TTM TECHNOLOGIES INC (TTMI)
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RISK FACTORS
Risk Factor Summary
The risk factors summarized below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common stock to decline.
Listed below is a summary of the principal risks, which are discussed more fully immediately following this summary.
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Global economic and market uncertainty may adversely impact our business and operating results.
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Uncertainty, volatility, and adverse changes in the global economy and financial markets could have an adverse impact on our business and operating results.
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We are subject to the risks characteristic of international operations, including tariffs.
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We are subject to risks of currency fluctuations.
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If our goodwill or other intangible assets become impaired in the future, we would be required to record a non-cash charge to earnings.
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We may not fully realize the anticipated positive impacts to future financial results from our restructuring efforts.
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We depend on the U.S. federal government for a significant portion of our business.
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Our raw material suppliers or equipment manufacturers may experience disruptions to their supply chain or operations, or otherwise fail to satisfy our product quality standards, or the prices or availability of raw materials may change.
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We may be unable to maintain satisfactory capacity utilization rates.
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Our results of operations are often subject to demand fluctuations and seasonality. With a high level of fixed operating costs, even small revenue shortfalls would decrease our gross margins.
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We may fail to meet the strict quality control standards of the industries in which we participate.
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A decline in sales to the relatively small number of OEM customers on whom we depend for a large portion of our sales would materially adversely affect our business.
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Competition in the printed circuit boards (PCB) market is intense, and we could lose market share, or our profit margins may decrease, if we are unable to maintain our current competitive position in end markets.
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We may not be able to compete effectively if we are unable to adapt our design and production processes when needed.
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Products we manufacture may contain design or manufacturing defects.
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Damage to any of our manufacturing facilities could materially adversely affect our business.
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The prominence of electronic manufacturing services (EMS) companies as our customers could reduce our gross margins, potential sales, and customers.
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The worldwide electronics industry is intensely competitive and volatile.
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We serve customers and have manufacturing facilities throughout the world and are subject to risks caused by local and global pandemics and other similar risks.
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We may encounter risks associated with potential divestitures of assets and acquisitions of other businesses.
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We are exposed to the credit risk of our customers and to credit exposures in weakened markets.
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We are subject to risks from rising labor costs and labor shortages, employee strikes, and other labor-related disruptions.
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We may be unable to hire and retain sufficient qualified personnel at all levels of our organization, and we are subject to risks from the loss of any of our key executive officers, or the inability to maintain a sufficient workforce to satisfy production demands.
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Initiatives aimed at addressing potential climate change risks could materially adversely affect our business.
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Infringement of our intellectual property rights could negatively affect us, and we may be exposed to intellectual property infringement claims from third parties.
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Foreign laws may not afford us sufficient protections for our intellectual property.
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We have substantial outstanding indebtedness, which could adversely impact our liquidity, our flexibility in obtaining additional financing, and our ability to fulfill our debt obligations.
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We are subject to interest rate risk, which could cause our debt service obligations to increase significantly.
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Servicing our debt requires a significant amount of cash, and we may be forced to take other actions to satisfy our obligations under our debt.
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We are subject to the requirements of the National Industrial Security Program Operating Manual (NISPOM) for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. government.
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Our operations in Asia subject us to risks and uncertainties relating to the local laws and regulations and adverse effects of political tensions that arise from time to time with China.
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Our failure to comply with the requirements of environmental laws could result in litigation, fines, revocation of necessary permits, or debarment from our participation in federal government contracts.
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Our international sales are subject to laws and regulations relating to corrupt practices, trade and export controls, and economic sanctions. Any non-compliance could have a material adverse effect on our business.
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Outages, computer viruses, cyber-attacks and cybersecurity incidents, and similar events could materially disrupt our operations.
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Privacy, information security, and data protection laws, rules, and regulations could affect or limit how we collect and use personal information, increase our costs, and adversely affect our business opportunities.
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Issues arising during the upgrade of our enterprise resource planning (ERP) system could affect our operating results and ability to manage our business effectively.
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Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal, state, and foreign income tax purposes is subject to limitations, and future transfers of shares of our common stock could cause us to experience an “ownership change” that could further limit our ability to utilize our net operating losses.
An investment in our common stock involves a high degree of risk. You should carefully consider the factors described below, in addition to those discussed elsewhere in this Report, in analyzing an investment in our common stock. If any of the events described below occurs, our business, financial condition, and results of operations would likely suffer, the trading price of our common stock could fall, and you could lose all or part of the money you paid for our common stock. Risks and uncertainties not known to us currently, or that may appear immaterial, also may have a material adverse effect on our business, financial condition, and results of operations.
In addition, the following risk factors and uncertainties could cause our actual results to differ materially from those projected in our forward-looking statements, whether made in this Report or the other documents we file with the Securities and Exchange Commission (SEC), or our annual or quarterly reports to stockholders, future press releases, or orally, whether in presentations, responses to questions, or otherwise.
Risks Related to our Business
Global economic and market uncertainty may adversely impact our business and operating results.
Uncertain global economic conditions Our business, financial position, results of operations, and/or cash flows have in the past been and may in the future be adversely impact our business. impacted by global economic conditions. The current uncertainty in the worldwide economic environment together with other unfavorable changes in economic conditions, such as higher inflation and inflation, interest rate increases currently being experienced or implemented by most developed economies, as well as recessions that have affected major countries, increases, labor shortages, and market volatility, may negatively impact consumer confidence and spending, ultimately causing our customers to postpone purchases and may ultimately impact our profitability. Inflation and rapid fluctuations in inflation rates have had spending in the past, industries where we operate. These and may in the future have, negative effects on economies and financial markets. We could experience period-to-period fluctuations in operating results due to general industry or economic conditions and volatile or other uncertain economic conditions can adversely may negatively impact revenue, earnings, and demand for our sales and profitability and make it difficult for us products as well as our ability to accurately forecast and plan our future business activities. Furthermore, inflationary pressure and increases in interest rates may negatively impact revenue, earnings, and demand for our products. During challenging economic times, our current or potential future customers may experience difficulty earning sufficient revenue, securing financing, or generating cash flow problems and as a result may modify, delay, or cancel plans to purchase our products. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure financing, they products and/or may not be able to pay, or may delay payment of, accounts receivable that they owe us. Any inability of our current or potential future customers to pay us for our products may adversely affect our earnings and cash flow. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products.
Uncertainty, volatility, and adverse changes in the global economy and financial markets, including those resulting from the conflict between Russia and Ukraine and other global conflicts, could have an adverse impact on our business and operating results.
Uncertainty, volatility, or adverse changes in the global economy could lead to a significant decline in demand for the end products manufactured by our customers, which, in turn, could result in a decline in the demand for our products and increase increased pressure to reduce our prices. Any decrease in demand for our products could have an These adverse impact on our financial condition, operating results, and cash flows. Uncertainty and adverse changes in the economy global economic conditions could also increase the cost and decrease the availability of potential sources of financing and increase our exposure to losses from bad debts. All of these impacts could have a material adverse effect on our financial condition, operating results, and cash flows.
sources of financing and increase our exposure to losses from bad debts, either of which could have a material adverse effect on our financial condition, operating results, and cash flows.
The conflict between Russia and Ukraine and in other global regions has contributed to volatility in the global economy and markets and ongoing geopolitical instability and is likely to have further global economic consequences, including ongoing disruptions of the global supply chain and energy markets. The effects of the conflict have contributed to significant volatility in credit and capital markets, spikes in energy prices, changes in laws and regulations that may affect our business, sanctions or counter‑sanctions, and increased cybersecurity threats and concerns. As a result, there is a risk that supplies of our products may be significantly delayed by or may become unavailable as a result of the conflict between Russia and Ukraine and in other global regions affecting us or our suppliers. The conflicts may, at times, reduce demand for our products because of reduced global or national economic activity, disruptions and extreme volatility in global financial markets, increased rates of default and bankruptcy, and reduced levels of business and consumer spending. The effects of these conflicts could heighten or exacerbate many of the risk factors described in this Item 1A,
Risk Factors
, and may adversely affect our business, financial condition, and results of operation.
We have manufacturing facilities and serve customers outside the United States and are subject to the risks characteristic of international operations, including tariffs.
We have significant manufacturing operations in China, elsewhere in Asia and Canada and sales offices located in Asia and Europe. We continue to consider additional opportunities to make foreign investments and construct new foreign facilities.
In addition, for the year ended December 30, 2024, 29, 2025, we generated approximately 47% 50% of our net sales from non-U.S. operations, and a significant portion of our manufacturing material was provided by international suppliers during this period. The United States’ trade policies and those of foreign countries are subject to change which could adversely affect our ability to purchase and sell goods and materials without significant tariffs, taxes, or duties that may be imposed on the materials we purchase or the goods we sell, thereby increasing the cost of such materials and potentially decreasing our margins. Further, our revenues could be impacted if our customers’ ability to sell their goods is reduced by such tariffs, taxes, or duties. Both the U.S. and Chinese governments have included PCBs among items subjected to tariffs imposed on imports from such countries, which may negatively impact our revenue and profitability. In addition, we are subject to risks relating to significant international operations, including but not limited to: managing international operations and longer payment cycles; imposition of governmental controls, unstable regulatory environments, and government or political unrest; limitations on imports or exports and/or increases in duties and taxation levied on our products; inflation or changes in political and economic conditions; labor unrest, rising wages, difficulties in staffing, geographical labor shortages, and compliance with employment laws; conflict or war between nations over territory that impacts the electronics supply chain leading to potential trade restrictions to and from the nations involved, including Russia, Ukraine, and China; language, communication, and cultural barriers, as well as time zone differences; potentially adverse tax consequences; expropriation of private enterprises; strained trade relationships between the United States and its trading partners, including trade tariffs which could create competitive pricing risk; and government imposed sanction laws and regulations.
• We are subject to risks of currency exchange rate fluctuations.
managing international operations; A portion of our cash, other assets, and liabilities is held in currencies other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect the value of these assets or liabilities and could negatively impact the amount of cash available to fund operations or repay debt. To the extent that we decide to repatriate some portion of these funds to the United States, the actual value transferred could be impacted by movements in exchange rates. Additionally, we have revenues and costs denominated in currencies other than the U.S. dollar, primarily the RMB and the MYR. Fluctuations in the exchange rates between the U.S. dollar and the RMB and/or the MYR could result in increases in our costs or decreases in our revenues which could negatively impact our business, financial condition, and results of operations. Significant inflation or disproportionate changes in foreign exchange rates could occur from general economic conditions, acts of war or terrorism, changes in governmental monetary or tax policy, or changes in local interest rates. Further, China’s government imposes controls over the convertibility of RMB into foreign currencies, which subjects us to further currency exchange risk.
• Changes in future business conditions could cause goodwill, intangible assets, and other long-lived assets to become impaired, which would result in significant losses and write-downs that would reduce our operating income.
imposition We periodically evaluate whether events and circumstances have occurred, such that the potential for reduced expectations for future cash flows coupled with further decline in the market price of governmental controls; our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable. If forecasts and assumptions used to support the realizability of our long-lived assets change in the future, it could result in significant impairment charges. If factors indicate that assets are impaired, we would be required to reduce the carrying value of our goodwill, definite-lived intangible assets, and other long-lived assets, which could harm our results during the periods in which such a reduction is recognized.
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unstable regulatory environments;
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compliance with employment laws;
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implementation of disclosure controls, internal controls, financial reporting systems, and governance standards to comply with U.S. accounting and securities laws and regulations;
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limitations on imports or exports of our product offerings;
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fluctuations in the value of local currencies;
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inflation or changes in political and economic conditions;
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public health crises;
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labor unrest, rising wages, difficulties in staffing, and geographical labor shortages;
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government or political unrest;
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conflict or war between nations over territory that impacts the electronics supply chain leading to potential trade restrictions to and from the nations involved, including Russia, Ukraine, and China;
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longer payment cycles;
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language and communication barriers, as well as time zone differences;
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cultural differences;
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increases in duties and taxation levied on our products;
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other potentially adverse tax consequences;
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imposition of restrictions on currency conversion or the transfer of funds;
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travel restrictions;
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expropriation of private enterprises;
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the potential reversal of current favorable policies encouraging foreign investment and trade;
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the potential for strained trade relationships between the United States and its trading partners, including trade tariffs which could create competitive pricing risk; and
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government imposed sanction laws and regulations.
Further, the conflict between Russia and Ukraine and in other global regions described in the previous risk factor, and the effects thereof, may adversely affect our manufacturing facilities and our customers.
We are subject to risks of currency fluctuations.
A portion of our cash, other assets and liabilities is held in currencies other than the U.S. dollar. Changes in exchange rates among other currencies and the U.S. dollar will affect the value of these assets or liabilities as re-measured to U.S. dollars on our balance sheet. To the extent that we ultimately decide to repatriate some portion of these funds to the United States, the actual value transferred could be impacted by movements in exchange rates. Any such type of movement could negatively impact the amount of cash available to fund operations or to repay debt. Additionally, we have revenues and costs denominated in currencies other than the U.S. dollar (primarily the Renminbi (RMB)). Fluctuations in the exchange rates between the U.S. dollar and the RMB could result in increases or decreases in our costs or revenues which could negatively impact our business, financial condition, and results of operations. Significant inflation or disproportionate changes in foreign exchange rates could occur as a result of general economic conditions, acts of war or terrorism, changes in governmental monetary or tax policy, or changes in local interest rates. Further, China’s government imposes controls over the convertibility of RMB into foreign currencies, which subjects us to further currency exchange risk.
We have a significant amount of goodwill and other intangible assets on our consolidated balance sheet. If our goodwill or other intangible assets become impaired in the future, we would be required to record a non-cash charge to earnings, which may be material and would also reduce our stockholders’ equity.
As of December 30, 2024, our consolidated balance sheet included $862.0 million of goodwill and definite-lived intangible assets. During the year ended December 30, 2024, we recorded a non-cash goodwill impairment charge of $32.6 million related to our RF and Specialty Components (RF&S Components) reportable segment. We periodically evaluate whether events and circumstances have occurred, such that the potential for reduced expectations for future cash flows coupled with further decline in the market price of our stock and market capitalization may indicate that the remaining balance of goodwill and definite-lived intangible assets may not be recoverable. If factors indicate that assets are impaired, we would be required to reduce the carrying value of our goodwill and definite-lived intangible assets, which could harm our results during the periods in which such a reduction is recognized.
We may not fully realize the anticipated positive impacts to future financial results from our restructuring efforts.
We previously announced plans to consolidate our integrated electronics facilities in Elizabeth City, North Carolina and Huntington, New York into existing facilities in order to improve efficiencies. As of the end of fiscal year 2024, the closure of Elizabeth City has been completed and the closure of Huntington is expected by the middle of 2025. If economic conditions deteriorate, we may not achieve the expected increase in overall profitability as a result of the consolidation. Our ability to achieve the anticipated cost savings and other benefits from our restructuring efforts within expected time frames is subject to many estimates and assumptions, and may vary materially based on factors such as market conditions and the effect of our restructuring efforts on our work force. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control. There can be no assurance that we will fully realize the anticipated positive impacts to future financial results from our current or future restructuring efforts. If our estimates and assumptions are incorrect or if other unforeseen events occur, we may not achieve the cost savings expected from such restructurings, and our business and results of operations could be adversely affected.
We depend on the U.S. federal government for a significant portion of our business, which involves unique risks. Changes in government defense spending or regulations could have a material adverse effect on our business, financial condition, and results of operations.
A significant portion of our revenues is derived from products and services that are ultimately sold to the U.S. federal government by our OEM and EMS customers and is therefore affected by, among other things, the federal government budget process. We supply to defense prime companies, the U.S. federal government and its agencies, as well as foreign governments and agencies. The contracts between our direct customers and the government end-user are subject to political and budgetary constraints and processes, changes in short-range and long-range strategic plans, the timing of contract awards, the congressional budget authorization and appropriation processes, the government’s ability to terminate contracts for convenience or for default, as well as other risks, such as contractor suspension or debarment in the event of certain violations of legal and regulatory requirements. The termination or failure to fund one or more significant defense programs or contracts by the U.S. federal government could have a material adverse effect on our business, financial condition, and results of operations.
For Future changes to the year ended December 30, 2024, aerospace and defense sales accounted for approximately 46% of our total net sales. The substantial majority of aerospace and defense sales are related U.S. Munitions List could reduce or eliminate restrictions that currently apply to both U.S. and U.S. federal government approved foreign military and defense programs. Consequently, our sales are affected by changes in the defense budgets some of the U.S. products we produce. If these regulations or others are changed in a manner that reduces restrictions on overseas manufacturing, we would likely face increased competition and foreign governments price pressure from overseas manufacturers, who are currently restricted by import and may be affected by federal budget sequestration measures. export laws.
The domestic We rely on suppliers and international threat equipment manufacturers for the timely delivery of terrorist activity, emerging nuclear states, raw materials, components, equipment, and conventional military threats have generally led spare parts used in manufacturing our products. If a raw material supplier or equipment manufacturer experiences disruptions to an increase in demand for defense products and services and homeland security solutions in their supply chain or operations, or otherwise fails to satisfy our product quality standards, or if the recent past. The prices or availability of raw materials change, it could harm our ability to purchase new manufacturing equipment, service the equipment we have, or timely produce our products, thereby affecting our customer relationships.
termination or failure to fund one or more significant defense programs or contracts by the U.S. federal government could have a material adverse effect Our success depends on our business, financial condition, ability to deliver products timely to our customers, which requires successful planning and results logistics infrastructure, including, ordering, transportation and receipt processing, and the ability of operations. suppliers to meet our materials requirements.
Future Consolidations and restructuring in our supplier base and equipment fabricators related to our raw materials purchases or the manufacturing equipment we use to fabricate our products may result in adverse changes in pricing due to the U.S. Munitions List reduced competition and shortages of equipment and spare parts. Suppliers and equipment manufacturers may be impacted by other events outside our control, including macroeconomic events, financial instability, liquidation, environmental occurrences, public health crises, or interruptions due to fire, natural catastrophes, or otherwise. As a result, they may have extended lead times, limited supplies, reduced workforces, and/or increased prices due to capacity constraints and other factors, which could reduce or eliminate restrictions that currently apply to some negatively impact our delivery times, inventory levels, and cash flow and could negatively impact our financial results. The severity of the products we produce. If these regulations or others are changed in a manner that reduces restrictions on products being manufactured overseas, we would likely face an increase constraints in the number of competitors and increased price competition from overseas manufacturers, who are restricted by current import and export laws from manufacturing products for U.S. defense systems. supply chain is continuously changing, which creates substantial uncertainties in our business.
We rely on suppliers Ongoing macroeconomic conditions, including the inflationary environment, have increased the cost of our raw materials and equipment manufacturers for components. If raw material and component prices remain elevated and the timely delivery cost of raw materials, components, equipment, the metals that we use to produce our product, especially the prices of copper, gold, tin, palladium, and spare parts other precious metals remain elevated or otherwise continue to increase, it may reduce our gross margins. Should the supply of materials used in our manufacturing our PCBs. If a raw material supplier or equipment manufacturer goes bankrupt, liquidates, consolidates out of existence, experiences excess demands or other disruptions to their supply chain or operations, or otherwise fails to satisfy our product quality standards, or if the prices or availability of raw materials change, it could harm processes become limited, our ability to purchase new manufacturing equipment, service obtain the equipment we have, or timely produce quantities necessary to meet our products, thereby affecting customers’ demand may be impacted, which would impact our customer relationships. profit margins. If either of these situations occurs, our financial condition and results of operations could be negatively impacted.
To manufacture PCBs, we use raw materials such as laminated layers of fiberglass, copper foil, chemical solutions, gold, copper, and other commodity products, which we order from our suppliers. For Hybrid Microelectronics and radio frequency (RF) components, we use various high-performance materials such as Rad Hard & Space active components, Silicon transistors, insulated‑gate bipolar transistors (IGBTs), field-effect transistors (FETs), Signal & Zener diodes, magnets, inductors, coils, beryllium oxide (BeO), and silicon nitride (SiN) substrates, as well as ceramics and printed circuit board materials. In the case of backplane assemblies, components include connectors, sheet metal, capacitors, resistors, and diodes, many of which are custom made and controlled by our customers’ approved vendors. For our Radar, Communication, and Surveillance systems, we use highly sophisticated electronic assemblies including Transmitter and Receiver CCA’s/Modules, Traveling Wave Tube Assemblies, Exciters, Wave Form Generators, and Frequency Generators which are specifically designed for their application.
Our success is due in part to our ability to deliver products timely to our customers, which requires successful planning and logistics infrastructure, including, ordering, transportation and receipt processing, and the ability of suppliers to meet our materials requirements.
Consolidations and restructuring in our supplier base and equipment fabricators related to our raw materials purchases or the manufacturing equipment we use to fabricate our products may result in adverse changes in pricing of materials due to reduction in competition among our raw material suppliers or an elimination or shortage of equipment and spare parts from our manufacturing equipment supply base. Suppliers and equipment manufacturers may be impacted by other events outside our control including macroeconomic events, financial instability, environmental occurrences, or supplier interruptions due to fire, natural catastrophes, public health crises or otherwise. Several of these factors have contributed to supply chain constraints we continue to experience. As a result, suppliers and equipment manufacturers have extended lead times, limited supplies, and/or increased prices due to capacity constraints and other factors. These have impacted our ability to deliver our products on a timely basis, our inventory levels and cash flow, and could negatively impact our financial results. The severity of the constraints in the supply chain is continuously changing, which creates substantial uncertainties in our business. In addition, in extreme circumstances, the suppliers we purchase from could cease production altogether due to a fire, natural disaster, consolidation, or liquidation of their businesses. The supply chain constraints and other factors discussed above may continue to impact our ability to deliver our products on a timely basis, harm our customer relationships and negatively impact our financial results.
In particular, the ongoing macroeconomic conditions, including the inflationary environment, have increased the cost of our raw materials and components. If raw material and component prices remain elevated and the cost of the metals that we use to produce our product, especially if the prices of copper, gold, tin, palladium, and other precious metals we use to manufacture our products remain elevated or otherwise continue to increase, it may reduce our gross margins. Should the supply of materials used in the above manufacturing processes become limited, our ability to obtain the quantities necessary to meet our customers’ demand may be impacted which could cause us to encounter reduced revenue levels or price increases which would impact our profit margins. If either of these situations occurs, our financial condition and results of operations could be negatively impacted.
If we are unable to maintain satisfactory capacity utilization rates, our business, financial condition, and results of operations would be materially adversely affected.
Given the high fixed costs of our operations, decreases in capacity utilization rates can have a significant effect on our business. Accordingly, our ability to maintain or enhance gross margins will continue to depend, in part, on maintaining satisfactory capacity utilization rates. In turn, our Our ability to maintain satisfactory capacity utilization will depend on the demand for our products, the volume of orders we receive, our ability to maintain a sufficient workforce at our facilities, and our ability to offer products that meet our customers’ requirements at competitive prices. If current or future production capacity fails to match current or future customer demands, our facilities would be underutilized, our sales may not fully cover our fixed overhead expenses, and we would be less likely to achieve expected gross margins. If forecasts and assumptions used to support the realizability of our long-lived assets change in the future, significant impairment charges could result that would materially adversely affect our business, financial condition, and results of operations.
In addition, we generally schedule our quick turnaround production facilities at less than full capacity to retain our ability to respond to unexpected additional quick-turn orders. However, if these orders are not received, we may forego some production and could experience continued excess capacity. If we conclude we have significant, long-term excess capacity, we may decide to permanently close one or more of our facilities and lay off some of our employees. Closures or lay-offs could result in our recording of restructuring charges such as severance, other exit costs, and asset impairments, as well as potentially causing disruptions in our ability to supply customers.
Our results of operations are often subject to demand fluctuations and seasonality. fluctuations. With a high level of fixed operating costs, even small revenue shortfalls would decrease our operating margins.
Our results of operations fluctuate for a variety of reasons, including: including, but not limited to, timing of orders from and shipments to major customers, manufacturing capacity utilization levels, price competition, and changes in our mix of revenues generated from quick-turn versus standard delivery time services.
• A significant portion of our operating expenses are relatively fixed in nature, and planned expenditures are based in part on anticipated orders. We have experienced sales fluctuations in the capital budgeting, purchasing cycles, and inventory management practices of our customers and the end markets we serve, and as a result, our future quarterly operating results may fluctuate and may not meet the expectations of securities analysts or investors.
timing of orders from and shipments to major customers;
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the levels at which we utilize our manufacturing capacity;
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price competition;
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changes in our mix of revenues generated from quick-turn versus standard delivery time services;
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expenditures, charges, or write-offs, including those related to acquisitions, facility restructurings, or asset impairments; and
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expenses relating to expanding existing manufacturing facilities.
A significant portion of our operating expenses are relatively fixed in nature, and planned expenditures are based in part on anticipated orders. Accordingly, unexpected revenue shortfalls may decrease our operating margins. In addition, we have experienced sales fluctuations due to seasonal patterns in the capital budgeting and purchasing cycles, as well as inventory management practices of our customers and the end markets we serve. These seasonal trends have caused fluctuations in our operating results in the past and may continue to do so in the future. Results of operations in any period should not be considered indicative of the results that may be expected for any future period. In addition, our future quarterly operating results may fluctuate and may not meet the expectations of securities analysts or investors.
We participate in competitive industries, including the automotive industry, which requires strict quality control standards. Failure to meet these standards may adversely affect our business, financial condition, and results of operations.
Our customer base demands the highest customer service, on time delivery delivery, and quality standards in a competitive market. Failure to meet these ever-increasing standards may result in a loss of market share for our products and services to our competitors, which may result in a decline in our overall revenue. For example, a significant portion of our sales are to customers within the automotive industry, which has historically experienced multi-year cycles of growth and decline. If sales of automobiles should decline or go into a cyclical downturn, our sales could decline, and this could have a materially adverse impact on our business, financial condition, and result of operations. For safety reasons, automotive Automotive customers have strict quality standards that generally exceed the quality requirements of other customers. If such products do not meet these quality standards, our business, financial condition, and results of operations may be materially adversely affected. These automotive customers may require long periods of time to evaluate whether our manufacturing processes and facilities meet their quality standards. If we were to lose automotive customers due to quality control issues, we might not be able to regain those customers or gain new automotive customers for long periods of time, which could have a material adverse effect on our business, financial condition, and condition and/or results of operations. Moreover, we may be required under our contracts with automotive industry customers to indemnify them for the cost of warranties and recalls relating to our products.
We depend upon a relatively small number of OEM customers for a large portion of our sales, and a decline in sales to major customers would materially adversely affect our business, financial condition, and results of operations.
A small number of customers are responsible for a significant portion of our sales. Our five largest OEM customers collectively accounted for approximately 44%, 42%, 41%, and 33% 41% of our net sales for the years ended December 29, 2025, December 30, 2024, and January 1, 2024, and January 2, 2023, respectively, and one customer two customers collectively represented 11% 23% of our net sales for the year ended December 30, 2024. Furthermore, our business has benefited from OEMs deciding to outsource their PCB 29, 2025. Our current and Integrated Electronics manufacturing needs to us, and our future revenue growth partially depends on new OEMs outsourcing opportunities from OEMs. Sales attributed their manufacturing needs to OEMs include both direct sales as well as sales that the OEMs place through EMS providers. us. Our customer concentration could fluctuate, depending on future customer requirements, which will depend in large part on market conditions in the electronics industry segments in which our customers participate. The loss of one or more significant customers or a decline in sales to our significant customers would materially adversely affect our business, financial condition, and results of operations. In addition, we generate significant accounts receivable in connection with providing manufacturing services to our these customers. If one or more of our significant customers were to become insolvent or were otherwise unable to pay for the manufacturing services provided by us, our business, financial condition, and results of operations would be materially adversely affected.
In addition, during During industry downturns, we may need to reduce prices to limit the level of order losses, and we may be unable to collect payments from our customers. There can be no assurance that key customers would not cancel orders, that they would continue to place orders with us in the future at the same levels as experienced by us in prior periods, that they would be able to meet their payment obligations, or that the end-products that use our products would be successful.
payment obligations, or that the end-products that use our products would be successful. This concentration of customer base may materially adversely affect our business, financial condition, and results of operations due to to: the loss or cancellation of business from any of these our key customers, customers; a decline in sales, decreases in prices, or significant changes in scheduled deliveries of our products to any our significant customers; or the insolvency of these customers, one or decreases in the prices more of the products sold to any of these our significant customers.
Competition in the PCB and worldwide electronics market is intense, and we could lose market share, or our profit margins may decrease, if we are unable to maintain our current competitive position in end markets using our quick-turn, high-technology, and high-mix manufacturing services.
The PCB industry is intensely competitive, highly fragmented, and rapidly changing. We expect competition The worldwide electronics industry is characterized by relatively short product life cycles and significant fluctuations in product demand, and is subject to continue, which could result in price reductions, reduced gross margins, and loss of market share. In addition, we increasingly compete on an international basis, and new and emerging technologies may result in new competitors entering our markets. economic cycles
Some and recessionary periods. We expect competition to continue, which could result in price reductions, reduced gross margins, and loss of market share. In addition, we increasingly compete on an international basis, and new and emerging technologies may result in new competitors entering our competitors and potential competitors have advantages over us, including: markets.
• Some of our competitors and potential competitors have advantages over us, including: greater financial and manufacturing resources that can be devoted to the development, production, and sale of their products; more established and broader sales and marketing channels; preferred vendor status with existing and potential customers; more manufacturing facilities worldwide, some of which are closer in proximity to OEMs and/or located in countries with lower production costs; lower capacity utilization, which in peak market conditions can result in shorter lead times to customers; ability to add capacity faster or more efficiently; and larger customer bases.
greater financial In addition, these competitors may respond more quickly to new or emerging technologies or adapt more quickly to changes in customer requirements than we do. We must continually develop improved manufacturing processes to meet our customers’ needs for complex products, and our manufacturing resources that can be devoted process technology is generally not subject to significant proprietary protection. During recessionary periods in the development, production, and sale electronics industry, we may need to compete more on the basis of their products; price, which would cause our gross margins to decline.
• Competitors may reduce their average selling prices faster than our ability to reduce costs, which can also accelerate the rate of decline of our selling prices and result in lower or no profit from sales. When prices decline, we may also be required to write down the value of our inventory.
more established and broader sales and marketing channels;
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more manufacturing facilities worldwide, some of which are closer in proximity to OEMs;
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manufacturing facilities that are located in countries with lower production costs;
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lower capacity utilization, which in peak market conditions can result in shorter lead times to customers;
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ability to add additional capacity faster or more efficiently;
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preferred vendor status with existing and potential customers;
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greater name recognition; and
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larger customer bases.
In addition, these competitors may respond more quickly to new or emerging technologies or adapt more quickly to changes in customer requirements than we do. We must continually develop improved manufacturing processes to meet our customers’ needs for complex products, and our manufacturing process technology is generally not subject to significant proprietary protection. During recessionary periods in the electronics industry, our strategy of providing quick-turn services, an integrated manufacturing solution, and responsive customer service may take on reduced importance to our customers. As a result, we may need to compete more on the basis of price, which would cause our gross margins to decline.
We and some of our competitors have reduced average selling prices in the past. In addition, competitors may reduce their average selling prices faster than our ability to reduce costs, which can also accelerate the rate of decline of our selling prices. When prices decline, we may also be required to write down the value of our inventory. In addition, we could yield lower or no profit from the sale of our products if we price our products aggressively in response to market conditions.
If we are unable to adapt our design and production processes in response to rapid technological change and process development, we may not be able to compete effectively.
The markets for our products and manufacturing services are characterized by rapidly changing technology and continual implementation of new designs and production processes. The Our future success of our business will depend in large part upon highly depends on our ability to maintain and enhance our technological capabilities, to design and manufacture products that meet changing customer needs, and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. We expect that the investment necessary to maintain our technological position will increase as customers make demands for products and services requiring more advanced technology on a quicker turnaround basis. For example, in our PCB segment, we expect to continue to make capital expenditures to expand our High Density Interconnect (HDI), RF technology, and other advanced manufacturing capabilities while in our RF&S Components segment, we are designing products that we hope our customers adopt and incorporate into their products. We may not be able to obtain access to additional sources of funds in order to respond to technological changes as quickly as our competitors. In addition, our failure to adopt and implement technological improvements quickly may cause inefficiencies in our production process as our product yields or quality may decrease, resulting in increased costs, and may lead to customers not adopting our product designs.
We also could encounter competition from new or revised manufacturing, production, and design technologies that render existing manufacturing, production, and design New emerging technology less competitive or obsolete. We may not respond effectively to the technological requirements of the changing market. If we need new technologies and equipment or if we are not able to design new products acceptable to customers to remain competitive, the development, acquisition, and implementation of those designs, technologies, and equipment may trends, such as AI, require us to make significant capital investments. keep pace with evolving regulations and industry standards. In the United States, there are various current and proposed regulatory frameworks relating to the use of AI in products and services. We expect that the legal and regulatory environment relating to emerging technologies such as AI will continue to develop and could increase the cost of doing business, and create compliance risks and potential liability, all which may have a material adverse effect on our financial condition and results of operations. Governments are also considering the new issues in intellectual property law that AI creates, which could result in different intellectual property rights in technology we create with AI and development processes and procedures and could have a material adverse effect on our business.
New emerging technology trends, such as artificial intelligence (AI), require us to keep pace with evolving regulations and industry standards. In the United States, there are various current and proposed regulatory frameworks relating to the use of AI in
products and services. We expect that the legal and regulatory environment relating to emerging technologies such as AI will continue to develop and could increase the cost of doing business, and create compliance risks and potential liability, all which may have a material adverse effect on our financial condition and results of operations. Governments are also considering the new issues in intellectual property law that AI creates, which could result in different intellectual property rights in technology we create with AI and development processes and procedures and could have a material adverse effect on our business.
Products we manufacture may contain design or manufacturing defects, which could result in reduced revenue from the sale of our products or services and may result in liability claims against us.
We manufacture products to our customers’ specifications, which are highly complex and may contain design or manufacturing errors or failures, despite our quality control and quality assurance efforts. Defects in the products we manufacture, our products, whether caused by a design, manufacturing, or materials failure or error, may result in delayed shipments, customer dissatisfaction, a reduction or cancellation of purchase orders, or liability claims against us. If these defects occur either in large quantities or too frequently, our business reputation may be impaired, and our customers may decrease the orders for products or services that they purchase from us, thereby decreasing our overall revenue. Since our products are used in products that are integral to our customers’ businesses, errors, defects, or other performance problems could result in financial or other damages to our customers beyond the cost of the PCB, for which we may be liable. Although our invoices and sales arrangements generally contain provisions designed to limit our exposure to product liability and related claims, existing or future laws or unfavorable judicial decisions could negate these limitation of liability provisions. If any of our products are or are alleged to be defective, we may be required to participate in a recall of such products, particularly with respect to our products for automotive customers. As suppliers become more integral to the vehicle design process and assume more of the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contributions when faced with product liability claims or recalls. In addition, vehicle manufacturers, which have traditionally borne the costs associated with warranty programs offered on their vehicles, are increasingly requiring suppliers to guarantee or warrant their products and may seek to hold us responsible for some or all of the costs related to the repair and replacement of parts supplied by us to the vehicle manufacturer.
Damage to any of our manufacturing facilities due to fire, natural disaster, or other events could materially adversely affect our business, financial condition, and results of operations.
The destruction or closure of any of our facilities for a significant period of time as a result of fire, explosion, blizzard, act of war or terrorism, flood, tornado, earthquake, lightning, other natural disasters, required maintenance, or other events could harm us financially, increasing our costs of doing business and limiting our ability to deliver our manufacturing services on a timely basis.
Our insurance coverage with respect to damages to our facilities or our customers’ products caused by natural disasters is limited and is subject to deductibles and coverage limits. Such coverage may not be adequate or continue to be available at commercially reasonable rates and terms.
In the event one or more of our facilities is closed on a temporary or permanent basis as a result of a natural disaster, required maintenance or other event, our operations could be significantly disrupted. Such events could delay or prevent product manufacturing and shipment for the time required to transfer production or repair, rebuild, or replace the affected manufacturing facilities. This time frame could be lengthy and result in significant expenses for repair and related costs. While we have disaster recovery plans in place, there can be no assurance that such plans will be sufficient to allow our operations to continue in the event of every natural or man‑made disaster, required repair, or other extraordinary event. Any extended inability to continue our operations at unaffected facilities following such an event would reduce our revenue and potentially damage our reputation as a reliable supplier.
The prominence of EMS companies as our customers could reduce our gross margins, potential sales, and customers.
Sales to EMS companies represented approximately 30%, 28%, 31%, and 37% 31% of our net sales for the years ended December 29, 2025, December 30, 2024, and January 1, 2024, and January 2, 2023, respectively. Sales to EMS providers include sales directed by OEMs as well as orders placed with us at the EMS providers’ discretion. EMS providers source on a global basis to a greater extent than OEMs. The growth of EMS providers increases the purchasing power of such providers and has in the past, and could in the future, result in increased price competition or the loss of existing OEM customers. In addition, some EMS providers, including some of our customers, have the ability to directly manufacture PCBs and create backplane assemblies. If a significant number of our other EMS customers were to acquire these abilities, our customer base might shrink, and our sales might decline substantially. Moreover, if any of our OEM customers outsource the production of PCBs and creation of backplane assemblies to these EMS providers, our business, financial condition, and results of operations may be materially adversely affected.
The worldwide electronics industry is intensely competitive and volatile.
A majority of our revenue is generated from the electronics industry, which is characterized by intense competition, relatively short product life cycles, and significant fluctuations in product demand. The industry is subject to economic cycles and recessionary periods. Due to the uncertainty in the end markets served by most of our customers, we have a low level of visibility with respect to future financial results. Consequently, our past operating results, earnings, and cash flows may not be indicative of our future operating results, earnings, and cash flows.
We serve customers and have manufacturing facilities throughout the world and are subject to risks caused by local and global pandemics and other similar risks, which could materially adversely affect our business, financial condition, and results of operations.
Local and global pandemics or other disasters or public health concerns in regions of the world where we have operations or source material or sell products could result in the disruption of our business. Specifically, these pandemics, disasters and health concerns can result in increased travel restrictions and extended shutdowns of certain businesses in the regions in which we operate, as well as social, economic, or labor instability. Disruptions in our product shipments or impacts on our manufacturing in affected regions over a prolonged period could have a material adverse impact on our business and our financial results.
In particular, multiple facets of our business may be negatively impacted by the fear of exposure to or actual effects of disease outbreaks, epidemics, pandemics, and similar widespread public health concerns. These impacts include but are not limited to:
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failure of third parties on which we rely, including, without limitation, our suppliers, commercial banks, and other external business partners, to meet their obligations to us, caused by significant disruptions in their ability to do so or their own financial or operational difficulties;
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supply chain risks such as disruptions of supply chains, excess demand on suppliers, and scrutiny or embargoing of goods produced in infected areas;
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reduced workforces and labor shortages at all levels of our organization, which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, lockdowns, quarantine, or government mandates and incentives;
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temporary business closures due to reduced workforces or government mandates;
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reduced demand for our products and services caused by, but not limited to, the effect of quarantine or other travel restrictions or financial hardship on our workforce or the businesses in the industries we service; or
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restrictions to our business as a result of federal or state laws, regulations, orders or other governmental or regulatory actions, if adopted.
Any of the foregoing factors, or other cascading effects that are not currently foreseeable, could materially increase our costs, negatively impact our sales, or damage the Company’s financial condition, results of operations, cash flows, and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.
We have pursued and intend to continue to pursue potential divestitures of assets and acquisitions of other businesses and may encounter risks associated with these activities, which could harm our business and operating results. If we are unable to manage our growth effectively, our business, financial condition, and results of operations could be materially adversely affected.
As part of our business strategy, we expect that we will continue to implement and align our strategy by pursuing potential divestitures of assets, such as our sale of Shanghai Backplane Assembly, and acquisitions of businesses, technologies, assets, or product lines that complement or expand our business, such as our acquisition of Gritel Holding Co., Inc. (Gritel) and ISC Farmingdale Corp. Telephonics in 2022. Telephonics Corporation is now a wholly-owned subsidiary of TTM by way of our acquisition of Gritel, the Telephonics direct parent company.
Acquisitions of high technology companies and assets are inherently risky, and no assurance can be given that our prior or future acquisitions will be successful. Failure to manage and successfully integrate acquisitions we make could have a material adverse effect on our business, financial condition, and results of operations. Even when an acquired company has already developed and marketed products, product enhancements may not be made in a timely fashion. In addition, unforeseen issues might arise with respect to such products after any such acquisition.
As we continue to experience growth in the scope and complexity of our operations, we may be required to implement additional operating and financial controls and hire and train additional personnel. There can be no assurance that we will be able to do so in the future, and failure to do so could jeopardize our expansion plans and seriously harm our operations. In addition, growth in our capacity could result in reduced capacity utilization and a corresponding decrease in gross margins.
Other challenges and risks with regard to acquisitions include that they do not advance our business strategy, that we get an unsatisfactory return on our investment, that they raise new compliance-related obligations and challenges, that they distract management from our other businesses, and that announced transactions may not be completed. We also have limited ability to control or influence third-party sellers, which may impact our ability to realize the anticipated benefits.
The success of our acquisitions will depend in part on our ability to leverage new businesses to enhance our existing products and services, as well as the acquired companies’ ability to meet our policies and processes in areas such as data governance, privacy, digital safety, responsible AI, and cybersecurity. It may take longer than expected to realize the full economic benefits from acquisitions, such as increased revenue or enhanced efficiencies, or the benefits may ultimately be smaller than we expected. We have recorded, and may in the future be required to record, a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively affecting our results of operations. In addition, an acquisition may be subject to challenge even after it has been completed. These events could adversely affect our business, operations, financial condition, and results of operations.
We are exposed to the credit risk of our customers and to credit exposures in weakened markets.
Most of our sales are on an “open credit” basis, with standard industry payment terms. We monitor individual customer payment capability in granting such open credit arrangements, capability, seek to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. During periods of economic downturn in the electronics industry and the global economy, Additionally, our exposure to credit risks from our customers increases. Although we have programs in place to monitor and mitigate the associated risks, such programs may not be effective in reducing our credit risks.
Additionally, our OEM customers often direct a significant portion of their purchases through a relatively limited number of EMS companies. Our contractual relationship is often with the As these EMS companies, who companies are obligated to pay us for our products. Because products, we expect our OEM customers to continue to direct our sales to EMS companies, we expect to will continue to be subject to this the credit risk of these EMS customers. During periods of economic downturn in the electronics industry and the global economy, our exposure to credit risks from our customers increases. Although we have programs in place to monitor and mitigate the associated risks, such programs may not be effective in reducing our credit risks.
with a limited number of EMS customers. If one or more of our significant customers were to become insolvent or were otherwise unable to pay us, our business, financial condition, and results of operations would be materially adversely affected.
Rising labor costs and labor shortages, including due to pandemics and other disasters, employee strikes, and other labor‑related disruptions may materially adversely affect our business, financial condition, and results of operations.
Our business is labor intensive, utilizing large numbers of engineering and manufacturing personnel. There is uncertainty with respect to rising labor costs and ongoing labor shortages. Furthermore, labor disputes and strikes based partly on wages have in the past slowed or stopped production by certain manufacturers in China. In some cases, employers have responded by significantly increasing the wages of workers at such plants. Any increase in labor costs due to minimum wage laws or customer requirements about scheduling and overtime that we are unable to recover in our pricing to our customers could materially adversely affect our business, financial condition, and results of operations. In addition, general labor shortages, a high turnover rate, and our difficulty in recruiting and retaining qualified employees at any level of our organization could result in a potential for defects in our products, production disruptions or delays, or the inability to ramp production to meet increased customer orders, resulting in order cancellation or imposition of customer penalties if we are unable to deliver products in a timely manner.
To respond to competitive pressures and customer requirements, we may further expand both domestically and internationally. If we pursue such expansions, we may be required to make additional capital expenditures. For instance, we have commenced construction of our new proposed advanced technology PCB manufacturing facility in Syracuse, New York. Phase one of the proposed project, including capital for campus-wide improvements is estimated to be $100.0 million to $130.0 million. In addition, the cost structure in certain regions or countries that are now considered to be favorable may increase as economies develop, causing local wages to rise. As a result, we may need to continue to seek new locations with lower costs and the employee and infrastructure base to support PCB manufacturing and we may lose business in our existing facilities as a result of such potential shifts in the market. We cannot assure investors that we will realize the anticipated strategic benefits of our new locations, or that such locations will contribute positively to our operating results.
In North America, we are experiencing wage inflation pressures, as a result of labor shortages, shortages in certain sectors, rising health care costs, and certain pressures which are also mandated by local and state governments. Further, we are experiencing rising health care costs. While we strive to manage these challenges, there can be no assurance that our efforts will succeed which would result in higher costs and lower profits. The competition for talent and labor in North America and in general is currently high. In this competitive labor environment, our business could be adversely impacted by increases in labor costs, which could include include: increases in wages and benefits necessary to attract and retain high-quality employees with the right skill sets, sets; increases triggered by regulatory actions regarding wages, scheduling, and benefits; and increases in health care and workers’ compensation insurance costs. In light of the current challenging labor market conditions, conditions and existing labor shortages, our wages and benefits programs programs, and any steps we take to increase our wages and benefits, may be insufficient to attract and retain talent at all levels of our organization. Existing labor shortages, and our inability to attract employees to maintain a qualified workforce, organization, which could adversely affect our production and our production, overall business business, and financial performance.
Strikes or labor disputes with our unionized employees, primarily in China, may adversely affect our ability to conduct our business. If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements, we may be subject to work interruptions or stoppages. Any of these events could be disruptive to our operations and could result in negative publicity, loss of contracts, and a decrease in revenues. We may also become subject to additional collective bargaining agreements in the future if more employees or segments of our workforce become unionized, including any of our employees in the United States.
We may be unable to hire and retain sufficient qualified personnel at all levels of our organization, and the loss of any of our key executive officers, or the inability to maintain a sufficient workforce to satisfy production demands, could materially adversely affect our business, financial condition, and results of operations.
We believe that our future success will depend in large part on our ability to attract attract, train, and retain highly skilled, knowledgeable, sophisticated, knowledgeable and qualified managerial and professional personnel, particularly engineering and marketing personnel. Furthermore, we The competition for these employees is intense, and the loss of these employees could harm our business. We have limited patent or trade secret protection for our manufacturing processes and rely on the collective experience of our employees involved in our manufacturing processes to ensure that we continuously evaluate and adopt new technologies in our industry. We may not be able to retain our executive officers and key personnel or attract additional qualified management in the future. We can make no assurances that future future, and any such changes in executive management will not could have a material adverse effect on our business, financial condition, or results of operations. Our business also depends on our continuing ability to recruit, train, and retain highly qualified employees, particularly engineering and sales and marketing personnel. The competition for these employees is intense, and the loss of these employees could harm our business.
In addition, our industry continues to experience a shortage of workers, which may prove to be systemic. We rely on maintaining a sufficient workforce at all levels of our organization to design, manufacture, and distribute our products. If the labor markets remain tight and we are unable to adequately staff our facilities due to a shortage of qualified workers, our operations and financial performance would likely be adversely affected.
Our business, financial condition, and results of operations could be materially adversely affected by initiatives aimed at addressing potential climate change risks.
Our manufacturing processes require that we purchase significant quantities of energy from third parties, which results in the generation of greenhouse gases, either directly on-site or indirectly at electric utilities. Both domestic and international legislation to address the risks posed by potential climate change impacts, and the potential required disclosures of those risks, including by reducing greenhouse gas emissions emissions, could create increases in energy costs and price volatility. Considerable international attention is now focused on development of an international policy framework to guide international action to address risks posed by projected climate change. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), and regulators are considering new regulations California’s SB 253 Climate Corporate Data Accountability Act, which are expected to require, among other things, that we report our climate-related costs and activities and our customers and suppliers. Such regulations could cause us to incur significant costs to monitor and report, report our greenhouse gas emissions, which would have negative impact on our profitability. Proposed and existing legislative efforts to control or limit greenhouse gas emissions could affect our energy sources and supply choices, as well as increase the cost of energy and raw materials that are derived from sources that generate greenhouse gas emissions.
control or limit greenhouse gas emissions could affect our energy sources and supply choices, as well as increase the cost of energy and raw materials that are derived from sources that generate greenhouse gas emissions.
Infringement of our intellectual property rights could negatively affect us, and we may be exposed to intellectual property infringement claims from third parties that could be costly to defend, could divert management’s attention and resources, and if successful, could result in liability.
We rely on a combination of copyright, patent, trademark, trade secret laws, confidentiality procedures, contractual provisions, and other measures to establish and protect our proprietary and confidential information. All of these measures afford only limited protection. These measures may be invalidated, circumvented, breached, or challenged, and others may develop similar or superior intellectual property, technologies, or processes that are similar, or superior to, our intellectual property or technology. We may not have adequate controls and procedures in place to protect our proprietary and confidential information. Despite our efforts to protect our intellectual property and proprietary rights, unauthorized processes. Unauthorized parties may attempt to copy and succeed in copying our products or may obtain or use information that we regard as our proprietary or confidential. If it becomes necessary for us to resort to litigation information. Litigation to protect our intellectual property rights, any proceedings rights could be burdensome, costly, and distracting to management, and we may not prevail. Further, prevail or obtain adequate remedies may not be available in the event of an unauthorized use or disclosure of our proprietary or confidential information. remedies. Failure to successfully establish or enforce our intellectual property rights could materially and adversely affect our business, financial condition, and results of operations. Furthermore, there is a risk that we may infringe on the intellectual property rights of others. As is the case with many other companies in the PCB industry, we from time to time receive communications from third parties asserting patent rights over our products and enter into discussions with such third parties. Irrespective of the validity or the successful assertion of such claims, we could incur costs in either defending or settling any intellectual property disputes alleging infringement. If any claims, regardless of whether they have merit, are brought against our customers for such infringement, we could be required to expend significant resources in defending such claims, developing non-infringing alternatives, or obtaining licenses. We may not be successful in developing such alternatives or in obtaining such licenses on reasonable terms, or at all, and may be required to modify or cease marketing our products or services, which could disrupt the production processes, damage our reputation, and materially and adversely affect our business, financial condition, and results of operations.
Furthermore, there is a risk that we may infringe on the intellectual property rights of others. As is the case with many other companies in the PCB industry, we periodically receive communications from third parties asserting patent rights over our products. Irrespective of the validity or the successful assertion of such claims, we could incur costs in either defending or settling any intellectual property disputes alleging infringement. If any claims, regardless of whether they have merit, are brought against our customers for such infringement, we could be required to expend significant resources in defending such claims, developing non-infringing alternatives, or obtaining licenses. We may not be successful in developing such alternatives or in obtaining such licenses on reasonable terms, or at all, and may be required to modify or cease marketing our products or services, which could disrupt the production processes, damage our reputation, and materially and adversely affect our business, financial condition, and results of operations.
Foreign laws may not afford us sufficient protections for our intellectual property, and we may not be able to obtain patent protection outside of the United States.
Certain nations in which we operate may not grant us certain intellectual property rights that are customarily granted in more developed legal systems. Patent law reform in the United States and other countries may also weaken our ability to enforce our patent rights or make such enforcement financially unattractive. For example, despite continuing international pressure on the Chinese government, intellectual property rights protection continues to present significant challenges to foreign investors and, increasingly, Chinese companies. Chinese commercial law is considered by some to be relatively undeveloped compared to the commercial law in our other major markets and only limited protection of intellectual property is available in China as a practical matter. Although we have taken precautions in the operations of our Chinese subsidiaries and in our joint venture agreement to protect our intellectual property, any local design or manufacture of products that we undertake in China could subject us to an increased risk that unauthorized parties will be able to copy or otherwise obtain or use our intellectual property, which could harm our business. We may also have limited legal recourse in the event we encounter patent or trademark infringement. Uncertainties with respect to the Chinese legal system may adversely affect the operations of our Chinese subsidiaries. China has put in place a comprehensive system of intellectual property laws; however, incidents of infringement are relatively common, and enforcement of rights can, in practice, be difficult. If we are unable to manage our intellectual property rights, our business and operating results may be seriously harmed.
Risks Related to our Indebtedness
We have substantial outstanding indebtedness, and our outstanding indebtedness could adversely impact our liquidity and flexibility in obtaining additional financing, our ability to fulfill our debt obligations, and our financial condition and results of operations.
We have incurred, and may continue to incur, substantial debt and, as in connection with our operations and acquisition strategy. As a result, we have have, and expect to continue to have, significant debt service obligations. obligations under the Term Loan Facility, U.S. ABL, Asia ABL, the indenture governing the Senior Notes due 2029, and other debt instruments. We and a number of our direct and indirect subsidiaries also have various credit facilities and letters of credit. Such agreements also contain certain financial covenants which require us to maintain, under the occurrence of certain events, a consolidated fixed charge coverage ratio.
Subject to In addition, the limits contained in indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility due 2030 (Term Loan Facility), Facility, the U.S. Asset-Based Lending Credit Agreement (U.S. ABL), ABL, and the Asia Asset-Based Lending Credit Agreement (Asia ABL), the indenture governing the Senior Notes due 2029, and ABL contains restrictive covenants that limit our other debt instruments, we ability to engage in activities that may be able in our long-term best interest. Our failure to incur substantial additional comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt from time to time to finance working capital, capital expenditures, investments, or acquisitions, or for other purposes. If we do so, the risks related to and limit management’s discretion in operating our high level of debt could intensify. Specifically, our high level of debt could have important consequences to us and our shareholders. For example, it could: business.
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make it more difficult for us to satisfy our obligations with respect to our indebtedness, which could in turn result in an event of default on such indebtedness;
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require us to use a substantial portion of our cash flow from operations for debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions, and other general corporate purposes;
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impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, and other investments or general corporate purposes, which may limit our ability to execute our business strategy;
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diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally and restrict us from exploiting business opportunities or making acquisitions;
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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or the general economy;
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increase our vulnerability to general adverse economic and industry conditions, including increases in interest rates, that result in increased borrowing costs;
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limit management’s discretion in operating our business; and
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place us at a competitive disadvantage as compared to our competitors that have less debt as it could limit our ability to capitalize on future business opportunities and to react to competitive pressures or adverse changes.
In addition, the indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility, the U.S. ABL, and the Asia ABL contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.
Furthermore, we and our subsidiaries may decide to incur significant additional indebtedness in the future. Although the indenture governing the Senior Notes due 2029, and the credit agreements governing the Term Loan Facility, the U.S. ABL, and the Asia ABL will contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Our Term Loan Facility and our Asia ABL are subject to interest at a floating rate of Term Secured Overnight Financing Rate (SOFR) SOFR plus a margin, and as a result, we have exposure to interest rate risk. Certain central banks, such as the U.S. Federal Reserve, effected multiple interest rate increases in recent years. Increases in interest rates increase our cost of borrowing and/or potentially make it more difficult to refinance our existing indebtedness, if necessary. We endeavored to mitigate this risk by entering into a four‑year pay-fixed, receive-floating (1-month Chicago Mercantile Exchange (CME) CME Term SOFR) interest rate swap arrangement in March 2023. The swap has a notional amount of $250.0 million for the period beginning April 1, 2023 and ending on April 1, 2027. Under the terms of the interest rate swap, we pay a fixed rate of 3.49% against the first interest payments of a portion of our Term SOFR-based debt and receive floating 1-month CME Term SOFR during the swap period. Although we have taken measures to mitigate our risk to interest rate increases, our swap instruments may not be wholly effective in mitigating this risk or otherwise provide an effective hedge against all interest rate volatility. See
for the period beginning April 1, 2023 and ending on April 1, 2027. Under the terms of the interest rate swap, we pay a fixed rate of 3.49% against the first interest payments of a portion of our Term SOFR-based debt and receive floating 1-month CME Term SOFR during the swap period. Although we have taken measures to mitigate our risk to interest rate increases, our swap instruments may not be wholly effective in mitigating this risk or otherwise provide an effective hedge against all interest rate volatility. See Part II, Item 7A,
Quantitative and Qualitative Disclosures About Market Risk
and
Interest Rate Risks
appearing in Part II, Item 7A of this Report for further information.
Servicing our debt requires a significant amount of cash and we may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.
Based on certain parameters defined in the Term Loan Facility, including a Secured Leverage Ratio, we may be required to make an additional principal payment on an annual basis if our Secured Leverage Ratio is greater than 2.0.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund planned capital expenditures and expansion efforts depends on our ability to generate cash in the future and our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain regulatory, competitive, financial, business, and other factors beyond our control. performance.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to expenditures, dispose of material assets or operations, seek additional capital (which could include obtaining additional equity capital on terms that may be onerous or highly dilutive) dilutive), or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all measures and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Additionally, the credit agreements governing the Term Loan Facility, the U.S. ABL, the Asia ABL, and the indenture governing the Senior Notes due 2029 restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used effect such alternative measures to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
In addition, we We conduct certain of our operations through our subsidiaries. Accordingly, subsidiaries, and repayment of our indebtedness may be dependent on the their generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of the Senior Notes due 2029 or our other indebtedness, our us. Our subsidiaries do not have any obligation to to, and may not be able or permitted to, pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect unless they are guarantors of our indebtedness. Each subsidiary is a distinct legal entity, and under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indenture governing the Senior Notes due 2029 and the credit agreements governing the Term Loan Facility, the U.S. ABL, and the Asia ABL limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the event that we do not receive distributions Additionally, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness. subsidiaries.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations under our indebtedness. If we cannot make scheduled payments on our debt, we will be in default and holders of the Senior Notes due 2029 could declare all outstanding principal and interest to be due and payable, the lenders under the Term Loan Facility, the U.S. ABL, and the Asia ABL could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
If we cannot make scheduled payments on our debt, we will be in default and holders of the Senior Notes due 2029 could declare all outstanding principal and interest to be due and payable, the lenders under the Term Loan Facility, the U.S. ABL, and the Asia ABL could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
Regulatory Risks
We are subject to the requirements of the NISPOM for our facility security clearance, which is a prerequisite to our ability to perform on classified contracts for the U.S. government. USG.
A facility security clearance is required in order to be awarded and perform on classified contracts for the Department of Defense DoW and certain other agencies of the U.S. government. USG. As a cleared entity, we must comply with the requirements of the NISPOM, and any other applicable U.S. government USG industrial security regulations. Further, our Board has adopted a Special Board Resolution (SBR) an SBR that has been approved by the Defense Counterintelligence and Security Agency (DCSA) DCSA that requires the Company to adopt certain corporate constructs, policies, and procedures.
If we were to violate the terms and requirements of the SBR, the NISPOM, or any other applicable U.S. government industrial security regulations (which may apply to us under the terms of classified contracts), we could lose our security clearance. We cannot be certain that we will be able to maintain our security clearance. If for some reason our security clearance is invalidated or terminated, we may not be able to continue to perform on classified contracts and would not be able to enter into new classified contracts, which could materially adversely affect our business, financial condition, and results of operations.
Our operations in Asia subject us to risks and uncertainties relating to the local laws and regulations and adverse effects of political tensions that arise from time to time with China.
The government of China is adopting evolving policies regarding foreign and domestic trade. No assurance can be given that the government of China will continue to pursue policies that allow for open trade with foreign countries, that such policies will be successful if pursued, or that such policies will not be significantly altered from time to time, particularly in light of the trade and travel restrictions that the United States and China have implemented in recent years. Despite progress in developing its legal system, certain countries in Asia do not have a comprehensive and highly developed system of laws, particularly with respect to foreign investment activities and foreign trade. Enforcement of existing and future laws and contracts is uncertain, and implementation and interpretation thereof may be inconsistent. As the legal system develops, the promulgation of new laws, changes to existing laws, and the preemption of local regulations by national laws may adversely affect foreign investors. Further, any litigation may be protracted and may result in substantial costs and diversion of resources and management’s attention. Also, the evolving landscape of the interrelation between
activities and foreign trade. Enforcement of existing and future laws and contracts is uncertain, and implementation and interpretation thereof may be inconsistent. As the legal system develop, the promulgation of new laws, changes to existing laws, and the preemption of local regulations by national laws may adversely affect foreign investors. Further, any litigation may be protracted and may result in substantial costs and diversion of resources and management’s attention. Also, the evolving landscape of the interrelation between China and Hong Kong may have an adverse impact on our operations in Hong Kong and may impact our ability to attract and maintain necessary talent in that area. In addition, though changes in government policies and rules are timely published or communicated, there is usually no indication of the duration of any grace period before which full implementation and compliance will be required. As a result, it is possible that we might operate our business in violation of new rules and policies before full compliance can be achieved. These uncertainties could limit the legal protections available to us and adversely impact our results of operations.
Our failure to comply with the requirements of environmental laws could result in litigation, fines, revocation of permits necessary to our manufacturing processes, or debarment from our participation in federal government contracts.
Our operations are regulated under a number of domestic and foreign environmental and safety laws and regulations that govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage, recycling, and disposal of such materials. These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Superfund Amendment and Reauthorization Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and the Federal Motor Carrier Safety Improvement Act, as well as analogous state, local, and foreign laws. Compliance with these environmental laws is a major consideration for us because our manufacturing processes use and generate materials classified as hazardous. Because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if we fully comply with applicable environmental laws and are not directly at fault for the contamination, we may still be liable. The wastes we generate include spent ammoniacal and cupric etching solutions, metal stripping solutions, waste acid solutions, waste alkaline cleaners, waste oil, and waste waters that contain heavy metals such as copper, tin, lead, nickel, gold, silver, cyanide, and fluoride, and both filter cake and spent ion exchange resins from equipment used for on-site waste treatment.
Environmental law violations, including the failure to maintain required environmental permits, could subject us to fines, penalties, and other sanctions, including the revocation of our effluent discharge permits. This could require us to cease or limit production at one or more of our facilities and could have a material adverse effect on our business, financial condition, and results of operations. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend.
Environmental laws have generally become more stringent, and we expect this trend to continue over time, especially in developing countries, imposing greater compliance costs, and increasing risks and penalties associated with violation. We operate in environmentally sensitive locations, and we are subject to potentially conflicting and changing regulatory agendas of political, business, and environmental groups. Changes or restrictions on discharge limits, emissions levels, material storage, handling, or disposal might require a high level of unplanned capital investment or relocation to another global location where prohibitive regulations do not exist. It is possible that environmental compliance costs and penalties from new or existing regulations may materially adversely affect our business, financial condition, and results of operations.
We are increasingly required to certify compliance with various material content restrictions in our products based on laws of various jurisdictions or territories such as the Restriction of Hazardous Substances (RoHS) RoHS and Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) REACH directives in the European Union and China’s RoHS legislation. Similar laws have been adopted in other jurisdictions and may become increasingly prevalent. In addition, we must also certify as to the non‑applicability of the EU’s European Union’s Waste Electrical and Electronic Equipment directive for certain products that we manufacture. The REACH directive requires the identification of Substances of Very High Concern (SVHCs) SVHCs periodically. We must survey our supply chain and certify to the non‑presence or presence of SVHCs to our customers. As with other types of product certifications that we routinely provide, we may incur liability and pay damages if our products do not conform to our certifications.
We are also subject to an increasing variety of environmental laws and regulations in China, which impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage, and disposal of solid and hazardous wastes for us and our vendors that assist us in managing the waste generated by our manufacturing processes. The manufacturing of our products generates gaseous chemical wastes, liquid wastes, wastewater, and other industrial wastes from various stages of the manufacturing process. Production sites, waste collectors, and vendors in China are subject to increasing regulation and periodic monitoring by the relevant environmental protection authorities. Environmental claims or the failure to comply with current or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production, or cessation of operations.
The process to manufacture PCBs and our other products requires adherence to city, county, state, federal, and foreign environmental laws and regulations regarding the storage, use, handling, and disposal of chemicals, solid wastes, and other hazardous materials, as well as compliance with wastewater and air quality standards. We rely on our vendors for the transportation and disposal of our solid and hazardous wastes generated by our manufacturing processes. If we are not able to find such services, our ability to conduct our business and our results of operations may be adversely impacted. In Asia, the government has a history of changing legal requirements with no or minimal notice. We believe that our facilities in Asia comply in all material respects with current applicable environmental laws and regulations and have resources in place to maintain compliance to them. The capital expenditure costs expected for environmental improvement initiatives are included in our annual capital expenditure projections.
requirements with no or minimal notice. We believe that our facilities in Asia comply in all material respects with current applicable environmental laws and regulations and have resources in place to maintain compliance to them. The capital expenditure costs expected for environmental improvement initiatives are included in our annual capital expenditure projections.
Our international sales are subject to laws and regulations relating to corrupt practices, trade and export controls, and economic sanctions. Any non-compliance could have a material adverse effect on our business, financial condition, and results of operations.
We operate on a global basis and are subject to anti-corruption, anti-bribery, and anti-kickback laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act (FCPA). FCPA. The FCPA and similar anti-corruption, anti-bribery, and anti‑kickback laws in other jurisdictions generally prohibit companies and their intermediaries and agents from making improper payments to government officials or any other persons for the purpose of obtaining or retaining business. We operate and sell our products in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-corruption, anti-bribery, and anti-kickback laws may conflict with local customs and practices. We also, from time to time, undertake business ventures with state-owned companies or enterprises.
Our global business operations must also comply with all applicable domestic and foreign export control laws, including International Traffic In Arms Regulations (ITAR) ITAR and Export Administration Regulations (EAR). EAR. Some items we manufacture are controlled for export by the U.S. Department of Commerce’s Bureau of Industry and Security under EAR.
We train our employees concerning anti-corruption, anti-bribery, and anti-kickback laws and compliance with international regulations regarding trades and exports, and we have policies in place that prohibit employees from making improper payments. We cannot provide assurances that our internal controls and procedures will guarantee compliance by our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption, anti-bribery, or anti-kickback laws in international jurisdictions or for violations of ITAR, EAR, or other similar regulations regarding trades and exports, either due to our own acts or out of inadvertence, or due to the inadvertence of others, we could suffer criminal or civil fines or penalties or other repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations.
Our global business operations also must be conducted in compliance with applicable economic sanction laws and regulations, such as laws administered by the U.S. Department of the Treasury’s Office of Foreign Asset Control, the U.S. State Department, and the U.S. Department of Commerce. We must comply with all applicable economic sanction laws and regulations of the United States and other countries. Imposition of economic sanction laws and regulations on a company or country could impact our revenue levels. Violations of these laws or regulations could result in significant additional sanctions including criminal or civil fines or penalties, more onerous compliance requirements, more extensive debarments from export privileges, or loss of authorizations needed to conduct aspects of our international business.
In certain countries, we may engage third-party agents or intermediaries, such as customs agents, to act on our behalf, and if these third-party agents or intermediaries violate applicable laws, their actions may result in criminal or civil fines or penalties or other sanctions being assessed against us. We take specific measures designed to ensure our compliance with U.S. export and economic sanctions laws, anti-corruption laws and regulations, and export control laws. However, it is possible that some of our products were sold or will be sold to distributors or other parties, without our knowledge or consent, in violation of applicable law. There can be no assurances that we will be in compliance in the future. Any such violation could result in significant criminal or civil fines, penalties, or other sanctions and repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition, and results of operations.
In conjunction with defense procurements, some international customers require contractors to comply with industrial cooperation regulations, including entering into industrial participation, industrial development or localization agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for our products and services. These offset agreements generally extend over several years and obligate the contractor to perform certain commitments, which may include in-country purchases, technology transfers, local manufacturing support, consulting support to in-country projects, investments in joint ventures and financial support projects, and to prefer local suppliers or subcontractors. The customer’s expectations in respect of the scope of offset commitments can be substantial, including high-value content, and may exceed existing local technical capability. Failure to meet these commitments, which can be subjective and outside of our control, may result in significant penalties, and could lead to a reduction in sales to a country.
We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to current and evolving compliance initiatives and corporate governance practices.
As a public company we incur significant legal, accounting, and other expenses that we likely would not incur as a private company. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and
other personnel devote a substantial amount of time to these compliance initiatives. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that have required the SEC, from time to time, to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to further substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. The rules and regulations applicable to public companies substantially increase our legal and financial compliance costs and make some activities more time-consuming and costly. When these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs may decrease our net income (or increase our net loss) and may require us to reduce costs in other areas of our business or increase the prices of our products or services. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements.
Other Risks
Outages, computer viruses, cyber-attacks, and similar cybersecurity threats could materially disrupt our operations, and breaches of our information systems may cause us to incur significant legal and financial exposure.
We rely on information technology (IT) IT networks and systems, some of which are owned and operated by third parties, to collect, process, transmit, and store electronic information. In particular, we We depend on our information systems for a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing, and email communications. These information systems are susceptible to outages due to fire, floods, power loss, telecommunications failures, hacking, terrorist attacks, and similar cybersecurity threats. In addition, in the ordinary course of our business, we collect and store sensitive data in our data centers and on our networks, including intellectual property, our proprietary and confidential business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees. The secure collection, processing, storage, maintenance, and transmission of this information is critical to our operations. Despite the implementation of network security measures, our information systems, including those owned and operated by third parties, on which we rely are vulnerable to computer viruses, break-ins, cyber-attacks, attacks by hackers or breaches due to employee or third party (including suppliers and business partners) error, malfeasance, or other disruptions that are material and adverse. Further, our operations could also be materially disrupted if our vendors experience such outages or breaches. While we have experienced cybersecurity incidents in the past, to date none have materially affected us or our business strategy, results of operations, financial condition and/or cash flows. However, if unauthorized parties gain material access to our information systems or material information is used in an unauthorized manner, misdirected, altered, lost, or stolen during transmission, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers that we have not performed our contractual obligations, loss of customers, litigation by affected parties, and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business, financial condition, and results of operations. In addition, some of our employees work remotely, including while traveling for business, which increases our cybersecurity risk, creates data accessibility concerns, and makes us more susceptible to security breaches or business disruptions.
In addition, threat actors are also increasingly using tools and techniques that circumvent controls, evade detection, and remove forensic evidence, which means that we and others may be unable to anticipate, detect, deflect, contain, or recover from cybersecurity incidents in a timely or effective manner. As AI capabilities improve and are increasingly adopted, we may see cybersecurity incidents created through AI. These attacks could be crafted with an AI tool to directly attack IT systems with increased speed and/or efficiency than a human threat actor or create more effective phishing emails. In addition, our operations. Despite the cybersecurity threat could be introduced from the result implementation of network security measures, our or our customers and business partners incorporating the output of an AI tool that includes a threat, such as introducing malicious code by incorporating AI generated source code. Our information systems, as well as including those of our customers owned and business partners, may be subject operated by third parties, on which we rely are vulnerable to unauthorized access computer viruses, break-ins, cyber-attacks, attacks by hackers or breached breaches due to operator employee or third-party (including suppliers and business partners) error, malfeasance, or other system disruptions that are material and adverse. Further, our operations could also be materially disrupted if our vendors experience such outages or breaches. While we have experienced cybersecurity incidents in the past, to date none have materially affected us or our business strategy, results of operations, financial condition, and/or cash flows. However, if unauthorized parties gain material access to our information systems or material information is used in an unauthorized manner, misdirected, altered, lost, or stolen, it could result in unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers that we have not performed our contractual obligations, loss of customers, litigation by affected parties, and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business, financial condition, and results of operations. In addition, some of our employees work remotely, including while traveling for business, which increases our cybersecurity risk, creates data accessibility concerns, and makes us more susceptible to security breaches or business disruptions.
Privacy, In addition, threat actors are also increasingly using tools and techniques that circumvent controls, evade detection, and remove forensic evidence, which means that we and others may be unable to anticipate, detect, deflect, contain, or recover from cybersecurity incidents in a timely or effective manner. As AI capabilities improve and are increasingly adopted, we may see cybersecurity incidents created through AI. These attacks could be crafted with an AI tool to directly attack IT systems with increased speed and/or efficiency than a human threat actor or create more effective phishing emails. In addition, the cybersecurity threat could be introduced from the result of our, or our customers and business partners, incorporating the output of an AI tool that includes a threat, such as introducing malicious code by incorporating AI generated source code. Our information security, systems, as well as those of our customers and data protection laws, rules, and regulations could affect business partners, may be subject to unauthorized access by hackers or limit how we collect and use personal information, increase our costs, and adversely affect our business opportunities. breached due to operator error, malfeasance, or other system disruptions.
Many U.S. and foreign laws and regulations, including those promulgated by the SEC, regulations require companies to provide notice of cybersecurity incidents involving certain types of personal data or unauthorized access to, or interference with, our information systems to the public, certain individuals, the media, government authorities, or other third parties. Certain of these laws and regulations include notice or disclosure obligations contingent upon the result of complex analyses, including in some cases a determination of materiality. The nature of cybersecurity incidents can make it difficult to quickly and comprehensively assess an incident's overall impact to our business, and we may make errors in our assessments. If we are unable to appropriately assess a cybersecurity incident in the context of required analyses then we could face compliance issues under these laws and regulations, and we could be subject to lawsuits, regulatory fines or fines, investigations, or other liabilities, any or all of which could adversely affect our business and operating results. Furthermore, cybersecurity incidents experienced by us, or by our customers or and vendors, that lead to public disclosures may also lead to widespread negative publicity and increased government or regulatory scrutiny. Any security compromise in our industry, whether
actual Cybersecurity incidents may result in increased costs for cybersecurity insurance. One or perceived, could harm more large, successful claims against us in excess of our reputation; erode customer confidence available insurance coverage, or changes in our security measures; negatively affect insurance policies, including premium increases or large deductible or co-insurance requirements, could have an adverse effect on our ability to attract new customers; or subject us to third-party lawsuits, regulatory fines or investigations, or other liability, any or all of which could adversely affect our business business, operating results, and operating results. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers. financial condition.
Additionally, we could be required to expend significant capital and other resources to investigate and address any actual or suspected cybersecurity incident or to prevent further or additional incidents. To maintain business relationships, we may find it necessary or desirable to incur costs to provide remediation and incentives to customers or other business partners following an actual or suspected cybersecurity incident. We also cannot be sure that our existing cybersecurity insurance will continue to be available on acceptable terms, in sufficient amounts to cover any claims we submit, or at all. Further, we cannot be sure that insurers will not deny coverage as to any claim, and some cybersecurity incidents may be outside the scope of our coverage, including in instances where they are considered force majeure events. Cybersecurity incidents may result in increased costs for cybersecurity insurance. One or more large, successful claims against us in excess of our available insurance coverage, or changes in our insurance policies, including premium increases or large deductible or co-insurance requirements, could have an adverse effect on our business, operating results, and financial condition.
We may need additional capital in the future to fund investments in our operations, refinance our indebtedness, and to maintain and grow our business, and such capital may not be available on a timely basis, on acceptable terms, or at all.
Our business is capital-intensive, and our ability to increase revenue, profit, and cash flow depends upon continued capital spending. To the extent that the funds generated by our ongoing operations are insufficient to cover our liquidity requirements, we may need to raise additional funds through financings. If we are unable to fund our operations and make capital expenditures as currently planned or if we do not have sufficient liquidity to service the interest and principal payments on our debt, it would have a material adverse effect on our business, financial condition, and results of operations. If we do not achieve our expected operating results, we would need to reallocate our sources and uses of operating cash flows. This may include borrowing additional funds to service debt payments, which may impair our ability to make investments in our business. Looking ahead at long-term needs, we may need to raise additional funds for a number of purposes, including the following:
• Looking ahead at near- and long-term needs, we may need to raise additional funds for a number of purposes, including the following: (a) to fund capital equipment purchases to increase production capacity such as expanding our production for AI‑processing products, upgrade and expand our technological capabilities, and replace aging equipment or introduce new products; (b) to refinance our existing indebtedness; (c) to fund our current or planned operations; or (d) to fund potential acquisitions or strategic relationships. To raise funds for these activities could lead to additional indebtedness, and should we or our subsidiaries need to incur additional debt, we may become subject to covenants even more restrictive than those contained in our current debt instruments. There can be no assurance that additional capital, including any future equity or debt financing, would be available on a timely basis, on favorable terms, or at all.
Future equity issuances could result in dilution, which could cause our common stock price to fund capital equipment purchases to increase production capacity, upgrade and expand our technological capabilities, and replace aging equipment or introduce new products; decline.
• We may issue additional shares of common stock in the future pursuant to current or future employee equity compensation plans or in connection with future acquisitions or financings. Should we choose to raise capital by selling shares of common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.
to refinance our existing indebtedness;
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to fund our current or planned operations;
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to fund potential acquisitions or strategic relationships;
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to fund working capital requirements for future growth that we may experience;
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to enhance or expand the range of services we offer;
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to increase our sales and marketing activities;
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to respond to competitive pressures or perceived opportunities, such as investment, acquisition, and international expansion activities; or
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to fund our initiatives set forth in our environmental, social, and governance (ESG) policies and practices.
Should we need to raise funds through incurring additional debt, we may become subject to covenants even more restrictive than those contained in our current debt instruments. There can be no assurance that additional capital, including any future equity or debt financing, would be available on a timely basis, on favorable terms, or at all. If such funds are not available to us when required or on acceptable terms, our business, financial condition, and results of operations could be materially adversely affected.
Issues arising during the upgrade of our enterprise resource planning system could affect our operating results and ability to manage our business effectively.
We are continuing the process of upgrading our ERP management system to enhance operating efficiencies and provide more effective management of our business operations. We are investing significant financial and personnel resources into this project. However, there is no assurance that the system upgrade will meet our current or future business needs or that it will operate as designed. The transition to the new ERP system will affect numerous systems necessary for our operation. If we fail to correctly implement one or more components of the ERP system, we could experience significant disruption to our operations. Such disruptions could include, among other things, temporary loss of data, inability to process certain orders, failure of systems to communicate with each other and the inability to track or reconcile key data. We are heavily dependent on automated management systems, and any significant failure or delay in the system upgrade could cause a substantial interruption to our business and additional expense, which could result in an adverse impact on our operating results, cash flows, or financial condition.
assurance that the system upgrade will meet our current or future business needs or that it will operate as designed. The transition to the new ERP will affect numerous systems necessary for our operation. If we fail to correctly implement one or more components of the ERP, we could experience significant disruption to our operations. Such disruptions could include, among other things, temporary loss of data, inability to process certain orders, failure of systems to communicate with each other, and the inability to track or reconcile key data. We are heavily dependent on automated management systems, and any significant failure or delay in the system upgrade could cause a substantial interruption to our business and additional expense, which could result in an adverse impact on our operating results, cash flows, or financial condition.
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal, state, and foreign income tax purposes is subject to limitations, and future transfers of shares of our common stock could cause us to experience an “ownership change” that could further limit our ability to utilize our net operating losses.
Under U.S. federal income tax law, a corporation’s ability to utilize its net operating losses (NOLs) NOLs to offset future taxable income may be significantly limited if it experiences an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended. In general, an ownership change will occur if there is a cumulative change in a corporation’s ownership by “5‑percent shareholders” that exceeds 50 percentage points over a rolling three-year period.
A corporation that experiences an ownership change will generally be subject to an annual limitation on its pre-ownership change NOLs equal to the value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate (subject to certain adjustments). The annual limitation for a taxable year is generally increased by the amount of any “recognized built‑in gains” for such year and the amount of any unused annual limitation in a prior year. As a result of our acquisition of Viasystems, Viasystems Group, Inc., the NOLs acquired were subject to this limitation. Future transfers or sales of our common stock during a rolling three‑year period by any of our “5-percent shareholders” could cause us to experience an ownership change under Section 382, which could further limit our use of NOLs.
If our net earnings do not remain at or above recent levels, or we are not able to predict with a reasonable degree of probability that they will continue, we may have to record a valuation allowance against our net deferred income tax assets.
Our U.S. entities and certain of our foreign subsidiaries have deferred income tax assets. Based on our forecast for future earnings and analysis, we believe we may not utilize our deferred income tax assets in future periods in the U.S. and certain subsidiaries in foreign jurisdictions and as a result have established a valuation allowance against those deferred tax assets. If our estimates of future earnings and analysis changes, we may change our determination to have a valuation allowance against our deferred income tax assets, which will result in an increase or decrease to our income tax provision that can impact our results of operations.
Unanticipated changes in our tax rates or in our assessment of the realizability of our deferred income tax assets or exposure to additional income tax liabilities could affect our business, financial condition, and results of operations.
We are subject to income taxes in the United States and various foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and, in the ordinary course of business, there are many transactions and calculations in which the ultimate tax determination is uncertain. Our effective tax rates could be materially adversely affected by changes in the mix of earnings in countries and states with differing statutory tax rates, changes in the valuation of deferred income tax assets and liabilities, changes in tax laws or regulations as well as other factors. Many countries are considering implementing or have implemented legislation to align their tax law with guidance proposed by the Organization for Economic Co-operation and Development (OECD). OECD. In particular, the OECD’s Pillar Two proposes a global minimum tax of 15% on a country-by-country basis for multinational enterprises (MNEs) which have annual global revenue exceeding Euro (EUR) 750 million. The implementation of Pillar Two, which became effective in many countries on January 1, 2024, in countries in which we operate may adversely impact our effective tax rates. We have evaluated and will continue to evaluate the impact of Pillar Two as the countries in which we operate issue new guidance and regulations. Our tax determinations are regularly subject to audit by tax authorities, and developments in those audits could also adversely affect our income tax provision. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions, which could materially adversely affect our business, financial condition, and results of operations.
Management's Discussion (MD&A) +27 −6 ~78
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review presents our operating results for each of our three most recent fiscal years and our financial condition as of December 30, 2024. 29, 2025. Except for historical information contained herein, the following discussion contains forward-looking statements which are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We discuss such risks, uncertainties, and other factors throughout this Annual Report on Form 10-K (Report) and specifically under Item 1A, Risk Factors of Part I of this Report. In addition, the following discussion should be read in connection with the information presented in our consolidated financial statements and the related notes to our consolidated financial statements.
COMPANY OVERVIEW
We are a leading global manufacturer of technology solutions, products, including mission systems, radio frequency (RF) RF components, RF microwave/microelectronic assemblies, and quick-turn and technologically advanced printed circuit boards (PCB). interconnect products, including PCBs and substrates. 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. This solution allows us to align technology development with the diverse needs of our customers and to enable them to reduce the time required to develop new products and bring them to market. We serve a diversified customer base consisting of approximately 1,400 1,300 customers in various markets throughout the world, including aerospace and defense, data center computing, automotive, medical, industrial industrial, and instrumentation, and networking. Our customers include original equipment manufacturers (OEMs), electronic manufacturing services (EMS) OEMs, EMS providers, original design manufacturers (ODMs), ODMs, distributors, and government agencies (both domestic and allied foreign governments).
RECENT DEVELOPMENTS
In On July 9, 2025, we announced the third quarter acquisition of 2024, we commenced construction of our new a facility in Eau Claire, Wisconsin, as well as land rights for an additional future manufacturing site in Penang, Malaysia. We believe the Eau Claire, Wisconsin facility comes equipped with the necessary infrastructure to support advanced technology PCB manufacturing facility and enhances our ability to support future high-volume U.S. production of advanced technology PCBs across key markets, particularly data center computing and networking for generative AI applications. In addition, we acquired land rights for ten acres in Syracuse, New York. We expect Penang to establish a new production site that our new we anticipate will align with customers’ increasing interests in supply chain diversification beyond China. The future Penang facility will bring advanced technology capability for our domestic high-volume production of ultra-high-density interconnect (HDI) PCBs be in support of national security requirements. We believe the planned investment aligns with New York State’s continuing focus on the region as a premier technology hub for U.S. electronics and the recent selection of Buffalo-Rochester-Syracuse (BRS) for the Federal Tech Hub designation. The project reflects our support for cultivating a stronger microelectronics ecosystem in New York and across the U.S. Aerospace and Defense industrial base. The new building will be located on the 24-acre property adjacent close proximity to our existing facility in Syracuse, and we expect will enable us to commence initial low rate production in 2026. Phase one of the proposed project, including capital deliver cost-competitive, high-quality advanced technology PCB manufacturing to commercial markets such as data center computing, networking, and medical, industrial, and instrumentation. Together, these new investments support our strategy to offer regionally optimized, globally connected manufacturing solutions for campus-wide improvements is estimated to be $100.0 million to $130.0 million. We expect to receive support in the form of grants, awards, and tax credits from both federal and New York state sources of approximately $52.0 million in the aggregate (subject to certain requirements and contingencies), which would offset the initial capital investment and lower operating expenses. our customers.
In addition, we We previously announced plans we are in the process of constructing a new advanced technology PCB manufacturing facility in Syracuse, New York. We expect that our new facility will bring advanced technology capability for our domestic high-volume production of ultra-HDI PCBs in support of national security requirements. The building construction is complete, equipment is arriving, and we are beginning to consolidate our integrated electronics facilities install and test equipment setups. Volume production in Elizabeth City, North Carolina and Huntington, New York into existing facilities in order to improve efficiencies. As of the end of fiscal year 2024, the closure of Elizabeth City has been completed and the closure of Huntington this facility is expected by to commence in the middle second half of 2025. 2026.
FINANCIAL OVERVIEW
While our 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 five largest customers accounted for 42%, 41%, and 33% of our net sales in fiscal years 2024, 2023, and 2022, respectively, which is in line with the increase in sales in our aerospace and defense end market. providers. We sell to OEMs both directly and indirectly through EMS providers. For such indirect sales, we measure customers based on OEM companies as they are the ultimate end customers. Sales to our ten largest customers collectively accounted for 55%, 42%, and 41% of our net sales in 2025, 2024, and 2023, respectively.
The percentage of our net sales attributable to each of the principal end markets we served was as follows:
(1)
The end market revenue for the years ended December 30, 2024 and January 1, 2024 has been recast to reflect certain adjustments to allocations resulting from the segment reorganization that occurred during the quarter ended June 30, 2025.
(2)
Sales to EMS companies are classified by the end markets of their OEM customers.
We derive revenues primarily from the sale of PCBs, engineered systems using customer-supplied engineering and design plans as well as our long-term contracts related to the design and manufacture of highly sophisticated intelligence, surveillance, and communications solutions, and RF and microwave/microelectronics components, assemblies, and subsystems. Orders for products generally correspond to the production schedules of our customers and are supported with firm purchase orders. Our customers have continuous control of the work in progress and finished goods throughout the PCB and engineered systems manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right of payment for work performed to date. As a result, we recognize revenue progressively over time based on the extent of progress towards completion of the performance obligation. We recognize revenue based on a cost method as it best depicts the transfer of control to the customer which takes place as we incur costs. Revenues are recorded proportionally as costs are incurred.
We also manufacture certain components, assemblies, subsystems, and completed systems which service our RF and Specialty RF&S Components (RF&S Components) customers and certain aerospace and defense customers. We recognize revenue at a point in time upon transfer of control of the products to our customer. Point in time recognition was determined as our customers do not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us.
Net sales consist of gross sales less an allowance for returns, which typically have been approximately 2% of gross sales. We provide our customers a limited right of return for defective PCBs including components, assemblies, and subsystems. We record an estimate for sales returns and allowances at the time of sale based on historical results and anticipated returns.
Cost of goods sold consists of materials, labor, outside services, and overhead expenses incurred in the manufacture and testing of our products. Shipping and handling fees and related freight costs and supplies associated with shipping products are also included as a component of cost of goods sold. Many factors affect our gross margin, including capacity utilization, product mix, production volume, supply chain costs, and yield.
Selling and marketing expenses consist primarily of salaries, labor-related benefits, and commissions paid to our internal sales force, independent sales representatives, and our sales support staff, as well as costs associated with marketing materials and trade shows.
General and administrative costs primarily include the salaries for executive, finance, accounting, information technology, and human resources personnel, as well as expenses for accounting and legal assistance, incentive compensation expense, and gains or losses on the sale or disposal of property, plant, and equipment.
Research and development expenses consist primarily of salaries and labor-related benefits paid to our research and development staff, as well as material costs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements included in this Report have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). U.S. GAAP. 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.
A critical accounting policy is defined as one that is both material to the presentation of our consolidated financial statements and requires us to make judgments that could have a material effect on our financial condition or results of operations. These policies require us to make assumptions about matters that are highly uncertain at the time of the estimate. Critical accounting estimates refers
require us to make assumptions about matters that are highly uncertain at the time of the estimate. Critical accounting estimates refers to those estimates made in accordance with U.S. GAAP that have had or are reasonably likely to have a material impact on the amounts reported in the consolidated financial statements and the related notes due to the significant level of uncertainty involved in developing the estimate. Different estimates we could reasonably have used, or changes in the estimates that are reasonably likely to occur, could have a material effect on our financial condition or results of operations.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management has discussed the development, selection, and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates reflect the more significant judgments and estimates used by us in preparing our consolidated financial statements: statements. For additional discussion of the application of our significant accounting policies, see Part II, Item 8, Note 1,
Nature of Operations and Summary of Significant Accounting Policies
, of the Notes to Consolidated Financial Statements in this Report.
Revenue Recognition
Revenue is recognized when For PCBs and engineered systems, customers have continuous control of the promised work in progress and finished goods or services throughout the PCB and engineered systems manufacturing process, as these are built to customer specifications with no alternative use, and there is transferred an enforceable right to customers, in an amount that reflects payment for work performed to date. As a result, we recognize revenue progressively over time based on the consideration to which we expect to be entitled in exchange for those goods or services. We apply a five-step approach in determining the amount and timing extent of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying progress towards completion of the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied. obligation. See Part II, Item 8, Note 2,
For PCBs and engineered systems, including pursuant to long-term contracts related to the manufacture of highly sophisticated intelligence, surveillance and communications solutions, components, assemblies, and subsystems, orders for products generally correspond to the production schedules of customers and are supported with firm purchase orders. Customers have continuous control of the work in progress and finished goods throughout the PCB and engineered systems manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right to payment for work performed to date. As a result, we recognize revenue progressively over time based on the extent of progress towards completion of the performance obligation. Revenue recognized is based on a cost method as it best depicts the transfer of control to the customer which takes place as we incur costs. Revenues are recorded proportionally as costs are incurred.
For revenue recorded on an over time basis, we apply a gross margin estimate , of the Notes to inventory Consolidated Financial Statements in process of being manufactured this Report for customers to determine how much of a contract asset or contract liability should be recorded at period end. As of December 30, 2024, total contract assets were $386.8 million, of which $381.4 million are expected to be collected within one year and recorded as contract assets and $5.4 million are expected to be collected after one year and included as a component of deposits and other non-current assets on the consolidated balance sheets. As of January 1, 2024, total contract assets were $303.3 million, of which $292.1 million were expected to be collected within one year and recorded as contract assets and $11.3 million were expected to be collected after one year and included as a component of deposits and other non-current assets on the consolidated balance sheets. The increase in total contract assets in 2024 is primarily due to an increase in unbilled receivables. We use historical information to estimate the gross margin associated with performance obligations that are satisfied over time. We reevaluate our estimate of gross margins on a quarterly basis. Based on the review of gross margins, we update our estimate to the model as necessary. If our estimates of gross margins are inaccurate, we may recognize too much or too little revenue in a period. While experience has shown that trends in gross margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations. An increase or decrease of 200 basis points in gross margin estimates would have increased or decreased our contract assets by $3.7 million and $2.3 million, respectively, and decreased or increased our contract liabilities by $7.2 million and $5.6 million, respectively. further information.
In addition, For revenue recorded on an over time basis, we manufacture components, assemblies, subsystems, and completed systems which service apply a gross margin estimate to inventory in process of being manufactured for customers to determine how much of a contract asset or contract liability should be recorded at period end. We use historical information to estimate the gross margin associated with performance obligations that are satisfied over time. We reevaluate our RF&S Components and certain aerospace and defense customers. We recognize revenue at estimate of gross margins on a point in time upon transfer quarterly basis. Based on the review of control of the products gross margins, we update our estimate to the customer. Point model as necessary. If our estimates of gross margins are inaccurate, we may recognize too much or too little revenue in time recognition was determined as a period. While experience has shown that trends in gross margins are not volatile, changes in pricing or cost efficiencies could create significant fluctuations. An increase or decrease of 200 basis points in gross margin estimates would have increased or decreased our customer does not simultaneously receive contract assets by $3.7 million and $2.9 million, respectively, and decreased or consume the benefits provided increased our contract liabilities by our performance $6.4 million and the asset being manufactured has alternative uses to us. $5.8 million, respectively.
Goodwill and Intangible Assets
We During the quarter ended June 30, 2025, in connection with our change in organizational structure to enhance clarity in sector performance, accountability, and operating costs, we concluded that we have significant goodwill three reportable segments: A&D, Commercial, and definite-lived intangibles. We review these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. RF&S Components. In addition, prior periods, we perform an impairment test related to goodwill at least annually. As necessary, we make judgments regarding future cash flow forecasts in the had two reportable segments: PCB and RF&S Components. In connection with our assessment of impairment. operating segments, we determined that our operating segments were also our reporting units and reallocated our PCB goodwill between A&D and Commercial based on the estimated relative fair values of the reporting units. In connection with the reallocation of goodwill, we performed a quantitative goodwill impairment assessment for these segments and concluded no impairment indicators existed as of June 30, 2025. See Part II, Item 8, Note 4,
Goodwill is allocated to our reporting units, which are our operating segments or one level below our operating segments (the component level). Reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management. Components are aggregated into a single reporting unit if they share similar economic characteristics. We evaluate goodwill on an annual basis in the fourth quarter or more frequently if we believe indicators of impairment exist. We assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or perform a quantitative impairment test. When tested quantitatively, we compare the fair value of the applicable Segment Information
reporting unit with its carrying value. We estimate the fair values of our reporting units using a combination of the discounted cash flow (DCF) , and market approach. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value exceeds the fair value is recognized as an impairment loss. Note 6,
We have two reportable segments: PCB Goodwill and RF&S Components. Goodwill is attributable to both of our PCB and RF&S Components reportable segments. Definite-lived Intangibles
In , of the fourth quarter of 2024, we performed our annual goodwill impairment test qualitatively Notes to Consolidated Financial Statements in this Report for the PCB reporting unit and concluded that it was more likely than not that there was no impairment to goodwill. further information.
In the fourth quarter of 2024, we performed We completed our annual goodwill impairment test quantitatively for the RF&S Components reporting unit. As of November 1, 2024, we completed a quantitative goodwill impairment analysis related to our RF&S Components PCB, A&D, and Commercial reporting unit units by comparing the fair value of the each reporting unit with its carrying amount. Based on our analysis, we determined that the fair values of the PCB, A&D, and Commercial reporting units were greater than their respective carrying values. In making this assessment, we rely on a number of factors, including expected future operating results, business plans, economic projections, anticipated future cash flows, and business trends. We determined the fair value of the reporting unit units by using both a DCF and a market approach. Under the market approach, we used revenue and earnings multiples based on comparable industry multiples to estimate the fair value of the reporting unit.
Under the DCF approach, we estimated the future cash flows, as well as selected a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we considered historical results adjusted to reflect current and anticipated future operating conditions. We estimated cash flows for the reporting unit over a discrete period and a terminal period (considering expected long-term growth rates and trends).
Based We reallocated PCB goodwill to the A&D and Commercial reporting units based on our analysis, we determined that the their estimated relative fair value of the RF&S Components reporting unit was less than its carrying value and recorded a non-cash goodwill impairment charge of $32.6 million during the year ended December 30, 2024. values. Estimating the fair value of the reporting unit requires us to make assumptions and estimates in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows, discount rates, or terminal growth rates, which are subject to a high degree of judgment, could produce substantially different estimates of the fair value of the reporting unit. We may be subject to additional goodwill impairment charges if actual results do not meet the estimates used in determining the fair value of goodwill and the associated goodwill impairment charge.
Management will continue to monitor In the fourth quarter of 2025, we performed our annual goodwill impairment test qualitatively for the A&D, Commercial, and RF&S Components reporting units for changes in the business environment and concluded that could impact recoverability. The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities. If the economy or business environment falter and we are unable it was more likely than not that there was no impairment to achieve our assumed revenue growth rates or profit margin percentages, our projections used would need to be re-measured, which could impact the carrying value of our goodwill in one or more of our reporting units. goodwill.
Management will continue to monitor the reporting units for changes in the business environment that could impact recoverability. The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities. If the economy or business environment falters and we are unable to achieve our assumed revenue growth rates or profit margin percentages, our projections used would need to be remeasured, which could impact the carrying value of our goodwill in one or more of our reporting units.
We also assess definite-lived intangibles for potential impairment given similar impairment indicators. When indicators of impairment exist related to our definite-lived intangible assets, we use an estimate of the undiscounted cash flows in measuring whether the carrying amount of the assets is recoverable. If the sum of the undiscounted cash flows is less than the carrying amount of the net assets, impairment is measured based on the difference between the net asset’s carrying value and estimated fair value. Fair value is determined through various valuation techniques, including cost-based, market, and income approaches as considered necessary, which involve judgments related to future cash flows and the application of the appropriate valuation model.
CONSOLIDATED OPERATING RESULTS OF OPERATIONS
We operate on a 52 or 53 week fiscal calendar with the fourth quarter ending on the Monday nearest December 31. Fiscal years 2025, 2024, 2023, and 2022 2023 consisted of 52 weeks ended on December 29, 2025, December 30, 2024, and January 1, 2024, and January 2, 2023, respectively. All references to years relate to fiscal years unless otherwise noted.
The relationship of various items to net sales Selected financial highlights are presented in our consolidated statements of operations was as follows: the table below:
The Telephonics acquisition occurred on June 27, 2022. Accordingly, our fiscal year 2022 only includes Telephonics’ 2022 results of operations since the acquisition date. As of the fourth quarter of 2022, we completed our integration of Telephonics and reassessed our reportable segments, which resulted in the inclusion of Telephonics into our PCB reportable segment.
Net Sales
Total net sales increased $210.2 $463.6 million, or 9.4%, 19.0%, to $2,906.3 million for the year ended December 29, 2025 from $2,442.8 million for the year ended December 30, 2024 from $2,232.5 million for the year ended January 1, 2024. Net sales for the PCB reportable segment increased $211.6 million, or 9.6%, to $2,405.6 million for the year ended December 30, 2024 from $2,194.0 million for the year ended January 1, 2024. The primary driver of this increase was demand growth for generative artificial intelligence (AI) applications in our data center computing end market and strong demand and improved operational execution in our aerospace and defense defense, data center computing, and networking end market, partially offset markets, the latter two being driven by demand weakness due to customers' inventory correction in generative AI. In addition, our automotive, medical, industrial, and instrumentation, instrumentation end market was stronger as inventories and networking end markets. We also sold our Shanghai Backplane Assembly entity demand normalized in the first quarter of 2023, which had the effect of reducing net sales in 2024 by $8.4 million. Net sales for the RF&S Components reportable segment decreased $1.4 million, or 3.6%, to $37.1 million for the year ended December 30, 2024 from $38.5 million for the year ended January 1, 2024. The decrease in RF&S Components net sales was primarily due to lower demand in our networking this end market.
Total net sales decreased $262.5 increased $210.2 million, or 10.5%, 9.4%, to $2,442.8 million for the year ended December 30, 2024 from $2,232.5 million for the year ended January 1, 2024 from $2,495.0 million for the year ended January 2, 2023. Net sales for the PCB reportable segment decreased $243.9 million, or 10.0%, to $2,194.0 million for the year ended January 1, 2024 from $2,437.9 million for the year ended January 2, 2023. 2024. The primary driver of this decrease increase was demand weakness growth for generative AI applications in our commercial data center computing end markets market and decrease strong demand and improved operational execution in sales of $36.3 million from the our aerospace and defense end market, partially offset by demand weakness due to customers' inventory correction in our automotive, medical, industrial, and instrumentation, and networking end markets. We also sold our Shanghai Backplane Assembly entity we sold in the first quarter of 2023, partially offset by which had the inclusion effect of a full year of results of Telephonics during the year ended January 1, 2024 (as compared to the inclusion in the year ended January 2, 2023 of its results commencing with its acquisition in 2022), as well as organic growth in our aerospace and defense end market. Net sales for the RF&S Components reportable segment decreased $18.6 million, or 32.5%, to $38.5 million for the year ended January 1, 2024 from $57.1 million for the year ended January 2, 2023. The decrease in RF&S Components reducing net sales was primarily due to lower demand in our networking end market. 2024 by $8.4 million.
For information regarding net sales by country, see Part II, Item 8, Note 10, Gross Profit and Margin Rate
Gross profit increased $124.3 million to $601.7 million for the year ended December 29, 2025, from $477.4 million for the year ended December 30, 2024. Gross margin rate increased to 20.7% for the year ended December 29, 2025, from 19.5% for the year ended December 30, 2024. These increases were primarily due to higher sales volume, improved operational execution, favorable product
mix, and increased volume of PCB shipments, partially offset by continued ramp-up costs in connection with our fabrication plant in Penang, Malaysia.
Gross profit increased $64.1 million to $477.4 million for the year ended December 30, 2024, from $413.3 million for the year ended January 1, 2024. Gross margin rate increased to 19.5% for the year ended December 30, 2024, from 18.5% for the year ended January 1, 2024. These increases were primarily due to higher sales volume and improved operational execution, partially offset by higher employee costs and continued ramp-up costs in connection with our fabrication plant in Penang, Malaysia.
Operating Expenses
Operating expenses decreased $24.3 million to $337.0 million for the year ended December 29, 2025, from $361.3 million
for the year ended December 30, 2024, primarily due to the absence of a $32.6 million impairment of goodwill, decreases in restructuring charges and amortization of definite-lived intangibles, and the absence of a $6.1 million write down of our Hong Kong building that occurred during the year ended December 30, 2024, partially offset by higher stock-based compensation and incentive compensation expense as well as the absence of $14.4 million of gains on the sale of assets primarily related to the sale of two buildings vacated with the closure of our Anaheim and Santa Clara plants that occurred during the year ended December 30, 2024.
Operating expenses decreased $9.6 million to $361.3 million for the year ended December 30, 2024, from $371.0 million for the year ended January 1, 2024, primarily due to decreases in restructuring charges, amortization of definite-lived intangibles, and impairment of goodwill, partially offset by higher labor costs, consulting and other professional services expenses, stock-based compensation, bad debt, and incentive compensation. In addition, $14.4 million of gains on the sale of assets primarily related to the sale of two buildings vacated with the closure of our Anaheim and Santa Clara plants were partially offset by the write down of our Hong Kong building of $6.1 million that occurred during the year ended December 30, 2024.
Total Other Expense, Net
Total other expense, net increased $22.3 million to $54.3 million for the year ended December 29, 2025 from $32.1 million for the year ended December 30, 2024, primarily due to a foreign exchange loss of $20.4 million during the year ended December 29, 2025 compared to a foreign exchange gain of $1.2 million during the year ended December 30, 2024. We utilize the RMB and MYR at our China and Malaysia facilities, respectively, for employee‑related and other costs of running our operations in foreign countries. There was an unrealized loss from foreign exchange of $14.6 million during the year ended December 29, 2025, compared to an unrealized gain from foreign exchange of $1.0 million during the year ended December 30, 2024. The unrealized loss was related to the translation of our China and Malaysia balance sheets from their local currencies into the U.S. dollar functional currency, resulting from strengthening RMB and MYR during the year ended December 29, 2025 as compared to the year ended December 30, 2024.
Total other expense, net decreased $9.9 million to $32.1 million for the year ended December 30, 2024 from $42.0 million for the year ended January 1, 2024. This decrease was primarily due to the weakening RMB resulting in a $1.2 million foreign exchange gain during the year ended December 30, 2024, as compared to a $3.9 million foreign exchange loss during the year ended January 1, 2024. In addition, there was a $3.8 million increase in interest income and $0.6 million decrease in interest expense.
Income Taxes
Income tax expense increased $5.2 million to $32.9 million for the year ended December 29, 2025 from $27.7 million for the year ended December 30, 2024, primarily due to an increase in income before income taxes for the year ended December 29, 2025
and income tax accruals for assessments and uncertain tax positions in various jurisdictions, partially offset by the OBBBA tax impact, as discussed below, and an income tax benefit from the deduction of stock‑based compensation.
Income tax expense increased $8.6 million to $27.7 million for the year ended December 30, 2024 from $19.0 million for the year ended January 1, 2024, primarily due to an increase in income before income taxes.
On July 4, 2025, the OBBBA was enacted, introducing amendments to U.S. tax laws with various effective dates from 2025 to 2027. The OBBBA includes provisions such as the permanent extension of certain provisions of the Tax Cuts and Jobs Act that were set to expire at the end of 2025 and modifications to the international tax framework. Topic 740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Accordingly, our tax provisions for the year ended December 29, 2025 incorporated the estimated effects of the tax law changes including the accelerated depreciation of qualified property and the immediate expensing of U.S. research and development expenditure paid or incurred for tax years beginning after December 31, 2024. We recorded a $6.0 million benefit from the decrease in the U.S. valuation allowance resulting from the OBBBA impact to our deferred tax assets.
Our effective tax rate is primarily impacted by the mix of foreign and U.S. income, 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 us as well as changes in valuation allowances and certain non-deductible items.
SEGMENT OPERATING RESULTS
Basis of Presentation
During the quarter ended June 30, 2025, in connection with our change in organizational structure to enhance clarity in sector performance, accountability, and operating costs, our management finalized its assessment of our operating segments and concluded that we have three reportable segments: A&D, Commercial, and RF&S Components. As a result, certain prior period amounts have been reclassified to conform with this new presentation. See Part II, Item 8, Note 4,
Segment Information
, of the Notes to Consolidated Financial Statements in this Report. Report for further information.
Gross Margin Selected segment financial highlights, with reconciliations to operating income, are presented in the table below:
Overall gross margin increased to 19.5% for the year ended December 30, 2024 from 18.5% for the year ended January 1, 2024. The increase in overall gross margin was due to the increase in gross margin for the PCB reportable segment to 20.6% for the year ended December 30, 2024, from 19.3% for the year ended January 1, 2024. This increase was primarily due to higher sales volume, particularly in the data center computing and aerospace and defense end markets, and improved operational execution, partially offset by declines in the automotive, medical, industrial, and instrumentation, and networking end markets, higher employee costs, and continued ramp up costs included in cost of goods sold in connection with our fabrication plant in Penang, Malaysia. Gross margin for the RF&S Components reportable segment decreased to 48.9% for the year ended December 30, 2024, from 54.7% for the year ended January 1, 2024, primarily due to lower sales. (1)
Overall gross margin increased slightly Amortization of definite-lived intangibles relates to 18.5% the A&D, Commercial, and RF&S Components reportable segments, but is not reviewed separately by the CODM. For the years ended December 29, 2025, December 30, 2024, and January 1, 2024, amortization expense of $9,343, $9,342, and $12,292, respectively, is included in cost of goods sold for the year ended January 1, 2024 from 18.4% for the year ended January 2, 2023. The increase in overall gross margin was due to the increase in gross margin for the PCB A&D reportable segment to 19.3% for segment. For the year ended January 1, 2024, from 18.2% for the year ended January 2, 2023. This increase was primarily due to better product mix and improved execution amortization expense of $609 is included in our North America region, partially offset by lower revenues and less quick-turn premium in our commercial markets. Gross margin cost of goods sold for the RF&S Components reportable segment decreased to 54.7% for the year ended January 1, 2024, from 62.3% for the year ended January 2, 2023, primarily due to lower sales. segment.
An important factor affecting gross margins is capacity utilization, which is measured by the actual production Segment operating income, as a percentage of maximum capacity. This measure is particularly important reconciled in our high-volume PCB facilities in Asia, as a significant portion of our operating costs are fixed in nature. We believe that our North America utilization figures are not as meaningful as Asia because bottlenecks in these high mix low volume facilities tend to occur in areas outside of plating, which is the core process that we use for calculating utilization rates. Capacity utilization for the year ended December 30, 2024 in our Asia and North America PCB facilities was 59% and 36%, respectively, compared to 49% and 38%, respectively, for the year ended January 1, 2024. The increase in capacity utilization in our Asia PCB facilities was caused by strong demand in the data center computing end market. Part II, Item 8, Note 4,
Selling and Marketing Expenses Segment Information
Selling , of the Notes to Consolidated Financial Statements in this Report, and marketing expenses increased $3.1 million to $80.0 million for the year ended December 30, 2024 from $76.9 million for the year ended January 1, 2024. However, selling and marketing expenses as a percentage of net sales decreased to 3.3% for the year ended December 30, 2024 as compared to 3.4% for the year ended January 1, 2024. The increase in the amount of selling and marketing expenses was primarily due to an increase of $2.0 million in labor costs, $0.6 million in stock-based compensation, and $0.5 million in travel costs. The decrease in selling and marketing expenses as a percentage of net sales resulted from higher net sales for the year ended December 30, 2024 as compared to January 1, 2024. segment operating margin rate (segment operating income
Selling and marketing expenses increased $1.7 million to $76.9 million, or 3.4% of net sales, for the year ended January 1, 2024 from $75.2 million, or 3.0% of net sales, for the year ended January 2, 2023. The increase divided by segment sales) are presented in selling and marketing expense was primarily due to the inclusion of a full year of Telephonics expenses, which resulted in an increase of $3.5 million and an increase in labor and travels costs, partially offset by a $3.7 million decrease in commission expense. conformity with Accounting Standards Codification (ASC) Topic 280,
General and Administrative Expenses Segment Reporting
General and administrative expenses increased $20.5 million to $170.1 million, or 7.0% of net sales, for the year ended December 30, 2024 from $149.6 million, or 6.7% of net sales, for the year ended January 1, 2024. The increase in general and administrative expenses was primarily due to increases in consulting and other professional services expenses, labor costs, stock-based compensation, bad debt, incentive compensation, and the write down of our Hong Kong building of $6.1 million, partially offset by gains on the sale of assets primarily related . These measures are reported to the sale CODM, who is the President and Chief Executive Officer, for purposes of two buildings vacated with making decisions about allocating resources to the closure segments and assessing their performance. For these reasons, these measures are excluded from the definition of our Anaheim non‑GAAP financial measures under the SEC's Regulation G and Santa Clara plants Item 10(e) of $14.4 million. Regulation S-K.
General and administrative expenses decreased $8.5 million to $149.6 million for the year ended January 1, 2024 from $158.2 million for the year ended January 2, 2023, but increased as a percentage of net sales to 6.7% from 6.4% over the same two periods. The decrease in the amount of general and administrative expenses primarily resulted from $13.2 million of reduced acquisition and integration costs mainly related to the acquisition of Telephonics on June 27, 2022. In addition, there were decreases in incentive compensation and bad debt. These decreases were partially offset by the inclusion of a full year of Telephonics expenses, which resulted in an increase of $1.6 million, increase in labor costs and lower gains on the sale of assets. The increase of general and administrative expenses as a percentage of net sales resulted from lower net sales for the year ended January 1, 2024 as compared to January 2, 2023. A&D
Research and Development Expenses Segment Sales
Research and development expenses Segment sales for the A&D reportable segment increased $4.6 million to $31.8 $152.6 million, or 1.3% of net sales, 13.4%, to $1,292.5 million for the year ended December 29, 2025, from $1,140.0 million for the year ended December 30, 2024 from $27.3 million, or 1.2% of net sales, for the year ended January 1, 2024. The primary drivers of this increase were improved spending in research previous defense budgets, our strong strategic program alignment, and development expenses was primarily due key bookings for ongoing franchise programs, including restricted programs. These increases were driven by increased sales related to increases missiles and munitions as well as strong demand in labor costs our mission systems and research and development projects. specialty assembly businesses.
Research and development expenses Segment sales for the A&D reportable segment increased $2.5 million to $27.3 $94.0 million, or 1.2% of net sales, 9.0%, to $1,140.0 million for the year ended December 30, 2024, from $1,046.0 million for the year ended January 1, 2024 from $24.8 million, or 1.0% 2024. The primary driver of net sales, for the year ended January 2, 2023. The this increase was strong demand in expense was primarily due to the inclusion of a full year of Telephonics expenses, which resulted in an increase of $4.5 million, partially offset by a decrease in labor our radar and material costs. missile systems.
Impairment of Goodwill Segment Operating Income and Margin Rate
For Segment operating income for the years A&D reportable segment increased $42.0 million to $183.8 million for the year ended December 29, 2025, from $141.8 million for the year ended December 30, 2024 2024. Segment operating margin rate for the A&D reportable segment increased to 14.2% for the year ended December 29, 2025, from 12.4% for the year ended December 30, 2024. The primary drivers of these increases were higher sales volume, as discussed above, favorable product mix, and January 1, 2024, we recorded goodwill impairment charges of $32.6 million and $44.1 million, respectively. See Part II, Item 8, Note 6, improved operational execution.
Goodwill Segment operating income for the A&D reportable segment increased $46.8 million to $141.8 million for the year ended December 30, 2024, from $95.0 million for the year ended January 1, 2024. Segment operating margin rate for the A&D reportable segment increased to 12.4%
, of for the Notes to Consolidated Financial Statements included in this Report for further information. year ended December 30, 2024, from 9.1%
Restructuring Charges for the year ended January 1, 2024. The primary drivers of these increases were higher sales volume, as discussed above, and improved operational execution.
For the years ended December 30, 2024, January 1, 2024, and January 2, 2023, we incurred restructuring charges of $11.2 million, $24.4 million, and $4.1 million, respectively, related to our global realignment restructuring efforts. Commercial
For the year ended December 30, 2024, Segment Sales
we recognized restructuring charges Segment sales for the Commercial reportable segment increased $310.0 million, or 24.3%, to $1,585.7 million for the year ended December 29, 2025, from $1,275.7 million for the year ended December 30, 2024. The primary driver of this increase was strong demand in our data center computing and networking end markets driven by generative AI, and the recovery in medical, industrial, and instrumentation market.
$8.1 million and $3.1 million in our PCB Segment sales for the Commercial reportable segment and Corporate and Other, respectively. For increased $111.0 million, or 9.5%, to $1,275.7 million for the year ended December 30, 2024, from $1,164.7 million for the year ended January 1, 2024, we recognized restructuring charges 2024. The primary driver of $23.7 million and $0.7 million this increase was demand growth for generative AI applications in our PCB data center computing end market, partially offset by demand weakness due to customers' inventory correction in our automotive, medical, industrial, and instrumentation, and networking end markets. We also sold our Shanghai Backplane Assembly entity in the first quarter of 2023, which had the effect of reducing Commercial reportable segment and Corporate and Other, respectively. For the year ended January 2, 2023, we recognized restructuring charges of $3.5 million and $0.6 million net sales in our PCB reportable segment and Corporate and Other, respectively. These charges primarily represent employee separation and contract termination and other costs associated with the restructuring plans. 2024 by $8.4 million.
Gain on sale of SH E-MS Property Segment Operating Income and Margin Rate
On December 22, 2022, land, building, and relevant ancillary assets related Segment operating income for the Commercial reportable segment increased $59.0 million to our former SH E-MS manufacturing facility was expropriated by the Chinese government $238.8 million for a compensation fee of Renminbi (RMB) 477.6 million ($69.2 million as of January 2, 2023) and we recorded a gain on the sale of $51.8 million during the year ended January 2, 2023. December 29, 2025, from $179.8 million for the year ended December 30, 2024. Segment operating margin rate for the Commercial reportable segment increased to 15.1% for the year ended December 29, 2025, from 14.1% for the year ended December 30, 2024. The primary driver of these increases in segment operating income was higher sales volume, as discussed above, partially offset by increased ramp-up costs in connection with our fabrication plant in Penang, Malaysia.
Total Other Expense, Net Segment operating income for the Commercial reportable segment increased $8.4 million to $179.8 million for the year ended December 30, 2024, from $171.4 million for the year ended January 1, 2024. Segment operating margin rate for the Commercial reportable segment decreased to 14.1% for the year ended December 30, 2024, from 14.7% for the year ended January 1, 2024. The primary driver of the increase in segment operating income was higher sales volume, as discussed above, while the segment operating margin rate decreased due to continued ramp-up costs in connection with our fabrication plant in Penang, Malaysia.
Total other expense, net decreased $9.9 million to $32.1 million for the year ended December 30, 2024 from $42.0 million for the year ended January 1, 2024. This decrease was primarily due to the weakening RMB resulting in a $1.2 million foreign exchange gain during the year ended December 30, 2024, as compared to a $3.9 million foreign exchange loss during the year ended January 1, 2024. We utilize the RMB at our China facilities for employee-related and other costs of running our operations in China. In addition, there was a $3.8 million increase in interest income and $0.6 million decrease in interest expense. RF&S Components
Total other expense, net increased $14.5 million to $42.0 million for the year ended January 1, 2024 from $27.5 million for the year ended January 2, 2023. This increase was primarily due to a decrease in other income of $16.8 million related to the strengthening of the Chinese RMB and an increase in interest expense of $2.6 million due to higher interest rates, partially offset by an increase in interest income of $5.9 million. Segment Sales
Income Taxes Segment sales for the RF&S Components reportable segment increased $2.7 million, or 7.2%, to $40.0 million for the year ended December 29, 2025, from $37.3 million for the year ended December 30, 2024. The primary driver of this increase was stronger new business development across the networking and medical, industrial, and instrumentation end markets.
Income tax expense increased $8.6 million Segment sales for the RF&S Components reportable segment decreased $1.3 million, or 3.4%, to $27.7 $37.3 million for the year ended December 30, 2024 2024, from $19.0 $38.6 million for the year ended January 1, 2024, primarily due to an increase in pre-tax book income. 2024. The primary driver of this decrease
Income tax expense decreased $69.3 million to $19.0 million for the year ended January 1, 2024 from $88.3 million for the year ended January 2, 2023, primarily due to a decrease was lower demand in pre-tax book income, the absence of an expense to set up a valuation allowance against U.S. deferred tax assets in 2022, and the release of uncertain tax positions due to lapse of statute of limitations. our networking end market.
Our effective tax rate is primarily impacted by tax rates in China Segment Operating Income and Hong Kong, the U.S. federal income tax rate, apportioned state income tax rates, the generation of credits and deductions available to us, as well as changes in the valuation allowance, certain non-deductible items, global intangible low taxed income, and the establishment of a deferred tax liability related to unremitted foreign earnings. Margin Rate
Segment operating income for the RF&S Components reportable segment increased $2.6 million to $11.3 million for the year ended December 29, 2025, from $8.7 million for the year ended December 30, 2024. Segment operating margin rate for the RF&S Components reportable segment increased to 28.1% for the year ended December 29, 2025, from 23.2% for the year ended December 30, 2024. The primary drivers of these increases were higher sales volume as discussed above, and improved operational execution.
Segment operating income for the RF&S Components reportable segment decreased $2.3 million to $8.7 million for the year ended December 30, 2024, from $11.0 million for the year ended January 1, 2024. Segment operating margin rate for the RF&S Components reportable segment decreased to 23.2% for the December 30, 2024, from 28.4% for the year ended January 1, 2024. The primary driver of these decreases was lower sales volume, as discussed above.
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, repay debt obligations, and repurchase common stock. We anticipate that financing capital expenditures, financing acquisitions, funding working capital requirements, servicing debt, and repurchasing common stock will be the principal demands on our cash in the future.
Cash flow provided by operating activities during the year ended December 30, 2024 29, 2025 was $236.9 $291.9 million as compared to $187.3 $236.9 million in the same period in 2023. 2024. The increase in cash flow was primarily due to the $75.0 $121.1 million increase in net income. income, partially offset by an increase in working capital.
Net cash used in investing activities was $273.9 million for the year ended December 29, 2025, primarily reflecting the use of $292.6 million for purchases of property, plant, and equipment and other assets, partially offset by the receipt of $17.8 million of proceeds from capital-related government incentives. Net cash used in investing activities was $146.2 million for the year ended December 30, 2024, primarily reflecting the use of $185.7 million for purchases of property, plant, and equipment and other assets. This was partially offset by the receipt of $32.9 million of proceeds from the sale of property, plant, and equipment and other assets primarily related to the sale of two buildings vacated with the closure of our Anaheim and Santa Clara plants and $6.7 million of proceeds from the sale of property associated with our Shanghai E‑MS subsidiary.
Net cash used in investing financing activities was $92.0 $20.9 million for the year ended January 1, 2024, primarily December 29, 2025, reflecting the use of $160.2 $17.9 million for purchases repurchases of property, plant, our common stock and equipment and other assets, $3.8 million for the repayment of long-term debt borrowings, partially offset by the receipt of $61.8 $1.5 million of customer deposits. Net cash used in financing activities was $36.8 million for the year ended December 30, 2024, reflecting the use of $34.5 million for repurchases of our common stock, $9.6 million for the repayment of long-term debt borrowings, and $1.2 million for payment of debt issuance costs, partially offset by $8.4 million of proceeds from long-term debt borrowings primarily related to the sale of property associated with our Shanghai E-MS subsidiary and $6.0 million of proceeds from the sale refinancing of our Shanghai Backplane Assembly subsidiary, net of cash disposed. Term Loan Facility.
Net As of December 29, 2025, we had cash used and cash equivalents of approximately $501.2 million, of which approximately $191.9 million was held by our foreign subsidiaries, primarily in financing activities was $36.8 million for the year ended December 30, 2024, reflecting the use of $34.5 million for repurchases of our common stock, $9.6 million for the repayment of long-term debt borrowings, China, and $1.2 million for payment of debt issuance costs, partially offset by $8.4 $195.8 million of proceeds from long-term debt borrowings primarily related to the refinancing of our Term Loan Facility due 2030 (Term Loan Facility). Net cash used in financing activities during the year ended January 1, 2024 was $47.7 million, reflecting repayment of long-term debt borrowings of $291.6 million, repurchases of common stock of $24.4 million, refund of customer deposits of $7.5 million, payment of debt issuance costs of $5.5 million and payment of original issue discount of $3.5 million, partially offset by the receipt of proceeds of $234.8 million from long-term debt available borrowing and proceeds of $50.0 million from borrowings capacity under our revolving credit facilities. 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. However, we believe there would be no material tax expenses not previously accrued for the repatriation of this cash.
As Our total 2026 capital expenditures are expected to be in the range of December 30, 2024, we had cash and cash equivalents of approximately $503.9 million, of which approximately $207.9 $240.0 million was held by our foreign subsidiaries, primarily in China, and $195.6 million of available borrowing capacity under our revolving credit facilities. 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. However, we believe there would be no material tax expenses not previously accrued for the repatriation of this cash. $260.0 million.
Our total 2025 capital expenditures are expected to be in the range of $230.0 million to $250.0 million, of which approximately $66.0 million relate to our construction of our new plant in Syracuse, New York.
Share Repurchases
On May 3, 2023, 8, 2025, our Board of Directors authorized a share repurchase program (2023 the 2025 Repurchase Program) allowing us to Program, under which we may repurchase up to $100.0 million of our common stock from time to time through May 3, 2025. During 2024, we repurchased approximately 2.0 million shares of our common stock for a total cost of $34.5 million (including commissions). As of December 30, 2024, the remaining amount in value available to be repurchased under the 2023 Repurchase Program was approximately $41.1 million.
$100.0 million in value of our common stock from time to time through May 7, 2027. During the year ended December 29, 2025, under our previous two-year repurchase program that expired on May 3, 2025, we repurchased approximately 0.7 million shares of our common stock for a total cost of $17.9 million (including commissions). As of December 29, 2025, we have not repurchased any shares of our common stock under the 2025 Repurchase Program, and the remaining amount in value available to be repurchased thereunder was $100.0 million.
Long-term Debt and Letters of Credit
As of December 30, 2024, 29, 2025, we had $918.2 $916.2 million of outstanding debt, net of discount and debt issuance costs, composed of $496.6 $497.4 million of Senior Notes due 2029, $339.2 $336.8 million under the Term Loan Facility, $80.0 million under the Asia Asset‑Based Lending Credit Agreement (Asia ABL), ABL, and $2.3 $2.0 million of other loans.
Pursuant to the terms of the Senior Notes due 2029 and Term Loan Facility, we are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments, dispositions, and restricted payments. Under the U.S. Asset-Based Lending Credit Agreement (U.S. ABL) and Asia ABL (collectively, the ABL Revolving Loans), Loans, we are also subject to various financial covenants, including leverage and fixed charge coverage ratios. As of December 30, 2024, 29, 2025, we were in compliance with the covenants under the Senior Notes due 2029, Term Loan Facility, 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 12 months. Additional information regarding our indebtedness, including information about the credit available under our debt facilities, interest rates, and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 8, 7,
Long‑term Debt and Letters of Credit
, of the Notes to Consolidated Financial Statements included in this Report.
Supplier Finance Program Obligations
We have agreements with financial institutions to facilitate payments to certain suppliers. Under the terms of the agreements, we confirm the validity of each supplier invoice to the respective financial institution upon receipt. The supplier receives payment from the financial institution, and we pay the financial institution based on the terms negotiated, which generally range from 160 days to 360 days. Liabilities associated with these agreements are recorded in accounts payable on the consolidated balance sheets and amounted to $17.2 $12.5 million and $18.8 $17.2 million as of December 29, 2025 and December 30, 2024 and January 1, 2024, respectively.
Contractual Obligations and Commitments
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.
A summary of our long-term debt obligations as of December 30, 2024 29, 2025 is included in Part II, Item 8, Note 8, 7,
Long‑term Debt and Letters of Credit
, of the Notes to Consolidated Financial Statements included in this Report.
Our aggregate interest on debt obligations as of December 30, 2024 29, 2025 amounted to $226.0 $167.9 million, which are expected to be settled as follows: $47.6 $44.7 million within 1 year, $94.9 $85.0 million within 1-3 years, $74.7 and $38.2 million within 4-5 years, and $8.8 million after 5 years. For debt obligations based on variable rates, interest rates used are as of December 30, 2024. 29, 2025.
As of December 30, 2024, $0.7 29, 2025, an immaterial amount of our derivative liabilities is expected to be settled within one year and $0.4 million of our derivative liabilities are expected to be settled within one year. 1-3 years.
We also have outstanding firm purchase orders with certain suppliers for the purchase of material and inventory. Orders for standard, or catalog, items can typically be canceled with little or no financial penalty. Our policy regarding non-standard or customized items dictates that such items are only ordered specifically for customers who have contractually assumed liability for the inventory, although exceptions are made to this policy in certain situations. In addition, a substantial portion of catalog items covered by our purchase orders are procured for specific customers based on their purchase orders or a forecast under which the customer has contractually assumed liability for such material. Accordingly, our liability from purchase obligations under these purchase orders is not expected to be significant.
A summary of our lease obligations as of December 30, 2024 29, 2025 is included in Part II, Item 8, Note 4, 13,
Leases
, of the Notes to Consolidated Financial Statements included in this Report.
Offset Agreements
We have previously entered into, and may continue to enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for our products and services from customers in foreign countries. As of December 30, 2024, we had outstanding offset agreements of approximately $27.3 million, some of which extend through 2028. Offset programs usually extend over several years and in some cases provide for penalties in the event we fail to perform in accordance with contract requirements. To date, we have not been obligated to pay any such penalties. For details about our offset agreements, see Part II, Item 8, Note 14,
Commitments and Contingencies
, of the Notes to Consolidated Financial Statements included in this Report.
Seasonality
We tend do not consider any material portion of our business to experience modest seasonal softness in be seasonal. Various factors, however, can affect the first distribution of our sales between accounting periods, including the timing of customer orders, the availability of customer funding, product deliveries, 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. customer acceptance.
Recently Issued Accounting Standards
For a description of recently adopted and issued accounting standards, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part II, Item 8, Note 1,
Nature of Operations and Summary of Significant Accounting Policies,
of the Notes to Consolidated Financial Statements. Statements included in this Report.