What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 124 added, 95 removed, 229 unchanged (49% of the section changed)

1 unchanged sentence

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the “Note Regarding Forward-Looking Statements” that appears earlier in this Annual Report on Form 10-K.

Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under “Item 1A:

In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the “Note Regarding Forward-Looking Statements” that appears earlier in this Annual Report on Form 10-K.

Our actual results could differ materially from those

anticipated by these forward-looking statements as a result of many factors, including those discussed under “Item 1A:

Risk Factors” and elsewhere in this Annual Report on Form 10-K.

1 unchanged sentence

We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions.

Our products provide electrical and physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production.

Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge.

Our products provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production.

Customers use our products and services to accelerate profitability by optimizing device performance, reducing scrap, and improving yields.

We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment.

1 unchanged sentence

We generated net income of $82.4 million in fiscal 2023 compared to net income of $50.7 million in fiscal 2022 and net income of $83.9 million in fiscal 2021.

On November 1, 2023, we completed the sale of our FRT Metrology (“FRT”) business.

As a result of the transaction, we received aggregate net consideration of $99.8 million and the transaction resulted in a gain of $73.0 million.

The increase in net income in fiscal 2023 compared to fiscal 2022 was primarily due to the $73.0 million gain recognized from the sale of our FRT business.

Apart from this gain, the semiconductor industry weakness that began in the third quarter of fiscal 2022 continued into fiscal 2023, impacting our Probe Cards segment with a $93.5 million reduction in revenue and the associated decline in gross margins as a result of the lower operating levels.

Despite the overall semiconductor industry weakness that impacted the Probe Cards segment, the Systems segment continued to show strength with revenue increasing $8.7 million, or about 5.6% in fiscal 2022, since customer spending for products in this segment is driven by research and development of next-generation innovation.

The decrease in net income in fiscal 2022 compared to fiscal 2021 was primarily due to decreased revenues, lower margins driven primarily by a less favorable product mix and lower factory utilization, and increased restructuring charges.

This was partially offset by a reduction in the amortization of intangibles and in the annual effective tax rate.

The first half of fiscal 2022 was strong, realizing net income of $60.1 million with $401.1 million in revenue at 47.0% gross margins.

The first half of fiscal 2022 was strong, producing net income of $60.1 million with $401.1 million in revenue at 47.0% gross margins.

In the second half of fiscal 2022, revenues declined, mainly within the Probe Cards segment, and mix became less favorable, resulting in a net loss of $9.4 million with $346.9 million in revenue at 31.0% gross margins.

Despite the decline in total revenues in the second half of fiscal 2022, the Systems segment recognized record revenue levels in the third and fourth quarters of fiscal 2022.

The increase in net income in fiscal 2021 compared to fiscal 2020 was primarily due to increased revenue in both of our reportable segments, partially offset by slightly lower margins driven primarily by a less favorable product mix and a higher effective tax rate due to significant one-time tax benefits during fiscal 2020 that did not recur.

W e operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December.

The fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020 included 53 weeks (with 14 weeks in the fourth quarter), 52 weeks and 52 weeks, respectively.

Recent Development

On February 7, 2024, we signed an agreement with Grand Junction Semiconductor Pte.

to divest our China operations and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”).

The China Transaction is expected to close in the first half of 2024.

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December.

The fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021 included 52 weeks, 53 weeks (with 14 weeks in the fourth quarter) and 52 weeks, respectively.

Use of Estimates

6 unchanged sentences

Our accounting policies are fundamental to understanding our financial condition and results of operations reported in our financial statements and related disclosures.

We have identified the following accounting policies as being critical because they require our management to make particularly difficult, subjective and/or complex judgments about the effect of matters that are

inherently uncertain.

Our management has discussed the development, selection, application and disclosure of these critical accounting policies with the Audit Committee of our Board of Directors.

29 unchanged sentences

We generally do not grant return privileges, except for defective products during the warranty period.

Sales incentives and other programs that we may make available to our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.

Sales incentives and other programs that we may make available to

our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on its relative stand-alone selling price.

14 unchanged sentences

Total operating expenses 37.6 32.2 29.2

Gain on sale of business 11.0 — —

Operating income 12.4 7.4 12.7

1 unchanged sentence

Interest expense (0.1) (0.1) (0.1)

Other income, net 0.2 0.1 0.1

Other income (expense), net — 0.2 0.1

Income before income taxes 13.4 7.8 12.8

5 unchanged sentences

Probe Cards $ 497,903 $ 591,422 $ 633,281

Systems 156,515 136,393 111,877

165,199 156,515 136,393

Total $ 663,102 $ 747,937 $ 769,674

(1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT business.

As a result, Metrology Systems revenue will not recur in future periods.

The year ended December 30, 2023 includes Metrology Systems revenue of $21.2 million.

The years ended December 31, 2022 and December 25, 2021 include Metrology Systems revenue of $29.0 million and $23.7 million, respectively.

Revenues by Market

7 unchanged sentences

Systems Market:

Systems 156,515 21.0 136,393 17.7 20,122 14.8

165,199 24.9 156,515 21.0 8,684 5.5

Total revenues $ 663,102 100.0 % $ 747,937 100.0 % $ (84,835) (11.3) %

9 unchanged sentences

Total revenues $ 747,937 100.0 % $ 769,674 100.0 % $ (21,737) (2.8) %

Foundry & Logic — The decrease in Foundry & Logic product revenue in fiscal 2022 compared to fiscal 2021 was driven by the weakening demand from the slowdown in the semiconductor industry that began in the third quarter of fiscal 2022 causing decreased unit sales.

DRAM — The decrease in DRAM product revenues in fiscal 2022 compared to fiscal 2021 was driven by decreased design wins and customer demand, a result of overall DRAM market weakness in fiscal 2022.

Flash — The increase in Flash product revenue in fiscal 2022 compared to fiscal 2021 was driven by increased demand from large multi-national customers.

Systems — The increase in Systems product revenue in fiscal 2022 compared to fiscal 2021 was driven by increased sales of probe stations, metrology systems, and cryogenic systems.

(1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT business.

As a result, Metrology Systems revenue will not recur in future periods.

The year ended December 30, 2023 includes Metrology Systems revenue of $21.2 million.

The years ended December 31, 2022 and December 25, 2021 include Metrology Systems revenue of $29.0 million million and $23.7 million, respectively.

Foundry & Logic — The decrease in Foundry & Logic product revenue in fiscal 2023 compared to fiscal 2022 was driven by the weakening demand in the semiconductor industry, especially in the personal computer and mobile sectors, that began in the third quarter of fiscal 2022 and continued into fiscal 2023, resulting in decreased unit sales across several of our major customers for both us and our competitors.

DRAM — The decrease in DRAM product revenues in fiscal 2023 compared to fiscal 2022 was driven by lower customer production activity and demand for our products in light of worldwide excess supply of DRAM chips, along with weaker demand in the overall semiconductor industry, as discussed above.

These declines were partially offset due to increased demand for HBM chips utilized in generative artificial intelligence applications.

Flash — The decrease in Flash product revenue in fiscal 2023 compared to fiscal 2022 was driven by lower customer production activity and demand for our products in light of worldwide excess supply, a result of weaker demand in the overall semiconductor industry, as discussed above, and Flash market weakness.

Systems — The increase in Systems product revenue in fiscal 2023 compared to fiscal 2022 was driven by increased sales of probe stations and thermal systems, partially offset by decreased sales of our metrology systems.

Revenues by Geographic Region

3 unchanged sentences

(In thousands, except percentages)

Taiwan $ 169,789 22.7 % $ 185,925 24.2 % $ 150,837 21.7 %

China 160,668 21.5 163,069 21.2 174,915 25.2

United States $ 171,781 25.9 % $ 127,730 17.1 % $ 122,147 15.9 %

Taiwan 147,842 22.3 169,789 22.7 185,925 24.2

South Korea 117,747 17.8 111,419 14.9 123,463 16.0

Malaysia 50,067 6.7 49,485 6.4 11,382 1.6

Singapore 39,388 5.3 36,197 4.7 16,707 2.4

China 91,736 13.8 160,668 21.5 163,069 21.2

Europe 38,858 5.9 39,246 5.2 43,705 5.7

Japan 36,791 5.5 38,419 5.1 36,504 4.7

Malaysia 26,601 4.0 50,067 6.7 49,485 6.4

Singapore 18,335 2.8 39,388 5.3 36,197 4.7

Rest of World 13,411 2.0 11,211 1.5 9,179 1.2

3 unchanged sentences

subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than U.S.

Changes in revenue by geographic region in fiscal 2022 compared to fiscal 2021 were primarily attributable to changes in customer demand and product sales mix.

In October 2022, the United States government imposed new controls, including expanded export license requirements that significantly impacted trade with China for advanced U.S.

semiconductor technology sold in China.

Although the percentage of revenue to China was relatively stable when comparing fiscal 2022 to fiscal 2021, these restrictions resulted in a decline in expected revenues from shipments to China.

Within the Probe Cards segment and Systems segment, respectively, approximately $7.8 million and $1.9 million of expected revenues in the fourth quarter of fiscal 2022 were not recognized as a result of these sanctions, and primarily related to China domestic customers.

Although the current impact to our large multi-national customers with operations in China has been minimal, it remains to be seen whether these customers will be able to

sustain their licenses going forward.

We do not anticipate these expanded export license requirements to be relaxed, and expect these regulatory conditions to continue to negatively affect our revenues similarly going forward.

Changes in revenue by geographic region in fiscal 2023 compared to fiscal 2022 were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia, were driven principally by a single large U.S.-based company with operations in these regions that shifted shipments from these regions to the United States.

We expect the trade restrictions to continue to drive multinational customers to concentrate operations in regions other than China, impacting our geographical mix.

The decrease in revenues for China was also impacted by lowered demand from a large Chinese DRAM integrated device manufacturer and the impact of expanded export license requirements imposed by the U.S.

government beginning the fourth quarter of fiscal 2022 for exporting advanced U.S.

semiconductor technology to China.

These uncertain trade barriers affecting exports and imports between the United States and China contributed to the Company's decision to proceed with the China Transaction.

Cost of Revenues and Gross Margins

14 unchanged sentences

Gross margin 44.2 % 48.3 % 41.9 %

Probe Cards — Gross profit and gross margin in the Probe Cards segment decreased in fiscal 2022 compared to fiscal 2021, primarily due to lower revenues, greater inventory excess and obsolescence reserves, higher net manufacturing spending driven by higher labor and overhead costs, and lower standard margins related to a less favorable product mix.

Systems — Gross profit and gross margin in the Systems segment increased in fiscal 2022 compared to fiscal 2021, primarily as a result of higher revenues and a more favorable product mix, largely related to increased sales of 300mm and 200mm probe stations, and metrology systems.

Corporate and Other — Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory, fixed asset, and deferred revenue fair value adjustments due to acquisitions, share-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

The reduction in Corporate and Other in fiscal 2022 compared to fiscal 2021, is primarily due to a reduction in the amortization of intangibles from significant intangibles becoming fully amortized and a reduction in stock-based compensation expense, partially offset by increased restructuring charges arising from a change in estimate of excess and obsolete inventories related to our third quarter of fiscal 2021 plan and the execution of a headcount reduction in the fourth quarter of fiscal 2022 targeted at aligning FormFactor's cost structure with reduced demand levels within the Probe Cards segment by streamlining and improving the efficiency and business effectiveness of our operations.

Probe Cards — Gross profit and gross margin in the Probe Cards segment decreased in fiscal 2023 compared to fiscal 2022, primarily due to lower revenues and unfavorable absorption of costs on these lower production volumes, partially offset by lower inventory excess and obsolescence reserves.

Systems — Gross profit and gross margin in the Systems segment remained relatively flat in fiscal 2023 compared to fiscal 2022, despite the increase in revenue primarily as a result of less favorable product mix.

Corporate and Other — Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory, fixed asset, and deferred revenue fair value adjustments due to acquisitions, stock-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

The reduction in Corporate and Other in fiscal 2023, compared to fiscal 2022, is primarily due to a reduction in restructuring charges, partially offset by the increase in stock-based compensation expense.

In fiscal 2022, there was $11.8 million in restructuring charges arising from a change in estimate of excess and obsolete inventories and a headcount reduction targeted at aligning our cost structure with reduced demand levels within the Probe Cards segment.

Overall — Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.

For fiscal 2022 compared to fiscal 2021, gross profit and gross margins have decreased on lower revenue levels, a less favorable Probe Cards segment product mix, increased labor, overhead, inventory excess and obsolescence reserves, and restructuring charges, offset by less amortization of intangible assets.

For fiscal 2023 compared to fiscal 2022, gross profit and gross margins have decreased on lower revenue levels and unfavorable absorption of costs on lower production volumes, partially offset by a reduction of restructuring charges.

Stock-based compensation expense included in cost of revenues for fiscal 2023 and 2022 was $6.9 million and $3.8 million, respectively.

The increase of stock-based compensation in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.

Research and Development

9 unchanged sentences

% of revenues 14.6 % 13.1 %

The increase in research and development expenses in fiscal 2022 compared to fiscal 2021 was primarily driven by an increase in headcount which is to support our continued investment in technology leadership.

Increased project material costs, general operational costs, annual salary adjustments, restructuring charges, and stock-based compensation also contributed to the increase.

These increases were partially offset by lower performance-based compensation.

The increase in research and development expense in fiscal 2023 compared to fiscal 2022 was primarily driven by an increase in headcount designed to support our continued investment in technology leadership.

Increased stock-based compensation, depreciation, and general operational costs, also contributed to the increase.

These increases were partially offset by lower performance-based compensation and restructuring charges.

The components of this increase were as follows (in thousands):

Fiscal 2023 compared to Fiscal 2022

General operational costs $ 3,513

Project material costs 3,252

Employee compensation costs $ 3,861

Stock-based compensation 2,435

Restructuring charges 629

Depreciation 892

Employee compensation costs 91

General operational costs 562

Restructuring charges (1,207)

Stock-based compensation expense included within research and development in fiscal 2023 and 2022 was $10.7 million and $8.2 million, respectively.

The increase of stock-based compensation expense in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.

Selling, General and Administrative

9 unchanged sentences

% of revenues 17.6 % 16.1 %

The increase in selling, general and administrative expenses in fiscal 2022 compared to fiscal 2021 was primarily driven by higher stock-based compensation, increased travel related costs as restrictions related to COVID-19 relaxed, restructuring charges, and annual salary increases, partially offset by lower performance-based compensation.

The increase in selling, general and administrative expense in fiscal 2023 compared to fiscal 2022 was primarily driven by increased general operating expenses, increased costs from the sale of our FRT business, higher stock-based compensation expense, and higher consulting costs, partially offset by lower employee compensation from decreased headcount and lower performance-based compensation, lower amortization of intangibles, and lower restructuring charges.

The components of this overall increase were as follows (in thousands):

Fiscal 2023 compared to Fiscal 2022

Stock-based compensation $ 2,712

General operating expenses $ 2,428

Travel related costs 2,572

Sale of business 2,407

Stock-based compensation 1,797

Consulting fees 1,339

Restructuring charges (1,274)

Amortization of intangibles (2,396)

Employee compensation (3,164)

Consulting fees (576)

Stock-based compensation expense included within selling, general and administrative in fiscal 2023 and 2022 was $21.1 million and $19.3 million, respectively.

The increase of stock-based compensation in fiscal 2022 compared to fiscal 2021 was primarily driven by an increase in total awards outstanding, which has increased in recent years consistent with an overall increase in headcount.

The increase of stock-based compensation in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.

Gain on sale of business

Gain on sale of business represents the gain on the sale of our FRT business of $73.0 million during the fourth quarter of fiscal 2023.

See Note 5, Divestiture , for additional information.

Interest Income and Interest Expense

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities.

The increase in interest income in fiscal 2022 compared to fiscal 2021 was attributable to an increase in investment yields due to the higher interest rate environment.

Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges.

The decrease in interest expense in fiscal 2022 compared to fiscal 2021 was primarily due to lower outstanding debt balances offset by increased average rates on the outstanding debt.

Other income, net

Other income, net primarily includes the effects of foreign currency impact and various other gains and losses.

The increase in other income, net, in fiscal 2022 compared to fiscal 2021 was attributable to a net increase in foreign exchange gains.

The increase in interest income in fiscal 2023 compared to fiscal 2022 was attributable to an increase in investment yields due to the higher interest rate environment as well as an increased average invested balance.

Interest expense primarily includes interest on our term loan, interest rate swap derivative contract, and term loan issuance costs amortization charges.

The decrease in interest expense in fiscal 2023 compared to fiscal 2022 was primarily due to lower outstanding debt balances.

Other income (expense), net

Other income (expense), net, includes the effects of foreign currency and various other gains and losses.

The decrease in Other income (expense), net, in fiscal 2023 compared to fiscal 2022 was primarily attributable to an other than temporary impairment on a debt receivable for $1.1 million and a decrease in foreign exchange gains.

Foreign exchange gains for fiscal 2023 were $0.6 million.

8 unchanged sentences

Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S.

federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction.

We have utilized our previous net operating loss carryforwards allowing us to benefit from the available FDII deduction, resulting in a decrease from the U.S.

statutory rate and, combined with higher R&D tax credits, a decrease from fiscal 2021 of our worldwide effective tax rate for the fiscal year ended December 31, 2022.

As of January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and experimental expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures attributable to domestic and foreign research over five and fifteen years, respectively.

federal, state or foreign tax laws, changes in stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction.

The decrease in our effective tax rate for the fiscal year ended December 30, 2023, when compared to the corresponding period in the prior year, was primarily driven by the sale of our FRT business and the related capital gain exclusion for German tax purposes.

This significant benefit was offset by other items impacting the effective tax rate at a different percentage amount than the prior year due to increased income before taxes in fiscal 2023.

The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “CHIPS Act”) was signed into law on August 9, 2022.

The CHIPS Act provides for various incentives and tax credits, among other items, including the Advanced Manufacturing Investment Credit (“AMIC”), which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022.

At least a portion of our future capital expenditures and research and development costs will qualify for this credit, which benefits us by allowing us to net the credit received against our costs.

The AMIC credit is accounted for outside of ASC 740 as a reduction to the depreciable basis of the assets used in operations and will not have an impact on our effective tax rate.

Beginning in 2022, the U.S.

Tax Cuts and Jobs Act of 2017 eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize such expenditures attributable to domestic and foreign research over five and fifteen years, respectively, pursuant to IRC Section 174.

While the capitalization requirement has a negative impact on our cash flows, there are offsetting benefits from the enactment of this provision that we have included in our estimated annual effective tax rate.

While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed.

An Advanced Manufacturing Investment credit becomes available in 2023 and is a 25% credit for qualified investments in an advanced manufacturing facility.

We expect to generate federal tax credits under this program that will both lower our effective

tax rate in the future and also help to offset the additional cash taxes arising from the change to capitalize research and experimental expenditures described earlier.

Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have a material adverse effect on our financial position, results of operations and/or cash flows.

Liquidity and Capital Resources

Capital Resources

Our working capital decreased to $324.9 million at December 31, 2022 compared to $375.3 million at December 25, 2021.

Cash and cash equivalents primarily consist of deposits held at banks, money market funds, commercial paper and U.S.

agency securities.

Our working capital increased to $442.7 million at December 30, 2023 compared to $324.9 million at December 31, 2022.

Cash and cash equivalents primarily consist of deposits held at banks, money market funds, and U.S.

Marketable securities primarily consist of corporate bonds, U.S.

3 unchanged sentences

Our cash, cash equivalents and marketable securities totaled approximately $328.3 million at December 30, 2023 compared to $238.1 million at December 31, 2022.

Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from:

Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund, through at least the next 12 months, our liquidity requirements including those arising from:

research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations.

11 unchanged sentences

Net cash provided by operating activities $ 64,602 $ 131,786 $ 139,364

Net cash used in investing activities (75,704) (124,741) (98,922)

Net cash provided by (used in) investing activities 29,049 (75,704) (124,741)

Net cash used in financing activities (22,711) (95,932) (47,199)

Operating Activities

Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities.

The $7.6 million decrease in cash provided by operating activities for fiscal 2022, as compared to fiscal 2021, was primarily related to decreased net income, partially offset by relatively less investment in working capital, due primarily to lower accounts receivable and higher accounts payable.

Net cash provided by operating activities in fiscal 2022 was primarily attributable to net income of $50.7 million and net non-cash expenses of $99.2 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories.

This was partially offset by an increase in net working capital of $18.2 million, primarily related to cash paid for inventories of $28.8 million, decrease in accrued liabilities of $8.0 million, and a reduction in operating lease liabilities of $8.0 million, partially offset by cash provided by a decrease in accounts receivable of $26.0 million.

Net cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities.

The $67.2 million decrease in cash provided by operating activities for fiscal 2023, as compared to fiscal 2022, was primarily related to decreased net income, after adjusting for the impact from the $73.0 million gain recognized on the sale of our FRT business, and an investment in working capital of $14.1 million, due primarily to higher accounts receivable and lower deferred revenue that were partially offset by an increase from a deferred grant of $18.0 million and lower inventories.

In January 2023, we received $18.0 million in cash from a California Competes Grant awarded from the California Governor’s Office of Business and Economic Development, subject to job creation and other commitments over a 5-year term.

See Note 2, Government Assistance, of Notes to Consolidated Financial Statements for additional information.

Net cash provided by operating activities in fiscal 2023 was primarily attributable to net income of $82.4 million and net non-cash items of $14.4 million, which include depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by the adjustment for the $73.0 million gain from the sale of our FRT business.

Net working capital resulted in an outflow of $32.2 million, primarily related to an increase in accounts receivable of $23.3 million, a decrease in deferred revenues of $10.2 million, an increase in inventories of $9.5 million, and a reduction in operating lease liabilities of $7.6 million, partially offset by an increase from a deferred grant of $18.0 million.

Investing Activities

Net cash used in investing activities in fiscal 2022 primarily related to $65.3 million of cash used in the acquisition of property, plant and equipment, $6.1 million used for the purchase of marketable securities, net of maturities, and $3.4 million used for the acquisition of a business.

Net cash provided by investing activities in fiscal 2023 primarily related to $101.8 million cash provided by the sale of our FRT business, partially offset by $56.0 million of cash used in the acquisition of property, plant and equipment and $16.7 million used for the purchase of marketable securities, net of maturities.

Financing Activities

Net cash used in financing activities in fiscal 2022 primarily related to $82.3 million used to purchase common stock under our stock repurchase program, $15.7 million used to pay tax withholdings for net share settlements of employee equity awards, and $8.4 million of principal payments made towards the repayment of our term loans, partially offset by $10.5 million of proceeds received from issuances of common stock under our stock incentive plans.

FRT Term Loan

On October 25, 2019, we entered into a euro denominated $23.4 million, three-year credit facility loan agreement (the “FRT Term Loan”) with HSBC Trinkaus & Burkhardt AG, Germany, to fund the acquisition of FRT GmbH in fiscal 2019.

The FRT Term Loan bore interest at a rate equal to the Euro Interbank Offered Rate (“EURIBOR”) plus 1.75 % per annum and was repaid in quarterly installments of approximately $2.0 million plus interest.

We made the final payment on the FRT Term Loan on October 25, 2022.

We are no longer subject to the terms of the FRT Term Loan.

Building Term Loan

Net cash used in financing activities in fiscal 2023 primarily related to $19.8 million used to purchase common stock under our stock repurchase program, $10.7 million used to pay tax withholdings for net share settlements of employee equity awards, and $1.0 million of principal payments made towards the repayment of our term loan, partially offset by $8.8 million of proceeds received from issuances of common stock under our stock incentive plans.

On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association (“Union Bank”).

The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California.

The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum.

On May 19, 2023, we amended the Building Term Loan, replacing the benchmark reference rate LIBOR with SOFR, with no change to the amount or timing of contractual cash flows.

The Building Term Loan bears interest at a rate equal to the applicable SOFR rate, plus 0.1148%, plus 1.75% per annum.

Interest payments are payable in monthly installments over a fifteen-year period.

The interest rate at December 31, 2022 was 5.87%.

The interest rate at December 30, 2023, before consideration of the interest rate swap, was 7.20%.

On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million.

As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates.

By entering into the agreement, we convert a floating rate interest at one-month LIBOR plus 1.75% into a fixed rate interest at 2.75%.

The interest rate swap included a 0% floor that was effective for one year from the date of the swap.

As of December 31, 2022, the notional amount of the loan that is subject to this interest rate swap is $15.5 million.

As future levels of LIBOR over the life of the loan were uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates.

This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with SOFR to match the Building Term Loan agreement (as amended).

After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate of 2.75%.

As of December 30, 2023, the notional amount of the loan that is subject to this interest rate swap was $14.4 million.

See Note 10, Fair Value , for additional information.

The obligations under the Building Term Loan are guaranteed by a deed of trust covering certain real property and improvements and certain personal property used in connection therewith.

3 unchanged sentences

Stock Repurchase Programs

In October 2020, our Board of Directors authorized a program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs.

This repurchase program replaced the previous repurchase program that expired in February 2020 to purchase up to $25.0 million of outstanding common stock.

There was no stock repurchased in fiscal 2020.

During fiscal 2021, we repurchased 622,400 shares of common stock for $24.0 million, and, as of December 31, 2022 we had utilized the remaining funds available for repurchase under this program after repurchasing 676,408 shares of common stock for $26.0 million during fiscal 2022.

On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs.

This share repurchase program will expire on May 20, 2024.

During fiscal 2022, we repurchased 1,700,893 shares of common stock for $56.4 million, and as of December 31, 2022 $18.6 million remained available for future repurchases.

On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs.

During fiscal 2021 and 2022, we repurchased and retired 622,400 shares of common stock for $24.0 million and 676,408 shares of common stock for $26.0 million, respectively, utilizing the remaining shares available for repurchase under the program.

On May 20, 2022, our Board of Directors authorized a two-year program to repurchase up to $75 million of outstanding common stock to offset potential dilution from issuance of common stock under our stock-based compensation programs.

During fiscal 2022 and 2023, we repurchased and retired 1,700,893 shares of common stock for $56.4 million and 504,352 shares of common stock for $18.6 million, respectively, utilizing the remaining shares available for repurchase under the program.

On October 30, 2023, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs.

This share repurchase program will expire on October 30, 2025.

During fiscal 2023, we repurchased and retired 32,020 shares of common stock for $1.2 million and as of December 30, 2023 $73.8 million remained available for future repurchases.

Contractual Obligations and Commitments

3 unchanged sentences

Operating leases $ 9,337 $ 9,215 $ 7,586 $ 7,154 $ 3,870 $ 1,432 $ 38,594

Term loans - principal payments 1,050 1,080 1,111 1,142 1,175 9,941 15,499

Term loans - interest payments (1)

Term loan - principal payments 1,080 1,111 1,142 1,175 1,208 8,732 14,448

Term loan - interest payments (1)

1,025 937 857 773 688 2,163 6,443

Total $ 11,442 $ 11,263 $ 9,585 $ 9,102 $ 5,766 $ 12,327 $ 59,485

(1) Represents our minimum interest payment commitments at 5.87% per annum for the Building Term Loan, excluding the interest rate swap described in Debt, above.

The table above excludes our gross liability for unrecognized tax benefits, which totaled $40.1 million as of December 31, 2022.

(1) Represents our minimum interest payment commitments at 7.20% per annum, excluding the interest rate swap described in Debt, above.

The table above excludes our gross liability for unrecognized tax benefits and our deferred grant.

The gross liability for unrecognized tax benefits was $45.6 million as of December 30, 2023.

The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors and, accordingly, the timing of payment cannot be estimated.

Indemnification Agreements

The deferred grant was $18.0 million as of December 30, 2023.

The timing of any potential repayments is dependent upon a number of factors, including the number of employees and capital investments.

Accordingly, the timing of any repayment cannot be estimated.

Indemnification Arrangements

We have entered, and may from time to time in the ordinary course of our business enter, into contractual arrangements with third parties that include indemnification obligations.

11 unchanged sentences

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