What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2021-11-02 · 77 added, 117 removed, 86 unchanged (69% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements as a result of specified factors, including those set forth in Item 1A “Risk Factors” of Part II below and elsewhere in this Quarterly Report on Form 10-Q.

This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended December 28, 2020, filed with the SEC.

COMPANY OVERVIEW

We are a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically advanced PCBs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency (RF) and microwave components and assemblies.

We focus on providing time-to-market and volume production of advanced technology products and offer a one-stop design, engineering, and manufacturing solution to our customers.

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By March 2020, the situation escalated as the scope of the COVID-19 pandemic worsened outside of the Asia-Pacific region, with Europe and North America being affected by the pandemic.

With the development and deployment of vaccines, the pandemic has declined.

However, as new variants evolve, we could see a rebound in the severity of the pandemic.

With the development and deployment of vaccines, certain of the adverse societal and economic effects of the pandemic have declined.

However, as new variants of the virus emerge and evolve, we could see a rebound in the severity of the adverse effects of the pandemic.

As a result, we expect continued impacts on our production, as well as ongoing significant uncertainty relating to the actual and potential impacts of the COVID-19 pandemic, and we cannot reasonably estimate its duration or severity.

The COVID-19 pandemic has created and continues to create various global macroeconomic, customer demand, operational and supply chain risks, any one of which could have a material and adverse impact on our business going forward.

For example, during the first quarter, an outbreak in Mainland China forced temporary lockdown orders in several cities in which we operate.

Further, in North America, there was a surge in cases resulting from the Omicron variant from December 2021 through January 2022 which resulted in production inefficiencies caused by a combination of quarantine impacts and direct labor shortages on our overall production.

The COVID-19 pandemic has created and continues to create various global macroeconomic, customer demand, operational and supply chain risks and has contributed to high inflation, each of which could have a material and adverse impact on our business going forward.

See Item 1A, Risk Factors , of Part II below for further information related to the COVID-19 pandemic.

We have taken active measures to protect our employees, suppliers and customers by implementing extensive pandemic recovery protocols, establishing situational leadership teams in Asia-Pacific and North America along with regularly scheduled executive review and planning calls, implementing global travel restrictions, and conforming to the guidance and direction of local governments and global health organizations.

We have taken active measures to seek to protect our employees, suppliers, and customers by implementing extensive pandemic related protocols, establishing situational leadership teams in Asia-Pacific and North America along with regularly scheduled executive reviews and planning calls, implementing global travel restrictions, and conforming to the guidance and direction of local governments and global health organizations.

We are monitoring the impacts the COVID-19 pandemic has had, and continues to have, on our supply chain and are collaborating with our third-party partners with the goal of mitigating, to the extent reasonably practicable, significant delays in delivery of our products.

We continue to experience supply chain constraints and inflationary pressures.

We have been actively managing both supply chain constraints and higher raw materials costs through such measures as supplier diversification, ongoing operational efficiency efforts and quotation adjustments to mitigate the impact on our business.

We have been actively taking measures intended to manage both supply chain constraints and higher raw materials costs, including, without limitation, through such measures as supplier diversification, ongoing operational efficiency efforts and quotation adjustments to mitigate the impact on our business.

We also continue to see more challenges in attracting and retaining labor in North America.

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An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our business.

On April 18, 2022, we entered into a definitive share purchase agreement to purchase all of the issued and outstanding capital stock of Telephonics Corporation and ISC Farmingdale Corp.

for an aggregate purchase price of $330.0 million in cash, subject to customary working capital and certain other adjustments.

Consummation of the transaction is subject to certain closing conditions, and the share purchase agreement may be terminated in certain circumstances.

On March 1, 2022, we announced that w e will open a new, state of the art, highly automated PCB manufacturing facility in Penang, Malaysia.

We expect construction to begin later in 2022 with equipment installation in 2023.

We expect that the total capital spending for this facility will be $130.0 million and this investment will be spread from 2022 through 2025 .

FINANCIAL OVERVIEW

Results related to our Mobility business unit are reported as discontinued operations for all periods presented.

See Part I, Item 1, Note 2, Discontinued Operations , of the Notes to Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for further information.

Unless otherwise noted, amounts and disclosures throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to our continuing operations.

We use a 52/53 week fiscal calendar with the fourth quarter ending on the Monday nearest December 31.

Fiscal 2021 ending on January 3, 2022 will be a 53-week year with the additional week included in the fourth quarter.

Fiscal 2020 was a 52-week year.

While our customers include both OEMs and EMS providers, we measure customers based on OEM companies, as they are the ultimate end customers.

Sales to our ten largest customers collectively accounted for 41% of our net sales for both the quarter and

three quarter s ended September 27 , 202 1 .

Sales to our ten l argest customers accounted for 40 % and 38% of our net sales for the quarter and t hree quarters ended September 28 , 2020 , respectively .

Sales to our ten largest customers collectively accounted for 45% of our net sales for both the quarters ended April 4, 2022 and March 29, 2021.

We sell to OEMs both directly and indirectly through EMS providers.

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Quarter Ended

Three Quarters Ended

End Markets (1)

September 27, 2021

September 28, 2020

September 27, 2021

September 28, 2020

April 4, 2022

March 29, 2021

Aerospace and Defense

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Sales to EMS companies are classified by the end markets of their OEM customers.

Beginning in the first quarter of 2021, the Computing/Storage/Peripherals end market was renamed to Data Center Computing to better reflect the customer mix and growth prospects.

There was no change to the customers included in this end market.

Other end market reflects direct sales to EMS and distributor customers.

We derive revenues primarily from the sale of PCBs, custom electronic assemblies using customer-supplied engineering and design plans as well as our long-term contracts related to the design and manufacture of RF and microwave components, assemblies and subsystems.

Orders for products generally correspond to the production schedules of our customers and are supported with firm purchase orders.

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The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended December 28, 2020 for further discussion of critical accounting policies and estimates.

There were no material changes to our critical accounting policie s and estimates since December 28 , 20 20.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended January 3, 2022 for further discussion of critical accounting policies and estimates.

There were no material changes to our critical accounting policies and estimates since January 3, 2022.

RESULTS OF OPERATIONS

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Quarter Ended

Three Quarters Ended

September 27, 2021

September 28, 2020

September 27, 2021

September 28, 2020

April 4, 2022

March 29, 2021

Cost of goods sold

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Amortization of definite-lived intangibles

Impairment of goodwill

Total operating expenses

Operating income (loss)

Operating income

Other (expense) income:

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Total other expense, net

Income (loss) from continuing operations before income taxes

Income tax (provision) benefit

Net income (loss) from continuing operations

As of March 29, 2021, E-M Solutions no longer met the criteria for segment reporting and the SH BPA facility has been integrated into the PCB reportable segment.

As a result, we reclassified prior periods to reflect these changes to our segments.

Total net sales increased $43.2 million, or 8.4%, to $556.8 million for the third quarter of 2021 from $513.6 million for the third quarter of 2020.

This increase in total net sales primarily resulted from an increase in net sales for the PCB reportable segment of $59.8 million, or 12.4%, to $541.1 million for the third quarter of 2021 from $481.3 million for the third quarter of 2020 primarily due to higher demand in our Automotive, Data Center Computing, and Medical/Industrial/Instrumentation end markets partially offset by lower demand in our Aerospace and Defense end market.

These changes in the PCB reportable segment resulted in a 16.8% increase in the volume of PCB shipments.

Additionally, there was an increase in net sales for the RF&S Components reportable segment of $3.9 million, or 33.4%, to $15.7 million for the third quarter of 2021 from $11.7 million for the third quarter of 2020 primarily due to higher demand in our Networking/Communications end market.

Partially offsetting the PCB and RF&S increases was a $20.5 million reduction in net sales due to the closure of the two plants from our discontinued E-M Solutions segment.

Total net sales increased $69.1 million, or 4.4%, to $1,650.6 million for the first three quarters of 2021 from $1,581.5 million for the first three quarters of 2020.

This increase in total net sales primarily resulted from an increase in net sales for the PCB reportable segment of $112.9 million, or 7.6%, to $1,605.1 million for the first three quarters of 2021 from $1,492.2 million for the first three quarters of 2020 primarily due to higher demand in our Automotive and Data Center Computing end markets, partially offset by lower demand in our Networking/Communications and Aerospace and Defense end markets.

These changes in the PCB reportable segment resulted in a 25.8% increase in the volume of PCB shipments.

Also contributing to the increase in total net sales was an increase in net sales for the RF&S Components reportable segment of $9.0 million, or 27.0%, to $42.3 million for the first three quarters of 2021 from $33.3 million for the first three quarters of 2020 primarily due to higher demand in our Networking/Communications and Medical/Industrial/Instrumentation end markets.

Partially offsetting the PCB and RF&S increases was a $52.8 million reduction in net sales due to the closure of the two plants from our discontinued E-M Solutions segment.

Overall gross margin decreased to 16.7% for the third quarter of 2021 from 17.4% for the third quarter of 2020.

Gross margin for the PCB reportable segment decreased to 15.8% for the third quarter of 2021 from 18.3% for the third quarter of 2020.

This decline was primarily due to unfavorable foreign exchange rates which increased our cost of operations in China and production inefficiencies in North America.

Income (loss) before income taxes

Income tax benefit

Net income (loss)

Total net sales increased $54.8 million, or 10.4%, to $581.3 million for the first quarter of 2022 from $526.4 million for the first quarter of 2021.

The primary driver for the increase in total net sales was an increase in net sales for the PCB reportable segment of $55.6 million, or 10.8%, to $566.1 million for the first quarter of 2022 from $510.5 million for the first quarter of 2021, which was primarily due to higher demand in most of our commercial end markets which more than offset a decline in our Aerospace and Defense end market due to commercial aerospace softness and production challenges in North America.

The increase in PCB net sales also benefitted from a 7.6% increase in the volume of PCB shipments and a 3.9% increase in the average price per square foot as compared to the first quarter of 2021.

Another contributing factor to the increase in total net sales was an increase in net sales for the RF&S Components reportable segment of $2.5 million, or 19.7%, to $15.2 million for the first quarter of 2022 from $12.7 million for the first quarter of 2021, which was primarily due to higher demand in our Networking/Communications end market.

Partially offsetting the PCB and RF&S Components increases was a $3.3 million reduction in net sales due to the closure of our two assembly plants.

Overall gross margin increased to 15.6% for the first quarter of 2022 from 15.5% for the first quarter of 2021.

Gross margin for the PCB reportable segment decreased to 14.7% for the first quarter of 2022 from 15.7% for the first quarter of 2021.

This decline was primarily due to labor and production challenges in North America partially offset by revenue growth in our commercial businesses.

During the quarter, we did experience significant material cost increases, but we were able to mitigate the profit impact of those increases through customer price increases and manufacturing efficiencies.

Gross margin for the RF&S Components reportable segment increased to 57.9% for the third quarter of 2021 from 48.1% for the third quarter of 2020, primarily due to higher sales.

Overall gross margin decreased to 16.6% for the first three quarters of 2021 from 17.1% for the first three quarters of 2020.

This decrease was primarily driven by a decrease in gross margin for the PCB reportable segment to 16.3% for the first three quarters of 2021 from 18.3% for the first three quarters of 2020.

This decline was primarily due to unfavorable foreign exchange rates which increased our cost of operations, higher raw material costs due to increased commodity prices, primarily copper, and production and labor inefficiencies.

We were able to mitigate most of these costs through higher revenue and production and spending efficiencies including savings from the closure of two of our E-M Solutions factories.

Gross margin for the RF&S Components reportable segment increased to 54.2% for the first three quarters of 2021 from 50.8% for the first three quarters of 2020, primarily due to higher sales.

Capacity utilization is a key driver for us, which is measured by actual production as a percentage of maximum capacity.

This measure is particularly important in our high-volume facilities in Asia, as a significant portion of our operating costs are fixed in nature.

Capacity utilization for the third quarter of 2021 in our Asia and North America PCB facilities was 91% and 50%, respectively, compared to 63% and 61%, respectively, for the third quarter of 2020.

Capacity utilization for the first three quarters of 2021 in our Asia and North America PCB facilities was 86% and 52%, respectively, compared to 62% and 63%, respectively for the first three quarters of 2020.

The increase in capacity utilization in our Asia PCB facilities was due to an increase in production resulting from increased sales in our Automotive and Data Center Computing end markets.

The decrease in our capacity utilization in our North America PCB facilities was primarily due to increased capacity resulting from equipment expansion.

Selling and Marketing Expense

Selling and marketing expense was $15.9 million for both the third quarter of 2021 and 2020.

As a percentage of net sales, selling and marketing expense was 2.8% for the third quarter of 2021, as compared to 3.1% for the third quarter of 2020.

Selling and marketing expense decreased $1.3 million, to $46.7 million for the first three quarters of 2021 from $48.0 million for the first three quarters of 2020.

As a percentage of net sales, selling and marketing expense was 2.8% for the first three quarters of 2021, as compared to 3.0% for the first three quarters of 2020.

The decrease in selling and marketing expense for the first three quarters of 2021 was primarily due to a decrease in commission expense and continued reduced travel costs due to the COVID-19 pandemic, which has decreased travel on what we believe to be a temporary basis.

General and Administrative Expense

General and administrative expense increased $3.3 million to $32.4 million, or 5.8% of net sales, for the third quarter of 2021 from $29.1 million, or 5.7% of net sales, for the third quarter of 2020.

This increase was primarily due to an increase in labor costs and other spending.

General and administrative expense decreased $15.4 million to $95.2 million, or 5.8% of net sales, for the first three quarters of 2021 from $110.5 million, or 7.0% of net sales, for the first three quarters of 2020.

This decrease was primarily due to a reduction in restructuring charges of $10.8 million associated with the restructuring of our E-M Solutions business unit and decreases in depreciation, supplies, stock-based compensation expense and bad debt, partially offset by higher incentive compensation.

Gross margin for the RF&S Components reportable segment increased to 57.0% for the first quarter of 2022 from 47.5% for the first quarter of 2021, primarily due to higher sales.

Capacity utilization is a key driver for us, which is measured by the actual production as a percentage of maximum capacity.

This measure is particularly important in our high-volume facilities in Asia, as a significant portion of our operating costs are fixed in

Capacity utilization for the first quarter of 202 2 in our Asia and North America PCB facilities was 85 % and 46 %, respectively, compared to 80 % and 55 %, respectively, for the first quarter of 20 2 1 .

The increase in capacity utilization in our Asia PCB facilities was due to an increase in production resulting from increased sales in our commercial end markets.

The decrease in our capacity utilization in our North America PCB facilities was primarily due to increased capacity resulting from equipment expansion and the challenges posed by COVID-19 abse nces and direct labor shortages .

Selling and Marketing Expenses

Selling and marketing expense increased $2.0 million, to $18.3 million for the first quarter of 2022 from $16.3 million for the first quarter of 2021.

As a percentage of net sales, selling and marketing expense was 3.1% for both the first quarter of 2022 and 2021.

The increase in selling and marketing expenses was primarily due to an increase in commission expense and labor costs.

General and Administrative Expenses

General and administrative expense increased $1.4 million to $33.0 million, or 5.6% of net sales, for the first quarter of 2022 from $31.5 million, or 6.0% of net sales, for the first quarter of 2021.

This increase was primarily due to an increase in labor costs, bad debt, acquisition/integration costs, and other general and administrative spending.

These increases were partially offset by the decrease in restructuring charges of $3.0 million associated with the restructuring of our E-M Solutions business unit during the first quarter of 2021.

Other Expense

Other expense, net decreased $13.9 million to $8.6 million for the third quarter of 2021 from $22.5 million for the third quarter of 2020.

This decrease was primarily the result of a decrease in interest expense of $9.1 million due to overall lower levels of debt outstanding and the refinancing of our notes.

Additionally, there was an increase in other income of $2.7 million for the third quarter of 2021 related to the change in fair value of warrant liabilities.

Other expense, net decreased $14.4 million to $43.5 million for the first three quarters of 2021 from $57.9 million for the first three quarters of 2020.

This decrease was primarily the result of a decrease in interest expense of $24.9 million due to overall lower levels of debt outstanding and an increase in other income of $3.9 million for the first three quarters of 2021 related to the change in fair value of warrant liabilities, partially offset by $15.2 million of loss on extinguishment of debt.

Income tax expense increased by $4.0 million to $2.7 million of tax expense for the third quarter of 2021 from $1.3 million of tax benefit for the third quarter of 2020.

The increase in income tax expense for the third quarter of 2021 was primarily due to an

increase in pre-tax income from continuing operations and an increase in uncertain tax positions in the United States, partially offset by the tax benefit resulting from a reduction in deferred tax liability for the foreign withholding tax accrual with respect to the Company’s indefinite reinvestment policy outside of the United States .

Income tax expense increased by $7.0 million to $3.4 million of tax expense for the first three quarters of 2021 from $3.6 million of tax benefit for the first three quarters of 2020.

The increase in income tax expense for the first three quarters of 2021 was primarily due to a lower uncertain tax position release benefit due to the expiration of the statute of limitation in foreign jurisdictions, and an increase in uncertain tax positions in the United States partially offset by (i) the absence of tax expense associated with the two E-M Solutions plants that we closed in 2020, (ii) the approval of the Company’s renewal application for High and New Enterprise status for two of the Company’s manufacturing subsidiaries in China in the current year, and (iii) the reduction in the deferred tax liability for the foreign withholding tax accrual with respect to the Company’s indefinite reinvestment policy outside of the United States.

Other expense, net decreased $14.7 million to $9.4 million for the first quarter of 2022 from $24.1 million for the first quarter of 2021.

This decrease was primarily the result of the absence of $15.2 million loss on extinguishment of debt partially offset by a decrease in other income of $0.5 million for the first quarter of 2022 due to lower government subsidies.

Income tax benefit decreased by $0.3 million to $0.8 million of tax benefit for the first quarter of 2022 from $1.1 million of tax benefit for the first quarter of 2021.

The decrease in income tax benefit for the first quarter of 2022 was primarily due to an increase in pre-tax income partially offset by the tax benefit resulting from the approval of the Company’s renewal application for High and New Enterprise status for two of the Company’s manufacturing subsidiaries in China.

Our effective tax rate is primarily impacted by tax rates in China and Hong Kong, the U.S.

federal income tax rate, apportioned state income tax rates, the generation of credits and deductions available to the Company as well as changes in valuation allowances and certain non-deductible items.

We had a net deferred income tax asset of approximately $12.9 million and $15.3 million as of September 27, 2021 and September 28, 2020, respectively.

On March 11, 2021, the President of the United States signed the American Rescue Plan (ARP) providing additional economic relief for the disruptions caused by the COVID-19 pandemic.

Accounting Standard Codification (ASC) 740, Accounting for Income Taxes , requires companies to recognize the effect of tax law changes in the period of enactment regardless of the effective date of those tax law changes.

We considered the impact to our financial statements of the corporate income tax aspects of the ARP and determined the impact is not material to our financial statements.

We had a net deferred income tax asset of approximately $10.2 million and $16.0 million as of April 4, 2022 and March 29, 2021, respectively.

Liquidity and Capital Resources

Our principal sources of liquidity have been cash provided by operations, the issuance of debt, and borrowings under our Revolving Credit Facilities.

Our principal uses of cash have been to finance capital expenditures, finance acquisitions, fund working capital requirements, and to repay existing debt.

We anticipate that financing capital expenditures, financing acquisitions, funding working capital requirements, servicing debt, and potential share repurchases will be the principal demands on our cash in the future.

Cash flow provided by operating activities for continuing operations during the first three quarters of 2021 was $114.3 million as compared to cash flow provided by operating activities for continuing operations of $192.2 million in the same period in 2020.

The decrease in cash flow was primarily due to the collection of Mobility-related accounts receivable after the sale of the business unit in 2020, partially offset by an increase in net income from continuing operations of $101.4 million.

Net cash used in investing activities for continuing operations was approximately $61.1 million for the first three quarters of 2021, reflecting $62.1 million for purchases of property, plant and equipment and other assets less $1.0 million for proceeds from sale of property, plant and equipment and other assets.

Net cash used in investing activities for continuing operations was approximately $75.0 million for the first three quarters of 2020, comprised primarily of $74.5 million for purchases of property, plant and equipment and other assets.

Net cash provided by financing activities for continuing operations during the first three quarters of 2021 was $24.8 million, primarily reflecting proceeds from long-term debt borrowing of $500.0 million, less the repayment of long-term debt borrowings of $425.8 million, repurchases of common stock of $33.2 million, capital equipment financing of $7.1 million, payment of debt issuance costs of $5.9 million, and cash used to settle warrants of $3.2 million.

Net cash used in financing activities for continuing operations during the first three quarters of 2020 was $392.5 million, reflecting repayment of long-term debt of $400.0 million, offset by $7.3 million for capital equipment financing.

As of September 27, 2021, we had cash and cash equivalents of approximately $529.8 million, of which approximately $174.6 million was held by our foreign subsidiaries, primarily in China.

Our principal sources of liquidity have been cash provided by operations, the issuance of debt, and borrowings under our Revolving Credit Facility.

Our principal uses of cash have been to finance capital expenditures, finance acquisitions, fund working capital requirements, to repay debt obligations, and to repurchase common stock.

We anticipate that financing capital expenditures, financing acquisitions including our potential acquisition of Telephonics Corporation and ISC Farmingdale Corp., which is expected to close in the second quarter of 2022, funding working capital requirements, and servicing debt will be the principal demands on our cash in the future.

Cash flow provided by operating activities during the first quarter of 2022 was $36.0 million as compared to cash flow provided by operating activities of $41.1 million in the same period in 2021.

The decrease in cash flow was primarily due to increased investment in working capital.

Net cash used in investing activities was approximately $23.4 million for the first quarter of 2022, comprised of purchases of property, plant and equipment and other assets.

Net cash used in investing activities was approximately $21.0 million for the first quarter of 2021, reflecting $21.8 million for purchases of property, plant and equipment and other assets less $0.8 million for proceeds from sale of property, plant and equipment and other assets.

Net cash used in financing activities during the first quarter of 2022 was $31.1 million, primarily reflecting repurchases of common stock of $30.2 million and cash used to settle warrants of $0.9 million.

Net cash provided by financing activities during the first quarter of 2021 was $68.1 million, primarily reflecting proceeds from long-term debt borrowing of $500.0 million, less the repayment of long-term debt borrowings of $425.8 million and payment of debt issuance costs of $4.8 million.

As of April 4, 2022, we had cash and cash equivalents of approximately $519.1 million, of which approximately $186.3 million was held by our foreign subsidiaries, primarily in China.

Should we choose to remit cash to the United States from our foreign locations, we may incur tax obligations which would reduce the amount of cash ultimately available to the United States.

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Our total 2022 capital expenditures are expected to be in the range of $110.0 million to $130.0 million.

Share Repurchases

On February 3, 2021, our board of directors authorized a share repurchase program allowing us to repurchase up to $100.0 million of our common stock.

During the first quarter of 2022, we repurchased a total of 2.4 million shares of our common stock for $30.2 million (including commissions).

Subsequent to April 4, 2022, we repurchased a total of 0.4 million shares of our common stock for $5.2 million (including commissions) and there are no amounts available for repurchase as of May 4, 2022.

We repurchased a total of 7.5 million shares of our common stock for $100.0 million under the share repurchase program.

Long-term Debt and Letters of Credit

As of September 27, 2021, we had $926.9 million of outstanding debt, net of discount and debt issuance costs, composed of $493.9 million of Senior Notes due March 2029, $403.0 million of a Term Loan due September 2024, and $30.0 million under the Asia Asset-Based Lending Credit Agreement (Asia ABL).

As of April 4, 2022, we had $928.2 million of outstanding debt, net of discount and debt issuance costs, composed of $494.7 million of Senior Notes due March 2029, $403.5 million of a Term Loan due September 2024, and $30.0 million under the Asia Asset-Based Lending Credit Agreement (Asia ABL).

Pursuant to the terms of the Term Loan Facility and Senior Notes due 2029, we are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments, dispositions, and share payments.

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ABL) and Asia ABL (collectively, the ABL Revolving Loans), we are also subject to various financial covenants, including leverage and fixed charge coverage ratios.

As of September 27, 2021, we were in compliance with the covenants under the Term Loan Facility, Senior Notes due 2029 and ABL Revolving Loans.

As of April 4, 2022, we were in compliance with the covenants under the Term Loan Facility, Senior Notes due 2029 and ABL Revolving Loans.

Based on our current level of operations, we believe that cash generated from operations, cash on hand and cash from the issuance of term and revolving debt will be adequate to meet our currently anticipated capital expenditure, debt service, and working capital needs for the next twelve months.

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Contractual Obligations and Commitments

The following table provides information on our contractual obligations as of September 27, 2021:

Contractual Obligations (1)

(In thousands)

Long-term debt obligations

Interest on debt obligations (2)

Derivative liabilities

Purchase obligations

Total contractual obligations

Unrecognized uncertain tax benefits of $1.7 million are not included in the table above as the settlement timing is uncertain.

Leases are not included in the table above – see Part I, Item 1, Note 3, Leases , of the Notes to Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for further details.

For debt obligations based on variable rates, interest rates used are as of September 27, 2021.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In addition, we do not engage in trading activities involving non-exchange traded contracts.

As a result, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.

Historically, we experienced significant seasonality in revenues with a softer first half and ramping volumes in the third quarter which usually peaked in the fourth quarter.

Post the Mobility divestiture, this pattern has changed.

As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments.

These obligations impact our liquidity and capital resource needs.

Our estimated future obligations consist of long-term debt obligations, interest on debt obligations, derivative liabilities, purchase obligations, and leases as of April 4, 2022.

As of the date of this report, other than the share purchase agreement we entered into on April 18, 2022 to purchase all of the issued and outstanding capital stock of Telephonics Corporation and ISC Farmingdale Corp., there were no material changes outside the ordinary course of business since January 3, 2022 to our contractual obligations and commitments and the related cash requirements.

Historically, we experienced significant seasonality in revenues with a softer first half of the fiscal year and generally ramping volumes in the third quarter which usually peaked in the fourth quarter.

After the divestiture of our former Mobility business unit in 2020, this pattern has changed.

Barring end market demand changes, we now tend to experience modest seasonal softness in the first and third quarters due to holidays and vacation periods in China and North America, respectively, which limit production leading to stronger revenue levels in the second and fourth quarters.

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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-Q

Item 2. Management’s Discussion and Analysis