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Item 7. Management’s Discussion and Analysis

2021-03-05 compared with 2020-03-06 · 78 added, 150 removed, 226 unchanged (50% of the section changed)

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Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors”.

For discussion related to changes in financial condition and the results of operations for fiscal year 2018-related items, refer to Part II, Item 7 in our Annual Report on Form 10‑K for fiscal year 2019, which was filed with the Securities and Exchange Commission on March 6, 2020.

We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment.

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We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us.

We have a global footprint with production facilities in Malaysia, Singapore, Korea, California, Florida, Minnesota, Oregon, and Texas.

We have a global footprint with production facilities in California, Minnesota, Oregon, Texas, Singapore, Malaysia, the United Kingdom, Korea, and Mexico.

In 2020, 2019, and 2018, our two largest customers by revenue were Lam Research and Applied Materials.

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Our results will be affected by the degree to which outsourcing of these fluid delivery systems by OEMs continues to grow.

Cyclicality of Semiconductor Device Industry

Our business is indirectly subject to the cyclicality of the semiconductor device industry.

In 2019, we derived approximately 85% of our sales from the semiconductor device industry.

Demand for semiconductor devices can fluctuate significantly based on changes in general economic conditions, including consumer spending, demand for the products that include these devices, and other factors.

In the past, these fluctuations have resulted in significant variations in our results of operations.

The cyclicality of the semiconductor device industries will continue to impact our results of operations in the future.

Cyclicality of Semiconductor Capital Equipment Industry

Our business is subject to the cyclicality of the capital expenditures of the semiconductor industry, which drives cyclicality in the semiconductor capital equipment industry in which we operate.

In 2020, we derived over 95% of our sales from the semiconductor capital equipment industry.

Demand for semiconductor capital equipment can fluctuate significantly based on changes in general economic conditions, including consumer spending, demand for semiconductor products, pricing, and other factors.

In the past, these fluctuations have resulted in significant variations in the levels of spending within the semiconductor capital equipment industry, and as a result, our results of operations.

The cyclicality of the semiconductor industry will continue to impact our results of operations in the future.

Customer Concentration

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On a combined basis, these acquisitions contributed approximately $57.5 million to sales in 2017.

We acquired IAN, a Seoul-based leader in providing locally-sourced design and manufacturing of gas delivery systems to customers in South Korea, for $6.5 million, which contributed $7.7 million to sales in 2018.

We acquired IAN, a Seoul-based leader in providing locally-sourced design and manufacturing of gas delivery systems to customers in Korea, for $6.5 million, which contributed $7.7 million to sales in 2018.

These acquisitions continue to have a significant impact on our financial position and results of operations.

In December 2020, we acquired certain operating assets and assumed the operations of a business in Nogales, Mexico for $5.0 million to increase our precision machined component manufacturing capacity.

We intend to continue to evaluate opportunistic acquisitions to supplement our organic growth, and any such acquisitions could have a material impact on our business and results of operations.

COVID-19 Pandemic and Market Conditions Update

The COVID‑19 pandemic and related economic repercussions have created, and are expected to continue to create, significant volatility, uncertainty, and turmoil in our industry.

While our facilities are currently not subject to any site-wide government shutdowns, “social distancing” guidelines are resulting, and will continue to result in, reduced factory output.

In addition, an increase in direct costs within our factories associated with employee personal protective equipment (“PPE”), facility cleaning and layout changes, together with increases in logistics costs and employee labor costs, as well as other operating inefficiencies have resulted in, and may continue to result in, lower revenues and operating margins.

The extent and duration of these impacts cannot be specifically quantified given the dynamic nature and breadth of the pandemic’s impact on our operations and that of our customers and suppliers.

Components of Our Results of Operations

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Other Expense (Income), Net

The functional currency of our international subsidiaries located in the United Kingdom, Singapore, and Malaysia is the U.S.

The functional currency of our international operations located in the Singapore, Malaysia, the United Kingdom, and Mexico is the U.S.

Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense (income), net on the accompanying consolidated statements of operations.

Substantially all of our sales and agreements with third party suppliers provide for pricing and payments in U.S.

dollars and, therefore, are not subject to material exchange rate fluctuations.

Substantially all of our sales contracts, and most of our agreements with third-party suppliers, provide for pricing and payment in U.S.

Accordingly, these transactions are not subject to material exchange rate fluctuations.

Income Tax Benefit

During 2019, income tax benefit consists primarily of taxable loss incurred in the United States, the benefit from our tax holiday in Singapore, as well as the impacts of withholding taxes, stock option exercises, credit generation, and the release of tax reserves established in purchase accounting.

During 2018, income tax benefit consists primarily of the impact of U.S.

During 2020, income tax benefit consisted primarily of the benefit from our tax holiday in Singapore, as well as the impacts of withholding taxes, stock option exercises, and credit generation.

During 2019, income tax benefit consisted primarily of taxable loss incurred in the United States, the benefit from our tax holiday in Singapore, as well as the impacts of withholding taxes, stock option exercises, credit generation, and the release of tax reserves established in purchase accounting.

During 2018, income tax benefit consisted primarily of the impact of U.S.

operations, offset by discrete tax benefits, including the release of a valuation allowance against our foreign tax credit carryforwards we now expect to realize as a result of additional analysis of the Tax Cuts and Jobs Act and stock option exercises.

During 2017, income tax benefit from continuing operations consisted primarily of the impact of foreign operations, including withholding taxes, offset by a $7.6 million tax benefit as a result of our acquisitions (see Note 2 – Acquisitions of our consolidated financial statements included elsewhere in this report), a $5.9 million tax benefit from revaluing our deferred taxes from 35% to 21% due to the Tax Cuts and Jobs Act, and a $1.6 million benefit from re-characterizing intercompany debt to equity between our U.S.

and Singapore entities related to the reversal of previously accrued withholding taxes.

Results of Operations

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Income tax benefit

Net income from continuing operations

Discontinued operations:

Loss from discontinued operations before taxes

Income tax benefit from discontinued operations

Net loss from discontinued operations

The following table sets forth our results of operations as a percentage of our total sales for the periods presented.

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Income tax benefit

Net income from continuing operations

Discontinued operations:

Loss from discontinued operations before taxes

Income tax benefit from discontinued operations

Net loss from discontinued operations

Comparison of Fiscal Years 2020 and 2019

(dollars in thousands)

The decrease in net sales from 2018 to 2019 was primarily related to the reduced demand for semiconductor capital equipment during much of 2019, partially offset by market share gains.

We refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share of that customer.

On a geographic basis, sales in the U.S.

decreased by $173.7 million to $329.0 million, and foreign sales decreased by $29.1 million to $291.8 million.

Cost of Sales and Gross Margin

(dollars in thousands)

Cost of sales

The decrease in cost of sales and gross profit from 2018 to 2019 was primarily due to decreased sales volume.

The 260 basis point decrease in our gross margin was primarily due to lower factory utilization, resulting from reduced demand for semiconductor capital equipment during much of 2019, and product mix.

Research and Development

(dollars in thousands)

Research and development

The increase in research and development expenses from 2018 to 2019 was primarily due to incremental expenses from our IP purchase of developed flow controller technology assets in May 2019, in which we assumed an engineering team.

Selling, General, and Administrative

(dollars in thousands)

Selling, general, and administrative

The decrease in selling, general, and administrative expense from 2018 to 2019 was primarily due a $1.0 million reduction in employee-related expenses as a result of leadership and management restructuring that was completed in 2019 and a combined $0.9 million reduction in professional, consulting, and other corporate overhead expenses as a result of successful cost-management policies enacted during 2019, partially offset by a $1.1 million separation benefit charge in January 2018 that did not repeat in 2019 and increased share-based compensation expense of $0.6 million.

Amortization of Intangible Assets

(dollars in thousands)

Amortization of intangibles assets

The decrease in amortization expense from 2018 to 2019 was due certain intangible assets being fully amortized as of the end of the fourth quarter of 2018.

Interest Expense

(dollars in thousands)

Interest expense

The increase in interest expense from 2018 to 2019 was primarily due to an increase in our weighted average interest rate, from 4.36% to 4.78%, partially offset by a $2.7 million reduction in the average amount borrowed during the year as a result of quarterly term loan payments which were partially offset by a net draw on our revolving facility.

Other Expense ( Income ) , Net

(dollars in thousands)

Other expense (income), net

The change in other income, net for 2019 was primarily due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar, Malaysian Ringgit, and British Pound.

Income Tax Benefit from Continuing Operations

(dollars in thousands)

Income tax benefit

The increase in income tax benefit from 2018 to 2019 was primarily due to the decrease in taxable income in the U.S.

in 2019 and the release of tax reserves in 2019 previously established in purchase accounting, offset in part by the release of the valuation allowance related to foreign tax credits in 2018 that did not repeat in 2019.

Comparison of Fiscal Years 2018 and 2017

(dollars in thousands)

The increase in net sales from 2017 to 2018 was primarily related to an increase in volume resulting from industry growth, our acquisitions of Cal‑Weld, Talon, and IAN, and market share gains.

We refer to the volume of purchases from us by a customer of ours relative to its other suppliers as our market share of that customer.

The increase in net sales from 2019 to 2020 was primarily due to increased demand from our customers as a result of growth in the global wafer fabrication equipment market, as well as share-gains at our largest customers.

On a geographic basis, sales in the U.S.

increased by $161.9 million to $491.0 million, and foreign sales increased by $131.5 million to $423.3 million.

Cost of Sales and Gross Margin

Cost of Sales and Gross Profit

(dollars in thousands)

Cost of sales

The increase in cost of sales and gross profit from 2017 to 2018 was primarily due to increased sales volume and our acquisitions of Cal‑Weld and Talon in the third and fourth quarters of 2017, respectively.

The 110 basis point increase in our gross margin was primarily due to the accretive impact of our acquisitions of Cal‑Weld and Talon.

The increase was due to the following:

(1) 70 basis points from sales accretive to gross margin, primarily from our acquisitions of Cal‑Weld and Talon;

(2) 20 basis points from a charge to cost of sales of $4.8 million (0.6% of revenue) and $5.2 million (0.8% of revenue) in 2018 and 2017, respectively, due to recording acquired inventory at fair value;

and (3) 20 basis points from a $1.8 million charge to cost of sales in the second quarter of 2017 from an error correction relating to translated inventory balances at our Malaysia and Singapore subsidiaries using an incorrect foreign currency rate.

The increase in cost of sales and gross profit from 2019 to 2020 was primarily due to increased sales volume.

The 20 basis point decrease in our gross margin from 2019 to 2020 was primarily due to increased costs to operate our production facilities in response to the COVID‑19 pandemic (see “COVID‑19 Pandemic and Market Conditions Update” above), as well as the impacts of certain discrete charges to cost of sales during 2020, including a loss on the sale of certain property and equipment and inventories from our Tampa, Florida facility of $3.6 million, costs incurred in connection with the shutdown of our Union City, California facility of $2.2 million, and a contract settlement loss recorded upon reaching a mutual settlement with the counterparty of a contract dispute of $1.4 million.

These charges, which had a combined 70 basis point impact on our gross margin, were mostly offset by higher operating leverage as a result of increased factory utilization and favorable product mix on a year-over-year basis.

Research and Development

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Research and development

The increase in research and development expenses from 2017 to 2018 was primarily due to incremental expenses from our acquisition of Talon, increased share-based compensation expense, and an increase in headcount and other program expenses to support additional new product developments.

The increase in research and development expenses from 2019 to 2020 was primarily due to incremental expenses related to the development of our flow controller technology, as well as increased employee-related expense from our existing engineering team, partially offset by lower travel-related expenses.

Selling, General , and Administrative

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Selling, general, and administrative

The increase in selling, general, and administrative expense from 2017 to 2018 was primarily due to $8.6 million in incremental operating expenses from our acquisitions of Cal‑Weld, Talon, and IAN, a $4.5 million increase in share-based compensation expense (inclusive of $2.9 million associated with modifying our former CFO’s equity awards), $1.1 million in non-equity separation benefits for former CFO, and $1.1 million in various costs to support growth, partially offset by a $2.2 million decrease in acquisition-related expenses, a $1.3 million credit from derecognizing our IAN earn-out liability, a $1.0 million charge in the third quarter of 2017 from a final arbitration ruling on our working capital claim with the sellers of Ajax, and $1.0 million in expense incurred in 2017 associated with the secondary offerings of our shares by affiliates of our former principal shareholder, FP.

The increase in selling, general, and administrative expense from 2019 to 2020 was primarily due to (i) $1.8 million in executive transition costs associated with the transition of our former CEO to Executive Chairman, (ii) $4.7 million in increased employee-related expense, of which $0.8 million was from increased share-based compensation expense, (iii) $1.6 million in increased legal and professional fees, (iv) $1.0 million in increased occupancy costs, and (v) $1.7 million in other administrative costs to support the growing company;

partially offset by $0.8 million in reduced travel-related costs and the release of a $0.7 million indemnification asset in the first quarter of 2019, which was recorded in connection with our acquisition of Cal‑Weld in 2017, that did not repeat in 2020.

Amortization of Intangible Assets

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Amortization of intangibles assets

The increase in amortization expense from 2017 to 2018 was due to incremental amortization expense from intangible assets acquired in connection with our acquisitions of Cal‑Weld and Talon in the second half of 2017 and IAN in the second quarter of 2018.

The fair value assigned to intangible assets acquired in connection with our acquisition IAN is still preliminary.

The increase in amortization expense from 2019 to 2020 was primarily due to incremental amortization expense from purchased developed technology IP assets in May 2019.

Interest Expense

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Interest expense

The increase in interest expense from 2017 to 2018 was primarily due to an increase in the average amount borrowed, which was primarily due to our acquisition of Talon in December 2017, resulting in an additional $120.0 million borrowed.

Our average amount borrowed in 2018 was $196.6 million compared to $58.9 million in 2017.

Our weighted average interest rate was 4.36% in 2018 compared to 4.30% in 2017.

Other Income, Net

The decrease in interest expense from 2019 to 2020 was primarily due to a 103 basis point decrease in our weighted average interest rate, from 4.78% to 3.75%, partially offset by a $3.9 million increase in the average amount borrowed during the year as a result of a net draw on our revolving facility, which was partially offset by quarterly term loan payments.

Other Expense, Net

(dollars in thousands)

Other income, net

The change in other income, net for 2018 was primarily due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar, Malaysian Ringgit, and British Pound, and a gain of $0.2 million on the sale of our cost method investment, CHawk Technology International, Inc.

(“CHawk”) in the first quarter of 2017 that did not repeat in the first quarter of 2018.

Income Tax Benefit from Continuing Operations

Other expense, net

The increase in other expense, net from 2019 to 2020 was primarily due to transactions denominated in the local currencies of our foreign operations, as the U.S.

dollar fell against the local currencies during most of the second half.

These local currencies consist primarily of the Singapore dollar, Malaysian ringgit, British pound, euro, and South Korean won.

Income Tax Benefit

(dollars in thousands)

Income tax benefit

The decrease in income tax benefit from 2017 to 2018 was primarily due to $12.7 million in discrete tax benefits recognized in 2017 relating to the reversal of previously accrued withholding taxes from our re-characterization of intercompany debt to equity, our acquisitions of Talon and Cal‑Weld, and the impact of the Tax Cuts and Jobs Act that did not repeat in 2018, a $4.2 million decrease in excess tax benefits from share-based compensation from 2017 to 2018, and a $2.4 million decrease in permanently disallowed expenses in 2018, partially offset by a $4.1 million tax benefit recognized due to the release of a valuation allowance against foreign tax credit carryforwards in the second quarter of 2018.

The decrease in income tax benefit from 2019 to 2020 was primarily due to decreased benefit from taxable losses incurred in the United States, partially offset by increased income in Singapore subject to a tax holiday.

Non-GAAP Results

Management uses non-GAAP adjusted net income and non-GAAP adjusted diluted EPS to evaluate our operating and financial results.

Management uses non-GAAP metrics to evaluate our operating and financial results.

We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective.

Non-GAAP adjusted net income excludes amortization of intangible assets, share-based compensation expense, non-recurring expenses including adjustments to the cost of goods sold, tax adjustments related to those non-GAAP adjustments, and non-recurring discrete tax items including tax impacts from releasing a valuation allowance related to foreign tax credits.

Non-GAAP adjusted diluted EPS is defined as non-GAAP adjusted net income from continuing operations divided by weighted average diluted ordinary shares outstanding during the period.

The following table presents our unaudited non ‑GAAP adjusted net income from continuing operations and a reconcilia tion from net income from continuing operations, the most comparable GAAP measure, for the periods indicated:

Non-GAAP net income is defined as:

net income excluding (1) amortization of intangible assets, share-based compensation expense, and non-recurring expenses, including contract settlement losses and divestiture and facility shutdown related charges;

and (2) the tax impacts associated with our non-GAAP adjustments, as well as non-recurring discrete tax items.

Non-GAAP diluted EPS is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period.

The following table presents our unaudited non‑GAAP net income and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:

(dollars in thousands, except per share amounts)

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Other non-recurring expense, net (1)

Contract settlement loss (2)

Facility shutdown costs (3)

Fair value adjustment to inventory from acquisitions (4)

Tax adjustments related to non-GAAP adjustments (5)

Tax benefit from acquisitions (2)

Tax benefit from re-characterizing intercompany debt to equity (3)

Tax impact from tax law change (4)

Tax benefit from release of valuation allowance (6)

Adjustments to cost of goods sold (6)

Fair value adjustment to inventory from acquisitions (7)

Loss on Ajax acquisition arbitration settlement (8)

Non-GAAP net income

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Shares used to compute diluted EPS

Included in this amount for fiscal year 2019 are (i) acquisition-related expenses, comprised primarily of a charge to expense from the extinguishment of an indemnification asset related to our acquisition of Cal Weld in 2017 and expense associated with a two-year retention agreement between the Company and key management personnel of IAN (the “IAN retention agreement”), (ii) costs associated with restructuring and transitioning key leadership roles, and (iii) costs associated with implementation of our Sarbanes-Oxley compliance program and a new ERP system.

Included in this amount for 2020 are primarily (i) a $3.6 million loss on the sale of inventories and property and equipment from our Tampa, Florida facility, (ii) non-capitalized costs incurred in connection with our implementation of a new ERP system and a Sarbanes-Oxley (“SOX”) compliance program, and (iii) costs associated with restructuring and transitioning key leadership roles.

Included in this amount for 2019 are primarily (i) acquisition-related expenses associated with a charge to expense from the extinguishment of an indemnification asset related to our acquisition of Cal‑Weld in 2017 and expense associated with a two-year retention agreement between the Company and key management personnel of IAN (the “IAN retention agreement”), (ii) costs associated with restructuring and transitioning key leadership roles, and (iii) non-capitalized costs incurred in connection with our implementation of a new ERP system and a SOX compliance program.

Included in this amount for fiscal year 2018 are (i) expenses associated with separation benefits for a former officer that became effective in January 2018, (ii) a gain on the extinguishment of the IAN earn-out liability, and (iii) acquisition-related expenses, comprised primarily of expense associated with the IAN retention agreement.

Included in this amount for 2017 are (i) acquisition-related expenses, (ii) expenses incurred in connection with sales or other dispositions of our ordinary shares by affiliates of FP, (iii) executive search expenses incurred in connection with replacing the Company’s Chief Financial Officer, (iv) a refund of previously paid consulting fees from FP Consulting (“FPC”), and (v) a gain on sale of our investment in CHawk.

We recorded $2.3 million in tax benefit in the fourth quarter of 2017 and $5.3 million in the third quarter of 2017 in connection with our acquisitions of Talon and Cal‑Weld, respectively.

In the third quarter of 2017, we re-characterized intercompany debt to equity between our U.S.

and Singapore entities resulting in a tax benefit of $1.6 million related to the reversal of previously accrued withholding taxes.

This adjustment represents the impact of U.S.

corporate tax reform.

Represents the release of a valuation allowance against our foreign tax credit carryforwards we now expect to realize as a result of additional analysis of the Tax Cuts and Jobs Act.

During the second quarter of 2017, we corrected an error relating to translated inventory balances at our Malaysia and Singapore subsidiaries using an incorrect foreign currency rate.

The error arose in prior period financial statements beginning in periods prior to 2014 and through 2016.

The correction resulted in a $1.8 million increase in cost of sales and a corresponding decrease in gross profit in our consolidated statement of operations and a decrease to inventories in our consolidated balance sheet during the second quarter of 2017.

During the first quarter of 2020, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $1.4 million contract settlement loss to cost of sales .

During the second quarter of 2020, we announced the closure of our manufacturing facility in Union City, California, which we expect to complete by the end of the first quarter of 2021.

Included in this amount are (i) inventory write-off costs of $1.3 million amount for the year ended December 25, 2020;

(ii) severance costs associated with affected employees of $0.1 million, $0.2 million, and $0.5 million for the fourth quarter of 2020, the third quarter of 2020, and the year ended December 25, 2020, respectively;

and (iii) accelerated depreciation charges in excess of pre-shutdown decision run-rate associated with property and equipment expected to be abandoned at the time of facility closure of $0.3 million, $0.3 million, and $0.6 million for the fourth quarter of 2020, the third quarter of 2020, and the year ended December 25, 2020.

As part of our purchase price allocations for our acquisitions of Cal‑Weld in July 2017, Talon in December 2017, and IAN in April 2018, we recorded acquired-inventory at fair value, resulting in a fair value step-up of $3.6 million, $6.2 million, and $0.3 million, respectively.

These amounts were subsequently released to cost of sales as acquired-inventory was sold.

During the third quarter of 2017, we received a final arbitration ruling on our working capital claim with the sellers of Ajax.

The ruling was outside the one year measurement period and therefore could not be considered an adjustment to goodwill, resulting in a charge to selling, general, and administrative expense.

Non-GAAP adjusted net income from continuing operations has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income or any of our other operating results reported under GAAP.

Other companies may calculate adjusted net income differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our adjusted net income as a tool for comparison.

Because of these limitations, you should consider non-GAAP adjusted net income from continuing operations alongside other financial performance measures, including net income from continuing operations and other financial results presented in accordance with GAAP.

In addition, in evaluating non-GAAP adjusted net income, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving adjusted net income and you should not infer from our presentation of adjusted net income that our future results will not be affected by these expenses or any unusual or non-recurring items.

GAAP income tax expense (benefit) for impact of our non-GAAP adjustments, as defined, including the impacts of excluding share-based compensation, amortization of intangible assets, and other non-recurring expenses.

This adjustment also excludes the impact of non-recurring discrete tax items.

Represents the release of a valuation allowance against our foreign tax credit carryforwards we now expect to realize as a result of additional analysis of the Tax Cuts and Jobs Act.

Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP.

Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison.

Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP.

In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items.

Unaudited Quarterly Financial Results

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We had cash of $252.9 million as of December 25, 2020, compared to $60.6 million as of December 27, 2019.

Our principal uses of liquidity are to fund our working capital needs, purchase new capital equipment, acquisitions, and our share repurchase program.

The increase was primarily due to operating cash flows of $57.2 million and net proceeds from the issuance of ordinary shares under our share-based compensation plans of $5.5 million, partially offset by net payments on long-term debt of $23.8 million, capital expenditures of $12.3 million, cash paid for intangible assets of $8.1 million.

Our principal uses of liquidity are to fund our working capital needs, purchase new capital equipment, and acquisitions.

The increase was primarily due to net proceeds of $139.4 million from our issuance of 4.6 million ordinary shares on December 14, 2020, cash provided by operating activities of $38.3 million, net proceeds from our credit facilities of $21.3 million, and net proceeds from the issuance of shares under our share-based compensation plans of $8.0 million, partially offset by capital expenditures of $10.3 million and by cash paid to acquire a precision machining operation in Sonora, Mexico of $5.0 million.

We believe that our cash, the amounts available under our revolving credit facility, and our cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months.

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Operating Activities

We generated $57.2 million from operating activities during 2019 due to net income of $10.7 million, net non-cash charges of $24.2 million, and a decrease in our net operating assets and liabilities of $22.2 million.

Cash generated by operating activities of $38.3 million during 2020 was due to net income of $33.3 million and net non-cash charges of $37.0 million, offset by an increase in our net operating assets and liabilities of $32.0 million.

Net non-cash charges primarily consisted of depreciation and amortization of $24.2 million, share-based compensation of $9.9 million, and a loss on the sale of equipment and inventory from our Tampa, Florida facility of $3.6 million, partially offset by deferred taxes of $1.7 million.

The increase in our net operating assets and liabilities was primarily due to an increase in accounts receivable of $16.1 million, a decrease of accounts payable of $14.5 million, an increase in inventories of $8.5 million, and an increase in prepaid expenses and other assets of $2.1 million, partially offset by an increase in accrued and other liabilities of $9.2 million.

The increase in accounts receivable was primarily due to increased sales volume during the fourth quarter of 2020 compared to the fourth quarter of 2019.

The decrease in accounts payable was primarily due to the timing of purchases, material receipts, and payments near the end of the fourth quarter of 2020 compared to the fourth quarter of 2019

Cash generated by operating activities of $57.2 million during 2019 was due to net income of $10.7 million, net non-cash charges of $24.2 million, and a decrease in our net operating assets and liabilities of $22.2 million.

Non-cash charges of $24.2 million primarily consist of depreciation and amortization of $21.9 million and share-based compensation of $8.5 million, partially offset by deferred taxes of $7.1 million.

The decrease in our net operating assets and liabilities was primarily due to an increase in accounts payable of $68.0 million, partially offset by an increase in accounts receivable of $44.6 million, resulting from increased purchasing and sales activity as we ended 2019 compared to ending 2018.

We generated $60.5 million from operating activities during 2018 due to net income of $57.9 million and net non-cash charges of $24.9 million, partially offset by an increase in our net operating assets and liabi lities of $22.3 million, net of acquired assets and liabilities.

Cash generated by operating activities of $60.5 million during 2018 was due to net income of $57.9 million and net non-cash charges of $24.9 million, partially offset by an increase in our net operating assets and liabilities of $22.3 million, net of acquired assets and liabilities.

Non-cash charges primarily consist of depreciation and amortization of $23.1 million and share-based compensation of $7.6 million, partially offset by deferred income taxes of $6.7 million.

T he increase in our net operating assets and liabilities was primarily due to a decrease in accounts payable and accrued and other liabilities of $62.2 million and $5.0 million, respectively, partially offset by a decrease in inventories and accounts receiv able of $35.1 million and $10.4 million, respectively.

We generated $38.8 million of cash from operating activities during 2017 due to net income of $56.5 million, partially offset by net non‑cash charges of $(0.2) million and an increase in our net operating assets and liabilities of $17.4 million.

Non‑cash charges primarily related to $12.5 million in depreciation and amortization, $2.2 million in share-based compensation, and $0.6 million in amortization of debt issuance cost, offset by $15.3 million in deferred tax benefit and a gain on the sale of our investment in CHawk of $0.2 million.

The increase in net operating assets and liabilities was primarily due to an increase in inventories of $43.4 million in order to meet sales demand in the first quarter of 2018, partially offset by an increase in accounts payable of $22.6 million and prepaid expenses and other assets of $3.4 million.

The increase in our net operating assets and liabilities was primarily due to a decrease in accounts payable and accrued and other liabilities of $62.2 million and $5.0 million, respectively, partially offset by a decrease in inventories and accounts receivable of $35.1 million and $10.4 million, respectively.

Investing Activities

Cash used in investing activities during 2019 was $20.5 million due to capital expenditures of $12.3 million and cash paid for developed technology assets of $8.1 million.

Cash used in investing activities during 2018 was $15.4 million due to capital expenditures of $13.9 million and net cash paid in connection with acquisitions of $1.4 million.

Cash used in investing activities during 2017 was $186.8 million.

We used approximately $131.4 million and $49.5 million, net of acquired cash, to acquire Talon and Cal‑Weld, respectively, and $8.2 million to fund capital expenditures to purchase test fixtures and leasehold improvements primarily related to our plant expansions in the United States and Malaysia.

These outflows were partially offset by proceeds from the sale of our investments in Ajax Foresight Global Manufacturing Sdn.

(“AFGM”) and CHawk and the settlement of a note receivable from AFGM of $2.4 million.

Cash used in investing activities of $14.6 million during 2020 was due to capital expenditures of $10.3 million and cash paid for acquisitions of $5.0 million, partially offset by $0.7 million in proceeds from the sale of certain property and equipment from our Tampa, Florida facility.

Cash used in investing activities of $20.5 million during 2019 was due to capital expenditures of $12.3 million and cash paid for developed technology assets of $8.1 million.

Cash used in investing activities of $15.4 million during 2018 was due to capital expenditures of $13.9 million and net cash paid in connection with acquisitions of $1.4 million.

Financing Activities

Cash used in financing activities during 2019 was $19.9 million due to net payments on long-term debt of $23.8 million and share repurchases of $1.6 million, partially offset by net proceeds from the issuance of ordinary shares under our share-based compensation plans of $5.5 million.

Cash used in financing activities during 2018 was $70.6 million due to share repurchases of $90.0 million and debt modification costs in connection with the refinancing of our credit facilities in February 2018 of $2.1 million, partially offset by net borrowing on long-term debt of $15.3 million and proceeds related to issuances of ordinary shares under our share-based compensation plans of $6.2 million.

We generated $164.6 million of cash from financing activities during 2017, which primarily consisted of $150.0 million in proceeds from the issuance of long-term debt to fund our acquisitions of Talon and Cal‑Weld, $9.1 million in proceeds from employees’ and directors’ exercise of stock options, and $7.3 million of proceeds from the exercise of the underwriters’ over‑allotment option in January 2017 in connection with our December 2016 IPO, partially offset by $1.5 million in financing costs associated with the issuance of long-term debt.

Cash generated by financing activities of $168.6 million during 2020 was due to net proceeds of $139.4 million from our issuance of 4.6 million ordinary shares on December 14, 2020, net proceeds from our credit facilities of $21.3 million, and net proceeds from the issuance of shares under our share-based compensation plans of $8.0 million.

Cash used in financing activities of $19.9 million during 2019 was due to net payments on long-term debt of $23.8 million and share repurchases of $1.6 million, partially offset by net proceeds from the issuance of ordinary shares under our share-based compensation plans of $5.5 million.

Cash used in financing activities of $70.6 million during 2018 was due to share repurchases of $90.0 million and debt modification costs in connection with the refinancing of our credit facilities in February 2018 of $2.1 million, partially offset by net borrowing on long-term debt of $15.3 million and proceeds related to issuances of ordinary shares under our share-based compensation plans of $6.2 million.

Credit Facilities

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Interest costs have been estimated based on interest rates in effect for such indebtedness as of December 25, 2020.

The table above does not include amounts related to uncertain tax positions because we cannot reliably estimate the timing of the settlement of such liabilities.

Critical Accounting Policies and Estimates

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As of December 25, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other purposes.

QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in currency exchange rates and interest rates.

Foreign Currency Exchange Risk

Currently, substantially all of our sales and arrangements with third-party suppliers provide for pricing and payment in U.S.

dollars and, therefore, are not subject to material exchange rate fluctuations.

As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations.

However, increases in the value of the U.S.

dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete.

Conversely, decreases in the value of the U.S.

dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.

While not currently significant, we do have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian Ringgit, British Pound, and Euro.

Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations.

To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.

Interest Rate Risk

We had total indebtedness of $181.0 million as of December 27, 2019, exclusive of $3.0 million in debt issuance costs, of which $8.8 million was due within 12 months.

The outstanding amount of debt included elsewhere in this report is net of debt issuance costs.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates.

The interest rate on our outstanding debt is based on LIBOR, the Prime Rate, or the Federal Funds Rate.

A hypothetical 1% interest rate change on our outstanding debt would have resulted in a $1.8 million change to interest expense during 2019.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary financial information required to be filed under this Item 8 are presented beginning on page F‑1 in Part IV, Item 15 of this annual report on Form 10‑K and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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