UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __ to __
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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Not Applicable |
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
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Accelerated filer |
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Non‑accelerated filer |
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Small reporting company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes
As of May 6, 2022, the registrant had
TABLE OF CONTENTS
PART I |
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ITEM 1. |
1 |
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ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
12 |
ITEM 3. |
19 |
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ITEM 4. |
20 |
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PART II |
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ITEM 1. |
21 |
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ITEM 1A. |
21 |
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ITEM 2. |
21 |
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ITEM 3. |
21 |
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ITEM 4. |
21 |
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ITEM 5. |
21 |
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ITEM 6. |
21 |
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22 |
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ICHOR HOLDINGS, LTD.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)
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April 1, 2022 |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other noncurrent assets |
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Deferred tax assets, net |
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Intangible assets, net |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Other current liabilities |
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Current portion of long-term debt |
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Current portion of lease liabilities |
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Total current liabilities |
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Long-term debt, less current portion, net |
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Lease liabilities, less current portion |
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Deferred tax liabilities, net |
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Other non-current liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred shares ($ |
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Ordinary shares ($ |
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Additional paid in capital |
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Treasury shares at cost ( |
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Retained earnings |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes.
1
ICHOR HOLDINGS, LTD.
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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April 1, 2022 |
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March 26, 2021 |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general, and administrative |
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Amortization of intangible assets |
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Total operating expenses |
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Operating income |
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Interest expense, net |
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Other expense, net |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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Net income per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Shares used to compute net income per share: |
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Basic |
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Diluted |
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See accompanying notes.
2
ICHOR HOLDINGS, LTD.
Consolidated Statements of Shareholders’ Equity
(dollars in thousands)
(unaudited)
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Additional |
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Treasury |
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Total |
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For the three months ending April 1, 2022 |
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Ordinary Shares |
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Paid-In |
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Shares |
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Retained |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Earnings |
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Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Ordinary shares issued from exercise of stock options |
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— |
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— |
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— |
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— |
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Ordinary shares issued from vesting of restricted share units |
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— |
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( |
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— |
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— |
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— |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Balance at April 1, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Additional |
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Treasury |
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Total |
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For the three months ending March 26, 2021 |
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Ordinary Shares |
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Paid-In |
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Shares |
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Retained |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Shares |
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Amount |
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Earnings |
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Equity |
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Balance at December 25, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Ordinary shares issued from exercise of stock options |
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— |
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— |
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— |
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— |
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Ordinary shares issued from vesting of restricted share units |
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— |
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( |
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— |
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— |
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— |
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( |
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Ordinary shares issued from employee share purchase plan |
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— |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Balance at March 26, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes.
3
ICHOR HOLDINGS, LTD.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months Ended |
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April 1, 2022 |
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March 26, 2021 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Share-based compensation |
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Deferred income taxes |
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( |
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Amortization of debt issuance costs |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable, net |
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( |
) |
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( |
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Inventories |
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( |
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( |
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Prepaid expenses and other assets |
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( |
) |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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Other liabilities |
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( |
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Net cash provided by (used in) operating activities |
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( |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Issuance of ordinary shares under share-based compensation plans |
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Employees' taxes paid upon vesting of restricted share units |
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( |
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( |
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Repayments on revolving credit facility |
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— |
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( |
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Repayments on term loan |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Net decrease in cash |
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( |
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( |
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Cash at beginning of period |
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Cash at end of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Cash paid during the period for interest |
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$ |
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$ |
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Cash paid during the period for taxes, net of refunds |
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$ |
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$ |
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Supplemental disclosures of non-cash activities: |
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Capital expenditures included in accounts payable |
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$ |
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$ |
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Right-of-use assets obtained in exchange for new operating lease liabilities, including those acquired through acquisitions |
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$ |
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$ |
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See accompanying notes.
4
ICHOR HOLDINGS, LTD.
Notes to Consolidated Financial Statements
(dollar figures in tables in thousands, except per share amounts)
(unaudited)
Note 1 – Basis of Presentation and Selected Significant Accounting Policies
Basis of Presentation
These consolidated unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by the SEC's rules and regulations for interim reporting. These consolidated financial statements should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 31, 2021.
Year End
We use a 52- or 53-week fiscal year ending on the last Friday in December. The three months ended April 1, 2022 and March 26, 2021 were both 13 weeks. References to the first quarter of 2022 and 2021 refer to the three-month periods then ended. References to fiscal year 2022 and 2021 refer to our fiscal years ending December 30, 2022 and December 31, 2021, respectively. Fiscal year 2022 and 2021 are 52 and 53 weeks, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite‑lived intangible assets and goodwill.
Cash and Cash Equivalents
Cash and cash equivalents consist of deposits and financial instruments which are readily convertible into cash and have original maturities of
Fair Value of Financial Instruments
The carrying values of our financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and long-term debt, net of unamortized debt issuance costs, approximate fair value.
Revenue Recognition
We recognize revenue when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This amount is recorded as net sales in our consolidated statements of operations.
Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and generally remain fixed over the duration of the contract. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal will not occur. Variable consideration estimates are updated at each reporting date. Historically, we have not incurred significant costs to obtain a contract. All amounts billed to a customer relating to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of sales.
5
Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of fluid delivery subsystems, weldments, and other components. Most of our contracts contain a single performance obligation and are generally completed within
Contract balances – Accounts receivable represents our unconditional right to receive consideration from our customers. Accounts receivable are carried at invoice price less an estimate for doubtful accounts and estimated payment discounts. Payment terms vary by customer but are generally due within 15‑
Accounting Pronouncements Recently Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021‑08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. If early adopted, the amendments are applied retrospectively to all business combinations for which the acquisition date occurred during the fiscal year of adoption. This ASU is currently not expected to have a material impact on our consolidated financial statements.
Note 2 – Inventories
Inventories consist of the following:
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April 1, 2022 |
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December 31, 2021 |
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Raw materials |
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$ |
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$ |
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Work in process |
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Finished goods |
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Excess and obsolete adjustment |
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( |
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( |
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Total inventories |
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$ |
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$ |
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Note 3 – Property and Equipment and Other Noncurrent Assets
Property and equipment consist of the following:
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April 1, 2022 |
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December 31, 2021 |
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Machinery |
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$ |
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$ |
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Leasehold improvements |
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Computer software, hardware, and equipment |
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Office furniture, fixtures and equipment |
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Vehicles |
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Construction-in-process |
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Less accumulated depreciation |
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( |
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( |
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Total property and equipment, net |
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$ |
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$ |
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Depreciation expense was $
6
Cloud Computing Implementation Costs
We capitalize implementation costs associated with hosting arrangement that are service contracts. These costs are recorded to prepaid expenses or other noncurrent assets. To-date, these costs are those incurred to implement a new company-wide ERP system.
The following table summarizes capitalized cloud computing implementation costs:
Capitalized cloud computing implementation costs as of December 31, 2021 |
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$ |
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Costs capitalized during the period |
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Capitalized costs amortized during the period |
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( |
) |
Capitalized cloud computing implementation costs as of April 1, 2022 |
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$ |
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Note 4 – Intangible Assets
Definite‑lived intangible assets consist of the following:
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April 1, 2022 |
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Gross value |
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Accumulated amortization |
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Accumulated impairment charges |
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Carrying amount |
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Weighted average useful life |
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Customer relationships |
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( |
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— |
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Developed technology |
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( |
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— |
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Order backlog |
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( |
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— |
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Total intangible assets |
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$ |
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$ |
( |
) |
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$ |
— |
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$ |
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December 31, 2021 |
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|
|
Gross value |
|
|
Accumulated amortization |
|
|
Accumulated impairment charges |
|
|
Carrying amount |
|
|
Weighted average useful life |
||||
Customer relationships |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
Developed technology |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
Order backlog |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
|
|
Note 5 – Leases
Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancellable lease term plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
We lease facilities under various non-cancellable operating leases expiring through
The components of lease expense are as follows:
|
|
Three Months Ended |
|
|||||
|
|
April 1, 2022 |
|
|
March 26, 2021 |
|
||
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
7
Supplemental cash flow information related to leases is as follows:
|
|
Three Months Ended |
|
|||||
|
|
April 1, 2022 |
|
|
March 26, 2021 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
$ |
|
|
Supplemental balance sheet information related to leases is as follows:
|
|
April 1, 2022 |
|
|
March 26, 2021 |
|
Weighted-average remaining lease term of operating leases |
|
|
|
|
|
|
Weighted-average discount rate of operating leases |
|
|
|
|
|
|
Future minimum lease payments under non-cancelable leases as of April 1, 2022 are as follows:
2022, remaining |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
Note 6 – Income Taxes
Income tax information for the periods reported are as follows:
|
|
Three Months Ended |
|
|||||
|
|
April 1, 2022 |
|
|
March 26, 2021 |
|
||
Income tax expense |
|
$ |
|
|
|
$ |
|
|
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
Effective income tax rate |
|
|
|
% |
|
|
|
% |
Our effective tax rates for the first quarter of 2022 and 2021 differ from the statutory rate primarily due to taxes on foreign income that differ from the U.S. tax rate, including a tax holiday in Singapore, and the impact of share-based compensation activity during the quarter.
The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $
As of April 1, 2022, we were not under examination by tax authorities.
Note 7 – Employee Benefit Programs
401(k) Plan
We sponsor a 401(k) plan available to employees of our U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed
8
Note 8 – Long-Term Debt
Long‑term debt consists of the following:
|
|
April 1, 2022 |
|
|
December 31, 2021 |
|
|
||
Term loan |
|
$ |
|
|
|
$ |
|
|
|
Revolving credit facility |
|
|
|
|
|
|
|
|
|
Total principal amount of long-term debt |
|
|
|
|
|
|
|
|
|
Less unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Total long-term debt, net |
|
|
|
|
|
|
|
|
|
Less current portion |
|
|
( |
) |
|
|
( |
) |
|
Total long-term debt, less current portion, net |
|
$ |
|
|
|
$ |
|
|
|
On October 29, 2021, we entered into an amended and restated credit agreement, which includes a group of financial institutions as direct lenders underlying the agreement. The credit agreement includes a $
Interest is charged at either the Base Rate or the Bloomberg Short-Term Bank Yield (“BSBY”) Rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin.
Note 9 – Share‑Based Compensation
The 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of stock options (“options”), tandem and non‑tandem stock appreciation rights, restricted share awards or restricted share units (“RSUs”), performance awards, and other share‑based awards. Forfeited or expired awards are returned to the incentive plan pool for future grants.
Share‑based compensation expense across all plans for options, RSUs, and employee share purchase rights was $
Stock Options
The following table summarizes option activity:
|
|
Number of Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service condition |
|
|
Weighted average exercise price per share |
|
|
Weighted average remaining contractual term |
|
Aggregate intrinsic value |
|
|||
Outstanding, December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
$ |
— |
|
|