| Basis of Presentation | Note 1—Basis of
Presentation
Basis of
Presentation
These consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles in the U.S.
(“GAAP”). All intercompany balances and transactions
have been eliminated upon consolidation. All financial figures
presented in the notes to consolidated financial statements are in
thousands, except share, per share, and percentage
figures.
Year
End
We use a 52 or 53 week
fiscal year ending on the last Friday in December. The three months
ended March 31, 2017 and March 25, 2016 were
both 13 weeks. References to the first quarter of 2017 and 2016
relate to the three months ended March 31, 2017 and
March 25, 2016, respectively.
Use of
Estimates
The preparation of
consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting periods presented. The Company bases its estimates
and judgments on historical experience and on various other
assumptions that it believes are reasonable under the
circumstances. Actual results could differ from the estimates made
by management. Significant estimates include the fair value of
assets and liabilities acquired in acquisitions, estimated useful
lives for long-lived assets, allowance for doubtful accounts,
inventory valuation, uncertain tax positions, fair value assigned
to stock options granted, and impairment analysis for both
definite-lived intangible assets and goodwill.
Accounting
Pronouncements Recently Issued
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
(Topic 606) (“ASU 2014-09”), Revenue from Contracts with Customers
(Topic 606)—Deferral of the Effective Date
In February 2016,
the FASB issued ASU No. 2016-02, Leases
(Topic 842)
In January 2017, the
FASB issued ASU No. 2017-04, Intangibles—Goodwill and
Other (Topic 350) | Note 1—Organization and
Summary of Significant Accounting Policies
Organization and
Operations of the Company
Ichor Holdings, Ltd. and
Subsidiaries (the Company) designs, develops, manufactures and
distributes gas and liquid delivery subsystems and complete tool
solutions purchased by capital equipment manufacturers for use in
the semiconductor markets. The Company is headquartered in Fremont,
California and has operations in the United States, United Kingdom,
Singapore, and Malaysia.
On December 30,
2011, Ichor Systems Holdings, LLC (Ichor Systems Holdings)
consummated a sales transaction with Icicle Acquisition Holdings,
LLC (Icicle), a Delaware limited liability company. Shortly after
consummation of the sale transaction, Icicle Acquisition Holdings,
LLC changed its name to Ichor Holdings, LLC (Ichor
Holdings).
In March 2012, Ichor
Holdings completed a reorganization of its legal structure, forming
Ichor Holdings, Ltd., a Cayman Islands entity. Ichor Holdings, Ltd.
is now the reporting entity and the ultimate parent company of the
operating entities.
In January 2016, the
Company decided to shut its Kingston, New York facility which was
the primary facility for the Precision Flow Technologies, Inc.
subsidiary. In May 2016, the Company ceased operations in this
facility and ended the relationship with the customer it served in
this location. The Company’s consolidated financial
statements and accompanying notes for current and prior periods
have been retroactively adjusted to present the results of
operations of the Precision Flow Technologies, Inc. subsidiary as
discontinued operations. In addition, the assets and liabilities to
be disposed of have been treated and classified as discontinued
operations. For more information on discontinued operations see
Note 15– Discontinued Operations
Basis of
Presentation
These consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles in the United States
(“GAAP”). All intercompany balances and transactions
have been eliminated upon consolidation. All financial figures
presented in the notes to consolidated financial statements are in
thousands, except share, per share, and percentage
figures.
These consolidated
financial statements include the following wholly owned
subsidiaries of Ichor Holdings, Ltd.:
•
FP-Ichor
Ltd. (Cayman)
•
Icicle
Acquisition Holding Coöperatief U.A.
•
Icicle
Acquisition Holding B.V.
•
Ichor
Holdings Ltd (Scotland).
•
Ichor
Systems Ltd. (Scotland)
•
Ichor
Holdings, LLC
•
Ichor
Systems, Inc.
•
Ichor
Systems Malaysia Sdn Bhd
•
Ichor
Systems Singapore Pte. Ltd.
•
Precision
Flow Technologies, Inc.
•
Ajax-United Patterns & Molds, Inc.
Public Offering and
Reverse Stock Split
On December 14,
2016, the Company completed an initial public offering
(“IPO”) of 5,877,778 ordinary shares at a price to the
public of $9.00 per share. The Company received net proceeds from
the offering of $47,103 after offering fees and expenses. The net
proceeds were used to repay $40,000 of the Company’s loans
outstanding under the Company’s Credit Facilities.
Immediately prior to the
IPO, the Company amended and restated its memorandum of association
to reflect the conversion of all outstanding preferred shares to
17,722,808 ordinary shares. As part of the IPO, the Company
authorized 200,000,000 ordinary shares at $0.0001 par value per
share. The Company also authorized the issuance of 20,000,000
preferred shares at $0.0001 par value per share, with no shares
outstanding.
In connection with the
IPO, the Company amended its memorandum of association to effect an
8.053363 for 1 reverse stock split of its common stock. Concurrent
with the reverse stock split, the Company adjusted the number of
shares subject to, and the exercise price of, its outstanding stock
options and restricted shares under the Company’s 2012
Amended Management Incentive Plan (the “2012 Plan”) so
that the holders of the options were in the same economic position
both before and after the stock split. As a result of the reverse
stock split, all previously reported share and per share amounts,
including options in these consolidated financial statements and
accompanying notes, have been retrospectively restated to reflect
the reverse stock split.
Year
End
We use a 52 or 53 week
fiscal year ending on the last Friday in December. The years ended
December 30, 2016, December 25, 2015, and
December 26, 2014 were 53 weeks, 52 weeks, and 52 weeks,
respectively. All references to 2016, 2015, and 2014 are references
to fiscal years unless explicitly stated otherwise.
Use of
Estimates
The preparation of
consolidated financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
periods presented. The Company bases its estimates and judgments on
historical experience and on various other assumptions that it
believes are reasonable under the circumstances. Actual results
could differ from the estimates made by management. Significant
estimates include the fair value of assets and liabilities acquired
in acquisitions, estimated useful lives for long-lived assets,
allowance for doubtful accounts, inventory valuation, uncertain tax
positions, fair value assigned to stock options granted, and
impairment analysis for both definite-lived intangible assets and
goodwill.
Revenue
Recognition The Company recognizes revenue in
accordance with Accounting Standards Codification (ASC)
Topic 605, Revenue Recognition
Concentration of
Credit Risk
Financial instruments
that subject the Company to credit risk consist of accounts
receivable, accounts payable and long-term debt.
The Company derived
approximately 97%, 95%, and 96% of its sales from continuing
operations from two customers during 2016, 2015, and 2014,
respectively. At December 30, 2016 and December 25, 2015,
those customers represented, in the aggregate, approximately 83%
and 79%, respectively, of the accounts receivable
balance.
Accounts receivable are
carried at invoice price less an estimate for doubtful accounts.
Payment terms vary by customer, but generally are due within
15–60 days. The Company reviews a customer’s
credit history before extending credit. The Company establishes an
allowance for doubtful accounts based upon the credit risk of
specific customers, historical trends, and other information.
Activity and balances related to the Company’s allowance for
doubtful accounts is as follows:
Allowance for
Balance at December 26,
2014 $ 385
Charges to costs and
expenses (6 )
Write-offs (256 )
Balance at December 25,
2015 123
Charges to costs and
expenses 71
Balance at December 30,
2016 $ 194
The Company requires
collateral, typically cash, in the normal course of business if
customers do not meet its criteria established for offering credit.
If the financial condition of the Company’s customers were to
deteriorate and result in an impaired ability to make payments,
additions to the allowance may be required. Accounts receivable are
written off when deemed uncollectible. Recoveries of accounts
receivable previously written off are recorded to income when
received.
The Company uses
qualified manufacturers to supply many components and subassemblies
of its products. The Company obtains the majority of its components
from a limited group of suppliers. A majority of the purchased
components used in the Company’s products are customer
specified. An interruption in the supply of a particular component
would have a temporary adverse impact on the Company’s
operating results.
The Company maintains
cash balances at both United States-based and foreign-based
commercial banks. At various times during the year, cash balances
in the United States will exceed amounts that are insured by the
Federal Deposit Insurance Corporation (FDIC). The majority of the
cash maintained in foreign-based commercial banks is insured by the
government where the foreign banking institutions are based. Cash
held in foreign-based commercial banks totaled $14,658 and $9,494
at December 30, 2016 and December 25, 2015, respectively.
No losses have been incurred at December 30, 2016 and
December 25, 2015 for the amounts exceeding the insured
limits.
Fair Value
Measurements
The Company estimates the
fair value of its financial assets and liabilities based upon
comparison of such assets and liabilities to the current market
values for instruments of a similar nature and degree of risk. The
Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to
the extent possible. The Company determines fair value based on
assumptions that market participants would use in pricing an asset
or liability in the principal or most advantageous market. When
considering market participant assumptions in fair value
measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized
in one of the following levels:
•
Level 1 Inputs: Unadjusted quoted prices in active markets
for identical assets or liabilities accessible to the reporting
entity at the measurement date
•
Level 2 Inputs: Other than quoted prices included in
Level 1 inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of
the asset or liability
•
Level 3 Inputs: Unobservable inputs for the asset or
liability used to measure fair value to the extent that observable
inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset or liability
at the measurement date
There were no changes to
the Company’s valuation techniques during 2016. The
Company’s financial assets and liabilities include cash,
accounts receivable, accounts payable, and debt. The Company
estimates that the recorded value of its financial assets and
liabilities approximates fair value at December 30, 2016 and
December 25, 2015.
The Company estimates the
value of intangible assets on a nonrecurring basis based on an
income approach utilizing discounted cash flows. Under this
approach, the Company estimates the future cash flows from its
asset groups and discounts the income stream to its present value
to arrive at fair value. Future cash flows are based on recently
prepared operating forecasts. Operating forecasts and cash flows
include, among other things, revenue growth rates that are
calculated based on management’s forecasted sales
projections. A discount rate is utilized to convert the forecasted
cash flows to their present value equivalent. The discount rate
applied to the future cash flows includes a subject-company risk
premium, an equity market risk premium, a beta, and a risk-free
rate. As this approach contains unobservable inputs, the
measurement of fair value for intangible assets is classified as
Level 3.
At December 30,
2016, intangible assets passed the recoverability test resulting in
no impairment. At December 25, 2015, certain intangibles
assets associated with our Kingston facility did not pass the
recoverability test, and the Company recorded an impairment charge
of $1,825. See Note 15— Discontinued Operations
Our goodwill assessment
performed in the fourth quarter of 2016 and 2015 did not indicate
impairment of goodwill.
Inventories
Inventories are stated at
the lower of cost or market. The majority of inventory values are
based upon standard costs that approximate average
costs.
The Company analyzes its
inventory levels and records a write-down for inventory that has
become obsolete, inventory that has a cost basis in excess of its
expected net realizable value, and inventory in excess of expected
customer demand. Various factors are considered in making this
determination, including recent sales history and predicted trends,
industry market conditions, and general economic conditions. The
Company recorded inventory write-downs of $3,921, $3,000, and
$1,511 during 2016, 2015, and 2014, respectively. Included in these
write-downs are $1,999, $1,506, and $403, related to the Kingston,
New York operation during 2016, 2015, and 2014,
respectively.
Property and
Equipment
Property, plant and
equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the
following estimated useful lives:
Estimated useful
Machinery 5-10
Leasehold improvements Lesser of 15 years
Computer software, hardware, and
equipment 3-5
Office furniture, fixtures, and
equipment 5-7
Vehicles 5 years
Maintenance and repairs
that neither add materially to the value of the asset nor
appreciably prolong its useful life are charged to expense as
incurred. Gains or losses on the disposal of property and equipment
are included in selling, general and administrative expenses on the
consolidated statements of operations.
Long-Lived
Assets
Long-lived assets are
reviewed for impairment whenever events or changes in circumstances
indicate, in management’s judgment, that the carrying amount
of an asset (or asset group) may not be recoverable. In analyzing
potential impairments, projections of future cash flows from the
asset group are used to estimate fair value. If the sum of the
expected future undiscounted cash flows is less than the carrying
amount of the asset group, a loss is recognized for the difference
between the estimated fair value and the carrying value of the
asset group. The projections are based on assumptions, judgments
and estimates of revenue growth rates for the related business,
anticipated future economic, regulatory and political conditions,
the assignment of discount rates relative to risk, and estimates of
terminal values.
In connection with the
decision to exit the Kingston, New York facility in 2016, as
discussed in Note 15— Discontinued Operations
Other Non-Current
In conjunction with the
acquisition of Ajax, which occurred on April 12, 2016, the
Company acquired two investments and a note receivable that were
recorded at fair value on the date of acquisition: a cost method
investment in a private company, CHawk Technology International,
Inc., of approximately $1,490, an equity method investment in a
private company, Ajax Foresight Global Manufacturing Sdn. Bhd.
(“AFGM”), of $510, and a note receivable of $948 due
from AFGM. The Company accounts for these investments on the cost
and equity method, respectively, as the Company does not control
either entity. The Company recorded $240 in equity in earnings of
AFGM in 2016, which is included in other expense (income), net on
the statements of operations. At December 30, 2016 AFGM had a
carrying value of $750. At the end of each reporting period the
Company determines whether events or circumstances have occurred
that are likely to have a significant adverse effect on the fair
value of these investments and note receivable. At
December 30, 2016, no such circumstances have been
identified.
Intangible
Assets
The Company accounts for
its intangible assets that have a definite life and are amortized
on a basis consistent with their expected cash flows over the
following estimated useful lives:
Estimated useful
Trademarks 10 years
Customer relationships 10 years
Developed technology 7 years
Goodwill
Goodwill represents the
future economic benefits arising from other assets acquired in a
business combination that are not individually identified and
separately recognized. The Company reviews goodwill for impairment
annually and whenever events or changes in circumstances indicate
the carrying value of goodwill may not be recoverable. We first
make a qualitative assessment of whether it is more likely than not
that a reporting unit’s fair value is less than its carrying
amount before applying the two-step
The Company performed a
qualitative goodwill assessment in the fourth quarter of 2016 and
2015. Our goodwill assessment performed in 2016 and 2015 indicated
that it was more likely than not the fair value of goodwill
exceeded the carrying value.
Research and
Development Costs
Research and development
costs are expensed as incurred.
Warranty
Costs
The Company’s
product warranties vary by customer, but generally extend for a
period of one to two years from the date of sale. Provisions for
warranties are determined primarily based on historical warranty
cost as a percentage of sales, adjusted for specific problems that
may arise. Historical product warranty expense has not been
significant.
Advertising
Costs
The Company charges
advertising costs to operations as incurred. Advertising costs were
not significant and are included in selling, general and
administrative expenses in the accompanying consolidated statements
of operations.
Self-Insurance
The Company sponsors a
self-insured medical plan for employees and their dependents. A
third party is engaged to assist in estimating the loss exposure
related to the self-retained portion of the risk associated with
this insurance.
Special
Bonus
On August 11, 2015,
the Board of Directors instituted a special bonus to certain
members of management totaling $3,110, of which $1,761, $205, and
$132 was earned and recorded as a component of selling, general,
and administrative, research and development, and cost of sales,
respectively, in 2015. The remaining $1,012 could be earned by
certain members of management through the fourth quarter of 2018
based on their continued employment. In December 2016 the Board of
Directors approved that all remaining special bonus was earned and
to be paid in December 2016. During 2016, the Company expensed $621
related to the special bonus, including the amount earned in the
fourth quarter of 2016. The remaining amount of the bonus was
forfeited due to employee terminations. Management does not expect
to pay bonuses of this nature in future periods.
Share-Based
Payments
The Company uses the
Black-Scholes option-pricing model to value the awards on the date
of grant. The Company uses the simplified method to estimate the
expected term of its share-based awards for all periods, as the
Company did not have sufficient history to estimate the weighted
average expected term. The risk-free interest rate is based on the
U.S. Treasury rates in effect during the corresponding period of
grant. Estimated volatility for 2016, 2015, and 2014 is based on
historical volatility of similar entities whose share prices are
publicly traded.
Income
Taxes
The Company recognizes
deferred income taxes using the asset and liability method of
accounting for income taxes. Under the asset and liability method,
deferred income taxes are recognized for differences between the
financial reporting and tax bases of assets and liabilities at
enacted statutory tax rates in effect for the years in which the
differences are expected to reverse. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense for the current year differs
from the statutory rate primarily as a result of an increase in the
valuation allowance in the U.S. and the impact of foreign
operations, including withholding taxes, as well as a discrete tax
benefit of approximately $2,271 that was recorded in association
with certain tax attributes from the Ajax acquisition (see
Note 2— Ajax-United Patterns & Molds,
Inc. Acquisition
The Company files federal
income tax returns, foreign income tax returns, as well as multiple
state and local tax returns. The Company is no longer subject to US
Federal examination for tax years ending before 2013, to state
examinations before 2012, or to foreign examinations before 2011.
However, to the extent allowed by law, the tax authorities may have
the right to examine prior periods where net operating losses or
tax credits were generated and carried forward, and make
adjustments up to the amount of the net operating losses or credit
carryforward.
When tax returns are
filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others
may be subject to uncertainty about the merits of the position
taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the
consolidated financial statements in the period during which, based
on all available evidence, management believes it is more likely
than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or aggregated with other
positions. Tax positions that meet the more-likely than-not
Foreign
Operations
The functional currency
of the Company’s international subsidiaries located in the
United Kingdom, Singapore, and Malaysia, is the U.S. dollar.
Transactions denominated in currencies other than the functional
currency generate foreign exchange gains and losses that are
included in other expense (income), net on the accompanying
consolidated statements of operations. Substantially, all of the
Company’s sales and agreements with third-party suppliers
provide for pricing and payments in U.S. dollars and, therefore,
are not subject to material exchange rate fluctuations. Foreign
operations consist of sales of $241,669, $173,735, and $143,446,
during 2016, 2015, and 2014, respectively. Assets of foreign
operations totaled $90,374 and $52,852 at December 30, 2016
and December 25, 2015, respectively.
Accounting
Pronouncements Recently Adopted
In June 2014, the FASB
issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting
for Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service
Period 2014-12”). 2014-12 2014-12 2014-12
In April 2015, the FASB
issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): 2015-03”). 2015-03
In July 2015, the FASB
issued ASU No. 2015-11, Inventory (Topic
330): Simplifying the Measurement of Inventory 2015-11”), last-in, first-out 2015-11 2015-11
In September 2015, the
FASB issued ASU 2015-16 , Business Combinations
(Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments 2015-16”). 2015-16 Ajax-United Patterns & Molds, Inc.
Acquisition
In November 2015, the
FASB issued ASU No. 2015-17, Income Taxes
(Topic 740): Balance Sheet Classification of Deferred Taxes 2015-17”), 2015-17 2015-17
In March 2016, the FASB
issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting 2016-09”). 2016-09
Accounting
Pronouncements Recently Issued
In May 2014, the FASB
issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), 2014-09
In February 2016, the
FASB issued ASU No. 2016-02, Leases (Topic
842) 2016-02”). non-public |
