highly-controllable, usable power that is predictable, repeatable, and customizable.

Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip, chemical and physical deposition, high and low voltage applications such as process control, data center computing, networking, telecommunication, analytical instrumentation, medical equipment, industrial technology, and temperature-critical thermal applications such as material and chemical processing.

Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, and refurbishments and used equipment to companies using our products.

Driven by continuing technology evolution and changing customer demands, the markets we serve are constantly changing in terms of advancement in applications, core technology and competitive pressures.

New products we design for capital equipment manufacturers could have a lifespan of five to ten years.

Our success and future growth depend on our products being designed into our customers’ new generations of equipment as they develop new technologies and applications.

We work with these original equipment manufacturers early in their design cycles to modify, enhance and upgrade our products or design new products that meet the requirements of their new and future systems.

The design win process is highly competitive, and we may win or lose new designs for our existing customers’ or new customers’ next generations of equipment.

If existing or new customers do not choose our products as a result of the development, evaluation and qualification efforts related to the design win process, our market share may be reduced, our potential revenues related to the lifespan of our customers’ products, which can be 5-10 years, may not be realized, and our business, financial condition and results of operations may be materially and adversely impacted.

Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and control solutions to our global customers.

We design, manufacture, sell, and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the necessary requirements for powering a wide range of complex equipment.

Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip and deposition, high and low voltage applications such as semiconductor process control, data center computing, networking, telecommunication, medical equipment, life science applications, industrial technology and production, scientific instruments, clean technology production, advanced material production and temperature-critical thermal applications.

We also supply related sensing, controls, and instrumentation products for advanced measurement and calibration of RF power and temperature, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for multiple industrial markets.

Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, refurbishments, and used equipment to companies using our products.

Our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets, and we have provided market revenue data in this Annual Report on Form 10-K to enable tracking of trends.

Advanced Energy is organized on a global, functional basis and operates in a single segment structure for power electronics conversion products.

Critical Accounting Estimates

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Such accounting positions require significant judgments, assumptions, and estimates to be used in the preparation of the consolidated financial statements, actual results could differ materially from the amounts reported based on variability in factors affecting these statements.

Revenue Recognition

We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or completion of services have been transferred to our customers.

The transaction price is based upon the standalone selling price.

In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations.

Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Shipping and handling fees, if any, are recognized as revenue.

The related shipping and handling costs are recognized in cost of sales.

Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell.

Repairs that are covered under our standard warranty do not generate revenue.

We maintain a credit approval process and we make significant judgments in connection with assessing our customers’ ability to pay.

Despite this assessment, from time to time, our customers are unable to meet their payment obligations.

We continuously monitor our customers’ credit worthiness and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified.

While such credit losses have historically been within our expectations and the provisions established, a significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results.

Additionally, if our credit loss rates prove to be greater than we currently estimate, we record additional reserves for credit losses.

Business Combinations

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We must also identify and include in the allocation all acquired tangible and intangible assets that meet certain criteria, including assets that were not previously recorded by the acquired entity.

The estimates most commonly involve property, plant and equipment and intangible assets, including those with indefinite lives.

The estimates most commonly involve property, plant and equipment and intangible assets.

The estimates also include the fair value of contracts including commodity purchase and sale agreements, storage contracts, and transportation contracts.

The excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually.

Pursuant to GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination.

of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually.

Pursuant to U.S.

GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination.

We are subject to income taxes in the United States and numerous foreign jurisdictions.

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Any significant changes in end-user demand, technology or new product developments could have a significant impact on the value of our inventory and our reported operating results.

Warranty Costs

We offer warranty coverage for a majority of our products for periods typically ranging from 12 to 24 months after shipment.

We provided warranties on our inverter products for five to ten years and also provided the option to purchase additional warranty coverage up to 20 years.

Our standard inverter product warranty expense is reported within discontinued operations.

We estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs.

The assumptions we use to estimate warranty accruals are reevaluated periodically, considering actual experience, and when appropriate, the accruals are adjusted.

Should product failure rates differ from our estimates, actual costs could vary significantly from our expectations.

Disposed and Discontinued Operations in Part II, Item 8 "Financial Statements and Supplementary Data"

for more information on our discontinued operations and Note 15.

Warranties in Part II, Item 8 "Financial Statements and Supplementary Data"

for more information.

Goodwill, Intangible and Other Long-Lived Assets

We evaluate the carrying value of our goodwill for impairment at least annually or when an interim triggering event occurs that would indicate that impairment may have taken place.

Our annual impairment test was performed as of December 31 st with no indication of impairment.

We evaluate our other definite-lived intangible assets for impairment when evidence exists that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

Significant judgments and assumptions are required in such impairment evaluations.

The annual impairment test of goodwill may be performed using an assessment of qualitative factors if it is considered more likely than not that goodwill is not impaired.

If this qualitative assessment indicates that it is more likely than not that goodwill is impaired, then the next step of impairment testing compares the fair value of a reporting unit to its carrying value.

If fair value exceeds carrying value, then we conclude no goodwill impairment has occurred.

Conversely, if carrying value exceeds fair value, we recognize an impairment loss.

We evaluate definite-lived intangible assets and other long-lived assets whenever there is an indicator of impairment.

When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.

If our expectations of future results and cash flows are significantly diminished, intangible assets, long-lived assets, and goodwill may be impaired and the resulting charge to operations may be material.

Changes in these estimates could result in significant revisions to the carrying value of these assets and may result in material charges to our results of operations.

Defined Benefit Pension Plans

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We also, with the help of actuaries, periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality, and turnover, and update them to reflect our experience and expectations for the future.

The Company believes the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes.

While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expense.

We believe the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes.

While we believe that our assumptions are appropriate, significant differences in our actual

experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expense.

Human Capital Resources

Our corporate citizenship, social responsibility and commitment to our employees extends beyond the products we make.

We recognize that our employees are our most important asset, and with approximately 10,000 employees located across the globe, we know that each person’s diverse background and unique skill set are fundamental to our success.

We regularly conduct anonymous surveys to seek feedback from our employees on important topics related to confidence in company leadership, career growth opportunities, and improvements on how we can make our company a great place to work.

In addition, the results of the survey are shared with our Board.

We conduct anonymous surveys to seek feedback from our employees on important topics related to confidence in company leadership, career growth opportunities, and improvements on how we can make our company a great place to work.

In addition, we share the results of the survey with our Board.

To further increase our commitment to diversity and equity, in 2020 we announced the launch of our inaugural Advanced Energy STEM Diversity Scholarship, which is aimed at developing emerging talent and promoting greater ethnic, racial and gender diversity in STEM.

The annual program will begin in the 2021 academic year and will accept applications from undergraduate and post-graduate students attending five leading institutions in the field of power technologies.

The annual program accepts applications from undergraduate and post-graduate students attending five leading institutions in the field of power technologies.

Total Rewards

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operations, we offer additional benefits that supplement governmental statutory benefits.

In the U.S., we offer a competitive benefits package that includes four different health care plan options with employee premiums lower than the market average,

dental, vision, disability and life insurance, health savings and flexible spending accounts, paid-time off, 8-weeks of paid parental leave for both parents, company matched 401(k), flexible work schedules, expanded mental health coverage and employee assistance programs.

With the challenging times created by COVID-19, we made the commitment to ensure our employees maintained financial security and provided employees the ability to work from home and paid leave time for our hourly employees who may have been impacted by temporary site closures.

In the U.S., we offer a competitive benefits package that includes four different health care plan options with employee premiums lower than the market average, dental, vision, disability and life insurance, health savings and flexible spending accounts, paid time off, 8-weeks of paid parental leave for both parents, company matched 401(k) contributions, flexible work schedules, expanded mental health coverage, and employee assistance programs.

With the challenging times created by COVID-19, we continued our commitment to ensure our employees maintained financial security and provided certain employees the ability to work from home, paid leave time for our employees who may have been impacted by temporary site closures, and paid leave time for vaccinations.

Learning and Development

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We have a program for education assistance reimbursement that provides financial support to employees who seek to expand their skills and abilities.

We support a women’s leadership forum conducted by our employees that discusses, among other things, career development, leadership topics, and the opportunities for mentorship.

We also have an internship program designed to help support a pipeline of talent for the Company.

We also have an internship program designed to help support a talent pipeline.

We have a robust succession planning process to develop internal leadership capabilities and technical bench strength, ensuring we have a strong workforce for the future.

Diversity, Equity & Inclusion

In 2021, we relaunched our Corporate Inclusion, Diversity and Equity Steering Committee, which was tasked with researching, developing, and proposing strategies and initiatives aimed at creating and fostering engagement, awareness, respect, and inclusion for our employees, customers, vendors, and communities.

This committee provides global guidance and direction while enabling local activities to develop specific, targeted initiatives as appropriate.

Health and Safety

We are committed to providing a safe work environment for our employees.

We provide regular health and safety training both on-site as needed and through our virtual training tool that assigns training requirements based on job profiles and site-specific requirements.

We provide regular health and safety training in both on-site format and through our virtual training tool that assigns training requirements based on job profiles and site-specific requirements.

Our Environmental, Health and Safety organization is a global team responsible for health and safety related to on-site operations, including hazard and risk identification.

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The committee provides financial support for 501(c)(3) corporations, non-profit institutions, and organizations that improve education, the environment, health, and social services across the communities in which we operate and where our employees live.

We provide financial support to workforce initiatives led by the local chamber of commerce in Northern Colorado and have partnered with a community college to provide equipment and funding to train technicians and develop skilled labor that may lead to employment opportunities with us or other local companies.

We provide financial support to workforce initiatives led by the local chamber of commerce in northern Colorado and partnered with a community college to provide equipment and funding to train technicians and develop skilled labor that may lead to employment opportunities with us or other local companies.

We offer each employee eight hours of paid time off to volunteer with a 501(c)(3) organization of the employee’s choosing.

Our Educational Scholarship Program, available to children of AE employees, celebrates education accomplishments and facilitates career and learning goals.

In 2020, we received a record number of submissions and recognized ten employees’ students across multiple countries.

Our Educational Scholarship Program, available to children of Advanced Energy employees, celebrates education accomplishments and facilitates career and learning goals.

Business Environment and Trends

Advanced Energy operates in a single segment structure for power electronics conversion products.

The acquisition of Artesyn added additional products and market verticals to our business.

Following the acquisition, we have continued to be organized on a global, functional basis to achieve the anticipated synergies associated with the acquisition.

We operate in four vertical markets or applications and provide revenue information to enable tracking of market trends.

Following the acquisition of Artesyn in September of 2019, we also provide information on an organic and inorganic basis to improve comparability during the periods.

The demand environment in each of our markets is impacted by various market trends, customer buying patterns, design wins, macroeconomic and other factors.

During 2020 we saw strengthening demand in Semiconductor Equipment and Data Center Computing Markets and weakening demand in our general industrial markets.

In the beginning of the first quarter of 2020, we began to see an impact of COVID-19 on our operations particularly in China, which has affected both our own workforce and supply chain.

This situation remains dynamic and may continue to affect our operations.

See Item 1A "Risk Factors"

During 2021 we saw growth in our Semiconductor Equipment and Industrial and Medical markets but weakening demand in our Data Center Computing and Telecom and Networking markets.

At the beginning of 2020 we saw the spread of COVID-19, which grew into a global pandemic.

Our focus on providing a healthy and safe working environment for our employees led to intermittent shutdowns of our manufacturing facilities to implement new health and safety protocols and additional investments to comply with government guidelines.

During 2020 and 2021 there were periods when some of our manufacturing facilities were not operating or were operating at reduced capacity due to government mandates to restrict travel, maintain social distancing, and implement health and safety procedures.

Additionally, ongoing restrictions related to COVID-19 and disruptions in an already challenged global supply chain limited the availability of certain materials, parts, subcomponents, and subassemblies needed for production during 2021, impacting our ability to ship product to meet customer demand.

The shortage of critical components was caused in part by the pandemic-driven rise in consumer demand for technology goods, increased demand for electronic components used in a wide variety of industries, logistics-related disruptions in shipping, and capacity limitations at some suppliers due to COVID-19, its variants, labor shortages, and other factors.

See Part I, Item 1A "Risk Factors"

for a discussion of certain risks related to COVID-19.

SEMICONDUCTOR EQUIPMENT MARKET

Growth in the Semiconductor Equipment market is driven by growing integrated circuits content across many industries, increased demand for processing and storage in advanced applications such as artificial intelligence or autonomous vehicles, the rapid adoption of advanced mobile connectivity solutions such as 5G and enhancing existing and enabling new wireless applications.

To address the long-term growing demand for semiconductor devices, the industry continues to invest in production capacities for advanced logic devices at the 7nm technology node and beyond, the latest memory devices including 3D-NAND, DRAM, and new emerging memories such as MRAM, and back-end test and advanced wafer-level packaging.

The industry’s transition to advanced technology nodes in logic and DRAM and to increased layers in 3D memory devices is requiring an increased number of etch and deposition process tools and higher content of our advanced power solutions per tool.

As etching and deposition processes become more challenging due to increasing aspect ratios in advanced 3D devices, more advanced radio frequency ("RF") and direct current ("DC") technologies are needed.

Growth in the Semiconductor Equipment market is driven by growing integrated circuits content across many industries, increased demand for processing and storage in advanced applications such as artificial intelligence, cloud computing, and autonomous vehicles, and the rapid adoption of advanced mobile connectivity solutions such as 5G, which enhances existing and enables new wireless applications.

To address the long-term growing demand for semiconductor devices, the industry continues to invest in production capacities for both leading-edge and trailing-edge nodes, logic devices, the latest memory devices including 3D-NAND, DRAM, and new emerging memories such as MRAM, and back-end test and advanced wafer-level packaging.

The industry’s transition to advanced technology nodes in logic and DRAM and to increased layers in 3D-NAND memory devices require an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool.

As etching and deposition processes become more challenging due to increasing aspect ratios in advanced 3D devices, more advanced RF, and DC technologies are needed.

We are meeting these challenges by providing a broader range of more complex RF and DC power solutions.

Beyond etch and deposition processes, the growing complexity at the advanced nodes also drive a higher number of other processes across the fab, including inspection, metrology, thermal, ion implantation, and semiconductor test, where Advanced Energy is actively participating as a critical technology provider.

Beyond etch and deposition processes, the growing complexity at the advanced nodes also drive a higher number of other processes across the wafer fab, including inspection, metrology, thermal, ion implantation, and semiconductor test, where Advanced Energy is actively participating as a critical technology provider.

In addition, our global support services group offers comprehensive local repair service, upgrade, and retrofit offerings to extend the useable life of our customers’ capital equipment for additional technology generations.

The acquisition of Artesyn in September 2019 expanded Advanced Energy’s reach within the Semiconductor Equipment market by adding a broad range of low voltage applications as well as back-end test and assembly equipment makers.

In the first half of 2019, the semiconductor industry went through a period of weakening equipment investment as a result of slowing growth in end market demand for semiconductor devices, ongoing digestion of equipment capacity, and consumption of existing inventory.

Demand for semiconductor equipment has continued to grow through the fourth quarter of 2020 driven by foundry logic and certain memory investments and has returned to prior peak levels.

In addition, the demand for semiconductor devices for a wide range of applications is expected to drive investment into 2021.

However, due to limited visibility and uncertainty arising from COVID-19 and its impact on the global economy and supply chain, geopolitical uncertainty, overall levels of current investment by our customers, and the cyclical nature of the market it is difficult to determine the extent or duration to which the increased demand for semiconductor equipment will continue.

The acquisition of Artesyn in September 2019 expanded Advanced Energy’s reach within the Semiconductor Equipment market by adding a broad

range of low voltage applications as well as back-end test and assembly equipment makers.

Our strategy in the Semiconductor Equipment market is to defend our proprietary positions in our core applications, grow our market position in applications where we have lower share, including remote plasma source and dielectric etch, and leverage our product portfolio in areas such as embedded power, high voltage power system, and critical sensing and controls to grow our share and contents at our key OEM customers.

The Semiconductor Equipment market is experiencing continued demand growth since 2019, driven by higher semiconductor contents across many industries, increased capital intensity at the leading-edge process nodes, semiconductor device makers investing in the trailing-edge nodes due to supply constraints and increased regional investments of semiconductor capacities.

Advanced Energy participated in this market growth by delivering record revenue from the Semiconductor Equipment market in 2021, even with the negative impact of limited availability of critical parts due to global supply constraints.

In addition, increased demand for semiconductor devices for a wide range of applications as global economies begin to recover is expected to drive investment in new capacity throughout 2022.

INDUSTRIAL AND MEDICAL MARKET

Customers in the Industrial and Medical market incorporate our advanced power, embedded power, and measurement products into a wide variety of equipment used in applications such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, motor drives and connected light-emitting diodes.

OEM customers design equipment utilizing our process power technologies in a variety of industrial applications including glass coating, glass manufacturing, flat panel displays, photovoltaics solar cell manufacturing, and similar thin film manufacturing, including data storage and decorative, hard and optical coatings.

OEM customers design equipment utilizing our process power technologies in a variety of industrial production applications including glass coating, glass manufacturing, flat panel displays, photovoltaics solar cell manufacturing, and similar thin film manufacturing, including data storage and decorative, hard and optical coatings.

These applications employ similar technologies to those used in the Semiconductor Equipment market to deposit films on non-semiconductor substrates.

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Our gas monitoring products serve multiple applications in the energy market, air quality monitoring and automobile emission monitoring and testing.

Our strategy in the Industrial and Medical market is to grow and expand our addressable market both organically through our global distribution channels and through acquisitions of products and technologies that are complimentary and adjacent to our core power conversion applications.

Revenue for Industrial and Medical products improved in the second half of 2020 after lower revenues in the first half of 2020 primarily due to recessionary macroeconomic conditions, and production and supply chain delays related to COVID-19 that pushed shipments into the third and fourth quarter of 2020.

Additionally, we saw modest improvement in industrial markets as global economic growth resumed and our customers were able to increase capacity after governmental restrictions were relaxed during the second half of 2020.

The acquisition of Artesyn in September 2019 substantially expanded Advanced Energy’s portfolio of products and opportunities in the Industrial and Medical market.

In the first half of 2020, the COVID-19 pandemic impacted demand for our products in this market, but demand started to recover in the second half of 2020.

Our strategy in the Industrial and Medical market is to expand our product offerings and channel reach, leveraging common platforms, derivatives, and customizations to further penetrate a broader set of applications, such as medical, test and measurement, horticulture, and many other industrial applications.

During 2021, we saw improvement in industrial markets as global economic growth resumed and our customers were able to increase capacity after governmental restrictions were relaxed during the second half of 2020.

Demand for medical products during 2020 was driven by critical care applications, offset by lower investment related to elective procedures.

During 2021, demand for critical applications has declined while other demand has improved.

During 2021, overall customer demand improved, but supply constraints of critical components limited our ability to ship product at the level of customer demand.

However, even with the limited supply, revenue from the Industrial and Medical market grew in the year as a result of our growth strategy.

We expect demand in the Industrial and Medical market to grow in 2022, but the supply constraint condition has extended into the year.

It is not clear how long these supply shortages will persist or how quickly our supply will recover.

DATA CENTER COMPUTING MARKET

Following the acquisition of Artesyn in September 2019, Advanced Energy entered the Data Center Computing market with industry-leading products and low-voltage power conversion technologies.

We sell to many data center server and storage manufacturers, as well as cloud service providers and their partners.

Driven by the growing adoption of cloud computing, market demand for server and storage equipment has shifted from enterprise on-premise computing to the data center.

Nevertheless, with a growing presence at both cloud service providers and industry-leading data center server and storage vendors, we believe Advanced Energy is well positioned to continue to capitalize on the ongoing shift towards cloud computing.

In late 2019 and through 2020, demand for our embedded power products in the data center computing market increased significantly driven by share gains and a capacity ramp at hyperscale customers.

Following the acquisition of Artesyn in September 2019, Advanced Energy entered the Data Center Computing market with industry leading power conversion products and technologies, which we sell to OEMs and ODMs of data center server and storage systems, as well as cloud service providers and their partners.

Driven by the growing adoption of cloud computing, market demand for server and storage equipment has shifted from enterprise on-premises computing to the data center, driving investments in data center infrastructure.

In addition, the data center industry has started to transition to 48 Volt infrastructure, where 48 Volt DC power replaces 12 Volt in server racks in order to improve overall power efficiency.

Advanced Energy benefits from these trends by leading the industry in providing 48 Volt server power solutions to the data center industry.

Further, demand for edge computing is growing, driven by the need for faster processing, lower latency, higher data security, and more reliability than traditional cloud computing.

With a wide range of many unique configurations and requirements, edge computing creates additional opportunities for Advanced Energy.

Lastly, the rapid growth and adoption of Artificial Intelligence and machine learning is driving accelerated demand for server and storage racks with increased power density and higher efficiency, which plays well to Advanced Energy’s strengths.

With a growing presence at both cloud service providers and industry leading data center server and storage vendors, we believe Advanced Energy is well positioned to continue to capitalize on the ongoing shift towards cloud computing.

Our strategy in the Data Center and Computing market is to penetrate additional customers and applications based on our differentiated capability and competitive strengths in power density, efficiency, and controls.

In late 2019 and through 2020, demand for our embedded power products in the Data Center Computing market increased significantly driven by our share gains and a capacity ramp at hyperscale customers.

In addition, we believe as a consequence of COVID-19, hyperscale demand has risen in the near term given the increased need for cloud and network applications in the current environment.

Demand for hyperscale products declined sequentially during the latter half of 2020, as a result of market digestion following a ramp of investment earlier in the year.

This digestion period is expected to continue into the first part of 2021.

Demand declined in the second half of 2020 as a result of market digestion but started to recover during 2021.

However, our 2021 revenue declined due to the limited availability of parts given global supply constraints, which prevented us from producing products to meet the growing demand.

We expect demand in this market to grow in 2022, but the supply constraint condition has extended into this year.

It is not clear how long these supply shortages will persist or how quickly our supply will recover.

TELECOM AND NETWORKING MARKET

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Telecom service providers have started to invest in 5G, and this trend is expected to drive demand of our products into the Telecom and Networking market.

In datacom, demand is driven by networking investments by telecom service providers and enterprises upgrading of their network, as well as cloud data center networking investments for increased bandwidth.

In datacom, demand is driven by networking investments by telecom service providers and enterprises upgrading of their network, as well as cloud service providers and data centers investing in their networks for increased bandwidth.

Our strategy in Telecom and Networking is to optimize our portfolio of products to more differentiated applications, and to focus on 5G infrastructure applications primarily with U.S.

and European equipment providers.

Demand in late 2019 and the first half of 2020 was lower as geopolitical issues and consolidation of wireless telecom providers drove slower global investment in cellular and network infrastructure.

Revenue increased sequentially in the third and fourth quarters primarily as a result of modest improvement in market conditions and improved manufacturing capacity amid COVID-19.

Revenue increased sequentially in the third and fourth quarters of 2020, primarily as a result of modest improvement in market conditions and improved manufacturing capacity amid COVID-19.

During 2021, revenue declined as a result of the limited availability of parts given global supply constraints and our internal decision to optimize our portfolio toward higher margin applications within the Telecom and Networking market.

Going into 2022, we expect demand in this market to recover driven by increased investments in 5G infrastructure, but the supply constraint condition has extended into the year.

It is not clear how long these supply shortages will persist or how quickly our supply will recover.

Results of Continuing Operations

The analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward, and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Item 8 "Financial Statements and Supplementary Data"

The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Part II, Item 8 "Financial Statements and Supplementary Data"

of this Annual Report on Form 10-K.

Also included in the following analysis are measures that are not in accordance with U.S.

A reconciliation of the non-GAAP measures to U.S.

GAAP is provided below.

The following table sets forth certain data derived from our Consolidated Statements of Operations (in thousands):

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Income from continuing operations, net of income taxes

The following tables summarize annual sales and percentages of sales, by product line (in thousands):

The following tables summarize annual sales and percentages of sales by markets (in thousands):

Year Ended December 31,

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2021 Results Compared To 2020

Total sales for the year ended December 31, 2020 increased $626.9 million, or 79.5% to $1,415.8 million from $788.9 million for the year ended December 31, 2019.

Revenue in 2020 benefited from $670.8 million in inorganic sales from the acquisition of Artesyn.

Organic sales in 2020 increased $176.4 million primarily due to increased demand in the Semiconductor Equipment market offset by lower sales of our industrial thin film products due to a weaker overall macroeconomic environment and the impact of COVID-19.

Sales in 2019 include $220.3 million in sales from our acquisition of Artesyn.

In 2020, sales to the Semiconductor Equipment market increased $208.8 million, or 51.8% to $611.9 million from $403.0 million in 2019.

The increase in sales during 2020 is primarily due to an overall increase in demand for semiconductor equipment used in deposition and etch applications, increasing power content in semiconductor manufacturing tools, and market share gains in RF match and remote plasma sources.

Sales to the Industrial and Medical market increased $67.7 million, or 27.5% to $313.6 million in 2020 from $246.0 million in 2019.

Sales increased $40.1 million, or 2.8%, to $1,456.0 million, as compared to $1,415.8 million in the prior year.

The increase in sales was primarily due to increased demand and shipments in the Semiconductor Equipment and Industrial and Medical markets, offset by lower sales from the Data Center Computing market and the Telecom and Networking market.

In addition, the first half of 2020 was negatively impacted by factory shutdowns related to COVID-19.

Revenues in 2021 were negatively impacted across all of our markets by supply chain shortages for certain IC’s and other components, which limited our ability to ship to our total demand.

Sales in the Semiconductor Equipment market increased $98.3 million, or 16.1%, to $710.2 million, as compared to $611.9 million in the prior year.

The increase in sales during 2021 is primarily due to an overall increase in demand for semiconductor equipment used in deposition and etch applications, increasing power content in semiconductor manufacturing tools, and market share gains in several areas across our portfolio.

Sales to the Industrial and Medical market increased $27.5 million, or 8.8%, to $341.2 million, as compared to $313.6 million in the prior year.

Our customers in this market are primarily global and regional original equipment and device manufacturers.

Inorganic growth contributed $97.9 million in 2020, while organic sales in the Industrial and Medical market decreased $30.3 million, or 17.9%.

The increase in inorganic sales is primarily due to inclusion of full year results for Artesyn in 2020 compared to a partial year during 2019.

The decrease in organic sales was primarily due to slowing macroeconomic conditions, the impact of COVID-19 on global manufacturing, and lower demand in the consumer hard coating and flat panel display markets impacting our thin film deposition markets, partially offset by growth in medical and other embedded power products.

Sales in the Data Center Computing market were $322.5 million in 2020 and $91.4 million in 2019.

The increase in Data Center Computing market sales is primarily due to inclusion of full year results for Artesyn in 2020 compared to a partial year during 2019 and revenue increases driven by growth in hyperscale customers and market share gains.

Sales in the Telecom and Networking market were $167.8 million in 2020 and $48.5 million in 2019.

The increase in telecom and networking sales is due to the addition of new product verticals through inorganic growth.

Since early 2019, demand for telecom and networking equipment has been impacted by reduced investment in current generation networks given geopolitical issues, consolidation of network providers, and slowing global growth.

Demand in the Telecom and Networking market started to recover in the second half of 2020, and over time 5G infrastructure investments and upgrades to enterprise networks are expected to drive growth in this market.

Sales to Applied Materials, Inc.

and Lam Research Corp., our two largest customers, increased $137.1 million to $390.1 million, and 27.5% of sales, in 2020 from $253.0 million, and 32.1% of sales in 2019.

Our sales to Applied Materials, Inc.

and Lam Research Corp.

included sales in the Semiconductor Equipment market, as well as sales in the Industrial and Medical market for equipment used in flat panel displays.

Our backlog was $290.7 million on December 31, 2020 as compared to $258.9 million on December 31, 2019.

Gross profit increased $226.2 million to $541.9 million, or 38.3%, in 2020 as compared to $315.7 million, or 40.0%, in 2019.

The decrease in gross profit as a percent of revenue is largely related to the mix of embedded power products acquired from Artesyn, which carry a lower gross margin, offset partially by the impact of increased volume from our organic product mix, improvements in material cost, and synergies from the combined company.

Gross profit in 2020 includes $160.8 million from our acquisitions of Artesyn.

Gross profit in 2019 includes $44.8 million associated with our acquisition of Artesyn.

The increase in sales year to date was primarily due to improving macroeconomic conditions and the continued recovery from the COVID-19 pandemic driving stronger demand.

Sales in the Data Center Computing market decreased $51.6 million, or 16.0%, to $270.9 million, as compared to $322.5 million in the prior year.

The decrease in Data Center Computing market sales is due in part to digestion of equipment at key accounts following strong revenue last year and supply constraints, which limited our ability to ship sufficiently to meet customer demand.

Sales in the Telecom and Networking market decreased $34.1 million, or 20.3%, as compared to $167.8 million in the prior year.

The decrease in sales was due to in part to our decision to optimize our product portfolio towards higher margin applications and production limitations due to supply constraints.

Over time, we expect that 5G infrastructure investments and upgrades to enterprise networks will drive growth in this market.

Our acquisitions of TEGAM and Versatile Power contributed $12.1 million to 2021 sales.

Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data"

The following table summarizes our backlog (in thousands):

Gross profit decreased $9.5 million to $532.3 million, or 36.6% of revenue, as compared to $541.9 million, or 38.3%, in the prior year.

The decrease in gross profit as a percent of revenue is largely related to higher material and freight costs.

Additional drivers of our decrease in gross profit include productivity inefficiencies resulting from supply constraints, COVID-19 capacity restrictions, and the transition of our Shenzhen, PRC manufacturing to Penang, Malaysia.

These decrease drivers were partly offset by increased volume and favorable product mix.

OPERATING EXPENSE

Research and Development

We perform research and development ("R&D") of products to develop new or emerging applications, technological advances to provide higher performance, lower cost, or other attributes that we may expect to advance our customers’ products.

We perform R&D to develop new or emerging applications, technological advances to provide higher performance, or significant enhancements.

We believe that continued development of technological applications, as well as enhancements to existing products and related software to support customer requirements, are critical for us to compete in the markets we serve.

Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products, and we expect these investments to continue.

R&D expenses in 2020 increased $42.5 million to $144.0 million, from $101.5 million in 2019, and decreased as a percentage of total revenue to 10.2% in 2020 from 12.9% in 2019.

R&D expenses in 2020 include $47.2 million from our acquisition of Artesyn.

R&D expenses in 2019 include $14.2 million from our acquisition of Artesyn.

R&D excluding the acquisition of Artesyn increased $9.7 million primarily due to increased payroll, consulting and material and supplies costs as we invested in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs .

R&D expenses increased $17.9 million to $161.8 million, as compared to $144.0 million in the prior year.

The increase in research and development expense is related to increased headcount and associated costs, outside technical services, and engineering materials as we invested in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs.

Our recent acquisitions of Versatile Power and TEGAM resulted in a combined increase of $2.5 million to R&D expenses.

Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data"

for additional details.

Selling, General and Administrative

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Our general and administrative expenses support our worldwide corporate, legal, tax, financial, governance, administrative, information systems, and human resource functions in addition to our general management, including acquisition related activities.

Selling, general and administrative ("SG&A") expenses in 2020 increased $46.0 million to $188.6 million from $142.6 million in 2019 and decreased as a percentage of total revenue to 13.3% in 2020 from 18.1% in 2019.

SG&A expenses include $57.0 million from our acquisition of Artesyn.

SG&A expenses in 2019 include $19.3 million from our acquisition of Artesyn.

Organic SG&A expenses increased by $8.3 million primarily due to increased incentive and stock-based compensation, offset partially by decrease in reserve for credit losses related to prior year credit exposure in the PRC as a result of deferred programs due in part to COVID-19, and lower headcount, professional services, and synergies related to the Artesyn integration.

Selling, general and administrative ("SG&A") expenses increased $3.4 million to $192.0 million, as compared to $188.6 million in the prior year.

The increase in SG&A is principally related to acquisition related activity partially offset by a reduction in variable compensation.

Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data"

for additional details.

Amortization of Intangibles

Amortization expense in 2020 increased $8.0 million to $20.1 million from $12.2 million in 2019.

The increase in 2020 is primarily driven by incremental amortization of intangible assets for a full year related to our acquisition of Artesyn.

Amortization expense increased $1.9 million to $22.1 million, as compared to $20.1 million in the prior year.

The increase in 2021 was primarily driven by incremental amortization of newly acquired intangible assets.

For additional information, see Note 13.

Intangible Assets in Part II, Item 8 "Financial Statements and Supplementary Data."

Restructuring

Restructuring charges relate to previously announced management plans to optimize our manufacturing footprint to lower cost regions, improvements in operating efficiencies, and synergies related to acquisitions.

For the year ended December 31, 2020, we incurred $13.2 million in restructuring charges which relate to severance costs for the transition and exit of our facility in Shenzhen, PRC and actions associated with Artesyn synergies.

Refer to Note 14.

Restructuring Costs in Item 8.

Financial Statements and Supplementary Data.

For additional information, see Note 14.

Restructuring Costs in Part II, Item 8 "Financial Statements and Supplementary Data."

Other Income (Expense), net

Other income (expense), net consists primarily of interest income and expense, foreign exchange gains and losses, gains and losses on sales of fixed assets, and other miscellaneous items.

Other income (expense), net was ($17.9) million in 2020, as compared to $12.8 million in 2019.

In May 2019 we sold our central solar inverter repair and service operation and recorded a one-time gain of $14.8 million.

Other income (expense) excluding the effect of the sale of the central inverter service and repair business was ($2.0) million in 2019.

The increase in other income (expense) is primarily due to foreign exchange losses as our exposure to foreign currencies increased with the Artesyn acquisition and higher interest expense related to a full year of interest in 2020 compared to approximately four months interest in the second half of 2019 related to the debt issued in connection with the acquisition of Artesyn.

Other income (expense), net was ($3.0) million in 2021, as compared to ($17.9) million in the prior year.

The decrease between periods is primarily due to decreased interest expense related to our term note due to lower interest rates, as well as more favorable impacts from foreign exchange rate changes and gains on certain acquisition related reserves.

Provision for Income Taxes

In 2020, we recorded income tax expense for our continuing operations of $23.0 million or an effective tax rate of 14.5%.

Income tax expense in 2019 was $10.7 million or an effective tax rate of 15.9%.

The 2020 effective tax rate differs from the federal statutory rate of 21% primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, offset by net U.S.

tax on foreign operations and withholding taxes.

Discontinued Operations

In December 2015, we completed the wind down of engineering, manufacturing, and sales of our solar inverter product line (the "inverter business").

Accordingly, the results of our inverter business have been reflected as "Income (loss) from discontinued operations, net of income taxes"

on our Consolidated Statements of Operations for all periods presented herein.

The effect of our sales of the remaining extended inverter warranties to our customers continues to be reflected in deferred revenue in our Consolidated Balance Sheets.

Deferred revenue for extended inverter warranties and the associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing operations in future periods in our Consolidated Statements of Operations, as the deferred revenue is earned, and the associated services are rendered.

Extended warranties related to the inverter product line are no longer offered.

In May 2019, we divested our grid-tied central solar inverter repair and service operation.

In conjunction with the divesture, the initial product warranty for the previously sold grid-tied central solar inverters was transferred to the buyer.

Accordingly, a gain of $8.6 million net of tax expense of $2.4 million was recognized in Other income (expense), net and Provision (benefit) for income taxes, respectively, in our discontinued operations for the year December 31, 2019.

Operating income from discontinued operations for the year ended December 31, 2020 and 2019, also includes the impacts of changes in our estimated product warranty liability, the recovery of accounts receivable and foreign exchange gain or (losses).

Income (loss) from discontinued operations, net of income taxes (in thousands):

(in thousands)

Years Ended December 31,

Cost of sales

Total operating expense

Operating income (loss) from discontinued operations

Other income (expense)

Income (loss) from discontinued operations before income taxes

Provision (benefit) for income taxes

Income (loss) from discontinued operations, net of income taxes

Income from continuing operations, before income taxes

Provision for income taxes

Effective tax rate

Our effective tax rates differ from the U.S.

federal statutory rate of 21% for the years ended December 31, 2021, 2020, and 2019, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as reductions in uncertain tax positions and tax credits, offset by net U.S.

tax on foreign operations, withholding taxes, and audit settlements.

The effective tax rate for 2021 was lower than the same period in 2020, primarily due to the mix of discrete events between the two periods.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income.

We carefully monitor these factors and adjust our effective income tax rate accordingly.

Non-GAAP Results

Management uses non-GAAP operating income and non-GAAP EPS to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations.

Management uses non-GAAP operating income and non-GAAP earnings per share ("EPS") to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations.

We use these non-GAAP measures to assess performance against business objectives, make business decisions, including developing budgets and forecasting future periods.

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GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies.

However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management.

we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management.

The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S.

1 unchanged sentence

In addition, they exclude discontinued operations and other non-recurring items such as acquisition-related costs and restructuring expenses, as they are not indicative of future performance.

The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments and effect of adoption of the Tax Act.

Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items (in thousands)

Reconciliation of non-GAAP measure - operating expenses and operating income from

Years Ended December 31,

continuing operations, excluding certain items (in thousands)

Gross profit from continuing operations, as reported

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Non-GAAP operating margin

Reconciliation of Non-GAAP measure – income from continuing operations, excluding certain items (in thousands)

Years Ended December 31,

Reconciliation of non-GAAP measure - income from continuing operations,

Year Ended December 31,

excluding certain items (in thousands, except per share amounts)

Income from continuing operations, less non-controlling interest, net of income taxes

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Unrealized foreign currency (gain) loss

Acquisition-related and other costs included in Other income (expense), net

Central inverter services business sale

Acquisition-related costs and other included in other income (expense), net

Tax effect of non-GAAP adjustments

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In recent years, inflation has not had a significant impact on our operations.

However, we continuously monitor operating price increases, particularly in connection with the supply of component parts used in our manufacturing process.

However, more recently we are experiencing price increases in select components driven by higher global demand, supply chain disruptions, and increased freight costs.

We continuously monitor operating price increases, particularly in connection with the supply of component parts used in our manufacturing process.

To the extent permitted by competition, we pass increased costs on to our customers by increasing sales prices over time.

Sales price increases, however, were not significant in any of the years presented herein.

From time to time, we may also reduce prices to customers based on reductions in the cost structure of our products from cost improvement initiatives and decreases in component part prices .

Liquidity and Capital Resources

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Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control.

Our primary sources of liquidity are our available cash, investments, and cash generated from current operations.

Our primary sources of liquidity are our available cash, investments, cash generated from current operations, and available borrowing capacity under the Revolving Facility (defined below).

On December 31, 2021, we had $546.7 million in cash, cash equivalents, and marketable securities.

We believe that our current cash levels and our cash flows from future operations will be adequate to meet anticipated working capital needs, anticipated levels of capital expenditures, and contractual obligations for the next twelve months.

On December 31, 2020, we had $179.6 million in cash, cash equivalents, and marketable securities held by foreign subsidiaries.

As a result of the recent Tax Act, we have provided for U.S.

tax on certain foreign unremitted earnings.

Accordingly, cash related to these unremitted earnings could be repatriated to the U.S.

with minimal additional taxes.

Additional taxes would include foreign withholding taxes and U.S.

state income taxes.

During 2018 and 2019, the Company changed its policy regarding indefinite investment of unremitted earnings and recognized the tax expense associated with this change in election.

Consistent with the Company’s capital deployment initiatives, the Company intends to utilize foreign cash to expand our operations through internal growth and strategic acquisitions, provide for service of existing debt, and opportunistically return cash to stockholders.

We believe the above sources of liquidity will be adequate to meet anticipated working capital needs, anticipated levels of capital expenditures, contractual obligations, debt repayment, share repurchase programs, and dividends for the next twelve months and on a long-term basis.

We may, however, depending upon the number or size of additional acquisitions, seek additional financing from time to time.

Credit Facility

In connection with the acquisition of Artesyn in 2019, the Company entered into a credit agreement (“Credit Agreement") that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $150.0 million senior unsecured revolving facility ("Revolving Facility").

In September 2019, in connection with the Artesyn Acquisition Agreement, we entered into a credit agreement ("Credit Agreement") that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $150.0 million senior unsecured revolving facility (the "Revolving Facility"

and together with the Term Loan Facility, the "Credit Facility").

In April 2020, we executed interest rate swap contracts with independent financial institutions to partially reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under our existing Credit Agreement dated September 10, 2019, as amended).

The interest rate swap contracts fixed a portion of the outstanding principal balance on our term loan to a total interest rate of 1.271%.

Derivative Financial Instruments in Part II, Item 8 "Financial Statements and Supplemental Data"

for additional information.

In September 2021, we amended the Credit Agreement whereby we borrowed an additional $85.0 million, which increased the aggregate amount outstanding under the Term Loan Facility to $400.0 million.

In addition, we increased the Revolving Facility capacity by $50.0 million to $200.0 million.

Both the Term Loan Facility and Revolving Facility mature on September 9, 2026.

On December 31, 2021, we had $200.0 million in available funding under the Revolving Facility.

Credit Facility in Part II, Item 8 "Financial Statements and Supplemental Data"

The Term Loan Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in September 2026.

For more information on the Credit Facility, see Note 21.

Credit Facility and Note 8.

Derivative Financial Instruments in Part II, Item 8 "Financial Statements and Supplemental Data"

for additional information.

We have not declared or paid any cash dividends on our capital stock in our history as a public company.

However, on December 15, 2020, our Board approved the initiation of a cash dividend program under which we intend to pay a regular quarterly dividend of $0.10 per share, starting in the first quarter of 2021.

On February 1, 2021, the Board declared a quarterly dividend of $0.10 per share payable to shareholders of record as of February 22, 2021.

Future dividend payments are subject to approval by the Board.

In December 2020, the Board approved a dividend program under which we began paying and intend to continue to pay a quarterly cash dividend of $0.10 per share of capital stock.

In March 2021, we paid the first quarterly cash dividend since our inception as a public company.

During 2021, we paid cash dividends totaling $15.4 million.

Future dividend payments are subject to the Board's future discretion and approval .

Share Repurchase

On December 18, 2019, the Board authorized to remove the expiration date to the Company’s common stock share repurchase program and increase the authorized amount by $ 25.1 million, which increased the.

authorization to repurchase shares up to a total of $50.0 million.

As of December 31, 2020, a total of $38.4 million remained available for future share repurchases.

During the year ended December 31, 2020, we repurchased 244 thousand shares for $11.6 million at an average price of $47.75 per share.

There were no share repurchases during the year ended December 31, 2019.

A summary of our cash from operating, investing, and financing activities is as follows (in thousands):

To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase agreements.

The following table summarizes these repurchases:

Years Ended December 31,

(in thousands, except per share amounts)

Amount paid to repurchase shares

Number of shares repurchased

Average repurchase price per share

Remaining authorized by Board of Directors for future repurchases as of period end

On July 29, 2021, the Board approved an increase to the share repurchase program, which authorized the Company to repurchase up to $200 million in shares of our common stock with no time limitation.

A summary of our cash from operating, investing, and financing activities was as follows (in thousands):

Years Ended December 31,

Net cash from operating activities from continuing operations

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Net cash from financing activities from continuing operations

Effect of currency translation on cash

Increase (decrease) in cash and cash equivalents

Effect of currency translation on cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

1 unchanged sentence

Net Cash From Operating Activities

Net cash from operating activities in 2020 was $201.2 million, an increase of $152.8 million, or 315.7% compared to $48.4 million in 2019.

The increase in net cash from operating activities was primarily due to overall increases in sales and net income.

Net cash from operating activities in the fourth quarter and full year of 2019 was impacted by net payments for acquisition related activities and assumed liabilities of approximately ($27.0) million, partially offset by receipt of approximately $10.0 million in cash related to the transfer of inventory and other current assets to Smart Global Holdings, Inc.

in connection with the completion of the pre-acquisition carve-out of Artesyn’s embedded computing business.

Net cash from operating activities was $140.9 million, a decrease of $61.3 million, compared to $202.2 million in the prior year.

The decrease in net cash flows from operating activities as compared to 2020 was due to an unfavorable increase in net operating assets driven primarily by our increased investment in inventory as we attempted to mitigate supply chain constraints.

This was partially offset by an increase in accounts payable.

Net Cash From Investing Activities

Net cash from investing activities in 2020 was ($42.8) million, compared to ($393.8) million in 2019.

Net cash from investing activities in 2020 includes ($36.5) million in purchases of property and equipment as we invested in our manufacturing footprint and capacity, and ($5.5) million related to business acquisitions.

Net cash from investing activities in 2019 includes ($366.1) million associated with the acquisition of Artesyn.

Net cash from investing activities in 2021 was ($47.3) million, driven by the following:

● ($31.9) million in purchases of property and equipment as we invested in our manufacturing footprint and capacity;

● ($21.5) million for business combinations;

● $6.1 million related to receipts on notes receivable and proceeds from sale of assets.

Net cash from investing activities in 2020 was ($42.8) million, and primarily related to investment in facilities and capacity.

Net Cash From Financing Activities

Net cash from financing activities in 2020 was ($29.6) million, which consists primarily of ($17.5) million in principal repayments on our Term Loan Facility and ($11.6) million in stock repurchases.

The net cash from financing activities in 2019 was $338.8 million which included the effect of cash proceeds of $350.0 million, net of financing costs of ($2.5) million, from our Term Loan Facility, partially offset by ($8.8) million in principal repayments.

Net cash from financing activities in 2021 was ($25.4) million and included:

● $83.7 million in proceeds from borrowings, net of debt-issuance costs paid;

● ($15.4) million for dividend payments;

● ($13.8) million for repayment of long-term debt;

● ($78.1) million related to repurchases of our common stock;

● $ (1.8) million in net payments related to stock-based award activities.

The net cash from financing activities in 2020 was ($29.6) million and included:

● ($17.5) million for repayment of long-term debt;

● ($11.6) million related to repurchases of our common stock;

and ($0.5) million related to stock-based award activities.

Off-Balance Sheet Arrangements

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Contractual Obligations

The following table sets forth our future payments due under contractual obligations as of December 31, 2020 (in thousands):

Debt obligations (1)

Interest payments associated with debt obligations (1)

Operating lease obligations (2)

Purchase obligations (3)

Income tax obligations (4)

Pension funding commitment (5)

(1) Our debt obligations consist of principal and interest repayments due on our Credit Facility based on current interest rates.

(2) Amounts represent the minimum contractual cash commitments, including the effects of fixed rental escalation clauses and deferred rent, exclusive of certain contingent rents that are not determinable for future periods.

(3) Our purchase obligations consist of purchase commitments with various manufacturing suppliers to ensure the availability of components.

(4) Income tax obligations are a result of the Tax Act and include a transition tax on unremitted foreign earnings and profits, of which we have elected to pay the estimated amount over an eight-year period.

(5) Our pension funding commitments represent the amounts that we are required to pay to fund our pension plan obligations.

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future.

Information regarding our obligations relating to income taxes, lease obligations, pension liabilities, and debt are provided in Note 5.

Income Taxes , Note 16.

Leases , Note 17.

Pension Liability and Note 21.

Credit Facility , respectively, in Part II, Item 8 "Financial Statements and Supplementary Data."

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis