UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 28, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
000-50646
Ultra
Clean Holdings, Inc.
(Exact
name of Registrant as specified in its charter)
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Delaware
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61-1430858
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(State or other jurisdiction
of
incorporation or organization)
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(IRS Employer
Identification No.)
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150 Independence Drive
Menlo Park, California
(Address of principal
executive offices)
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94025-1136
(Zip
Code)
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Registrant’s telephone number, including area code:
(650) 323-4100
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Global Market LLC
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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
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No
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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
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No
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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
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No
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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.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
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Non-accelerated
filer
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Smaller reporting
company
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the
Act). Yes
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No
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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 29, 2007, as reported on the NASDAQ Global Market, was
approximately $265.7 million. Shares of common stock held
by each executive officer and director and by each person who
may be deemed to be an affiliate of the Registrant 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 28, 2008: 21,578,406
Portions of the registrant’s definitive proxy statement to
be delivered to stockholders in connection with the 2008 annual
meeting of stockholders are incorporated by reference in
Part III of this
Form 10-K.
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PART I
This Annual Report on
Form 10-K
contains forward-looking statements regarding future events and
our future results. These statements are based on current
expectations, estimates, forecasts, and projections about the
industries in which we operate and the beliefs and assumptions
of our management. Words such as “expects,”
“anticipates,” “targets,” “goals,”
“projects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,”
“continues,” “may,” variations of such
words, and similar expressions are intended to identify such
forward-looking statements. 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), 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.
Overview
We are a leading developer and supplier of critical subsystems,
primarily for the semiconductor capital equipment industry. We
also leverage the specialized skill sets required to support
semiconductor capital equipment to serve the technologically
similar markets in the flat panel, solar and medical device
industries, collectively referred to as “Other Addressed
Industries”. We develop, design, prototype, engineer,
manufacture and test subsystems which are highly specialized and
tailored to specific steps in the semiconductor manufacturing
process as well as in Other Addressed Industries. Our revenue is
derived from the sale of gas delivery systems and other critical
subsystems including chemical mechanical planarization (CMP)
subsystems, chemical delivery modules, top-plate assemblies,
frame assemblies, process modules and other high level
assemblies.
Our customers are primarily original equipment manufacturers
(OEMs) in the industries we support. We provide our customers
complete subsystem solutions that combine our expertise in
design, test, component characterization and highly flexible
manufacturing operations with quality control and financial
stability. This combination helps us to drive down total
manufacturing costs, reduce design-to-delivery cycle times and
maintain high quality standards for our customers. We believe
these characteristics, as well as our standing as a leading
supplier of gas delivery systems and other critical subsystems,
place us in a strong position to benefit from the growing demand
for subsystem outsourcing.
We had sales of $403.8 million, $337.2 million, and
$147.5 million for the 2007, 2006 and 2005 fiscal years,
respectively. Our three largest customers in 2007 were Applied
Materials, Inc., Lam Research Corporation and Novellus Systems,
Inc. To date, we have shipped substantially all of our products
to customers in the United States. Our international sales
represented 2.2%, 4.9%, and 5.5% of sales for the years ended
December 28, 2007, December 29, 2006 and
December 30, 2005, respectively. We conduct our operating
activities primarily through our four wholly owned subsidiaries,
Ultra Clean Technology Systems and Service, Inc., UCT-Sieger
Engineering LLC, Ultra Clean Technology (Shanghai) Co., Ltd and
Ultra Clean Micro-Electronics Equipment (Shanghai) Co., Ltd.
Ultra Clean Holdings, Inc. was founded in November 2002 for the
purpose of acquiring Ultra Clean Technology Systems and Service
Inc. Ultra Clean Technology Systems and Service, Inc. was
founded in 1991 by Mitsubishi Corporation and was operated as a
subsidiary of Mitsubishi until November 2002, when it was
acquired by Ultra Clean Holdings, Inc. Ultra Clean Holdings,
Inc. became a publicly traded company in March 2004. In
June 2006, we completed the acquisition of Sieger. The total
purchase price was approximately $53.5 million and was
comprised of cash consideration of $32.4 million, including
acquisition costs of $1.4 million, and stock consideration
of $21.1 million. Our subsidiary, UCT-Sieger, is a supplier
of CMP modules and other critical subsystems to the
semiconductor, solar and flat panel and medical device
industries. We believe that the
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acquisition enhanced our strategic position as a subsystem
supplier. Ultra Clean Technology (Shanghai) Co., Ltd and Ultra
Clean Micro-Electronics Equipment (Shanghai) Co., Ltd. were
established in 2005 and 2007, respectively, to facilitate our
operations in China.
Our
Solution
We are a leading developer and supplier of critical subsystems
for the semiconductor capital equipment industry and Other
Addressed Markets. Our products enable our OEM customers to
realize lower manufacturing costs and reduced design-to-delivery
cycle times while maintaining quality standards. We offer our
customers:
An integrated outsourced solution for gas delivery systems
and other critical subsystems.
We provide our OEM
customers a complete outsourced solution for the development,
design, prototyping, engineering, manufacturing and testing of
advanced gas delivery systems and other critical subsystems. We
combine highly specialized engineering and manufacturing
capabilities to produce high performance products that are
customized to meet the needs of our customers, as well as their
respective end users. We manage supply chain logistics in an
effort to reduce the overall number of suppliers and inventory
levels that our customers would otherwise be required to manage.
We also believe we are often in a position to negotiate reduced
component prices due to our large volume orders.
Improved design-to-delivery cycle times.
Our
strong relationships with our customers and intimate familiarity
with their products and requirements help us reduce
design-to-delivery cycle times for gas delivery systems or other
critical subsystems. We have optimized our supply chain
management, design and manufacturing coordination and controls
to respond rapidly to order requests, enabling us to decrease
design-to-delivery cycle times for our customers.
Component neutral design and manufacturing.
We
do not manufacture any of the components within our gas delivery
systems and other critical subsystems ourselves. Our component
neutral position enables us to recommend components on the basis
of technology, performance and cost and to optimize our
customers’ overall designs based on these criteria.
Furthermore, our neutral approach allows us to maintain close
relationships with a wide range of component suppliers.
Component testing capabilities.
We utilize our
engineering expertise to test and characterize key components
and subsystems. We have made significant investments in advanced
analytical and automated test equipment to test and qualify key
components. We can perform diagnostic tests, design verification
and failure analysis for customers and suppliers. Our analytical
and testing capabilities enable us to evaluate multiple supplier
component technologies and provide customers with a wide range
of appropriate component and design choices for their subsystems.
Increased integration with OEMs through local
presence.
Our local presence in close proximity
to the facilities of most of our OEM customers enables us to
remain closely integrated with their design, development and
implementation teams. This level of integration enables us to
respond quickly and efficiently to customer changes and requests.
Precision machining capabilities.
We
manufacture high quality, precision machined parts using state
of the art equipment capable of efficiently providing complex
parts with exacting tolerance. Our diverse precision fabrication
equipment enables us to manufacture a broad range of machined
parts using a broad range of materials, from exotic metals to
basic plastics. Our manufacturing capabilities include
horizontal and vertical milling, turning and welding.
Our
Strategy
Our objective is to maintain our position as a leading developer
and supplier of gas delivery systems and become a leading
developer and supplier of other critical subsystems, primarily
for the semiconductor capital equipment, flat panel, solar and
medical device industries. Our strategy is comprised of the
following key elements:
Continue to expand our market share with Semiconductor
Capital Equipment OEMs.
We believe that the
increase in outsourcing among OEMs creates a significant market
opportunity for us to grow our business with existing and new
customers. While gas delivery systems are already largely
outsourced, we believe our customers
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will continue to outsource other critical subsystems at a rapid
pace and that we are well positioned to capture a significant
portion of these new outsourcing opportunities. We believe that
our continued focus on efficient manufacturing, reduced
design-to-delivery cycle times and quality and reliability will
also allow us to gain market share.
Continue to expand our market share in Other Addressed
Markets:
We believe we can leverage the
attributes and skill sets which allow us to succeed in the
Semiconductor Capital Equipment industry to increase our market
share in technologically similar markets including flat panel,
solar and medical device industries.
Leverage our expanding geographic presence in lower cost
manufacturing regions.
In March 2005, we
completed construction of a manufacturing facility in Shanghai,
China, allowing us to expand production in a low cost region. In
November 2007, we completed construction of a second
manufacturing facility in Shanghai, China to house our precision
machined parts and subsystem assembly operations. These
facilities put us in close proximity to the manufacturing
facilities of potential customers and their end users.
Drive profitable growth with our flexible cost
structure.
We implement cost containment and
capacity enhancement initiatives throughout the semiconductor
capital equipment demand cycle and benefit greatly from our
supply chain efficiencies. In addition, we believe our Shanghai
facilities position us to respond effectively to future business
demands.
Continue to selectively pursue strategic
acquisitions.
On June 29, 2006, with the
Sieger acquisition, we:
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Increased our presence in the subsystem market, adding CMP to
our addressable market;
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Expanded existing key customer relationships and added strategic
new customers;
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Increased our size and scope;
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Increased the operating leverage derived from our existing
presence in China; and,
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Increased our earnings per share.
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We may choose to further accelerate the growth of our business
by selectively pursuing additional strategic acquisitions. We
will continue to consider acquisitions that will enable us to
expand our geographic presence, secure new customers and
diversify into complementary products and markets as well as
broaden our technological capabilities in semiconductor capital
equipment manufacturing.
Products
We develop, design, prototype, engineer, manufacture and test
subsystems, primarily for the semiconductor capital equipment
industry, flat panel, solar and medical device industries. A
majority of our products consist of gas delivery systems that
enable the precise delivery of numerous specialty gases used in
a majority of the key steps in the semiconductor manufacturing
process, including deposition, etch, cleaning and annealing. Our
gas delivery systems control the flow, pressure, sequencing and
mixing of specialty gases into and out of the reaction chambers
of semiconductor manufacturing tools. Our products also include
other critical subsystems, including chemical mechanical
planarization modules, chemical delivery modules, top-plate
assemblies, frame assemblies and process modules.
Gas delivery systems:
A typical gas delivery
system consists of one or more gas lines, comprised of several
filters, mass flow controllers, regulators, pressure transducers
and valves, associated interconnect tubing and an integrated
electronic
and/or
pneumatic control system. These systems are mounted on a pallet
and are typically enclosed in a sheet metal encasing. Our gas
delivery system designs are developed in collaboration with our
customers and are customized to meet the needs of specific OEMs.
We do not sell standard systems. Our customers either specify
the particular brands of components they want incorporated into
a particular system or rely on our design expertise and
component characterization capabilities to help them select the
appropriate components for their particular system.
Chemical mechanical planarization (CMP) electro-mechanical
subsystems:
CMP is a process used to polish off
high spots on wafers or films deposited on wafers. CMP equipment
represents the front end “polishing” step in
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semiconductor manufacturing. We produce over 40 different CMP
subsystem modules for one of our largest customers.
Chemical delivery modules:
Chemical delivery
modules deliver gases and reactive chemicals from a centralized
subsystem to the reaction chamber and may include gas delivery
systems, as well as liquid and vapor delivery systems.
Top-plate assemblies:
Top-plate assemblies
form the top portion of the reaction chamber within which gases
controlled by our gas delivery systems react to form thin films
or etch films on the wafer.
Frame assemblies:
Frame assemblies are steel
tubing that form the support structure to which all other
assemblies are attached and include pneumatic harnesses and
cables that connect other critical subsystems together.
Process modules:
Process modules refer to the
larger subsystems of semiconductor manufacturing tools that
process integrated circuits onto wafers. Process modules include
several smaller subsystems such as the frame assembly, top-plate
assembly and gas and chemical delivery modules, as well as the
chamber and electronic, pneumatic and mechanical subsystems.
Other high level assemblies:
Other high
level assemblies refer to large subsystems used in
semiconductor manufacturing, solar, flat panel and medical
device industries.
Customers
We sell our products to semiconductor capital equipment, solar,
flat panel and medical device industry OEMs. The majority of our
revenue is in the semiconductor capital equipment industry,
which is highly concentrated, and we are therefore highly
dependent upon a small number of customers. Our three largest
customers in 2007 were Applied Materials, Inc., Lam Research
Corporation and Novellus Systems, Inc. and each accounted for
more than 10% of our total sales in 2007. As a percentage of
total revenue, sales to our three largest customers combined
were 83%, 86% and 89% for the 2007, 2006 and 2005 fiscal years,
respectively. The level of our customer concentration has
slightly declined in recent years due to our growth into
adjacent markets, a trend which we expect to continue as we
reinforce and expand our relationship with new, potentially
significant customers.
We have successfully qualified as a supplier with each of our
customers. 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 before that customer
places orders for our products. Our customers generally place
orders with suppliers who have met and continue to meet their
qualification criteria.
Sales and
Support
We sell our products through our direct sales force which, as of
December 28, 2007, consisted of a total of 45 sales
directors, account managers and sales support staff. Our sales
directors are responsible for establishing sales strategy and
setting the objectives for specific customer accounts. Each
account manager is dedicated to a specific customer account and
is responsible for the day-to-day management of that customer.
Account managers work closely with customers and in many cases
provide
on-site
support. Account 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. Account managers
also work with our customers to identify and meet their cost and
design-to-delivery cycle time objectives.
We have dedicated account managers responsible for new business
development for gas delivery systems and other critical
subsystems. Our new business development account managers
initiate and develop long-term, multilevel relationships with
customers and work closely with customers on new business
opportunities throughout the design-to-delivery cycle. Our sales
force includes technical sales support for order placement,
spare parts quotes and production status updates. We have a
technical sales representative located at each of our
manufacturing facilities. In addition, we have developed a
service and support infrastructure to provide our customers with
service and support 24 hours a day, seven days a week. Our
dedicated field service engineers provide customer support
through the performance of
on-site
installation, servicing and repair of our subsystems.
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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. We
have a technology development group which, as of
December 28, 2007, consisted of five individuals, two of
whom hold doctoral degrees. In addition, our design engineering
and new product engineering groups support our technology
development activities. Our technology development group works
closely with our customers to identify and anticipate changes
and trends in next-generation semiconductor manufacturing
equipment. Our technology development group participates in
customer technology partnership programs that focus on process
application requirements for gas 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 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 the requirements in component features for
next-generation gas delivery systems and other critical
subsystems. We are also developing additional features to
improve the performance and functionality of our gas delivery
systems and other critical subsystems. Our technology
development and new product engineering expenses were
approximately $2.9 million, $3.1 million and
$2.4 million for the 2007, 2006 and 2005 fiscal years,
respectively. We perform our technology development activities
principally at our facilities in Menlo Park, California.
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 is largely dependent upon our design, engineering,
manufacturing and testing 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. As of December 28, 2007, we
had seven issued United States patents, all of which expire in
2018, and we had five United States patent applications pending.
None of our issued patents is material to our business.
Intellectual property that we develop on behalf of our customers
is generally owned exclusively by those customers.
We routinely 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 as well as the
internal manufacturing groups of OEMs. In addition, OEMs that
have elected to outsource their gas delivery systems and other
critical subsystems could elect in the future to develop and
manufacture these subsystems internally, leading to further
competition. Our principal competitors for our gas delivery
systems are Celerity Group, Inc., Integrated Flow Systems, LLC,
Matheson Tri-Gas, Inc. and Wolfe Engineering, Inc., and our
principal competitors for other critical subsystems are Allegro
MicroSystems, Inc., Flextronics International Ltd., Fox Semicon
Integrated Tech Inc. and Sanmina-SCI Corporation. 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, the limited number of
potential customers in our industry further intensifies
competition. The primary competitive factors in our industry are
price, technology, quality, design-to-delivery cycle time,
reliability in meeting product demand, service 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.
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Employees
As of December 28, 2007, we had 1,027 employees, of
which 176 were temporary. Of our total employees, there were 93
in engineering, 5 in technology development, 45 in sales and
support, 471 in direct manufacturing, 329 in indirect
manufacturing and 84 in executive and administrative functions.
These figures include 213 employees in Shanghai, China.
None of our employees is 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 wastes, as well as
practices and procedures applicable to the construction and
operation of our facilities. Our past or future operations may
result in exposure to 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 operated in substantial compliance with applicable
regulations. However, new, modified or more stringent
requirements or enforcement policies could be adopted, which
could adversely affect us.
Available
Information
We file with the 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 facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 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.
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 28, 2007:
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Name
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Age
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Position
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Clarence L. Granger
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Chairman & Chief Executive Officer
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David Savage
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President and Chief Operating Officer
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Jack Sexton
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Vice President and Chief Financial Officer
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Bruce Wier
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Senior Vice President of Engineering
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Deborah Hayward
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Senior Vice President of Sales
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Sowmya Krishnan, Ph.D.
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Vice President of Technology and Chief Technology Officer
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Clarence L. Granger
has served as our
Chairman & Chief Executive Officer since October 2006,
as our Chief Executive Officer since November 2002, as Chief
Operating Officer since March 1999 and as a member of our board
of directors since May 2002. Mr. Granger served as our
Executive Vice President and Chief Operating Officer from
January 1998 to March 1999 and as our Executive Vice President
of Operations from April 1996 to January 1998. Prior to
joining Ultra Clean in April 1996, he served as Vice President
of Media Operations for Seagate Technology from 1994 to 1996.
Prior to that, Mr. Granger worked for HMT Technology as
Chief Executive Officer from 1993 to 1994, as Chief Operating
Officer from 1991 to 1993 and as President from 1989 to 1994.
Prior
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to that, Mr. Granger worked for Xidex as Vice President and
General Manager, Thin Film Disk Division, from 1988 to 1989, as
Vice President, Santa Clara Oxide Disk Operations, from
1987 to 1988, as Vice President, U.S. Tape Operations, from
1986 to 1987 and as Director of Engineering from 1983 to 1986.
Mr. Granger holds a master of science degree in industrial
engineering from Stanford University and a bachelor of science
degree in industrial engineering from the University of
California at Berkeley.
David Savage
has served as our President since January
2008. Before joining Ultra Clean, Mr. Savage was Chief
Executive Officer of Litel Instruments, Inc., a semiconductor
optical metrology business from March 2007 to July 2007. Prior
to Litel, Mr. Savage was the President, Electronics
Division of Meggitt USA, Inc. where he led a division
focusing on high performance sensors from September 2002 to
March 2007. Prior to Meggitt, Mr. Savage founded and served
as Chief Executive Officer of DigMedia, a media delivery
business focused on broadband service providers from October
1998 to August 2002. Mr. Savage holds a bachelor degree in
metallurgical engineering from Sheffield Hallam University in
Sheffield, England. He holds several patents in nuclear and
semiconductor packaging materials.
Jack Sexton
has served as our Vice President and Chief
Financial Officer since May 2005. Before joining Ultra Clean,
Mr. Sexton was Corporate Controller of Credence Systems
Corporation, a manufacturer of test equipment and diagnostics
and failure analysis products used for testing semiconductor
integrated circuits. He was Controller and Chief Accounting
Officer of NPTest from May 2002 until its sale to Credence in
May 2004. Prior to NPTest, Mr. Sexton was Worldwide
Controller for Schlumberger Resource Management Services, now
Actaris Metering Systems. Mr. Sexton joined Schlumberger in
1990, prior to which he was a plant operations controller for
Texas Instruments. Mr. Sexton holds two Bachelor of Science
degrees, in finance and accounting from the Carroll School of
Management at Boston College, where he graduated magna cum
laude. He is also a Certified Public Accountant.
Bruce Wier
has served as our Senior Vice President of
Engineering since January 2007 and Vice President of Engineering
since February 2000. Mr. Wier served as our Director of
Design Engineering from July 1997 to February 2000. Prior to
joining Ultra Clean in July 1997, Mr. Wier was the
Engineering Manager for the Oxide Etch Business Unit at Lam
Research from April 1993 to June 1997. Prior to that,
Mr. Wier was the Senior Project Engineering Manager at
Genus from May 1990 to April 1993, the Mechanical Engineering
Manager at Varian Associates from November 1985 to May 1990, and
the Principal Engineer/ Project Manager at Eaton Corporation
from February 1981 to November 1985. Mr. Wier is also on
the board of directors of, and is the Chief Financial Officer
for, Acorn Travel, a travel company formed by his wife in 1999.
Mr. Wier holds a bachelor of science degree
cum laude
in mechanical engineering from Syracuse University.
Deborah Hayward
has served as our Senior Vice President
of Sales since January 2007 and Vice President of Sales since
October 2002. Ms. Hayward served as our Senior Sales
Director from May 2001 to October 2002, as Sales Director from
February 1998 to May 2001 and as a major account manager from
October 1995 to February 1998. Prior to joining Ultra Clean
in 1995, she was a customer service manager and account manager
at Brooks Instruments from 1985 to 1995.
Sowmya Krishnan, Ph.D.
has served as our Vice
President of Technology since January 2004 and as our Chief
Technology Officer since February 2001. Dr. Krishnan served
as our Director of Technology Development from January 1998 to
January 2001, as Manager of Technology Development from January
1995 to December 1997 and as manager of a joint evaluation
program between Ultra Clean and VLSI Technology from February
1994 to December 1994. Dr. Krishnan holds a master of
science degree in chemical engineering and a doctorate degree in
chemical engineering from Clarkson University.
The
highly cyclical nature of the semiconductor capital equipment
industry and general economic slowdowns could harm our operating
results.
Our business and operating results depend in significant part
upon capital expenditures by manufacturers of semiconductors,
which in turn depend upon the current and anticipated market
demand for semiconductors. Historically, the semiconductor
industry has been highly cyclical, with recurring periods of
over-supply of semiconductor products that have had a severe
negative effect on the demand for capital equipment used to
9
manufacture semiconductors. We have experienced and anticipate
that we will continue to experience significant fluctuations in
customer orders for our products. Our sales were $403.8 million,
$337.2 million,and $147.5 million for fiscal years
2007, 2006 and 2005, respectively. Historically, semiconductor
industry slowdowns have had, and future slowdowns may have, a
material adverse effect on our operating results.
In addition, uncertainty regarding the growth rate of economies
throughout the world has from time to time caused companies to
reduce capital investment and may in the future cause reduction
of such investments. These reductions have often been
particularly severe in the semiconductor capital equipment
industry.
We
rely on a small number of customers for a significant portion of
our sales, and any impairment of our relationships with these
customers would adversely affect our business.
A relatively small number of OEM customers have historically
accounted for a significant portion of our sales, and we expect
this trend to continue. Applied Materials, Inc., Lam Research
Corporation and Novellus Systems, Inc., collectively, accounted
for 83%, 86% and 89% of our sales in fiscal years 2007, 2006 and
2005, respectively. Because of the small number of OEMs in our
industry, 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. Consolidation among our customers or a
decision by any one or more of our customers to outsource all or
most manufacturing and assembly 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 of our customers’ size and the
significant portion of revenue that we derive from them, they
are able to exert significant influence and pricing pressure in
the negotiation of our commercial agreements and the conduct of
our business with them. We may also be asked to accommodate
customer requests that extend beyond the express terms of our
agreements in order to maintain our relationships with our
customers. If we are unable to retain and expand our business
with these customers on favorable terms, our business and
operating results will be adversely affected.
We have had to qualify, and are required to maintain our status,
as a supplier for each of our customers. This is 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 minimal because of
these qualification requirements. Consequently, 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.
We
have experienced and may continue to experience difficulties
with our new enterprise resource planning (ERP) system, which we
implemented during the fourth quarter of fiscal 2007, and which
has impacted and could further impact our results of
operation.
We have experienced and may continue to experience, difficulties
with our new ERP system. For example, in the fourth quarter of
fiscal 2007, increased year-end rescheduling actions by our
customers, combined with the difficulties we experienced with
our new ERP system, resulted in inefficiencies which drove
higher operating costs. We plan to implement our new ERP system
in our China facilities during the fourth quarter of fiscal
2008. Difficulties related to implementing and working with a
new ERP system have adversely effected and could disrupt our
ability to timely and accurately process and report key
components of the results of a consolidated operations, our
financial position and cash flows. Any disruptions or
difficulties that may occur in connection with this new ERP
system could further adversely affect our ability to complete
the evaluation of our internal controls and attestation
activities required by SOX 404. System failure or malfunctioning
may result in disruption of operations and the inability to
process transactions and could adversely affect our financial
results.
We may
not be able to integrate efficiently the operations of past and
future acquired businesses.
We have made, and may in the future consider making, additional
acquisitions of, or significant investments in, businesses that
offer complementary products, services, technologies or market
access. For example, we acquired
10
Sieger Engineering, Inc. in June 2006. If we are to realize the
anticipated benefits of past and future acquisitions or
investments, the operations of these companies must be
integrated and combined efficiently with our own. The process of
integrating supply and distribution channels, computer and
accounting systems, and other aspects of operations, while
managing a larger entity, will present a significant challenge
to our management. In addition, it is not certain that we will
be able to incorporate different financial and reporting
controls, processes, systems and technologies into our existing
business environment. The difficulties of integration may
increase because of the necessity of combining personnel with
varied business backgrounds and combining different corporate
cultures and objectives. We may assume substantial debt and
incur substantial costs associated with these activities and we
may suffer other material adverse effects from these integration
efforts which could materially reduce our earnings, even over
the long-term. We may not succeed with the integration process
and we may not fully realize the anticipated benefits of the
business combinations. The dedication of management resources to
such integration or divestitures may detract attention from the
day-to-day business, and we may need to hire additional
management personnel to manage our acquisitions successfully.
In addition, we frequently evaluate acquisitions of, or
significant investments in, complementary companies, assets,
businesses and technologies. Even if an acquisition or other
investment is not completed, we may incur significant management
time and effort and financial cost in evaluating such
acquisition or investment, which has in the past had, and could
in the future have, an adverse effect on our results of
operations.
We
have established, and intend to expand, our operations in China,
which exposes us to risks associated with operating in a foreign
country.
We are expanding our operations in China. Total assets in China
at December 28, 2007 and December 29, 2006 were
$27.0 million and $17.4 million, respectively.
We are exposed to political, economic, legal and other risks
associated with operating in China, including:
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foreign currency exchange fluctuations;
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political, civil and economic instability;
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tariffs and other barriers;
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timing and availability of export licenses;
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disruptions to our and our customers’ operations due to the
outbreak of communicable diseases, such as SARS and avian flu;
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disruptions in operations due to the weakness of China’s
domestic infrastructure, including transportation and energy;
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difficulties in developing relationships with local suppliers;
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difficulties in attracting new international customers;
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difficulties in accounts receivable collections;
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difficulties in staffing and managing a distant international
subsidiary and branch operations;
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the burden of complying with foreign and international laws and
treaties;
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difficulty in transferring funds to other geographic locations;
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potentially adverse tax consequences; and,
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our operations in China also subject us to U.S. laws
governing the export of equipment. These laws are complex and
require us to obtain clearances for the export to China of
certain equipment. We may fail to comply with these laws and
regulations, which could require us to cease use of certain
equipment and expose us to fines or penalties.
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Over the past several years the Chinese government has pursued
economic reform policies, including the encouragement of private
economic activity and greater economic decentralization, the
Chinese government may not continue these policies or may
significantly alter them to our detriment from time to time
without notice.
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Changes in laws and regulations or their interpretation, the
imposition of confiscatory taxation policies, new restrictions
on currency conversion or limitations on sources of supply could
materially and adversely affect our Chinese operations, which
could result in the partial or total loss of our investment in
that country and materially and adversely affect our future
operating results.
Our
quarterly revenue and operating results fluctuate significantly
from period to period, and this may cause volatility in our
common stock price.
Our quarterly revenue and operating results have fluctuated
significantly in the past, and we expect them to continue to
fluctuate in the future for a variety of reasons which may
include:
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demand for and market acceptance of our products as a result of
the cyclical nature of the semiconductor industry or otherwise,
often resulting in reduced sales during industry downturns and
increased sales during periods of industry recovery;
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changes in the timing and size of orders by our customers;
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cancellations and postponements of previously placed orders;
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pricing pressure from either our competitors or our customers,
resulting in the reduction of our product prices;
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disruptions or delays in the manufacturing of our products or in
the supply of components or raw materials that are incorporated
into or used to manufacture our products, thereby causing us to
delay the shipment of products;
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decreased margins for several or more quarters following the
introduction of new products, especially as we introduce new
subsystems;
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delays in
ramp-up
in
production, low yields or other problems experienced at our
manufacturing facilities in China;
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changes in design-to-delivery cycle times;
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inability to reduce our costs quickly in step with reductions in
our prices or in response to decreased demand for our products;
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changes in our mix of products sold;
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write-offs of excess or obsolete inventory;
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one-time expenses or charges associated with failed acquisition
negotiations or completed acquisitions;
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announcements by our competitors of new products, services or
technological innovations, which may, among other things, render
our products less competitive; and
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geographic mix of worldwide earnings.
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As a result of the foregoing, we believe that quarter-to-quarter
comparisons of our revenue and operating results may not be
meaningful and that these comparisons may not be an accurate
indicator of our future performance. Changes in the timing or
terms of a small number of transactions could disproportionately
affect our operating results in any particular quarter.
Moreover, our operating results in one or more future quarters
may fail to meet the expectations of securities analysts or
investors. If this occurs, we would expect to experience an
immediate and significant decline in the trading price of our
common stock.
Third
parties have claimed and may in the future claim we are
infringing their intellectual property, which could subject us
to litigation or licensing expenses, and we may be prevented
from selling our products if any such claims prove
successful.
We have in the past and may in the future receive claims that
our products, processes or technologies infringe the patents or
other proprietary rights of third parties. For example, in 2007
we completed our defense of an
12
infringement action brought against us by Celerity, Inc. Our
defense was successful only in part. We have incurred a total of
approximately $90,000 in damages and court costs related to the
Celerity infringement. In addition, we may be unaware of
intellectual property rights of others that may be applicable to
our products. Any litigation regarding patents or other
intellectual property could be costly and time-consuming and
divert our management and key personnel from our business
operations, any of which could have a material adverse effect on
our business and results of operations. The complexity of the
technology involved in our products and the uncertainty of
intellectual property litigation increase these risks. Claims of
intellectual property infringement may also require us to enter
into costly license agreements. However, we may not be able to
obtain licenses on terms acceptable to us, or at all. We also
may be subject to significant damages or injunctions against the
development, manufacture and sale of certain of our products if
any such claims prove successful.
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 and 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 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 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. 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 affect 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 when our production volumes decline.
The
manufacturing of our products is 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 involves the integration of multiple components and
requires 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. 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 as we expand our business beyond gas delivery
systems into new subsystems. As a result, this could limit our
growth and have a material adverse effect on our business,
financial condition and operating results.
OEMs
may not continue to outsource other critical subsystems, which
would adversely impact our operating results.
The success of our business depends on OEMs continuing to
outsource the manufacturing of critical subsystems. Most of the
largest OEMs have already outsourced production of a significant
portion of their critical subsystems. If OEMs do not continue to
outsource critical subsystems for their capital equipment, our
revenue would be significantly reduced, which would have a
material adverse affect on our business, financial condition and
operating results. In addition, if we are unable to obtain
additional business from OEMs, even if they continue to
outsource their production of critical subsystems, our business,
financial condition and operating results could be adversely
affected.
13
If our
new products are not accepted by OEMs or if we are unable to
maintain historical margins on our new products, our operating
results would be adversely impacted.
We design, develop and market critical subsystems to OEMs. Sales
of new products are expected to make up an increasing part of
our total revenue. The introduction of new products is
inherently risky because it is difficult to foresee the adoption
of new standards, coordinate our technical personnel and
strategic relationships and win acceptance of new products by
OEMs. We may not be able to recoup design and development
expenditures if our new products are not accepted by OEMs. Newly
introduced products typically carry lower gross margins for
several or more quarters following their introduction. If any of
our new subsystems is not successful in the market, or if we are
unable to obtain gross margins on new products that are similar
to the gross margins we have historically achieved, our
business, operating results and financial condition could be
adversely affected.
We may
not be able to manage our future growth
successfully.
Our ability to execute our business plan successfully in a
rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to
increase, the scope of our operations. Our revenues in 2007
increased 19.7% over revenues in 2006, and our 2006 revenues
increased 128.6% over our 2005 revenues, in significant part due
to the acquisition of Sieger. Due to the cyclical nature of the
semiconductor industry, however, future growth is difficult to
predict. Our expansion efforts could be expensive and may strain
our managerial and other resources. To manage future growth
effectively, we must maintain and enhance our financial and
operating systems and controls and manage expanded operations.
Although we occasionally experience reductions in force, over
time the number of people we employ has generally grown and we
expect this number to continue to grow when our operations
expand. The addition and training of new employees may lead to
short-term quality control problems and place increased demands
on our management and experienced personnel. If we do not manage
growth properly, our business, operating results and financial
condition could be adversely affected.
Our
business is largely dependent on the know-how of our employees,
and we generally do not have a protected intellectual property
position.
Our business is largely dependent upon our design, engineering,
manufacturing and testing know-how. We rely on a combination of
trade secrets and contractual confidentiality provisions and, to
a much lesser extent, patents, copyrights and trademarks, to
protect our proprietary rights. Accordingly, our intellectual
property position is more vulnerable than it would be if it were
protected by patents. If we fail to protect our proprietary
rights successfully, our competitive position could suffer,
which could harm our operating results. We may be required to
spend significant resources to monitor and protect our
proprietary rights, and, in the event we do not detect
infringement of our proprietary rights, we may lose our
competitive position in the market if any such infringement
occurs. In addition, competitors may design around our
technology or develop competing technologies and know-how.
If we
do not keep pace with developments in the semiconductor industry
and with technological innovation generally, our products may
not be competitive.
Rapid technological innovation in semiconductor manufacturing
requires the semiconductor capital equipment industry to
anticipate and respond quickly to evolving customer requirements
and could render our current product offerings and technology
obsolete. Technological innovations are inherently complex. We
must devote resources to technology development in order to keep
pace with the rapidly evolving technologies used in
semiconductor manufacturing. We believe that our future success
will depend upon our ability to design, engineer and manufacture
products that meet the changing needs of our customers. This
requires that we successfully anticipate and respond to
technological changes in design, engineering and manufacturing
processes in a cost-effective and timely manner. If we are
unable to integrate new technical specifications into
competitive product designs, develop the technical capabilities
necessary to manufacture new products or make necessary
modifications or enhancements to existing products, our business
prospects could be harmed.
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The timely development of new or enhanced products is a complex
and uncertain process which requires that we:
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design innovative and performance-enhancing features that
differentiate our products from those of our competitors;
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identify emerging technological trends in the semiconductor
industry, including new standards for our products;
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accurately identify and design new products to meet market needs;
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collaborate with OEMs to design and develop products on a timely
and cost-effective basis;
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ramp-up
production of new products, especially new subsystems, in a
timely manner and with acceptable yields;
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successfully manage development production cycles; and
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respond effectively to technological changes or product
announcements by others.
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The
industry in which we participate is highly competitive and
rapidly evolving, and if we are unable to compete effectively,
our operating results would be harmed.
Our competitors are primarily companies that design and
manufacture critical subsystems for semiconductor capital
equipment. Although we have not faced competition in the past
from the largest subsystem and component manufacturers in the
semiconductor capital equipment industry, these suppliers could
compete with us in the future. Increased competition has in the
past resulted, and could in the future result, in price
reductions, reduced gross margins or loss of market share, any
of which would harm our operating results. We are subject to
pricing pressure as we attempt to increase market share with our
existing customers. Competitors may introduce new products for
the markets currently served by our products. These products may
have better performance, lower prices and achieve broader market
acceptance than our products. Further, OEMs typically own the
design rights to their products and may provide these designs to
other subsystem manufacturers. If our competitors obtain
proprietary rights to these designs such that we are unable to
obtain the designs necessary to manufacture products for our OEM
customers, our business, financial condition and operating
results could be adversely affected.
Our competitors may have greater financial, technical,
manufacturing and marketing resources than we do. As a result,
they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, devote
greater resources to the development, promotion, sale and
support of their products, and reduce prices to increase market
share. Moreover, there may be merger and acquisition activity
among our competitors and potential competitors that may provide
our competitors and potential competitors an advantage over us
by enabling them to expand their product offerings and service
capabilities to meet a broader range of customer needs. Further,
if one of our customers develops or acquires the internal
capability to develop and produce critical subsystems that we
produce, the loss of that customer could have a material adverse
effect on our business, financial condition and operating
results. The introduction of new technologies and new market
entrants may also increase competitive pressures.
We
must achieve design wins to retain our existing customers and to
obtain new customers.
New semiconductor capital equipment typically has a lifespan of
several years, and OEMs frequently specify which systems,
subsystems, components and instruments are to be used in their
equipment. Once a specific system, subsystem, component or
instrument is incorporated into a piece of semiconductor capital
equipment, it will likely continue to be incorporated into that
piece of equipment for at least several months before the OEM
switches to the product of another supplier. Accordingly, it is
important that our products are designed into the new
semiconductor capital equipment of OEMs, which we refer to as a
design win, in order to retain our competitive position with
existing customers and to obtain new customers.
We incur technology development and sales expenses with no
assurance that our products will ultimately be designed into an
OEM’s semiconductor capital equipment. Further, developing
new customer relationships, as well
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as increasing our market share at existing customers, requires a
substantial investment of our sales, engineering and management
resources without any assurance from prospective customers that
they will place significant orders. We believe that OEMs often
select their suppliers and place orders based on long-term
relationships. Accordingly, we may have difficulty achieving
design wins from OEMs that are not currently our customers. Our
operating results and potential growth could be adversely
affected if we fail to achieve design wins with leading OEMs.
We may
not be able to respond quickly enough to increases in demand for
our products.
Demand shifts in the semiconductor industry are rapid and
difficult to predict, and we may not be able to respond quickly
enough to an increase in demand. Our ability to increase sales
of our products depends, in part, upon our ability to:
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mobilize our supply chain in order to maintain component and raw
material supply;
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optimize the use of our design, engineering and manufacturing
capacity in a timely manner;
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deliver our products to our customers in a timely fashion;
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expand, if necessary, our manufacturing capacity; and
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maintain our product quality as we increase production.
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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 would adversely affect our business.
Our
dependence on our suppliers may prevent us 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. In addition, our customers often specify
components of particular suppliers that we must incorporate into
our products. Our suppliers are under no obligation to provide
us with components. As a result, the loss of or failure to
perform by any of these providers could adversely affect our
business and operating results. In addition, the manufacturing
of certain components and subsystems is an extremely complex
process. Therefore, if a supplier were unable to provide the
volume of components we require on a timely basis and at
acceptable prices, we would have to identify and qualify
replacements from alternative sources of supply. The process of
qualifying new suppliers for these complex components is lengthy
and could delay our production, 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 significant 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.
Defects
in our products could damage our reputation, decrease market
acceptance of our products, cause the unintended release of
hazardous materials and result in potentially costly
litigation.
A number of factors, including design flaws, material and
component failures, contamination in the manufacturing
environment, impurities in the materials used and unknown
sensitivities to process conditions, such as temperature and
humidity, as well as equipment failures, may cause our products
to contain undetected errors or defects. Problems with our
products may:
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cause delays in product introductions and shipments;
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result in increased costs and diversion of development resources;
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cause us to incur increased charges due to unusable inventory;
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require design modifications;
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decrease market acceptance of, or customer satisfaction with,
our products, which could result in decreased sales and product
returns; or
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|
result in lower yields for semiconductor manufacturers.
|
If any of our products contain defects or have reliability,
quality or compatibility problems, our reputation might be
damaged and customers might be reluctant to buy our products. We
may also face a higher rate of product defects as we increase
our production levels. Product defects could result in the loss
of existing customers, or impair our ability to attract new
customers. In addition, we may not find defects or failures in
our products until after they are installed in a semiconductor
manufacturer’s fabrication facility. We may have to invest
significant capital and other resources to correct these
problems. Our current or potential customers also might seek to
recover from us any losses resulting from defects or failures in
our products. Hazardous materials flow through and are
controlled by our products and an unintended release of these
materials could result in serious injury or death. Liability
claims could require us to spend significant time and money in
litigation or pay significant damages.
We
have outstanding indebtedness; the restrictive covenants under
some of our debt agreements may limit our ability to expand or
pursue our business strategy; if we are forced to prepay some or
all of this indebtedness our financial position would be
severely and adversely affected.
We have outstanding indebtedness. At December 28, 2007, our
long-term debt was $18.6 million and our short-term debt
was $3.6 million, for an aggregate total of
$22.2 million. Our loan agreement requires compliance with
certain financial covenants, including a leverage and fixed
charge coverage test. The covenants contained in our line of
credit with the bank also restrict our ability to take certain
actions, including our ability to:
|
|
|
|
|
|
•
|
incur additional indebtedness;
|
|
|
|
|
•
|
pay dividends and make distributions in respect of our capital
stock;
|
|
|
|
|
•
|
redeem capital stock;
|
|
|
|
|
•
|
make investments or other restricted payments outside the
ordinary course of business;
|
|
|
|
|
•
|
engage in transactions with stockholders and affiliates;
|
|
|
|
|
•
|
create liens;
|
|
|
|
|
•
|
sell or otherwise dispose of assets;
|
|
|
|
|
•
|
make payments on our other debt, other than in the ordinary
course; and
|
|
|
|
|
•
|
engage in certain mergers and acquisitions.
|
While we are currently in compliance with the financial
covenants in our loan agreement, we cannot assure you that we
will meet these financial covenants in subsequent periods. If we
are unable to meet any covenants, we cannot assure you that the
bank will grant waivers or amend the covenants, or that the bank
will not terminate the agreement, preclude further borrowings or
require us to immediately repay any outstanding borrowings. As
long as our indebtedness remains outstanding, the restrictive
covenants could impair our ability to expand or pursue our
business strategies or obtain additional funding. Forced
prepayment of some or all of our indebtedness would reduce our
available cash balances and have an adverse impact on our
operating and financial performance.
The
technology labor market is very competitive, and our business
will suffer if we are unable to hire and retain key
personnel.
Our future success depends in part on the continued service of
our key executive officers, as well as our research,
engineering, sales, manufacturing and administrative personnel,
most of whom are not subject to employment or non-competition
agreements. In addition, competition for qualified personnel in
the technology industry is intense, and we operate in geographic
locations in which labor markets are particularly competitive.
Our business is particularly dependent on expertise which only a
very limited number of engineers possess. The loss of
17
any of our key employees and officers, including our Chief
Executive Officer, Chief Operating Officer or any of our Senior
Vice Presidents, or the failure to attract and retain new
qualified employees, would adversely affect our business,
operating results and financial condition.
We may
not be able to fund our future capital requirements from our
operations, and financing from other sources may not be
available on favorable terms or at all.
We have made capital expenditures of $8.0 million in 2007, of
which $4.3 million related to the implementation of our new ERP
system, and $1.7 million related to the development of our
manufacturing facilities in China. This compares to capital
expenditures of $4.0 million in 2006, most of which was for
facility cleanroom expansion and improvement and the
implementation of our new ERP system. We have recently leased a
second manufacturing facility in Shanghai, China in close
proximity to our existing facility for which we have invested
$1.5 million to date, and we have leased a new manufacturing
facility in Hayward, California. We expect to invest
approximately $10.2 million in these facilities over the
next four years. The amount of our future capital requirements
will depend on many factors, including:
|
|
|
|
|
|
•
|
the cost required to ensure access to adequate manufacturing
capacity;
|
|
|
|
|
•
|
the timing and extent of spending to support product development
efforts;
|
|
|
|
|
•
|
the timing of introductions of new products and enhancements to
existing products;
|
|
|
|
|
•
|
changing manufacturing capabilities to meet new customer
requirements; and
|
|
|
|
|
•
|
market acceptance of our products.
|
Although we currently have a credit facility, we may need to
raise additional funds through public or private equity or debt
financing if our current cash and cash flow from operations are
insufficient to fund our future activities. Our loan agreement
with our credit facility terminates on June 29, 2009 and we
may not be able renew it on favorable terms. Future equity
financings could be dilutive to holders of our common stock, and
debt financings could involve covenants that restrict our
business operations. If we cannot raise funds on acceptable
terms, if and when needed, we may not be able to develop or
enhance our products, take advantage of future opportunities,
grow our business or respond to competitive pressures or
unanticipated requirements, any of which could adversely affect
our business, operating results and financial condition.
Fluctuations
in currency exchange rates may adversely affect our financial
condition and results of operations.
Our international sales are denominated primarily, though not
entirely, in U.S. dollars. Many of the costs and expenses
associated with our Chinese subsidiaries are paid in Chinese
Renminbi, and we expect our exposure to Chinese Renminbi to
increase as we ramp up production in those facilities. In
addition, purchases of some of our components are denominated in
Japanese Yen. Changes in exchange rates among other currencies
in which our revenue or costs are denominated and the
U.S. dollar may affect our revenue, cost of sales and
operating margins. While fluctuations in the value of our
revenue, cost of sales and operating margins as measured in
U.S. dollars have not materially affected our results of
operations historically, we do not currently hedge our exchange
exposure, and exchange rate fluctuations could have an adverse
effect on our financial condition and results of operations in
the future.
If
environmental contamination were to occur in one of our
manufacturing facilities, we could be subject to substantial
liabilities.
We use substances regulated under various foreign, domestic,
federal, state and local environmental laws in our manufacturing
facilities. Our failure or inability to comply with existing or
future environmental laws could result in significant
remediation liabilities, the imposition of fines or the
suspension or termination of the production of our products. In
addition, we may not be aware of all environmental laws or
regulations that could subject us to liability.
18
We
might experience business disruptions and unanticipated expenses
associated with the relocation of our headquarters to a new
facility.
The current lease for our headquarters and manufacturing
facility in Menlo Park expired on December 31, 2007. We
have entered into a new lease in Hayward, California, to
consolidate the Menlo Park operations and certain South
San Francisco manufacturing operations and we plan to move
into the new facility in the second and third quarters of 2008.
Beginning January 1, 2008, we are leasing our current
facility in Menlo Park on a month-to-month basis. We will incur
moving expenses and could experience disruptions in our
operations relating to the move, either of which could be
material. We may not have anticipated all the logistical
impediments and obstacles and may incur unanticipated expenses
relating to the move, which could adversely affect our financial
condition and results of operation.
If our
facilities were to experience catastrophic loss due to natural
disasters, our operations would be seriously
harmed.
Our facilities could be subject to a catastrophic loss caused by
natural disasters, including fires and earthquakes. We have
facilities in areas with above average seismic activity, such as
our manufacturing facility in South San Francisco,
California, our manufacturing and headquarters facilities in
Menlo Park, California and our new facilities in Hayward,
California. If any of our facilities were to experience a
catastrophic loss, it could disrupt our operations, delay
production and shipments, reduce revenue and result in large
expenses to repair or replace the facility. In addition, we have
in the past experienced, and may in the future experience,
extended power outages at our facilities in South
San Francisco, Menlo Park and our new facility in Hayward,
California. We do not carry insurance policies that cover
potential losses caused by earthquakes or other natural
disasters or power loss.
We
must maintain effective controls, and our auditors will report
on them.
The Sarbanes-Oxley Act of 2002 requires, among other things,
that we maintain effective disclosure controls and procedures
and internal control over financial reporting. In order to
maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting, significant resources and management oversight will
be required. As a result, our management’s attention might
be diverted from other business concerns, which could have a
material adverse effect on our business, financial condition and
operating results. Any failure by us to maintain adequate
controls or to adequately implement new controls could harm our
operating results or cause us to fail to meet our reporting
obligations. Inferior internal controls could also cause
investors to lose confidence in our reported financial
information, which could adversely affect the trading price of
our common stock. In addition, we might need to hire additional
accounting and financial staff with appropriate public company
experience and technical accounting knowledge, and we might not
be able to do so in a timely fashion.
The
market for our stock is subject to significant
fluctuation.
The size of our public market capitalization is relatively
small, and the volume of our shares that are traded is low. The
market price of our common stock could be subject to significant
fluctuations. Among the factors that could affect our stock
price are:
|
|
|
|
|
|
•
|
quarterly variations in our operating results;
|
|
|
|
|
•
|
our ability to successfully introduce new products and manage
new product transitions;
|
|
|
|
|
•
|
changes in revenue or earnings estimates or publication of
research reports by analysts;
|
|
|
|
|
•
|
speculation in the press or investment community;
|
|
|
|
|
•
|
strategic actions by us or our competitors, such as acquisitions
or restructurings;
|
|
|
|
|
•
|
announcements relating to any of our key customers, significant
suppliers or the semiconductor manufacturing and capital
equipment industry generally;
|
|
|
|
|
•
|
general market conditions;
|
19
|
|
|
|
|
|
•
|
the effects of war and terrorist attacks; and
|
|
|
|
|
•
|
domestic and international economic factors unrelated to our
performance.
|
The stock markets in general, and the markets for technology
stocks in particular, have experienced extreme volatility that
has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may
adversely affect the trading price of our common stock.
Provisions
of our charter documents could discourage potential acquisition
proposals and could delay, deter or prevent a change in
control.
The provisions of our amended and restated certificate of
incorporation and bylaws could deter, delay or prevent a third
party from acquiring us, even if doing so would benefit our
stockholders. These provisions include:
|
|
|
|
|
|
•
|
a requirement that special meetings of stockholders may be
called only by our board of directors, the chairman of our board
of directors, our president or our secretary;
|
|
|
|
|
•
|
advance notice requirements for stockholder proposals and
director nominations; and
|
|
|
|
|
•
|
the authority of our board of directors to issue, without
stockholder approval, preferred stock with such terms as our
Board of Directors may determine.
|
|
|
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our current headquarters is located in Menlo Park, California,
where we lease approximately 64,000 square feet of
commercial space under a term lease that expired on
December 31, 2007. We continue to lease this facility month
to month and plan to vacate this facility in early third quarter
of 2008 upon occupying our new facility in Hayward. We use this
space for our principal administrative, sales and support,
engineering and technology development facilities and for
manufacturing purposes. Approximately 6,500 square feet at
our Menlo Park facility is a clean room manufacturing facility.
In September 2007, we entered into a new facility lease
agreement for approximately 104,000 square feet of office
space in Hayward, California with plans to move into this space
in the second and third quarters of 2008. We will use this space
as our new principal administrative, sales and support,
engineering and technology development facilities and for
manufacturing purposes. This lease will expire in February 2015.
We also have manufacturing and engineering facilities in South
San Francisco and Sacramento. In South San Francisco
we lease approximately 102,000 square feet under
6 leases with varying expiration dates and extension
periods. Approximately 12,300 square feet in
South San Francisco is a neat room facility and
1,300 square feet is a clean room manufacturing facility.
In Sacramento, we lease approximately 20,000 square feet
under a lease that expires in August of 2010 with one five-year
extension. We also have manufacturing facilities in Austin,
Texas, Tualatin, Oregon and Shanghai, China. In Austin, we lease
approximately 44,000 square feet of commercial
space under a lease that expires on October 31, 2008,
subject to renewal for up to three years at our option.
Approximately 6,800 square feet in Austin is a clean room
manufacturing facility. In Tualatin, we lease approximately
28,000 square feet of commercial space under a lease that
expires on November 7, 2010. Approximately
6,800 square feet in Tualatin is a clean room manufacturing
facility. In Shanghai, we lease approximately
132,000 square feet of commercial space under two leases
which expire on June 30, 2009 and February 28, 2011.
Approximately 11,000 square feet of this space is a clean
room facility.
The table below lists our properties as of February 28,
2008:
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Principal Use
|
|
Square Footage
|
|
Ownership
|
|
|
|
Menlo Park, California
|
|
Headquarters, manufacturing, sales, engineering, technology
development
|
|
|
64,000
|
|
|
Leased(1)
|
|
|
|
|
|
|
|
|
|
|
|
Hayward, California
|
|
Headquarters, manufacturing, sales, engineering, technology
development sales, engineering, technology development
|
|
|
104,000
|
|
|
Leased
|
20
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Principal Use
|
|
Square Footage
|
|
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South San Francisco, California
|
|
Manufacturing, engineering
|
|
|
102,000
|
|
|
Leased(2)
|
|
|
|
|
|
|
|
|
|
|
|
Sacramento, California
|
|
Manufacturing
|
|
|
20,000
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
Austin, Texas
|
|
Manufacturing, engineering
|
|
|
44,000
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
Tualatin, Oregon
|
|
Manufacturing, engineering
|
|
|
28,000
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai, China
|
|
Manufacturing, customer support
|
|
|
132,000
|
|
|
Leased
|
|
|
|
|
|
(1)
|
|
The Company is currently leasing this space on a month-month
basis until it moves into its new facility in Hayward,
California.
|
|
|
|
(2)
|
|
As part of the acquisition of Sieger, the Company leases a
facility from an entity controlled by one of the Company’s
directors. The Company incurred rent expense resulting from the
lease of this facility of $0.1 million from the time of
acquisition to December 29, 2006 and $0.3 million
during the year ended December 28, 2007.
|
|
|
|
|
Item 3.
|
Legal
Proceedings
|
On September 2, 2005, we filed suit in the federal court
for the Northern District of California against Celerity, Inc.,
or Celerity, seeking a declaratory judgment that our new
substrate technology does not infringe certain of
Celerity’s patents
and/or
that
Celerity’s patents are invalid. On September 13, 2005,
Celerity filed suit in the federal court of Delaware alleging
that we have infringed eight patents by developing and marketing
products that use Celerity’s fluid distribution technology.
The complaint by Celerity seeks injunction against future
infringement of its patents and compensatory and treble damages.
The Delaware litigation was transferred to the Northern District
of California on October 19, 2005 and on December 12,
2005 was consolidated with our previously filed declaratory
judgment action. The Court issued its claim construction order
on September 29, 2006. We then filed motions for summary
judgments of non-infringement and invalidity with the Court. The
Court issued summary judgment in April 2007, dismissing four of
Celerity’s patent infringement claims. In addition,
Celerity had previously withdrawn two of its patent infringement
claims. The case ultimately went to trial in June 2007, and, on
June 25, 2007, a jury found that we did not infringe on one
of the two remaining patents at issue but did infringe on the
other. The jury awarded damages of $13,900 to Celerity and
enjoined us from making, using, or selling the product that was
found to infringe the Celerity patent. The court also ordered us
to pay Celerity $45,000 in court costs and $31,000 in royalty
fees for gas panel sales to date related to the product that was
found to infringe the Celerity patent. We have filed a notice of
appeal, and intend to appeal the jury verdict and injunction to
the Court of Appeals for the Federal Circuit (CAFC). In
addition, we have requested, and the United States Patent and
Trademark Office (USPTO) has granted, our request for
re-examination of the one Celerity patent that we were found to
infringe. The reexamination by the USPTO is pending. We do not
expect the outcome of the appeal to the CAFC or the ruling by
the USPTO in the re-examination of the Celerity patent to have a
material impact on our operating results or cash flows.
From time to time, we are also subject to various legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business.
|
|
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
21
PART II
|
|
|
|
Item 5.
|
Market
for Registrant’s Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
|
COMPARISON
OF 45 MONTH CUMULATIVE TOTAL RETURN*
Among
Ultra Clean Holdings, Inc., The NASDAQ Composite Index
And The RDG Semiconductor Composite Index
|
|
|
|
|
*
|
|
$100 invested on 3/25/04 in stock or 2/28/04 in index-including
reinvestment of dividends.
Fiscal year ending December 31.
|
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 closing sales prices per share of our common stock as
reported by the NASDAQ Global Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
Fiscal year 2006
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
9.80
|
|
|
$
|
7.10
|
|
|
Second quarter
|
|
$
|
9.45
|
|
|
$
|
7.44
|
|
|
Third quarter
|
|
$
|
11.10
|
|
|
$
|
7.36
|
|
|
Fourth quarter
|
|
$
|
14.08
|
|
|
$
|
10.02
|
|
|
Fiscal year 2007
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
18.52
|
|
|
$
|
13.25
|
|
|
Second quarter
|
|
$
|
19.60
|
|
|
$
|
12.91
|
|
|
Third quarter
|
|
$
|
15.55
|
|
|
$
|
12.77
|
|
|
Fourth quarter
|
|
$
|
16.58
|
|
|
$
|
12.13
|
|
To date, we have not declared or paid cash dividends to our
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 limits our ability to pay dividends. As of
February 28, 2008, we had approximately 22 stockholders of
record.
22
|
|
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
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.
Statements
of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
12/28/2007
|
|
|
12/29/2006
|
|
|
12/30/2005
|
|
|
12/31/2004
|
|
|
12/26/2003
|
|
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
403,807
|
|
|
$
|
337,228
|
|
|
$
|
147,535
|
|
|
$
|
184,204
|
|
|
$
|
77,520
|
|
|
Cost of goods sold
|
|
|
346,347
|
|
|
|
286,542
|
|
|
|
127,459
|
|
|
|
154,995
|
|
|
|
67,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
57,460
|
|
|
|
50,686
|
|
|
|
20,076
|
|
|
|
29,209
|
|
|
|
10,207
|
|
|
Operating expenses
|
|
|
33,953
|
|
|
|
25,352
|
|
|
|
17,515
|
|
|
|
15,761
|
|
|
|
8,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
23,507
|
|
|
|
25,334
|
|
|
|
2,561
|
|
|
|
13,448
|
|
|
|
1,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(1,797
|
)
|
|
|
(1,758
|
)
|
|
|
147
|
|
|
|
(387
|
)
|
|
|
(1,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
21,710
|
|
|
|
23,576
|
|
|
|
2,708
|
|
|
|
13,061
|
|
|
|
340
|
|
|
Income tax provision
|
|
|
5,817
|
|
|
|
7,266
|
|
|
|
705
|
|
|
|
4,511
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
|
$
|
2,003
|
|
|
$
|
8,550
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.75
|
|
|
$
|
0.85
|
|
|
$
|
0.12
|
|
|
$
|
0.59
|
|
|
$
|
0.01
|
|
|
Diluted
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
0.12
|
|
|
$
|
0.55
|
|
|
$
|
0.01
|
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,293
|
|
|
|
19,220
|
|
|
|
16,241
|
|
|
|
14,605
|
|
|
|
9,976
|
|
|
Diluted
|
|
|
22,118
|
|
|
|
19,649
|
|
|
|
17,169
|
|
|
|
15,542
|
|
|
|
10,711
|
|
The results for the year ended December 29, 2006 include
the activity of UCT-Sieger beginning June 30, 2006, the
date of acquisition.
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/28/2007
|
|
|
12/29/2006
|
|
|
12/30/2005
|
|
|
12/31/2004
|
|
|
12/26/2003
|
|
|
|
|
Cash & cash equivalents
|
|
$
|
33,447
|
|
|
$
|
23,321
|
|
|
$
|
10,663
|
|
|
$
|
11,440
|
|
|
$
|
6,035
|
|
|
Working capital
|
|
|
80,498
|
|
|
|
71,587
|
|
|
|
33,889
|
|
|
|
29,861
|
|
|
|
17,519
|
|
|
Total assets
|
|
|
195,027
|
|
|
|
187,047
|
|
|
|
75,009
|
|
|
|
67,698
|
|
|
|
50,155
|
|
|
Bank borrowings and long- term debt
|
|
|
22,211
|
|
|
|
31,564
|
|
|
|
2,343
|
|
|
|
—
|
|
|
|
—
|
|
|
Short-and long-term capital lease and other long-term obligations
|
|
|
1,062
|
|
|
|
379
|
|
|
|
354
|
|
|
|
528
|
|
|
|
558
|
|
|
Debt to related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,013
|
|
|
Total stockholders’ equity
|
|
|
129,488
|
|
|
|
107,168
|
|
|
|
55,281
|
|
|
|
52,475
|
|
|
|
8,320
|
|
23
|
|
|
|
Item 7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Introduction
Management’s Discussion and Analysis (MD&A) is
intended to provide an understanding of Ultra Clean
Technology’s business and results of operations. This
MD&A should be read in conjunction with Ultra Clean’s
Consolidated Financial Statements and the accompanying Notes to
Consolidated Financial Statements included elsewhere in this
report. MD&A consists of the following sections:
|
|
|
|
|
|
•
|
Overview:
a summary of Ultra Clean’s
business.
|
|
|
|
|
•
|
Results of Operations:
a discussion of
operating results.
|
|
|
|
|
•
|
Financial Condition, Liquidity and Capital
Resources:
cash flows, sources and uses of cash,
contractual obligations and financial position.
|
|
|
|
|
•
|
Critical Accounting Policies:
a discussion of
our critical accounting policies that require the exercise of
judgments and estimates.
|
Overview
General
We are a leading developer and supplier of critical subsystems,
primarily for the semiconductor capital equipment
(“SCE“) industry. We also leverage the specialized
skill sets required to support SCE to serve the technologically
similar markets in the flat panel, solar and medical device
industries, collectively referred to as “Other Addressed
Industries”. We develop, design, prototype, engineer,
manufacture and test subsystems which are highly specialized and
tailored to specific steps in the semiconductor manufacturing
process as well as in other addressed markets. Our revenue is
derived from the sale of gas delivery systems and other critical
subsystems including chemical mechanical planarization (CMP)
subsystems, chemical delivery modules, top-plate assemblies,
frame assemblies, process modules and other high level
assemblies.
Our customers are primarily original semiconductor equipment
manufacturers in the industries we support. We provide our
customers with complete subsystem solutions that combine our
expertise in design, test, component characterization and highly
flexible manufacturing operations with quality control and
financial stability. This combination helps us drive down total
manufacturing costs, reduce design-to-delivery cycle times and
maintain high quality standards for our customers. We believe
these characteristics, as well as our standing as a leading
supplier of gas delivery systems, place us in a strong position
to benefit from the growing demand for subsystem outsourcing.
We operate clean room manufacturing facilities in Menlo Park and
South San Francisco, California; Austin, Texas; Tualatin,
Oregon; and Shanghai, China. We also operate machine shop
facilities in South San Francisco as well as our new
facility in Shanghai, China.
We have in the past considered and will continue to consider
acquisitions that will enable us to expand our geographic
presence, secure new customers and diversify into complementary
products and markets as well as broaden our technological
capabilities in semiconductor capital equipment manufacturing.
Cyclical
Business
Our business and operating results depend in significant part
upon capital expenditures by manufacturers of semiconductors,
which in turn depend upon the current and anticipated market
demand for semiconductors. Historically, the semiconductor
industry has been highly cyclical, with recurring periods of
over-supply of semiconductor products that have had a severe
negative effect on the demand for capital equipment used to
manufacture semiconductors. During these periods, we have
experienced significant fluctuations in customer orders for our
products. Our sales were $403.8 million in 2007,
$337.2 million in 2006 and $147.5 million in 2005. In
periods where supply exceeds demand for semiconductor capital
equipment, we generally experience significant reductions in
customer orders for our products. Sharp decreases in demand for
semiconductor capital equipment may lead our customers to cancel
order forecasts, change production quantities from forecasted
volumes or delay
24
production, which may negatively impact our gross profit, as we
may be unable to quickly reduce costs and may be required to
hold inventory longer than anticipated. In periods where demand
for semiconductor capital equipment exceeds supply, we generally
need to quickly increase our production of gas delivery systems
and other critical subsystems, requiring us to order additional
inventory, effectively manage our component supply chain, hire
additional employees and expand, if necessary, our manufacturing
capacity.
Customer
and Geographic Concentration
A relatively small number of OEM customers have historically
accounted for a significant portion of our revenue, and we
expect this trend to continue. Applied Materials, Inc., Lam
Research Corporation and Novellus Systems, Inc. collectively
accounted for 83% of our sales in 2007, 86% of our sales in 2006
and 89% of our sales in 2005. Because of the small number of
OEMs in our industry, most of whom are already our customers, it
would be difficult to replace lost revenue resulting from the
loss of, reduction in, cancellation of or delay in purchase
orders by, any one of these customers. Consolidation among our
customers may further concentrate our business in a limited
number of customers and expose us to increased risks relating to
dependence on a small number of customers. In addition, any
significant pricing pressure exerted by a key customer could
adversely affect our operating results.
We have had to qualify, and are required to maintain our status,
as a supplier for each of our customers. This is 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 minimal because of
these qualification requirements. Consequently, 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.
In 2007, 2006 and 2005, 2.2%, 4.9% and 5.5%, respectively, of
our total sales were derived from sales outside the United
States, based upon the location to which our products were
shipped.
Results
of Operations
The following table sets forth income statement data for the
periods indicated as a percentage of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Cost of goods sold
|
|
|
85.8
|
%
|
|
|
85.0
|
%
|
|
|
86.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14.2
|
%
|
|
|
15.0
|
%
|
|
|
13.6
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
0.7
|
%
|
|
|
0.9
|
%
|
|
|
1.6
|
%
|
|
Sales and marketing
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
2.3
|
%
|
|
General and administrative
|
|
|
6.2
|
%
|
|
|
5.2
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8.4
|
%
|
|
|
7.5
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5.9
|
%
|
|
|
7.5
|
%
|
|
|
1.7
|
%
|
|
Interest and other income (expense), net
|
|
|
(0.4
|
)%
|
|
|
(0.5
|
)%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
5.5
|
%
|
|
|
7.0
|
%
|
|
|
1.8
|
%
|
|
Income tax provision
|
|
|
1.4
|
%
|
|
|
2.1
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3.9
|
%
|
|
|
4.9
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Year
Ended December 28, 2007 Compared With Year Ended
December 29, 2006
Sales
Sales for the year ended December 28, 2007 increased
$66.6 million, or 19.7%, to $403.8 million from
$337.2 million for the year ended December 29, 2006.
The increase reflects continued market penetration and strong
demand in the first six months of 2007, offset, in part, by a
decrease in demand resulting from the overall slowdown in the
semiconductor capital equipment market in the second half of
2007. The increase includes incremental revenue of
$32.2 million derived from the acquisition of UCT-Sieger.
We expect sequential revenues to be relatively flat in the first
quarter of 2008.
Historically, a relatively small number of OEM customers have
accounted for a significant portion of our sales. Applied
Materials, Inc., Lam Research Corporation and Novellus Systems,
Inc. are our three largest customers and each has greater than
10% of our total sales. As a percentage of total revenue, sales
to our three largest customers combined were 83%, 86% and 89%
for the years ended December 28, 2007, December 29,
2006 and December 30, 2005, respectively.
Gross
Profit
Cost of goods sold consists primarily of purchased materials,
labor and overhead, including depreciation, associated with the
design and manufacture of products sold. Gross profit for the
year ended December 28, 2007 increased to
$57.5 million, or 14.2% of sales, from $50.7 million,
or 15.0% of sales, for the year ended December 29, 2006.
Gross profit for the year ended 2007 reflects a correction in
inventory resulting from incorrect material transfers in our
newly implemented ERP system, which increased our cost of goods
sold by $297,000 and decreased gross margins by 0.1% from the
14.3% reported in our earnings release dated February 19,
2008. The increase in gross profit from 2006 was due primarily
to an increase in revenues, net of a decrease of approximately
$3.2 million resulting from a reduction in gross margins,
primarily from our US operations. The decrease in gross margin
was due primarily to declining, sequential quarterly revenue
beginning in the first quarter of fiscal 2007, and the increased
pressure on pricing associated with shrinking market demand. A
contributing factor to the decrease in the gross margin in 2007
related to the increase in SFAS 123(R) stock-based
compensation expense of $0.5 million.
Research
and Development Expense
Research and development expense consists primarily of
activities related to new component testing and evaluation, test
equipment, design and implementation, new product design and
testing and other product development activities. Research and
development expense remained relatively flat decreasing to
$3.0 million, or 0.7% of sales, for the year ended
December 28, 2007 compared to $3.1 million, or 0.9% of
sales for the year ended December 29, 2006. The decrease as
a percentage of sales was due primarily to a higher revenue base
in 2007 as compared to 2006.
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 our 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 was
$5.9 million and $4.6 million for the years ended
December 28, 2007 and December 29, 2006, respectively.
The increased spending was due primarily to approximately
$1.1 million in additional compensation expense as a result
of increases in sales and service headcount to support higher
revenue including the Sieger revenue. The balance of the
increase was attributed primarily to increased travel expenses
of $0.1 million and $0.1 million of SFAS 123(R)
stock compensation expense. As a percentage of sales, sales and
marketing expense increased to 1.5% for the year ended
December 28, 2007 compared to 1.4% for the year ended
December 29, 2006.
General
and Administrative Expense
General and administrative expense consists primarily of
salaries and overhead of our administrative staff and
professional fees. General and administrative expense increased
to $25.1 million, or 6.2% of sales, for the year
26
ended December 28, 2007 from $17.7 million, or 5.2% of
sales, for the year ended December 29, 2006. The increase
in spending was due to increases in labor costs of
$3.5 million in part related to the addition of UCT-Sieger
administrative personnel as well as increases in administrative
personnel related to our China facilities. The increase is also
due to accounting and consulting costs related to SOX 404
compliance of $1.3 million, legal fees related primarily to
legal proceedings described above in Item 3 —
Legal Proceedings of $1.4 million and SFAS 123(R)
stock compensation expenses of $0.7 million.
Interest
and Other Income (Expense), net
Interest and other income (expense), net for the year ended
December 28, 2007 was $(1.8) million compared to
$(1.8) million in 2006. Components of interest and other
income (expense) relate primarily to the interest expense
incurred for debt financing related to the Sieger acquisition.
Interest expense for the year 2007 was $2.2 million
compared to $1.4 million in 2006. The increase in 2007 was
due to interest on debt incurred for a full year in 2007
compared to interest on debt incurred for only a part of 2006 as
a result of the acquisition of Sieger in June 2006. This
increase in interest expense was partially offset by an increase
in interest income of approximately $0.1 million as well as
a decrease in other expense of approximately $0.5 million.
Other expense in fiscal 2006 included approximately
$0.5 million of stock offering expenses related to our
secondary offering in the first quarter of 2006.
Income
Tax Provision
Our effective tax rate for the year ended December 28, 2007
was 26.8% compared to 30.8% for the year ended December 29,
2006. Our effective tax rate is substantially impacted by
several items including Section 199 deduction for domestic
production activities, state taxes and the effect of foreign
operations. The decreased rate in 2007 reflects primarily a
change in our geographic mix of US and China earnings.
Year
Ended December 29, 2006 Compared With Year Ended
December 31, 2005
Sales
Sales for the year ended December 29, 2006 increased 128.6%
to $337.2 million from $147.5 million for the year
ended December 31, 2005. The increase reflected, primarily,
a rebound in demand that began during the first quarter of 2006
and, to a lesser extent, incremental revenue derived from the
acquisition of Sieger.
Gross
Profit
Gross profit for the year ended December 29, 2006 increased
to $50.7 million, or 15.0% of sales, from
$20.1 million, or 13.6% of sales, for the year ended
December 31, 2005. The increase in gross profit was due
primarily to an increase in the percentage of revenue generated
from our Shanghai facility, as well as improved margins from our
U.S. operations. This increase was partially offset by
SFAS 123(R) stock-based compensation expense of
$0.4 million.
Research
and Development Expense
Research and development expense increased to $3.1 million
or 0.9% of sales for the year ended December 29, 2006 from
$2.4 million, or 1.6% of sales for the year ended 2005. The
increase in absolute dollars was due primarily to an increase in
engineering activity related to new product design and other
product development activity and $0.1 million of
SFAS 123(R) stock-based compensation expenses. The decrease
as a percentage of sales was due primarily to a higher revenue
base in 2006 as compared to 2005.
Sales and
Marketing Expense
Sales and marketing expense was $4.6 million and
$3.4 million for the years ended December 29, 2006 and
December 30, 2005, respectively. The increased spending was
due primarily to approximately $1.1 million in additional
compensation expense resulting from increases in commissions and
sales and service headcount to support higher revenue and the
balance of the increase was primarily attributed to increased
travel expense and $0.1 million of SFAS 123(R) stock
compensation expenses. As a percentage of sales, sales and
marketing expense
27
decreased to 1.4% for the year ended December 29, 2006
compared to 2.3% of sales for the year ended December 30,
2005. The decrease as a percentage of sales was due primarily to
a higher revenue base in 2006 compared to 2005.
General
and Administrative Expense
General and administrative expense increased to
$17.7 million, or 5.2% of sales, for the year ended
December 29, 2006 from $11.8 million, or 8.0% of
sales, for the year ended December 30, 2005. The increase
in spending was due to accounting and consulting costs relating
to SOX 404 compliance, $1.5 million of amortization of
certain intangible assets acquired through the Sieger
acquisition, legal fees related to certain legal proceedings,
$1.2 million of SFAS 123(R) stock compensation
expenses and the addition of UCT-Sieger administrative
personnel. The decrease as a percentage of sales was due
primarily to a higher revenue base in 2006 as compared to 2005.
Interest
and Other Income (Expense), net
Interest and other income (expense) for the year ended
December 29, 2006 decreased to $(1.8) million compared
to $0.1 million in 2005. The decrease in interest and other
income (expense), net over the comparable prior period is
attributable primarily to the interest expense incurred for debt
financing related to the Sieger acquisition.
Income
Tax Provision
Our effective tax rate for the year ended December 29, 2006
was 30.8% compared to 26.0% for the year ended December 30,
2005. Our effective tax rate was substantially impacted by
several items including the extraterritorial income exclusion
(ETI), Section 199 deduction for domestic production
activities and the effect of foreign operations. The increased
rate in 2006 reflected primarily a decrease in the tax benefit
associated with the ETI exclusion and a change in our geographic
mix of worldwide earnings that contributed to a year-end
adjustment related to transfer pricing.
Critical
Accounting Policies, Significant Judgments and
Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States, which requires 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 financial
statements. On an on-going basis, we evaluate our estimates and
judgments, including those related to sales, inventories,
intangible assets, stock compensation 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
intangible assets and goodwill and equity incentives to
employees to be critical policies due to the estimates and
judgments involved in each.
Revenue
Recognition
Our revenue is concentrated in a few OEM customers in the
semiconductor capital equipment, solar, flat panel and medical
device 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 enter into a legally binding arrangement with a customer;
|
|
|
|
|
•
|
we ship the products;
|
28
|
|
|
|
|
|
•
|
customer payment is deemed fixed or determinable and free of
contingencies or significant uncertainties; and
|
|
|
|
|
•
|
collection is probable.
|
Revenue is generally recognized upon shipment of the product. In
arrangements which specify title transfer upon delivery, revenue
is not recognized until the product is delivered. In addition,
if we have not substantially completed a product or fulfilled
the terms of the agreement at the time of shipment, revenue
recognition is deferred until completion. Determination of
criteria in the third and fourth bullet points above is based on
our judgment regarding the fixed nature of the amounts charged
for the products delivered and the collectability of those
amounts.
We assess collectability based on the creditworthiness of the
customer and past transaction history. We perform on-going
credit evaluations of, and do not require collateral from, our
customers. We have not experienced significant collection losses
in the past. A significant change in the liquidity or financial
position of any one customer could make it more difficult for us
to assess collectability.
Inventory
Valuation
We value the majority of our inventories at the lesser of
standard cost, determined on a
first-in,
first-out basis, or market. We value inventory of our
subsidiary, UCT-Sieger, at the lesser of actual cost or market.
We assess the valuation of all inventories, including raw
materials,
work-in-process,
finished goods and spare parts on a periodic basis. Obsolete
inventory or inventory in excess of our estimated usage is
written-down to its estimated market value less costs to sell,
if less than its cost. The inventory write-downs are recorded as
an inventory valuation allowance established on the basis of
obsolete inventory or specific identified inventory in excess of
established usage. Inherent in our estimates of market value in
determining inventory valuation are estimates related to
economic trends, future demand for our products and
technological obsolescence of our products. If actual market
conditions are less favorable than our projections, additional
inventory write-downs may be required. If the inventory value is
written down to its net realizable value, and subsequently there
is an increased demand for the inventory at a higher value, the
increased value of the inventory is not realized until the
inventory is sold either as a component of a subsystem or as
separate inventory. For the years ended December 28, 2007
and December 29, 2006, we wrote off $0.9 million and
$0.8 million, respectively, in inventory determined to be
obsolete.
Accounting
for Income Taxes
The determination of our tax provision is subject to judgments
and estimates. The carrying value of our net deferred tax
assets, which is made up primarily of tax deductions, assumes we
will be able to generate sufficient future income to fully
realize these deductions. In determining whether the realization
of these deferred tax assets may be impaired, we make judgments
with respect to whether we are likely to generate sufficient
future taxable income to realize these assets. We have not
recorded any valuation allowance to impair our tax assets
because, based on the available evidence, we believe it is more
likely than not that we will be able to utilize all of our
deferred tax assets in the future. If we do not generate
sufficient future income, the realization of these deferred tax
assets may be impaired, resulting in an additional income tax
expense.
On December 30, 2006, we adopted the provision of Financial
Accounting Standards Board (“FASB”) Interpretation
No. 48, “Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement
No. 109” (“FIN 48”), which clarifies
the accounting for uncertainty in income tax positions. This
interpretation requires that we recognize in our consolidated
financial statements the impact of a tax position that is more
likely than not to be sustained upon examination based on the
technical merits of the position. When tax returns are filed, it
is highly certain that some positions taken would be sustained
upon examination by the taxing authorities, while others are
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 financial
statements in the period during which, based on all available
evidence, management believes it is more likely than not that
the position will be sustained upon examination, including the
resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other
positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax
benefit that is more than 50 percent likely of being
realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken
that exceeds the amount measured as described above is reflected
as a liability for recognized tax benefits in the
29
accompanying balance sheets along with any associated interest
that would be payable to the taxing authorities upon examination
(See note 7).
We are currently open to audit under the statute of limitations
by the Internal Revenue Service for fiscal years 2004 through
2007, and our state income tax returns are open to audit under
the statute of limitations for fiscal years 2003 through 2007.
Business
Combinations
In accordance with business combination accounting, we allocate
the purchase price of acquired companies to the tangible and
intangible assets acquired and liabilities assumed based on
their estimated fair values. We engage third-party appraisal
firms to assist management in determining the fair values of
acquired intangible assets such as trade name and customer
relationships. Such valuations require management to make
significant estimates and assumptions. Management makes
estimates of fair value based upon assumptions believed to be
reasonable. These estimates are based on historical experience
and information obtained from the management of the acquired
companies and are inherently uncertain.
On June 29, 2006, we completed the acquisition of Sieger
Engineering, Inc, a privately-held contract manufacturing
company based in South San Francisco, California
(“UCT-Sieger”). The total purchase price was
approximately $53.5 million and was comprised of cash
consideration of $32.4 million, including acquisition costs
of $1.4 million, and stock consideration of
$21.1 million. Our subsidiary, UCT-Sieger, is a supplier of
chemical mechanical planarization (CMP) modules and other
critical subsystems to the semiconductor, solar and flat panel
capital equipment industries. We believe that the acquisition
has enhanced our strategic position as a semiconductor equipment
subsystem supplier. We have accounted for the acquisition of
UCT-Sieger as a business combination and the operating results
of UCT-Sieger have been included in our consolidated financial
statements from the date of acquisition. (See Note 2).
Valuation
of Intangible Assets and Goodwill
We annually evaluate our intangible assets and goodwill in
accordance with Statement of Financial Accounting Standards
No. 142 (“SFAS No. 142”),
Goodwill
and Other Intangible Assets
, for indications of impairment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Intangible assets include
goodwill, customer lists and tradename. Factors we consider
important that could trigger an impairment review include
significant under-performance relative to historical or
projected future operating results, significant changes in the
manner of our use of the acquired assets or the strategy for our
overall business, or significant negative industry or economic
trends. The provisions of SFAS No. 142 also require a
goodwill impairment test annually or more frequently if
impairment indicators arise. In testing for a potential
impairment of goodwill, the provisions of SFAS No. 142
require the application of a fair value based test at the
reporting unit level. We operate in one reportable segment and
have one reporting unit. Therefore, all goodwill is considered
enterprise goodwill and the first step of the impairment test
prescribed by SFAS No. 142 requires a comparison of
our fair value to our book value. If the estimated fair value is
less than the book value, SFAS No. 142 requires an
estimate of the fair value of all identifiable assets and
liabilities of the business, in a manner similar to a purchase
price allocation for an acquired business. This estimate
requires valuations of certain internally generated and
unrecognized intangible assets such as in-process research and
development and developed technology. Potential goodwill
impairment is measured based upon this two-step process. We
performed our annual goodwill impairment test as of
December 28, 2007 and determined that goodwill was not
impaired.
Equity
Incentives to Employees
On January 1, 2006, we began to account for our employee
stock purchase plan (ESPP) and employee stock-based compensation
plan in accordance with the provisions of Statement of Financial
Account Standards 123(R)
“Accounting for Stock-Based
Compensation,”
(SFAS 123(R)), which requires
recognition of the fair value of stock-based compensation. The
fair value of stock options was estimated using a Black-Scholes
option valuation model. This methodology requires the use of
subjective assumptions in implementing SFAS 123(R),
including expected stock price volatility and the estimated life
of each award. The fair value of stock-based compensation awards
less
30
the estimated forfeitures is amortized over the service period
of the award, and we have elected to use the straight-line
method. We make quarterly assessments of the adequacy of the tax
credit pool to determine if there are any deficiencies that
require recognition in the consolidated income statements.
Prior to the implementation of SFAS 123(R), we accounted
for stock options and ESPP shares under the provisions of
Accounting Principles Board (“APB”) Opinion 25,
“Accounting for Stock Issued to Employees,”
(“APB 25”), and FASB Interpretation
(“FIN”), No. 44,
“Accounting for Certain
Transactions Involving Stock Compensation,”
(“FIN 44”) and made footnote disclosures as
required by SFAS 148,
“Accounting for Stock-Based
Compensation — Transition and Disclosure,”
(SFAS 148). Accordingly, no compensation was recognized
for purchase rights issued through the employee stock purchase
plan or employee stock-based awards granted with exercise prices
equal to the fair value of the underlying common stock at the
date of grant. Rather, we disclosed pro forma net income and pro
forma net income per share in the footnotes to the Consolidated
Financial Statements as required by SFAS 148. The pro forma
income calculations were estimated using a Black-Scholes option
valuation model.
Unaudited
Quarterly Financial Results
The following tables set forth statement of operations data, in
thousands, for the periods indicated. The information for each
of these periods is unaudited and has been prepared on the same
basis as our audited consolidated financial statements included
herein and includes all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair
presentation of our unaudited operations data for the periods
presented. Historical results are not necessarily indicative of
the results to be expected in the future (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
110,792
|
|
|
$
|
104,722
|
|
|
$
|
95,535
|
|
|
$
|
92,758
|
|
|
$
|
403,807
|
|
|
Gross profit
|
|
$
|
16,757
|
|
|
$
|
15,816
|
|
|
$
|
13,370
|
|
|
$
|
11,517
|
|
|
$
|
57,460
|
|
|
Net income
|
|
$
|
5,185
|
|
|
$
|
5,096
|
|
|
$
|
3,541
|
|
|
$
|
2,071
|
|
|
$
|
15,893
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
57,195
|
|
|
$
|
68,469
|
|
|
$
|
104,065
|
|
|
$
|
107,499
|
|
|
$
|
337,228
|
|
|
Gross profit
|
|
$
|
8,191
|
|
|
$
|
10,710
|
|
|
$
|
15,371
|
|
|
$
|
16,414
|
|
|
$
|
50,686
|
|
|
Net income
|
|
$
|
2,131
|
|
|
$
|
3,957
|
|
|
$
|
5,560
|
|
|
$
|
4,662
|
|
|
$
|
16,310
|
|
Our operating results for fiscal 2007 reflect a downturn in the
semiconductor capital equipment industry beginning in the second
quarter of 2007 and worsening further in the third and fourth
quarters of fiscal year 2007. Gross profit for the fourth
quarter and full year ended 2007 reflects a correction in
inventory resulting from incorrect material transfers in our
newly implemented ERP system which increased our cost of goods
sold by $297,000 from amounts previously reported in our
earnings release dated February 19, 2008. On a comparative
basis, the operations of Sieger are included in the operating
results above beginning in the third quarter of fiscal 2006.
Liquidity
and Capital Resources
With the exception of the Sieger acquisition, which was funded
by third-party debt, historically, we have required capital
principally to fund our working capital needs, satisfy our debt
obligations, maintain our equipment and purchase new capital
equipment. As of December 28, 2007, we had cash of
$33.4 million as compared to $23.3 million as of
December 29, 2006.
For the year ended December 28, 2007 we generated cash from
operating activities of $23.5 million compared to a use of
cash of $7.7 million for the year ended December 29,
2006. Cash flow in 2007 was favorably impacted by increases in
net income and depreciation and amortization of
$15.9 million and $4.4 million, respectively, and a
decrease in accounts receivable of $9.7 million
respectively, offset in part by an increase in inventory of
$1.9 million, and a decease in income taxes payable of
$4.9 million.
Net cash used in investing activities for the year ended
December 28, 2007 decreased $28.4 million to
$7.9 million. The decrease was due primarily to our
acquisition of Sieger in 2006 offset by higher levels of capital
31
expenditures relating to our investment in a new ERP system and
leasehold and capital equipment for our second manufacturing
facility in Shanghai, China. In addition to our normal general
capital expenditures, in 2008, we expect to invest approximately
$7.2 million in our new Hayward facility and
$3.0 million in our new Shanghai facility over the next
four years. Cash for these investments will be provided from
existing cash and cash from operations.
Net cash used in financing activities for the year ended
December 28, 2007 increased $47.0 million to
$5.7 million used in financing activities from
$41.3 million provided by financing activities in the year
ended December 29, 2006. In 2007 the use of cash in
financing activities was primarily due to payments on long-term
debt of $9.4 million offset primarily by proceeds from the
issuance of common stock from our employee stock compensation
plans. In 2006, we generated cash primarily through bank
borrowings and stock issuance, including approximately
$10.5 million in net proceeds from our secondary stock
offering of 1.6 million shares of common stock conducted in
March 2006. Cash provided by financing activities in 2006 was
used primarily to fund the acquisition of Sieger.
We anticipate that our operating cash flow, together with
available borrowings under our revolving credit facility, will
be sufficient to meet our working capital requirements, capital
lease obligations, expansion plans and technology development
projects for at least the next twelve months. The adequacy of
these resources to meet our liquidity needs beyond that period
will depend on our growth, the cyclical expansion or contraction
of the semiconductor capital equipment industry and capital
expenditures required to meet possible increased demand for our
products.
Borrowing
Arrangements
In connection with our acquisition of Sieger in the second
quarter of 2006, we entered into a borrowing arrangement and an
equipment loan. The loan and security agreement (“Loan
Agreement”) provides senior secured credit facilities in an
aggregate principal amount of up to $32.5 million,
consisting of a $25 million revolving line of credit
($10 million of which may be used for the issuance of
letters of credit) and a $7.5 million term loan. The
aggregate amount of the credit facilities is also subject to a
borrowing base equal to 80% of eligible accounts receivable and
is secured by substantially all of our assets. Each of the
credit facilities will expire on June 29, 2009 and contains
certain financial covenants, including minimum profitability and
liquidity ratios. In addition, the term loan is subject to
monthly amortization payments in 36 equal installments. In
December 2007, we paid down the balance of this loan by an
additional amount of $5.0 million. Interest rates on
outstanding loans under the credit facilities ranged from 6.5%
to 8.3% per annum during the year ended December 28, 2007
and were 6.5% per annum as of December 28, 2007. The
equipment loan is a
5-year,
$5 million loan that is secured by certain equipment. The
interest rate on the equipment loan was 7.6% as of
December 28, 2007. The combined balance outstanding on the
borrowing arrangement and equipment loan at December 28,
2007 was $22.2 million.
We anticipate that we will continue to finance our operations
with cash flows from operations, existing cash balances and a
combination of long-term debt
and/or
lease
financing and additional sales of equity securities. The
combination and sources of capital will be determined by
management based on our then-current needs and prevailing market
conditions.
Although cash requirements fluctuate based on the timing and
extent of many factors, management believes that cash generated
from operations, together with the liquidity provided by
existing cash balances and borrowing capability, will be
sufficient to satisfy our liquidity requirements for at least
the next 12 months.
Capital
Expenditures
We made capital expenditures of $8.0 million in the year
ended December 28, 2007, the majority of which was used for
the facilities expansion in China and the implementation of our
new ERP system which went live during the fourth quarter of
2007. Capital expenditures in the year ended December 29,
2006 and 2005 were $4.0 million and $1.1 million,
respectively, the majority of which was domestic cleanroom
expansion activities and the purchase and implementation of a
new ERP system.
32
Contractual
Obligations
Other than operating leases for certain equipment and real
estate, we have no off-balance sheet transactions, unconditional
purchase obligations or similar instruments and, other than the
revolving credit facility described above, are not a guarantor
of any other entities’ debt or other financial obligations.
The following table summarizes our future minimum lease payments
and principal payments under debt obligations as of
December 28, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
Capital lease
|
|
$
|
33
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45
|
|
|
Operating lease(1)
|
|
|
1,905
|
|
|
|
2,404
|
|
|
|
1,867
|
|
|
|
1,817
|
|
|
|
1,944
|
|
|
|
4,329
|
|
|
|
14,266
|
|
|
Borrowing arrangements
|
|
|
3,575
|
|
|
|
17,185
|
|
|
|
1,008
|
|
|
|
443
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,211
|
|
|
Purchase obligations
|
|
|
49,012
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(2)
|
|
$
|
54,525
|
|
|
$
|
19,601
|
|
|
$
|
2,875
|
|
|
$
|
2,260
|
|
|
$
|
1,944
|
|
|
$
|
4,329
|
|
|
$
|
85,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease expense reflects (a) the lease for our
headquarters facility in Menlo Park, California expires on
December 31, 2007 and we have entered into a new lease in
Hayward, California; (b) the lease for a manufacturing
facility in Portland, Oregon expires on October 31, 2010;
(c) the leases for manufacturing facilities in South
San Francisco expire in 2007, 2008, 2009 and 2010;
(d) three leases for manufacturing facilities in Austin,
Texas that expire on February 29, 2008 and August 31,
2009. We have options to renew certain of the leases in South
San Francisco, which we expect to exercise.
|
|
|
|
(2)
|
|
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48),
on December 30, 2006. As a result of the implementation of
FIN 48, we recorded an additional tax liability of $750,000
to offset the recognition of previously recorded excess tax
benefits. Because of the uncertainty surrounding the future
payment of these liabilities, the amounts have been excluded
from the table above.
|
Recently
Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting
Standards (“SFAS) No. 157,
“Fair Value
Measurements”
(“SFAS 157”), which
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 does
not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit
fair value measurements. The provisions of SFAS 157 are to
be applied prospectively as of the beginning of the fiscal year
in which this statement is initially applied, with any
transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. We will adopt SFAS 157
as required in January 2008 and are currently evaluating the
impact of SFAS 157 on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and
Financial Liabilities”
(“SFAS No. 159”) which allows entities
the option to measure eligible financial instruments at fair
value as of specified dates. Such election, which may be applied
on an instrument by instrument basis, is irrevocable once
elected. SFAS No. 159 will be effective in fiscal
2008. We are evaluating the potential impact of the
implementation of SFAS No. 159 on our financial
position and results of operations.
In December 2007, the FASB issued Statement 141 (revised),
“Business Combinations” (SFAS 141(R)). The
standard changes the accounting for business combinations,
including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of
contingent consideration, the accounting for preacquisition gain
and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment
of acquisition related transaction costs, and the recognition of
changes in the acquirer’s income tax valuation allowance.
SFAS 141(R) will be effective for Ultra Clean Technology in
fiscal 2009, with early adoption prohibited. Ultra Clean is
evaluating the potential impact of the implementation of
Statement 141(R) on its financial position and results of
operations.
33
|
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market risk represents the risk of changes in value of a
financial instrument caused by fluctuations in interest rates,
foreign exchange rates or equity prices.
Foreign
Exchange Rates
During the first quarter of fiscal 2005, we entered into a loan
and security agreement providing for revolver loans of up to
$3.0 million with a bank in China. As of December 28,
2007, we had no such balance outstanding under the revolver loan
under such agreement. However, if we enter into future borrowing
arrangements or borrow under our existing revolving credit
facility, we may seek to manage our exposure to interest rate
changes by using a mix of debt maturities and variable- and
fixed-rate debt, together with interest rate swaps where
appropriate, to fix or lower our borrowing costs. We do not make
material sales in currencies other than the United States Dollar
or have material purchase obligations outside of the United
States, except in China where we have purchase commitments
totaling $0.8 million in United States Dollar equivalents.
We have performed a sensitivity analysis assuming a hypothetical
10-percent movement in foreign currency exchange rates and
interest rates applied to the underlying exposures described
above. As of December 28, 2007, the analysis indicated that
such market movements would not have a material effect on our
business, financial condition or results of operations. Although
we do not anticipate any significant fluctuations, there can be
no assurance that foreign currency exchange risk will not have a
material impact on our financial position, results of operations
or cash flow in the future.
Interest
Rates
Our interest rate risk relates primarily to our third party debt
which totals $22.2 million and carries interest rates
pegged to the LIBOR and PRIME rates. An immediate increase in
interest rates of 100 basis points would increase our
interest expense by approximately $56,000 per quarter. This
would be partially offset by increased interest income on our
invested cash. Conversely, an immediate decline of
100 basis points in interest rates would decrease our
interest expense by approximately $56,000 per quarter. This
would be partially offset by decreased interest income on our
invested cash.
34
|
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ultra Clean
Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Ultra Clean Holdings, Inc. and subsidiaries (the
“Company”) as of December 28, 2007 and
December 29, 2006, and the related consolidated statements
of income, stockholders’ equity and cash flows for each of
the three years in the period ended December 28, 2007.
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 28, 2007 and December 29, 2006,
and the results of its operations and its cash flows for each of
the three years in the period ended December 28, 2007, in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 7 to the consolidated financial
statements, effective December 30, 2006, the Company
adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes — an Interpretation of
FASB No. 109. As discussed in Note 1 to the
consolidated financial statements, effective January 1,
2006, the Company changed its method of accounting for
stock-based compensation in accordance with guidance provided in
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment
.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 28, 2007, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 12, 2008 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
San Jose, California
March 12, 2008
35
Ultra
Clean Holdings, Inc.
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In thousands, except share amounts)
|
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,447
|
|
|
$
|
23,321
|
|
|
Accounts receivable, net of allowance of $352 and $287,
respectively
|
|
|
34,845
|
|
|
|
44,543
|
|
|
Inventory, net
|
|
|
49,342
|
|
|
|
47,914
|
|
|
Deferred income taxes
|
|
|
3,597
|
|
|
|
4,186
|
|
|
Prepaid expenses and other
|
|
|
4,110
|
|
|
|
1,303
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
125,341
|
|
|
|
121,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and leasehold improvements, net
|
|
|
14,095
|
|
|
|
9,433
|
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
34,196
|
|
|
|
33,490
|
|
|
Purchased intangibles
|
|
|
20,762
|
|
|
|
22,112
|
|
|
Other non-current assets
|
|
|
633
|
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
195,027
|
|
|
$
|
187,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Bank borrowings
|
|
$
|
3,575
|
|
|
$
|
4,206
|
|
|
Accounts payable
|
|
|
36,817
|
|
|
|
37,583
|
|
|
Accrued compensation and related benefits
|
|
|
3,006
|
|
|
|
4,021
|
|
|
Capital lease obligations, current portion
|
|
|
33
|
|
|
|
61
|
|
|
Income taxes payable
|
|
|
—
|
|
|
|
2,355
|
|
|
Other current liabilities
|
|
|
1,412
|
|
|
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
44,843
|
|
|
|
49,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
18,636
|
|
|
|
27,358
|
|
|
Deferred and other tax liabilities
|
|
|
1,031
|
|
|
|
2,523
|
|
|
Capital lease obligations and other liabilities
|
|
|
1,029
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
65,539
|
|
|
|
79,879
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See note 13)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock — $0.001 par value, 10,000,000
authorized; none outstanding
|
|
|
|
|
|
|
|
|
|
Common stock — $0.001 par value, 90,000,000
authorized; 21,562,836 and 21,080,540 shares issued and
outstanding, in 2007 and 2006, respectively
|
|
|
89,092
|
|
|
|
82,046
|
|
|
Retained earnings
|
|
|
40,396
|
|
|
|
25,122
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
129,488
|
|
|
|
107,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
195,027
|
|
|
$
|
187,047
|
|
|
|
|
|
|
|
|
|
|
|
(See notes to consolidated financial statements)
36
Ultra
Clean Holdings, Inc.
Consolidated
Income Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
Sales
|
|
$
|
403,807
|
|
|
$
|
337,228
|
|
|
$
|
147,535
|
|
|
Cost of goods sold
|
|
|
346,347
|
|
|
|
286,542
|
|
|
|
127,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
57,460
|
|
|
|
50,686
|
|
|
|
20,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,985
|
|
|
|
3,051
|
|
|
|
2,360
|
|
|
Sales and marketing
|
|
|
5,914
|
|
|
|
4,644
|
|
|
|
3,357
|
|
|
General and administrative
|
|
|
25,054
|
|
|
|
17,657
|
|
|
|
11,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,953
|
|
|
|
25,352
|
|
|
|
17,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
23,507
|
|
|
|
25,334
|
|
|
|
2,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
|
(1,797
|
)
|
|
|
(1,758
|
)
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
21,710
|
|
|
|
23,576
|
|
|
|
2,708
|
|
|
Income tax provision
|
|
|
5,817
|
|
|
|
7,266
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
|
$
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.75
|
|
|
$
|
0.85
|
|
|
$
|
0.12
|
|
|
Diluted
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
0.12
|
|
|
Shares used in computing net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,293
|
|
|
|
19,220
|
|
|
|
16,241
|
|
|
Diluted
|
|
|
22,118
|
|
|
|
19,649
|
|
|
|
17,169
|
|
(See notes to consolidated financial statements)
37
Ultra
Clean Holdings, Inc.
Consolidated
Statements of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Earnings/
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Stock-based
|
|
|
(Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Compensation
|
|
|
Deficit)
|
|
|
Equity
|
|
|
|
|
(In thousands, except share amounts)
|
|
|
|
|
Balance, December 31, 2004
|
|
|
16,366,466
|
|
|
$
|
46,237
|
|
|
$
|
(571
|
)
|
|
$
|
6,809
|
|
|
$
|
52,475
|
|
|
Net issuance under employee stock plans, including tax benefits
of $116
|
|
|
134,897
|
|
|
|
598
|
|
|
|
—
|
|
|
|
—
|
|
|
|
598
|
|
|
Amortization of stock-based compensation
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
221
|
|
|
|
—
|
|
|
|
205
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,003
|
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 30, 2005
|
|
|
16,501,363
|
|
|
|
46,819
|
|
|
|
(350
|
)
|
|
|
8,812
|
|
|
|
55,281
|
|
|
Issuance of common stock for business acquisition
|
|
|
2,599,393
|
|
|
|
21,071
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,071
|
|
|
Sale of common stock
|
|
|
1,600,000
|
|
|
|
10,510
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,510
|
|
|
Net issuance under employee stock plans, including tax benefits
of $1,060
|
|
|
379,784
|
|
|
|
2,089
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,089
|
|
|
Amortization of stock-based compensation
|
|
|
—
|
|
|
|
1,709
|
|
|
|
198
|
|
|
|
—
|
|
|
|
1,907
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,310
|
|
|
|
16,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2006
|
|
|
21,080,540
|
|
|
|
82,198
|
|
|
|
(152
|
)
|
|
|
25,122
|
|
|
|
107,168
|
|
|
Issuance of restricted common stock
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net issuance under employee stock plans, including tax benefits
of $1,323
|
|
|
457,296
|
|
|
|
3,759
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,759
|
|
|
Amortization of stock-based compensation
|
|
|
—
|
|
|
|
3,162
|
|
|
|
125
|
|
|
|
—
|
|
|
|
3,287
|
|
|
Excess tax benefits recognized under adoption of FIN 48
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(619
|
)
|
|
|
(619
|
)
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,893
|
|
|
|
15,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2007
|
|
|
21,562,836
|
|
|
$
|
89,119
|
|
|
$
|
(27
|
)
|
|
$
|
40,396
|
|
|
$
|
129,488
|
|
(See notes to consolidated financial statements)
38
Ultra
Clean Holdings, Inc.
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(in thousands)
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
|
$
|
2,003
|
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,375
|
|
|
|
3,871
|
|
|
|
2,167
|
|
|
Loss on sale of equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
Deferred income tax
|
|
|
(903
|
)
|
|
|
(2,002
|
)
|
|
|
(318
|
)
|
|
Excess tax benefit from stock-based compensation
|
|
|
(1,323
|
)
|
|
|
(1,060
|
)
|
|
|
116
|
|
|
Stock-based compensation
|
|
|
3,287
|
|
|
|
1,907
|
|
|
|
221
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,698
|
|
|
|
(10,719
|
)
|
|
|
(5,743
|
)
|
|
Inventory
|
|
|
(1,933
|
)
|
|
|
(14,073
|
)
|
|
|
(3,973
|
)
|
|
Prepaid expenses and other
|
|
|
(266
|
)
|
|
|
145
|
|
|
|
158
|
|
|
Other non-current assets
|
|
|
112
|
|
|
|
53
|
|
|
|
45
|
|
|
Accounts payable
|
|
|
(772
|
)
|
|
|
8,749
|
|
|
|
1,770
|
|
|
Accrued compensation and related benefits
|
|
|
(1,015
|
)
|
|
|
1,524
|
|
|
|
(777
|
)
|
|
Income taxes payable
|
|
|
(4,921
|
)
|
|
|
2,944
|
|
|
|
(865
|
)
|
|
Other current liabilities
|
|
|
1,288
|
|
|
|
36
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
23,520
|
|
|
|
7,685
|
|
|
|
3,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment and leasehold improvements
|
|
|
(7,707
|
)
|
|
|
(3,941
|
)
|
|
|
(1,126
|
)
|
|
Proceeds from sale of equipment
|
|
|
27
|
|
|
|
—
|
|
|
|
9
|
|
|
Net cash used in acquisition
|
|
|
(46
|
)
|
|
|
(32,353
|
)
|
|
|
—
|
|
|
Decrease in restricted cash
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
Acquisition related tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,726
|
)
|
|
|
(36,294
|
)
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(67
|
)
|
|
|
(45
|
)
|
|
|
(72
|
)
|
|
Proceeds from bank borrowings
|
|
|
—
|
|
|
|
31,991
|
|
|
|
2,343
|
|
|
Principal payments on long-term debt
|
|
|
(9,353
|
)
|
|
|
(3,278
|
)
|
|
|
—
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
1,323
|
|
|
|
1,060
|
|
|
|
—
|
|
|
Proceeds from issuance of common stock
|
|
|
2,429
|
|
|
|
11,539
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(5,668
|
)
|
|
|
41,267
|
|
|
|
2,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
10,126
|
|
|
|
12,658
|
|
|
|
(777
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
|
23,321
|
|
|
|
10,663
|
|
|
|
11,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
33,447
|
|
|
$
|
23,321
|
|
|
$
|
10,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
10,249
|
|
|
$
|
5,256
|
|
|
$
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,242
|
|
|
$
|
1,307
|
|
|
$
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued
|
|
$
|
335
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock issued in acquisition
|
|
$
|
—
|
|
|
$
|
21,071
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(See notes to consolidated financial statements)
39
Ultra
Clean Holdings, Inc.
|
|
|
|
1.
|
Organization
and Significant Accounting Policies
|
Organization
— Ultra Clean Holdings, Inc. (the
“Company”) is a developer and supplier of critical
delivery subsystems, primarily for the semiconductor capital
equipment industry, producing primarily gas delivery systems and
other critical subsystems, including chemical mechanical
planarization (CMP) subsystems, chemical delivery modules, frame
and top plate assemblies and process modules. The Company’s
products improve efficiency and reduce the costs of our
customers’ design and manufacturing processes. The
Company’s customers are primarily original equipment
manufacturers (“OEMs”) of semiconductor capital
equipment. On June 29, 2006, the Company completed the
acquisition of Sieger Engineering, Inc. (“Sieger”)
which was renamed UCT-Sieger Engineering LLC
(“UCT-Sieger”).
Basis of Presentation
— The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
This financial information reflects all adjustments which are,
in the opinion of the Company, normal, recurring and necessary
to present fairly the statements of financial position, results
of operations and cash flows for the dates and periods presented.
Use of Accounting Estimates
— The presentation
of financial statements in conformity with generally accepted
accounting principles in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosures of
contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. The Company bases its estimates and judgments
on historical experience and on various other assumptions that
it believes are reasonable under the circumstances. However,
future events are subject to change and the best estimates and
judgments routinely require adjustment. Actual amounts may
differ from those estimates.
Certain Significant Risks and Uncertainties
—
The Company operates in a dynamic industry and, accordingly, can
be affected by a variety of factors. For example, any of the
following areas could have a negative effect on the Company in
terms of its future financial position, results of operations or
cash flows: the highly cyclical nature of the semiconductor
industry; the loss of any of a small number of customers;
ability to obtain additional financing; pursuing acquisition
opportunities; regulatory changes; fundamental changes in the
technology underlying semiconductor manufacturing processes or
semiconductor manufacturing equipment; the hiring, training and
retention of key employees; successful and timely completion of
product design efforts; and new product design introductions by
competitors.
Concentration of Credit Risk
— Financial
instruments which subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents and
accounts receivable. The Company sells its products primarily to
semiconductor capital equipment manufacturers in the United
States. The Company performs credit evaluations of its
customers’ financial condition and generally requires no
collateral.
The Company had significant sales to three customers, each
accounting for 10% or more of sales: Applied Materials, Inc.,
Lam Research Corporation and Novellus Systems, Inc. Sales to
each of these customers as a percentage of total sales were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Customer A
|
|
|
43
|
%
|
|
|
40
|
%
|
|
|
40
|
%
|
|
Customer B
|
|
|
29
|
%
|
|
|
32
|
%
|
|
|
31
|
%
|
|
Customer C
|
|
|
11
|
%
|
|
|
14
|
%
|
|
|
18
|
%
|
These same three significant customers and one other customer,
Intuitive Surgical, Inc., represented 70% and 13%, respectively,
for a combined total of 83% of accounts receivable at
December 28, 2007. The same three significant customers
represented a combined total of 74% of accounts receivable at
December 29, 2006.
40
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Fair Value of Financial Instruments
— Our
financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and bank borrowings. The
carrying value of these instruments approximates their fair
value because of their short-term nature.
Fiscal Year
— The Company uses a
52-53 week
fiscal year ending on the Friday nearest December 31. All
references to quarters refer to fiscal quarters and all
references to years refer to fiscal years.
Inventories
— Inventories are generally stated
at the lower of standard cost (which approximates actual cost on
a
first-in,
first-out basis) or market. The Company evaluates the valuation
of all inventories, including raw materials,
work-in-process,
finished goods and spare parts on a periodic basis. Obsolete
inventory or inventory in excess of management’s estimated
usage is written-down to its estimated market value less costs
to sell, if less than its cost. Inherent in the estimates of
market value are management’s estimates related to economic
trends, future demand for products, and technological
obsolescence of the Company’s products.
At December 28, 2007 and December 29, 2006, inventory
balances of $49.3 million and $47.9 million,
respectively, were net of write-downs. The inventory write-downs
are recorded as an inventory valuation allowance established on
the basis of obsolete inventory or specific identified inventory
in excess of estimated usage.
Equipment and Leasehold Improvements
—
Equipment and leasehold improvements are stated at cost, or, in
the case of equipment under capital leases, the present value of
future minimum lease payments at inception of the related lease.
Depreciation and amortization are computed using the
straight-line method over the lesser of the estimated useful
lives of the assets or the terms of the leases. Useful lives
range from three to fifteen years.
Product Warranty
— The Company provides a
warranty on its products for a period of up to two years, and
provides for warranty costs at the time of sale based on
historical activity. The determination of such provisions
requires the Company to make estimates of product return rates
and expected costs to repair or replace the products under
warranty. If actual return rates
and/or
repair and replacement costs differ significantly from these
estimates, adjustments to recognize additional cost of sales may
be required in future periods. The warranty reserve is included
in other current liabilities on the consolidated balance sheet.
Warranty cost activity consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Beginning Balance
|
|
$
|
344
|
|
|
$
|
76
|
|
|
$
|
127
|
|
|
Adjustment for acquisition
|
|
|
—
|
|
|
|
214
|
|
|
|
—
|
|
|
Additions related to sales
|
|
|
109
|
|
|
|
376
|
|
|
|
57
|
|
|
Warranty costs incurred
|
|
|
(233
|
)
|
|
|
(322
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
220
|
|
|
$
|
344
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
— Income taxes are reported under
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
, (“SFAS 109”)
and, accordingly, deferred taxes are recognized using the asset
and liability method, whereby deferred tax assets and
liabilities are recognized for the future tax consequence
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax base, and operating loss and tax credit
carry-forwards. Valuation allowances are provided if it is more
likely than not that some or all of the deferred tax assets will
not be recognized.
Stock-based
compensation and deferred stock-based compensation
The Company maintains stock-based compensation plans which allow
for the issuance of stock options to executives and certain
employees. The Company also maintains an employee stock purchase
plan (“ESPP”) that provides for the issuance of shares
to all eligible employees of the Company at a discounted price.
Prior to fiscal year 2006, the Company accounted for the plans
under the recognition and measurement provisions of Accounting
41
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Principles Board (“APB”) Opinion 25,
Accounting for
Stock Issued to Employees
, and related Interpretations.
Accordingly, because stock options granted had an exercise price
equal to the market value of the underlying common stock on the
date of the grant, no expense related to employee stock options
was recognized. Also, as the employee stock purchase plan was
considered non-compensatory, no expense related to this plan was
recognized. In accordance with SFAS 123 (SFAS 123),
Accounting for Stock-Based Compensation,
as amended by
SFAS No. 148 (SFAS 148),
Accounting for
Stock-Based Compensation — Transition and Disclosure
, the Company provided pro forma net income and net income
per share disclosures for each period prior to the adoption of
Statement of Accounting Standards 123R (SFAS 123(R)),
Share-Based Payment
, as if it had applied the fair
value-based method in measuring compensation expense for its
share-based compensation plans.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS 123(R) using the
modified prospective method. This statement applies to all
awards granted after the effective date and to modifications,
repurchases or cancellations of existing awards. Additionally,
under the modified prospective transition method of adoption,
the Company recognizes compensation expense for equity-based
awards granted after January 1, 2006, plus the portion of
outstanding awards on the adoption date for which the requisite
service period has not yet been rendered based on the grant-date
fair value of those awards calculated under SFAS 123, as
amended by SFAS 148. Under this method of implementation,
no restatement of prior periods has been made.
Stock-based compensation expense from stock options and the
related income tax benefit from the expense recognized under
SFAS 123(R) were $3.0 million and $0.8 million,
respectively, for the year ended December 28, 2007, and
$1.7 million and $0.5 million, respectively, for the
year ended December 29, 2006. The estimated fair value of
the Company’s equity-based awards, net of expected
forfeitures, is amortized over the awards’ vesting period
on a straight-line basis over a weighted average period of four
years and will be adjusted for subsequent changes in estimated
forfeitures and future option grants. The implementation of
SFAS 123(R) reduced basic and fully diluted earnings per
share, net of tax benefit, by $0.10 and $0.06 for the years
ended December 28, 2007 and December 29, 2006,
respectively.
Comparable
Disclosures
The following table illustrates the effect on the Company’s
net income and net income per share for the year ended
December 30, 2005 as if it had applied the fair value
recognition provisions of SFAS No. 123 to share-based
compensation using the Black-Scholes valuation model (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 30,
|
|
|
|
|
2005
|
|
|
|
|
Net income as reported
|
|
$
|
2,003
|
|
|
Add: stock-based employee compensation included in reported net
income, net of tax
|
|
|
151
|
|
|
Less: total stock-based compensation determined under the fair
value-based method for all awards, net of tax
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
1,326
|
|
|
|
|
|
|
|
|
Basic net income per share:
|
|
|
|
|
|
As reported
|
|
$
|
0.12
|
|
|
Pro forma
|
|
$
|
0.08
|
|
|
Diluted net income per share:
|
|
|
|
|
|
As reported
|
|
$
|
0.12
|
|
|
Pro forma
|
|
$
|
0.08
|
|
42
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Determining
Fair Value
Valuation and amortization method.
The Company
estimates the fair value of stock options granted using the
Black-Scholes option valuation model and a single option award
approach. All options are amortized over the requisite service
periods of the awards, which are generally the vesting periods,
and are amortized using the straight-line basis method.
Expected term.
The expected term of options
granted represents the period of time that they are expected to
be outstanding. The Company estimates the expected term of
options granted based on historical exercise patterns, which the
Company believes are representative of future behavior.
Expected volatility.
The Company estimates the
volatility of its common stock in the Black-Scholes option
valuation at the date of grant based on historical volatility
rates over the expected term, consistent with
SFAS 123(R)and Staff Accounting Bulletin 107
(SAB 107),
Share-Based Payment.
Risk-free interest rate.
The Company bases the
risk-free interest rate in the Black-Scholes option valuation
model on the implied yield in effect at the time of option grant
on U.S. Treasury zero-coupon issues with equivalent
remaining term.
Dividend yield.
The Company has never paid any
cash dividends on its common stock and does not anticipate
paying any cash dividends in the foreseeable future.
Consequently, the Company uses an expected dividend yield of
0.0% in the Black-Scholes option valuation model.
Forfeiture rate.
SFAS No. 123(R)
requires the Company to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. The Company uses
historical data to estimate pre-vesting option forfeitures and
records share-based compensation expense only for those awards
that are expected to vest. For purposes of calculating pro forma
information under SFAS No. 123 for periods prior to
fiscal year 2006, the Company accounted for forfeitures only as
they occurred.
The exercise price of each stock option equals the market price
of the Company’s stock on the date of grant. The weighted
average estimated fair value of employee stock option grants for
the years ended December 28, 2007, December 29, 2006
and December 30, 2005 was $7.26, $4.41 and $3.51,
respectively. Most options are scheduled to vest over four years
and expire no later than ten years from the grant date. The fair
value for the options granted during the years ended
December 28, 2007, December 29, 2006 and
December 30, 2005 was estimated at the date of grant using
the Black-Scholes option pricing model. The weighted average
assumptions used in the model are outlined in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Expected volatility
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
|
|
57.9
|
%
|
|
Risk-free interest rate
|
|
|
4.25
|
%
|
|
|
4.9
|
%
|
|
|
3.9
|
%
|
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
5.0
|
|
43
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
The following table summarizes the Company’s restricted
stock award activity for the year ended December 28, 2007
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
|
|
|
Shares
|
|
|
Value(1)
|
|
|
|
|
Unvested stock at December 30, 2006
|
|
|
31
|
|
|
|
—
|
|
|
Granted
|
|
|
25
|
|
|
|
—
|
|
|
Vested
|
|
|
(15
|
)
|
|
|
—
|
|
|
Forfeited
|
|
|
(—
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 28, 2007
|
|
|
41
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
There is no weighted fair value associated with these restricted
stock awards.
|
To comply with the pro forma reporting requirements of
SFAS No. 123, compensation cost is also estimated for
the fair value of future employee stock purchase plan issuances,
which is included in the pro forma totals above. In anticipation
of the required implementation of SFAS 123(R) in January
2006, the Company modified the terms of its ESPP plan in
November 2005 to eliminate the look-back feature and reduce the
discount on purchased shares from 15% to 5%. The fair value of
purchase rights granted under the purchase plan is estimated on
the date of grant using the Black-Scholes option pricing model
using the following weighted average assumptions and resulting
in the weighted-average fair value:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 30,
|
|
|
|
|
2005
|
|
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
46.5
|
%
|
|
Risk-free interest rate
|
|
|
3.5
|
%
|
|
Expected life (in years)
|
|
|
0.5
|
|
During the years ended December 28, 2007, December 29,
2006 and December 30, 2005, the Company recorded
$2.4 million, $1.3 million and $0.2 million,
respectively, of stock-based compensation expense, net of tax,
associated with employee and director stock plans and employee
stock purchase plan programs. As of December 28, 2007,
there was $6.0 million, net of forfeitures of
$2.0 million, of unrecognized compensation cost related to
employee and director stock which is expected to be recognized
on a straight-line basis over a weighted average period of
approximately four years, and will be adjusted for subsequent
changes in estimated forfeitures and future option grants.
Total stock-based compensation during the years ended
December 28, 2007, December 29, 2006 and
December 30, 2005, respectively, to various operating
expense categories was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005(2)
|
|
|
|
|
Cost of goods sold(1)
|
|
$
|
915
|
|
|
$
|
376
|
|
|
$
|
—
|
|
|
Sales and marketing
|
|
|
203
|
|
|
|
111
|
|
|
|
—
|
|
|
Research and development
|
|
|
111
|
|
|
|
81
|
|
|
|
—
|
|
|
General and administrative
|
|
|
2,073
|
|
|
|
1,339
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,302
|
|
|
|
1,907
|
|
|
|
205
|
|
|
Income tax benefit
|
|
|
(885
|
)
|
|
|
(586
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense
|
|
$
|
2,417
|
|
|
$
|
1,321
|
|
|
$
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
(1)
|
|
As of December 28, 2007 and December 29, 2006, there
were no stock-based compensation expenses capitalized in
inventory.
|
|
|
|
(2)
|
|
For the year ended December 30, 2005, the Company accounted
for its employee stock purchase plan and employee stock option
plan in accordance with the provisions of Accounting Principles
Board (“APB”) Opinion No. 25. Accordingly, no
compensation expense was recognized for purchase rights issued
through the employee stock purchase plan or employee stock
options granted with exercise prices greater than or equal to
the fair value of the underlying common stock at the date of
grant.
|
Prior to the adoption of SFAS 123(R), we presented all tax
benefits of deductions resulting from the exercise of stock
options as operating cash flows in our statement of cash flows.
In accordance with SFAS 123(R), the cash flows resulting
from excess tax benefits (tax benefits related to the excess of
proceeds from employee’s exercises of stock options over
the stock-based compensation cost recognized for those options)
are classified as financing cash flows. During the year ended
December 28, 2007, we recorded $1.3 million of excess
tax benefits as a financing cash inflow.
Purchased Intangibles and Goodwill
— Purchased
intangibles consist of tradenames and customer relationships
acquired as part of a purchase business combination.
As part of the Sieger acquisition in June 2006, the Company
allocated the purchase price to the tangible and intangible
assets acquired and liabilities assumed based on their estimated
fair values. The intangible assets acquired from Sieger are
stated at cost less accumulated amortization and are being
amortized on a straight-line basis over their estimated useful
lives of six months to 10.7 years.
Ultra Clean Technology Systems and Service, Inc. was founded in
1991 by Mitsubishi Corporation and was operated as a subsidiary
of Mitsubishi until November 2002, when it was acquired by the
Company. As part of the Ultra Clean Technology Systems and
Services acquisition in November 2002, the Company allocated the
purchase price to the tangible and intangible assets acquired,
liabilities assumed, and in-process research and development
based on their estimated fair values. Such valuations required
management to make significant estimates and assumptions,
especially with respect to intangible assets.
Critical estimates in valuing certain intangible assets include,
but are not limited to: future expected cash flows from customer
contracts; acquired developed technologies and patents; expected
costs to develop the in-process research and development into
commercially viable products and estimated cash flows from the
projects when completed; the market position of the acquired
products; and assumptions about the period of time the trade
name will continue to be used in the Company’s product
portfolio. Based upon these estimates, the tradename asset was
assigned an indefinite life.
Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently
uncertain.
Goodwill represents the excess of the purchase price over the
fair value of tangible and identifiable intangible assets
acquired. SFAS No. 141,
Business Combinations
,
and SFAS No. 142,
Goodwill and Other Intangible
Assets
requires that all business combinations be accounted
for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible
assets acquired in a business combination. Goodwill amounts are
not amortized, but rather are tested for impairment. The
provisions of SFAS No. 142 require an annual goodwill
impairment test or more frequently if impairment indicators
arise. In testing for a potential impairment of goodwill, the
provisions of SFAS No. 142 require the application of
a fair value based test at the reporting unit level. The Company
operates in one reporting segment which has one reporting unit.
Therefore, all goodwill is considered enterprise goodwill and
the first step of the impairment test prescribed by
SFAS No. 142 requires a comparison of fair value to
book value of the Company. If the estimated fair value of the
Company is less than the book value, SFAS No. 142
requires an estimate of the fair value of all identifiable
assets and liabilities of the business, in a manner similar to a
purchase price allocation for an acquired business. This
estimate requires valuations of certain
45
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
internally generated and unrecognized intangible assets such as
in-process research and development and developed technology.
Potential goodwill impairment is measured based upon this
two-step process. Management performed the annual goodwill
impairment test as of December 28, 2007 and
December 29, 2006 and determined that goodwill was not
impaired. In the event that the Company determines that the
value of goodwill has become impaired, the Company will incur an
accounting charge for the amount of impairment during the period
in which such determination is made.
Long-Lived Assets
— In accordance with
SFAS No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Assets
, the Company evaluates the
impairment of long-lived assets, based on the projection of
undiscounted cash flows whenever events or changes in
circumstances indicate that the carrying amounts of such assets
may not be recoverable. In the event such cash flows are not
expected to be sufficient to recover the recorded value of the
assets, the assets are written down to their estimated fair
values.
Revenue Recognition
— Product revenue is
generally recorded upon shipment. In arrangements which specify
title transfer upon delivery, revenue is not recognized until
the product is delivered. The Company recognizes revenue when
persuasive evidence of an arrangement exists, shipment has
occurred, price is fixed or determinable and collectability is
reasonably assured. If the Company has not substantially
completed a product or fulfilled the terms of a sales agreement
at the time of shipment, revenue recognition is deferred until
completion. 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.
The Company assesses collectability based on the credit
worthiness of the customer and past transaction history. The
Company performs on-going credit evaluations of customers and
does not require collateral from customers.
Research and Development Costs
— Research and
development costs are expensed as incurred.
Net Income per Share
— Basic net income per
share is computed by dividing net income by the weighted average
number of shares outstanding for the period. Diluted net income
per share earnings is calculated by dividing net income by the
weighted average number of common shares outstanding and common
equivalent shares from dilutive stock options and restricted
stock using the treasury stock method, except when anti-dilutive
(see Note 9).
Comprehensive Income
— In accordance with
SFAS No. 130,
Reporting Comprehensive Income
,
the Company reports by major components and as a single total,
the change in its net assets during the period from non-owner
sources. Comprehensive income for all periods presented was the
same as net income.
Recently Issued Accounting Standards
— In
September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting
Standards (“SFAS) No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 does
not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit
fair value measurements. The provisions of SFAS 157 are to
be applied prospectively as of the beginning of fiscal 2008,
with any transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings. We will
adopt SFAS 157 as required in January 2008 and are
currently evaluating the impact of SFAS 157 on our
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities
. SFAS No. 159 allows entities the
option to measure eligible financial instruments at fair value
as of specified dates. Such election, which may be applied on an
instrument by instrument basis, is irrevocable once elected.
SFAS No. 159 will be effective in fiscal 2008. We are
evaluating the potential impact of the implementation of
SFAS No. 159 on our financial position and results of
operations.
In December 2007, FASB issued Statement 141 (revised),
“Business Combinations” (SFAS 141(R)). The
standard changes the accounting for business combinations,
including the measurement of acquirer shares issued in
46
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
consideration for a business combination, the recognition of
contingent consideration, the accounting for preacquisition gain
and loss contingencies, the recognition of capitalized
in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment
of acquisition related transaction costs, and the recognition of
changes in the acquirer’s income tax valuation allowance.
SFAS 141(R) will be effective for Ultra Clean Technology in
fiscal 2009, with early adoption prohibited. Ultra Clean is
evaluating the potential impact of the implementation of
Statement 141(R) on its financial position and results of
operations.
In June 2006, the Company acquired Sieger, a supplier of CMP
modules and other critical subsystems to the semiconductor,
solar and flat panel capital equipment industries. The total
purchase price was approximately $53.5 million and was
comprised of cash consideration of $32.4 million, including
acquisition costs of $1.4 million, and stock consideration
of $21.1 million. In accordance with
EITF 99-12,
“Determination of the Measurement Date for the Market
Price of Acquirer Securities Issued in a Purchase Business
Combination”
, the Company valued the common stock
consideration based on the average closing sales price on the
NASDAQ Global Market for two days before and two days after
June 29, 2006, which was both the Company’s
announcement date and transaction date for the acquisition.
The Company accounted for the acquisition of Sieger as a
business combination and the operating results of Sieger have
been included in the Company’s consolidated financial
statements from the date of acquisition. The allocation of the
purchase price to the assets acquired and liabilities assumed is
as follows (in thousands):
|
|
|
|
|
|
|
Tangible assets, net
|
|
$
|
10,894
|
|
|
Customer lists
|
|
|
13,800
|
|
|
Tradename
|
|
|
800
|
|
|
Goodwill
|
|
|
27,957
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,451
|
|
|
|
|
|
|
|
The Company recognized amortization expense related to purchased
intangibles of approximately $1.4 million and
$1.5 million for the years ended December 28, 2007 and
December 29, 2006, respectively. The weighted average
useful life of customer lists was determined to be
10.7 years. The weighted average useful life of the
tradename was determined to be six months and therefore was
fully amortized by December 29, 2006.
Pro Forma Results
— The following unaudited pro
forma financial information presents the combined results of
operations of the Company and UCT-Sieger as if the acquisition
had occurred as of the beginning of the periods presented. The
unaudited pro forma financial information is not intended to
represent or be indicative of the consolidated results of
operations or financial condition of the Company that would have
been reported had the acquisition been completed as of the dates
presented, and should not be taken as being representative of
the future consolidated results of operations or financial
condition of the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Sales
|
|
$
|
396,610
|
|
|
$
|
234,005
|
|
|
Net income
|
|
$
|
18,825
|
|
|
$
|
2,047
|
|
|
Basic net income per share
|
|
$
|
0.92
|
|
|
$
|
0.11
|
|
|
Diluted net income per share
|
|
$
|
0.90
|
|
|
$
|
0.10
|
|
47
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Raw materials
|
|
$
|
35,625
|
|
|
$
|
30,234
|
|
|
Work in process
|
|
|
15,449
|
|
|
|
19,240
|
|
|
Finished goods
|
|
|
2,556
|
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,630
|
|
|
|
52,011
|
|
|
Reserve for obsolescence
|
|
|
(4,288
|
)
|
|
|
(4,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,342
|
|
|
$
|
47,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Equipment
and Leasehold Improvements, Net
|
Equipment and leasehold improvements, net, consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Computer equipment and software
|
|
$
|
6,980
|
|
|
$
|
4,008
|
|
|
Furniture and fixtures
|
|
|
622
|
|
|
|
570
|
|
|
Machinery and equipment
|
|
|
8,274
|
|
|
|
6,201
|
|
|
Leasehold improvements
|
|
|
8,221
|
|
|
|
5,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,097
|
|
|
|
16,456
|
|
|
Accumulated depreciation and amortization
|
|
|
(10,002
|
)
|
|
|
(7,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,095
|
|
|
$
|
9,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Purchased
Intangibles and Goodwill
|
The following tables provide a summary of the carrying amounts
of purchased intangibles that continue to be amortized (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Weighted
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Average
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Years
|
|
|
|
|
Year Ended December 28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
$
|
13,800
|
|
|
$
|
(2,025
|
)
|
|
$
|
11,775
|
|
|
|
10.7
|
|
|
Tradenames
|
|
|
9,787
|
|
|
|
(800
|
)
|
|
|
8,987
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,587
|
|
|
$
|
(2,825
|
)
|
|
$
|
20,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
$
|
13,800
|
|
|
$
|
(675
|
)
|
|
$
|
13,125
|
|
|
|
10.7
|
|
|
Tradenames
|
|
|
9,787
|
|
|
|
(800
|
)
|
|
|
8,987
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,587
|
|
|
$
|
(1,475
|
)
|
|
$
|
22,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Tradename associated with UCT-Sieger had an average life of six
months and, as of December 29, 2006, had been fully
amortized. Trade name associated with Ultra Clean Technology
Systems and Service, Inc. has an indefinite life.
|
48
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Amortization expense related to purchased intangibles was
$1.4 million, $1.5 and $0.0 in fiscal 2007, fiscal 2006 and
fiscal 2005, respectively. The total expected future
amortization related to purchased intangibles will be
approximately $1.4 million, $1.4 million,
$1.3 million and $1.2 million in fiscal years 2008
through 2011, respectively, and $6.4 million thereafter.
The change in the carrying amount of goodwill during the year
ended December 28, 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
Carrying
|
|
|
|
|
Amount
|
|
|
|
|
Goodwill, as of December 29, 2006
|
|
$
|
33,490
|
|
|
FIN 48 adjustment
|
|
|
156
|
|
|
Incremental Sieger acquisition goodwill(1)
|
|
|
550
|
|
|
|
|
|
|
|
|
Goodwill, as of December 28, 2007
|
|
$
|
34,196
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Incremental goodwill relates primarily to additional reserves
required for inventory acquired at the time of the acquisition
of Sieger.
|
|
|
|
|
6.
|
Debt and
Lease Obligations
|
In connection with our acquisition of Sieger in the second
quarter of 2006, we entered into a borrowing arrangement and an
equipment loan. The loan and security agreement (“Loan
Agreement”) provides senior secured credit facilities in an
aggregate principal amount of up to $32.5 million,
consisting of a $25 million revolving line of credit
($10 million of which may be used for the issuance of
letters of credit) and a $7.5 million term loan. The
aggregate amount of the credit facilities is also subject to a
borrowing base equal to 80% of eligible accounts receivable and
is secured by substantially all of our assets. Each of the
credit facilities will expire on June 29, 2009 and contains
certain financial covenants, including minimum profitability and
liquidity ratios. In addition, the term loan is subject to
monthly amortization payments in 36 equal installments. In
December 2007, we paid down the balance of this loan by the
amount of $5.0 million. Interest rates on outstanding loans
under the credit facilities ranged from 6.5% to 8.3% per annum
during the year ended December 28, 2008 and were 6.5% per
annum as of December 28, 2007. The equipment loan is a
5-year,
$5 million loan that is secured by certain equipment. The
interest rate on the equipment loan was 7.6% as of
December 28, 2007. The combined balance outstanding on the
borrowing arrangement and equipment loan at December 28,
2007 was $22.2 million.
The Company leases certain equipment under capital lease
arrangements. In addition, the Company leases its corporate and
regional offices as well as some of its office equipment under
non-cancelable operating leases. The Company has a renewal
option for its leased facilities in South San Francisco,
Hayward and Sacramento, California; Austin, Texas; Tualatin,
Oregon; and Shanghai, China.
The following table summarizes our future minimum lease payments
and principal payments under debt obligations as of
December 28, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
Capital lease
|
|
$
|
33
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45
|
|
|
Operating lease(1)
|
|
|
1,905
|
|
|
|
2,404
|
|
|
|
1,867
|
|
|
|
1,817
|
|
|
|
1,944
|
|
|
|
4,329
|
|
|
|
14,266
|
|
|
Borrowing arrangements
|
|
|
3,575
|
|
|
|
17,185
|
|
|
|
1,008
|
|
|
|
443
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,513
|
|
|
$
|
19,601
|
|
|
$
|
2,875
|
|
|
$
|
2,260
|
|
|
$
|
1,944
|
|
|
$
|
4,329
|
|
|
$
|
36,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease expense reflects (a) the lease for our
headquarters facility in Menlo Park, California expires on
December 31, 2007 and we have entered into a new lease in
Hayward, California; (b) the lease for a
|
49
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
manufacturing facility in Portland, Oregon expires on
October 31, 2010; (c) the leases for manufacturing
facilities in South San Francisco expire in 2007, 2008,
2009 and 2010; (d) three leases for manufacturing
facilities in Austin, Texas that expire on February 29,
2008 and August 31, 2009. We have options to renew certain
of the leases in South San Francisco, which we expect to
exercise.
|
The cost of equipment under the capital leases included in
property and equipment at December 28, 2007 and
December 29, 2006 was approximately $0.4 million and
$0.3 million, respectively. Net book value of leased
equipment at December 28, 2007 and December 29, 2006,
was approximately $23,000 and $0.1 million, respectively.
Rental expense for the years ended December 28, 2007,
December 29, 2006 and December 30, 2005 was
approximately $2.9 million, $2.0 million and
$1.3 million, respectively. Included within capital lease
obligations and other liabilities in 2007 and 2006 were $0.0 and
$6,600 of deferred rent, respectively.
The provision for taxes on income consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,220
|
|
|
$
|
7,389
|
|
|
$
|
707
|
|
|
State
|
|
|
1,512
|
|
|
|
1,934
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
6,732
|
|
|
|
9,323
|
|
|
|
1,031
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(867
|
)
|
|
|
(2,111
|
)
|
|
|
(226
|
)
|
|
State
|
|
|
(48
|
)
|
|
|
54
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(915
|
)
|
|
|
(2,057
|
)
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
5,817
|
|
|
$
|
7,266
|
|
|
$
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of net deferred tax assets and deferred
tax liabilities for federal and state income taxes were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Net current deferred tax asset:
|
|
|
|
|
|
|
|
|
|
Inventory valuation and basis difference
|
|
$
|
2,390
|
|
|
$
|
2,848
|
|
|
Other accrued expenses
|
|
|
740
|
|
|
|
721
|
|
|
State taxes
|
|
|
467
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,597
|
|
|
|
4,186
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liability (asset):
|
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
(29
|
)
|
|
|
(3
|
)
|
|
Other accrued expenses
|
|
|
(1,744
|
)
|
|
|
(843
|
)
|
|
Depreciation
|
|
|
(2,162
|
)
|
|
|
(2,180
|
)
|
|
State taxes
|
|
|
380
|
|
|
|
502
|
|
|
Purchased intangibles
|
|
|
4,587
|
|
|
|
5,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
2,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,566
|
|
|
$
|
1,663
|
|
|
|
|
|
|
|
|
|
|
|
50
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
The effective tax rate differs from the federal statutory tax
rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Federal income tax provision at statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
|
State income taxes, net of federal benefit
|
|
|
4.0
|
%
|
|
|
4.4
|
%
|
|
|
5.4
|
%
|
|
Effect of foreign operations
|
|
|
(11.3
|
)%
|
|
|
(7.4
|
)%
|
|
|
(4.2
|
)%
|
|
Exempt income
|
|
|
(—
|
)%
|
|
|
(2.5
|
)%
|
|
|
(7.9
|
)%
|
|
Other
|
|
|
(0.9
|
)%
|
|
|
1.3
|
%
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
26.8
|
%
|
|
|
30.8
|
%
|
|
|
26.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All foreign earnings are considered to be permanently reinvested
under APB Opinion No. 23, “Accounting for Income
Taxes — Special Areas”.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on December 30, 2006. As a result of the
implementation of FIN 48, the Company recorded a long-term
tax liability of $827,000 for the recognition of excess tax
benefits, which was accounted for as a decrease of $619,000 in
retained earnings, including interest of $67,000, and an
increase of $208,000 in goodwill as of December 30, 2006.
The increase in goodwill is the result of certain tax benefits
related to the acquisition of Ultra Clean Technologies and
Services in 2002.
Derecognition in future periods of amounts recorded upon
adoption of FIN 48, will result in an income tax benefit.
The Company does not currently believe that the recognized tax
benefit will change significantly within the next twelve months.
There was no impact on the Company’s estimated effective
tax rate for 2007 as a result of the adoption of FIN 48.
The following table summarizes the activity related to the
Company’s unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
Balance as of December 29, 2006
|
|
$
|
827
|
|
|
Increases related to current year tax positions
|
|
|
27
|
|
|
Settlement of tax
|
|
|
(25
|
)
|
|
Expiration of the statute of limitations for the assessment of
taxes
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
Balance as of December 28, 2007
|
|
$
|
750
|
|
|
|
|
|
|
|
The Company is currently open to audit under the statute of
limitations by the Internal Revenue Service for fiscal years
2004 through 2007, and the Company’s state income tax
returns are open to audit under the statute of limitations for
the fiscal years 2003 through 2007.
Stock Options
— On February 20, 2003, the
Company adopted the 2003 Stock Incentive Plan (the “2003
Incentive Plan”) which was subsequently amended and
restated. The Company has reserved 3,774,783 shares of its
common stock for issuance under the 2003 Incentive Plan, as
amended and restated. The 2003 Incentive Plan provides for the
issuance of options and other stock-based awards. Options are
generally granted at fair value at the date of grant as
determined by the Board of Directors, have terms up to ten years
and generally vest over four years. At December 28, 2007,
267,159 shares were available for future grants under the
2003 Incentive Plan.
51
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Option activity under the 2003 Incentive Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Outstanding, December 31, 2004
|
|
|
1,572,414
|
|
|
$
|
3.01
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
859,000
|
|
|
|
6.60
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(48,180
|
)
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(262,797
|
)
|
|
|
5.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 30, 2005
|
|
|
2,120,437
|
|
|
|
4.17
|
|
|
|
8.25
|
|
|
$
|
6,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,257,500
|
|
|
|
9.02
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(373,296
|
)
|
|
|
2.44
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(89,997
|
)
|
|
|
6.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 29, 2006
|
|
|
2,916,144
|
|
|
|
6.41
|
|
|
|
8.29
|
|
|
$
|
17,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
529,600
|
|
|
|
14.79
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(440,861
|
)
|
|
|
5.02
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(77,547
|
)
|
|
|
10.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 28, 2007
|
|
|
2,927,336
|
|
|
$
|
8.03
|
|
|
|
7.70
|
|
|
$
|
13,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information with respect to
options outstanding and exercisable at December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Average
|
|
|
Exercise
|
|
|
Shares
|
|
|
Exercise
|
|
|
Range of Exercise Price
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
$1.00 - 3.99
|
|
|
482,878
|
|
|
|
5.43
|
|
|
$
|
1.05
|
|
|
|
479,645
|
|
|
$
|
1.03
|
|
|
$4.00 - 6.99
|
|
|
609,946
|
|
|
|
7.42
|
|
|
|
6.50
|
|
|
|
368,604
|
|
|
|
6.52
|
|
|
$7.00 - 7.99
|
|
|
285,149
|
|
|
|
6.25
|
|
|
|
7.03
|
|
|
|
207,798
|
|
|
|
7.02
|
|
|
$8.00 - 8.99
|
|
|
853,054
|
|
|
|
8.29
|
|
|
|
8.30
|
|
|
|
274,125
|
|
|
|
8.42
|
|
|
$9.00 - 17.90
|
|
|
696,309
|
|
|
|
9.23
|
|
|
|
14.29
|
|
|
|
47,044
|
|
|
|
12.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
2,927,336
|
|
|
|
7.70
|
|
|
$
|
8.03
|
|
|
|
1,377,216
|
|
|
$
|
5.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
— In 2004 the
Company adopted an Employee Stock Purchase Plan
(“ESPP”) and is authorized to issue
555,343 shares of common stock under the ESPP. The ESPP
permits employees to purchase common stock at a discount through
payroll withholdings at certain specified dates (purchase
period) within a defined offering period. The purchase price is
95% of the fair market value of the common stock at the end of
the purchase period and is intended to qualify as an
“employee stock purchase plan” under Section 423
of the Internal Revenue Code. There were 16,235 shares
issued under the ESPP during the year ended December 29,
2007.
Common Stock
— On March 24, 2004, the
Company sold 6,000,000 shares of its common stock at a
price to the public of $7.00 per share in an initial public
offering (“IPO”). After deducting the underwriting
discount of $0.49 per share, the net proceeds to the Company
were approximately $39.1 million. Of the net proceeds,
approximately $31.1 million was used to redeem the
Company’s outstanding Series A Senior Notes plus
accrued interest.
52
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
On April 21, 2004, as part of the Company’s IPO,
FP-Ultra Clean, L.L.C., the Company’s principle stockholder
sold 720,350 shares of the Company’s common stock in
connection with the exercise by the underwriters of an
over-allotment option. The Company did not receive any of the
proceeds from the exercise of the over-allotment option.
On March 9, 2006, the Company sold 1,600,000 shares of
its common stock to the public in a secondary offering. After
deducting the underwriting discount and other costs of the
offering, the net proceeds to the Company were approximately
$10.5 million. As of December 31, 2006, FP-Ultra
Clean’s ownership of the Company was approximately 9.5%.
On June 29, 2006, as part of the acquisition of Sieger
Inc., the Company issued 2,471,907 shares of its common
stock valued at approximately $20.1 million. On
November 13, 2006, the company issued 127,486 additional
shares of its common stock valued at approximately
$1.0 million as part of the acquisition of Sieger Inc. As
of December 28, 2007, FP-Ultra Clean’s ownership of
the Company was 0.0%.
Restricted Stock
— On November 26, 2002,
the Company granted 268,525 shares of common stock to
certain key employees and on March 1, 2004, the Company
granted 62,500 shares of common stock to a board member
under the 2003 Incentive Plan. These restricted shares vest, in
equal installments, over a four year period from the date of
grant. On May 31, 2007, the Company granted
25,000 shares of common stock to its board members under
the 2003 Incentive Plan. These restricted shares vest
365 days from the date of grant.
For the years ended December 28, 2007, December 29,
2006 and December 30, 2005, the Company charged
$0.3 million, $0.2 million and $0.2 million,
respectively, to compensation expense related to the vesting of
restricted stock. The unvested amount is subject to forfeiture,
until the common stock is fully vested. At December 28,
2007, 40,625 shares were subject to repurchase.
The following is a reconciliation of the numerators and
denominators used in computing basic and diluted net income per
share (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,893
|
|
|
$
|
16,310
|
|
|
$
|
2,003
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation — basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
21,333
|
|
|
|
19,271
|
|
|
|
16,417
|
|
|
Weighted average common shares outstanding subject to repurchase
|
|
|
(40
|
)
|
|
|
(51
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share
|
|
|
21,293
|
|
|
|
19,220
|
|
|
|
16,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation — diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
21,293
|
|
|
|
19,220
|
|
|
|
16,241
|
|
|
Dilutive effect of common shares outstanding subject to
repurchase
|
|
|
40
|
|
|
|
51
|
|
|
|
129
|
|
|
Dilutive effect of options outstanding
|
|
|
785
|
|
|
|
378
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share
|
|
|
22,118
|
|
|
|
19,649
|
|
|
|
17,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share — basic
|
|
$
|
0.75
|
|
|
$
|
0.85
|
|
|
$
|
0.12
|
|
|
Net income per share — diluted
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
0.12
|
|
53
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
The Company had securities outstanding which could potentially
dilute basic earnings per share in the future, but the
incremental shares from the assumed exercise of these securities
were excluded in the computation of diluted net income per
share, as their effect would have been anti-dilutive. Such
outstanding securities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Shares of common stock subject to repurchase
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
Outstanding options
|
|
|
499
|
|
|
|
161
|
|
|
|
925
|
|
Deferred Stock Compensation
— During the year
ended December 31, 2003, the Company issued
1,067,000 common stock options to employees at a weighted
average exercise price of $1.00 per share. The weighted average
exercise price was below the weighted average deemed fair value
of the Company’s common stock which ranged from $1.00 to
$4.97 per share. In connection with these options, the Company
recorded deferred stock-based compensation of approximately
$0.1 million and amortized approximately $15,000, $27,000
and $29,000 as an expense during the years ended
December 28, 2007, December 29, 2006, and
December 30, 2005, respectively.
|
|
|
|
10.
|
Employee
Benefit Plan
|
The Company sponsors a 401(k) savings and profit sharing plan
(the “401(k) Plan”) for all employees who meet certain
eligibility requirements. Participants could elect to contribute
to the 401(k) Plan, on a pre-tax basis, from 2-19% of their
salary up to a maximum of $15,500. The Company may make matching
contributions of up to 6% of employee contributions based upon
eligibility. The Company made approximately $0.6 million,
$0.5 million, and $0.3 million discretionary employer
contributions to the 401(k) Plan in the years ended
December 28, 2007, December 29, 2006 and
December 30, 2005, respectively.
|
|
|
|
11.
|
Related
Party Transactions
|
As part of the acquisition of Sieger, the Company leases a
facility from an entity controlled by one of the Company’s
former executive officers and current member of the Board of
Directors of the Company. During the year ended
December 28, 2007, the Company incurred rent expense
resulting from the lease of this facility of $0.3 million
and from completion of the acquisition of UCT-Sieger through
December 29, 2006 rent expense resulting from the
lease of this facility was $0.1 million.
The wife of one of the Company’s executives is the sole
owner of the Company’s primary travel agency. The Company
incurred fees for travel-related services, including the cost of
airplane tickets, of $0.4 million, $0.3 million and
$0.2 million for the years ended December 28, 2007,
December 29, 2006, and December 30, 2005, respectively.
The sister, son and
sister-in-law
of one of the Company’s executives worked for the Company
during the year ended December 28, 2007. These employees
were employees of Sieger prior to the date of acquisition.
During the year ended December 28, 2007, the Company made
payments to these individuals totaling $161,000. From the date
of acquisition to December 29, 2006, aggregate payments by
the Company to the aforementioned individuals totaled $84,000.
In November 2002, the Company entered into an agreement with a
key executive of the Company to defer payment of $265,000 in
compensation until November 15, 2009. Under this
arrangement the Company pays interest of 2.7% per annum, payable
on June 30 and December 31 of each year. The amounts owed under
this arrangement may be prepaid by the Company at the discretion
of the board of directors. The principal amount owed under this
arrangement is contained within Capital lease obligations and
other liabilities on the balance sheet of the Company.
54
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
The Company operates in one reportable segment and is engaged in
the development, manufacture and supply of critical subsystems
for the semiconductor capital equipment industry. The nature of
the Company’s products and production processes as well as
type of customers and distribution methods is consistent among
all of the Company’s products. The Company’s foreign
operations are conducted primarily through its wholly-owned
subsidiary in China. The Company’s principal markets
include North America, Europe and Asia. Sales by geographic area
represent sales to unaffiliated customers.
All information on sales by geographic area is based upon the
location to which the products were shipped. The following table
sets forth revenue by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 28,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
Sales
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
United States
|
|
$
|
395,039
|
|
|
$
|
320,662
|
|
|
$
|
139,363
|
|
|
Export sales to Europe and Asia
|
|
|
8,768
|
|
|
|
16,566
|
|
|
|
8,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
403,807
|
|
|
$
|
337,228
|
|
|
$
|
147,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 28, 2007 and December 29, 2006,
approximately $4.2 million and $2.1 million,
respectively, of the Company’s long-lived assets were
located in China and the balances were located in the United
States.
|
|
|
|
13.
|
Commitments
and Contingencies
|
The Company had commitments to purchase inventory totaling
approximately $49.0 million at December 28, 2007.
The current lease for the Company’s corporate headquarters
in Menlo Park expired on December 31, 2007. In September
2007, the Company entered into a facility lease agreement for
approximately 104,000 square feet of office space in
Hayward, California and plans to move into the new facility in
the second quarter of 2008. In lieu of a cash security deposit,
the Company established an irrevocable standby letter of credit
in the amount of $156,000 naming the landlord of the new
facility as the beneficiary. Pursuant to the lease agreement,
the Company will receive approximately $4.1 million in
tenant improvement allowances and incentives as well as
$1.2 million in rent abatements over the first two years of
the lease. The operating lease term for the new facility will
commence on February 15, 2008, and will continue through
February 14, 2015, with minimum monthly lease payments
beginning at $119,000 and escalating annually after the first
two years. The Company’s total future minimum lease
payments over the term of the lease will be approximately
$10.2 million.
On September 2, 2005, the Company filed suit in the federal
court for the Northern District of California against Celerity,
Inc., or Celerity, seeking a declaratory judgment that our new
substrate technology does not infringe certain of
Celerity’s patents
and/or
that
Celerity’s patents are invalid. On September 13, 2005,
Celerity filed suit in the federal court of Delaware alleging
that the Company has infringed eight patents by developing and
marketing products that use Celerity’s fluid distribution
technology. The complaint by Celerity seeks injunction against
future infringement of its patents and compensatory and treble
damages. The Delaware litigation was transferred to the Northern
District of California on October 19, 2005 and on
December 12, 2005 was consolidated with the Company’s
previously filed declaratory judgment action. The Court issued
its claim construction order on September 29, 2006. The
Company then filed motions for summary judgments of
non-infringement and invalidity with the Court. The Court issued
summary judgment in April 2007, dismissing four of
Celerity’s patent infringement claims. In addition,
Celerity had previously withdrawn two of its patent infringement
claims. The case ultimately went to trial in June 2007, and, on
June 25, 2007, a jury found that the Company did not
infringe on one of the two remaining patents at issue but did
infringe on the other. The jury awarded damages of $13,900 to
Celerity and enjoined the Company from making, using, or selling
the product that was found to infringe the
55
Ultra
Clean Holdings, Inc.
Notes to
Consolidated Financial
Statements — (Continued)
Celerity patent. The court also ordered the Company to pay
Celerity $45,000 in court costs, and $31,000 in royalty fees for
gas panel sales to date related to the product that was found to
infringe the Celerity patent. The Company has filed a notice of
appeal, and intends to appeal the jury verdict and injunction to
the Court of Appeals for the Federal Circuit (CAFC). In
addition, the Company has requested, and the United States
Patent and Trademark Office (USPTO) has granted, the
Company’s request for re-examination of the one Celerity
patent that the Company was found to infringe. The reexamination
by the USPTO is pending. The Company does not expect the outcome
of the appeal to the CAFC or the ruling by the USPTO in the
re-examination of the Celerity patent to have a material impact
on the Company’s operating results or cash flows.
From time to time, the Company is also subject to various legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business.
56
|
|
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
Not Applicable
Item 9A.
Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on
Form 10-K,
we carried out an evaluation, under the supervision and with the
participation of our Disclosure Committee and our management,
including the Chief Executive Officer (CEO) and the Chief
Financial Officer (CFO), of the effectiveness of the design and
operation of our disclosure controls and procedures (Disclosure
Controls) pursuant to Exchange Act
Rule 13a-15(e).
Disclosure Controls are procedures that are designed to ensure
that information required to be disclosed in our reports filed
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), such as this Annual Report on
Form 10-K,
is recorded, processed, summarized and reported within the time
periods specified by the SEC.
The evaluation of our Disclosure Controls included a review of
their objectives and design, our implementation of them and
their effect on the information generated for use in this Annual
Report on
Form 10-K.
In the course of the controls evaluation, we reviewed any data
errors or control problems that we had identified and sought to
confirm that appropriate corrective actions, including process
improvements, were being undertaken. This type of evaluation is
performed on a quarterly basis so that the conclusions of
management, including our CEO and CFO, concerning the
effectiveness of the Disclosure Controls can be reported in our
periodic reports on
Form 10-K
and
Form 10-Q.
Many of the components of our Disclosure Controls are also
evaluated on an ongoing basis by our finance department. The
overall goals of these various evaluation activities are to
monitor our Disclosure Controls and to modify them as necessary.
We intend to maintain the Disclosure Controls as dynamic systems
that we adjust as circumstances merit.
Based on this evaluation, our CEO and CFO concluded that as of
December 28, 2007, our Disclosure Controls were effective
to provide reasonable assurance that the information required to
be disclosed in our SEC reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated
to our management, including our CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.
We intend to review and evaluate the design and effectiveness of
our Disclosure Controls on an ongoing basis and to correct any
material deficiencies that we may discover. Our goal is to
ensure that our senior management has timely access to material
information that could affect our business.
Management’s
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f).
Under the supervision and with the participation of management,
including our CEO and CFO, we conducted an evaluation of the
effectiveness of our internal controls over financial reporting
based on the framework in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on our evaluation under the framework in
Internal
Control — Integrated Framework
, management has
concluded that our internal control over financial reporting was
effective as of December 28, 2007 to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external reporting
purposes in accordance with U.S. generally accepted
accounting principles. As a result of such evaluation, there
were no significant changes in our internal controls over
financial reporting identified during the most recent fiscal
year that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting
except for the implementation in the fourth quarter of 2007 of a
new enterprise resource planning system (including new
accounting software). This change in systems facilitated the
integration of the operations in South San Francisco,
acquired as part of the acquisition of Sieger in 2006, onto a
common platform with our other U.S. operations. As a
result, certain business processes and accounting procedures
have changed. The decision to change systems was made in order
to increase efficiencies within the operations of our business
and was not in response to any identified deficiency or weakness
in our internal control over financial reporting.
57
Our internal control over financial reporting as of
December 28, 2007 has been audited by Deloitte &
Touche LLP, an independent public accounting firm, as
stated in the report below.
Management
Certifications
The certifications of our CEO and CFO required in accordance
with Section 302 of the Sarbanes-Oxley Act of 2002 are
attached as exhibits to this Annual Report on
Form 10-K.
The disclosures set forth in this Item 9A contain
information concerning (i) the evaluation of our Disclosure
Controls referred to in paragraph 4 of the certifications,
and (ii) material weaknesses in the design or operation of
our internal control over financial reporting referred to in
paragraph 5 of the certifications. Those certifications
should be read in conjunction with this Item 9A for a more
complete understanding of the matters covered by the
certifications.
Inherent
Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, do not expect that
our Disclosure Controls or our internal control over financial
reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control
system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, within a company have been detected. These
inherent limitations include the realities that judgments in
decision making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the
controls. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of
changes in conditions, or the degree of compliance with policies
or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ultra Clean
Holdings, Inc.:
We have audited the internal control over financial reporting of
Ultra Clean Holdings, Inc. and its subsidiaries (the
“Company”) as of December 28, 2007, based on the
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting
(“Management’s Report”). Our responsibility is to
express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 28, 2007, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 28, 2007 of the Company and our report dated
March 12, 2008 expressed an unqualified opinion on those
consolidated financial statements and included an explanatory
paragraph related to the Company’s adoption of FASB
Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes
— an Interpretation of FASB
No. 109, effective December 30, 2006, and the
Company’s adoption of Statement of Financial Accounting
Standards No. 123(R),
Share-Based Payment
effective
January 1, 2006.
/s/
Deloitte & Touche LLP
San Jose, California
March 12, 2008
59
|
|
|
|
Item 9B.
|
Other
Information
|
None.
PART III
Pursuant to Paragraph G(3) of the General Instructions to
Form 10-K,
portions of the information required by Part III of
Form 10-K
are incorporated by reference from our definitive Proxy
Statement to be filed with the SEC in connection with our 2008
Annual Meeting of Stockholders.
|
|
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
The information required by this item concerning directors,
including our audit committee financial expert, is incorporated
by reference to the section entitled, “Election of
Directors” in our definitive Proxy Statement for the 2008
Annual Meeting of Stockholders.
For information with respect to Executive Officers, see
Part I, Item 1 of this Annual Report on
Form 10-K,
under “Executive Officers.”
The information required by the item with respect to
Section 16(a) beneficial reporting compliance is
incorporated by reference to the section entitled,
“Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive Proxy Statement for the 2008
Annual Meeting of Stockholders.
We have adopted a code of ethics that is designed to qualify as
a “code of ethics” within the meaning of
Section 406 of the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder. This code of ethics is available on our
website at
www.uct.com.
To the extent required by law,
any amendments to, or waivers from, any provision of the code of
ethics will be promptly disclosed to the public. To the extent
permitted by such legal requirements, we intend to make such
public disclosure by posting the relative material on our
website in accordance with SEC rules.
|
|
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to the sections entitled “Executive
Compensation” and “Election of Directors” in the
Company’s definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders.
|
|
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference to the sections entitled “Security Ownership of
Certain Beneficial Owners and Management” in the
Company’s definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders.
This table summarizes our equity plan information as of
December 28, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
for Future Issuance
|
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
(Excluding
|
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
Securities Reflected
|
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
in Column (a))
|
|
|
|
|
Equity compensation plans approved by security holders:(1)
|
|
|
2,927,336
|
|
|
$
|
8.03
|
|
|
|
1,217,675
|
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,927,336
|
|
|
|
|
|
|
|
1,217,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of the Amended and Restated Stock Incentive Plan and,
for purposes of column (c), the Employee Stock Purchase Plan.
The number of shares available under our Amended and Restated
Stock Incentive Plan automatically increases each year,
beginning January 1, 2005 through January 1, 2014, by
an amount equal to
|
60
|
|
|
|
|
|
|
the lesser of (i) 370,228 shares, (ii) 2% of the
number of shares of the common stock outstanding on the date of
the increase or (iii) an amount determined by the Board of
Directors.
|
|
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required by this item is incorporated by
reference to the section entitled “Certain Relationships
and Related Transactions” in the Company’s definitive
Proxy Statement for the 2008 Annual Meeting of Stockholders.
|
|
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated by
reference to the section entitled “Ratification of
Independent Accountants” in the Company’s definitive
Proxy Statement for the 2008 Annual Meeting of Stockholders.
61
Part IV
|
|
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) The following documents are filed as part of this
Form 10-K:
1. Financial Statements:
|
|
|
|
|
|
|
|
|
Form 10-K
|
|
|
|
Page No.
|
|
|
|
|
|
|
35
|
|
|
|
|
|
36
|
|
|
|
|
|
37
|
|
|
|
|
|
38
|
|
|
|
|
|
39
|
|
|
|
|
|
40
|
|
2. Financial statement schedules not listed have been
omitted because they are not applicable or required, or the
information required to be set forth therein is included in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
Exhibit Index
|
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated as of October 30, 2002,
among Ultra Clean Holdings, Inc., Ultra Clean Technology
Systems and Service, Inc., Mitsubishi Corporation, Mitsubishi
International Corporation and Clean Merger Company(a)
|
|
|
2
|
.2
|
|
Agreement and Plan of Merger and Reorganization dated as of
June 29, 2006 by and among Sieger Engineering, Inc., Leonid
Mezhvinsky, Ultra Clean Holdings, Inc., Bob Acquisition Inc.,
Pete Acquisition LLC, Leonid and Inna Mezhvinsky as trustees of
the Revocable Trust Agreement of Leonid Mezhvinsky and Inna
Mezhvinsky dated April 26, Joe and Jenny Chen as trustees
of the Joe Chen and Jenny Chen Revocable Trust dated 2002,
Victor Mezhvinsky, Victor Mezhvinsky as trustee of the Joshua
Mezhvinsky 2004 Irrevocable Trust under Agreement dated
June 4, 2004, David Hongyu Wu and Winnie Wei Zhen Wu as
trustees of the Chen Minors Irrevocable Trust, Frank Moreman and
Leonid Mezhvinsky as Sellers’ Agent(i)
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Ultra Clean
Holdings, Inc.(c)
|
|
|
3
|
.2
|
|
Second Amended and Restated Bylaws of Ultra Clean Holdings,
Inc.(c)
|
|
|
4
|
.1
|
|
Form of Restricted Securities Purchase Agreement dated
November 26, 2002 with Ultra Clean Holdings, Inc.(a)
|
|
|
4
|
.2
|
|
Amended and Restated Registration Rights Agreement dated as of
June 29, 2006 among Ultra Clean,
FP-Ultra
Clean L.L.C. and the Sieger Shareholders(i)
|
|
|
4
|
.3
|
|
Restricted Stock Purchase Agreement dated as of
February 20, 2003 between Ultra Clean Holdings, Inc. and
Clarence L. Granger(b)
|
|
|
10
|
.1
|
|
Employment Agreement dated November 15, 2002 between
Clarence L. Granger and Ultra Clean Holdings, Inc.(a)
|
|
|
10
|
.2
|
|
Offer letter dated as of December 7, 2007 between Ultra
Clean and David Savage(j)
|
|
|
10
|
.3
|
|
Agreement to Preserve Corporate Opportunity dated as of
June 29, 2006 between Ultra Clean and Leonid Mezhvinsky(i)
|
|
|
10
|
.4
|
|
Lock-Up
Agreement dated as of June 29, 2006 between Ultra Clean and
the Sieger Shareholders(i)
|
|
|
10
|
.5
|
|
Amended and Restated 2003 Stock Incentive Plan(e)
|
|
|
10
|
.6
|
|
Form of Stock Option Agreement(d)
|
|
|
10
|
.7
|
|
Loan and Security Agreement dated as of June 29, 2006 among
Silicon Valley Bank, Ultra Clean Technology Systems and Service,
Inc., Bob Acquisition Inc. and Pete Acquisition LLC(i)
|
|
|
10
|
.8
|
|
Unconditional Guaranty by Ultra Clean in favor of Silicon Valley
Bank dated as of June 29, 2006(i)
|
|
|
10
|
.9
|
|
Securities Pledge Agreement dated as of June 29, 2006
between Silicon Valley Bank and Ultra Clean(i)
|
62
|
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
|
|
10
|
.10
|
|
Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean(i)
|
|
|
10
|
.11
|
|
Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean
Technology(i)
|
|
|
10
|
.12
|
|
Employee Stock Purchase Plan (Restated as of October 21,
2004)(f)
|
|
|
10
|
.13
|
|
Form of Indemnification Agreement between Ultra Clean Holdings,
Inc. and each of its directors and executive officers(c)
|
|
|
10
|
.14
|
|
Amendment No. 1 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holdings, Inc. dated March 2,2004(c)
|
|
|
10
|
.15
|
|
Amendment No. 2 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holding, Inc. dated May 9, 2005(g)
|
|
|
10
|
.16
|
|
Form of Award Agreement(d)
|
|
|
10
|
.17
|
|
Severance Policy for Certain Executive Officers
|
|
|
10
|
.18
|
|
Form of Restricted Stock Unit Award Agreement
|
|
|
21
|
.1
|
|
Subsidiaries of Ultra Clean Holdings, Inc.
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
24
|
.1
|
|
Power of Attorney (included on signature page)
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
(a)
|
|
Filed as an exhibit to the Registrant’s Registration
Statement on
Form S-1
(File
No. 333-11904),
filed January 14, 2004.
|
|
|
|
(b)
|
|
Filed as an exhibit to Amendment No. 1 to the
Registrant’s Registration Statement on
Form S-1/A
(File
No. 333-11904),
filed February 17, 2004.
|
|
|
|
(c)
|
|
Filed as an exhibit to Amendment No. 2 to the
Registrant’s Registration Statement on Form S-1/A (File
No. 333-11904),
filed March 7, 2004.
|
|
|
|
(d)
|
|
Filed as an exhibit to Amendment No. 3 to the
Registrant’s Registration Statement on
Form S-1/A
(File
No. 333-11904),
filed March 8, 2004.
|
|
|
|
(e)
|
|
Filed as an exhibit to the Registrant’s Registration
Statement on
Form S-8
(File
No. 333-114051),
filed March 30, 2004.
|
|
|
|
(f)
|
|
Filed as an exhibit to the Registrant’s Quarterly Report on
Form 10-Q
for the three months ended September 30, 2004.
|
|
|
|
(g)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed May 13, 2005.
|
|
|
|
(h)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed June 22, 2005.
|
|
|
|
(i)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed July 6, 2006.
|
|
|
|
(j)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed December 12, 2007.
|
|
|
|
(k)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K
filed February 21, 2008.
|
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Ultra Clean Holdings, Inc.
|
|
|
|
|
|
By:
|
/s/ Clarence
L. Granger
|
Clarence L. Granger
Chairman & Chief Executive Officer
Date: March 12, 2008
KNOW ALL PERSONS BY THESE PRESENTS
, that each person
whose signature appears below constitutes and appoints Clarence
L. Granger and Jack Sexton, and each of them, as his true and
lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report
on
Form 10-K
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission hereby ratifying and confirming that each of
said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
/s/ Clarence
L. Granger
Clarence
L. Granger
|
|
Chairman & Chief Executive Officer (Principal
Executive Officer) and Director
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ Jack
Sexton
Jack
Sexton
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ Leonid
Mezhvinsky
Leonid
Mezhvinsky
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ Brian
R. Bachman
Brian
R. Bachman
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ Susan
H. Billat
Susan
H. Billat
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ Kevin
C. Eichler
Kevin
C. Eichler
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ David
T. ibnAle
David
T. ibnAle
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
|
|
/s/ Thomas
M. Rohrs
Thomas
M. Rohrs
|
|
Director
|
|
March 12, 2008
|
64
Exhibit Index
|
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated as of October 30, 2002,
among Ultra Clean Holdings, Inc., Ultra Clean Technology Systems
and Service, Inc., Mitsubishi Corporation, Mitsubishi
International Corporation and Clean Merger Company(a)
|
|
|
2
|
.2
|
|
Agreement and Plan of Merger and Reorganization dated as of
June 29, 2006 by and among Sieger Engineering, Inc., Leonid
Mezhvinsky, Ultra Clean Holdings, Inc., Bob Acquisition Inc.,
Pete Acquisition LLC, Leonid and Inna Mezhvinsky as trustees of
the Revocable Trust Agreement of Leonid Mezhvinsky and Inna
Mezhvinsky dated April 26, Joe and Jenny Chen as trustees
of the Joe Chen and Jenny Chen Revocable Trust dated 2002,
Victor Mezhvinsky, Victor Mezhvinsky as trustee of the Joshua
Mezhvinsky 2004 Irrevocable Trust under Agreement dated
June 4, 2004, David Hongyu Wu and Winnie Wei Zhen Wu as
trustees of the Chen Minors Irrevocable Trust, Frank Moreman and
Leonid Mezhvinsky as Sellers’ Agent(i)
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Ultra Clean
Holdings, Inc.(c)
|
|
|
3
|
.2
|
|
Second Amended and Restated Bylaws of Ultra Clean Holdings,
Inc.(c)
|
|
|
4
|
.2
|
|
Form of Restricted Securities Purchase Agreement dated
November 26, 2002 with Ultra Clean Holdings, Inc.(a)
|
|
|
4
|
.3
|
|
Amended and Restated Registration Rights Agreement dated as of
June 29, 2006 among Ultra Clean, FP-Ultra Clean L.L.C. and
the Sieger Shareholders(i)
|
|
|
4
|
.4
|
|
Restricted Stock Purchase Agreement dated as of
February 20, 2003 between Ultra Clean Holdings, Inc. and
Clarence L. Granger(b)
|
|
|
10
|
.1
|
|
Employment Agreement dated November 15, 2002 between
Clarence L. Granger and Ultra Clean Holdings, Inc.(a)
|
|
|
10
|
.2
|
|
Offer letter dated as of December 7, 2007 between Ultra
Clean and David Savage(j)
|
|
|
10
|
.3
|
|
Agreement to Preserve Corporate Opportunity dated as of
June 29, 2006 between Ultra Clean and Leonid Mezhvinsky(i)
|
|
|
10
|
.4
|
|
Lock-Up
Agreement dated as of June 29, 2006 between Ultra Clean and
the Sieger Shareholders(i)
|
|
|
10
|
.5
|
|
Amended and Restated 2003 Stock Incentive Plan(e)
|
|
|
10
|
.6
|
|
Form of Stock Option Agreement(d)
|
|
|
10
|
.7
|
|
Loan and Security Agreement dated as of June 29, 2006 among
Silicon Valley Bank, Ultra Clean Technology Systems and Service,
Inc., Bob Acquisition Inc. and Pete Acquisition LLC(i)
|
|
|
10
|
.8
|
|
Unconditional Guaranty by Ultra Clean in favor of Silicon Valley
Bank dated as of June 29, 2006(i)
|
|
|
10
|
.9
|
|
Securities Pledge Agreement dated as of June 29, 2006
between Silicon Valley Bank and Ultra Clean(i)
|
|
|
10
|
.10
|
|
Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean(i)
|
|
|
10
|
.11
|
|
Intellectual Property Security Agreement dated as of
June 29, 2006 between Silicon Valley Bank and Ultra Clean
Technology(i)
|
|
|
10
|
.12
|
|
Employee Stock Purchase Plan (Restated as of October 21,
2004)(f)
|
|
|
10
|
.13
|
|
Form of Indemnification Agreement between Ultra Clean Holdings,
Inc. and each of its directors and executive officers(c)
|
|
|
10
|
.14
|
|
Amendment No. 1 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holdings, Inc. dated March 2,2004(c)
|
|
|
10
|
.15
|
|
Amendment No. 2 to Employment Agreement between Clarence L.
Granger and Ultra Clean Holding, Inc. dated May 9, 2005(g)
|
|
|
10
|
.16
|
|
Form of Award Agreement(d)
|
|
|
10
|
.17
|
|
Severance Policy for Certain Executive Officers
|
|
|
10
|
.18
|
|
Form of Restricted Stock Unit Award Agreement
|
|
|
21
|
.1
|
|
Subsidiaries of Ultra Clean Holdings, Inc.
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
24
|
.1
|
|
Power of Attorney (included on signature page)
|
65
|
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
(a)
|
|
Filed as an exhibit to the Registrant’s Registration
Statement on
Form S-1
(File
No. 333-11904),
filed January 14, 2004.
|
|
|
|
(b)
|
|
Filed as an exhibit to Amendment No. 1 to the
Registrant’s Registration Statement on
Form S-1/A
(File
No. 333-11904),
filed February 17, 2004.
|
|
|
|
(c)
|
|
Filed as an exhibit to Amendment No. 2 to the
Registrant’s Registration Statement on Form S-1/A (File
No. 333-11904),
filed March 7, 2004.
|
|
|
|
(d)
|
|
Filed as an exhibit to Amendment No. 3 to the
Registrant’s Registration Statement on
Form S-1/A
(File
No. 333-11904),
filed March 8, 2004.
|
|
|
|
(e)
|
|
Filed as an exhibit to the Registrant’s Registration
Statement on
Form S-8
(File
No. 333-114051),
filed March 30, 2004.
|
|
|
|
(f)
|
|
Filed as an exhibit to the Registrant’s Quarterly Report on
Form 10-Q
for the three months ended September 30, 2004.
|
|
|
|
(g)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed May 13, 2005.
|
|
|
|
(h)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed June 22, 2005.
|
|
|
|
(i)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed July 6, 2006.
|
|
|
|
(j)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K,
filed December 12, 2007.
|
|
|
|
(k)
|
|
Filed as an exhibit to the Registrant’s Current Report on
Form 8-K
filed February 21, 2008.
|
66
