Ichor (ICHR) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited consolidated financial statements of Ichor Holdings, Ltd., including the balance sheets, statements of operations, statements of shareholders' equity, and statements of cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items for the periods ended June 26, 2020, and December 27, 2019 (or June 28, 2019, for comparative periods) Consolidated Balance Sheets Consolidated Balance Sheet Highlights (dollars in thousands) | Metric | June 26, 2020 | December 27, 2019 | | :-------------------------- | :------------ | :---------------- | | Total Assets | $598,876 | $566,555 | | Total Liabilities | $360,686 | $345,139 | | Total Shareholders' Equity | $238,190 | $221,416 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (dollars in thousands, except per share amounts) | Metric | Three Months Ended June 26, 2020 | Three Months Ended June 28, 2019 | Six Months Ended June 26, 2020 | Six Months Ended June 28, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $221,564 | $139,195 | $441,592 | $277,026 | | Gross profit | $29,262 | $19,533 | $58,036 | $39,756 | | Operating income | $9,304 | $3,012 | $14,804 | $5,949 | | Net income | $6,811 | $336 | $10,210 | $1,854 | | Basic EPS | $0.30 | $0.02 | $0.45 | $0.08 | | Diluted EPS | $0.30 | $0.01 | $0.44 | $0.08 | Consolidated Statements of Shareholders' Equity Total Shareholders' Equity (dollars in thousands) | Period | Total Shareholders' Equity | | :------------------- | :------------------------- | | Balance at June 26, 2020 | $238,190 | | Balance at December 27, 2019 | $221,416 | | Balance at June 28, 2019 | $203,731 | | Balance at December 28, 2018 | $198,326 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Six Months Ended, in thousands) | Cash Flow Activity | June 26, 2020 | June 28, 2019 | | :------------------------------------ | :------------ | :------------ | | Net cash provided by (used in) operating activities | $(25,183) | $20,660 | | Net cash used in investing activities | $(5,665) | $(14,264) | | Net cash provided by (used in) financing activities | $27,205 | $(8,774) | | Net decrease in cash | $(3,643) | $(2,378) | | Cash at end of period | $56,969 | $41,456 | Notes to Consolidated Financial Statements Note 1 – Basis of Presentation and Selected Significant Accounting Policies This note outlines the basis of presentation for the unaudited consolidated financial statements, including GAAP compliance, fiscal year definition, use of estimates, and key accounting policies such as revenue recognition, transaction price, performance obligations, and contract balances. It also mentions the adoption of new accounting pronouncements (ASU 2016-13 and ASU 2018-15) which had no significant impact - The company uses a 52- or 53-week fiscal year ending on the last Friday in December. The three months ended June 26, 2020, and June 28, 2019, were both 13 weeks[19] - Revenue is recognized when control of promised goods or services is transferred to customers, primarily for fluid delivery subsystems, weldments, and other components, generally upon delivery[21][23] - Adoption of ASU 2016-13 (Credit Losses) and ASU 2018-15 (Cloud Computing Implementation Costs) in Q1 2020 did not have a significant impact on financial statements[26][27] Note 2 – Inventories This note details the composition of inventories, showing an increase in raw materials, work in process, and finished goods from December 2019 to June 2020, alongside an increase in the excess and obsolete adjustment Inventories, Net (dollars in thousands) | Category | June 26, 2020 | December 27, 2019 | | :---------------------- | :------------ | :---------------- | | Raw materials | $98,841 | $85,329 | | Work in process | $39,489 | $31,825 | | Finished goods | $21,427 | $17,700 | | Excess and obsolete adjustment | $(10,567) | $(7,817) | | Total inventories, net | $149,190 | $127,037 | Note 3 – Property and Equipment This note provides a breakdown of property and equipment, net, showing a slight increase from December 2019 to June 2020, with machinery and leasehold improvements being the largest components. Depreciation expense also increased year-over-year for both the quarter and six-month periods Property and Equipment, Net (dollars in thousands) | Category | June 26, 2020 | December 27, 2019 | | :-------------------------------- | :------------ | :---------------- | | Machinery | $37,133 | $33,684 | | Leasehold improvements | $28,905 | $27,835 | | Computer software, hardware, and equipment | $6,250 | $5,796 | | Office furniture, fixtures and equipment | $1,037 | $1,040 | | Vehicles | $26 | $26 | | Construction-in-process | $4,793 | $3,760 | | Less accumulated depreciation | $(32,513) | $(27,600) | | Total property and equipment, net | $45,631 | $44,541 | - Depreciation expense was $2.6 million for Q2 2020 (up from $2.0 million in Q2 2019) and $5.0 million for the six months ended June 26, 2020 (up from $4.1 million in the prior year period)[29] Note 4 – Intangible Assets This note details definite-lived intangible assets, which primarily include customer relationships, developed technology, and trademarks. The net carrying amount decreased from December 2019 to June 2020 due to amortization Definite-Lived Intangible Assets, Net (dollars in thousands) | Category | June 26, 2020 | December 27, 2019 | | :---------------------- | :------------ | :---------------- | | Trademarks | $1,456 | $1,940 | | Customer relationships | $34,716 | $40,365 | | Developed technology | $9,185 | $9,722 | | Total intangible assets | $45,357 | $52,027 | Note 5 – Leases The company leases facilities under various non-cancellable operating leases expiring through 2025. Lease expense for operating leases was $1.3 million for Q2 2020 and $2.7 million for the six months ended June 26, 2020. The weighted-average remaining lease term is 2.7 years with a weighted-average discount rate of 4.5% Operating Lease Cost (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | | :------------------- | :------------ | :------------ | | Three Months Ended | $1,332 | $1,660 | | Six Months Ended | $2,652 | $3,293 | - As of June 26, 2020, the weighted-average remaining lease term for operating leases is 2.7 years, and the weighted-average discount rate is 4.5%[33] Note 6 – Income Taxes The CARES Act, enacted in March 2020, is expected to generate an additional income tax refund of approximately $0.7 million for the company due to NOL carryback provisions. The effective income tax rate for Q2 2020 was 2.7% and -0.5% for the six months ended June 26, 2020, differing from statutory rates due to foreign income, share-based compensation benefits, and the CARES Act impact - The CARES Act is expected to generate an additional income tax refund of approximately $0.7 million from NOL carryback provisions, with a $0.2 million benefit recognized in Q1 2020[35][37] Income Tax Expense (Benefit) and Effective Income Tax Rate (dollars in thousands) | Period | Income Tax Expense (Benefit) | Income Before Income Taxes | Effective Income Tax Rate | | :------------------------------- | :--------------------------- | :------------------------- | :------------------------ | | Three Months Ended June 26, 2020 | $189 | $7,000 | 2.7% | | Three Months Ended June 28, 2019 | $(93) | $243 | -38.3% | | Six Months Ended June 26, 2020 | $(53) | $10,157 | -0.5% | | Six Months Ended June 28, 2019 | $(1,466) | $388 | -377.8% | Note 7 – Employee Benefit Programs The company sponsors a 401(k) plan for U.S. employees, offering a discretionary matching contribution of 50% of deferrals up to 4% of annual compensation. Matching contributions increased in Q2 2020 and for the six months ended June 26, 2020, compared to the prior year periods 401(k) Matching Contributions (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | | :------------------- | :------------ | :------------ | | Second Quarter | $500 | $400 | | Six Months Ended | $1,000 | $800 | Note 8 – Long-Term Debt Long-term debt totaled $206.7 million as of June 26, 2020, primarily consisting of a term loan and revolving credit facility. The term loan and revolving credit facility mature on February 15, 2023, with interest rates based on the Eurodollar rate option at 3.95% and 3.68% respectively as of June 26, 2020 Long-Term Debt (dollars in thousands) | Category | June 26, 2020 | December 27, 2019 | | :------------------------------------ | :------------ | :---------------- | | Term loan | $157,500 | $161,875 | | Revolving credit facility | $49,162 | $19,162 | | Total principal amount of long-term debt | $206,662 | $181,037 | | Less unamortized debt issuance costs | $(2,499) | $(2,983) | | Total long-term debt, net | $204,163 | $178,054 | | Less current portion | $(8,750) | $(8,750) | | Total long-term debt, less current portion, net | $195,413 | $169,304 | - As of June 26, 2020, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 3.95% and 3.68%, respectively. Both facilities mature on February 15, 2023[43][44] Note 9 – Share‑Based Compensation The 2016 Omnibus Incentive Plan allows for various share-based awards, generally vesting over four years. Share-based compensation expense increased significantly for both the three and six months ended June 26, 2020, compared to the prior year periods. The 2017 Employee Stock Purchase Plan allows employees to purchase shares at 85% of fair market value Share-Based Compensation Expense (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | | :------------------- | :------------ | :------------ | | Second Quarter | $2,141 | $1,475 | | Six Months Ended | $5,006 | $2,805 | - As of June 26, 2020, 1,760,278 time-vesting stock options and 65,908 performance-vesting stock options were outstanding, with a weighted average exercise price of $20.84[47] - As of June 26, 2020, 565,627 time-vesting RSUs and 17,730 performance-vesting RSUs were unvested, with a weighted average grant date fair value of $23.74[48] Note 10 – Segment Information The company operates in one operating segment, with the CEO reviewing results on a consolidated level. Principal markets include North America, Asia, and Europe. Sales by geographic area show significant growth in all regions for both the three and six months ended June 26, 2020, compared to the prior year - The company operates in a single operating segment, with key resources and performance assessed on a company-wide level[52] Net Sales by Geographic Area (dollars in thousands) | Geographic Area | 3 Months Ended June 26, 2020 | 3 Months Ended June 28, 2019 | 6 Months Ended June 26, 2020 | 6 Months Ended June 28, 2019 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States of America | $117,692 | $76,899 | $238,533 | $153,532 | | Singapore | $74,327 | $43,298 | $147,536 | $80,277 | | Europe | $18,536 | $9,797 | $33,495 | $24,890 | | Other | $11,009 | $9,201 | $22,028 | $18,327 | | Total net sales | $221,564 | $139,195 | $441,592 | $277,026 | Note 11 – Earnings per Share This note provides the computation of basic and diluted earnings per share, showing a significant increase in both basic and diluted EPS for the three and six months ended June 26, 2020, compared to the prior year periods Earnings Per Share (dollars in thousands, except per share amounts) | Metric | 3 Months Ended June 26, 2020 | 3 Months Ended June 28, 2019 | 6 Months Ended June 26, 2020 | 6 Months Ended June 28, 2019 | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income | $6,811 | $336 | $10,210 | $1,854 | | Basic weighted average ordinary shares outstanding | 22,836,400 | 22,395,308 | 22,786,782 | 22,332,568 | | Diluted weighted average ordinary shares outstanding | 23,066,976 | 22,663,053 | 23,099,946 | 22,596,412 | | Basic EPS | $0.30 | $0.02 | $0.45 | $0.08 | | Diluted EPS | $0.30 | $0.01 | $0.44 | $0.08 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations, highlighting significant growth in net sales and net income driven by increased demand in the global wafer fabrication equipment market. It also details the impacts of the COVID-19 pandemic on operations and outlines the company's liquidity position Overview - Ichor Holdings is a leader in designing, engineering, and manufacturing critical fluid delivery subsystems (gas and chemical) for semiconductor capital equipment, along with components like weldments and precision machined parts[57] - The company benefits from an industry trend where semiconductor OEMs increasingly outsource fluid delivery subsystem design and manufacturing to specialized suppliers, leveraging their expertise and reducing OEM fixed costs and development time[58] Key Financial Information (dollars in thousands) | Metric | 3 Months Ended June 26, 2020 | 3 Months Ended June 28, 2019 | 6 Months Ended June 26, 2020 | 6 Months Ended June 28, 2019 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $221,564 | $139,195 | $441,592 | $277,026 | | Gross profit | $29,262 | $19,533 | $58,036 | $39,756 | | Gross margin | 13.2% | 14.0% | 13.1% | 14.4% | | Operating income | $9,304 | $3,012 | $14,804 | $5,949 | | U.S. GAAP net income | $6,811 | $336 | $10,210 | $1,854 | | Non-GAAP adjusted net income | $12,569 | $5,118 | $24,627 | $10,669 | COVID-19 Pandemic and Market Conditions Update - The COVID-19 pandemic has created significant volatility, uncertainty, and turmoil, leading to reduced factory capacity due to social distancing, increased direct costs (PPE, cleaning, logistics, labor), and potential for lower revenues and operating margins[60] - The company has implemented a Business Continuity Plan (BCP) with measures including providing PPE, temperature screening, altering production environments for social distancing, remote work for non-manufacturing employees, reduced travel, increased cleaning, and adjusted production shift schedules[61] Results of Operations Net Sales Net sales increased significantly by 59.2% for the three months and 59.4% for the six months ended June 26, 2020, compared to the prior year periods, driven by increased customer demand and market growth in global wafer fabrication equipment Net Sales Growth (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | % Change | | :------------------- | :------------ | :------------ | :------------ | :------- | | Three Months Ended | $221,564 | $139,195 | $82,369 | 59.2% | | Six Months Ended | $441,592 | $277,026 | $164,566 | 59.4% | - The increase in net sales was primarily due to increased demand from customers, growth in the global wafer fabrication equipment market, and market share gains at the company's largest customers[65] Cost of Sales and Gross Profit Cost of sales and gross profit increased due to higher sales volume. However, gross margin decreased for both the three and six months ended June 26, 2020, primarily due to increased COVID-19 related operating costs, unfavorable product mix, and facility shutdown costs, partially offset by higher operating leverage Cost of Sales, Gross Profit, and Gross Margin (dollars in thousands) | Metric | 3 Months Ended June 26, 2020 | 3 Months Ended June 28, 2019 | % Change | 6 Months Ended June 26, 2020 | 6 Months Ended June 28, 2019 | % Change | | :---------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Cost of sales | $192,302 | $119,662 | 60.7% | $383,556 | $237,270 | 61.7% | | Gross profit | $29,262 | $19,533 | 49.8% | $58,036 | $39,756 | 46.0% | | Gross margin | 13.2% | 14.0% | -80 bps | 13.1% | 14.4% | -130 bps | - Gross margin decrease in Q2 2020 was due to increased COVID-19 related operating costs, unfavorable product mix, and a $1.5 million impact from inventory write-off and severance costs related to the Union City, California facility closure[67] - Gross margin decrease for the six months ended June 26, 2020, was also impacted by a $1.4 million contract settlement loss recorded in Q1 2020[68] Research and Development Research and development expenses increased by 33.2% for the three months and 35.9% for the six months ended June 26, 2020, primarily due to increased employee-related expenses from higher engineering headcount, including a team acquired in Q2 2019 Research and Development Expenses (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | % Change | | :------------------- | :------------ | :------------ | :------------ | :------- | | Three Months Ended | $3,509 | $2,634 | $875 | 33.2% | | Six Months Ended | $6,831 | $5,025 | $1,806 | 35.9% | - The increase was mainly driven by $0.7 million (Q2) and $1.4 million (6M) in increased employee-related expenses due to higher engineering headcount, with approximately $0.4 million (Q2) and $0.8 million (6M) from an engineering team assumed in connection with the purchase of developed technology assets in Q2 2019[70][71] Selling, General, and Administrative Selling, general, and administrative expenses increased by 22.7% for the three months and 32.5% for the six months ended June 26, 2020. Key drivers included increased employee-related expenses (including share-based compensation), legal and professional fees, and occupancy costs, with executive transition costs also contributing to the six-month increase Selling, General, and Administrative Expenses (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | % Change | | :------------------- | :------------ | :------------ | :------------ | :------- | | Three Months Ended | $13,113 | $10,685 | $2,428 | 22.7% | | Six Months Ended | $29,731 | $22,443 | $7,288 | 32.5% | - For the six months, the increase was primarily due to $1.8 million in executive transition costs, $4.2 million in increased employee-related expense (including $2.0 million in share-based compensation), $0.9 million in legal and professional fees, and $0.5 million in increased occupancy costs[73] Amortization of Intangible Assets Amortization of intangible assets increased slightly by 4.2% for the three months and 5.2% for the six months ended June 26, 2020, primarily due to incremental amortization from developed technology assets purchased in Q2 2019 Amortization of Intangible Assets (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | % Change | | :------------------- | :------------ | :------------ | :------------ | :------- | | Three Months Ended | $3,336 | $3,202 | $134 | 4.2% | | Six Months Ended | $6,670 | $6,339 | $331 | 5.2% | - The increase was primarily due to incremental amortization expense from developed technology assets purchased during the second quarter of 2019[74] Interest Expense Interest expense decreased by 16.7% for the three months and 15.4% for the six months ended June 26, 2020, mainly due to a decrease in the weighted average interest rate, partially offset by a slight increase in average borrowed amount for the quarter Interest Expense (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | % Change | | :------------------- | :------------ | :------------ | :------------ | :------- | | Three Months Ended | $2,302 | $2,762 | $(460) | -16.7% | | Six Months Ended | $4,676 | $5,530 | $(854) | -15.4% | - The decrease in Q2 2020 was due to a lower weighted average interest rate (4.89% to 3.93%), partially offset by a $4.1 million increase in average borrowed amount. For the six months, it was due to a lower weighted average interest rate (4.83% to 4.17%) and a $9.7 million decrease in average borrowed amount[76][77] Other Expense (Income), Net Other expense (income), net, showed a change primarily due to exchange rate fluctuations on transactions denominated in foreign currencies, including the Singapore dollar, Malaysian ringgit, British pound, euro, and South Korean won Other Expense (Income), Net (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | | :-------------------------- | :------------ | :------------ | :------------ | | Three Months Ended | $2 | $7 | $(5) | | Six Months Ended | $(29) | $31 | $(60) | - The change was primarily due to exchange rate fluctuations on transactions denominated in the local currencies of foreign operations[78] Income Tax Expense (Benefit) Income tax expense shifted from a benefit to an expense for the three months ended June 26, 2020, and the benefit decreased significantly for the six months, primarily due to increased taxable income in the U.S. and a decrease in tax reserve releases compared to the prior year Income Tax Expense (Benefit) (dollars in thousands) | Period | June 26, 2020 | June 28, 2019 | Amount Change | % Change | | :-------------------------- | :------------ | :------------ | :------------ | :------- | | Three Months Ended | $189 | $(93) | $282 | -303.2% | | Six Months Ended | $(53) | $(1,466) | $1,413 | -96.4% | - The decrease in income tax benefit was primarily due to increased taxable income in the U.S. in 2020 and a decrease in releases of certain tax reserves related to statute of limitation expirations or settlements in Q1 2020 compared to Q1 2019[79][80] Non‑GAAP Results - Management uses non-GAAP metrics (net income and diluted EPS) to evaluate operating and financial results, excluding amortization of intangible assets, share-based compensation, non-recurring expenses (contract settlement losses, facility shutdown costs), and related tax impacts[81][84] Non-GAAP Net Income and Diluted EPS (dollars in thousands, except per share amounts) | Metric | 3 Months Ended June 26, 2020 | 3 Months Ended June 28, 2019 | 6 Months Ended June 26, 2020 | 6 Months Ended June 28, 2019 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | U.S. GAAP net income | $6,811 | $336 | $10,210 | $1,854 | | Non-GAAP net income | $12,569 | $5,118 | $24,627 | $10,669 | | U.S. GAAP diluted EPS | $0.30 | $0.01 | $0.44 | $0.08 | | Non-GAAP diluted EPS | $0.54 | $0.23 | $1.07 | $0.47 | - Non-recurring expenses for Q2 2020 and 6M 2020 included a $1.8 million bonus to the former CEO, acquisition-related expenses, and non-capitalizable ERP/SOX implementation costs. Additionally, 6M 2020 included a $1.4 million contract settlement loss and $1.5 million in facility shutdown costs (inventory write-off and severance) related to the Union City, California facility closure[82][84] Liquidity and Capital Resources - The company ended Q2 2020 with $57.0 million in cash, a $3.6 million decrease from December 27, 2019. Management believes current cash, revolving credit facility availability, and operating cash flows will be sufficient to meet anticipated cash needs for at least the next 12 months despite COVID-19 impacts[86][87] Cash Flow Analysis Net Decrease in Cash (Six Months Ended, in thousands) | Metric | June 26, 2020 | June 28, 2019 | | :------------------------------------ | :------------ | :------------ | | Cash provided by (used in) operating activities | $(25,183) | $20,660 | | Cash used in investing activities | $(5,665) | $(14,264) | | Cash provided by (used in) financing activities | $27,205 | $(8,774) | | Net decrease in cash | $(3,643) | $(2,378) | Operating Activities Cash used in operating activities was $25.2 million for the six months ended June 26, 2020, primarily due to an increase in net operating assets and liabilities, driven by higher inventories and accounts receivable, partially offset by net income and non-cash charges - Cash used in operating activities for the six months ended June 26, 2020, was $25.2 million, primarily due to a $52.9 million increase in net operating assets and liabilities (driven by increased inventories of $22.2 million and accounts receivable of $20.0 million), partially offset by $10.2 million net income and $17.5 million in non-cash charges[89] Investing Activities Cash used in investing activities was $5.7 million for the six months ended June 26, 2020, consisting solely of capital expenditures - Cash used in investing activities for the six months ended June 26, 2020, was $5.7 million, entirely attributable to capital expenditures[90] Financing Activities Cash provided by financing activities was $27.2 million for the six months ended June 26, 2020, mainly from net proceeds from credit facilities, partially offset by share-based compensation plan proceeds - Cash provided by financing activities for the six months ended June 26, 2020, was $27.2 million, primarily from $25.6 million in net proceeds from credit facilities, partially offset by $1.6 million from share-based compensation plans[91] Critical Accounting Policies - The preparation of financial statements requires significant estimates and assumptions, which are evaluated on an ongoing basis, and actual results may differ. Critical accounting policies are detailed in the company's Annual Report on Form 10-K[92][93] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, specifically foreign currency exchange risk and interest rate risk. The company currently has minimal material exposure to foreign currency fluctuations due to U.S. dollar-denominated sales, but acknowledges potential impacts on operating expenses. Interest rate risk exists due to variable-rate debt, with a hypothetical 1% rate change impacting annual interest expense by $2.1 million Foreign Currency Exchange Risk - Substantially all sales and third-party supplier arrangements are in U.S. dollars, limiting material exchange rate fluctuations. However, operating expenses in foreign currencies (SGD, MYR, GBP, EUR, KRW) are subject to fluctuations, though transaction gains/losses have not been material to date[94][95] Interest Rate Risk - As of June 26, 2020, the company had $206.7 million in total indebtedness. A hypothetical 1% interest rate change on outstanding debt would result in a $0.5 million change to interest expense during Q2 2020, or $2.1 million on an annualized basis[96][97] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 26, 2020. There have been no material changes in internal control over financial reporting during the six months ended June 26, 2020 Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 26, 2020, providing reasonable assurance of achieving control objectives despite inherent limitations[98] Changes in Internal Control Over Financial Reporting - There have been no changes in internal control over financial reporting during the six months ended June 26, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[99] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not currently a party to any material pending or threatened litigation - The company is not currently involved in any material pending or threatened legal proceedings[101] ITEM 1A. RISK FACTORS This section updates the risk factors, specifically highlighting the significant and ongoing adverse impacts of the COVID-19 pandemic. Risks include disruptions to operations, customer demand, and supply chains, increased costs, reduced workforce availability, and the potential for a global economic slowdown, all of which could materially affect the business, financial condition, and operating results - The COVID-19 pandemic continues to pose significant risks, including disruptions to operations, customer demand, and supplier capabilities, leading to potential material adverse impacts on business, financial condition, operating results, and cash flows[102][104][105] - Measures taken in response to COVID-19, such as work-from-home and social distancing, introduce operational risks like cybersecurity and affect product development, customer support, and other activities. The extent and duration of these impacts remain highly uncertain[106][107][109] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[110] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report - No defaults upon senior securities to report[111] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine safety disclosures are not applicable to the registrant[112] ITEM 5. OTHER INFORMATION No other information to report under this item - No other information to report[113] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and various Inline XBRL documents List of Exhibits | Exhibit Number | Description | | :------------- | :---------- | | 31.1* | Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002. | | 31.2* | Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002. | | 32.1** | Certification of Principal 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 Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. | | 101.INS* | Inline XBRL Instance Document | | 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | | * | Filed herewith. | | ** | Furnished herewith and not filed. | SIGNATURES - The report was signed by Jeffrey S. Andreson, CEO, and Larry J. Sparks, CFO, on August 4, 2020[117]