ULTRA CLEAN HOLDINGS INC

Chris P. Siu has served as our Senior Vice President, Chief Accounting Officer since May 2019. Prior to joining the Company, Mr. Siu served as Vice President of Finance at PDF Solutions, Inc., a leading provider of differentiated data and analytics solutions to the semiconductor and electronics industries, since October 2018. Prior to PDF Solutions, Mr. Siu served at GLOBALFOUNDRIES, Inc., a global pure-play foundry for the semiconductor industry, as its Corporate Controller from June 2014 to October 2018, as Senior Director, Finance and Operations Controller from December 2013 to June 2014 and as Assistant Corporate Controller from November 2010 to December 2013. Prior to that, Mr. Siu served at Trident Microsystems, Inc. a provider of high-performance multimedia semiconductor solutions, as its Chief Accounting Officer and Director of Finance from February 2007 to November 2010. Prior to Trident Microsystems, Mr. Siu served at Varian Medial Systems, Inc., a market-leading manufacturer of medical devices for the treatment of cancer, in different finance management roles from June 2004 to February 2007. Prior to that, he worked for Deloitte & Touche from August 2001 to June 2004 and was previously with Ernst & Young from January 1996 to June 2001. Mr. Siu holds a Bachelor of Science degree in Accounting from Brigham Young University in Hawaii and a Master of Business Administration degree from the University of California at Berkeley. Mr. Siu is a Certified Public Accountant (inactive) in California.

The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement. When the Company determines the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or a finance lease. Operating and finance leases with lease terms of one year or greater result in the Company recording a right-of-use (ROU) asset and lease liability on its balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are initially recognized based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses the implicit interest rate if readily determinable or when the implicit interest rate is not readily determinable, the Company uses its incremental borrowing rate. The incremental borrowing rate is not a commonly quoted rate and is derived through a combination of inputs including the Company’s credit rating and the impact of full collateralization. The incremental borrowing rate is based on the Company’s collateralized borrowing capabilities over a similar term of the lease payments. The Company utilizes the consolidated group incremental borrowing rate for all leases. The operating lease ROU asset also includes any lease payments made and excludes any lease incentives. Specific lease terms used in computing the ROU assets and lease liabilities may include options to extend or terminate the lease when the Company believes it is reasonably certain that it will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. As allowed by the guidance, the Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. Operating leases are included in operating lease ROU assets, other current liabilities, and long-term operating lease liabilities on the Company’s consolidated balance sheet. The Company’s finance leases at December 27, 2019 are immaterial.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

Goodwill and purchased intangible assets with indefinite useful lives are not amortized, but are reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. To test goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company does not proceed to perform a quantitative impairment test. If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative goodwill impairment test will be performed by comparing the fair value of each reporting unit to its carrying value. A quantitative impairment analysis, if necessary, considers the income approach, which requires estimates of the present value of expected future cash flows to determine a reporting unit’s fair value. Significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates, and future economic and market conditions. A goodwill impairment charge is recognized for the amount by which the reporting unit’s fair value is less than its carrying value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results.

Subsequent to December 27, 2019, the World Health Organization declared the novel coronavirus outbreak a public health emergency. The outbreak caused the Chinese government to place restrictions on travel and other activities throughout the country. The Company operates facilities in China. In cooperation with the government authorities, the Company’s operations in China extended their Chinese New Year holiday shut down for several weeks. While operations have resumed, the Company may operate at below normal levels due to the continued restrictions on travel in China and labor shortages. Although the Company does not expect the impact on its operations and financial results to be significant in the first quarter of fiscal year 2020, the duration and intensity of the impact of the coronavirus and resulting disruption to the Company’s operations is uncertain.  The Company, therefore, cannot reasonably estimate the impact to its financial statements beyond the first quarter of fiscal 2020. The Company will continue to monitor the situation closely and assess the impact on its operations and financial results for the remainder of the year.