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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled Item 1A – Risk Factors. For a comparison of our financial condition, results of operations, and cash flows for 2020 to 2019, refer to Part II, Item 7 in our 2020 Annual Report on Form 10‐K, which was filed with the Securities and Exchange Commission on March 5, 2021.

Overview

We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment. Our product offerings include gas and chemical delivery systems and subsystems, collectively known as fluid delivery systems and subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor, and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also provide precision-machined components, weldments, e‐beam and laser-welded components, precision vacuum and hydrogen brazing and surface treatment technologies, and other proprietary products. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.

Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Most OEMs outsource all or a portion of the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us.

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

The following table summarizes key financial information for the periods indicated. Amounts are presented in accordance with GAAP unless explicitly identified as being a non-GAAP metric. For a description of our non-GAAP metrics and reconciliations to the most comparable GAAP metrics, please refer to Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Results within this Annual Report.

Year Ended

(dollars in thousands, except per share amounts)

Non-GAAP gross margin 16.7 % 14.6 %

Non-GAAP diluted EPS $ 3.37 $ 2.52

Key Factors Affecting Our Business

Investment in Semiconductor Manufacturing Equipment

The design and manufacturing of semiconductor devices is constantly evolving and becoming more complex in order to achieve greater performance and efficiency. To keep pace with these changes, OEMs need to refine their existing products and invest in developing new products. In addition, semiconductor device manufacturers will continue to invest in new wafer fabrication equipment to expand their production capacity and to support new manufacturing processes.

Outsourcing of Subsystems by Semiconductor OEMs

Faced with increasing manufacturing complexities, more complex subsystems, shorter product lead times, shorter industry spend cycles, and significant capital requirements, outsourcing of subsystems and components by OEMs has continued to grow. In the past two decades, OEMs have outsourced most of their gas delivery systems to suppliers such as us. OEMs have also started to outsource their chemical delivery systems in recent years. Our results will be affected by the degree to which outsourcing of these fluid delivery systems by OEMs continues to grow.

Cyclicality of Semiconductor Capital Equipment Industry

Our business is subject to the cyclicality of the capital expenditures of the semiconductor industry, which drives cyclicality in the semiconductor capital equipment industry in which we operate. In 2021, we derived over 95% of our sales from the semiconductor capital equipment industry. Demand for semiconductor capital equipment can fluctuate significantly based on changes in general economic conditions, including consumer spending, demand for semiconductor products, pricing, and other factors. In the past, these fluctuations have resulted in significant variations in the levels of spending within the semiconductor capital equipment industry, and as a result, our results of operations. The cyclicality of the semiconductor industry will continue to impact our results of operations in the future.

Customer Concentration

The number of capital equipment manufacturers for the semiconductor device industry is significantly consolidated, resulting in a small number of large manufacturers. Our customers are a significant component of this consolidation, resulting in our sales being concentrated in a few customers. In 2021, our top two customers were Lam Research and Applied Material, accounting for approximately 53% and 32% of sales, respectively. Our customers often require reduced prices or other pricing, quality, or delivery commitments as a condition to their purchasing from us in any given period or increasing their purchase volume, which can, among other things, result in reduced gross margins in order to maintain or expand our market share. Although we do not have any long-term contracts that require customers to place orders with us, Lam Research and Applied Materials have been our customers for over a decade.

Acquisitions

In November 2021, we acquired IMG, and California-based leader in precision machining and specialty joining and plating, for approximately $270.0 million. Between 2017 and 2020, we engaged in four separate business combinations for a combined investment of approximately $200.0 million. These acquisitions continue to have a significant impact on our financial position and results of operations. We intend to continue to evaluate opportunistic acquisitions to supplement our organic growth, and any such acquisitions could have a material impact on our business and results of operations.

COVID‐19 Pandemic and Global Supply Chain

The COVID‐19 pandemic and related economic repercussions have created, and are expected to continue to create, significant volatility, uncertainty, and turmoil in our industry. While our facilities are currently not subject to any site-wide government shutdowns, in June 2021, the Malaysian government instituted an Enhanced Movement Control Order (“EMCO”), which impacted our weldment facility in Malaysia through both on-site employee restrictions as well as a complete shutdown of all manufacturing in the region during early July. While we were able to reopen our factory in mid-July, once the government confirmed we were an essential business, we remained under headcount limitations until the third week of August. With 50% of our weldment capacity located in Malaysia, our overall output in the country was reduced by 40% in the third quarter of 2021 due to the EMCO restrictions.

In addition to the recent impacts in Malaysia, we experienced increases in direct costs within our factories associated with employee personal protective equipment (“PPE”), facility cleaning and layout changes, together with increases in logistics costs and employee labor costs, as well as other operating inefficiencies. Additionally, our supply chain has been negatively impacted as a result of the larger, ongoing global supply chain disruption, impacting our ability to source certain components timely. These factors have resulted

in, and may continue to result in, lower revenues and operating margins. The extent and duration of these impacts cannot be specifically quantified given the dynamic nature and breadth of the pandemic’s impact on our operations and that of our customers and suppliers.

Components of Our Results of Operations

The following discussion sets forth certain components of our statements of operations as well as significant factors that impact those items.

Sales

We generate sales primarily from the design, manufacture, and sale of subsystems and components primarily for semiconductor capital equipment. Sales are recognized when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our shipping terms are generally “shipping point.” Accordingly, control transfers, and sales are recognized, at the point-in-time of shipment.

Cost of Sales and Gross Profit

Cost of sales consists primarily of purchased materials, direct labor, indirect labor, factory overhead cost, and depreciation expense for our manufacturing facilities and equipment. Our business has a highly variable cost structure with low fixed overhead as a percentage of cost of sales. In addition, our existing global manufacturing plant capacity is scalable, and we are able to adjust to increased customer demand for our products without significant additional capital investment. We operate our business in this manner to avoid having excessive fixed costs during a cyclical downturn while retaining flexibility to expand our production volumes during periods of growth. However, this approach results in a smaller increase in gross margin as a percentage of sales in times of increased demand.

Since the gross margin on each of our products differs, our overall gross margin as a percentage of our sales changes based on the mix of products we sell in any period.

Operating Expenses

Our operating expenses primarily include research and development and sales, general, and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, and share-based compensation. Operating expenses also include overhead costs for facilities, IT, and depreciation. In addition, our operating expenses include amortization expense of acquired intangible assets and certain non-recurring costs, including facility shutdown costs and executive transition-related costs.

Research and development – Research and development expense consists primarily of activities related to product design and other development activities, new component testing and evaluation, and test equipment and fixture development. We expect research and development expense will continue to increase in absolute dollars due to continued development of our own IP and product offerings for existing and new customer markets and increases in our customers’ demand for new product designs.

Selling, general, and administrative – Selling expense consists primarily of salaries and commissions paid to our sales and sales support employees and other costs related to the sales of our products. General and administrative expense consists primarily of salaries and overhead associated with our administrative staff, professional fees, and depreciation and other allocated facility related costs. We expect selling expenses to increase in absolute dollars as we continue to invest in expanding our markets and as we expand our international operations. We expect general and administrative expenses to also increase in absolute dollars due to an increase in employee-related costs, regulatory compliance, and accounting expenses.

Amortization of intangibles – Amortization of intangible assets is related to our finite-lived intangible assets and is computed using the straight-line method over the estimated economic life of the asset.

Interest Expense

Interest expense consists of interest on our outstanding debt under our credit facilities, including amortization of debt issuance costs, and any other indebtedness we may incur in the future.

Other Expense (Income), Net

The functional currency of our international operations is the U.S. dollar. Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense (income), net on the accompanying consolidated statements of operations. Substantially all of our sales contracts, and most of our agreements with third-party suppliers, provide for pricing and payment in U.S. dollars. Accordingly, these transactions are not subject to material exchange rate fluctuations.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of taxes on our taxable income related to our domestic and foreign operations, offset by the benefit of our tax holiday in Singapore, which was extended through 2026. In 2021, the benefit related to our Singapore tax holiday, compared to the Singapore statutory tax rate, was $9.7 million. Income tax is also impacted by certain withholding taxes, stock option and RSU activity, and credit generation. Stock options and RSUs have historically provided a discrete benefit to our provision for income taxes in the period they were exercised or vested, respectively, due to increases in our stock price.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value. The majority of our inventory values are based upon standard costs. On a quarterly basis, we analyze the value of our inventory and periodically record write-downs for estimated excess and obsolete inventory. This analysis is based on estimated future consumption compared to inventory quantities on-hand. The estimate is based on how assumptions of historical consumption, recency of purchases, backlog, and other factors indicate future consumption. Once the value of inventory is adjusted, the original cost of our inventory, less the write-down, represents its new cost basis. Reversal of these write-downs are recognized only when the related inventory has been scrapped or sold. During 2021, 2020, and 2019, we wrote down inventory determined to be excessive or obsolete by $1.9 million, $4.6 million, and $1.1 million, respectively.

Business Combinations

We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed are recorded at fair value. Any excess of the purchase price over the fair value of specifically identifiable assets is recorded as goodwill.

Significant judgment is required in estimating the fair value of intangible assets. Our typical intangible assets acquired include customer relationships and order backlogs. The most critical areas of judgment in applying the acquisition method include selecting the appropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed liabilities at fair value. There are several methods that can be used to determine the fair value of intangible assets. We typically use an income approach to value the specifically identifiable intangible assets, which is based on forecasts of expected future cash flows. Under the income approach, we utilize a multi-period excess earnings methodology to value the primary intangible asset of a business combination. Assumptions around expected future cash flows used in the fair value estimates are based on available historical information and industry, market, and peer data to inform our future expectations. We typically consult with an independent advisor to assist in the valuation of intangible assets. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition dates, our estimates are inherently uncertain and subject to refinement. In addition, unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions. If the estimates do not reflect future results or assumptions utilized in the valuation are inaccurate, then our recorded intangible assets and goodwill may become impaired. In November 2021, in connection with our acquisition of IMG, we recorded identifiable intangibles and preliminary goodwill of $65.0 million and $161.0 million, respectively.

Results of Operations

The following table sets forth our results of operations for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.

Year Ended

(in thousands)

Operating expenses:

Income tax expense (benefit) 2,857 (988 )

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

Year Ended

Operating expenses:

Research and development 1.4 1.5

Selling, general, and administrative 6.0 6.2

Amortization of intangible assets 1.4 1.5

Total operating expenses 8.8 9.1

Operating income 7.4 4.5

Interest expense, net 0.6 1.0

Other expense, net 0.1 0.1

Income before income taxes 6.7 3.5

Income tax expense (benefit) 0.3 (0.1 )

Comparison of 2021 and 2020

Net Sales

Year Ended Change

(dollars in thousands)

The increase in net sales from 2020 to 2021 was primarily due to strong demand from our customers as a result of continued growth in the global wafer fabrication equipment market, partially offset by production constraints as a result of challenges in our supply chain, as noted above in the commentary above under the heading, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Factors Affecting Our Business – COVID‐19 Pandemic and Global Supply Chain.

Net sales to U.S. customers increased by $53.1 million in 2021 to $544.1 million. On a relative basis, net sales to U.S. customers as a percent of total net sales decreased from 53.7% in 2020 to 49.6% in 2021.

Net sales to international customers increased by $129.5 million in 2021 to 552.8 million. On a relative basis, net sales to international customers as a percent of total net sales increased from 46.4% in 2020 to 50.4% in 2021.

Cost of Sales and Gross Profit

Year Ended Change

(dollars in thousands)

The increase in the gross amounts of cost of sales and gross profit from 2020 to 2021 was primarily due to the factors mentioned in the commentary above under the above heading, Net Sales.

The 250 basis point increase in our gross margin from 2020 to 2021 was primarily due to was primarily due to increased factory utilization, cost reduction initiatives, and customer mix, partially offset by increased materials and logistics costs and increased factory inefficiency due to challenges in our supply chain, as noted above in the commentary above under the heading, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Factors Affecting Our Business – COVID‐19 Pandemic and Global Supply Chain.

Additionally, our gross margin for 2021 was impacted by the following discrete items on a year-over-year basis: We incurred a $1.4 million contract settlement loss in 2020 that did not recur in 2021, favorably impacting gross margin, and we incurred $1.7 million in charges related to acquired-inventory being recorded at fair value, the majority of which was from our acquisition of IMG, unfavorably impacting gross margin..

Research and Development

Year Ended Change

(dollars in thousands)

The increase in research and development expenses from 2020 to 2021 was primarily due to increased employee-related expense, as we expand our engineering team to design and engineer next generation high performance solutions for our customers.

Selling, General, and Administrative

Year Ended Change

(dollars in thousands)

The increase in selling, general, and administrative expense from 2020 to 2021 was primarily due to (i) $4.4 million in transaction costs associated with our acquisition of IMG in November 2021, a (ii) $4.3 million in employee-related costs (excluding share-based compensation expense) due to increased headcount, salaries, and bonus charges, (iii) $1.3 million in increased IT hardware, software, and service costs, and (iv) $0.8 million in increased share-based compensation expense, partially offset by $1.8 million in executive transition costs that we incurred in 2020 that did not recur in 2021.

Amortization of Intangible Assets

Year Ended Change

(dollars in thousands)

The increase in amortization expense from 2020 to 2021 was due to incremental amortization expense from intangible assets acquired in connection with our acquisition of IMG in November 2021.

Interest Expense

Year Ended Change

(dollars in thousands)

The decrease in interest expense from 2020 to 2021 was primarily due to a 101 basis point decrease in our weighted average interest rate during the year, from 3.75% to 2.74%, and a $10.7 million decrease in the average amount borrowed during the year. The decrease in our weighted average interest rate from 2020 to 2021 was primarily due to decreases in the applicable margin component of our all-in borrowing rate due to continuous decreases in our leverage ratio during 2020 and 2021 and a lower overall applicable margin we incur for borrowings under our October 2021 amended and restated credit agreement.

Other Expense, Net

Year Ended Change

(dollars in thousands)

The increase in other expense, net from 2020 to 2021 was primarily due to a $0.7 million loss on extinguishment of debt we incurred in connection with entering into an amended and restated credit agreement in October 2021, partially offset by favorable foreign currency fluctuations for transaction denominated in currencies other than the U.S. dollar.

Income Tax Benefit

Year Ended Change

(dollars in thousands)

Income tax expense (benefit) $ 2,857 $ (988 ) $ 3,845 n/m

The increase in tax expense from 2020 to 2021 was primarily due to increased taxable income in the U.S, partially offset by increased discrete benefits from share-based compensation activity.

Non-GAAP Results

Management uses non-GAAP metrics to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective. Non-GAAP gross margin is defined as non-GAAP gross profit divided by net sales. Non-GAAP gross profit and non-GAAP net income are defined as: gross profit or net income excluding, as applicable, (1) amortization of intangible assets, share-based compensation expense, and non-recurring expenses, including contract settlement losses and facility shutdown costs, to the extent they are present in gross profit or net income; and (2) the tax impacts associated with our non-GAAP adjustments, as well as non-recurring discrete tax items. Non-GAAP diluted earnings per share (“EPS”) is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period.

Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP. Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison.

Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items.

The following table presents our unaudited non‐GAAP gross profit and non-GAAP gross margin and and a reconciliation from gross profit, the most comparable GAAP measure, for the periods indicated:

Year Ended

(dollars in thousands)

Non-GAAP adjustments:

Contract settlement loss (2) — 1,386

Fair value adjustment to inventory from acquisitions (3) 1,652 —

Other non-recurring expense, net (4) 106 3,743

U.S. GAAP gross margin 16.2 % 13.7 %

Non-GAAP gross margin 16.7 % 14.6 %

Included in this amount for 2021 are (i) write-off costs associated with inventories determined during the period to be obsolete of $2.9 million and (ii) severance costs associated with affected employees of $0.2 million, partially offset by (iii) a gain realized upon the sale of equipment and other fixed assets of $0.5 million.

Included in this amount for 2020 are (i) write-off costs associated with inventories determined during the period to be obsolete of $1.3 million, (ii) severance costs associated with affected employees of $0.5 million, and (iii) accelerated depreciation charges associated with property and equipment that was expected to be abandoned at the time of facility closure of $0.4 million.

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

Year Ended

(dollars in thousands, except per share amounts)

Non-GAAP adjustments:

Contract settlement loss (2) — 1,386

Fair value adjustment to inventory from acquisitions (3) 1,652 —

Acquisition costs (4) 4,386 —

Other non-recurring expense, net (5) 498 7,181

Loss on extinguishment of debt (6) 737 —

Tax adjustments related to non-GAAP adjustments (7) (9,861 ) (8,507 )

U.S. GAAP diluted EPS $ 2.45 $ 1.42

Non-GAAP diluted EPS $ 3.37 $ 2.52

Included in this amount for 2021 are (i) write-off costs associated with inventories determined during the period to be obsolete of $2.9 million, (ii) other shutdown related charges of $0.3 million, and (iii) severance costs associated with affected employees of $0.2 million, partially offset by (iv) a gain realized upon the sale of equipment and other fixed assets of $0.5 million.

Included in this amount for 2020 are primarily (i) a $3.6 million loss on the sale of inventories and property and equipment from our Tampa, Florida facility, (ii) non-capitalized costs incurred in connection with our implementation of a new ERP system and a SOX compliance program, and (iii) costs associated with restructuring and transitioning key leadership roles, including a $1.8 million bonus payment to our former Chief Executive Officer in connection with his transition to executive chairman.

Liquidity and Capital Resources

The following section discusses our liquidity and capital resources, including our primary sources of liquidity and our material cash requirements. Our cash and cash equivalents are maintained in highly liquid and accessible accounts with no significant restrictions.

Material Cash Requirements

Our primary liquidity requirements arise from: (i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments and capital expenditures, and (v) payment of income taxes. We have no significant long-term purchase commitments related to procuring raw materials inventory. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and are therefore subject to prevailing global macroeconomic conditions and financial, business, and other factors, some of which are beyond our control.

We believe that our cash and cash equivalents, the amounts available under our credit facilities, and our operating cash flow will be sufficient to fund our business and our current obligations for at least the next 12 months and beyond.

Sources and Conditions of Liquidity

Our ongoing sources of liquidity to fund our material cash requirements are primarily derived from: (i) sales to our customers and the related changes in our net operating assets and liabilities and (ii) proceeds from our credit facilities and equity offerings, when applicable.

Summary of Cash Flows

We ended 2021 with cash and cash equivalents of $75.5 million, a decrease of $177.4 million from December 25, 2020. The decrease was primarily due to cash paid of $268.8 million, net of acquired-cash, to acquire IMG in November 2021 and capital expenditures of $20.8 million, partially offset by net proceeds from our credit facilities of $90.9 million, and cash provided by operating activities of $15.3 million.

The following table sets forth a summary of operating, investing, and financing activities for the periods presented:

Year Ended

(in thousands)

Our cash provided by operating activities of $15.3 million during 2021 consisted of net income of $70.9 million, net non-cash charges of $37.2 million, primarily consisting of depreciation and amortization of $26.0 million and share-based compensation expense of $11.5 million, and an increase in our net operating assets and liabilities, net of acquisitions, of $92.8 million.

The increase in our net operating assets and liabilities, net of acquisitions, was primarily due to an increase in inventories of $89.2 million and an increase in accounts receivable of $33.5 million, partially offset by an increase in accounts payable of $38.6 million. The increase in our inventories, net of acquired inventories, is primarily driven by elevated purchasing activity pursuant to strong customer demand and certain supply chain component constraints. The increase in accounts receivable, net of acquired receivables, was primarily due to increased revenue in the fourth quarter of 2021 compared to the fourth quarter of 2020 and timing of customer payments. The increase in accounts payable, net of acquired payables, is primarily due to higher purchases during the fourth quarter of 2021 compared to the fourth quarter of 2020 and payment timing.

Cash used in investing activities during 2021 consists of cash paid to acquire IMG in November 2021 of $268.8 million, net of cash acquired, capital expenditures of $20.8 million, and net proceeds from the purchase and sale of marketable securities of $0.5 million, partially offset by proceeds from the sale of property and equipment of $0.5 million.

Cash provided by financing activities during 2021 consists of net proceeds from our credit facilities of $90.9 million, which includes $1.9 million in fees incurred associated with effecting an amended and restated credit agreement in October 2021, and net proceeds from share-based compensation activity of $6.0 million.

Recent Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption.

To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 1 – Organization and Summary of Significant Accounting Policies of our consolidated financial statements in Part IV, Item 15 of this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Exchange Risk

Currently, substantially all of our sales and arrangements with third-party suppliers provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.

While not currently significant, we do have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian ringgit, British pound, and euro. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.

Interest Rate Risk

We had total indebtedness of $295.0 million as of December 31, 2021, exclusive of $2.2 million in debt issuance costs, of which $7.5 million is due within 12 months. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. As of December 31, 2021, the interest rate on our outstanding debt is based on BSBY, plus an applicable rate depending on our leverage ratio. A hypothetical 100 basis point change in the interest rate on our outstanding debt would have resulted in a $1.9 million and $2.0 million change to interest expense during 2021 and 2020, respectively.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (the certifying officers), 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 Securities and Exchange Act, as amended (“the Exchange Act”)) as of December 31, 2021. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2021.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a‐15(f) and 15d‐15(f) under the Exchange Act). With the participation of our Chief Executive Officer and Chief Financial Officer, our management, under the oversight of our Board of Directors, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021 using the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). We completed our acquisition of IMG Companies, LLC, and its subsidiaries (“IMG”) on November 19, 2021. We are continuing to integrate IMG into our internal control over financial reporting, and management’s evaluation of the effectiveness of our internal control over financial reporting excluded IMG. IMG had total assets of approximately $293.0 million as of December 31, 2021, and included in the results of our operations for 2021 are net sales of $7.3 million from IMG.

Based on that evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2021 due to the material weaknesses in internal control over financial reporting, described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The identified material weaknesses related to ineffective information technology general controls (“ITGCs”) in the areas of user access and program change management over certain information technology systems (“IT”) systems that support our financial reporting processes. The control deficiencies were a result of: inadequate design of IT control processes that were lacking sufficient documentation such that successful operation of the ITGC’s were overly dependent upon knowledge and actions of certain individuals with IT expertise; insufficient training of IT personnel on the requirements to maintain evidence of ITGC control processes and procedures; and risk-assessment processes inadequate to identify and assess changes in IT environments that could impact internal control over financial reporting. Our automated and manual business process controls that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

The material weaknesses did not result in any identified misstatements to the financial statements, and there were no changes to previously released financial results.

Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this Annual Report on Form 10‐K, issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. KPMG LLP’s report appears on page F‐3 of this Annual Report on Form 10-K.

Remediation

Management is taking steps to remediate the ITGC deficiencies and will continue to take measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include:

The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the control objective is achieved and the controls are operating effectively. We expect that the remediation of these material weaknesses will be completed prior to the end of fiscal year 2022.

Changes in Internal Control Over Financial Reporting

Other than the material weaknesses identified during the quarter, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a‐15(f) or 15d‐15(f) of the Exchange Act) that occurred during the fourth quarter of December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results and share price could be negatively impacted.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to our Proxy Statement for our 2022 General Meeting to be filed with the SEC within 120 days after the close of the year ended December 31, 2021.

Code of Conduct

We have adopted a code of business ethics and conduct (the “Code of Conduct”) that applies to all employees, officers, and directors, including the principal executive officer, principal financial officer, and principal accounting officer. The Code of Conduct is available on our investor relations website at ir.ichorsystems.com. We intend to post all disclosures that are required by law or NASDAQ listing rules regarding any amendment to, or a waiver of, any provision of the Code of Conduct for the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this report:

(1) Financial Statements.

The following Consolidated Financial Statements are filed as part of this report under Item 8 – Financial Statements and Supplementary Data.

Consolidated Balance Sheets F‐5

Consolidated Statements of Operations F‐6

Consolidated Statements of Shareholders’ Equity F‐7

Consolidated Statements of Cash Flows F‐8

Notes to Consolidated Financial Statements F‐9

ITEM 16. FORM 10-K SUMMARY

Not applicable.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Ichor Holdings, Ltd.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Ichor Holdings, Ltd. and subsidiaries (the Company) as of December 31, 2021 and December 25, 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 25, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of excess and obsolete inventory

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company reported net inventories of $236.1 million as of December 31, 2021, including an adjustment for excess and obsolete inventory of $14.1 million. The Company states its inventories at the lower of cost or net realizable value. The Company records an adjustment to the cost basis of inventory when evidence exists that the net realizable value of inventory is lower than its cost, which occurs when the Company has excess and/or obsolete inventory. The Company’s model to estimate excess and/or obsolete inventory is based on an analysis of existing inventory quantities on-hand compared to estimated future consumption. Future consumption is estimated based upon assumptions about how historical consumption, recent purchases, backlog and other factors indicate future consumption.

We identified the evaluation of excess and obsolete inventory as a critical audit matter. There was subjective auditor judgement in evaluating whether historical consumption and recent purchases reasonably indicate future consumption used by the Company in their determination that inventory is recorded at the lower of its cost or net realizable value.

F-1

The following are the primary procedures we performed to address the critical audit matter. We evaluated the assumptions used to estimate future consumption by (1)examining historical write-down trends and (2)inspecting publicly available industry information to assess relevant changes to the overall business environment. Additionally, to evaluate whether recent purchases and historical consumption indicates future consumption we selected a sample of products within inventory and for each sample selection we calculated the rate of consumption for current quantity on hand based on (i)historical consumption and (ii)backlog.

Fair value of certain acquired customer relationship intangible assets

As discussed in Note 2 to the consolidated financial statements, on November 19, 2021, the Company acquired IMG Companies, LLC (IMG) and accounted for the transaction as a business combination. As a result of the transaction, the Company recorded intangible assets of $62.4 million for customer relationships associated with the generation of future income from IMG’s existing customers. The estimated fair value of the customer relationship intangible assets was determined using a discounted cash flow model.

We identified the evaluation of the fair value of certain customer relationships acquired in the IMG transaction as a critical audit matter due to the high degree of subjectivity in evaluating discounted future cash flows used to determine the fair value. Specifically, there was a high degree of auditor judgment required to evaluate the forecasted revenue attributable to customer relationships as changes in this assumption could have a significant impact on the fair value of the customer relationships.

The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition-date valuation process including controls over the development of forecasted revenue attributable to customer relationships. We evaluated the forecasted revenue assumptions attributable to customer relationships by comparing these assumptions to IMG’s historical results, industry publications, as well as the revenue growth rates of guideline peer companies. In addition, we involved valuation professionals with specialized skills and knowledge who assisted in evaluating the relevance of the guideline peer companies based on financial and non-financial metrics.

/s/ KPMG LLP

We have served as the Company’s auditor since 2011.

Portland, Oregon

February 28, 2022

F-2

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Ichor Holdings, Ltd.:

Opinion on Internal Control Over Financial Reporting

We have audited Ichor Holdings, Ltd. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and December 25, 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses relate to ineffective information technology general controls (ITGCs) in the areas of user access and program change-management over certain information technology systems that support the Company’s financial reporting processes which have been identified and included in management’s assessment. The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired IMG Companies, LLC during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, IMG Companies, LLC’s internal control over financial reporting associated with total assets of $293 million and total revenues of $7.3 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of IMG Companies, LLC.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-3

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Portland, Oregon

February 28, 2022

F-4

ICHOR HOLDINGS, LTD.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

Assets

Current assets:

Prepaid expenses and other current assets 8,153 7,082

Liabilities and Shareholders’ Equity

Current liabilities:

Current portion of long-term debt 7,500 8,750

Current portion of lease liabilities 7,633 5,128

Lease liabilities, less current portion 22,354 5,272

Deferred tax liabilities, net 38 109

Other non-current liabilities 4,213 3,546

Shareholders’ equity:

See accompanying notes to consolidated financial statements.

F-5

ICHOR HOLDINGS, LTD.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

Year Ended

Operating expenses:

Net income per share:

Shares used to compute net income per share:

See accompanying notes to consolidated financial statements.

F-6

ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

Additional Total

Ordinary Shares Paid-In Treasury Shares Retained Shareholders'

Shares Amount Capital Shares Amount Earnings Equity

Ordinary shares issued from employee share purchase plan 47,645 — 671 — — — 671

Share-based compensation expense — — 8,537 — — — 8,537

Ordinary shares issued from employee share purchase plan 33,188 — 727 — — — 727

Share-based compensation expense — — 9,875 — — — 9,875

Share-based compensation expense — — 11,473 — — — 11,473

See accompanying notes to consolidated financial statements.

F-7

ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended

Cash flows from operating activities:

Amortization of debt issuance costs 883 968 937

Gain on sale of asset disposal group (504 ) 3,575 —

Loss on extinguishment of debt 737 — —

Changes in operating assets and liabilities, net of acquisitions:

Cash flows from investing activities:

Cash paid for acquisitions, net of cash acquired (268,766 ) (5,035 ) —

Cash paid for intangible assets — — (8,147 )

Purchase of marketable securities (115,197 ) — —

Proceeds from maturities and sales of marketable securities 114,713 — —

Proceeds from sale of property and equipment 504 739 —

Cash flows from financing activities:

Issuance of ordinary shares, net of fees — 139,372 —

Repurchase of ordinary shares — — (1,599 )

Debt issuance and modification costs (1,852 ) — —

Repayments on revolving credit facility (41,753 ) — (28,000 )

Proceeds from term loan 94,175 —

Supplemental disclosures of cash flow information:

Cash paid during the period for interest $ 7,123 $ 8,235 $ 8,424

Cash paid during the period for taxes, net of refunds $ 5,642 $ 250 $ 896

Supplemental disclosures of non-cash activities:

Capital expenditures included in accounts payable $ 930 $ 369 $ 774

See accompanying notes to consolidated financial statements.

F-8

ICHOR HOLDINGS, LTD.

Notes to Financial Statements

(dollar figures in tables in thousands, except per share data)

Note 1 – Organization and Summary of Significant Accounting Policies

Organization and Operations of the Company

Ichor Holdings, Ltd. and Subsidiaries (the “we”, “us”, “our”, “Company”) designs, develops, manufactures, and distributes gas and liquid delivery subsystems and components purchased by capital equipment manufacturers for use in the semiconductor markets. We are headquartered in Fremont, California and have operations in the United States, the United Kingdom, Singapore, Malaysia, Korea, and Mexico.

On December 30, 2011, Ichor Systems Holdings, LLC consummated a sales transaction with Icicle Acquisition Holdings, LLC, a Delaware limited liability company. Shortly after consummation of the sale transaction, Icicle Acquisition Holdings, LLC changed its name to Ichor Holdings, LLC.

In March 2012, Ichor Holdings, LLC completed a reorganization of its legal structure, forming Ichor Holdings, Ltd., a Cayman Islands entity. Ichor Holdings, Ltd. is now the reporting entity and the ultimate parent company of the operating entities.

Basis of Presentation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts.

Year End

We use a 52‐ or 53‐week fiscal year ending on the last Friday in December. The years ended December 31, 2021, December 25, 2020, and December 27, 2019 were all 53 weeks, 52 weeks, and 52 weeks, respectively. All references to 2021, 2020, and 2019 are references to the fiscal years then ended.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include the fair value of assets and liabilities acquired in acquisitions, estimated useful lives for long‐lived assets, inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite‐lived intangible assets and goodwill.

Cash and Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of deposits and financial instruments which are readily convertible into cash and have original maturities of 90 days or less at the time of acquisition. Marketable securities consist primarily of highly liquid investments with maturities of greater than 90 days when purchased. We classify our marketable securities as available-for-sale and, accordingly, report them at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss). Any unrealized losses which are considered to be other-than-temporary are recorded in other income (expense), net. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in other income (expense), net. Although we had marketable securities outstanding during 2021, we had no marketable securities outstanding as of December 31, 2021 or December 25, 2020.

Available-for-sale investments are subject to a periodic impairment review. If an available-for-sale debt security’s fair value is less than its amortized cost basis, then we evaluate whether the decline is the result of a credit loss, in which case an impairment is recorded through an allowance for credit losses. Unrealized gains and losses not attributable to credit losses are included, net of tax, in accumulated other comprehensive income (loss). We have not recorded an allowance for credit losses in 2021.

F-9

Revenue Recognition

We recognize revenue when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This amount is recorded as net sales in our consolidated statements of operations.

Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and generally remain fixed over the duration of the contract. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal will not occur. Variable consideration estimates are updated at each reporting date. Historically, we have not incurred significant costs to obtain a contract. All amounts billed to a customer relating to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of sales.

Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of fluid delivery subsystems, weldments, and other components. Most of our contracts contain a single performance obligation and are generally completed within twelve months. Product sales are recognized at a point-in-time, generally upon delivery, as such term is defined within the contract, as that is when control of the promised good has transferred. Products are covered by a standard assurance warranty, generally extended for a period of one to two years depending on the customer, which promises that delivered products conform to contract specifications. As such, we account for such warranties under ASC 460, Guarantees, and not as a separate performance obligation.

Contract balances – Accounts receivable represents our unconditional right to receive consideration from our customers. Accounts receivable are carried at invoice price less an estimate for doubtful accounts and estimated payment discounts. Payment terms vary by customer but are generally due within 15–60 days. Historically, we have not incurred significant payment issues with our customers. We had no significant contract assets or liabilities on our consolidated balance sheets in any of the periods presented.

Commitments and Contingencies

We are periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The ultimate resolution of these actions is not expected to have a material adverse effect on our financial position or results of operations.

Concentrations

Financial instruments that subject us to credit risk consist of accounts receivable, accounts payable, and long-term debt. At December 31, 2021 and December 25, 2020, two customers represented, in the aggregate, approximately 60% and 73%, respectively, of the balance of accounts receivable.

We establish an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends, and other information. We require collateral, typically cash, in the normal course of business if customers do not meet the criteria established for offering credit. If the financial condition of our customers were to deteriorate and result in an impaired ability to make payments, additions to the allowance may be required. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded to income when received. Activity and balances related to our allowance for doubtful accounts was not significant during any period presented.

We use qualified manufacturers to supply many components and subassemblies of our products. We obtain the majority of our components from a limited group of suppliers. A majority of the purchased components used in our products are customer specified. An interruption in the supply of a particular component would have a temporary adverse impact on our operating results.

We maintain cash balances at both United States-based and foreign-based commercial banks. Cash balances in the United States exceed amounts that are insured by the Federal Deposit Insurance Corporation (FDIC). The majority of the cash maintained in foreign-based commercial banks is insured by the government where the foreign banking institutions are based. Cash held in foreign-based commercial banks totaled $41.5 million and $39.9 million at December 31, 2021 and December 25, 2020, respectively, and at times exceeds insured amounts. No losses have been incurred as of December 31, 2021 or December 25, 2020 for amounts exceeding the insured limits.

F-10

Fair Value Measurements

We estimate the fair value of financial assets and liabilities based upon comparison of such assets and liabilities to the current market values for instruments of a similar nature and degree of risk. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

There were no changes to our valuation techniques during 2021. We estimate the recorded value of our financial assets and liabilities approximates fair value at December 31, 2021 and December 25, 2020.

We estimate the value of acquired intangible assets, on a nonrecurring basis, based on an income approach utilizing discounted cash flows. Under this approach, we estimate the future cash flows from our asset groups and discount the income stream to its present value to arrive at fair value. Future cash flows are based on recently prepared operating forecasts. Operating forecasts and cash flows include, among other things, revenue growth rates that are calculated based on management’s forecasted sales projections. A discount rate is utilized to convert the forecasted cash flows to their present value equivalent. The discount rate applied to the future cash flows includes a subject-company risk premium, an equity market risk premium, a beta, and a risk-free rate. As this approach contains unobservable inputs, the measurement of fair value for intangible assets is classified as Level 3.

Inventories

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:

Estimated useful lives of property & equipment

Machinery 5-10 years

Leasehold improvements 10 years

Computer software, hardware, and equipment 3-5 years

Office furniture, fixtures, and equipment 5-7 years

Vehicles 5 years

Maintenance and repairs that neither add material value to the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in selling, general, and administrative expenses on the consolidated statements of operations.

F-11

Leases

We determine if an arrangement is a lease, or contains a lease, at the inception of the arrangement. If we determine the arrangement is a lease, or contains a lease, at lease inception, we then determine whether the lease is an operating lease or a finance lease. Operating and finance leases result in recording a right-of-use (“ROU”) asset and lease liability on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancellable lease term plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This rate is generally consistent with the interest rate we pay on borrowings under our credit facilities, as this rate approximates our collateralized borrowing capabilities over a similar term of lease payments. We utilize the consolidated group incremental borrowing rate for all leases, as we have centralized treasury operations. We have 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. We have elected not to separate lease and non-lease components for any class of underlying asset.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying amount of an asset (or asset group) may not be recoverable. In analyzing potential impairments, projections of future cash flows from the asset group are used to estimate fair value. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset group, a loss is recognized for the difference between the estimated fair value and the carrying value of the asset group. The projections are based on assumptions, judgments, and estimates of revenue growth rates for the related business; anticipated future economic, regulatory, and political conditions; the assignment of discount rates relative to risk; and estimates of terminal values. During 2021, 2020, and 2019, we did not identify any triggering events that would indicate impairment.

Intangible Assets

We account for intangible assets that have a definite life and are amortized on a basis consistent with their expected cash flows over the following estimated useful lives:

Estimated useful lives of intangible assets

Trademarks 10 years

Customer relationships 6-10 years

Developed technology 7-10 years

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. We first make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying a quantitative goodwill impairment test. Under the quantitative test, the fair value of the reporting unit is compared to its carrying value and an impairment loss is recognized for any excess of carrying amount over the reporting unit’s fair value. Fair value of the reporting unit is determined using a discounted cash flow analysis. For purposes of testing goodwill for impairment, we have concluded that we operate as one reporting unit.

We performed a qualitative goodwill assessment at December 31, 2021 and December 25, 2020. This assessment indicated that it was more likely than not our reporting unit’s fair value exceeded its carrying value.

Research and Development Costs

Research and development costs are expensed as incurred.

F-12

Share-Based Payments

We use the Black-Scholes option-pricing model to value awards on the date of grant. We use the simplified method to estimate the expected term of share-based awards for all periods as we do not have sufficient history to estimate the weighted average expected term. The risk-free interest rate is based on the U.S. Treasury rates in effect on the corresponding date of grant. Estimated volatility is based on the historical volatility of ours and similar entities’ publicly traded shares.

Income Taxes

We recognize deferred income taxes using the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense for the current year differs from the statutory rate primarily as a result of the impact of foreign operations and discrete tax benefits recorded in connection with our historical acquisitions and stock option exercises.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in our consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. We recognize interest and penalties as a component of income tax expense.

Foreign Operations

The functional currency of our international operations is the U.S. dollar. Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense (income), net on our consolidated statements of operations. Substantially all of our sales contracts, and most of our agreements with third-party suppliers, provide for pricing and payment in U.S. dollars. Accordingly, these transactions are not subject to material exchange rate fluctuations.

Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued ASU 2016‐13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. We adopted the standard on the first day of 2020, and the adoption did not have a significant impact on our financial statements.

In August 2018, the FASB issued ASU 2018‐15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‐40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. We adopted the standard on the first day of 2020. During the 2020, we incurred capitalizable implementation costs of approximately $4.4 million in connection with our implementation of a new company-wide ERP system that is classified as a hosting arrangement that is a service contract. Accordingly, these costs are included in Other noncurrent assets on our consolidated balance sheet as of December 25, 2020. Additionally, our cash provided by operating activities for 2020 includes $3.3 million in cash outflows associated with these capitalized implementation costs. As the ERP system was not yet in-service as of December 25, 2020, there was no amortization expense recognized during 2020.

In December 2019, the FASB issued ASU 2019‐12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. We adopted the standard on the first day of 2021, and the adoption did not have a significant impact on our financial statements.

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Accounting Pronouncements Recently Issued

In October 2021, the FASB issued ASU No. 2021‐08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our consolidated financial statements.

Note 2 – Acquisitions

IMG Companies, LLC

On November 19, 2021 we completed the acquisition, via merger, of IMG Companies, LLC and its subsidiaries (“IMG”), a California-based precision machining, specialty joining, and plating company for an aggregate purchase price of $270.0 million. IMG provides us increased capacity and capabilities in our precision machining business, and expands our served customer base with new component and service offerings.

The following table presents the preliminary purchase price allocation as of November 19, 2021. As of December 31, 2021, total acquisition consideration remains preliminary, as we are still finalizing the working capital adjustment component of final purchase price under the merger agreement.

Preliminary Allocation November 19, 2021

Cash acquired $ 1,234

Accounts receivable 8,559

Prepaid expenses and other current assets 579

Property and equipment 33,067

Operating lease right-of-use assets 14,509

Accounts payable (3,853 )

Accrued expenses (5,620 )

Other current liabilities (2,109 )

Lease liabilities (14,509 )

Total acquisition consideration $ 270,000

We preliminarily allocated $62.4 million to IMG’s customer relationships and $2.6 million to IMG’s order backlog with weighted average amortization periods of 10 years and 6 months, respectively. Preliminary goodwill recognized from the acquisition was primarily attributed to an assembled workforce and expected synergies. We incurred transaction costs of approximately $4.4 million in connection with the acquisition during 2021. The fair value adjustment to inventory as part of our preliminary purchase price allocation resulted in a $1.4 million charge to cost of sales during 2021.

Our consolidated statement of operations for 2021 includes approximately 6 weeks operating activity of IMG, including sales of $7.3 million.

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The following unaudited pro forma consolidated results of operations assume the acquisition was completed on December 26, 2020, the beginning of the earliest period presented. Pro forma adjustments are primarily comprised of preliminary estimates of amortization expense related to acquired intangible assets, incremental interest expense from increased borrowings to fund the acquisition and the elimination of IMG’s historical interest expense, elimination of IMG’s non-recurring management expenses, elimination of a gain on forgiveness of debt, acquired inventory fair value charges, the related income tax effects, and other insignificant management adjustments. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved or of results that may occur in the future.

Year Ended

Net income per share:

Nogales, Mexico Precision Machining Acquisition

On December 1, 2020, we acquired certain operating assets and assumed the operations of a precision machining operation in Nogales, Mexico, which was considered a business combination under ASC 805 – Business Combinations, for an aggregate purchase of $5.0 million. The acquisition adds to our precision machined component manufacturing capacity. In connection with the acquisition, we recorded $2.0 million in tangible operating assets, a $1.2 million customer relationship intangible asset, which will be amortized of a period of 6 years, and $1.9 million in goodwill.

Note 3 – Inventories

Inventories consist of the following:

The following table presents changes to our excess and obsolete adjustment:

Excess and obsolete adjustment

Charge to cost of sales (1,086 )

Disposition of inventory 961

Charge to cost of sales (4,649 )

Disposition of inventory (276 )

Charge to cost of sales (1,942 )

Disposition of inventory 633

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Note 4 – Property and Equipment

Property and equipment consist of the following:

Computer software, hardware, and equipment 8,031 6,501

Office furniture, fixtures and equipment 1,168 1,166

Total property and equipment, net $ 85,204 $ 41,811

Depreciation expense for 2021, 2020, and 2019 was $11.1 million, $10.9 million, and $8.9 million, respectively.

Cloud Computing Implementation Costs

Pursuant to ASU 2018-15, we capitalize implementation costs associated with hosting arrangement that are service contracts. These costs are recorded to prepaid expenses or other noncurrent assets. To-date, these costs are those incurred to implement a new company-wide ERP system.

The following table summarizes capitalized cloud computing implementation costs:

Capitalized cloud computing implementation costs as of December 27, 2019 $ —

Costs capitalized during the period 4,366

Capitalized costs amortized during the period —

Capitalized cloud computing implementation costs as of December 25, 2020 4,366

Costs capitalized during the period 3,992

Capitalized costs amortized during the period (304 )

Capitalized cloud computing implementation costs as of December 31, 2021 $ 8,054

Note 5 – Intangible Assets and Goodwill

Definite-lived intangible assets consist of the following:

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Future projected annual amortization expense consists of the following:

Future amortization expense

The following tables present the changes to goodwill:

Goodwill

Acquisitions —

Note 6 – Leases

We lease facilities under various non-cancellable operating leases expiring through 2031. In addition to base rental payments, we are generally responsible for our proportionate share of operating expenses, including facility maintenance, insurance, and property taxes. As these amounts are variable, they are not included in lease liabilities. As of December 31, 2021, we had one operating leases executed for which the rental period had not yet commenced.

The components of lease expense are as follows:

Year Ended

Supplemental cash flow information related to leases is as follows:

Year Ended

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 5,477 $ 5,574 $ 5,220

Supplemental balance sheet information related to leases is as follows:

Weighted-average remaining lease term of operating leases 5.8 years 2.3 years

Weighted-average discount rate of operating leases 2.4% 4.5%

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Future minimum lease payments under non-cancellable leases as of December 31, 2021 are as follows

Total future minimum lease payments 31,843

Less imputed interest (1,856 )

Total lease liabilities $ 29,987

Note 7 – Income Taxes

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act allows net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years. As a result, during 2020 we were able to carry back our 2019 net operating loss to tax years 2017 and 2018, resulting in a $1.0 million refund claim. The CARES Act also provided for an increased interest deduction for tax years 2019 and 2020, as well as the deferral of the employer portion of social security taxes.

Income before tax was as follows:

Year Ended

Significant components of income tax expense (benefit) consist of the following:

Year Ended

Current:

Deferred:

Income tax expense (benefit) $ 2,857 $ (988 ) $ (6,454 )

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The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense (benefit) consist of the following:

Year Ended

Effective rate reconciliation:

Income tax expense (benefit) $ 2,857 $ (988 ) $ (6,454 )

Deferred income tax assets and liabilities consist of the following:

Deferred tax assets:

Net operating loss carryforwards 816 873

Valuation allowance (556 ) (518 )

Deferred tax liabilities:

Property, plant and equipment (5,928 ) (5,273 )

Operating lease right-of-use assets (7,409 ) (2,568 )

Other liabilities (129 ) (89 )

At December 31, 2021, we had federal, state, and foreign net operating loss carryforwards of zero, $4.8 million, and $2.1 million respectively. The state and foreign net operating loss carryforwards, if not utilized, will begin to expire in 2032, and 2029, respectively. At December 31, 2021, we had federal and state research and development credits of $2.9 million and zero, respectively. The federal research and development credits, if not utilized, will begin to expire in 2034. Additionally, we had foreign tax credits of $0.6 million, which if not utilized, will begin to expire in 2027.

We have determined the amount of our valuation allowance based on our estimates of taxable income by jurisdiction in which we operate over the periods in which the related deferred tax assets will be recoverable. As of December 31, 2021, we believe it is more-likely-than-not that we will realize our U.S. deferred tax assets, with the exception of certain state and foreign net operating loss carryforwards we believe are not likely to be realized within the carryforward period.

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We were granted a tax holiday for our Singapore operations that is effective through 2026. The net impact of the tax holiday in Singapore as compared to the Singapore statutory rate was a benefit of $9.7 million, $5.9 million, and $4.6 million during 2021, 2020, and 2019, respectively. Our income tax fluctuates based on the geographic mix of earnings and is calculated quarterly based on actual results pursuant to ASC Topic 740‐270.

As of December 31, 2021, we have recognized $3.0 million of unrecognized tax benefits in other non-current liabilities in our consolidated balance sheet. If recognized, $1.5 million of this amount would impact our effective tax rate. We expect a decrease of $0.1 million to the total amount of unrecognized tax benefits within the next twelve months.

Our ongoing practice is to recognize potential accrued interest and penalties related to unrecognized tax benefits within our statements of operations in income tax expense (benefit). Interest and penalties associated with uncertain tax positions recognized during 2021 and 2020 were insignificant. At December 31, 2021, other non-current liabilities on our balance sheet included approximately zero and $0.5 million of interest and penalties, respectively, associated with uncertain tax positions, which are excluded from the unrecognized tax benefits table below.

The following table summarizes the activity related to our unrecognized tax benefits:

Unrecognized tax benefits

Increase related to current year tax positions 380

Increase related to prior year tax positions 8

Increase related to current year tax positions 378

Increase related to prior year tax positions 484

Decrease in tax positions related to lapse of statute of limitations (232 )

Increase related to current year tax positions 597

Decrease in tax positions related to lapse of statute of limitations (92 )

We assert indefinite reinvestment of our U.S. and Netherlands unremitted earnings. With regard to these unremitted earnings, we have not, nor do we anticipate the need to repatriate funds from the U.S. to the Netherlands or from the Netherlands to the Cayman entity to satisfy liquidity needs. Determination of the amount of unrecognized withholding tax liability related to the indefinitely reinvested earnings is not practicable.

Our three major filing jurisdictions are the United States, Singapore and Malaysia. We are no longer subject to U.S. Federal examination for tax years ending before 2017, to state examinations before 2017, or to foreign examinations before 2016. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carryforward. At December 31, 2021, we were not under examination by a tax authority.

Note 8 – Employee Benefit Programs

401(k) Plan

We sponsor a 401(k) plan available to employees of our U.S.‐based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participant’s annual compensation or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of a participant’s deferral, up to an annual maximum of 4% of a participant’s annual compensation. For 2021, 2020, and 2019, matching contributions were $2.2 million, $1.9 million, and $1.5 million, respectively.

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Note 9 – Long-Term Debt

Long-term debt consists of the following:

Less unamortized debt issuance costs (2,247 ) (2,015 )

Total long-term debt, less current portion, net $ 285,253 $ 191,522

Maturities of long-term debt consist of the following:

Future maturities of long-term debt

The weighted average interest rate across our credit facilities was 2.74%, 3.75%, and 4.78% during 2021, 2020, and 2019, respectively.

On October 29, 2021, we entered into an amended and restated credit agreement, which includes a group of financial institutions as direct lenders underlying the agreement. The credit agreement includes a $150.0 million term loan facility and a $250.0 million revolving credit facility (“credit facilities”). We incurred debt issuance costs of approximately $1.9 million in connection with the amendment and restatement. We account for debt issuance costs as a reduction to the carrying value of our long-term debt, and we amortize the costs to interest expense over the term of the credit agreement. Under the debt modification literature codified in ASC 470, a portion of the amendment and restatement was treated as an extinguishment. Accordingly, $0.7 million of existing capitalized debt issuance costs were written off as a loss on extinguishment of debt, which is included in other expense (income), net on our statements of operations. Term loan payments of $1.9 million are due on a quarterly basis. The credit agreement matures on October 29, 2026.

Our credit agreement is secured by our tangible and intangible assets and includes customary representations, warranties, and covenants. We are required to maintain a minimum fixed charge coverage ratio of 1.25 : 1 and a maximum leverage ratio 3.50 : 1 to 4.00:1.

Interest is charged at either the Base Rate or the Bloomberg Short-Term Bank Yield (“BSBY”) Rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5%, or iii) the BSBY Rate plus 1.00%. The applicable margin on Base Rate and BSBY Rate loans is 0.375‐1.375% and 1.375‐2.375% per annum, respectively, depending on our leverage ratio. We are also charged a commitment fee of 0.175%-0.350% on the unused portion of our revolving credit facility. Base Rate interest payments and commitment fees are due quarterly. BSBY rate interest payments are due on the last day of the applicable interest period, or quarterly for applicable interest periods longer than 3 months. At December 31, 2021, our credit facilities bore interest under the BSBY rate option of 1.81%.

Note 10 – Shareholders’ Equity

Public Offering of Shares

On December 14, 2020, we completed an underwritten public offering of 4.6 million ordinary shares with net proceeds of $139.4 million, after deducting the underwriting discount of $1.35 per share and incremental offering expenses of $0.5 million.

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Share Repurchase Program

In February 2018, our Board of Directors authorized a share repurchase program up to $50.0 million under which we may repurchase our ordinary shares in the open market or through privately negotiated transactions, depending on market conditions and other factors. Ordinary shares repurchased are recorded as treasury shares using the cost method on a first-in, first-out basis. In August 2018, our Board of Directors authorized a $50.0 million increase to the share repurchase program.

The following tables details our share repurchases for the periods indicated:

Note 11 – Share-Based Compensation

2016 Plan

In December 2016, we adopted the 2016 Omnibus Incentive Plan (“the 2016 Plan”). The 2016 Plan provides for grants of share‐based awards to employees, directors, and consultants. Under the 2016 Plan, 1,888,000 ordinary shares were reserved for issuance. The number of shares reserved for issuance under the 2016 Plan increases annually beginning in fiscal year 2018 by the lesser of (i) 2% of the ordinary shares outstanding on the last day of the immediately preceding fiscal year or (ii) such amount determined by our Board of Directors. Awards may be in the form of stock options (“options”), tandem and non‐tandem stock appreciation rights, restricted share awards or restricted share units (“RSUs”), performance awards, and other share‐based awards. Forfeited or expired awards are returned to the incentive plan pool for future grants.

Options granted under the 2016 Plan generally have a term of 7 years. Vesting of options and RSUs generally occurs 25% on the first anniversary of the date of grant and quarterly thereafter over the remaining 3 years.Upon vesting of RSUs, employees may elect to have shares withheld to cover statutory minimum withholding taxes. Shares withheld are not reflected as an issuance of ordinary shares within our consolidated statements of shareholders’ equity, as the shares were never issued, and the associated tax payments are reflected as financing activities within our consolidated statements of cash flows.

2012 Plan

In March 2012, we adopted the Ichor Holdings Ltd. 2012 Equity Incentive Plan (the “2012 Plan”). Under the 2012 Plan, we could grant either restricted shares, RSUs, or options to employees, directors, and consultants. Options granted under the 2012 Plan generally had a term of 7 years. Vesting of options and RSUs generally occurred 25% on the first anniversary of the date of grant and quarterly thereafter over the remaining 3 years. There have been no issuances of equity-based awards under the 2012 Plan since the adoption of the 2016 Plan.

Share‐based compensation expense across all plans for options, RSUs, and employee share purchase rights was $11.5 million, $9.9 million, and $8.5 million during 2021, 2010, and 2019, respectively.

On November 12, 2019, in connection with the transition of our former Chief Executive Officer to Executive Chairman, the Compensation Committee of the Board of Directors modified all outstanding equity awards such that the next 18 months of vesting events would be pulled forward and become immediately vested on January 6, 2020. Consequently, 98,825 options and 60,721 RSUs vested on January 6, 2020. This was accounted for as a probable-to-probable modification under ASC Topic 718, resulting in approximately $1.4 million in share-based compensation expense pulled forward into 2019.

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Stock Options

The table below sets forth the weighted average assumptions used to measure the fair value of options granted:

Year Ended

Weighted average expected term -- 5 years 5 years

Risk-free interest rate -- 0.5% 2.1%

Dividend yield -- 0.0% 0.0%

The following table summarizes option activity:

Number of Stock Options

Granted — — $ —

Fair value information for options granted and the intrinsic value of options exercised are as follows:

Year Ended

Weighted average grant-date fair value of options granted -- $ 12.10 $ 11.33

Total intrinsic value of options exercised $ 11,859 $ 7,292 $ 3,619

At December 31, 2021, total unrecognized share-based compensation expense relating to options was $3.2 million, with a weighted average remaining service period of 1.8 years.

Restricted Share Units

The following table summarizes RSU activity:

Number of Restricted Share Units

Fair value information for RSUs granted and vested is as follows:

Year Ended

Total grant-date fair value of shares vested $ 5,871 $ 4,731 $ 2,217

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At December 31, 2021, total unrecognized share-based compensation expense relating to RSUs was $17.6 million, with a weighted average remaining service period of 2.5 years.

2017 ESPP

In May 2017, we adopted the 2017 Employee Stock Purchase Plan (the “2017 ESPP”). The 2017 ESPP grants employees the ability to designate a portion of their base-pay to purchase ordinary shares at a price equal to 85% of the fair market value of our ordinary shares on the first or last day of each 6 month purchase period. Purchase periods begin on January 1 or July 1 and end on June 30 or December 31, or the next business day if such date is not a business day. Shares are purchased on the last day of the purchase period. As of December 31, 2021, 2.3 million ordinary shares remained eligible for issuance under the 2017 ESPP.

The table below sets forth the weighted average assumptions used to measure the fair value of 2017 ESPP rights:

Year Ended

Weighted average expected term 0.5 years 0.5 years 0.5 years

Risk-free interest rate 0.1% 0.7% 2.3%

We recognize share-based compensation expense associated with the 2017 ESPP over the duration of the purchase period. We recognized $0.6 million, $0.4 million, and $0.3 million of share-based compensation expense associated with the 2017 ESPP during 2021, 2020, and 2019, respectively. At December 25, 2020, there was no unrecognized share-based compensation expense.

Note 12 – Segment Information

Our Chief Operating Decision Maker, the Chief Executive Officer, reviews our results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, we operate in one operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company‐wide level.

Foreign operations are conducted primarily through our wholly owned subsidiaries in Singapore and Malaysia. Our principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.

All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth sales by geographic area:

Year Ended

The following table sets forth our two major customers, which comprised 85%, 87%, and 85% of net sales in 2021, 2020, and 2019, respectively:

Year Ended

Foreign long-lived assets, exclusive of deferred tax assets, were $38.4 million and $31.5 million at December 31, 2021 and December 25, 2020, respectively.

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Note 13 – Earnings per Share

The following table sets forth the computation of our basic and diluted net income (loss) per share and a reconciliation of the numerator and denominator used in the calculation:

Year Ended

Numerator:

Denominator:

ICHR US Equity

ICHR · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

ICHR US Equity☆

ICHR · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

ICHR US Equity