What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-03 · 44 added, 126 removed, 271 unchanged (39% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share amounts)

September 25,

Current assets:

17 unchanged sentences

Lease liabilities, less current portion

Deferred tax liabilities

Deferred tax liabilities, net

Other non-current liabilities

18 unchanged sentences

Three Months Ended

Nine Months Ended

September 25,

September 27,

September 25,

September 27,

Cost of sales

8 unchanged sentences

Income before income taxes

Income tax benefit

Income tax expense (benefit)

Net income per share:

4 unchanged sentences

(dollars in thousands)

For the three months ending September 25, 2020

Ordinary Shares

Shareholders'

Balance at June 26, 2020

Ordinary shares issued from exercise of stock options

Ordinary shares issued from vesting of restricted share units

Ordinary shares issued from employee share purchase plan

Share-based compensation expense

Balance at September 25, 2020

For the nine months ending September 25, 2020

For the three months ending March 26, 2021

Ordinary Shares

5 unchanged sentences

Share-based compensation expense

Balance at September 25, 2020

ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity (continued)

(dollars in thousands)

For the three months ending September 27, 2019

Ordinary Shares

Shareholders'

Balance at June 28, 2019

Ordinary shares issued from exercise of stock options

Ordinary shares issued from vesting of restricted share units

Ordinary shares issued from employee share purchase plan

Share-based compensation expense

Balance at September 27, 2019

For the nine months ending September 27, 2019

Balance at March 26, 2021

For the three months ending March 27, 2020

Ordinary Shares

4 unchanged sentences

Ordinary shares issued from employee share purchase plan

Repurchase of ordinary shares

Share-based compensation expense

Balance at September 27, 2019

Balance at March 27, 2020

See accompanying notes.

2 unchanged sentences

(in thousands)

Nine Months Ended

September 25,

September 27,

Three Months Ended

Cash flows from operating activities:

13 unchanged sentences

Capital expenditures

Cash paid for intangible assets

Net cash used in investing activities

2 unchanged sentences

Employees' taxes paid upon vesting of restricted share units

Repurchase of ordinary shares

Borrowings on revolving credit facility

2 unchanged sentences

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

Net decrease in cash

Cash at beginning of period

18 unchanged sentences

We use a 52- or 53-week fiscal year ending on the last Friday in December.

The three months ended September 25, 2020 and September 27, 2019 were both 13 weeks.

References to the third quarter of 2020 and 2019 refer to the three-month periods then ended .

References to fiscal year 2020 refer to our fiscal year ending December 25, 2020.

The three months ended March 26, 2021 and March 27, 2020 were both 13 weeks.

References to the first quarter of 2021 and 2020 refer to the three-month periods then ended .

References to fiscal year 2021 and 2020 refer to our fiscal years ending December 31, 2021 and December 25, 2020, respectively.

Use of Estimates

23 unchanged sentences

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 effect on our financial position or results of operations.

Subsequent to the end of the first quarter, but before the financial statements were issued, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $ 1.4 million contract settlement loss to cost of sales, as the settlement provided evidence relating to a loss that existed at March 27, 2020.

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 the first quarter 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 the first quarter of 2020.

During the third quarter, we incurred capitalizable implementation costs of approximately $ 3.0 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 September 25, 2020.

Additionally, our cash used in operating activities for the nine months ended September 25, 2020 include $ 1.8 million in cash outflows associated with these capitalized implementation costs.

As the ERP system was not yet in-service as of September 25, 2020, there was no amortization expense recognized during the nine months then ended.

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 it did not have a significant impact on our financial statements.

Note 2 – Inventories

Inventories consist of the following:

September 25,

Raw materials

5 unchanged sentences

Property and equipment consist of the following:

September 25,

Leasehold improvements

4 unchanged sentences

Total property and equipment, net

Depreciation expense was $ 3.0 million and $ 2.2 million for the third quarter of 2020 and 2019, respectively, and $ 8.0 million and $ 6.3 million for the nine months ended September 25, 2020 and September 27, 2019, respectively.

Depreciation expense was $ 2.3 million and $ 2.4 million for the first quarter of 2021 and 2020, respectively.

Cloud Computing Implementation Costs

Pursuant to ASU 2018-15, we capitalize implementation costs associated with hosting arrangement that are service contracts.

We capitalize implementation costs associated with hosting arrangement that are service contracts.

These costs are recorded to prepaid expenses or other noncurrent assets.

4 unchanged sentences

Capitalized costs amortized during the period

Capitalized cloud computing implementation costs as of September 25, 2020

Capitalized cloud computing implementation costs as of March 26, 2021

Note 4 – Intangible Assets

Definite‑lived intangible assets consist of the following:

September 25, 2020

March 26, 2021

Customer relationships

14 unchanged sentences

As these amounts are variable, they are not included in lease liabilities.

As of September 25, 2020, we had no operating leases executed for which the rental period had not yet commenced.

As of March 26, 2021, we had one operating lease executed for which the rental period had not yet commenced.

The components of lease expense are as follows:

Three Months Ended

Nine Months Ended

September 25,

September 27,

September 25,

September 27,

Operating lease cost

Supplemental cash flow information related to leases is as follows:

Nine Months Ended

September 25,

September 27,

Three Months Ended

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

1 unchanged sentence

Supplemental balance sheet information related to leases is as follows:

September 25,

Weighted-average remaining lease term of operating leases

Weighted-average discount rate of operating leases

Future minimum lease payments under non-cancelable leases as of September 25, 2020 are as follows:

Future minimum lease payments under non-cancelable leases as of March 26, 2021 are as follows:

2021, remaining

3 unchanged sentences

Note 6 – Income Taxes

Coronavirus Aid, Relief, and Economic Security (“CARES”) Act

In response to the COVID‑19 pandemic, the CARES Act was signed into law in March 2020.

The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

Corporate taxpayers may carryback net operating losses (“NOLs”) originating in 2018 through 2020 for up to five years , which was not previously allowed under the 2017 Tax Act.

The CARES Act also eliminates the existing limitation on taxable income of 80 % by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020.

Taxpayers may generally deduct interest up to the sum of 50 % of adjusted taxable income, plus business interest income, subject to the existing 30 % limit under the 2017 Tax Act, for 2019 and 2020.

The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25 % of taxable income and makes qualified improvement property generally eligible for 15 -year cost-recovery and 100 % bonus depreciation.

With the enactment of the CARES Act, we expect to generate an additional income tax refund of approximately $ 1.0 million from our NOL carryback provision, resulting from the benefit from additional interest and depreciation deductions.

Income tax information for the periods reported are as follows:

Three Months Ended

Nine Months Ended

September 25,

September 27,

September 25,

September 27,

Income tax benefit

Income tax expense (benefit)

Income before income taxes

Effective income tax rate

Our effective tax rate for the three and nine months ended September 25, 2020 differs from the statutory rate due to taxes on foreign income that differ from the U.S.

tax rate, including a tax holiday in Singapore, the impact of stock option exercises, and return-to-provision adjustments related to recently filed tax returns.

Our effective tax rate for the third quarter of 2019 differs from the statutory rate due to taxes on foreign income that differ from the U.S.

tax rate and return-to-provision adjustments related to recently filed tax returns.

Our effective tax rate for the nine months ended September 27, 2019 differs from the statutory rate due to taxes on foreign income that differ from the U.S.

tax rate, the release of certain tax reserves related to statute of limitation expirations and settlements, and excess tax benefits from share-based compensation .

The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $ 2.3 million at September 25, 2020.

The related interest was insignificant and penalties were $ 0.4 million.

Our effective tax rate for the first quarter of 2021 differs from the statutory rate due to taxes on foreign income that differ from the U.S.

tax rate, including a tax holiday in Singapore, and the impact of share-based compensation activity during the quarter.

Our effective tax rate for first quarter of 2020 differs from the statutory rate due to taxes on foreign income that differ from the U.S.

tax rate and the release of the certain tax reserves related to statute of limitation expirations and settlements, excess tax benefits from share-based compensation and the impact of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $ 3.0 million at March 26, 2021.

The related interest and penalties were insignificant.

The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.

As of September 25, 2020, we were not under examination by tax authorities.

As of March 26, 2021, we were not under examination by tax authorities.

Note 7 – Employee Benefit Programs

2 unchanged sentences

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.

Matching contributions were $ 0.5 million and $ 0.4 million for the third quarter of 2020 and 2019, respectively, and $ 1.5 million and $ 1.1 million for the nine months ended September 25, 2020 and September 27, 2019, respectively.

Matching contributions were $ 0.6 million and $ 0.5 million for the first quarter of 2021 and 2020, respectively.

Note 8 – Long-Term Debt

Long‑term debt consists of the following:

September 25,

Revolving credit facility

4 unchanged sentences

Total long-term debt, less current portion, net

On February 15, 2018, we amended and restated our credit agreement, which replaced our existing credit facilities with a $ 175.0 million term loan and a $ 125.0 million revolving credit facility (collectively, “credit facilities”).

The amendment reduced our borrowing rate, depending on our leverage ratio, and extended the maturity date.

On February 15, 2018, we entered into an amended and restated credit agreement, which includes a $ 175.0 million term loan and a $ 125.0 million revolving credit facility.

We incurred debt issuance costs of $ 2.1 million in connection with the amendment.

The amendment did not meet the definition of an extinguishment and was accounted for as a debt modification.

The amendment did not meet the definition of an extinguishment and was accounted for as a modification.

Term loan principal payments of $ 2.2 million are due on a quarterly basis.

The credit facilities mature on February 15, 2023 .

Interest is charged at either the Base Rate or the Eurodollar rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin.

5 unchanged sentences

Eurodollar interest payments are due on the last day of the applicable interest period.

At September 25, 2020, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 3.50 % and 2.78 %, respectively .

Term loan principal payments of $ 2.2 million are due on a quarterly basis.

The credit facilities mature on February 15, 2023 .

At March 26, 2021, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 3.25 % and 2.50 %, respectively .

Note 9 – Share‑Based Compensation

5 unchanged sentences

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.

Share‑based compensation expense across all plans for options, RSUs, and employee share purchase rights was $ 2.4 million and $ 1.8 million for the third quarter of 2020 and 2019, respectively, and $ 7.4 million and $ 4.6 million for the nine months ended September 25, 2020 and September 27, 2019, respectively.

Share‑based compensation expense across all plans for options, RSUs, and employee share purchase rights was $ 2.4 million and $ 2.9 million for the first quarter of 2021 and 2020, respectively.

Stock Options

7 unchanged sentences

Forfeited or expired

Outstanding, September 25, 2020

Exercisable, September 25, 2020

Outstanding, March 26, 2021

Exercisable, March 26, 2021

Restricted Share Units

3 unchanged sentences

Unvested, December 25, 2020

Unvested, September 25, 2020

Unvested, March 26, 2021

Employee Share Purchase Plan

2 unchanged sentences

Shares are purchased on the last day of the purchase period.

During the nine months ended September 25, 2020, 33,188 ordinary shares were purchased by eligible employees under the 2017 ESPP.

As of September 25, 2020, approximately 2.4 million ordinary shares remain available for purchase under the 2017 ESPP.

During the first quarter of 2021, 27,151 ordinary shares were purchased by eligible employees under the 2017 ESPP.

As of March 26, 2021, approximately 2.4 million ordinary shares remain available for purchase under the 2017 ESPP.

Note 10 – Segment Information

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 25,

September 27,

September 25,

September 27,

United States of America

Total net sales

Foreign long-lived assets, exclusive of deferred tax assets, were $ 28.1 million and $ 30.3 million at September 25, 2020 and December 27, 2019, respectively .

Foreign long-lived assets, exclusive of deferred tax assets, were $ 34.8 million and $ 31.5 million at March 26, 2021 and December 25, 2020, respectively .

Note 11 – Earnings per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 25,

September 27,

September 25,

September 27,

Basic weighted average ordinary shares outstanding

4 unchanged sentences

Earnings per share:

A combined total of approximately 1,215,000 , 1,481,000 , 1,306,000 , and 1,622,000 potentially dilutive options and RSUs were excluded from the calculation of net income per share for the third quarter of 2020 and 2019 and the nine months ended September 25, 2020 and September 27, 2019, respectively, because including them would have been antidilutive under the treasury stock method.

A combined total of approximately 75,000 and 720,000 potentially dilutive o ptions and RSUs were excluded from the calculation of net income per share for the first quarter of 2021 and 2020 , respectively, because including them would have been antidilutive under the treasury stock method .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements