UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares outstanding of the issuer’s common stock as of October 22, 2021:
ULTRA CLEAN HOLDINGS, INC.
TABLE OF CONTENTS
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ITEM 1. |
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3 |
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ITEM 2. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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28 |
ITEM 3. |
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36 |
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ITEM 4. |
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36 |
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ITEM 1. |
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37 |
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ITEM 1A. |
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37 |
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ITEM 2. |
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37 |
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ITEM 3. |
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37 |
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ITEM 4. |
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37 |
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ITEM 5. |
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37 |
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ITEM 6. |
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37 |
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38 |
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. |
Financial Statements |
ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 24, |
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December 25, |
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(In millions, except par value) |
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2021 |
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2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts of $ September 24, 2021 and December 25, 2020, respectively |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangibles assets, net |
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Deferred tax assets, net |
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Operating lease right-of-use assets |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Bank borrowings |
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$ |
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$ |
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Accounts payable |
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Accrued compensation and related benefits |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Bank borrowings, net of current portion |
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Deferred tax liabilities |
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Operating lease liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (See Note 10) |
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Equity: |
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UCT stockholders’ equity: |
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Preferred stock — $ outstanding |
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Common stock — $ respectively |
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Additional paid-in capital |
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Common shares held in treasury, at cost, December 25, 2020 |
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( |
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( |
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Retained earnings |
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Accumulated other comprehensive gain |
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Total UCT stockholders' equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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(See accompanying Notes to Condensed Consolidated Financial Statements)
- 3 -
ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 24, |
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September 25, |
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September 24, |
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September 25, |
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(In millions, except per share amounts) |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenues: |
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Products |
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$ |
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$ |
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$ |
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$ |
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Services |
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Total revenues |
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Cost of revenues: |
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Products |
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Services |
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Total cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Income from operations |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Other income (expense), net |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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Less: Net income attributable to noncontrolling interests |
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Net income attributable to UCT |
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$ |
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$ |
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$ |
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$ |
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Net income per share attributable to UCT common stockholders: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Shares used in computing net income per share: |
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Basic |
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Diluted |
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(See accompanying Notes to Condensed Consolidated Financial Statements)
- 4 -
ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 24, |
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September 25, |
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September 24, |
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September 25, |
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(In millions) |
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2021 |
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2020 |
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2021 |
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2020 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive gain (loss): |
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Change in cumulative translation adjustment |
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( |
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( |
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— |
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Change in fair value of derivatives |
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( |
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— |
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( |
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— |
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Total other comprehensive gain (loss) |
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( |
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( |
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— |
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Other comprehensive income, attributable to noncontrolling interests |
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Comprehensive income attributable to UCT |
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$ |
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$ |
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$ |
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$ |
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(See accompanying Notes to Condensed Consolidated Financial Statements)
- 5 -
ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended |
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September 24, |
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September 25, |
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(In millions) |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities (excluding assets acquired and liabilities assumed): |
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Depreciation and amortization |
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Amortization of intangible assets |
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Stock-based compensation |
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Amortization of debt issuance costs |
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Gain from insurance proceeds |
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( |
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( |
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Deferred income taxes |
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( |
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Change in the fair value of financial instruments and earn-out liability |
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Others |
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( |
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Changes in assets and liabilities, net of effects of acquisitions: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
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Other non-current assets |
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( |
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— |
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Accounts payable |
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( |
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Accrued compensation and related benefits |
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Income taxes payable |
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Operating lease assets and liabilities |
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( |
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( |
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Other liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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( |
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( |
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Proceeds from sale of equipment, including insurance proceeds |
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Settlement of forward contracts in conjunction with the acquisition of Ham-Let |
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( |
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— |
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Acquisition of business, net of cash acquired |
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( |
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— |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from bank borrowings |
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Proceeds from issuance of common stock |
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Principal payments on bank borrowings and finance leases |
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( |
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( |
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Payments of debt issuance costs |
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( |
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— |
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Payments of dividends to a joint venture shareholder |
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( |
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— |
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Employees’ taxes paid upon vesting of restricted stock units |
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( |
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( |
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Payment of contingent earn-out |
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— |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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Supplemental cash flow information: |
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Income taxes paid, net of income tax refunds |
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$ |
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$ |
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Interest paid |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Reclassification of common stock purchase obligation liability to noncontrolling interests |
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$ |
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— |
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Property, plant and equipment purchased included in accounts payable and other liabilities |
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$ |
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$ |
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(See accompanying Notes to Condensed Consolidated Financial Statements)
- 6 -
ULTRA CLEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Three Months Ended |
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September 24, 2021 |
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Common Stock |
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Additional Paid-in |
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Treasury shares |
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Retained |
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Accumulated Other Comprehensive |
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Total Stockholders’ |
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Noncontrolling |
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Total |
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(In millions) |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Earnings |
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Income (Loss) |
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Equity of UCT |
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Interests |
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Equity |
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Balance June 25, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance under employee stock plans |
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— |
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$ |
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Noncontrolling interests from acquisition of Ham-Let |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Reclassification of common stock purchase obligation liability upon modification of agreement (see Note 11) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
|
Balance September 24, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||||||||||||||
|
|
September 24, 2021 |
|
||||||||||||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Treasury shares |
|
|
Retained |
|
|
Accumulated Other Comprehensive |
|
|
Total Stockholders’ |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||||||||
(In millions) |
|
Shares |
|
|
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
Amount |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity of UCT |
|
|
Interests |
|
|
Equity |
|
||||||||||
Balance December 25, 2020 |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Issuance of common stock in public offering |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Issuance under employee stock plans |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Employees’ taxes paid upon vesting of restricted stock units |
|
|
( |
) |
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Noncontrolling interests from acquisition of Ham-Let |
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments to a joint venture shareholder |
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Reclassification of common stock purchase obligation liability upon modification of agreement (see Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance September 24, 2021 |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 7 -
|
|
Three Months Ended |
|
||||||||||||||||||||||||||||||||||||
|
|
September 25, 2020 |
|
||||||||||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
Treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(In millions) |
|
Shares |
|
|
Amount |
|
|
Additional Paid-in Capital |
|
|
Shares |
|
Amount |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Total Stockholders’ Equity of UCT |
|
|
Noncontrolling Interests |
|
|
Total Equity |
|
||||||||||
Balance June 26, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Issuance under employee stock plans |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|||||||||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|||||||
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|||||||
Balance September 25, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||||||||||||
|
|
September 25, 2020 |
|
||||||||||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
Treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(In millions) |
|
Shares |
|
|
Amount |
|
|
Additional Paid-in Capital |
|
|
Shares |
|
Amount |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Total Stockholders’ Equity of UCT |
|
|
Noncontrolling Interests |
|
|
Total Equity |
|
||||||||||
Balance December 27, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Issuance under employee stock plans |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||||||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|||||||
Taxes paid related to net share settlement of equity awards |
|
|
( |
) |
|
— |
|
|
|
( |
) |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
— |
|
|
|
( |
) |
||||||
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
||||||||||
Balance September 25, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
- 8 -
ULTRA CLEAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization — Ultra Clean Holdings, Inc., (the “Company” or “UCT”) a Delaware corporation, was founded in November 2002 and became a publicly traded company on the NASDAQ Global Market in March 2004. Ultra Clean Holdings, Inc. is a leading developer and supplier of critical subsystems, components and parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. The Company operates and reports results for
On
On April 13, 2021, the Company completed an underwritten public offering of
Fiscal Year — The Company uses a 52-53 week fiscal year ending on the Friday nearest December 31. All references to quarters refer to fiscal quarters and all references to years refer to fiscal years.
Noncontrolling interests — Noncontrolling interests are recognized to reflect the portion of the equity of the majority-owned subsidiaries which is not attributable, directly or indirectly, to the controlling stockholder. The Company’s consolidated entities include partially-owned entities, which are (1) Cinos Co., Ltd (“Cinos Korea”), a South Korean company that provides outsourced cleaning and recycling of precision parts for the semiconductor industry through its operating facilities in South Korea, (2) Cinos Xian Clean Technology, Ltd. (“Cinos China”), a Chinese entity that is partially owned by Cinos Korea and (3) Rovac Pte, Ltd (“Rovac”), a Singaporean Company that is majority owned by Ham-Let. The interest held by others in Cinos Korea, in Cinos China and in Rovac are presented as noncontrolling interests in the accompanying Condensed Consolidated Financial Statements. The noncontrolling interests will continue to be attributed its share of gains and losses even if that attribution results in a deficit noncontrolling interests’ balance.
- 9 -
Segments — The Financial Accounting Standards Board’s (“FASB”) guidance regarding disclosure about segments in an enterprise and related information establishes standards for the reporting by public business enterprises of information about reportable segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the manner in which management organizes the reportable segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief operating decision-maker is the Chief Executive Officer. The Company operates and reports
Foreign Currency Translation and Remeasurement — The functional currency of the majority of the Products division’s foreign subsidiaries is the U.S. dollar. The functional currency of the Service division’s foreign subsidiaries is the local currency except for that of its Singapore and Scotland entities, which is the U.S. dollar.
For the Company’s foreign subsidiaries where the local currency is the functional currency, the Company translates the financial statements of these subsidiaries to U.S. dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (AOCI) within UCT stockholders’ equity. For the Company’s foreign subsidiaries where the U.S. dollar is the functional currency, any gains and losses resulting from the translation of the assets and liabilities of these subsidiaries are recorded in other income (expense), net.
Use of Estimates — The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include inventory valuation, accounting for income taxes, business combinations, valuation of goodwill, intangible assets and long-lived assets. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustments. Actual amounts may differ from those estimates.
Cash and Cash Equivalents — The Company considers currency on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the United States and internationally.
Concentration of Credit Risk — Financial instruments which subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company sells its products and provides services primarily to semiconductor capital equipment manufacturers in the United States. The Company performs credit evaluations of its customers’ financial condition and generally requires no collateral.
The Company’s most significant customers (having accounted for 10% or more of revenues) and their related revenues as a percentage of total revenues were as follows:
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
||||||||||||
|
|
September 24, |
|
|
|
September 25, |
|
|
|
September 24, |
|
|
|
September 25, |
|
|
||||
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
|
||||
Lam Research Corporation |
|
|
|
% |
|
|
|
|
% |
|
|
|
|
% |
|
|
|
|
% |
|
Applied Materials, Inc. |
|
|
|
% |
|
|
|
|
% |
|
|
|
|
% |
|
|
|
|
% |
|
Total |
|
|
|
% |
|
|
|
|
% |
|
|
|
|
% |
|
|
|
|
% |
|
Fair Value of Measurements — The Company measures its cash equivalents, derivative contracts, contingent earn-out liabilities, pension obligation and common stock purchase obligation at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
- 10 -
Level 2 — Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.
Level 3 — Unobservable inputs that are supported by little or no market activities.
Derivative Financial Instruments — The Company uses forward contracts to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions typically expected to occur within 24 months. The purpose of the hedge is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated costs and eventual cash flows. The Company recognizes derivative instruments as either assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value. The Company records changes in the fair value of the derivatives in the accompanying Condensed Consolidated Statements of Operations as other income (expense), net, or as a component of AOCI in the accompanying Condensed Consolidated Balance Sheets.
Inventories — Inventories are stated at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. The Company evaluates the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of management’s estimated usage is written down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are management’s estimates related to economic trends, future demand for products, and technological obsolescence of the Company’s products.
Inventory write downs inherently involve judgments based on assumptions about expected future demand and the impact of market conditions on those assumptions. Although the Company believes that the assumptions it used in estimating inventory write downs are reasonable, significant changes in any one of the assumptions in the future could produce a significantly different result. There can be no assurances that future events and changing market conditions will not result in significant increases in inventory write downs.
Property, Plant and Equipment, net — Property, plant and equipment are stated at cost, or, in the case of equipment under finance leases, the present value of future minimum lease payments at inception of the related lease. The Company also capitalizes interest on borrowings related to eligible capital expenditures. Capitalized interest is added to the cost of the qualified assets and is subject to depreciation. Depreciation and amortization are computed using the straight-line method over the lesser of the estimated useful lives of the assets or the terms of the leases. Useful lives range from three to . Direct costs incurred to develop software for internal use are capitalized and amortized over an estimated useful life of three to . Costs related to the design or maintenance of internal use software are expensed as incurred. Capitalized internal use software is included in computer equipment and software.
Long-lived Assets — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. The Company assesses the fair value of the assets based on the amount of the undiscounted future cash flows that the assets are expected to generate and recognizes an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset are less than the carrying value of the asset. If the Company identifies an impairment, the Company reduces the carrying value of the group of assets to comparable market values, when available and appropriate, or to its estimated fair value based on a discounted cash flow approach.
The Company assessed the useful lives of its long-lived assets, including property, plant and equipment as well as its intangible assets as of September 24, 2021 and concluded that
Leases — The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement. When the Company determines the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or a finance lease. Operating and finance leases with lease terms of one year or greater result in the Company recording a right-of-use (ROU) asset and lease liability on its balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are initially recognized based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses the implicit interest rate if readily determinable or when the implicit interest rate is not readily determinable, the Company uses its incremental borrowing rate. The incremental borrowing rate is not a commonly quoted rate and is derived through a combination of inputs including the Company’s credit rating and the impact of full collateralization. The incremental borrowing rate is based on the Company’s collateralized borrowing capabilities over a similar term of the lease payments. The Company utilizes the consolidated group incremental borrowing rate for all leases. The operating lease ROU asset also includes any lease payments made and excludes any lease incentives. Specific lease terms used in computing the ROU assets and lease liabilities may include options to extend or terminate the lease when the Company believes it is reasonably certain that it will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. As allowed by the guidance, the Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Operating leases are included in operating lease ROU assets, other current liabilities, and long-term operating lease liabilities on the Company’s consolidated balance sheet. The Company’s finance leases at September 24, 2021 and December 25, 2020 were not significant.
- 11 -
Goodwill and Indefinite-Lived Intangible Assets — Goodwill and indefinite-lived intangible assets are not amortized, but are reviewed for impairment annually. Intangible assets are presented at cost, net of accumulated amortization, and are amortized on either a straight-line method or on an accelerated method over their estimated future discounted cash flows. The Company reviews goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable, such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present.
Deferred Debt Issuance Costs — Debt issuance costs incurred in connection with obtaining debt financing are deferred and presented as a direct deduction from Bank Borrowings in the accompanying Condensed Consolidated Balance Sheets. Deferred costs are amortized on an effective interest method basis over the contractual term.
Defined Benefit Pension Plan — The Company has a noncontributory defined benefit pension plan covering substantially all of the employees of one of its foreign entities upon termination of their employee services. For further discussion of the Company’s defined benefit pension plan see Note 9 of the Notes to the Condensed Consolidated Financial Statements.
Revenue Recognition — Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company performs the following five steps to determine when to recognize revenue: (1) identification of the contract(s) with customers, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, a performance obligation is satisfied.
Shipping and Handling Costs — Shipping and handling costs are included as a component of cost of revenues.
Research and Development Costs — Research and development costs are expensed as incurred.
Stock-Based Compensation Expense — The Company maintains stock-based compensation plans which allow for the issuance of equity-based awards to executives and certain employees. These equity-based awards include restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance stock units (“PSUs”). The Company also maintains an employee stock purchase plan (“ESPP”) that provides for the issuance of shares to all eligible employees of the Company at a discounted price.
Government Subsidies — Government subsidies are recognized where there is reasonable assurance that the subsidy will be received and all attached conditions will be complied with. When the subsidy relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the subsidy relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset. When the subsidy does not relate to specific expenses or assets, the income is accounted for in the period where there is reasonable assurance that the subsidy will be received.
Income Taxes — The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to realize our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future federal, state, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider recent cumulative income (loss). A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
Income tax positions must meet a more likely than not recognition threshold to be recognized. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.
The Company accounts for Global Intangible Low-Taxed Income (“GILTI”) as period costs when incurred.
Net Income per Share — Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding for the period. Diluted net income per share is calculated by dividing net income by the weighted average number of
- 12 -
common shares outstanding and common equivalent shares from dilutive restricted stock using the treasury stock method, except when such shares are anti-dilutive. See Note 15 of the Notes to the Condensed Consolidated Financial Statements.
Accounting Standard Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financing Reporting. This guidance provides temporary optional expedients and exceptions through December 31, 2022 to the U.S. GAAP guidance on contract modifications to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company expects to adopt this guidance and apply it to reference rate reform effected arrangement modifications.
Although there are several other new accounting pronouncements issued by the FASB, the Company does not believe any of these accounting pronouncements had or will have a material impact on its Consolidated Financial Statements.
2. BUSINESS COMBINATIONS
Ham-Let (Israel-Canada) Ltd.
On
In December 2020, the Company announced the acquisition of Ham-Let. The expected cash consideration for the equity valuation at that time was approximately
The Company has preliminarily allocated the purchase price of Ham-Let to the tangible assets, liabilities, identifiable intangible assets acquired and noncontrolling interest, based on their estimated fair values. The excess of purchase price over the aggregate fair value was recorded as goodwill. Goodwill associated with the acquisition is primarily attributable to the future technology, market presence and knowledgeable and experienced workforce. The fair value assigned to identifiable intangible assets acquired was determined using the income approach taking into account the Company’s consideration of a number of inputs, including an independent third-party analysis that was based upon estimates and assumptions provided by the Company. These estimates and assumptions were determined through established and generally accepted valuation techniques. The estimated fair value of the tangible and intangible assets acquired was allocated at Ham-Let’s acquisition date.
The allocation of the purchase price is preliminary pending the completion of various analyses and the finalization of estimates. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible assets and liabilities, primarily inventories, accounts receivable, property, plant and equipment, operating lease right-of-use assets and related operating lease liabilities, income and other taxes, intangible assets and residual goodwill. During the measurement period, which can be no more than one year from the date of acquisition, we expect to continue to obtain information to assist us in determining the final fair value of the net assets acquired at the acquisition date during the measurement period. Assets acquired, liabilities assumed and noncontrolling interest are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. Thus, the provisional measurements of fair value discussed above are subject to change. The Company expects to finalize
- 13 -
the valuation as soon as practicable, but not later than one year from the acquisition date. While the Company believes that its estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired, liabilities assumed and noncontrolling interest, and the resulting amount of goodwill.
Subsequent to the filing of the Company’s June 25, 2021 financial statements, the Company continued its analysis of the fair value of assets acquired, liabilities assumed as well as the noncontrolling interests from the acquisition date through the end of the third quarter of 2021. As a result of its analysis, the Company recorded, as a measurement period adjustment, a reduction in the fair value of the inventories of approximately $
The following table summarizes the preliminary fair values of assets acquired, liabilities assumed and noncontrolling interest at the date of acquisition (in millions):
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Inventories |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Goodwill |
|
|
|
|
Purchased intangible assets |
|
|
|
|
Deferred tax assets |
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
Other non-current assets |
|
|
|
|
Total assets acquired |
|
|
|
|
Bank borrowings |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
Accrued compensation and related benefits |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
Other liabilities |
|
|
( |
) |
Total liabilities assumed |
|
|
( |
) |
Noncontrolling interests |
|
|
( |
) |
Total consideration transferred |
|
$ |
|
|
|
|
|
|
|
|
Purchased |
|
|
|
|
Useful Life |
|
|
Intangible Assets |
|
||
|
|
(In years) |
|
|
(In millions) |
|
||
Customer relationships |
|
|
10 |
|
|
$ |
|
|
IP Knowhow |
|
10-15 |
|
|
|
|
|
|
Trade names |
|
|
5 |
|
|
|
|
|
Backlog |
|
|
1 |
|
|
|
|
|
Total purchased intangible assets |
|
|
|
|
|
$ |
|
|
Goodwill is not amortized but is reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The results of operations for the Company for the nine months ended September 24, 2021 include operating activities for Ham-Let since its acquisition date of March 31, 2021. For the three and nine months ended September 24, 2021, net sales of approximately $
- 14 -
The following unaudited pro forma consolidated results of operations assume the acquisition was completed as of the beginning of the year of the reporting periods presented.
The unaudited pro forma consolidated results of operations for the three and nine months ended September 24, 2021 and September 25, 2020 (in millions, except per share amounts) are summarized as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|||||||||
|
|
September 24, |
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
|
|
2021 |
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
(In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net income |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Basic income per share |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Diluted income per share |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The unaudited pro forma results above include adjustments related to the purchase price allocation and financing of the acquisition, primarily to increase amortization for the identifiable intangible assets, to increase interest expense for the additional debt incurred to complete the acquisition, to eliminate the $
Dynamic Manufacturing Solutions, LLC
On
3. BALANCE SHEET INFORMATION
Inventories consisted of the following:
|
|
September 24, |
|
|
December 25, |
|
||
(In millions) |
|
2021 |
|
|
2020 |
|
||
Raw materials |
|
$ |
|
|
|
$ |
|
|
Work in process |
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Property, plant and equipment, net, consisted of the following:
|
|
Useful Life |
|
September 24, |
|
|
December 25, |
|
||
(In millions) |
|
(in years) |
|
2021 |
|
|
2020 |
|
||
Land |
|
|
|
$ |
|
|
|
$ |
|
|
Buildings |
|
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
* |
|
|
|
|
|
|
|
|
Computer equipment and software |
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Construction in progress |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
- 15 -
* Lesser of estimated useful life or remaining lease term
Restructuring
During the first quarter of fiscal year 2020, the Company made a strategic decision to fully integrate Quantum Global Technologies, LLC’s (“QGT”) corporate office responsibilities from Quakertown, PA to UCT’s corporate office in Hayward, CA. As a result, the Company recorded a restructuring charge of $
Insurance Proceeds
In September 2018, a fire in a facility owned by Cinos Korea destroyed certain assets, including equipment, the building and inventory owned by one of its customers. During the first fiscal quarter of 2021, the Company received final insurance proceeds related to the Cinos fire of $
4. FAIR VALUE MEASUREMENTS
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
|
|
|
|
|
|
Fair Value Measurement at |
|
|||||||||
|
|
|
|
|
|
Reporting Date Using |
|
|||||||||
Description |
|
September 24, 2021 |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase option |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Pension obligation |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
Fair Value Measurement at |
|
|||||||||
|
|
|
|
|
|
Reporting Date Using |
|
|||||||||
Description |
|
December 25, 2020 |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock purchase obligation |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Pension obligation |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
A wholly-owned subsidiary of Ham-Let owns
The estimated fair value of foreign currency forward contracts is based upon quoted market prices obtained from independent pricing services for similar derivative contracts and these financial instruments are characterized as Level 2 assets in the fair value hierarchy.
- 16 -
The estimated fair value of the pension obligation is based on expected years of service and average compensation. The valuation model used to value the pension obligation utilizes mortality rate, inflation, interest rate risks and changes in the life expectancy for pensioners. These assumptions are routinely made in the appraisal process by the independent actuary thus resulted in a Level 3 classification.
The estimated fair value of the common stock purchase obligation is based on a combination of an income and market valuation approach. The income and market valuation approaches may incorporate Level 3 fair value measures for instances when observable inputs are not available. The more significant judgmental assumptions used to estimate the value of the common stock purchase obligation include an estimated discount rate, a range of assumptions that form the basis of the expected future net cash flows (e.g., the revenue growth rates and operating margins), and a company specific beta. The significant judgmental assumptions used that incorporate market data, including the relative weighting of market observable information and the comparability of that information in the valuation models, are forward-looking and could be affected by future economic and market conditions. In July 2021, the Company entered into an amendment with Cinos Korea and a shareholder of Cinos Korea to terminate the obligation to purchase additional interest in Cinos Korea. As a result, the balance of the common stock purchase obligation of $
There were no transfers from Level 1 or Level 2. Fair value adjustments were noncash, and therefore did not impact the Company’s liquidity or capital resources. Qualitative information about Level 3 fair value measurements is as follows:
|
September 24, |
|
|
Valuation |
|
Unobservable |
|
|
|
|
|
|
2021 |
|
|
Techniques |
|
Input |
|
Range/Multiple |
|
||
(Dollars in millions, except rate/multiple) |
|
|
|
|
|
|
|||||
Purchase option |
$ |
|
|
|
Black‑Scholes option-pricing model |
|
Volatility |
|
|
|
% |
|
|
|
|
|
|
|
Risk free interest rate |
|
|
|
% |
|
|
|
|
|
|
|
Stock price |
|
$ |
|
|
|
|
|
|
|
|
|
Strike price |
|
$ |
|
|
Pension obligation |
$ |
|
|
|
Projected unit credit method |
|
Discount rate |
|
|
|
% |
|
|
|
|
|
|
|
Rate on return |
|
|
|
% |
|
|
|
|
|
|
|
Salary increase rate |
|
|
|
% |
Following is a summary of the Level 3 activity:
(In millions) |
|
Purchase option |
|
|
Common stock purchase obligation |
|
|
Pension obligation |
|
|||
As of December 25, 2020 |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
Fair value changes |
|
— |
|
|
|
|
|
|
( |
) |
||
Reclassifications |
|
— |
|
|
|
( |
) |
|
— |
|
||
Acquisition of Ham-Let |
|
|
|
|
|
— |
|
|
— |
|
||
As of September 24, 2021 |
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
5. FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company utilizes foreign currency forward contracts to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company classifies its foreign currency forward within Level 2 of the fair-value hierarchy discussed in Note 4 of the Company’s Condensed Consolidated Financial Statements as the valuation inputs are based on quoted prices and market observable data of similar instruments.
Non-Designated Derivatives
The Company uses foreign currency contracts to economically hedge the functional currency equivalent cash flows of non-U.S. dollar- denominated acquisitions. The change in fair value of these derivatives is recorded through earnings in other income (expense), net.
- 17 -
The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value. The Company’s accounting treatment for these derivative instruments is based on its hedge designation.
|
|
|
|
September 24, 2021 |
|
|||||||||
|
|
|
|
Fair Value of |
|
|
Fair Value of |
|
|
|
||||
|
|
|
|
Derivatives |
|
|
Derivatives Not |
|
|
|
|
|
||
|
|
Balance Sheet |
|
Designated as |
|
|
Designated as |
|
|
Total |
|
|||
(In millions) |
|
Location |
|
Hedge Instruments |
|
|
Hedge Instruments |
|
|
Fair Value |
|
|||
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
Other liabilities |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2020 |
|
|||||||||
|
|
|
|
Fair Value of |
|
|
Fair Value of |
|
|
|
|
|
||
|
|
|
|
Derivatives |
|
|
Derivatives Not |
|
|
|
|
|
||
|
|
Balance Sheet |
|
Designated as |
|
|
Designated as |
|
|
Total |
|
|||
(In millions) |
|
Location |
|
Hedge Instruments |
|
|
Hedge Instruments |
|
|
Fair Value |
|
|||
Derivative assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
Prepaid expenses and other |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income (OCI) is summarized below:
|
|
Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect (Effective Portion) |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 24, |
|
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Derivatives in Cash Flow Hedging Relationship |
|
|||||||||||||||
Forward contracts |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
The amount of gain or loss reclassified from accumulated OCI into income is $
|
Losses Recognized in Income on Derivatives |
||||||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||
|
|
|
September 24, |
|
September 25, |
|
September 24, |
|
|
September 25, |
|||||
(In millions) |
Income Statement Location |
|
2021 |
|
2020 |
|
2021 |
|
|
2020 |
|||||
Derivatives Not Designated As Hedging Instruments |
|
|
|
||||||||||||
Forward contracts |
Other income (expense), net |
|
$ |
— |
|
$ |
— |
|
$ |
|
( |
) |
|
$ |
— |
In 2020, the Company entered into multiple foreign currency contracts to hedge the functional currency equivalent cash flows related to the non-U.S. dollar-denominated acquisition price of Ham-Let. As of March 26, 2021, these contracts were terminated and the $
6. GOODWILL AND INTANGIBLE ASSETS
The Company’s methodology for allocating the purchase price relating to an acquisition is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the consideration transferred over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.
- 18 -
Goodwill and purchased intangible assets with indefinite useful lives are not amortized, but are reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. To test goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company does not proceed to perform a quantitative impairment test. If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value. A quantitative impairment analysis, if necessary, considers the income approach, which requires estimates of the present value of expected future cash flows to determine a reporting unit’s fair value. Significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates, and future economic and market conditions. A goodwill impairment charge is recognized for the amount by which the reporting unit’s fair value is less than its carrying value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results.
Details of aggregate goodwill of the Company are as follows:
(In millions) |
|
Products |
|
|
Services |
|
|
Total |
|
|||
Balance at December 25, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Acquisition of Ham-Let |
|
|
|
|
|
|
|
|
|
|
||
Balance at September 24, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Intangible Assets
Intangible assets are generally recorded in connection with a business acquisition. The Company evaluates the useful lives of its intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. In addition, the Company reviews indefinite lived intangible assets for impairment when events or changes in circumstances indicate their carrying value may not be recoverable and tests definite lived intangible assets at least annually for impairment. Management considers such indicators as significant differences in product demand from the estimates, changes in the competitive and economic environment, technological advances, and changes in cost structure.
Details of intangible assets were as follows:
|
|
|
As of September 24, 2021 |
|
|
As of December 25, 2020 |
|
||||||||||||||||||
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
||
|
Useful Life |
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||||
(Dollars in millions) |
(in years) |
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
||||||
Customer relationships |
6 - 10 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Tradename |
4 - 6* |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Intellectual property/know-how |
7 - 15 |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Recipes |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Standard operating procedures |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Backlog |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
* |
The Company concluded that the asset life of the UCT tradename of $ |
- 19 -
The Company amortizes its intangible assets on a straight-line or accelerated basis over the estimated economic life of the assets. Amortization expense was approximately $
|
|
Amortization |
|
|
(In millions) |
|
Expense |
|
|
2021 (remaining in year) |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
7. BORROWING ARRANGEMENTS
In August 2018, the Company entered into a credit agreement (the “Credit Agreement”) with Barclays Bank that provided a Term Loan, a Revolving Credit Facility, and a Letter of Credit Facility (collectively the “Credit Facility”). UCT and certain of its subsidiaries have agreed to secure all of their obligations under the Credit Facility by granting a first priority lien in substantially all of their respective personal property assets (subject to certain exceptions and limitations). In August 2018, the Company borrowed $
On March 31, 2021, the Company entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement to, among other things, (i) refinance and reprice $
The Revolving Credit Facility has an initial available commitment of $
The Revolving Credit Facility requires the Company to maintain certain financial covenants, as defined in the Credit Agreement, including a consolidated fixed charge coverage ratio as of the last day of any fiscal quarter of at least
The Letter of Credit Facility has an initial available commitment of $
- 20 -
In 2020, Cinos China amended its existing credit agreement and entered into two additional credit agreements with a local bank that provide revolving credit facilities for a total available commitment of $
Cinos Korea has a credit agreement that provides a revolving credit facility for a total available commitment of
UCT Fluid Delivery Solutions s.r.o. has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to
Ham-Let has credit facilities and loan agreements with various financial institutions. As of September 24, 2021, Ham-Let had $
As of September 24, 2021, the Company’s total bank debt was $
The fair value of the Company’s long-term debt was based on Level 2 inputs, and fair value was determined using quoted prices for similar liabilities in inactive markets. The Company’s carrying value approximates fair value for the Company’s long-term debt.
8. INCOME TAX
The Company's effective tax rate was
Company management continuously evaluates the need for a valuation allowance and, as of September 24, 2021, concluded that a full valuation allowance on its U.S. federal and state deferred tax assets was still appropriate.
The Company provides for U.S. income taxes on the earnings of its foreign subsidiaries to the extent required by the Tax Cuts and Jobs Act (TCJA). In a prior period, the Company has also recognized a deferred tax liability for taxes that would be withheld on a distribution of a portion of the undistributed earnings of one of its China subsidiaries. However, the Company has not provided for withholding taxes on the remaining portion of the undistributed earnings of its China subsidiary nor for the undistributed earnings of its other foreign subsidiaries that it intends to reinvest indefinitely outside the U.S. The Company has also historically remitted earnings from its Singapore subsidiary to the U.S. and may do so again in the future. However, the Company has not provided for withholding taxes on undistributed Singapore earnings as Singapore does not currently impose a withholding tax on dividends. If the Company changes its intent to reinvest its undistributed foreign earnings indefinitely or if a greater amount of undistributed earnings is needed than the previous anticipated remaining unremitted foreign earnings, the Company could be required to accrue or pay foreign taxes on some or all of these undistributed earnings. As of September 24, 2021, the Company had undistributed earnings of foreign subsidiaries that are considered indefinitely invested outside of the U.S. of approximately $
As of September 24, 2021 and September 25, 2020, the Company’s gross liability for unrecognized tax benefits, excluding interest, was $
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law in response to the U.S. COVID-19 pandemic, which, among other things, suspends the
- 21 -
On December 27, 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021, which enhances and expands certain provisions of the CARES Act. This legislative act is not expected to have a material impact on the Company’s consolidated financial results.
On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to Paycheck Protection Plan (“PPP”) loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. The Company does not currently expect that such provisions will have a material impact on the Company’s Condensed Consolidated Financial Statements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes”, as part of its initiative to reduce complexity in the accounting standards. The ASU eliminates certain exceptions from ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
9. RETIREMENT PLANS
Defined Benefit Plan
Cinos Korea has a noncontributory defined benefit pension plan covering substantially all of its employees upon their retirement. The benefits are based on expected years of service and average compensation. The net period costs are recognized as employees render the services necessary to earn the postretirement benefits. The Company records annual amounts relating to the pension plan based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current and expected rates of return and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under the plan are reasonable based on its experience and market conditions.
As of September 24, 2021, the benefit obligation of the plan was $
Employee Savings and Retirement Plan
The Company sponsors a 401(k) savings and retirement plan (the “401(k) Plan”) for all U.S. employees who meet certain eligibility requirements. Participants can elect to contribute to the 401(k) Plan, on a pre-tax basis, up to
10. COMMITMENTS AND CONTINGENCIES
Commitment
The Company had commitments to various third parties to purchase inventories totaling approximately $
Contingency
From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims individually or in the aggregate cannot be predicted with certainty, the Company has not had a history of outcomes to date that have been material to the Condensed Consolidated Statements of Operations and does not believe that any of these proceedings or other claims will have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
- 22 -
11. STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
Equity Financings
On April 13, 2021, the Company completed an underwritten public offering of
Noncontrolling Interests
QGT, through its wholly-owned subsidiary in Singapore, owns part of the outstanding shares of Cinos Korea, a South Korean company that provides outsourced cleaning and recycling of precision parts for the semiconductor industry through its operating facilities in South Korea and through its partial interest in Cinos China.
The carrying value of the remaining interest held by another shareholder in Cinos Korea and the remaining interest in Cinos China are presented as noncontrolling interests in the accompanying Condensed Consolidated Financial Statements. The fair values of the noncontrolling interests were estimated based on the values of Cinos Korea and Cinos China on a
On July 24, 2021, the Company entered into an amendment with Cinos Korea and a shareholder of Cinos Korea to eliminate the obligation to purchase certain shares of the common stock owned by the shareholder. As a result, the carrying amount of noncontrolling interest in Cinos Korea was increased by
12. EMPLOYEE STOCK PLANS
The Company grants stock awards in the form of RSUs and PSUs to its employees as part of the Company’s long-term equity compensation plan. These stock awards are granted to employees with a unit purchase price of
Stock-based compensation expense includes compensation costs related to estimated fair values of awards granted. The estimated fair value of the Company’s equity-based awards, net of expected forfeitures, is amortized on a straight-line basis over the awards’ vesting period and is adjusted for subsequent changes in estimated forfeitures related to all equity-based awards and performance as it relates to PSUs.
The following table shows the Company’s stock-based compensation expense included in the Condensed Consolidated Statements of Operations:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 24, |
|
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
(In millions) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Cost of revenues (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Research and development |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
For purposes of determining compensation expense related to RSUs and PSUs, the fair value is determined based on the closing market price of the Company’s common stock on the date of award.
For the nine months ended September 25, 2020,
- 23 -
As of September 24, 2021, approximately $
As of September 24, 2021, a total of
The following table summarizes the Company’s combined RSU, PSU and RSA activity for the nine months ended September 24, 2021:
(In millions) |
|
Shares |
|
|
Aggregate Fair Value |
|
||
Unvested RSUs, PSUs and RSAs at December 25, 2020 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested RSUs, PSUs and RSAs as of September 24, 2021 |
|
|
|
|
|
$ |
|
|
Vested and expected to vest RSUs, PSUs and RSAs as of September 24, 2021 |
|
|
|
|
|
$ |
|
|
Employee Stock Purchase Plan
The ESPP permits employees to purchase common stock at a discount through payroll withholdings at certain specified dates (purchase period) within a defined offering period. The purchase price is
13. REVENUE RECOGNITION
Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company sells its products and services primarily to customers in the semiconductor capital equipment industry. The Company’s revenues are highly concentrated, and we are therefore highly dependent upon a small number of customers. Typical payment terms with our customers range from thirty to sixty days.
The Company’s Products division provides warranty on its products for a period of up to
The Company’s products are manufactured and services provided at facilities throughout the Americas, Asia Pacific and EMEA (“Europe and the Middle East”). Sales to customers are initiated through a purchase order and are governed by our standard terms and conditions, written agreements, or both. Revenue is recognized when performance obligations under the terms of an agreement with a customer are satisfied; generally, this occurs with the transfer of control of the products or when the Company provides the services. Transfer of control occurs at a specific point-in-time. Based on the enforceable rights included in our agreements or prevailing terms and conditions, products produced by the Company without an alternative use are not protected by an enforceable right of payment that includes a reasonable profit throughout the duration of the agreement. Consignment sales are recognized in revenue at the earlier of the period that the goods are consumed or after a period of time subsequent to receipt by the customer as specified by terms of the agreement, provided control of the promised goods or services has transferred.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring Products or providing services. Sales, value-add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Certain of our customers may receive cash-based incentives, such as rebates or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. As of September 24, 2021 and December 25, 2020, an accrual for unpaid customer rebates of $
- 24 -
The Company’s principal markets include America, Asia Pacific and EMEA. Revenues by geographic area are categorized based on the customer’s location to which the products were shipped or where the services were performed.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 24, |
|
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
United States |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Singapore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austria |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
14. LEASES
The Company leases offices, facilities and equipment in locations throughout the Americas, Asia Pacific and EMEA.
The Company’s leases do not provide an implicit rate, thus the Company uses an estimated incremental borrowing rate in determining the present value of lease payments.
The components of lease expense were summarized as follows:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 24, |
|
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Operating lease cost |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Weighted-average remaining lease term – operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate – operating leases |
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
Future minimum payments under operating leases as of September 24, 2021 were summarized as follows:
(In millions) |
|
Operating Leases |
|
|
2021 remaining |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less: imputed interest |
|
|
|
|
Lease liability |
|
$ |
|
|
The Company assumed $
- 25 -
15. NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 24, |
|
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
(In millions, except share amounts) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to UCT |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation — basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation — diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common shares outstanding subject to repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to UCT — basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net income per share attributable to UCT — diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
16. REPORTABLE SEGMENTS
The Company operates and reports financial results for
Segment |
|
Product or Services |
|
Primary Markets Served |
|
Geographic Areas |
Products |
|
Weldments Machining Fabrication Components |
|
|
|
Asia Pacific EMEA |
Services |
|
Analytics |
|
|
|
Asia Pacific EMEA |
The Company uses segment profit or loss as the primary measure of profitability to evaluate operating performance and to allocate capital resources. Segment profit or loss is defined as a segment’s income or loss from continuing operations before other income and income taxes included in the accompanying condensed consolidated statements of operations.
Any intercompany sales and associated profit (and any other intercompany items) are eliminated from segment results. There were no significant intercompany eliminations for the periods presented.
- 26 -
Segment Data
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 24, |
|
|
September 25, |
|
|
September 24, |
|
|
September 25, |
|
||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24, |
|
|
December 25, |
|
||
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
As of September 24, 2021, approximately $
- 27 -
ITEM 2. |
Management’s Discussion And Analysis of Financial Condition And Results Of Operations |
You should read the following discussion of our financial condition and results of operations in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 23, 2021. This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, gross margins and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 23, 2021, as updated in our Current Report on Form 8-K filed with the SEC on April 5, 2021. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components and parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We operate and report results for two operating segments: Products and Services (formerly known as “SPS” and “SSB”, respectively). Our Products business primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services business provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (WFE) markets.
We sell a majority of our products and provide most of our services to U.S. registered customers with locations both in and outside the U.S. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asian and European facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries.
Over the long-term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers including mobile demand driven by 5G, new CPU architectures which are enabling higher performance servers, and cloud, AI and Machine Learning. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services division is benefiting as device manufacturers rely on precision cleaning, coating and analytics to advance ever more complex devices.
On March 31, 2021, we completed the acquisition of Ham-Let (Israel-Canada) Ltd. (“Ham-Let”), a public company organized under the laws of the State of Israel (not a U.S. registrant), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), for approximately $362.9 million, which included $273.5 million of equity value plus $91.3 million of net debt offset by the settlement of existing relationship of $1.9 million. Ham-Let engages in the development, manufacturing and marketing of innovative control valves, fittings, and hoses for the control and monitoring of industrial systems in a variety of markets, including the Semiconductor market. These products are primarily used in ultra clean gas transportation systems for the transmission of liquids and gases. The Company’s primary reason for this acquisition was to broaden UCT’s relevance to the semiconductor equipment market and to provide access to a new set of customers in the semiconductor fab infrastructure market.
On April 13, 2021, we completed an underwritten public offering of 3,181,818 shares of our common stock, in which we received net proceeds of approximately $167.6 million, after deducting the underwriting discounts and offering expenses. On April 29, 2021, the Underwriters exercised the option to purchase an additional 477,272 shares of our common stock for approximately $25.2 million in cash. We intend to use the net proceeds from this offering for general corporate purposes, which may include working capital, sales and marketing activities, product development, general and administrative matters, and capital expenditures. We may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies, although we have no agreements, commitments, or plans for any specific acquisitions at this time.
- 28 -
Critical Accounting Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our Condensed Consolidated Financial Statements. On an on-going basis, we evaluate our estimates and judgments, including those related to inventories, income taxes, business combinations and goodwill, intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to inventory valuation, accounting for income taxes, business combinations, valuation of goodwill, intangible assets and long-lived assets to be critical policies due to the estimates and judgments involved in each.
There have been no significant changes to our critical accounting policies, significant judgments and estimates disclosed in our Annual Report on Form 10-K subsequent to December 25, 2020. For further information on our critical and other significant accounting policies and estimates, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 25, 2020, as filed with the SEC.
Results of Operations
Fiscal Year
Our fiscal year is the 52- or 53-week period ending on the Friday nearest December 31. Fiscal year 2021 is the 53-week period ending December 31, 2021, and fiscal year 2020 was the 52-week period ended December 25, 2020. The fiscal quarters ended September 24, 2021 and September 25, 2020 were both 13-week periods.
Discussion of Results of Operations for the Three and Nine months ended September 24, 2021 Compared to the Three and Nine months ended September 25, 2020
The results of operations for the Company for the nine months ended September 24, 2021 include operating activities for Ham-Let since its acquisition date of March 31, 2021.
Revenues
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
Revenues by Segment |
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Products |
$ |
482.0 |
|
|
$ |
294.4 |
|
|
|
63.7 |
% |
|
$ |
1,270.1 |
|
|
$ |
831.7 |
|
|
|
52.7 |
% |
Services |
|
71.7 |
|
|
|
68.9 |
|
|
|
4.1 |
% |
|
|
216.4 |
|
|
|
197.3 |
|
|
|
9.7 |
% |
Total Revenues |
$ |
553.7 |
|
|
$ |
363.3 |
|
|
|
52.4 |
% |
|
$ |
1,486.5 |
|
|
$ |
1,029.0 |
|
|
|
44.5 |
% |
Products as a percentage of total revenues |
|
87.1 |
% |
|
|
81.0 |
% |
|
|
|
|
|
|
85.4 |
% |
|
|
80.8 |
% |
|
|
|
|
Services as a percentage of total revenues |
|
12.9 |
% |
|
|
19.0 |
% |
|
|
|
|
|
|
14.6 |
% |
|
|
19.2 |
% |
|
|
|
|
Total Products revenues increased in the three and nine months ended September 24, 2021, compared to the same periods in the prior year, primarily due to an increase in customer demand in the semiconductor industry, in particular, the wafer fabrication equipment industry and in part due to the inclusion of Ham-Let. Ham-Let contributed $64.4 million and $122.6 million of revenues for the three and nine month periods ended September 24, 2021. Total Services revenues increased in the three and nine months ended September 24, 2021, compared to the same period in the prior year, primarily due to increases in demand across our customer base.
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
Revenues by Geography |
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
United States |
$ |
167.9 |
|
|
$ |
152.5 |
|
|
|
10.1 |
% |
|
$ |
475.6 |
|
|
$ |
436.0 |
|
|
|
9.1 |
% |
International |
|
385.8 |
|
|
|
210.8 |
|
|
|
83.0 |
% |
|
|
1,010.9 |
|
|
|
593.0 |
|
|
|
70.5 |
% |
Total Revenues |
$ |
553.7 |
|
|
$ |
363.3 |
|
|
|
52.4 |
% |
|
$ |
1,486.5 |
|
|
$ |
1,029.0 |
|
|
|
44.5 |
% |
United States as a percentage of total revenues |
|
30.3 |
% |
|
|
42.0 |
% |
|
|
|
|
|
|
32.0 |
% |
|
|
42.4 |
% |
|
|
|
|
International as a percentage of total revenues |
|
69.7 |
% |
|
|
58.0 |
% |
|
|
|
|
|
|
68.0 |
% |
|
|
57.6 |
% |
|
|
|
|
- 29 -
On a geographic basis, revenues represent products shipped from or services performed at our U.S. and international locations. For the three and nine months ended September 24, 2021, both U.S. and international revenues increased due to an overall global increase in semiconductor capital equipment and general industry demand.
Cost of Revenues
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
Cost of Revenues by Segment |
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Products |
$ |
393.4 |
|
|
$ |
243.6 |
|
|
|
61.5 |
% |
|
$ |
1,044.9 |
|
|
$ |
687.6 |
|
|
|
52.0 |
% |
Services |
|
46.2 |
|
|
|
45.1 |
|
|
|
2.4 |
% |
|
|
140.7 |
|
|
|
127.2 |
|
|
|
10.6 |
% |
Total Cost of Revenues |
$ |
439.6 |
|
|
$ |
288.7 |
|
|
|
52.3 |
% |
|
$ |
1,185.6 |
|
|
$ |
814.8 |
|
|
|
45.5 |
% |
Products as a percentage of total Products revenues |
|
81.6 |
% |
|
|
82.7 |
% |
|
|
|
|
|
|
82.3 |
% |
|
|
82.7 |
% |
|
|
|
|
Services as a percentage of total Services revenues |
|
64.4 |
% |
|
|
65.5 |
% |
|
|
|
|
|
|
65.0 |
% |
|
|
64.5 |
% |
|
|
|
|
Total cost of revenues increased $150.9 million and $370.8 for the three and nine months ended September 24, 2021 due to higher demand for both Products and Services and in part by the inclusion of Ham-Let operations.
Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of Products revenues increased $149.8 million for the three months ended September 24, 2021 compared to the same period in the prior year, due to the inclusion of Ham-Let, higher volume of sales driving increased material costs of $115.0 million (including $2.4 million of materials costs resulting from the step-up in value of Ham-Let’s inventories at the acquisition/valuation date that were sold through during the quarter ended September 24, 2021 and $0.7 million of inventory written off related to end of life products). Also contributing to the increase in Cost of Product revenues, were higher direct labor spending of $21.6 million and higher overhead costs of $13.2 million (including $0.7 million of intangible amortization resulting from the acquisition of Ham-Let). Cost of Products increased $357.3 million for the nine months ended September 24, 2021 compared to the same period in the prior year, due to higher volume of sales driving increased material costs of $284.4 million (including $9.6 million of materials costs resulting from the step-up in value of Ham-Let’s inventories at the acquisition/valuation date that were sold through during September 24, 2021 and $0.7 million of inventory written off related to end of life products). Also contributing to the increase in Cost of Product revenues were, higher direct labor spending of $44.5 million and higher overhead costs of $28.4 million (including $1.4 million of intangible amortization resulting from the acquisition of Ham-Let).
Cost of Services revenues consists of direct labor, manufacturing overhead and materials (such as chemicals, gases and consumables). Cost of Services revenues increased $1.1 million for the three months ended September 24, 2021 compared to the same period in the prior year driven by higher volumes of service orders, resulting in an increase in labor costs of $0.5 million (the largest component of Cost of Services) and higher material costs of $0.8 million offset by $0.2 million decrease in overhead costs. Cost of Services increased $13.5 million for the nine months ended September 24, 2021 compared to the same period in the prior year due to an increase in labor costs of $4.9 million, higher material costs of $3.4 million and higher overhead costs of $5.2 million driven by higher service orders.
Gross Margin
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
Gross Profit by Segment |
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Products |
$ |
88.6 |
|
|
$ |
50.8 |
|
|
|
74.4 |
% |
|
$ |
225.2 |
|
|
$ |
144.1 |
|
|
|
56.3 |
% |
Services |
|
25.5 |
|
|
|
23.8 |
|
|
|
7.1 |
% |
|
|
75.7 |
|
|
|
70.1 |
|
|
|
8.0 |
% |
Gross profit |
$ |
114.1 |
|
|
$ |
74.6 |
|
|
|
52.9 |
% |
|
$ |
300.9 |
|
|
$ |
214.2 |
|
|
|
40.5 |
% |
Gross Margin by Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
18.4 |
% |
|
|
17.3 |
% |
|
|
|
|
|
|
17.7 |
% |
|
|
17.3 |
% |
|
|
|
|
Services |
|
35.6 |
% |
|
|
34.5 |
% |
|
|
|
|
|
|
35.0 |
% |
|
|
35.5 |
% |
|
|
|
|
Total Company |
|
20.6 |
% |
|
|
20.5 |
% |
|
|
|
|
|
|
20.2 |
% |
|
|
20.8 |
% |
|
|
|
|
Products gross margin increased in the three and nine months ended September 24, 2021, compared to the same period in the prior year, due to higher volume and favorable mix of higher margin products. Services gross margin increased in the three months ended September 24, 2021 compared to the same period in the prior year, due to more fully leveraging our infrastructure costs via volume.
- 30 -
Research and Development
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Research and development |
$ |
6.5 |
|
|
$ |
3.5 |
|
|
|
85.7 |
% |
|
$ |
16.8 |
|
|
$ |
10.7 |
|
|
|
57.0 |
% |
Research and development as a percentage of total revenues |
|
1.2 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
1.1 |
% |
|
|
1.0 |
% |
|
|
|
|
Research and development expenses increased $3.0 million and $6.1 million in the three and nine months ended September 24, 2021 compared to the same periods in the prior year, primarily due to the inclusion of Ham-Let’s research and development activities and to an increase in personnel-related expenses associated with an increase in headcount.
Sales and Marketing
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Sales and marketing |
$ |
13.8 |
|
|
$ |
6.0 |
|
|
|
130.0 |
% |
|
$ |
34.1 |
|
|
$ |
17.7 |
|
|
|
92.7 |
% |
Sales and marketing as a percentage of total revenues |
|
2.5 |
% |
|
|
1.7 |
% |
|
|
|
|
|
|
2.3 |
% |
|
|
1.7 |
% |
|
|
|
|
Sales and marketing expenses increased $7.8 million in the three months ended September 24, 2021 compared to the same period in the prior year primarily due to the inclusion of Ham-Let’s sales and marketing activities, $2.1 million increase in personnel-related expenses driven by higher headcount, bonuses and severance. Sales and marketing expenses increased $16.4 million in the nine months ended September 24, 2021 with the comparable period in the prior year due to the inclusion of Ham-Let’s sales and marketing activities and an increase of $4.8 million in personnel-related expenses driven by higher headcount, bonuses and severance.
General and Administrative
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
General and administrative |
$ |
43.2 |
|
|
$ |
30.2 |
|
|
|
43.0 |
% |
|
$ |
127.1 |
|
|
$ |
97.5 |
|
|
|
30.4 |
% |
General and administrative as a percentage of total revenues |
|
7.8 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
8.6 |
% |
|
|
9.5 |
% |
|
|
|
|
General and administrative expenses increased $13.0 million in the three months ended September 24, 2021, compared to the same period in the prior year, due to the inclusion of Ham-Let’s general and administrative activities, $2.2 million increase in personnel-related expenses driven by higher headcount and bonuses and $0.9 million increase in outside accounting-related services. General and administrative expenses increased $29.6 million in the nine months ended September 24, 2021, compared to the same period in the prior year, due to the inclusion of Ham-Let’s general and administrative activities, $9.2 million of expenses related to the acquisition of Ham-Let, $5.4 million increase in personnel-related expenses driven by higher headcount and bonuses and $1.7 million increase in outside professional services.
Interest and Other Income (Expense), net
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Interest income |
$ |
0.1 |
|
|
$ |
0.2 |
|
|
|
-50.0 |
% |
|
$ |
0.3 |
|
|
$ |
0.7 |
|
|
|
-57.1 |
% |
Interest expense |
$ |
(6.9 |
) |
|
$ |
(4.1 |
) |
|
|
68.3 |
% |
|
$ |
(17.6 |
) |
|
$ |
(13.1 |
) |
|
|
34.4 |
% |
Other income (expense), net |
$ |
(1.4 |
) |
|
$ |
(1.1 |
) |
|
|
27.3 |
% |
|
$ |
(6.4 |
) |
|
$ |
(3.2 |
) |
|
|
100.0 |
% |
Interest expense increased in the three and nine months ended September 24, 2021, compared to the same periods in the prior year, due to a higher average debt balance offset partially by lower interest rates resulting from lower LIBOR rates.
Other income (expense), net increased $0.3 million in the three months ended September 25, 2021, compared to the same period in the prior year, mainly due to foreign exchange losses of $0.7 million offset by a change in the fair value of the Cinos Korea common stock purchase obligation of $0.3 million.
- 31 -
Other income (expense), net increased $3.2 million in the nine months ended September 24, 2021, compared to the same period in the prior year, due to an increase of $11.6 million in the fair value of forward hedge contracts related to the non-U.S. dollar-denominated acquisition price of Ham-Let, a $1.1 million increase in foreign exchange losses and a decrease of $0.6 million in government grants income. These increases were partially offset by insurance proceeds of $7.3 million received for the reimbursement of our losses in the Cinos Korea fire and by the absence of $3.0 million loss from the change in fair value of the contingent earn-out in fiscal 2021.
Provision for Income Taxes
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
|
September 24, |
|
|
September 25, |
|
|
Percent |
|
||||||
(Dollars in millions) |
|
2021 |
|
|
2020 |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
||||||
Provision for income taxes |
|
$ |
8.4 |
|
|
$ |
4.8 |
|
|
|
75.0 |
% |
|
$ |
21.6 |
|
|
$ |
15.0 |
|
|
|
44.0 |
% |
Effective tax rate |
|
|
19.8 |
% |
|
|
16.0 |
% |
|
|
|
|
|
|
21.8 |
% |
|
|
20.6 |
% |
|
|
|
|
The change in respective rates reflects, primarily, changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates and the impact of losses in jurisdictions with full federal and state valuation allowances.
Company management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of September 24, 2021, concluded that a full valuation allowance on its federal and state deferred tax assets remained appropriate.
Liquidity and Capital Resources
Cash and cash Equivalents
The following table summarizes our cash and cash equivalents:
|
|
September 24, |
|
|
December 25, |
|
|
|
|
|
||
(In millions) |
|
2021 |
|
|
2020 |
|
|
Increase |
|
|||
Total cash and cash equivalents |
|
$ |
457.0 |
|
|
$ |
200.3 |
|
|
$ |
256.7 |
|
|
Nine Months Ended |
|
|||||
|
September 24, |
|
|
September 25, |
|
||
(In millions) |
2021 |
|
|
2020 |
|
||
Net cash flow provided by (used in): |
|
|
|
|
|
|
|
Operating activities |
$ |
170.0 |
|
|
$ |
52.9 |
|
Investing activities |
|
(390.3 |
) |
|
|
(19.9 |
) |
Financing activities |
|
477.9 |
|
|
|
(18.6 |
) |
Effects of exchange rate changes on cash and cash equivalents |
|
(0.9 |
) |
|
|
(0.8 |
) |
Net increase in cash and cash equivalents |
$ |
256.7 |
|
|
$ |
13.6 |
|
Our primary cash inflows and outflows were as follows:
• |
For the nine months ended September 24, 2021, we generated net cash from operating activities of $170.0 million compared to $52.9 million in the nine months ended September 25, 2020. The $117.1 million increase in net cash from operating activities was driven by a $75.2 million increase in the net change from operating assets and liabilities, a $22.0 million increase from non-cash items and a $19.9 million increase in net income. |
• |
The major contributors to the net change in operating assets and liabilities, net of effects of acquisition, in the nine months ended September 24, 2021 were as follows: |
|
o |
Accounts receivable increased $35.4 million primarily due to the increase in revenues in fiscal 2021 and the timing of collections. |
|
o |
Inventories increased $70.5 million due primarily to the forward looking customer demand. |
|
o |
Accounts payable increased $119.5 million, accrued compensation and related benefits increased $7.0 million, income taxes payable increased $1.0 million and other liabilities increased $3.6 million, primarily due to the timing of payments. |
• |
In the nine months ended September 24, 2021, net cash used by investing activities was $390.3 million compared to $19.9 million in the nine months ended September 25, 2020. The change is primarily due to the $355.2 million cash paid related to the acquisition of Ham-let and by $16.2 million higher purchases of property, plant and equipment. |
• |
In the nine months ended September 24, 2021, net cash provided by financing activities was $477.9 million compared to net cash used in financing activities of $18.6 million in the nine months ended September 25, 2020. The change is mainly due to $355.0 |
- 32 -
million of debt added to the existing term loan facility and $193.1 million of net proceeds from the equity offering, offset by principal payments on bank borrowings and of debt issuance costs of $93.9 million and $8.9 million, respectively. |
We have required capital to fund our working capital needs, satisfy our debt obligations, maintain our equipment, purchase new capital equipment and make strategic acquisitions from time to time. As of September 24, 2021, we had cash of $457.0 million compared to $200.3 million as of December 25, 2020. Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of September 24, 2021.
We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements and technology development projects for at least the next twelve months. The adequacy of these resources to meet our liquidity needs beyond that period will depend on our growth, the size and number of any acquisitions, the state of the worldwide economy, our ability to meet our financial covenants with our credit facility, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products.
In order to expand our business or acquire additional complementary businesses or technologies, we may need to raise additional funds through equity or debt financings. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders’ equity interest will be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. We may also require the consent of our new lenders to raise additional funds through equity or debt financings. No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.
In prior years, we determined that a portion of the current year and future year earnings of one of our China subsidiaries may be remitted in the future to one of our foreign subsidiaries outside of China and, accordingly, we provided for the related withholding taxes in our Condensed Consolidated Financial Statements. As of September 24, 2021, we had undistributed earnings of foreign subsidiaries that are indefinitely invested outside of the U.S. of approximately $361.4 million. As of September 24, 2021, we have cash of approximately $310.0 million in our foreign subsidiaries.
Borrowing Arrangements
The following table summarizes our borrowings:
|
September 24, 2021 |
|
|||||
(Dollars in millions) |
Amount |
|
|
Weighted- Average Interest Rate |
|
||
U.S. Term Loan |
$ |
569.9 |
|
|
3.83% |
|
|
Ham-Let Credit Facilities |
|
10.3 |
|
|
1.78% - 4.59% |
|
|
Cinos China Credit Facilities |
|
2.5 |
|
|
1.98% - 4.15% |
|
|
Debt issuance costs |
|
(14.4 |
) |
|
|
|
|
|
$ |
568.3 |
|
|
|
|
|
In August 2018, we entered into a credit agreement (the “Credit Agreement”) with Barclays Bank that provided a Term Loan, a Revolving Credit Facility, and a Letter of Credit Facility (collectively the “Credit Facility”). We and some of our subsidiaries have agreed to secure all of their obligations under the Credit Facility by granting a first priority lien in substantially all of our respective personal property assets (subject to certain exceptions and limitations). In August 2018, we borrowed $350.0 million under the Term Loan and used the proceeds, together with cash on hand, to finance the acquisition of QGT and to refinance our previous credit facilities.
On March 31, 2021, we entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement to, among other things, (i) refinance and reprice $272.8 million of existing term B borrowings that will remain outstanding and (ii) obtain a $355.0 million senior secured incremental term loan B facility ((i) and (ii) collectively the “Term Loan”) with Barclays Bank, which increased the amount of term loan indebtedness outstanding under the Credit Facility.
- 33 -
The Term Loan has a maturity date of August 27, 2025, with monthly interest payments in arrears, quarterly principal payments of 0.625% of the outstanding principal balance thereof as of March 31, 2021, with the remaining principal paid upon maturity. Under the Credit Facility, we may elect that the Term Loan bear interest at a rate per annum equal to either (a) “ABR” (as defined in the Credit Agreement), plus the applicable margin or (b) the “Eurodollar Rate” (as defined in the Credit Agreement), based on LIBOR, plus the applicable margin. The applicable margin for the Term Loan is equal to a rate per annum equal to either (i) at any time that our corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s and BB- (with a stable outlook) or higher from S&P, (x) 3.50% for such Eurodollar term loans and (y) 2.50% for such ABR term loans or (ii) at all other times, (x) 3.75% for such Eurodollar term loans and (y) 2.75% for such ABR term loans. Interest on the Term Loan is payable on (1) in the case of such ABR term loans the last day of each calendar quarter and (2) in the case of such Eurodollar term loans, the last day of each relevant interest period and, in the case of any interest period longer than three months, on each successive date three months after the first day of such interest period. On March 29, 2021, we elected that the Term Loan outstanding as of March 31, 2021 accrue interest based on the “Eurodollar Rate” for an initial interest period of one month. As of March 31, 2021, the applicable margin with respect to the Term Loan was 3.75%. Pursuant to the Second Amendment to the Credit Agreement, the Credit Facility contains customary LIBOR replacement provisions in the event LIBOR is discontinued. At September 24, 2021, we had an outstanding amount under the Term Loan of $569.9 million, gross of unamortized debt issuance costs of $14.4 million. As of September 24, 2021, the interest rate on the outstanding Term Loan was 3.8%. On December 31, 2021, LIBOR will officially be phased out. We will work with the bank to determine alternative risk-free rates.
The Revolving Credit Facility has an initial available commitment of $65.0 million and a maturity date of August 27, 2023. We pay a quarterly commitment fee in arrears equal to 0.25% of the average daily available commitment outstanding.
The Revolving Credit Facility requires that we maintain certain financial covenants, as defined in the Credit Agreement, including a consolidated fixed charge coverage ratio as of the last day of any fiscal quarter of at least 1.25 to 1.00, and a consolidated leverage ratio as of the last day of any fiscal quarter of no greater than 3.75 to 1.00. We were in compliance with all covenants for the quarter ended September 24, 2021.
The Letter of Credit Facility has an initial available commitment of $50.0 million and a maturity date of August 27, 2023. We pay quarterly in arrears a fee equal to 2.5% (subject to certain adjustments to the Term Loan) of the dollar equivalent of all outstanding letters of credit, and a fronting fee equal to 0.125% of the undrawn and unexpired amount of each letter of credit. As of September 24, 2021, we had $2.8 million of outstanding letters of credit with beneficiaries such as landlords of certain facility leases and government agencies making up the majority of the outstanding balance. The remaining available commitments are $47.2 million on the Letter of Credit Facility and $65.0 million on the Revolving Credit Facility.
In 2020, Cinos China amended its existing credit agreement and entered into two additional credit agreements with a local bank that provide revolving credit facilities for a total available commitment of $3.5 million with various maturity dates through September 23, 2022 and interest rates ranging from 2.0% to 4.2%. As of September 24, 2021, Cinos China had outstanding debt of $
Cinos Korea has a credit agreement that provides a revolving credit facility for a total available commitment of 0.6 billion Korean Won (approximately $0.5 million) with annual renewals beginning June 2022 with an interest rate of 2.9%. During the nine months ended September 24, 2021, borrowings under the revolving credit facility were insignificant and no debt was outstanding as of September 24, 2021.
UCT Fluid Delivery Solutions s.r.o. has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to 6.0 million euros. As of September 24, 2021, no debt was outstanding under this revolving credit facility.
Ham-Let has credit facilities and loan agreements with various financial institutions. As of September 24, 2021, Ham-Let had $10.3 million of outstanding debt with interest rates ranging from 1.8% to 4.6%.
As of September 24, 2021, our total bank debt was $568.3 million, net of unamortized debt issuance costs of $14.4 million. As of September 24, 2021, we had unused revolving credit facilities of $65.0 million, $9.7 million and $1.0 million in the United States, Czech Republic and China, respectively.
The fair value of our long-term debt was based on Level 2 inputs, and fair value was determined using quoted prices for similar liabilities in inactive markets. The carrying value of our long-term debt approximates fair value.
- 34 -
Capital Expenditures
Capital expenditures were $44.4 million during the nine months ended September 25, 2020 and were primarily attributable to the capital invested in our manufacturing facilities in the United States, China and South Korea as well as costs associated with the ongoing design and implementation of our new enterprise resource planning system. The Company’s anticipated capital expenditures for the remainder of 2021 are expected to be financed primarily from our cash flow generated from operations.
Off-Balance Sheet Arrangements
During the periods presented, we do not have unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification against certain liabilities to our customers, which may include claims of losses by their own customers resulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products. Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped. As of September 24, 2021, we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal.
Contractual Obligations
Other than operating leases for certain equipment and real estate and purchase order commitments primarily for inventory, we have no off-balance sheet transactions or similar instruments and, other than the arrangements described under “Borrowing Arrangements” above and our common stock purchase obligations resulting from the acquisition of QGT, are not a guarantor of any other entities’ debt or other financial obligations. The following table summarizes our future minimum lease payments, principal payments under debt obligations and our purchase obligations for the purchase of inventory as of September 24, 2021:
(In millions) |
|
Total |
|
|
Fiscal Year 2021 |
|
|
Fiscal Years 2022 - 2023 |
|
|
Fiscal Years 2024 - 2025 |
|
|
Beyond |
|
|||||
Operating leases (1) |
|
$ |
102.2 |
|
|
$ |
5.3 |
|
|
$ |
37.7 |
|
|
$ |
24.6 |
|
|
$ |
34.6 |
|
Borrowing arrangements (2) |
|
|
582.7 |
|
|
|
17.3 |
|
|
|
30.7 |
|
|
|
534.7 |
|
|
|
— |
|
Purchase order commitments (3) |
|
|
472.4 |
|
|
|
472.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
1,157.3 |
|
|
$ |
495.0 |
|
|
$ |
68.4 |
|
|
$ |
559.3 |
|
|
$ |
34.6 |
|
(1) |
The Company leases facilities in the United States as well as internationally under non-cancellable leases that expire on various dates through 2031. The total balance of $102.2 million reflects estimated cash payments for all of the Company’s operating leases, however, the total operating lease liabilities as disclosed in the condensed consolidated balance sheets are presented on a discounted present value basis and excludes lease agreements with commencement date after September 24, 2021, in accordance with the provisions of ASC 842, “Leases”. |
(2) |
The total borrowing arrangements reflects obligations gross of $14.4 million of unamortized debt issuance costs. |
(3) |
Represents our outstanding purchase orders primarily for inventory. |
- 35 -
ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk |
There were no significant changes to our quantitative and qualitative disclosures about market risk during the period covered by this report. Refer to Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for our fiscal year ended December 25, 2020 for a more complete discussion of the market risks we encounter.
ITEM 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information related to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company's management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in internal controls over financial reporting during the third fiscal quarter ended September 24, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 36 -
PART II. OTHER INFORMATION
ITEM 1. |
Legal Proceedings |
From time to time, we are subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, we have not had a history of outcomes to date that have been material to our Condensed Consolidated Statement of Operations and do not believe that any of these proceedings or other claims will have a material adverse effect on our condensed consolidated financial condition or results of operations.
ITEM 1A. |
Risk Factors |
There were no material changes during the period covered in this report to the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 25, 2020 (as updated in our Current Report on Form 8-K filed on April 5, 2021).
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
ITEM 3. |
Defaults Upon Senior Securities |
None.
ITEM 4. |
Mine Safety Disclosures |
Not Applicable.
ITEM 5. |
Other Information |
None.
ITEM 6. |
Exhibits |
(a) Exhibits
The following exhibits are filed with this quarterly Report on Form 10-Q for the quarter ended September 24, 2021:
Exhibit Number |
|
Description |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
- 37 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ULTRA CLEAN HOLDINGS, INC. |
|
|
|
(Registrant) |
|
Date: November 3, 2021 |
|
|
|
|
|
|
|
|
|
By: |
/S/ JAMES P. SCHOLHAMER |
|
|
Name: |
James P. Scholhamer |
|
|
Title: |
Chief Executive Officer |
|
|
|
(Principal Executive Officer and duly authorized signatory) |
|
|
|
|
Date: November 3, 2021 |
|
|
|
|
|
|
|
|
|
By: |
/S/ SHERI SAVAGE |
|
|
Name: |
Sheri Savage |
|
|
Title: |
Chief Financial Officer |
|
|
|
(Principal Financial Officer and duly authorized signatory) |
- 38 -