C

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 29, 201727, 2019

or

For the transition period from                     to                    

Commission file number 000-50646

Ultra Clean Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code:

(510) 576-4400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☒     No   ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ☐     No   ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒     No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ☒     No   ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).    Yes   ☐     No   ☒

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, based on the closing sale price of the Registrant’s common stock on June 30, 201728, 2019 as reported on the NASDAQ Global Market, was approximately $615.2$539.6 million. Shares of common stock held by each executive officer and director have been excluded from this computation. The determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes.

Number of shares of the registrant’s common stock outstanding as of February 23, 2018: 38,469,72421, 2020: 39,888,762

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the 2018 annual meeting of stockholders are incorporated by reference in Part III of this Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 29, 2017.27, 2019.

Table of Contents

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will be,” “will continue,” “will likely results,” variations of such words, and similar expressions are intended to identify such forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements concerning the following: projections of our financial performance, our anticipated growth and trends in our business, levels of capital expenditures, the adequacy of our capital resources to fund operations and growth, our ability to compete effectively with our competitors, our strategies and ability to protect our intellectual property, future acquisitions, customer demand, our manufacturing and procurement process, employee matters, supplier relations, foreign operations (including our operations in China and Singapore), the legal and regulatory backdrop (including environmental regulation), our exposure to market risks and other characterizations of future events or circumstances described in this Annual Report. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under “Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Overview

Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) a Delaware corporation, was founded in November 2002 for the purpose of acquiring Ultra Clean Technology Systems and Services, Inc. a US-based company founded in 1991 by Mitsubishi Corporation and operated as a subsidiary of Mitsubishi. UCT became a publicly traded company on the NASDAQ Global Market in March 2004. In 2006, we acquired Sieger Engineering, Inc. to better position ourselves as a subsystem supplier primarily to the semiconductor and display capital equipment industries. Sieger Engineering merged into Ultra Clean Technology Systems and Service, Inc. in July of 2016. To facilitate operations in Asia, Ultra Clean Technology (Shanghai) Co., Ltd (“UCTS”) and Ultra Clean Micro-Electronics Equipment (Shanghai) Co., Ltd. (“UCME”) were established in China in 2005 and 2007, respectively, and Ultra Clean Asia Pacific, Pte, Ltd. was established in Singapore in 2008. UCTS merged into UCME in December of 2015. Our July 2012 acquisition of American Integration Technologies LLC (“AIT”) added to our existing customer base in the semiconductor and medical spaces and provided additional manufacturing capabilities. In 2014, we launched Prototype Asia, our 3D printing business in Singapore, to develop additive manufacturing capabilities for our customer base. In February 2015, we acquired Marchi Thermal Systems, Inc. (“Marchi”) and in July 2015, we acquired MICONEX s.r.o (“Miconex”), both privately held companies with a majority of their sales in the semiconductor market. Marchi designs and manufactures specialty heaters, thermocouples and temperature controllers, delivering flexible heating elements and thermal solutions to our customers. The Company believes heaters are increasingly critical in equipment design for the most advanced semiconductor nodes. Miconex is a provider of advanced precision fabrication of plastics that has expanded our capabilities with existing customers. Separately, in November 2016, we determined to seek to dispose of a portion of our 3D printing business, consistent with our strategy to focus on producing product tools for the semiconductor and display capital equipment industries.

We are a global leader in the design, engineering and manufacture of production tools, modules and subsystems for the semiconductor and display capital equipment industries.markets. Our products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high level assemblies. Our services provide part cleaning, surface encapsulation, and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication (WFE) equipment markets.

On April 15, 2019, we acquired substantially all of the assets of Dynamic Manufacturing Solutions, LLC ("DMS"), a semiconductor weldment and solutions provider. Under the terms of the Asset Purchase Agreement, we paid $29.9 million in cash for DMS, subject to certain post-closing adjustments as provided in the Acquisition Agreement. We providemay pay up to $12.5 million in additional cash earn-out payments to the former owners of DMS if, post-acquisition, the combined weldment business achieves certain gross profit and gross margin targets for the twelve months ending June 26, 2020.

With our customers specialized engineeringacquisition of Quantum Global Technologies, LLC (“QGT”), on August 27, 2018, a leader in parts cleaning, coating and manufacturing solutions for these highly complex, highly configurable, limited volume applications. In addition,foundry related analytical services, we routinely handle major volume and design changes during the manufacturing process and provide equipment manufacturers flexibility when responding to dynamic market changes. We enable them to realize lower manufacturing costs and reduced design-to-delivery cycle times while maintaining high quality standards.

We provideexpanded our customers with broad solutions that combine our expertise in design, assembly, test and component characterization. Our customers value our highly flexible global manufacturing operations, our excellence in quality control and our scale and financial stability. Our global footprint helps us drive down total manufacturing costs, and reduce design-to-delivery cycle times while maintaining high quality standards for our customers. We believe these characteristics help uscapabilities to provide global solutions for our customers’ product demands.ultra-high purity parts cleaning, process tool part recoating, surface treatment, and analytical services to the semiconductor and related industries.

We ship a majority of our products and provide most of our services to U.S. registered customers with locations both in and outside the U.S. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asian and European facilities to support local and U.S. based customers. We conduct our operating activities primarily through our wholly owned subsidiaries, Ultra Clean Technology Systems and Service, Inc., AIT,American Integration Technologies, LLC, Ultra Clean Micro-Electronics Equipment (Shanghai) Co., Ltd., Ultra Clean Asia Pacific, Pte, Ltd., MarchiUCT Thermal Solutions, Inc., UCT Fluid Delivery Solutions s.r.o. (FDS), QGT and Miconex. DMS. 

Over the long-term, we believe the semiconductor market we serve will continue to grow based on demand from a broad range of drivers, including applications such as autonomous vehicles, the Internet of Things, high performance computing, artificial intelligence, and technology to support the data sharing economy. We also believe that semiconductor equipment OEMs are increasingly relying on partners like UCT to fulfill their expanding capacity requirements.

Historically, we have operated under one operating segment. However, as a result of the acquisition of QGT, we created an additional segment in the first quarter of 2019. We reorganized our organizational and reporting structure to capture efficiencies and operating leverage from our recent acquisition and now operate and report results for two operating segments: Semiconductor Products and Solutions (“SPS”) and Semiconductor Services Business (“SSB”).

Our international salesrevenues represented 53.6%52.1%, 48.0%56.7% and 34.5%53.6% of salestotal revenues for fiscal years ended 2017, 20162019, 2018 and 2015,2017, respectively. See Note 1112 to the Notes to Consolidated Financial Statements for further information about our geographic areas.

Our SolutionSuite of Offerings

Our focus is on providing specialized engineeringWe are a leading developer and manufacturing solutionssupplier of critical subsystems, ultra-high purity cleaning and analytical services primarily for highly complex, highly configurable, limited volume systems.the semiconductor industry. We enableoffer our customers to realize lower manufacturing costs and reducedan integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, while maintaining high quality standards.design for manufacturability, prototyping and component manufacturing, and tool chamber parts cleaning and coating, as well as micro contamination analytical services. We offer our customers:

Our Strategy

Our objective is to maintaingrow our position as a leading solutions and service provider in the semiconductor markets we serve, primarily the semiconductor and display capital equipment market, while supporting other technologically similar markets in the display, consumer, medical, energy, industrial and research industries. Our strategy is comprised of the following key elements:

In late 2019, UCT executed on a series of cost improvement initiatives aimed at improving the flexibility of its operating and financial model over time. These initiatives include the closure or combination of some facilities to maximize operations, the postponement of selective capital expenditures, and a reduction in workforce, without constraining our capacity or ability to grow when the semiconductor industry recovers. The final initiatives are expected to be completed in the first quarter of 2020 and will provide benefit to our ongoing operational performance.  

Products

We design, develop, prototype, manufacture and test subsystems, primarily for the semiconductor capital equipment. We also support customers in the consumer, medical, energy, industrial, and research industries.equipment market. Our products include precision robotic solutions, gas delivery systems, a variety of industrial and automation production equipment products;products, and subsystems that includesinclude wafer cleaning modules, chemical delivery modules, top-plate assemblies, frame assemblies, and process modules.

Services

Our services business includes ultra-high purity outsourced process tool chamber parts cleaning and coating services, tool part life extension and process tool part optimization solutions, and micro-contamination analytical testing, primarily for the semiconductor device manufacturers and wafer fabrication equipment markets.

Customers

We sell our products and services primarily to customers in the semiconductor capital equipment industry,and semiconductor integrated device manufacturing industries, and we also have salessell to the display, consumer, medical, energy, industrial, and research equipment industries.

The majority of our revenue is intotal revenues comes from the semiconductor capital equipment industry (OEM’s), which is highly concentrated, andso we are therefore highly dependent upon a small number of customers. Our two largest revenue customers in fiscal year 2017, 20162019, 2018 and 20152017 were Applied Materials, Inc. and Lam Research Corporation, each of which accounted for more than 10.0% of our total salesrevenues in fiscal years 2017, 20162019, 2018 and 2015.2017. As a group, our respective year’s top two customers accounted for 84.4%66.9%, 82.2%76.6% and 77.0%84.4% of the Company’s salesrevenues for fiscal years 2019, 2018 and 2017, 2016 and 2015, respectively. The composition

Approximately 94.3% of our most significant customers has changedtotal revenues came from time to time based on various factors, including acquisition activity by our customers.the semiconductor integrated device manufacturing industry, which include IDM, Foundry, OEM, sub-tier suppliers.

We have successfully qualified as a supplier of equipment, cleaning, coating and analytical services with each of our customers who require it. This lengthy qualification process involves the inspection and audit of our facilities and evaluation by our customers of our engineering, documentation, manufacturing and quality control processes and procedures. Our customers generally place orders with suppliers who have met and continue to meet their qualification criteria.

Customer Business Management

We sell and support our products and services through our Customer Business Management organization which, as of December 29, 2017, consisted of approximately 102 customer relationship directors, managers and support staff.organization. Our customer relationship directors are responsible for establishing sales strategy and setting the objectives for specific customer accounts. Each customer relationship manager is dedicated to a specific customer account and is responsible for maintaining strong working relationships with that customer. Customer relationship managers work closely with customers andcustomer, in many cases provide on-site support. OEM Customer relationship managers often attend customers’ internal meetings related to production and engineering design and quality to ensure that customer expectations are interpreted and communicated properly to our operations group. Customer relationship managers also work with our customers to identify and meet their cost and design-to-delivery cycle time objectives. Our IDM Customer relationship managers work with process tool owners and Fab maintenance managers relating to the development and validation of cleaning recipes, addressing new tools cleaning and analytical requirements, and optimizing cleaning processes and analytical testing requirements to support node transitions.

We have dedicated new business development managers responsible for new business development for gas delivery systemsboth our product and other critical subsystems.service businesses. Our new business development managers initiate and develop long-term, multilevel customer relationships with customers and work closely with customersthem on new business opportunities throughout the design-to-delivery cycle.opportunities. Our customer relationship organization includes technical sales support for order placement, spare parts quotes, and production status updates.updates as well as service and maintenance contracts and analysis business. We have a technical relationship representative located at eachmost of our manufacturing facilities.

We integrate new business wins into our facilities via a rigorous product transition process, working in concert with our customers to ensure all product production, andcleaning and/or test requirements are identified, documented, and validated. We employ the same process at all our sites, enabling products and service offerings to smoothly transition into and between our sites as needed to support customer demand.

In addition, we have developed aan overall service and support infrastructure to provide our customers with service and support 24 hours a day, seven days a week. Our dedicated global field service engineers provide customer support through the performance of on-site installation, servicing and repair of our subsystems.repair.

Technology Development

We engage in ongoing technology development efforts in order to remain a technology leader for gas delivery systems and to further develop our expertise in other critical subsystems. Our design engineering and new product engineering groups support our technology development activities. Our technology development group worksWe work closely with our customers to identify and anticipate changes and trends in next-generation equipment. Our technology development group participatesWe participate in customer technology partnership programs that focus on process application requirements for gas and liquid delivery systems and other critical subsystems. These development efforts are designed to meet specific customer requirements in the areas of subsystem design, materials, component selection and functionality. Our technology development group also works directly with our suppliers to help them identify new component technologies and make necessary changes in, and enhancements to, the components that we

integrate into our products. Our analytical and testing capabilities enable us to evaluate multiple supplier component technologies and provide our customers with a wide range of appropriate component and design choices for their gas delivery systems and other critical subsystems.

Our analytical and testing capabilities also help us anticipate technological changes and requirements in component features for our core UCT next-generation gas delivery systems and other critical subsystems. We are developing additional features to improve the performance and functionality of our gas delivery systems and other critical subsystems. Our technology development activities for next-gen gas delivery and new product engineering expenses were approximately $11.7 million, $9.9 million and $9.6 million for the 2017, 2016 and 2015 fiscal years, respectively. other critical subsystems are performed principally in Hayward, California.

We perform ouralso engage in ongoing technology development to maintain technological leadership in the cleaning, coating and analytical markets. Our Services business works closely with customers to identify and anticipate changes that will be required in next-generation equipment. SSB’s technical capability is becoming extremely critical and differentiated to ensure high wafer yields and throughput as geometries shrink and density increases. SSB’s development activities principally at our facilitiesare performed primarily in Hayward, California.Phoenix, AZ.

Intellectual Property

Our success depends in part on our ability to maintain and protect our proprietary technology and to conduct our business without infringing the proprietary rights of others. Our business isBoth our products and services businesses largely dependentdepend upon our design, engineering, manufacturing, testing, cleaning, coating and testinganalytical know-how. We also rely on a combination of trade secrets and confidentiality provisions, and to a much lesser extent, patents, copyrights and trademarks, to protect our proprietary rights. We have four128 patents with various expiration dates, ranging from 2019 to 2034 as a result of our acquisition of Marchi in February 2015.mostly through QGT and its subsidiaries. We have no pending U.S. patents. Intellectual property that we develop on behalf of our customers is generally owned exclusively by those customers.

We require our employees, suppliers and potential business partners to enter into confidentiality and non-disclosure agreements before we disclose to them any sensitive or proprietary information regarding our products, technology or business plans. We require employees to assign to us proprietary information, inventions and other intellectual property they create, modify or improve.

Competition

Our industry is highly fragmented. When we compete for new business, we face competition from other suppliers of gas delivery systems, and other critical subsystems, cleaning and analytical services, as well as the internal manufacturing and services groups of our customers. Customers that have elected to outsource their gas delivery systems and other critical subsystems including cleaning and analytics, could elect in the future to develop and manufacture these subsystems internally, leading to further competition.

Our principal competitor for our gas delivery systems is Ichor Systems, Inc., and our principal competitors for other critical subsystems are Flex Ltd., Foxsemicon Integrated Technology Inc. and Celestica Inc. Some of these competitors have substantially greater financial, technical, manufacturing and marketing resources than we do. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that could adversely affect sales of our current and future products. In addition,For our services, cleaning and coating offerings, our main competitors in the US are Pentagon Technologies and Cleanpart, and in Korea, KoMiCo. For analytical services our primary competitors are Balazs (an Air Liquide company) and Cerium Labs.

The limited number of potential customers in our industry further intensifies competition. The primary competitive factors in our industry are quality, meeting customer timeline demands, price, technology, quality, design-to-delivery cycle time, reliability in meetingcustomer qualification approvals, the development of product demand, servicerecipes for cleaning and analytics and historical customer relationships. We anticipate that increased competitive pressures will cause intensified price-based competition and we may have to reduce the prices of our products. In addition, we expect to face new competitors as we enter new markets.

Employees

As of December 29, 2017, we had 2,747 employees, of which 466 were temporary. Of our total employees, there were 23 in engineering, 16 in technology development, 102 in sales and support, 1,740 in direct manufacturing, 700 in indirect manufacturing and 166 in executive and administrative functions. These figures include 1,051 employees in Asia and 349 employees in Europe. None of our employees are represented by a labor union and we have not experienced any work stoppages.

Governmental Regulation and Environmental Matters

Our operations are subject to federal, state and local regulatory requirements and foreign laws relating to environmental, waste management and health and safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and waste, as well as practices and procedures applicable to the construction and operation of our UCT facilities.

UCT’s QuantumClean^® business participates in the Responsible Business Alliance’s Responsible Minerals Assurance Process for Tantalum. Our cleaning processes for tantalum-deposited parts recovers the tantalum, enabling it to re-enter the commodity market and reduce the demand for mined material, the majority of which originates from the Conflict Region in Africa.

Although cleaning is a chemical-intensive business, UCT’s QuantumClean^® group, where possible, utilizes chemical-free processing to remove significant volumes of deposited material. Reduction in the volume of film being chemically removed reduces the amount of chemicals used to meet the target cleanliness specifications.

The semiconductor industry has stringent packaging requirements and include the need to maintain the cleanliness of part/system and provide structural support of heavy modules. These requirements may necessitate product-specific crates be designed and fabricated or plastic cleanroom boxes be used. To minimize packaging waste UCT has implemented re-use programs for these type of materials with our customer and suppliers.

Our past or future operations may result in injury or claims of injury by employees or the public which may result in material costs and liabilities to us. Although some risk of costs and liabilities related to these matters is inherent in our business, we believe that our business is in compliance with applicable regulations. However, new, modified or more stringent requirements or enforcement policies could be adopted, which could adversely affect us.

Employees

As of December 27, 2019, we had 4,400 employees, of which 460 were temporary. Of our total employees, there were 88 in engineering, 16 in technology development, 264 in sales and support, 2,882 in direct manufacturing, 779 in indirect manufacturing and 371 in executive and administrative functions. These figures include 1,884 employees in Asia and 583 employees in Europe. None of our employees are represented by a labor union and we have not experienced any work stoppages.

Available Information

We file with the Securities and Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy any materials we file with the SEC at the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also request copies of all or any portion of such material from the SEC at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. In addition, materials filed electronically with the SEC are available at the SEC’s website at http://www.sec.gov.

In addition, we make available free of charge, on or through our website at http://www.uct.com, our annual, quarterly and current reports and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the SEC. This website address is intended to be an inactive textual reference only; none of the information contained on our website is part of this report or is incorporated by reference herein.

Executive Officers

Set forth below is information concerning our executive officers as of February 23, 2018.21, 2020.

James P. Scholhamer joined UCT the Company as Chief Executive Officer and a member of theour Board of Directors in January 2015. Prior to joining UCT,Ultra Clean, Mr. Scholhamer served in various capacities withas Corporate Vice President and General Manager of Applied Materials, Inc., most recently as corporate vice president and general manager ofleading the Equipment Products Group and Display Services Group withinof its Global Service Division from February 2011 to January 2015. Mr. Scholhamer was the corporate vice president and general manager of the Display Business Group from December 2008joined Applied Materials, Inc. in 2006, where, prior to February 2011 and vice presidenthis most recent position, he served as Vice President of Operations-Energy, for the Environmental and Display Products Division from July 2006 to December 2008 at Applied Materials, Inc.and Corporate Vice President and General Manager of the Display Business Group from December 2008 to February 2011. Prior to that, Mr. Scholhamer held various positions atworked for Applied Films Corporation from August 1997 to July 2006, including chief operating officer, chief technology officer and executive vice president as well as vice presidentVice President of Operations, Engineering and Research & Development. In additionDevelopment in the company’s German office from September 2002 to managing Applied Films GermanyJuly 2006 and Taiwan sites, Mr. Scholhamer served as vice president and general managerVice President of the Thin Film Coating Division and the Thin Film Equipment Division in the company’s Colorado office from July 2000 to September 2004. Prior to that, Mr. Scholhamer held various operational and technical positions in several companies related to the design and fabrication of optical components such as Visible, UV and X-ray optics.2002. Mr. Scholhamer holds a Bachelor of Science degree in materialsMaterials and metallurgical engineeringMetallurgical Engineering from the University of Michigan.

Sheri Savage has served as our Chief Financial Officer Senior Vice President of Finance and Secretary since July 2016. Ms. Savage joined the Company as the Senior Director of Finance in April 2009. She was Senior Vice President of Finance and Chief Accounting Officer from February 2016 to July 2016. Prior to joining UCT,the Company, Ms. Savage served at Credence Systems Corporation, a manufacturer of test equipment for the global semiconductor industry, as its Corporate Controller and Vice President of Finance from February 2008 to February 2009 and as Director of Internal Audit from May 2006 to February 2008. Prior to Credence Systems, Ms. Savage served in various accounting and finance roles at Protiviti, a global business consulting and internal audit firm, and KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Ms. Savage also served as Manager, Business Process Risk Accounting, at Arthur Anderson LLP, the former accounting firm, from May 1996 to October 1999. Ms. Savage holds a Bachelor of Science degree in Managerial Economics from the University of California, Davis.

Michael Henderson joined UCT as our Senior Vice President of Engineering in May 2016. Mr. Henderson has more than 25 years of high tech engineering leadership experience with senior roles in R&D, process development, and production management. With tenures at Seagate, Avaya, Modumetal, and Grote Industries, he has had responsibilities worldwide leading aggressive product development and production ramps, manufacturing site transitions and outsourced partner management. Mr. Henderson has a M.S. in Physics from the University of Minnesota.

Deborah HaywardVijayan S. Chinnasami has served as our Chief Operating Officer since April 2019. Prior to joining the Company, Mr. Chinnasami served as the Senior Vice President of Global Account Management sinceEMS Operations at Jabil Inc. from March 2017 to March 2019, as Chief Executive Officer of CaliBurger (Malaysia) from January 2007 and Vice President of Sales since October 2002. Ms. Hayward served as our Senior Sales Director from May 20012015 to October 2002, as Sales Director from February 1998 to May 2001January 2017 and as a major account managerChief Executive Officer of Advanced Optronic Devices (Malaysia) from October 1995January 2014 to February 1998. Prior to joining UCT in 1995, she was a customer service manager and account manager at Brooks Instruments from 1985 to 1995.

Lavi A. Lev has served as our President of Asia since April 2017 and our Senior Vice President, Asia from November 2011 to MarchJanuary 2017. Prior to joining UCT, Mr. Lev served in 2008 as a director and executive chairman of the Board of LTX-Credence Corporation, a provider of automated test equipment for the semiconductor industry. Mr. Lev was chief executive officer and president of Credence Systems Corporation from 2006 to 2008. Prior to that, Mr. LevChinnasami served as executive vice president and general manager of the products and solution business at Cadence Design Systems,in various capacities with SunEdison International, Inc. from 2000. Mr. Lev has 30 years of business, research and development and operational management experience in the Microprocessor Chip Design,(formerly MEMC Electronic Design Automation Software, Test Equipment and Contract Manufacturing industries. Mr. Lev holds a Bachelor of Science degree in electrical engineering from Technion, Israel Institute of Technology and also graduated from the Jerusalem Rubin Academy of Music.

Mark G. Bingaman has servedMaterials, Inc.), including most recently as our Senior Vice President, of GlobalSolar Materials, and Supply Chain Management since February 2010. Priorfrom May 2010 to joining UCT, Mr. Bingaman wasAugust 2014, where his responsibilities included the managing director at Applied Materials, Inc. in chargeexecutive management of the site in Tainan, Taiwan which manufactured equipment for solar, glasspolysilicon, wafer, cell and display industries. He held additional senior management positionsmodule businesses. Mr. Chinnasami’s previous roles have also included Senior Vice President, Industrial Business Unit at Applied Materials, Inc. starting from 2000. From 1999 to 2000,Johnson Electric Health Hong Kong and Vice President and General Manager, Consumer Segment of Flextronics International, Ltd. Mr. Bingaman was the director for supply chain management integration for Eaton Corporation. Mr. Bingaman held multiple positions at Aeroquip-Vickers, Inc. from 1995 to 1999 including vice president for global supply chain management for Vickers, Incorporated. He held various positions at McDonnell Douglas from 1977 to 1994 including vice president of operations for the McDonnell Douglas Helicopter Company from 1990 to 1994. Mr. BingamanChinnasami holds a Bachelor of ScienceBachelor’s degree in accountingProduction Engineering from theSwinburne University of Missouri and a Master of Science degree in management information systems from Southern Illinois University.Technology.

JoeW. Joseph Williams joined UCTthe Company in February 2015 with the acquisition of MarchiUCT Thermal Solutions, Inc. (“Thermal”) as Presidentpresident of Marchi. He continuesThermal, and has continued to manage MarchiThermal since that time. Mr. Williams has served as our Executive Vice President and servesPresident, Semiconductor Products & Solutions since October 2018 and as our Senior Vice President of Customer Business Management sincefrom October 2016.2016 to October 2018. Prior to joining the Company in 2015, Mr. Williams was presidentPresident of MarchiThermal from April 2013 to 2015. He worked previously at UCTthe Company as vice presidentVice President of new business development.New Business Development. Mr. Williams was Senior Vice President of Business Development & Engineering at AIT from 2007 to 2013. Prior to that, Mr. Williams co-founded Integrated Flow Systems and served as vice presidentVice President of engineeringEngineering and operationsOperations and directorDirector of engineeringEngineering and operationsOperations from 1997 to 2004. He worked at Watkins-Johnson Company as a mechanical design engineer from 1994 to 1997. Mr. Williams holds a Bachelor of Science Degreedegree in Mechanical Engineering from North Carolina State University.

William C. Bentinck has served as our President, Semiconductor Services Business since May 2019. Mr. Bentinck joined the Company as Senior Vice President, Semiconductor Services Business, in March 2019. Mr. Bentinck previously served as Executive Vice President and General Manager of Eugenus, Inc., a semiconductor equipment manufacturing company, from November 2017 to June 2018. Prior to that, Mr. Bentinck served as Vice President and General Manager of the Logic & Memories Technology Group for AIXTRON Inc., a manufacturer of systems and equipment to the semiconductor industry, from April 2014 to November 2017. From August 2006 to March 2014, Mr. Bentinck served as General Manager, Customer Support Business Group (Spares & Services) for Lam Research Corporation, a global supplier of wafer fabrication equipment and services to the semiconductor industry. Prior to Lam Research Corporation, Mr. Bentinck served in various roles of increasing responsibility at Novellus Systems, Inc., a provider of advanced process equipment for the global semiconductor industry, from 1991 through August 2006. Mr. Bentinck holds a Bachelor of Science degree in Chemical Engineering, and a Master of Science degree in Engineering – Material Science, from California State Polytechnic University, Pomona.

David SpeirsChris P. Siu has served as our Senior Vice President, of North America OperationsChief Accounting Officer since 2010. Working in the semiconductor capital equipment industry for more than 20 years, Mr. Speirs has management experience in manufacturing, quality and operations. Mr. Speirs joined UCT in 2006 to manage the manufacturing operations of UCT’s Sieger Engineering, Inc. acquisition. He was instrumental in expanding the new product introduction group for UCT into a global organization.May 2019. Prior to joining UCT, he was previously the Company, Mr. Siu served as Vice President of Operations for MetaraFinance at PDF Solutions, Inc., a start-up venture manufacturing chemical metrology equipmentleading provider of differentiated data and analytics solutions to the semiconductor and electronics industries, since October 2018. Prior to PDF Solutions, Mr. Siu served at GLOBALFOUNDRIES, Inc., a global pure-play foundry for the semiconductor industry. From 1994industry, as its Corporate Controller from June 2014 to 2004, he held several director level management positionsOctober 2018, as Senior Director, Finance and Operations Controller from December 2013 to June 2014 and as Assistant Corporate Controller from November 2010 to December 2013. Prior to that, Mr. Siu served at NovellusTrident Microsystems, Inc. a provider of high-performance multimedia semiconductor solutions, as its Chief Accounting Officer and Director of Finance from February 2007 to November 2010. Prior to Trident Microsystems, Mr. Siu served at Varian Medial Systems, Inc. including Manufacturing, Operations Quality, a market-leading manufacturer of medical devices for the treatment of cancer, in different finance management roles from June 2004 to February 2007. Prior to that, he worked for Deloitte & Touche from August 2001 to June 2004 and CVD/PVD Operations.was previously with Ernst & Young from January 1996 to June 2001. Mr. SpeirsSiu holds a SCOTECBachelor of Science degree in Electrical EngineeringAccounting from Stow CollegeBrigham Young University in Hawaii and a Master of Engineering.Business Administration degree from the University of California at Berkeley. Mr. Siu is a Certified Public Accountant (inactive) in California.

Joan Sterlinghas served as our Senior Vice President of Global Human Resources since 2016. Ms. Sterling joined UCTthe Company in March 2013 as Director of Global Human Resources. Prior to joining UCT,the Company, Ms. Sterling was the Human Resources Director for Engineering and Broadcast Operations at SiriusXM Satellite Radio from 2009 to 2013. She worked at Hitachi Data Systems from 2007 to 2009 as an executive change management consultant for a global IT redesign. Ms. Sterling served as human resource senior vice presidentHuman Resource Senior Vice President for the consumer credit group at Wells Fargo from 2005 to 2007. From 2000 to 2005, Ms. Sterling served in several senior director roles at Hewlett Packard managing human resources sites and functions of staffing, compensation, benefits, training and development. She was the corporate directorCorporate Director of human resource strategic planningHuman Resource Strategic Planning for First Energy Corporation from 1999 to 2000. She worked at Hewlett Packard Enterprise from 1994 to 1999 as the Midwest Region Headquarters Human Resource Manager. Ms. Sterling holds a Bachelor of Science degree in businessBusiness from DePaul University and a Master of Arts degree in organizational developmentOrganizational Development from Loyola University.

Ron D’ErcolePaul Y. Cho has served as our General Counsel and Corporate Secretary since October 2019. Mr. Cho brings over a decade of experience in various legal disciplines, including IP and commercial litigations, joint venture projects, and commercial transaction work. Most recently, from April 2016 to October 2019, Mr. Cho held the position of General Counsel and Corporate Secretary for the North American operations of the world’s second largest memory chip supplier, SK Hynix, Inc., and held the position of Senior Vice President of Global Quality sinceCounsel at its corporate headquarters from September 2014 to March 2016. Mr. D’Ercole joined UCT in December 2014 as Vice President of Quality.  Prior to joining UCT, he worked at Lam Research CorporationSK Hynix Inc., Mr. Cho served as Senior Legal Counsel for twelve yearsSamsung SDI, a storage battery manufacturing company, from June 2013 to September 2014 and held director level positionsas Legal Counsel for customer experience and corporate quality and services.LG Electronics, an electronics company, from April 2012 to May 2013. Mr. D’Ercole worked at Novellus Systems, Inc. from 1997 to 2002 as director of global spares and corporate quality assurance.  From 1992 to 1997, he worked at LSA Anodic Technologies, Inc. where he was a founder and the chief operations officer. Mr. D’ErcoleCho holds a Bachelor of Science degreeArts in chemical engineeringEnglish from the University of California, BerkeleyMichigan and a MBAJuris Doctor Degree from the University of San Francisco.Minnesota Law School.

The following risk factors could materially and adversely affect the Company’s business, financial condition or results of operations and cause reputational harm, and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

COVID-19 outbreak

The novel coronavirus COVID-19 is impacting all levels of the semiconductor industry and supply chain. For example:

We are attempting to lessen the impact of COVID-19 to UCT equipment production by leveraging our extensive global supply chain and diversified factory footprint and, therefore, minimize the potential disruption to our customers. Our business continuity plan team has taken every precaution to protect our employees and factories with a wide array of preventive measures, including, among others, making protective gears and temperature sensing equipment available, implementing travel restriction and work from home policies, an increase in hygienic and janitorial services, and enforcing preventative quarantines. 

The cyclical and highly volatile nature of the industries we serve could harm our operating results.

Our business and operating results depend in significant part upon capital expenditures by manufacturers in the semiconductor capital equipment, consumer, medical, energy, industrial and researchdisplay industries, which in turn depend upon the current and anticipated market demand for such products. Historically, the industries we serve (in particular the semiconductor industry) have been highly cyclical, with recurring periods of over-supply of products that have had a severe negative effect on the demand for capital equipment used to manufactureand related services involved in manufacturing such products. We have experienced and anticipate that we will continue to experience significant fluctuations in customer orders for our products through such cycles. SlowdownsAlthough certain aspects of our business, including the cleaning, coating and analytical services delivered by QGT which also supports the semiconductor chip market are less susceptible to variations in capital expenditures by manufacturers than other aspects of our business, slowdowns in the industries we serve have had, and future slowdowns may also have, a material adverse effect on our operating results. DuringDemand shifts in the industries we serve are rapid and difficult to predict, and we may not be able to anticipate or respond quickly enough to changes in demand. Our ability to increase revenues of our products and services in periods of increasing demand depends, in part, upon our ability to:

If we are unable to respond to rapid increases in demand for our products and services on a timely basis, or to manage any corresponding expansion of our manufacturing and service capacity effectively, our customers could divert their purchases of products and services from us to our competitors, which would adversely affect our business.

Our ability to remain profitable and mitigate the impact on our business in periods of decreasing demand fordepends, in part, upon our ability to:

The limited visibility we must be able to appropriately alignhave from the majority of our cost structurecustomers of their future orders, combined with prevailing market conditions, effectively manage our supply chain and motivate and retain employees. During periods of increased demand, we must increase manufacturing capacity and inventory to meet customer demands, effectively manage our supply chain and attract, retain and motivate a sufficient number of employees. If the industries we serve experience downturns, or if we are not able to timely and appropriately adapt to the changes in our business environment, our results of operations will be harmed. Also, the cyclical and volatile nature of the industries we serve, make future revenues, results of operations and net cash flows difficult to estimate.

We rely on a small number of original equipment manufacturing (“OEM”) and integrated device manufacturing (“IDM”) customers for a significant portion of our sales,revenues, and any adverse change in our relationships with these customers, including a decision by such customers not to continue to outsource critical subsystems or part cleaning, coating or analytical services to us or to give market share to one of our competitors, would adversely affect our business, results of operations and financial condition. Our customers also exert a significant amount of negotiating leverage over us, which may require us to accept lower operating margins, increased liability risks or changes in our operations in order to retain or expand our market share with them.

A relatively small number of OEM customers have historically accounted for a significant portion of our sales,revenues, and we expect this trend to continue. As a group, the respective year’sOur top two customers accounted for 84.4%66.9%, 82.2%76.6% and 77.0%84.4% of our salesrevenues for fiscal years 2017, 20162019, 2018 and 2015,2017, respectively, and we expect that our salesrevenues will continue to be concentrated among a small number of customers. In addition, our customer contracts generally do not require customers to place any orders. Accordingly, the success of our products business depends on OEMs continuing to outsource the manufacturing of critical subsystems to us. Because of the small number of OEMs in the markets we serve, most of which are already our customers, it would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation or delay in purchase orders by, any one of these customers, whether due to such customer’s decision to not continue to outsource all or a portion of its critical subsystems for its capital equipment to us, such customer giving market share to our competitors or for other reasons, such as a customer’s bankruptcy or insolvency or decreased demand for such customer’s products. We have in the past lost business from customers who have taken the manufacturing of our products in-house, given market share to our competitors or declared bankruptcy. Further, since our customers generally own the designs and other intellectual property to the products we manufacture, we cannot prevent them from licensing such designs and other intellectual property to our competitors for the manufacturing of such products. If we are unable to replace revenue from customers who determine to take subsystem assembly in-house, give market share to our competitors or from whom we otherwise lose business, such events could have a material adverse impact on our financial position and results of operations.

In addition, consolidationOur Semiconductor Services Business provides part cleaning, coating and analytical expertise, to IDM and OEM customers. Our IDM business is concentrated in a relatively small number of customers, and we compete with in-house capabilities, OEM’s who perform cleaning as part of service contracts, and businesses that provide cleaning, coating and analytical services. The OEM customer profile of our SSB segment has significant overlap with our products business and is subject to risks of market share loss to cleaning, coating and analytical services competitors. The cleaning and analytical process are proprietary to QuantumClean^® and ChemTrace^®, respectively, and transition to new suppliers may require requalification on the part of the customer.

Consolidation among our customers, or a decision by any one or more of our customers to outsource all or most manufacturing, assembly, cleaning, coating and assemblyanalytical services work to a single equipment manufacturer, may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on an even smaller number of customers.

In addition, by virtue ofdue to the size and revenue contribution levels from our largest customers’ sizes, and the significant portion of revenue that we derive from them, as well as the competitive landscape, our customers, they are able to exert significant influence and pricing pressure in the negotiation of our commercial agreements and individual purchase orders and on the conduct of our business with them.orders. Our customers often require reduced prices or other pricing, quality, manufacturing or delivery commitments as a condition to their awarding of market share to us or the placement of orders with us in any given period, whichperiod. This may, among other things, result in reduced operating margins or require capital or other expenditures in order to maintain or expand our market share or require capital or other expenditures.share. Our customers’ negotiating leverage also can result in customer agreements or terms and conditions that may contain significant liability risk to us. For example, some of our customers insistgenerally require that we provide them indemnification against certain liabilities, in our agreements with them, includingwhich may include claims of losses by their own customers causedresulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products, which may beproducts. Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped. In some cases, we have determined to self-insureself-insured against liability risk in our customer agreements, meaning that we may be directly responsible for a high magnitude of liability claims by our customers without recourse to insurance proceeds from third-party insurers. Our customers may also pressure us to make other concessions in order to preserve or expand our market share with them, whichthem. Those concessions may harm our business. For example, one or more of our customers may require us to move the manufacturemanufacturing of our products from lower-cost geographies or locations such as China to higher-cost geographies or locations, such as Singapore, that are closer to such customer’s facilities whichSingapore. Such transfer of manufacturing could result in reduced margins and a sub-optimal cost structure. Similarly, customers may prevent us from moving our manufacturing from higher-cost regions to lower-cost regions, while requiring us to reduce our prices. If we are unable to retain and expand our business with our customers on favorable terms, or at all, our business and operating results will be adversely affected orand we may be susceptible to increased liability risk. This additional liability risk which, if realized, maycould have a material adverse effect on our business, cash flows, results of operations and financial condition.

Our dependence on our suppliers may preventus from delivering an acceptable product on a timely basis.

We rely on both single-source and sole-source suppliers, some of whom are relatively small, for many of the components we use in our products.products and services. In addition, our customers often specify components or raw materials of particular suppliers that we must incorporate into our products. Our suppliers aremay be under no long-term obligation to accept or to provide us with components.components or raw materials. As a result, the loss of or failure to perform by any of these suppliers could adversely affect our business and operating results. In addition, the manufacturing of certain components and subsystems is aand the cleaning, coating and analysis of tool parts are complex process.processes. Therefore, if a supplier were unable to provide the volume of supplies, components or raw materials we require on a timely basis and at acceptable prices and quality, we would have to identify and qualify replacements from alternative sources. However, the process of qualifying new suppliers for complex components and raw materials is lengthy and could delay our production or delivery of services, which would adversely affect our business, operating results and financial condition.

We may also experience difficulty in obtaining sufficient supplies of components and raw materials in times of growth in our business. For example, we have in the past experienced shortages in supplies of various components, such as mass flow controllers, valves and regulators, and certain prefabricated parts, such as sheet metal enclosures, used in the manufacture of our products. In addition, one of our competitors manufactures mass flow controllers that may be specified by one or more of our customers. If we are unable to obtain these particular mass flow controllers from our competitor or convince a customer to select alternative mass flow controllers, we may be unable to meet that customer’s requirements, which could result in a loss of market share.

If we, or our suppliers, are unable to procure sufficient quantities of supplies, components or raw materials from suppliers, it could influence decisions by our customers to delay or cancel orders or service contracts and decisions by our vendors to fulfill our purchase orders and, consequently, have a material adverse effect on our results of operations.

Our inability to successfully manage the implementation of a company-wide enterprise resource planning (“ERP”) system could adversely affect our operating results.

We are in the process of implementing a new company-wide ERP system. This process has been and continues to be complex and time-consuming and we expect to incur additional capital outlays and expenses. This ERP system will replace many of our existing operating and financial systems, which is a major undertaking from a financial management and personnel perspective. Should the new ERP system not be implemented successfully throughout all our business units on time and within budget, or if the system does not perform in a satisfactory manner, it could be disruptive and adversely affect our operations, including our potential ability to report accurate, timely and consistent financial results; our ability to purchase supplies, components and raw materials from and pay our suppliers; and our ability to deliver products and services to customers on a timely basis and to collect our receivables from them.

In addition, we have teams leading the implementation of the ERP system at most of our locations. To the extent that these teams or key individuals are not retained through the implementation period, the success of our implementation could be compromised and the expected benefits of the ERP system may not be realized. If the new ERP system is not successfully and fully implemented, it could negatively affect our financial reporting, inventory management and our future sales, profitability and financial condition.

We are subject to order and shipment uncertainties and any significant reductions, cancellations or delays in customer orders could cause our revenue to decline and our operating results to suffer.

Our revenue is difficult to forecast because we generally do not have a material backlog of unfilled orders and because of the short time frame within which we are often required to design, produce or deliver products to our customers. Most of our revenue in any quarter depends on customer orders for our products that we receive and fulfill in the same quarter. We generally do not have long-term purchase orders or contracts that contain minimum purchase commitments from our customers. Instead, we receive non-binding forecasts of the future volume of orders from our customers. Occasionally, we order and build component inventory in advance of the receipt of actual customer orders. Customers may cancel order forecasts, change production quantities from forecasted volumes or delay production for reasons beyond our control. Furthermore, reductions, cancellations or delays in customer order forecasts, which may occur for various reasons, including reduced demand for our customer’s products, customer bankruptcies or customer insolvency, usually occur without penalty to, or compensation from, the customer. Reductions, cancellations or delays in forecasted orders could cause us to hold inventory longer than anticipated, which could reduce our gross profit, restrict our ability to fund our operations and cause us to incur unanticipated reductions or delays in revenue. Moreover, many of the products we manufacture are custom built for our customers and are therefore not fungible with products we sell to other customers. If we do not obtain orders as we anticipate, we could have excess component inventory for a specific product that we would not be able to sell to another customer, likely resulting in inventory write-offs, which could have a material adverse effect on our business, financial condition and operating results. In addition, because many of our costs are fixed in the short term, we could experience deterioration in our gross profit and operating margins when our sales volumes decline.

The manufacturing of our products isand the services we provide are highly complex, and if we are not able to manage our manufacturing and procurement process effectively, our business and operating results will suffer.

The manufacturing of our products is a highly complex process that involvesprocess. The services we provide are also highly complex, and dependent upon procuring specialty materials necessary to correctly perform the complex/precise services.  Both the manufacturing of our products and the services we provide involve the integration of multiple components and requiresrequire effective management of our supply chain while meeting our customers’ design-to-delivery cycle time requirements. Through the course of the manufacturing process, our customers may modify design and system configurations in response to changes in their own customers’ requirements. In order to rapidly respond to these modifications and deliver our products to our customers in a timely manner, we must effectively manage our manufacturing and procurement process. If we fail to manage this process effectively, we risk losing customers and damaging our reputation. We may also be subject to liability under our agreements with our customers if we or our suppliers fail to effectively or timely re-configure manufacturing processes or components in response to these modifications or if shipments of our products are delayed, which may lead to product defect or other claims by our customers or cancelled orders. In addition, if we acquire inventory in excess of demand or that does not meet customer specifications, we could incur excess or obsolete inventory charges. These risks are even greater during periods of macroeconomic uncertainty or down cycles in our industry, and as we continue to expand our business beyond gas delivery systems into new subsystems or services with which we have less experience. During periods of economic uncertainty or down cycles in our industry, certain of our suppliers may be forced to reduce or go out of business, which could require us to either procure products from higher-cost suppliers or, if no additional suppliers exist, reconfigure the design and manufacture of our products. This could limit our growth and have a material adverse effect on our business, financial condition and operating results.

We may not be ableheld our customers’ inventories on our premises and any significant damage or loss to respond quickly enoughthese inventories could cause our operating results to changes in demand forsuffer.

In connection with our products.

Demand shifts incleaning business, we face a number of risks associated with customer inventory being held on our property, including the industries we serve are rapid and difficultrisk of loss or mishandling of, or other damage to, predict, and we may not be able to anticipate or respond quickly enough to changes in demand. Our ability to increase salescustomer inventory, any of which could harm our products in periods of increasing demand depends, in part, upon our ability to:

If we are unable to respond to rapid increases in demand for our products on a timely basis or to manage any corresponding expansion of our manufacturing capacity effectively, our customers could increase their purchases from our competitors, which wouldreputation, adversely affect our business.

Our abilitybusiness, and otherwise expose us to remain profitable and mitigate the impact on our business in periods of decreasing demand depends, in part, upon our ability to:

Our results of operations, financial position and cash flows may suffer if we do not effectively manage our inventory.

Inventory is typicallyone of the largest assetassets on our balance sheet, representing 42.0%16.9% of our total assets as of December 29, 2017.27, 2019.  We must manage our inventory of raw materials, work-in-process and finished goods effectively to meet changing customer requirements, while keeping inventory costs down and maintaining or improving gross margins.

Historically, the industries we serve (in particular the semiconductor capital equipment industry) have been highly cyclical, which makes accurately forecasting customers’ product needs difficult.  Although we seek to maintain sufficient inventory levels of materials to guard against interruptions in supply and to meet our customers’ needs, we may experience shortages of certain key materials, particularly in times of high industry demand.  We also face long lead times from our suppliers, which may be longer than the lead times provided to us by our customers.  If we underestimate customer demand or if insufficient manufacturing capacity or raw materials are available, we may have to forego sales opportunities, lose market share and damage our customer relationships.

In the event we overestimate customer demand, we may allocate resources to manufacturing products that we may not be able to sell. As a result, we could hold excess or obsolete inventory, which would reduce our profit margins and adversely affect our financial results. Some of our products have in the past and may in the future become obsolete while in inventory due to changing customer specifications, or become excess inventory due to decreased demand for our products and an inability to sell the inventory within a foreseeable period. Furthermore, our customers may be able to cancel orders on short notice. This could result in charges that reduce our gross profit and gross margin. Furthermore, if market prices drop below the prices at which we value inventory, we would need to take a charge for a reduction in inventory values in accordance with the lower of cost or net realizable value valuation rule.applicable accounting rules. Any future unexpected changes in demand or increases in costs of production that cause us to take additional charges for un-saleable, obsolete or excess inventory, or to reduce inventory values, would adversely affect our results of operations.

We hold inventory at our various manufacturing sites globally and many of these sites have more than one inventory warehouse. Successfully managing our inventory is dependent upon our information technology systems and internal controls. We rely upon such information technology systems and internal controls to accurately and timely manage, store and replenish inventory, complete and track customer orders, coordinate sales activities across all of our products and maintain and report vital data and information. A disruption in our information technology systems or a failure of our internal controls (arising from, for example, system capacity limits from unexpected or prolonged increases in our volume of business, outages or delays in our service) could result in delays or disruptions in receiving inventory and supplies or filling customer orders, incorrect inventory counts, over or under stocking or loss of inventory and adversely affect our business, customer servicerelationships and relationships.results of operations.  In particular, our largest customer requires that certain of our products are manufactured and shipped out of our Singapore facility.  Recent highHigh levels of customer demand at such facility havein fiscal year 2017 created substantial strain on our processes, internal controls and information technology systems.  There can be no assurance that such delays, failures or disruptions will not have a material adverse effect on our cash flows, results of operations and financial condition.

Our customers require our products to undergo a lengthy and expensive qualification process. If we are unsuccessful or delayed in qualifying any of our products with a customer, our results of operations and financial condition could suffer.

We have had to qualify, and are required to maintain our status, as a supplier for each of our customers. This is often a lengthy process that involves the inspection and approval by a customer of our engineering, documentation, manufacturing and quality control procedures before that customer will place volume orders. Our ability to lessen the adverse effect of any loss of, or reduction in sales to, an existing customer through the rapid addition of one or more new customers is limited because of these qualification requirements. Consequently, the risk that our business, operating results and financial condition would be adversely affected by the loss of, or any reduction in orders by, any of our significant customers is increased. Moreover, if we lose our existing status as a qualified supplier to any of our customers, such customer could cancel its orders from us or otherwise terminate its relationship with us, which could have a material adverse effect on our results of operations and financial condition.

Our Acquisitions could result in operating and integration difficulties, dilution, margin deterioration, diversion of management’s attention, and other consequences that may adversely impact our business and results of operations.

We have made, and may in the future make, acquisitions of, or significant investments in, businesses that offer complementary products, services, technologies or market access. We expect that management will evaluate potential strategic transactions regularly with its advisors and our board of directors in the ordinary course of business. We may not be successful in negotiating the terms of potential acquisitions or financing potential acquisitions, and our due diligence may fail to identify all of the problems, liabilities or other challenges associated with an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer retention issues. In addition, we may not be successful in effectively integrating the acquired business, product or technology into our existing business and operations. The areas where we face risks include:

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and substantial costs, and materially harm our business generally.

Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, or amortization expenses, impairment charges and restructuring charges, any of which could harm our financial condition. Also, the anticipated benefits or value of our acquisitions or investments may not materialize. Even if an acquisition or other investment is not completed, we may divert significant management time and effort and incur significant financial cost in evaluating such acquisition or investment, which could have an adverse effect on our results of operations. Furthermore, due to prevailing conditions in the credit market and our existing leverage, the financing of any such acquisition may be difficult to obtain if at all, and the terms of any such financing may not be favorable.

Failure to realize the benefits expected from the QGT and DMS acquisitions could adversely affect the value of our operating results.common stock.

We areAlthough we expect significant benefits to result from the QGT and DMS acquisitions, there can be no assurance that we will actually realize them. Achieving these benefits will depend, in the process of implementing a new Company-wide ERP system. This process has beenpart, on our ability to integrate QGT's and continues toDMS’ businesses successfully and efficiently. The challenges involved in these integrations, which will be complex and time-consumingtime consuming, include the following: preserving customer and other important relationships of QGT and DMS; managing effectively a new business and competing in a new industry for QGT; consolidating and integrating information technology, finance, general and administrative infrastructures; coordinating sales and marketing efforts to effectively position our capabilities; coordinating and integrating operations in countries in which we expect to incur additional expenses. This ERP systemhave not previously operated; and integrating employees and related HR systems and benefits, maintaining employee morale and retaining key employees. The successful integration of the QGT and DMS businesses will replace manyrequire significant management attention, and may divert the attention of our existing operating and financial systems, which is a major undertakingmanagement from a financial management and personnel perspective. Should the new ERP system not be implemented successfully throughout all our business units and within budgetoperational issues.

Based on our evaluation under the COSO framework as further described under “Item 9A – Controls and on time, or if the system doesProcedures,” our management concluded that we did not perform in a satisfactory manner, it could be disruptive and adversely affect our operations, including our potential abilitymaintain effective internal control over financial reporting as of December 27, 2019 due to report accurate, timely and consistent financial results; our abilitymaterial weaknesses attributable to purchase raw material from and pay our suppliers; and our ability to deliver products to customers on a timely basis and to collect our receivables from them. Furthermore, this new ERP system is intended to be implemented beginningdeficiencies in the third quarterdesign and implementation of 2018business process controls and finalized byinformation technology general controls relating to all relevant accounts and cycles within our Semiconductor Services Business (SSB) segment.

If we do not successfully manage these issues and the end of fiscal year 2019. Once operational,other challenges inherent in integrating an acquired business, we expect amortization of our capitalized ERP costs will be significant and may not be offset byachieve the efficiencies we expect this system to produce for the Company.

In addition, we have put teams together who are leading the implementation of the ERP system at all of our locations. To the extent that these teams or key individuals are not retained through the implementation period, the success of our implementation could be compromised and the expectedanticipated benefits of the ERP system may not be realized. If the new ERP system is not successfully implemented, it could negatively affect our financial reportingQGT and inventory managementDMS acquisitions and our future sales, profitabilityrevenue, expenses, operating results, financial condition and financial condition.stock price could be materially adversely affected.

We are exposed to risks associated with volatility in the global economy.

We rely to a significant extent on OEM customers, whose business, in turn, depends largely on consumer spending and capital expenditures by businesses. Uncertainty regarding the global economy may pose challenges to our business. Economic uncertainty may exacerbate negative trends in business and consumer spending and may cause certain of our customers to push out, cancel, or refrain from placing orders for products or services, which may reduce sales and materially affect our results of operations and financial condition. Inflationary trends could also have an impact on labor costs and component costs, reducing our margins. Difficulties in obtaining capital, uncertain market conditions, or reduced profitability may also cause some customers to scale back operations, exit businesses, merge with other manufacturers, or file for bankruptcy protection and potentially cease operations, leading to customers’ reduced research and development funding and/or capital expenditures and, in turn, lower orders from our customers and/or additional slow moving or obsolete inventory or bad debt expense for us. These conditions may also similarly affect key suppliers, which could impair their ability to deliver partssupplies, components or raw materials and result in delays for our products or services or require us to either procure productssupplies, components or raw materials from higher-cost suppliers, or if no additional suppliers exist, to reconfigure the design and manufacture of our products or services, and we may be unable to fulfill customer orders.

Significant developments stemming from the recent change in the U.S. administration could have a material adverse effect on us.

On January 20, 2017, a new president of the United States was inaugurated as the president of the United States. While it is still uncertain at this time how the new administrationEscalating trade tensions and the resultsadoption or expansion of tariffs and trade restrictions could negatively impact us.

International trade tensions or trade wars, as well as other elections could

affect changes in social, political, regulatory and economic conditions or laws and policies, the Presidentcould have a material adverse effect on our business, financial condition and operating results. The U.S. Government has expressed apprehension towards existing trade agreements, such as the North American Free Trade Agreement, signed an executive order announcing his plan to withdraw the United States from the Trans-Pacific Partnership in favor of bilateral trade negotiations with the member countries, and has raised the possibility of imposing significant increases onrecently announced tariffs on goodssteel and aluminum products and materials imported into the United States, includingStates. The U.S. Government has also implemented or announced plans to impose tariffs on a wide-range of goods imported from China, where we and our customers have significant operations. ChangesAdditionally, various countries and economic regions have announced plans or intentions to impose retaliatory tariffs on a wide-range of products they import from the U.S., and there is a risk that a broader trade conflict could ensue. These newly imposed or threatened U.S. tariffs and retaliatory tariffs could have the negative effect of increasing the cost of materials for our products, which could result in our products becoming less competitive or generating lower margins. This has the potential to impact global trade and economic conditions in many of the regions where we do business.

The United Kingdom’s (UK) pending withdrawal from the European Union (EU), commonly referred to as “Brexit,” has created significant uncertainty concerning the future relationship between the UK and the EU and the impact on global markets. It is unclear what financial, trade, regulatory and legal implications the withdrawal of the UK from the EU will have and how such withdrawal will affect us. Furthermore, the announcement of Brexit caused significant volatility in global stock markets and foreign currency exchange rate fluctuations, and the pending withdrawal of the UK from the EU may also adversely affect European and global economic and market conditions, which may cause our customers to closely monitor their costs and reduce their spending budgets. Any of these effects of Brexit, among others, could have a material adverse impact on our business, financial condition and results of operations.

Other changes in U.S. or international social, political, regulatory and economic conditions or laws and policies governing U.S. tax laws, foreign trade, manufacturing, and development and investment in the countries where we or our customers operate could also adversely affect our operating results and our business.

We have significant existing indebtedness; the restrictive covenants under our credit agreement or other limitations on financing may limit our ability to expand or pursue our business strategy or make capital expenditures; if we are forced to pay some or all of our indebtedness prior to its maturity, our financial position could be severely and adversely affected.

We have total debt as of December 29, 2017, gross27, 2019 of capitalized292.2 million. Such debt is composed of a $300.0 million term loan costs of $0.2 million, of $52.4 millionoutstanding under our Credit Agreement with East WestBarclays Bank less debt costs of $9.7 million and City National Bank, including $9.9 outstanding under our term loan and $39.9 outstanding under our revolving loan (with $0.1 million of available borrowings) and $2.7$1.9 million under aFDS’s revolving credit facility million held by Miconex, in the Czech Republic.

Our indebtedness could have adverse consequences including:

If we are unable to meet our debt obligations as they come due, we could be forced to restructure or refinance such obligations, seek additional equity financing or sell assets, which we may not be able to do on satisfactory terms, or at all. If we determine it is necessary to seek additional funding for any reason, we may not be able to obtain such funding or, if funding is available, may not be able to obtain it on acceptable terms.

Our Credit Agreement contains certain covenants that restrict our ability to take certain actions, including our ability to incur additional debt, including guarantees, or create liens, as well asmake certain investments, engage in transactions with affiliates and engage in certain mergers and acquisitions.

Our Credit Agreement requires us to maintain certain financial covenants, including compliance with a maximum consolidated total gross leverage ratio and a minimum fixed charge ratio and a minimum cash balance.coverage ratio. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would materially adversely affect our financial health if we are unable to access sufficient funds to repay all of the outstanding amounts.

As long as our indebtedness remains outstanding, the restrictive covenants and mandatory prepayment provisions could impair our ability to expand or pursue our business strategies or obtain additional funding.

We may not be able to fund our future capital requirements or strategic acquisitions from our operations, and financing from other sources may not be available on favorable terms or at all.

We made capital expenditures of approximately $18.5$25.7 million and $7.8$29.2 million for fiscal year 2017years 2019 and 2016,2018, respectively, which primarily related to our ERP system implementation and to investment in our manufacturing facilities in the United States, China, Singapore and Singapore.South Korea. The amount of our future capital requirements will depend on many factors, including:

From time to time, we are subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, we have not had a history of outcomes to date that have been material to our statement of operations and do not believe that any of these proceedings or other claims will have a material adverse effect on our consolidated financial condition or results of operations.

Not applicable.

PART II

Stock Exchange Listing

Our common stock has been traded on the NASDAQ Global Market under the symbol “UCTT” since March 25, 2004. The following table sets forth for the periods indicated the high and low sales prices per shareAs of ourFebruary 21, 2020, there were three holders of record of UCTT common stock as reported by the NASDAQ Global Market:stock.

Dividends on Common Stock

To date, we have not declared or paid cash dividends to our UCT stockholders and we do not intend to do so for the foreseeable future in order to retain earnings for use in our business. Our credit facility also limits our ability to pay dividends. As

Stock Performance Graph

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of February 23, 2018,1933 or the Exchange Act, each as amended, except to the extent that we had three stockholdersspecifically incorporate it by reference into such filing.

The following stock performance graph compares the cumulative total stockholder returns during the period from December 26, 2014 to December 27, 2019 of record.our common stock to the NASDAQ Composite Index and the RDG Semiconductor Composite Index. The comparison assumes $100 was invested on December 26, 2014 in our common stock and in each of the foregoing indices. The stock performance shown on the following graph represents historical stock performance and is not necessarily indicative of future stock price performance.

The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported by the NASDAQ Global Market:

Recent Sales of Unregistered Sales of Equity Securities

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

You should read the following tables in conjunction with other information contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and related notes and other financial information contained elsewhere in this Annual Report on Form 10-K.

Statements of Operations Data (in thousands, except per share amounts):Data:

Consolidated Balance Sheet Data (in thousands):Data:

See Note 2 to the Notes to Consolidated Financial Statements for further information.

This section and other parts of this Annual Report on Form 10-K contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipate,expects,” “believe,“anticipates,” “estimate,“targets,” “expect,“goals,” “intend,“projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “might,” “plan,” “project,“will be,” “will continue,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,”“will likely results, and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in “Item 1A — Risk Factors” above. The following discussion should be read in conjunction with the consolidated financial statement and notes thereto included in Item 8 of this report. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Overview

We are a global leader in the design, engineering and manufacture of production tools, modules and subsystems for the semiconductor and display capital equipment industrymarkets.  Our products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high level assemblies. Our services provide part cleaning, surface encapsulation, and industry segments with similar requirements including display, consumer and medical. We focus on providing specialized engineering and manufacturing solutionshigh sensitivity micro contamination analysis primarily for these applications. We enable our customers to realize lower manufacturing costs and reduced design-to-delivery cycle times while maintaining high quality standards.

The capital equipment market continued to show strength during 2017, primarily from multiple technological advances driving the semiconductor industry. Delivering solutions that enable next-generation 3D NAND devices drove the Wafer Fab Equipment industrydevice makers and wafer fabrication (WFE) equipment markets.

With our acquisition of Quantum Global Technologies, LLC (“QGT”), on August 27, 2018, a leader in 2017. Weparts cleaning, coating and foundry related analytical services, we expanded our operations and manufacturing in Asia as revenues from outside the U.S. grew by 83.4%. Our revenue and earnings grew to the highest levels in the Company’s history. Total revenue climbed 64.3% in fiscal 2017 compared to fiscal 2016, driven by 69.0% growth in our semiconductor equipment business. We have expanded and continue to expand our capabilities to enableprovide ultra-high purity parts cleaning, process tool part recoating, surface treatment, and analytical services to the manufacturing of additional major modulessemiconductor and further increase our critical content on our customers’ platforms.related industries.

Results of Operations

The following table sets forth income statement data forHistorically, the periods indicatedCompany has operated under one operating segment. However, as a percentageresult of revenue:

the acquisition of QGT, the Company created an additional segment in the first quarter of 2019. Fiscal Year 2017 Compared With Fiscal Year 2016We elected to reorganize our organizational and reporting structure to capture efficiencies and operating leverage from our recent acquisition of QGT. We now report results for two segments: Semiconductor Products and Solutions (“Products” or “SPS”) and Semiconductor Services Business (“Services” or “SSB”).

Sales

SalesOn April 15, 2019, we acquired substantially all of the assets of Dynamic Manufacturing Solutions, LLC ("DMS"), a semiconductor weldment and solutions provider. Under the terms of the Asset Purchase Agreement, we paid $29.9 million in cash for fiscal year 2017 increased $361.6DMS, subject to certain post-closing adjustments as provided in the Acquisition Agreement. We may pay up to $12.5 million or 64.3% to $924.4 million from $562.8 million for fiscal year 2016. The increase in sales reflects an increase in semiconductor sales of $350.6 million and an increase in non-semiconductor sales of $11.0 million. The increase in overall sales for fiscal year 2017 comparedadditional cash earn-out payments to the same period in fiscal year 2016 was due primarily to an increase informer owners of DMS if, post-acquisition, the volume of products shipped, which was attributable to an increase in customer demand from 2016 levels. On a geographic basis, sales in the U.S. increased $136.3 million to $428.6 million, or 46.4% of sales, for the year ended December 29, 2017 as compared to $292.3 million, or 52.0% of sales for the same period of 2016. Foreign sales increased by $225.4 million to $495.8 million, or 53.6% of sales, for the year ended December 29, 2017 compared to $270.4 million, or 48.0% of sales, for the same period of 2016. The increase in foreign sales is due primarily to the continuing migration ofcombined weldment business achieves certain business with a U.S. customer from our U.S. operations to our Singapore location as well as increased demand for our products in our foreign locations.

Gross Profit

Gross profit for fiscal year 2017 increased $80.8 million to $167.6 million, or 18.1% of sales, from $86.8 million, or 15.4% of sales, for fiscal year 2016. Our gross profit and gross margin increasedtargets for the twelve months ending June 26, 2020. DMS reports into the SPS segment.

We ship a majority of our products and provide most of our services to U.S. registered customers with locations both in fiscal year 2017 fromand outside the comparable period in 2016 dueU.S. In addition to higher sales volume, increased factory utilizationU.S. manufacturing and increased labor efficiency.

Researchservice operations, we manufacture products and Development Expense

Research and development expense consists primarily of activities related to new component testing and evaluation, test equipment and fixture development, product design,provide parts cleaning and other product development activities. Researchrelated services in our Asian and development expense for fiscal year 2017 was $11.7 million or 1.3%European facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries, Ultra Clean Technology Systems and Service, Inc., American Integration Technologies, LL, Ultra Clean Micro-Electronics Equipment (Shanghai) Co., Ltd., Ultra Clean Asia Pacific, Pte, Ltd., UCT Thermal Solutions, Inc., UCT Fluid Delivery Solutions s.r.o.(“FDS”), QGT and DMS. 

Over the long-term, we believe the semiconductor market we serve will continue to grow based on demand from a broad range of sales, compareddrivers, including applications such as autonomous vehicles, the Internet of Things, high performance computing, artificial intelligence, and technology to $9.9 million, or 1.8% of sales, for fiscal year 2016. The increase in research and development expense was duesupport the data sharing economy. We also believe that semiconductor equipment OEMs are increasingly relying on partners like UCT to an increase in non-production related engineering work and an increase in employee incentive compensation related expenses as a result of higher operating income.  

Sales and Marketing Expense

Sales and marketing expense consists primarily of salaries and commissions paid to our sales and service employees, salaries paid to our engineers who work with the sales and service employees to help determine the components and configuration requirements for new products and other costs related to the sales of our products. Sales and marketing expense increased approximately $2.1 million, or 18.8%, to $13.7 million, or 1.5% of sales, compared to $11.6 million, or 2.1% of sales, in the comparable period of 2016. The increase in sales and marketing expense was primarily due to higher employee compensation-related expenses resulting from an increase in headcount and increased bonuses due to increased operating profit.

General and Administrative Expense

General and administrative expense consists primarily of salaries and overhead associated with our administrative staff and professional fees. General and administrative expense increased $9.9 million, or 23.1%, to $52.8 million, or 5.6% of sales, for fiscal year 2017 compared to $42.9 million, or 7.6% of sales, for fiscal year 2016. The increase was primarily due higher employee compensation-related expenses due to an increase in headcount and increased bonuses due to increased operating profit and to an increase in outside services resulting from the non-capitalizeable implementation costs of our new enterprise reporting system.

Interest and Other Income (Expense), net

Interest and other income (expense) for fiscal year 2017 was $(2.5) million compared to $(3.4) million for fiscal year 2016. The decrease in net expense was primarily due to a decrease of $1.8 million related to the change in fair value of the Miconex contingent earn-out liability and due to a decrease in interest expense of $0.5 million resulting from the overall decrease in outstanding debt in fiscal year 2017. These decreases were offset by an increase in foreign exchange loss of $0.8 million in Czech Republic and in Asia and $0.3 million of grant monies received in 2016 from the Singapore Economic Development Board.fulfill their expanding capacity requirements.

Income Tax ProvisionCritical Accounting Estimates

Income tax expense was $11.9 million for fiscal year 2017 compared to $8.9 million for fiscal year 2016. Our effective tax rate for fiscal year 2017 was 13.6% compared to 46.9% for fiscal year 2016. The change in respective rates reflects, primarily, recently enacted US tax reform and changes in the geographic distribution of our worldwide earnings.  Our effective tax rate was lower than the statutory rates for fiscal year 2017 primarily due to the effects of tax reform and the geographic distribution of our worldwide earnings in foreign jurisdictions with lower tax rates as well as the impact of losses in jurisdictions with full federal and state valuation allowances.

For the year ended December 29, 2017, the Company concluded that a full valuation allowance against its U.S. federal and state deferred tax assets continues to be necessary. The total U.S. federal and state valuation allowance as of December 29, 2017 was $7.9 million.  

For the year ended December 29, 2017, the Company concluded that a full valuation allowance against one of its Singapore subsidiaries’ deferred tax assets continues to be necessary.  The total valuation allowance of the Singapore loss entity as of December 29, 2017 continues to be $0.2 million.

Our ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carry forward periods. In assessing our future taxable income, we have considered all sources of future taxable income available to realize our deferred tax assets, including the taxable income from future reversal of existing temporary differences, carry forwards, taxable income in carryback years and tax-planning strategies. If changes occur in the assumptions underlying our tax planning strategies or in the scheduling of the reversal of our deferred tax liabilities, the valuation allowance may need to be adjusted in the future.

For the year ended December 29, 2017, we determined that a portion of the current year earnings of one of our China subsidiaries may be remitted in the future to one of our foreign subsidiaries outside of mainland China and, accordingly, we provided for the related foreign withholding taxes in our consolidated financial statements. If we change our intent to reinvest our undistributed foreign earnings indefinitely or if a greater amount of undistributed earnings are needed than the previously anticipated remaining unremitted foreign earnings, we could be required to accrue or pay U.S. taxes on some or all of these undistributed earnings.

Fiscal Year 2016 Compared With Fiscal Year 2015

Sales

Sales for fiscal year 2016 increased $93.7 million, or 20.0% to $562.8 million from $469.1 million for fiscal year 2015. The increase in sales for the fiscal year ended 2016 when compared to the same period of 2015 reflects an increase in semiconductor sales of $75.1 million and an increase in non-semiconductor sales of $18.6 million. The increase in overall sales for fiscal year 2016 compared to the same period in fiscal year 2015 was due primarily to an increase in the volume of products shipped, which was attributable to an increase in customer demand from 2015 levels. On a geographic basis, sales in the U.S. decreased by $15.1 million to $292.3 million, or 52.0% of sales, for the year ended December 30, 2016 as compared to $307.4 million, or 65.5% of sales for the same period of 2015. Foreign sales increased by $108.7 million to $270.4 million, or 48.0% of sales, for the year ended December 30, 2016 as compared to $161.7 million, or 34.5% of sales, for the same period of 2015. The increase in foreign sales was due primarily to the full year of operations of Miconex in fiscal 2016 and the migration of certain business with a U.S. customer from our U.S. operations to our Singapore location.

Gross Profit

Gross profit for fiscal year 2016 increased to $86.8 million or 15.4% of sales, from $71.0 million, or 15.1% of sales, for fiscal year 2015. Our gross margin percentage and absolute dollars of gross profit increased in fiscal year 2016 from the comparable period in 2015 due to higher sales volume, a sales mix which included higher margin products and certain improvements in operational efficiencies at our manufacturing locations in the U.S., which typically deliver lower margins due to higher labor and overhead costs.

Research and Development Expense

Research and development expense for fiscal year 2016 was $9.9 million or 1.8% of sales, compared to $9.6 million, or 2.0% of sales, for fiscal year 2015. The increase in research and development expense in absolute dollars was due primarily to the full year inclusion of Miconex and Marchi’s research and development activities in 2016.

Sales and Marketing Expense

Sales and marketing expense increased approximately $0.1 million, or 0.6%, to $11.6 million, or 2.1% of sales, compared to $11.5 million, or 2.5% of sales, in the comparable period of 2015.

General and Administrative Expense

General and administrative expense decreased $1.2 million, or 2.7%, to $42.9 million, or 7.6% of sales, for fiscal year 2016 compared to $44.1 million, or 9.3% of sales, for fiscal year 2015. The decrease in absolute dollars was primarily due to a $2.4 million payment to our former CEO in the first quarter of 2015 upon his retirement and a $0.5 million write off of the tradename intangible we acquired from AIT in the fourth quarter of 2015, offset by an increase of $0.8 million due to the full year inclusion of Marchi and Miconex in 2016 and by an $0.8 million payment made to our former CFO upon his retirement on July 29, 2016.

Interest and Other Income (Expense), net

Interest and other income (expense) for fiscal year 2016 was $(3.4) million compared to $(2.2) million for fiscal year 2015. The increase in net expense was primarily due to an increase in the change in fair value of the Miconex contingent earn-out liability of $1.9 million, offset by a decrease in interest expense of $0.4 million resulting from the overall decrease in outstanding debt in fiscal year 2016 and of $0.3 million grants received from the Singapore Economic Development Board.

Income Tax Provision

Income tax expense was $8.9 million for fiscal year 2016 compared to $14.3 million for fiscal year 2015. Our effective tax rate for fiscal year 2016 was 46.9% compared to 397.5% for fiscal year 2015. The change in respective rates reflects, primarily, a charge in the fourth quarter of fiscal 2015 related to recording a full valuation allowance on our U.S. federal and state net deferred tax assets. Our effective tax rate was higher than the statutory rates for fiscal year 2016 primarily due to the geographic distribution of our worldwide earnings in foreign jurisdictions with lower tax rates as well as the impact of losses in jurisdictions with full federal and state valuation allowances.

During the year ended December 30, 2016, the Company concluded that a full valuation allowance against its U.S. federal and state deferred tax assets continued to be necessary.  The total U.S. federal and state valuation allowance as of December 30, 2016 was $23.6 million.

For the year ended December 30, 2016, the Company concluded that a full valuation allowance against one of its Singapore subsidiaries’ deferred tax assets continued to be necessary.  The total valuation allowance of the Singapore loss entity as of December 30, 2016 was $0.2 million.

Critical Accounting Policies, Significant Judgments and Estimates

Our consolidated financial statementsConsolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, which requiresrequire us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our consolidated financial statements. On an on-going basis, we evaluate our estimates and judgments, including those related to sales,revenues, inventories, goodwill, and intangible assets stock compensationand long-lived assets and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to revenue recognition, inventory valuation, accounting for income taxes, business combinations, valuation of goodwill, intangible assets and goodwill, and equity incentives to employeeslong-lived assets to be critical policies due to the estimates and judgments involved in each.

Revenue Recognition

Our revenuerevenues for fiscal years 2019, 2018 and 2017 2016 and 2015 waswere highly concentrated in a small number of OEM customers in the semiconductor capital equipment consumer, medical, energy, industrial and research industries.industry. Our standard arrangement for our customers includes a signed purchase order or contract, no right of return of delivered products and no customer acceptance provisions. Revenue from sales of products is recognized when:We perform the following five steps to determine when to recognize revenue: