Ultra Clean (UCTT) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the Company's unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, along with detailed explanatory notes, providing a comprehensive overview of financial position, performance, and cash movements. Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (In millions) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $453.5 | $466.5 | | Accounts receivable, net | $236.0 | $250.1 | | Inventories | $405.1 | $379.2 | | Total current assets | $1,136.1 | $1,137.1 | | Property, plant and equipment, net| $242.3 | $242.3 | | Goodwill | $248.8 | $270.0 | | Intangible assets, net | $194.8 | $245.7 | | Total assets | $1,956.0 | $2,025.4 | | Total current liabilities | $407.4 | $469.1 | | Bank borrowings, net of current portion | $509.2 | $529.9 | | Total liabilities | $1,053.9 | $1,132.7 | | Total UCT stockholders' equity | $856.7 | $848.9 | | Total equity | $902.1 | $892.7 | | Total liabilities and stockholders' equity | $1,956.0 | $2,025.4 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (In millions, except per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues: Products | $556.3 | $482.0 | $1,575.2 | $1,270.1 | | Revenues: Services | $78.7 | $71.7 | $232.7 | $216.4 | | Total revenues | $635.0 | $553.7 | $1,807.9 | $1,486.5 | | Total cost of revenues | $510.6 | $439.6 | $1,451.3 | $1,185.6 | | Gross profit | $124.4 | $114.1 | $356.6 | $300.9 | | Total operating expenses | $88.1 | $63.5 | $280.0 | $178.0 | | Income from operations | $36.3 | $50.6 | $76.6 | $122.9 | | Net income attributable to UCT | $9.7 | $31.9 | $12.5 | $74.0 | | Diluted EPS | $0.21 | $0.70 | $0.28 | $1.69 | Condensed Consolidated Statements of Comprehensive Income (Loss) Condensed Consolidated Statements of Comprehensive Income (Loss) (In millions) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $12.9 | $34.0 | $22.0 | $77.6 | | Total other comprehensive loss | $(10.9) | $(3.7) | $(24.0) | $(4.2) | | Comprehensive income (loss) attributable to UCT | $6.5 | $28.2 | $(3.8) | $69.8 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (In millions) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $86.0 | $170.0 | | Net cash used in investing activities | $(64.2) | $(390.3) | | Net cash provided by (used in) financing activities | $(27.2) | $477.9 | | Net increase (decrease) in cash and cash equivalents | $(13.0) | $256.7 | | Cash and cash equivalents at end of period | $453.5 | $457.0 | Condensed Consolidated Statements of Stockholders' Equity Total UCT Stockholders' Equity (In millions) | Date | Amount | | :--- | :----- | | Sep 30, 2022 | $856.7 | | Dec 31, 2021 | $848.9 | Key Changes (Nine Months Ended Sep 30, 2022, in millions) | Item | Change | | :--- | :----- | | Additional paid-in capital | +$11.6 | | Retained earnings | +$12.5 | | Accumulated other comprehensive loss | $(16.3) | | Net income attributable to UCT | +$12.5 | | Other comprehensive loss | $(16.3) | Notes to Condensed Consolidated Financial Statements 1. Organization and Significant Accounting Policies * Ultra Clean Holdings, Inc. (UCT) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services, primarily for the semiconductor industry[19] * The Company operates two reportable segments: Products (design, engineer, and manufacture production tools, components, and subsystems) and Services (ultra-high purity parts cleaning, recoating, and micro-contamination analysis)[19][23] Significant Customers (Percentage of Total Revenues) | Customer | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Lam Research Corporation | 40.0% | 42.3% | 39.4% | 40.8% | | Applied Materials, Inc. | 24.2% | 24.3% | 23.4% | 23.4% | | Total | 64.2% | 66.6% | 62.8% | 64.2% | 2. Business Combinations * On March 31, 2021, the Company acquired Ham-Let (Israel-Canada) Ltd. for a total purchase consideration of $362.9 million in cash, financed by an additional $355.0 million from its existing credit facility[53] * In the first quarter of fiscal year 2022, the Company completed its acquisition accounting, resulting in a $1.5 million reduction in goodwill due to a reduction in tax liabilities[55] Unaudited Pro Forma Consolidated Results (Nine Months Ended Sep 24, 2021, in millions, except per share amounts) | Metric | Amount | | :----------- | :----- | | Revenues | $1,542.8 | | Net income | $87.8 | | Basic income per share | $2.05 | | Diluted income per share | $2.00 | 3. Business Divestitures * In 2022, the Company divested three non-semiconductor operating subsidiaries and committed to sell a majority interest in another Fluid Solutions entity to focus on its core semiconductor business[60] Net Loss on Divestitures (In millions) | Period | Amount | | :------------------------------ | :----- | | Three Months Ended Sep 30, 2022 | $20.8 | | Nine Months Ended Sep 30, 2022 | $77.4 | * The recorded net loss includes the write-off of $27.8 million in intangible assets, $19.7 million in goodwill, and $33.3 million in net assets[60] 4. Balance Sheet Information Inventories (In millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--------------- | :----------- | :----------- | | Raw materials | $230.8 | $220.9 | | Work in process | $116.3 | $102.5 | | Finished goods | $58.0 | $55.8 | | Total | $405.1 | $379.2 | Property, Plant and Equipment, net (In millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--------------- | :----------- | :----------- | | Total | $242.3 | $242.3 | 5. Fair Value Measurements * Foreign currency forward contracts are classified as Level 2 fair value measurements, based on quoted market prices for similar derivative contracts[62] * The pension obligation is classified as a Level 3 fair value measurement, valued using a projected unit credit method with unobservable inputs such as discount rate (2.1% to 2.7%), rate of return (1.7% to 2.1%), and salary increase rate (2.0% to 3.0%)[63][64] Fair Value Measurement at Sep 30, 2022 (In millions) | Description | Fair Value | Level 1 | Level 2 | Level 3 | | :---------------- | :--------- | :------ | :------ | :------ | | Forward contracts | $2.4 | $— | $2.4 | $— | | Pension obligation | $3.2 | $— | $— | $3.2 | 6. Goodwill and Intangible Assets * In connection with business divestitures in fiscal year 2022, the Company wrote off $19.7 million in goodwill and $27.8 million in intangible assets, net[67] Goodwill Balance (In millions) | Segment | Dec 31, 2021 | Sep 30, 2022 | | :-------- | :----------- | :----------- | | Products | $196.5 | $175.3 | | Services | $73.5 | $73.5 | | Total | $270.0 | $248.8 | Intangible Assets, net (In millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :------------------------ | :----------- | :----------- | | Customer relationships | $94.2 | $121.5 | | Tradenames | $12.7 | $19.3 | | Intellectual property/know-how | $22.8 | $36.3 | | Recipes | $58.3 | $61.0 | | Standard operating procedures | $6.8 | $7.2 | | Backlog | $— | $0.4 | | Total | $194.8 | $245.7 | Future Estimated Amortization Expense (In millions) | Year | Amount | | :---------------- | :----- | | 2022 (remaining) | $6.9 | | 2023 | $22.5 | | 2024 | $21.9 | | 2025 | $19.9 | | 2026 | $19.0 | | Thereafter | $95.6 | | Total | $185.8 | 7. Borrowing Arrangements Total Bank Debt (In millions) | Item | Sep 30, 2022 | | :---------------------- | :----------- | | U.S. Term Loan | $532.3 | | Ham-Let Credit Facilities | $8.1 | | Debt issuance costs | $(11.1) | | Total | $529.3 | * As of September 30, 2022, the U.S. Term Loan outstanding was $532.3 million (gross) with an interest rate of 6.3%, maturing on August 27, 2025[74][155] * The revolving credit facility was increased to $150.0 million on August 19, 2022, with $146.6 million available as of September 30, 2022[75][76][156][157] * The Company was in compliance with all financial covenants (consolidated fixed charge coverage ratio of at least 1.25 to 1.00 and consolidated leverage ratio of no greater than 3.75 to 1.00) as of September 30, 2022[79][159] 8. Income Tax Effective Tax Rate | Period | Sep 30, 2022 | Sep 24, 2021 | | :----- | :----------- | :----------- | | Q3 | 48.4% | 19.8% | | 9M | 57.2% | 21.8% | * The increase in the effective tax rate is primarily due to no tax benefit on losses related to divestitures in fiscal year 2022 and the mandatory capitalization and amortization of research and development expenses[83] * A full valuation allowance on U.S. federal and state and certain foreign deferred tax assets was deemed appropriate as of September 30, 2022[84] 9. Retirement Plans * The unfunded balance of the defined benefit pension plans for Cinos Korea and Ham-Let Israel was $3.2 million as of September 30, 2022[87] 401(k) Employer Contributions (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | | :----- | :----------- | :----------- | | Q3 | $0.9 | $0.6 | | 9M | $2.4 | $1.8 | 10. Commitments and Contingencies * The Company had commitments to purchase inventories totaling approximately $645.2 million as of September 30, 2022[90] * The Company does not believe that any current legal proceedings or claims will have a material adverse effect on its consolidated financial condition, results of operations, or cash flows[91] 11. Stockholders' Equity and Noncontrolling Interests * In April 2021, the Company completed a public offering of 3.7 million shares of common stock, generating net proceeds of approximately $192.8 million[92] * Noncontrolling interests primarily relate to partially-owned entities Cinos Korea, Cinos China, and Rovac Pte, Ltd[93][94][95] * A loss of $5.2 million was recorded in Q2 2022 related to the write-off of goodwill and intangible assets due to the planned sale of the majority interest in Rovac Pte, Ltd[95] 12. Employee Stock Plans Stock-Based Compensation Expense (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | | :----- | :----------- | :----------- | | Q3 | $4.7 | $4.3 | | 9M | $14.8 | $11.5 | * As of September 30, 2022, approximately $31.1 million of unrecognized stock-based compensation cost remains to be amortized over a weighted average period of 1.3 years[101] * Under the Employee Stock Purchase Plan (ESPP), 24,400 shares were issued during the nine months ended September 30, 2022, with $0.1 million of related expense[103] 13. Revenue Recognition * Revenue is recognized when performance obligations are satisfied, evidenced by the transfer of control of promised goods or services to customers, primarily in the semiconductor capital equipment industry[104][107] * The Company's revenues are highly concentrated and dependent upon a small number of customers[105] Revenues by Geographic Area (Nine Months Ended Sep 30, 2022, in millions) | Geographic Area | Revenue | | :---------------- | :------ | | Singapore | $684.9 | | United States | $558.9 | | South Korea | $119.8 | | China | $97.0 | | Austria | $84.8 | | Rest of the world | $262.5 | | Total | $1,807.9 | 14. Leases Total Lease Cost (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | | :----- | :----------- | :----------- | | Q3 | $6.8 | $5.4 | | 9M | $18.8 | $14.8 | Operating Lease Liabilities (In millions) as of Sep 30, 2022 | Item | Amount | | :-------------------------- | :----- | | Total minimum lease payments | $99.8 | | Less: imputed interest | $14.7 | | Lease liability | $85.1 | * The weighted-average remaining lease term for operating leases was 7.2 years, with a weighted-average discount rate of 4.7% as of September 30, 2022[111] 15. Net Income Per Share Net Income Per Share Attributable to UCT (In millions, except share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to UCT | $9.7 | $31.9 | $12.5 | $74.0 | | Basic EPS | $0.21 | $0.71 | $0.28 | $1.73 | | Diluted EPS | $0.21 | $0.70 | $0.28 | $1.69 | | Weighted average common shares outstanding (Diluted) | 45.6 | 45.4 | 45.7 | 43.7 | 16. Reportable Segments * The Company operates two reportable segments: Products (Assembly, Weldments, Machining, Fabrication) and Services (Cleaning, Coating, Analytics), primarily serving the semiconductor industry across Americas, Asia Pacific, and EMEA[113] Segment Revenues (In millions) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Products | $556.3 | $482.0 | $1,575.2 | $1,270.1 | | Services | $78.7 | $71.7 | $232.7 | $216.4 | | Total | $635.0 | $553.7 | $1,807.9 | $1,486.5 | Segment Operating Profit (Loss) (In millions) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Products | $26.8 | $43.8 | $50.1 | $102.0 | | Services | $9.5 | $6.8 | $26.5 | $20.9 | | Consolidated income (loss) from operations | $36.3 | $50.6 | $76.6 | $122.9 | 17. Subsequent Events * On October 20, 2022, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $150.0 million of its common stock over a three-year period[116] 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 performance and condition, analyzing the results of operations for the three and nine months ended September 30, 2022, compared to the prior year, discussing key drivers for revenue growth, cost increases, and the significant impact of divestitures and higher interest rates on profitability, alongside an assessment of liquidity, capital resources, and critical accounting estimates. Overview * Ultra Clean Holdings, Inc. (UCT) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services, primarily for the semiconductor industry[118] * The Company operates two reportable segments: Products and Services, serving global customers in the semiconductor and display capital equipment markets[118][119] * Management anticipates long-term growth in the semiconductor market driven by multi-year industry demand from 5G, new CPU architectures for cloud, artificial intelligence (AI), and Machine Learning applications[120] Critical Accounting Estimates * The Company's financial statements rely on significant estimates and judgments, including those related to inventory valuation, accounting for income taxes, business combinations, and the valuation of goodwill, intangible assets, and long-lived assets[121] * There have been no significant changes to the Company's critical accounting policies, significant judgments, and estimates disclosed in its Annual Report on Form 10-K subsequent to December 31, 2021[122] Results of Operations Revenues Revenues by Segment (In millions) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Percent Change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | Percent Change | | :-------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Products | $556.3 | $482.0 | 15.4% | $1,575.2 | $1,270.1 | 24.0% | | Services | $78.7 | $71.7 | 9.8% | $232.7 | $216.4 | 7.5% | | Total Revenues | $635.0 | $553.7 | 14.7% | $1,807.9 | $1,486.5 | 21.6% | * Total Products revenues increased primarily due to increased customer demand in the semiconductor industry, particularly wafer fabrication equipment, and the full inclusion of Fluid Solutions in fiscal 2022[125] Revenues by Geography (In millions) | Geography | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Percent Change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | Percent Change | | :---------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | United States | $191.9 | $167.9 | 14.3% | $563.7 | $475.6 | 18.5% | | International | $443.1 | $385.8 | 14.9% | $1,244.2 | $1,010.9 | 23.1% | | Total Revenues | $635.0 | $553.7 | 14.7% | $1,807.9 | $1,486.5 | 21.6% | Cost of Revenues Cost of Revenues by Segment (In millions) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Percent Change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | Percent Change | | :-------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Products | $459.3 | $393.4 | 16.8% | $1,299.9 | $1,044.9 | 24.4% | | Services | $51.3 | $46.2 | 11.0% | $151.4 | $140.7 | 7.6% | | Total Cost of Revenues | $510.6 | $439.6 | 16.2% | $1,451.3 | $1,185.6 | 22.4% | * Cost of Products revenues increased due to higher sales volume driving increased material costs, direct labor spending, and overhead costs, partly due to the full inclusion of Fluid Solutions[129] * Cost of Services revenues increased due to higher volumes of service orders, resulting in increased labor, material, and overhead costs[130] Gross Margin Gross Profit by Segment (In millions) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Percent Change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | Percent Change | | :-------- | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Products | $97.0 | $88.6 | 9.4% | $275.3 | $225.2 | 22.2% | | Services | $27.4 | $25.5 | 7.6% | $81.3 | $75.7 | 7.4% | | Gross profit | $124.4 | $114.1 | 9.0% | $356.6 | $300.9 | 18.5% | Gross Margin by Segment | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | | :-------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Products | 17.4% | 18.4% | 17.5% | 17.7% | | Services | 34.8% | 35.6% | 34.9% | 35.0% | | Total Company | 19.6% | 20.6% | 19.7% | 20.2% | * Products gross margin decreased due to higher labor and overhead costs[131] Research and Development Research and Development Expenses (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | Percent Change | | :----- | :----------- | :----------- | :------------- | | Q3 | $7.4 | $6.5 | 13.2% | | 9M | $21.5 | $16.8 | 27.7% | * The increase in R&D expenses was driven by higher payroll costs, employee benefits (including bonuses and incentives), and increased headcount, with the full inclusion of Fluid Solutions contributing to the nine-month increase[133][134] Sales and Marketing Sales and Marketing Expenses (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | Percent Change | | :----- | :----------- | :----------- | :------------- | | Q3 | $13.5 | $13.8 | -1.9% | | 9M | $41.2 | $34.1 | 20.9% | * The Q3 decrease was due to lower variable compensation costs, while the 9M increase was primarily due to the full inclusion of Fluid Solutions and higher personnel-related expenses from increased headcount[135] General and Administrative General and Administrative Expenses (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | Percent Change | | :----- | :----------- | :----------- | :------------- | | Q3 | $46.4 | $43.2 | 7.5% | | 9M | $139.9 | $127.1 | 10.1% | * The increases were driven by higher personnel-related expenses due to increased headcount and the full inclusion of Fluid Solutions for the nine-month period[136] Net Loss on Divestitures Net Loss on Divestitures (In millions) | Period | Amount | | :------------------------------ | :----- | | Three Months Ended Sep 30, 2022 | $20.8 | | Nine Months Ended Sep 30, 2022 | $77.4 | * These losses resulted from the sale of non-core subsidiary entities of Fluid Solutions, aligning with the Company's strategy to focus on its core semiconductor business[60][137] Interest and Other Income (Expense), net Interest and Other Income (Expense), net (In millions) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 24, 2021 | Percent Change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 24, 2021 | Percent Change | | :------------------------ | :------------------------------ | :------------------------------ | :------------- | :----------------------------- | :----------------------------- | :------------- | | Interest income | $0.2 | $0.1 | 100.0% | $0.4 | $0.3 | 33.3% | | Interest expense | $(9.4) | $(6.9) | 36.2% | $(23.1) | $(17.6) | 31.3% | | Other income (expense), net | $(2.1) | $(1.4) | 50.0% | $(2.5) | $(6.4) | -60.9% | * Interest expense increased primarily due to higher interest rates resulting from higher LIBOR rates[138] * The decrease in other expense for the nine-month period was mainly due to the absence of an $11.6 million loss on forward contracts related to the Ham-Let acquisition in the prior year, partially offset by the absence of $7.3 million in insurance proceeds[140][141] Provision for Income Taxes Provision for Income Taxes (In millions) | Period | Sep 30, 2022 | Sep 24, 2021 | Percent Change | | :----- | :----------- | :----------- | :------------- | | Q3 | $12.1 | $8.4 | 44.1% | | 9M | $29.4 | $21.6 | 36.1% | Effective Tax Rate | Period | Sep 30, 2022 | Sep 24, 2021 | | :----- | :----------- | :----------- | | Q3 | 48.4% | 19.8% | | 9M | 57.2% | 21.8% | * The increase in the effective tax rate was driven by losses from divestitures in 2022 that did not generate corresponding tax benefits, and the effects of mandatory capitalization and amortization of research and development expenses[142] Liquidity and Capital Resources Cash and cash Equivalents Cash and Cash Equivalents (In millions) | Date | Amount | | :----------- | :----- | | Sep 30, 2022 | $453.5 | | Dec 31, 2021 | $466.5 | Net Cash Flow Provided by (Used in) (Nine Months Ended, In millions) | Activity | Sep 30, 2022 | Sep 24, 2021 | | :------------------------ | :----------- | :----------- | | Operating activities | $86.0 | $170.0 | | Investing activities | $(64.2) | $(390.3) | | Financing activities | $(27.2) | $477.9 | | Net increase (decrease) | $(13.0) | $256.7 | * The lower net cash from operating activities was driven by a $106.9 million increase in working capital and a $55.6 million decrease in net income, partially offset by a $78.5 million increase from non-cash items (including $77.4 million net loss on divestitures)[145] * Net cash used in investing activities decreased significantly due to the absence of the $355.2 million cash paid for the Ham-Let acquisition in the prior year[145] * Cash used in financing activities shifted from a $477.9 million inflow in the prior year to a $27.2 million outflow, mainly due to $355.0 million of debt added and $193.1 million from equity offering in the prior year[145][146] * The Company believes it has sufficient capital to fund working capital needs, debt obligations, capital equipment, and strategic acquisitions for at least the next twelve months[147][149] Borrowing Arrangements Borrowings as of Sep 30, 2022 (In millions) | Item | Amount | Weighted Average Interest Rate | | :---------------------- | :----- | :----------------------------- | | U.S. Term Loan | $532.3 | 4.8% | | Ham-Let Credit Facilities | $8.1 | 4.1% | | Debt issuance costs | $(11.1)| | | Total | $529.3 | | * The Term Loan B facility had an outstanding amount of $532.3 million (gross) with an interest rate of 6.3% as of September 30, 2022, maturing on August 27, 2025[155] * The revolving credit facility was increased to $150.0 million on August 19, 2022, with $146.6 million available as of September 30, 2022[156][157][162] * The Company was in compliance with all financial covenants (consolidated fixed charge coverage ratio of at least 1.25 to 1.00 and consolidated leverage ratio of no greater than 3.75 to 1.00) as of September 30, 2022[159] Capital Expenditures * Capital expenditures totaled $60.1 million during the nine months ended September 30, 2022, primarily for manufacturing facilities worldwide and the ongoing design and implementation of a new enterprise resource planning (ERP) system[164] * Anticipated capital expenditures for the remainder of 2022 are expected to be financed primarily from cash flow generated from operations[164] Contractual Obligations * The Company had commitments to various third parties to purchase inventories totaling approximately $645.2 million as of September 30, 2022[165] * The Company provides standard indemnification against certain liabilities to its customers, but has not incurred significant costs to defend lawsuits or settle claims related to these arrangements, estimating their fair value as minimal[166] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk There were no significant changes to the Company's quantitative and qualitative disclosures about market risk during the period covered by this report. * No significant changes to quantitative and qualitative disclosures about market risk were reported during the period[167] ITEM 4. Controls and Procedures Management, including the principal executive officer and principal financial officer, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting occurring during the third fiscal quarter. * The Company's disclosure controls and procedures were evaluated and concluded to be effective as of September 30, 2022[168] * There were no material changes in internal controls over financial reporting during the third fiscal quarter ended September 30, 2022[169] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, but it does not anticipate any of these to have a material adverse effect on its condensed consolidated financial condition or results of operations. * The Company is subject to various legal proceedings and claims in the ordinary course of business[172] * No material adverse effect on consolidated financial condition or results of operations is expected from these proceedings or claims[172] ITEM 1A. Risk Factors There were no material changes during the period covered in this report to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. * No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[173] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period. * None reported[174] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period. * None reported[175] ITEM 4. Mine Safety Disclosures This item is not applicable to the Company. * Not applicable[176] ITEM 5. Other Information No other information was reported for the period. * None reported[177] ITEM 6. Exhibits This section lists the exhibits filed with the quarterly report, including certifications from the Chief Executive Officer and Chief Financial Officer, as well as various Inline XBRL documents. * Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1) and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[178] SIGNATURES * The report was signed by James P. Scholhamer, Chief Executive Officer, and Sheri Savage, Chief Financial Officer, on November 9, 2022[181]