What changed in this filing

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Item 9A. Controls and Procedures

2022-02-28 compared with 2021-03-05 · 229 added, 185 removed, 653 unchanged (39% of the section changed)

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Evaluation of Disclosure Controls and Procedures

As required by Rule 13a ‑ 15(b) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a ‑ 15(e) and 15d ‑ 15(e) under the Exchange Act) as of the end of the period covered by this report.

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 CEO and CFO concluded that our disclosure controls and procedures were effective as of December 25, 2020.

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 evaluated the effectiveness of our internal control over financial reporting based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013).

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Based on that assessment, management has concluded that our internal control over financial reporting was effective as of December 25, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

We have not engaged an independent registered accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements.

Our independent public registered accounting firm will first be required to attest to the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K for the first year we are no longer an “emerging growth company” as defined by the JOBS Act.

Limitations on Effectiveness of Controls and Procedures

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.

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:

designing and fully documenting ITGC processes and procedures specifically over user access and change management;

developing a training program addressing ITGCs, including educating control owners concerning the principles and requirements of each control, with a focus on maintaining evidence for user access and change-management over IT systems impacting financial reporting;

developing an IT compliance function that’s responsible for the development, training, and testing of the global ITGCs;

developing enhanced risk assessment procedures and controls related to changes in IT environments.

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.

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If we cannot provide reliable financial information, our business, operating results and share price could be negatively impacted.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fourth quarter ended December 25, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

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

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm ( KPMG LLP , Portland, Oregon , PCAOB ID:

Consolidated Balance Sheets

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generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 29, 2018 due to the adoption of Accounting Standards Update (“ASU”) 2016‑02, Leases , and ASU 2018‑11, Leases:

Targeted Improvements (Topic 842) .

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

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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 Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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.

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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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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.

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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.

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.

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

Portland, Oregon

March 5, 2021

February 28, 2022

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.

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.

Portland, Oregon

February 28, 2022

ICHOR HOLDINGS, LTD.

Consolidated Balance Sheets

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Current assets:

Cash and cash equivalents

Accounts receivable, net

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Total liabilities and shareholders’ equity

See accompanying notes to consolidated financial statements.

ICHOR HOLDINGS, LTD.

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Operating income

Interest expense

Other expense (income), net

Interest expense, net

Other expense, net

Income before income taxes

Income tax benefit

Income tax expense (benefit)

Net income per share:

Shares used to compute net income per share:

See accompanying notes to consolidated financial statements.

ICHOR HOLDINGS, LTD.

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Balance at December 27, 2019

Ordinary shares issued, net of transaction costs

Ordinary shares issued from exercise of stock options

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Ordinary shares issued from employee share purchase plan

Repurchase of ordinary shares

Share-based compensation expense

Balance at December 25, 2020

Ordinary shares issued, net of transaction costs

Ordinary shares issued from exercise of stock options

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Balance at December 31, 2021

See accompanying notes to consolidated financial statements.

ICHOR HOLDINGS, LTD.

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Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

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Amortization of debt issuance costs

Loss on sale of asset disposal group

Gain on sale of asset disposal group

Loss on extinguishment of debt

Changes in operating assets and liabilities, net of acquisitions:

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Cash paid for intangible assets

Purchase of marketable securities

Proceeds from maturities and sales of marketable securities

Proceeds from sale of property and equipment

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Repayments on revolving credit facility

Proceeds from term loan

Repayments on term loan

Net cash provided by (used in) financing activities

Net increase in cash

Net increase (decrease) in cash

Cash at beginning of period

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Capital expenditures included in accounts payable

Right-of-use assets obtained in exchange for new operating lease liabilities

Right-of-use assets obtained in exchange for new operating lease liabilities, including those acquired through acquisitions

See accompanying notes to consolidated financial statements.

ICHOR HOLDINGS, LTD.

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All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts.

These consolidated financial statements include the following wholly owned subsidiaries of Ichor Holdings, Ltd.:

Name of Subsidiary

Jurisdiction of Incorporation,

Organization, or Formation

Ichor Intermediate Holdings, Ltd.

Cayman Islands

Icicle Acquisition Holding Co-op

Icicle Acquisition Holding B.V.

Ichor Holdings Ltd.

Ichor Systems Ltd.

Ichor Holdings, LLC

Ichor Systems, Inc.

Ichor Systems Korea Ltd.

Ichor Systems Malaysia Sdn Bhd

Ichor Systems Singapore, PTE Ltd.

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

The years ended December 25, 2020, December 27, 2019, and December 28, 2018 were all 52 weeks.

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.

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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 no t recorded an allowance for credit losses in 2021.

Revenue Recognition

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The ultimate resolution of these actions is not expected to have a material adverse effect on our financial position or results of operations.

Concentration of Credit Risk

Concentrations

Financial instruments that subject us to credit risk consist of accounts receivable, accounts payable, and long-term debt.

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We establish an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends, and other information.

Activity and balances related to the allowance for doubtful accounts is as follows:

Allowance for doubtful accounts

Balance at December 29, 2017

Charges to costs and expenses

Balance at December 28, 2018

Charges to costs and expenses

Balance at December 27, 2019

Charges to costs and expenses

Balance at December 25, 2020

We require collateral, typically cash, in the normal course of business if customers do not meet the criteria established for offering credit.

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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.

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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 at December 25, 2020 or December 27, 2019 for amounts exceeding the insured limits.

No losses have been incurred as of December 31, 2021 or December 25, 2020 for amounts exceeding the insured limits.

Fair Value Measurements

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Inventories are stated at the lower of cost or net realizable value.

The majority of inventory values are based upon average costs.

We analyze inventory levels and record write-downs for inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected customer demand.

We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis.

Obsolete inventory or inventory in excess of our estimated usage is written down to its estimated market value less costs to sell, if less than its cost.

Inherent in our estimates of demand and market value in determining inventory valuation are estimates related to economic trends, future demand for our products, and technological obsolescence of our products.

If actual demand and market conditions are less favorable than our projections, additional inventory write-downs may be required.

If the inventory value is written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold either as a component of a subsystem or as separate inventory.

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 .

Property and Equipment

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Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax benefit 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.

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.

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Foreign Operations

The functional currency of our international operations located in the United Kingdom, Singapore, Malaysia, and Mexico, is the U.S.

The functional currency of our international operations is the U.S.

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.

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Accounting Pronouncements Recently Adopted

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) , which consists of a comprehensive lease accounting standard.

Under the standard, assets and liabilities arising from most leases will be recognized on the balance sheet.

Leases will be classified as either operating or financing, and the lease classification will determine whether expense is recognized on a straight-line basis (operating leases) or based on an effective interest method (financing leases).

The standard also contains expanded disclosure requirements regarding the amounts, timing, and uncertainties of cash flows related to leasing activities.

In July 2018, the FASB issued ASU 2018 ‑11, Leases (Topic 842):

Targeted Improvements , which provides an optional transition method allowing entities to initially apply the lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

We adopted and applied the lease standard as of December 29, 2018 , the first day of fiscal year 2019, using this optional transition method.

The standard provides a number of practical expedients in transition.

We elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification, and initial direct costs.

We elected to not recognize short-term leases, those with an initial term of 12 months or less, on our consolidated balance sheets.

The standard had material effects on our consolidated financial statements.

The most significant effects relate to the recognition of right-of-use (“ROU”) assets and lease liabilities on our balance sheet for our facilities operating leases and the new disclosure requirements about our leasing activities.

Upon adoption, we recorded operating lease liabilities of $ 18.1 million, with an offsetting increase to operating lease ROU assets of $ 17.7 million in exchange for the liabilities assumed.

We did not recognize a cumulative-effect adjustment to the opening balance of retained earnings, as there was no adjustment to be made as a result of our adoption and application of the standard.

The standard did not have a significant impact on our consolidated statements of operations or cash flows.

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments–Credit Losses (Topic 326):

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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.

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):

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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.

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 used in operating activities for 2020 includes $ 3.3 million in cash outflows associated with these capitalized implementation costs.

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.

Accounting Pronouncements Recently Issued

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.

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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.

The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein.

We have not adopted this ASU as of December 25, 2020.

We are currently evaluating the impact the ASU, although we do not expect the ASU to to have a significant impact on our financial statements.

We adopted the standard on the first day of 2021, and the adoption did not have a significant impact on our financial statements.

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

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.

IAN Engineering Co., Ltd.

On April 19, 2018, we completed the acquisition, via stock purchase, of IAN Engineering Co., Ltd.

(“IAN”), a Seoul-based leader in providing locally-sourced design and manufacturing of gas delivery systems to customers in South Korea, for an aggregate purchase price of $ 6.5 million, inclusive of $ 5.3 million paid at closing and contingent consideration with a fair value of $ 1.3 million.

Contingent consideration consisted of an earn-out liability that would become payable in 2019 and 2020 if certain financial targets were achieved.

During 2018, we determined those financial targets would not be met and, therefore, derecognized the earn-out liability, resulting in a gain of $ 1.3 million recognized in operating income on our consolidated statements of income.

As this determination was made because of facts and circumstances that arose after the acquisition date, there was no change to total acquisition consideration.

IAN provides us exposure to and growth opportunities in the South Korean semiconductor capital equipment market.

The following table presents the preliminary purchase price allocation as of April 19, 2018 and the final allocation as of December 28, 2018.

Measurement period adjustments recognized in 2018 relate to the fair value of IAN’s opening balance of deferred taxes.

April 19, 2018

December 28, 2018

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.

November 19, 2021

Cash acquired

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Property and equipment

Other noncurrent assets

Operating lease right-of-use assets

Intangible assets

Accounts payable

Accrued and other current liabilities

Deferred tax liabilities

Other non-current liabilities

Accrued expenses

Other current liabilities

Lease liabilities

Total acquisition consideration

We allocated $ 1.6 million to customer relationships with an amortization period of 6 years.

Goodwill recognized from the acquisition was primarily attributed to an assembled workforce and expected synergies and is not tax deductible.

Our consolidated statements of operations for 2018 include approximately eight months of IAN operating activity, including revenue of $ 7.7 million.

Pro forma financial information has not been provided for the acquisition of IAN as it was not material to our operations and overall financial position.

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.

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.

Net income per share:

Nogales, Mexico Precision Machining Acquisition

The acquisition adds to our precision machined component manufacturing capacity.

Note 3 – Inventories

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Capitalized cloud computing implementation costs as of December 25, 2020

Costs capitalized during the period

Capitalized costs amortized during the period

Capitalized cloud computing implementation costs as of December 31, 2021

Note 5 – Intangible Assets and Goodwill

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Developed technology

Order backlog

Total intangible assets

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

As of December 2 5 , 20 20 , we had no operating leases executed for which the rental period had not yet commenced.

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:

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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.

In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted.

The 2017 Tax Act included a number of changes to existing U.S.

tax laws that impact us, most notably a reduction of the U.S.

corporate income tax rate from 35 % to 21 % for tax years beginning after December 31, 2017.

Foreign Tax Credits

Beginning in 2018, rules surrounding the utilization and carryforward of foreign tax credits in the United States were changed as a result of the 2017 Tax Act.

Due to these changes, we released a valuation allowance in 2018 on our accrued foreign tax credits which were previously limited under the tax code in effect before the 2017 Tax Act was enacted, resulting in a $ 4.1 million discrete benefit.

During the third quarter of 2020, the IRS issued final regulations that clarified the provision in the 2017 Tax Act that may limit our utilization of certain foreign tax credit carryforwards.

For 2020, we have determined that it is more likely than not that the foreign tax credits will be realized within the carryforward period and determined that a valuation allowance is not necessary.

Income before tax was as follows:

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Income before tax

Significant components of income tax benefit consist of the following:

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

Total current tax expense

Total deferred tax benefit

Income tax benefit

Income tax expense (benefit)

The reconciliation of income tax computed at the U.S.

federal statutory tax rates to income tax benefit consist of the following:

federal statutory tax rates to income tax expense (benefit) consist of the following:

Effective rate reconciliation:

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Withholding tax

Impact of Tax Cuts and Jobs Act

Valuation allowance

Income tax benefit

Income tax expense (benefit)

Deferred income tax assets and liabilities consist of the following:

Certain reclassifications have been made to the prior period to conform to the current period presentation.

Deferred tax assets:

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Net operating loss carryforwards

Interest carryforwards

Intercompany interest

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Net deferred tax asset

At December 25, 2020, we had federal, state, and foreign net operating loss carryforwards of $ 0.1 million, $ 5.4 million, and $ 2.2 million respectively.

The federal, state, and foreign net operating loss carryforwards, if not utilized, will begin to expire in 2035, 2032, and 2029, respectively.

At December 25, 2020, we had federal and state research and development credits of $ 2.9 million and $ 0.1 million, respectively.

The federal research and development credits, if not utilized, will begin to expire in 2032, while the state research and development credits will carryforward indefinitely.

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.

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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.

We were granted a tax holiday for our Singapore operations effective 2011 through 2021.

We expect to finalize an extension of the tax holiday through 2026 during the first quarter of 2021.

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.

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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 benefit.

Interest and penalties associated with uncertain tax positions recognized during 2020 were insignificant.

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.

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Balance at December 28, 2018

Increase in tax positions for current year

Decreases in tax positions for prior period

Increase related to current year tax positions

Increase related to prior year tax positions

Decrease in tax positions related to lapse of statute of limitations and settlements

Balance at December 27, 2019

Increase in tax positions for current year

Increase in tax positions for prior period

Decrease in tax positions for prior period

Increase related to current year tax positions

Increase related to prior year tax positions

Decrease in tax positions related to lapse of statute of limitations

Balance at December 25, 2020

Increase in tax positions for current year

Increase in tax positions for prior period

Decrease in tax positions for prior period

Increase related to current year tax positions

Decrease in tax positions related to lapse of statute of limitations

Balance at December 31, 2021

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long-term debt

The weighted average interest rate across all credit facilities was 3.75 %, 4.78 %, and 4.36 % during 2020, 2019, and 2018, respectively.

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.

We account 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.

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

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 February 15, 2023 .

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.

1 unchanged sentence

1 and a maximum leverage ratio 3.50 :

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.

The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5 %, or iii) the Eurodollar Rate plus 1.00 %.

The Eurodollar rate is equal to LIBOR.

The applicable margin on Base Rate and Eurodollar Rate loans is 0.75 ‑ 1.50 % and 1.75 ‑ 2.50 % per annum, respectively, depending on our leverage ratio.

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 .

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

At December 25, 2020, the term loan and revolver bore interest at the Eurodollar rate option of 3.50 % and 2.73 %, respectively.

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

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Amount Available Under Repurchase Program

Amount available at February 15, 2018

Quarter ended March 30, 2018

Quarter ended June 29, 2018

Board authorization, $ 50 million increase, August 18, 2018

Quarter ended September 28, 2018

Quarter ended December 28, 2018

Year Ended December 28, 2018

Amount available at December 28, 2018

Quarter ended March 29, 2019

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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.

On January 18, 2018, in connection with the resignation of our former Chief Financial Officer, certain separation benefits became effective, which included a vesting acceleration of all outstanding and unvested stock options and restricted shares.

Consequently, 88,445 options and 39,175 RSUs vested on January 18, 2018.

This was accounted for as an improbable-to-probable modification under ASC Topic 718, resulting in $ 2.9 million in share-based compensation expense recognized in 2018.

Stock Options

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Aggregate intrinsic value

(in thousands)

Outstanding, December 25, 2020

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

Weighted average grant-date fair value of shares granted

Total fair value of shares vested

Weighted average grant-date fair value per share of RSUs granted

Total grant-date fair value of shares vested

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.

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Diluted weighted average ordinary shares outstanding

Securities excluded from the calculation of diluted weighted average ordinary shares outstanding (1)

Earnings per share:

A combined total of 1,430,000 , 1,588,000 , and 1,320,000 potentially dilutive options and RSUs were excluded from the calculation of net income per share for 2020, 2019, and 2018, respectively, because including them would have been antidilutive under the treasury stock method.

Represents potentially dilutive options and RSUs that were excluded from the calculation of net income per share, because including them would have been antidilutive under the treasury stock method.

EXHIBIT INDEX

1 unchanged sentence

Description of Exhibit

Agreement and Plan of Merger, dated November 11, 2021, by and among Ichor Systems, Inc., Incline Merger Sub, LLC, IMG Companies, LLC, and Brian J.

Miller (solely in his capacity as the Equityholders’ Representative thereunder) (Incorporated by reference to Exhibit 10.1 to Ichor Holdings, Ltd.’s Current Report on Form 8‑K filed with the Securities and Exchange Commission on November 16, 2021).

Amended and Restated Memorandum and Articles of Association of Ichor Holdings, Ltd., effective as of December 9, 2016 (Incorporated by reference to Exhibit 3.1 to Ichor Holdings, Ltd.’s Current Report on Form 8‑K filed with the Securities and Exchange Commission on December 14, 2016).

Amended and Restated Credit Agreement, dated as of February 14, 2018, by and among Ichor Holdings, LLC, Ichor Systems, Inc., Precision Flow Technologies, Inc., Ajax United Patterns & Molds, Inc., Cal Weld, Inc., Talon Innovations Corporation, and Talon Innovations (FL) Corporation as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions party thereto, as lenders (Incorporated by reference to Exhibit 10.1 to Ichor Holdings, Ltd.’s Current Report on Form 8 K filed with the Securities and Exchange Commission on February 15, 2018).

Employment Agreement, dated as of September 19, 2014, by and among Ichor Systems, Inc., Thomas Rohrs and, with respect to Sections 1.2 and 3.4 therein only, Ichor Holdings, Ltd (Incorporated by reference to Exhibit 10.7 to Ichor Holdings, Ltd’s Registration Statement on Form S‑1, filed with the Securities and Exchange Commission on November 14, 2016).

Description of Securities of Ichor Holdings, Ltd.

Amended and Restated Credit Agreement, dated as of October 29, 2021, by and among Icicle Acquisition Holding B.V., Ichor Holdings, LLC, and Ichor Systems, Inc.

as borrowers, Bank of America, N.A., as administrative agent, and the financial institutions party thereto, as lenders.

Ichor Holdings, Ltd.

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and certain officers and directors party thereto (Incorporated by reference to Exhibit 10.9 to Ichor Holdings, Ltd.’s Annual Report on Form 10‑K filed with the Securities and Exchange Commission on March 8, 2019).

Offer Letter, dated April 8, 2019, between Ichor Systems, Inc.

and Jeffrey Andreson (Incorporated by reference to Exhibit 10.1 to Ichor Holdings, Ltd.’s Current Report on Form 8‑K filed with the Securities and Exchange Commission on April 10, 2019).

Offer Letter, dated August 23, 2019, between Ichor Systems, Inc.

and Larry Sparks (Incorporated by reference to Exhibit 10.1 to Ichor Holdings, Ltd.’s Current Report on Form 8‑K filed with the Securities and Exchange Commission on September 9, 2019).

Letter Agreement, dated November 20, 2019, between Ichor Systems, Inc.

and Thomas Rohrs.

(Incorporated by reference to Exhibit 10.12 to Ichor Holdings, Ltd.’s Annual Report on Form 10‑K filed with the Securities and Exchange Commission on March 6, 2020).

Offer Letter, dated November 20, 2019, between Ichor Systems, Inc.

and Jeffrey Andreson (Incorporated by reference to Exhibit 10.12 to Ichor Holdings, Ltd.’s Annual Report on Form 10 K filed with the Securities and Exchange Commission on March 6, 2020).

Letter Agreement, dated January 4, 2021, between Ichor Systems, Inc.

Letter Agreement, dated December 23, 2021 between Ichor Systems, Inc.

and Thomas Rohrs.

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 5, 2021

February 28, 2022

ICHOR HOLDINGS, LTD.

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Chief Executive Officer and Director (Principal Executive Officer)

March 5, 2021

February 28, 2022

Chief Financial Officer (Principal Accounting and Financial Officer)

March 5, 2021

February 28, 2022

/s/ Thomas M.

Executive Chairman and Director

March 5, 2021

February 28, 2022

/s/ Iain MacKenzie

Lead Independent Director

March 5, 2021

February 28, 2022

Iain MacKenzie

/s/ Marc Haugen

March 5, 2021

February 28, 2022

/s/ John Kispert

March 5, 2021

February 28, 2022

/s/ Laura Black

March 5, 2021

February 28, 2022

/s/ Wendy Arienzo

Wendy Arienzo

March 5, 2021

February 28, 2022

/s/ Sarah O’Dowd

March 5, 2021

February 28, 2022

/s/ Yuval Wasserman

February 28, 2022

Yuval Wasserman

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-K

Item 9A. Controls and Procedures