# Ultra Clean Holdings, Inc. (UCTT) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ultra Clean Holdings, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1275014/000095017023005148/uctt-20221230.htm
Accession: 0000950170-23-005148
Filing date: 2023-02-28
Report date: 2022-12-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/UCTT/
All MD&A years: /company/UCTT/mda/
Previous year: /company/UCTT/mda/fy2021/ (FY 2021)
Next year: /company/UCTT/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Overview

Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two operating segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets.

We ship a majority of our products and provide most of our services to U.S. registered customers with locations both in and outside the U.S. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asia Pacific, Europe and Middle East (“EMEA”) facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries.

Over the long-term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new CPU architectures that enable higher performance servers necessary for cloud, artificial intelligence (“AI”) and Machine Learning applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to achieve ever more complex devices.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our Consolidated Financial Statements. On an on-going basis, we evaluate our estimates and judgments, including those related to inventories, income taxes, business combinations and goodwill, intangible assets and long-lived assets. 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,

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valuation of goodwill, intangible assets and long-lived assets to be critical policies due to the estimates and judgments involved in each.

Revenue Recognition

Our revenues for fiscal years 2022, 2021 and 2020, were highly concentrated with a small number of OEM customers in the semiconductor capital equipment industry. We recognize revenue when promised goods or services (performance obligations) are transferred to a customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We perform the following five steps to determine when to recognize revenue:

1.
Identification of the contract(s) with customers – 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. 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.

2.
Identification of the performance obligations in the contract – Our performance obligations include delivery of promised goods or services.

3.
Determination of the transaction price – The transaction price of our contracts with customers may include both fixed and variable consideration. We include variable consideration in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We generally invoice our customers upon shipment of goods and completion of services with payment due within 30 to 90 days after issuance.

4.
Allocation of the transaction price to the performance obligations in the contract – For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations on a relative standalone selling price basis. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the relative standalone selling price of each distinct good or service in the contract.

5.
Recognition of revenue when, or as, a performance obligation is satisfied – We recognize revenue from products sold at a point in time when we have satisfied our performance obligation by transferring control of the goods to the customer, which typically occurs at shipment or delivery. Revenue from service agreements is recognized upon completion of the services, which typically occurs upon shipment to the customer.

Inventory Valuation

We write down the carrying value of our inventory to net realizable value for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and its estimated realizable value based upon inventory age and assumptions about future demand and market conditions. 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 established on the basis of obsolete inventory or specifically identified inventory in excess of established usage. Inherent in our estimates of demand and market value in determining inventory valuation are estimates related to economic trends, market conditions, and future demand for our products. If actual demand and 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 fiscal years 2022, 2021 and 2020, we wrote down inventories of $5.0 million, $6.1 million, and $3.4 million, respectively.

Accounting for Income Taxes

The determination of our tax provision is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region and is subject to judgments and estimates. Management carefully monitors the changes in many factors and adjusts the effective tax rate as required.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not more likely than not, we must increase our provision for taxes by recording a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be recoverable. 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. In order to reverse a valuation allowance, U.S. GAAP suggest that we review our recent cumulative income/loss as well as determine our ability to generate sufficient future taxable

31

income to realize our net deferred tax assets. As of December 30, 2022, we maintained full valuation allowances on our U.S. federal and state and certain of our foreign deferred tax assets in the amount of $53.1 million as we believe it is more likely than not that these deferred tax assets will not be realized.

In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on the results of our operations and financial position. We believe we have adequately reserved for our uncertain tax positions; however, no assurance can be given that the final tax outcome of these matters will not be different than what we expect. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

Business Combinations

In accordance with accounting for business combinations, we allocate the purchase price of acquired companies to the identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. We may engage third-party valuation firms to assist management in reviewing management’s identification and determination of the fair values of acquired intangible assets such as customer relationships and tradenames. 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.

Goodwill, Intangibles Assets, and Long-lived Assets

Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed.

We evaluate our goodwill and indefinite life tradename for impairment, at the reporting unit level, on an annual basis, and whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. In addition, we evaluate our identifiable intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

•
Significant changes in the manner of our use of the acquired assets or the strategy of our overall business;

•
Significant negative changes in revenue of specific products or services;

•
Significant negative industry or economic trends; and

•
Significant decline in our stock price for a sustained period.

We continually apply judgment when performing these evaluations and continuously monitor for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, undiscounted cash flows, discount rates, recent market valuations from transactions by comparable companies, volatility in our market capitalization and general industry, market and macroeconomic conditions. It is possible that changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing fair value, would require us to record a non-cash impairment charge.

Results of Operations

Fiscal Year

Our fiscal year is the 52 or 53 week period ending on the Friday nearest December 31. Fiscal years 2022 and 2020, each contained 52 weeks. Fiscal year 2021, contained 53 weeks.

A discussion regarding our financial condition and results of operations for fiscal 2022, compared to fiscal 2021, is presented below. The results of operations for 2021, and the discussion below reflect nine months of activity resulting from the acquisition of Ham-Let.

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A discussion regarding our financial condition and results of operations for fiscal 2021, compared to fiscal 2020, can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 1, 2022, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.uct.com/investors.

Discussion of Results of Operations

Revenues

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Total Products revenue increased $270.8 million in fiscal year 2022 over fiscal year 2021, primarily due to an increase in customer demand in the semiconductor industry, in particular, the wafer fabrication equipment industry and in part due to the inclusion of Fluid Solutions for the full twelve month period in 2022.

Total Services revenues were relatively flat in fiscal year 2022 compared to fiscal year 2021.

[[GREPCENT_TABLE]]
[["","Year Ended"],["Revenues by Geography","December 30,","","Percent","","December 31,","","Percent","","","December 25,"],["(Dollars in millions)","2022","","Change","","2021","","Change","","","2020"],["United States","$","915.3","","","24.6","","%","","$","734.4","","","26.3","","%","","","$","581.6"],["International","","1,459.0","","","6.7","","%","","","1,367.2","","","67.3","","%","","","","817.0"],["Total revenues","$","2,374.3","","","13.0","","%","","$","2,101.6","","","50.3","","%","","","$","1,398.6"],["Unites States as a percentage of total revenues","","38.6","%","","","","","","34.9","%","","","","","","","41.6","%"],["International as a percentage of total revenues","","61.4","%","","","","","","65.1","%","","","","","","","58.4","%"]]
[[/GREPCENT_TABLE]]

On a geographic basis, revenue represents products were shipped or services performed in our U.S. and international locations. Both U.S. and foreign revenues increased in absolute terms in fiscal 2022 over fiscal 2021, due to an overall global increase in semiconductor and general industry demand.

Cost of Revenues

[[GREPCENT_TABLE]]
[["","Year Ended"],["Cost of revenues by Segment","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Products","$","1,712.3","","","","15.8","","%","","$","1,478.7","","","","58.2","","%","","$","934.7"],["Services","","197.0","","","","2.1","","%","","","192.9","","","","12.1","","%","","","172.1"],["Total Cost of revenues","$","1,909.3","","","","14.2","","%","","$","1,671.6","","","","51.0","","%","","$","1,106.8"],["Products cost as a percentage of total Products revenues","","82.5","%","","","","","","","82.0","%","","","","","","","82.6","%"],["Services cost as a percentage of total Services revenues","","65.8","%","","","","","","","64.8","%","","","","","","","64.4","%"]]
[[/GREPCENT_TABLE]]

Total cost of revenues increased $237.7 million in fiscal year 2022 over fiscal year 2021, due to higher demand for Products and higher labor costs for Services.

Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of products revenues increased $233.6 million for fiscal 2022 compared to fiscal 2021. The increases were due to higher volume of sales driving increased material costs, as well as higher direct labor spending and overhead costs and in part due to the inclusion of Fluid Solutions for the full twelve months in fiscal year 2022 as compared to nine months in fiscal year 2021.

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Cost of Services revenues consists of direct labor, manufacturing overhead and materials (such as chemicals, gases and consumables). Cost of services revenues increased $4.1 million in fiscal 2022 compared to the prior year driven by an increase in labor costs.

Gross Margin

[[GREPCENT_TABLE]]
[["","Year Ended"],["Gross Profit by Segment","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Products","$","362.4","","","","11.4","","%","","$","325.2","","","","65.5","","%","","$","196.5"],["Services","","102.6","","","","(2.1",")","%","","","104.8","","","","10.0","","%","","","95.3"],["Gross profit","$","465.0","","","","8.1","","%","","$","430.0","","","","47.4","","%","","$","291.8"],["Gross Margin by Segment"],["Products","","17.5","%","","","","","","","18.0","%","","","","","","","17.4","%"],["Services","","34.2","%","","","","","","","35.2","%","","","","","","","33.5","%"],["Total Company","","19.6","%","","","","","","","20.5","%","","","","","","","20.9","%"]]
[[/GREPCENT_TABLE]]

Products and Services gross margin decreased in fiscal year 2022 over fiscal year 2021, due to higher labor and overhead costs.

Operating Margin

[[GREPCENT_TABLE]]
[["","Year Ended"],["Operating Profit by Segment","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Products","$","90.4","","","","(41.4",")","%","","$","154.3","","","","58.7","","%","","$","97.2"],["Services","","30.0","","","","(4.4",")","%","","","31.4","","","","29.8","","%","","","24.2"],["Operating profit","$","120.4","","","","(35.2",")","%","","$","185.7","","","","53.0","","%","","$","121.4"],["Operating Margin by Segment"],["Products","","4.4","%","","","","","","","8.6","%","","","","","","","8.6","%"],["Services","","10.0","%","","","","","","","10.5","%","","","","","","","33.5","%"],["Total Company","","5.1","%","","","","","","","8.8","%","","","","","","","8.7","%"]]
[[/GREPCENT_TABLE]]

Operating profit and operating margin of Products decreased in fiscal year 2022 compared to fiscal year 2021, primarily due to the $77.4 million net loss recorded from the divestiture of subsidiaries partially offset by the higher demand and the inclusion of Fluid Solutions gross profit for the full twelve months in fiscal year 2022 as compared to nine months in fiscal year 2021.

Operating profit and operating margin of Services decreased in fiscal year 2022 compared to fiscal year 2021, due to lower gross profit.

Research and Development

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Research and development","$","28.5","","","","16.3","","%","","$","24.5","","","","65.5","","%","","$","14.8"],["Research and development as a percentage of total revenues","","1.2","%","","","","","","","1.2","%","","","","","","","1.1","%"]]
[[/GREPCENT_TABLE]]

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Research and development expenses consist primarily of activities related to new component testing and evaluation, test equipment and fixture development, product design, the advancement of cleaning and coating and analytical processes, and other product-development activities. Research and development expenses increased $4.0 million in fiscal year 2022 compared to fiscal year 2021, primarily due to an increase in personnel-related expenses associated with an overall increase in headcount.

Sales and Marketing

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Sales and marketing","$","54.4","","","","12.9","","%","","$","48.2","","","","92.0","","%","","$","25.1"],["Sales and marketing as a percentage of total revenues","","2.3","%","","","","","","","2.3","%","","","","","","","1.8","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expenses consist primarily of salaries and commissions paid to our sales employees, salaries paid to our engineers who partner with 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 expenses increased $6.2 million in fiscal year 2022 over fiscal year 2021, due to the inclusion of Fluid Solutions’ sales and marketing activities for the full twelve months and an increase in personnel-related costs driven by higher headcount.

General and Administrative

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["General and administrative","$","184.3","","","","7.4","","%","","$","171.6","","","","31.5","","%","","$","130.5"],["General and administrative as a percentage of total revenues","","7.8","%","","","","","","","8.2","%","","","","","","","9.3","%"]]
[[/GREPCENT_TABLE]]

General and administrative expenses increased $12.7 million in fiscal year 2022 over fiscal year 2021, due to the inclusion of Fluid Solutions’ general and administrative activities for the full twelve months in fiscal year 2022 and higher personnel-related expenses driven by higher headcount.

Interest and Other Income (Expense), net

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Interest income","$","0.9","","","","125.0","","%","","$","0.4","","","","(55.6",")","%","","$","0.9"],["Interest expense","$","(33.9",")","","","40.1","","%","","$","(24.2",")","","","43.2","","%","","$","(16.9",")"],["Other income (expense), net","$","0.9","","","","(111.8",")","%","","$","(7.6",")","","","33.3","","%","","$","(5.7",")"]]
[[/GREPCENT_TABLE]]

Interest expense increased $9.7 million in fiscal year 2022 over fiscal year 2021 due to a higher average debt balance and higher interest rates on our variable rate debt due to rising LIBOR rates in 2022.

Other income (expense), net, increased $8.5 million in fiscal year 2022 over fiscal year 2021 primarily due to the absence of loss from the change in the fair value of forward contracts in conjunction with the acquisition of Ham-Let.

Provision for Income Taxes

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 30,","","","Percent","","December 31,","","","Percent","","December 25,"],["(Dollars in millions)","2022","","","Change","","2021","","","Change","","2020"],["Provision for income taxes","$","37.9","","","","35.8","","%","","$","27.9","","","","44.6","","%","","$","19.3"],["Effective tax rate","","42.9","%","","","","","","","18.1","%","","","","","","","19.3","%"]]
[[/GREPCENT_TABLE]]

The change in respective tax rates reflects, primarily, changes in the geographic distribution of our worldwide earnings. For fiscal year 2022, our effective tax rate was higher than the federal statutory rate of 21.0% primarily due to an increase in the valuation allowance.

For the year ended December 30, 2022, the Company concluded that a full valuation allowance against its U.S. federal and state deferred tax assets continues to be necessary. The Company also concluded that some of its foreign

35

deferred tax assets acquired as part of the QGT and Ham-Let acquisitions required a valuation allowance. As of December 30, 2022, the total U.S. and foreign valuation allowances for deferred tax assets were $43.4 million and $9.7 million, respectively.

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

The Company remitted earnings from one of its subsidiaries in Singapore in 2022. The Company has no plans to remit other foreign earnings other than possibly from a subsidiary in Singapore. We may change our intent to reinvest certain of our undistributed foreign earnings indefinitely, which could require us to accrue or pay taxes on some or all of these undistributed earnings.

Liquidity and Capital Resources

Cash and cash Equivalents

The following table summarizes our cash and cash equivalents:

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 30,","","","December 31,"],["(In millions)","","2022","","","2021","","","Decrease"],["Total cash and cash equivalents","","$","358.8","","","$","466.5","","","$","(107.7",")"]]
[[/GREPCENT_TABLE]]

The decrease in cash and cash equivalents in fiscal year 2022, compared to fiscal year 2021, was primarily due to the cash provided by operating activities of $47.2 million offset by the cash used in financing activities of $56.0 million and $96.2 million used in investing activities.

Cash Flows

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 30,","","","December 31,","","","December 25,"],["(In millions)","","2022","","","2021","","","2020"],["Operating activities","","$","47.2","","","$","211.6","","","$","97.3"],["Investing activities","","","(96.2",")","","","(404.8",")","","","(29.8",")"],["Financing activities","","","(56.0",")","","","460.8","","","","(31.1",")"],["Effects of exchange rate changes on cash and cash equivalents","","","(2.7",")","","","(1.4",")","","","1.4"],["Net increase (decrease) in cash and cash equivalents","","$","(107.7",")","","$","266.2","","","$","37.8"]]
[[/GREPCENT_TABLE]]

Our primary cash inflows and outflows were as follows:

•
We generated net cash from operating activities of $47.2 million in fiscal year 2022, compared to $211.6 million in fiscal year 2021. The $164.4 million decrease was driven by a decrease of $76.0 million in net income and decrease of $169.0 million in the net change from operating assets and liabilities partially offset by the increase of $80.6 million in non-cash items.

•
The major contributors to the net change in operating assets and liabilities, net of effects of acquisition and business dispositions, in fiscal year 2022 were as follows:

o
Accounts receivable increased $15.7 million primarily due to the increase in revenues and the timing of collections.

o
Inventories increased $84.4 million as a result of inventory receipts in excess of consumption. This was driven by customer demand below forecast.

o
Accounts payable decreased $68.4 million primarily due to the increases in inventories and the timing of payments.

36

•
Cash used in investing activities was $96.2 million in fiscal year 2022 compared to $404.8 million in fiscal year 2021. During fiscal year 2022, net cash used for investing activities primarily consisted of $100.1 million related to purchases of property, plant and equipment. During fiscal year 2021, net cash used for investing activities primarily consisted of $353.2 million related to an acquisition and $59.3 million for purchases of property, plant and equipment.

•
Cash used in financing activities was $56.0 million in fiscal year 2022 compared to cash provided in financing activities of $460.8 million in fiscal year 2021. During fiscal year 2022, net cash provided by financing activities primarily consisted of debt repayment of $39.7 million and $12.1 million of shares repurchased. During fiscal year 2021, net cash provided by financing activities primarily consisted of new borrowings of $415.2 million, proceeds from issuance of common stock of $193.6 million, partially offset with repayment on debt and debt issuance costs of $140.7 million and $7.3 million of taxes paid upon the vesting of restricted stock units.

We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions from time to time. As of December 30, 2022, we had cash and cash equivalents of $358.8 million compared to $466.5 million as of December 31, 2021. Our cash and cash equivalents, cash generated from operations and borrowings under our term loan described below, were our principal sources of liquidity as of December 30, 2022.

We have an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a nonrecourse basis. In fiscal year 2022, we factored $6.5 million under this arrangement.

We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements 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 size and number of any acquisitions, the state of the worldwide economy, our ability to meet our financial covenants with our credit facility, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products.

In order to expand our business or acquire additional complementary businesses or technologies, we may need to raise additional funds through equity or debt financings. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders’ equity interest will be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. We may also require the consent of our new lenders to raise additional funds through equity or debt financings. No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.

In 2017, we determined that a portion of the current year and future year earnings of one of our China subsidiaries may be distributed in the future and, accordingly, we provided for the related withholding taxes in our Consolidated Financial Statements. As of December 30, 2022, we had undistributed earnings of approximately $512.0 million from our foreign subsidiaries that are indefinitely invested outside of the U.S. As of December 30, 2022, we have cash of approximately $266.9 million in our foreign subsidiaries.

Borrowing Arrangements

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In August 2018, the Company entered into a Credit Agreement with Barclays Bank that provided a Term Loan, a Revolving Credit Facility and a Letter of Credit Facility (the “Credit Facility”). UCT and certain of its subsidiaries have agreed to secure all of their obligations under the Credit Facility by granting a first priority lien in substantially all of their respective personal property assets (subject to certain exceptions and limitations). In August 2018, the Company borrowed $350.0 million under the Term Loan.

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On March 31, 2021, the Company entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement to, among other things, (i) refinance and reprice $272.8 million of existing Term Loan borrowings that will remain outstanding and (ii) obtain a $355.0 million senior secured incremental term loan B facility ((i) and (ii) collectively the “Term Loan”) with Barclays Bank, which increased the amount of term loan indebtedness outstanding under the Company’s Credit Facilities.

The Term Loan has a maturity date of August 27, 2025, with monthly interest payments in arrears, quarterly principal payments of 0.625% of the outstanding principal balance as of March 31, 2021, with the remaining principal paid upon maturity. Under the Credit Facilities, the Company may elect that the Term Loan bear interest at a rate per annum equal to either (a) “ABR” (as defined in the Credit Agreement), plus the applicable margin or (b) the “Eurodollar Rate” (as defined in the Credit Agreement), based on LIBOR, plus the applicable margin. The applicable margin for the Term Loan is equal to a rate per annum to either (i) at any time that the Company’s corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s and BB- (with a stable outlook) or higher from S&P, (x) 3.50% for such Eurodollar term loans and (y) 2.50% for such ABR term loans or (ii) at all other times, (x) 3.75% for such Eurodollar term loans and (y) 2.75% for such ABR term loans. Interest on the Term Loan is payable on (1) in the case of such ABR term loans, the last day of each calendar quarter and (2) in the case of such Eurodollar term loans, the last day of each relevant interest period and, in the case of any interest period longer than three months, on each successive date three months after the first day of such interest period. On March 29, 2021, the Company elected that the Term Loan outstanding as of March 31, 2021 accrue interest based on the “Eurodollar Rate” for an initial interest period of one month. Pursuant to the Second Amendment to the Credit Agreement, the Credit Facilities contains customary LIBOR replacement provisions in the event LIBOR is discontinued. At December 30, 2022, the Company had an outstanding amount under the Term Loan of $515.0 million, gross of unamortized debt issuance costs of $10.2 million. As of December 30, 2022, the interest rate on the outstanding Term Loan was 7.8%.

On August 19, 2022, we entered into a Third Amendment (the “Third Amendment”) to the credit agreement dated as of August 27, 2018 and amended as of October 1, 2018 and March 31, 2021 (as amended by the Third Amendment, the "Credit Agreement") to, among other things, increase the revolving credit facility portion of the Credit Facilities to $150.0 million with several banks and Barclays Bank as administrative agent.

The revolving credit facility has an available commitment of $150.0 million and a maturity date of February 27, 2025. The Company pays a quarterly commitment fee in arrears equal to 0.25% of the average daily available commitment outstanding. Outstanding letters of credit reduce the availability of the revolving credit facility and, as of December 30, 2022, the Company had $146.6 million, net of $3.4 million of outstanding letters of credit, available under this revolving credit facility.

The letter of credit facility has an available commitment of $50.0 million and a maturity date of August 27, 2025. The Company pays a quarterly fee in arrears equal to 2.5% (subject to certain adjustments to the Term Loan) of the dollar equivalent of all outstanding letters of credit, and a fronting fee equal to 0.125% of the undrawn and unexpired amount of each letter of credit. As of December 30, 2022, the Company had $3.4 million of outstanding letters of credit and $46.6 million of available commitments remaining under the letter of credit facility.

The Credit Agreement requires the Company to maintain certain financial covenants including a consolidated fixed charge coverage ratio (as defined in the Credit Agreement) as of the last day of any fiscal quarter of at least 1.25 to 1.00, and a consolidated leverage ratio (as defined in the Credit Agreement) as of the last day of any fiscal quarter of no greater than 3.75 to 1.00. The Company was in compliance with all financial covenants during the year ended December 30, 2022.

Fluid Solutions has credit facilities with various financial institutions that provides borrowings of up to $18.5 million. As of December 31, 2021, Fluid Solutions had $9.0 million of outstanding debt with interest rate of 4.2%.

In 2020, Cinos China amended its existing credit agreement with a local bank that provides a term loan of RMB 10.0 million (approximately $1.4 million) which matured on September 23, 2022.

Fluid Delivery Systems (“FDS”) has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to 5.0 million euros (approximately $5.3 million). As of December 30, 2022, the Company had no outstanding amount under this revolving credit facility.

As of December 30, 2022, the Company’s total bank debt was $513.8 million, net of unamortized debt issuance costs of $10.2 million. As of December 30, 2022, we had $146.6 million, $5.3 million and $9.5 million available to draw from our credit facilities in the U.S., Czech Republic and Israel, respectively.

The fair value of our long-term debt was based on Level 2 inputs, and fair value was determined using quoted prices for similar liabilities in inactive markets. The carrying value of our long-term debt approximates fair value.

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Capital Expenditures

Capital expenditures were $100.1 million for the year ended December 30, 2022, primarily attributable to the capacity expansion of our Ireland, Malaysia, Israel and certain U.S. facilities.

Contractual Obligations

The Company had commitments to various third parties to purchase inventories totaling approximately $274.1 million on December 30, 2022.

In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification against certain liabilities to our customers, which may include claims of losses by their own customers resulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products. Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped. As of December 30, 2022, we have not incurred significant costs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal.

During the periods presented, we do not have unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recently Issued and Adopted Accounting Pronouncement

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on UCT’s Consolidated Financial Statements, see Note 1, “Organization and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.