Ultra Clean Holdings, Inc. (UCTT) FY 2021 MD&A

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 and 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 (formerly known as “SPS” and “SSB”, respectively). 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 Asian, 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 including mobile demand driven by 5G, 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.

On March 31, 2021, we completed the acquisition of Ham-Let (Israel-Canada) Ltd. (“Ham-Let”), a public company organized under the laws of the State of Israel (not a U.S. registrant), pursuant to an Agreement and Plan of Merger, for approximately $362.9 million. Ham-Let engages in the development, manufacturing and marketing of innovative control valves, fittings, and hoses for the control and monitoring of industrial systems in a variety of markets, including the Semiconductor market. These products are primarily used in ultra clean gas transportation systems as well as other systems for the transmission of liquids and gases. The Company’s primary reason for this acquisition was to broaden UCT’s relevance to the semiconductor equipment market and to provide access to a new set of customers in the semiconductor fab infrastructure market.  Ham-Let operations are conducted and reported under our products segment.

During April 2021, we completed an underwritten public offering of 3.7 million shares of our common stock, in which we received net proceeds of $192.8 million, after deducting the underwriting discounts and offering expenses.  We intend to use the net proceeds from this offering for general corporate purposes, which may include working capital, sales and marketing activities, product development, general and administrative matters, and capital expenditures. We may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies, although we have no agreements, commitments, or plans for any specific acquisitions at this time.

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Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, 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, 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 2021, 2020 and 2019, 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:

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 recorded as an inventory valuation allowance 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, 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

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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 2021, 2020 and 2019, we wrote down inventories of $6.1 million, $3.4 million, and $2.5 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 likely, 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, accounting principles generally accepted in the United States of America suggest that we review our recent cumulative income/loss as well as determine our ability to generate sufficient future taxable income to realize our net deferred tax assets. As of December 31, 2021, we maintained full valuation allowances on our U.S. federal and state deferred tax assets in the amount of $30.9 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:

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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 year 2021, contained 53 weeks.  Fiscal years 2020, and 2019, each contained 52 weeks.

A discussion regarding our financial condition and results of operations for fiscal 2021, compared to fiscal 2020, 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.

A discussion regarding our financial condition and results of operations for fiscal 2020, compared to fiscal 2019, can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 25, 2020, filed with the SEC on February 23, 2021, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at ww.uct.com/investors.

Discussion of Results of Operations

Revenues

Total Products revenue increased $672.7 million in fiscal year 2021 over fiscal year 2020, primarily due to an increase in customer demand in the semiconductor industry, in particular, the wafer fabrication equipment industry and in part to the inclusion of Ham-Let which contributed $187.5 million of revenues for fiscal year 2021.

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Total Services revenue increased $30.3 million in fiscal year 2021 over fiscal year 2020, primarily due to increases in demand across our entire customer base.

On a geographic basis, revenue represents products shipped from or services performed in our U.S. and international locations. Both U.S. and foreign revenues increased in absolute terms and as a percentage of total revenue in fiscal 2021 over fiscal 2020, due to an overall global increase in semiconductor and general industry demand.

Cost of Revenues

Total cost of revenues increased $564.8 million in fiscal year 2021 over fiscal year 2020, due to higher demand for both Products and Services.

Cost of products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of products revenues increased $544.0 million for fiscal 2021 compared to fiscal 2020, due to the inclusion of Ham-Let and higher volume of sales driving increased material costs of $427.0 million including $10.1 million of materials costs resulting from the step-up in value of Ham-Let’s inventories. Also contributing to the increase in cost of products revenues, were higher direct labor spending of $272.2 million and higher overhead costs of $44.8 million including $2.0 million of intangible amortization resulting from the acquisition of Ham-Let.

Cost of services revenues consists of direct labor, manufacturing overhead and materials (such as chemicals, gases and consumables). Cost of services revenues increased $20.8 million in fiscal 2021 compared to the prior year driven by higher volumes of service orders, resulting in an increase in labor costs of $7.1 million the largest component of total cost of services revenues, higher material costs of $4.7 million and higher overhead costs of $9.0 million driven by higher service orders.

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Gross Margin

Products gross margin increased in fiscal year 2021 over fiscal year 2020, due primarily to higher volume, and the favorable mix of higher margin products. Services gross margin increased in fiscal year 2021, over fiscal year 2020, due to direct labor efficiencies along with lower facility-related costs.

Research and Development

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 $9.7 million in fiscal year 2021 compared to fiscal year 2020, primarily due to the inclusion of Ham-Let’s research and development activities and an increase in personnel-related expenses associated with an overall increase in headcount.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and commissions paid to our sales employees, salaries paid to our engineers who work 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 $23.1 million in fiscal year 2021 over fiscal year 2020, primarily due to the inclusion of Ham-Let’s sales and marketing activities and an increase in personnel-related costs driven by higher headcount and bonuses.

General and Administrative

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General and administrative expenses increased $41.1 million in fiscal year 2021 over fiscal year 2020, due to the inclusion of Ham-Let’s general and administrative activities and higher personnel-related expenses driven by higher headcount.

Interest and Other Income (Expense), net

Interest expense increased $7.3 million in fiscal year 2021 over fiscal year 2020 due to a higher debt balance resulting from the acquisition of Ham-Let, partially offset by lower interest rates resulting from lower LIBOR rates.

Other income (expense), net, increased $1.9 million in fiscal year 2021 over fiscal year 2020 primarily due to an increase of $12.1 million in the fair value of forward hedge contracts related to the non-U.S. Dollar-denominated acquisition price of Ham-Let and a $3.6 million increase in foreign exchange losses. These increases were offset by insurance proceeds of $7.3 million received for the reimbursement of our losses in the Cinos Korea fire and by the absence of $6.5 million loss from the change in fair value of the Cinos Korea common stock purchase obligation in fiscal 2021.

Provision for Income Taxes

The change in respective tax rates reflects, primarily, changes in the geographic distribution of our worldwide earnings. For fiscal year 2021, our effective tax rate was lower than the federal statutory rate of 21% primarily due to favorable effects of the geographic distribution of our worldwide earnings in foreign jurisdictions with lower effective tax rates.

For the year ended December 31, 2021, 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 deferred tax assets acquired as part of the QGT and Ham-Let acquisitions required a valuation allowance. As of December 31, 2021, the total U.S. and foreign valuation allowances for deferred tax assets were $27.5 million and $3.4 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 foreign earnings from one of its subsidiaries in Singapore in 2021. The Company has no plans to remit foreign earnings other than possibly from a particular Singapore subsidiary. 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

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The following table summarizes our cash and cash equivalents:

The increase in cash and cash equivalents in fiscal year 2021, compared to fiscal year 2020, was primarily due to the cash provided by operating activities of $211.6 million and financing activities of $460.8 million primarily offset by the $404.8 million used in investing activities related to the Ham-Let acquisition.

Cash Flows

Our primary cash inflows and outflows were as follows:

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 31, 2021, we had cash and cash equivalents of $466.5 million compared to $200.3 million as of December 25, 2020. 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 31, 2021.

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Our subsidiary Ham-Let, has an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a none recourse basis.   For the nine months ended December 31, 2021, Ham-Let factored $30.6 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 remitted in the future to one of our foreign subsidiaries outside of mainland China and, accordingly, we provided for the related withholding taxes in our Consolidated Financial Statements. As of December 31, 2021, we had undistributed earnings of approximately $449.3 million from our foreign subsidiaries that are indefinitely invested outside of the U.S. As of December 31, 2021, we have cash of approximately $351.1 million in our foreign subsidiaries.

Borrowing Arrangements

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 and used the proceeds, together with cash on hand, to finance the acquisition of QGT.

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 Facility.

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 thereof as of March 31, 2021, with the remaining principal paid upon maturity. Under the Credit Facility, 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

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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. As of March 31, 2021, the applicable margin with respect to the Term Loan facility was 3.75%. Pursuant to the Second Amendment to the Credit Agreement, the Credit Facility contains customary LIBOR replacement provisions in the event LIBOR is discontinued. At December 31, 2021, the Company had an outstanding amount under the Term Loan of $555.1 million, gross of unamortized debt issuance costs of $13.4 million. As of December 31, 2021, the interest rate on the outstanding Term Loan was 3.9%.

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 31, 2021.

In 2020, Cinos China amended its existing Credit Agreement and entered into two additional Credit Agreements with a local bank that provide a term loan of $1.9 million with maturity date through September 23, 2022 and interest rates of 4.1%. As of December 31, 2021, Cinos China had $1.4 million outstanding amount of under this credit facility.

Ham-Let has credit facilities and loan agreements with various financial institutions. As of December 31, 2021, Ham-Let had $8.9 million of outstanding debt with interest rate of 1.0%

The Revolving Credit Facility has an initial available commitment of $65.0 million and a maturity date of August 27, 2023. The Company pays a quarterly commitment fee in arrears equal to 0.25% of the average daily available commitment outstanding. As of December 31, 2021, the Company had no outstanding amount under this revolving credit facility.

The Letter of Credit Facility has an initial available commitment of $50.0 million and a maturity date of August 27, 2023. The Company pays quarterly in arrears a fee 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 31, 2021, the Company had $2.4 million of outstanding letters of credit with beneficiaries such as landlords of certain facility leases, insurance providers and government agencies making up the majority of the outstanding balance. The remaining available commitments are $47.6 million on the Letter of Credit Facility.

In 2020, Cinos China amended its existing Credit Agreement and entered into two additional Credit Agreements with a local bank that provide Revolving Credit Facilities for a total available commitment of $1.0 million with various maturity dates through September 23, 2022 and interest rates of 2.0%. As of December 31, 2021, Cinos China had no outstanding amount of under this credit facility.

Cinos Korea has Credit Agreements with various banks that provide Revolving Credit Facilities for a total available commitment of 600.0 million Korean Won (approximately $0.5 million) with annual renewals beginning from June 2022 and interest rate of 2.9%.  During the fiscal year ended December 31, 2021, borrowings under these Revolving Facilities were insignificant and no amounts were outstanding as of December 31, 2021.

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 6.0 million euros (approximately $6.8 million). As of December 31, 2021, the Company had no outstanding amount under this revolving credit facility.

As of December 31, 2021, the Company’s total bank debt was $552.0 million, net of unamortized debt issuance costs of $13.4 million. As of December 31, 2021, we had $112.6 million, $6.8 million, $0.5 million and $1.0 million available to draw from our revolving credit facilities in the U.S., Czech Republic, South Korea and China, respectively.

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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.

Capital Expenditures

Capital expenditures were $69.5 million for the year ended December 31, 2021, primarily attributable to the expansion of our South Korea, Singapore, Czech Republic and certain U.S. facilities and our ERP system.

Contractual Obligations

The Company had commitments to various third parties to purchase inventories totaling approximately $562.5 million on December 31, 2021.

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 31, 2021, we have not incurred any 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.