Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
¨
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: 001-32598
 _______________________________________
 Entegris, Inc.
(Exact name of registrant as specified in its charter)
 _______________________________________
Delaware
 
41-1941551
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
129 Concord Road, Billerica, Massachusetts
 
01821
(Address of principal executive offices)
 
(Zip Code)
(978) 436-6500
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
 _______________________________________
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.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No  ¨
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. (Check one):
Large accelerated filer
 
ý
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if 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 ¨ No ý


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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at April 23, 2018
Common Stock, $0.01 par value per share
 
141,739,172 shares
 


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ENTEGRIS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2018
 
Description
Page
 
 
 
 
 
 
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Cautionary Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements may include statements about future period guidance or projections; our performance relative to our markets; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of our engineering, research and development projects; our ability to execute on our business strategies; our capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the effect of the Tax Cuts and Jobs Act; future capital and other expenditures; the Company’s expected tax rate; the impact of accounting pronouncements; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Quarterly Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for our products and solutions; our ability to meet rapid demand shifts; our ability to continue technological innovation and introduce new products to meet our customers' rapidly changing requirements; our concentrated customer base; our dependence on sole source and limited source suppliers; raw material shortages and price increases; our ability to identify, effect and integrate acquisitions, joint ventures or other transactions; our ability to protect and enforce intellectual property rights; operational, political and legal risks of our international operations; the level of, and obligations associated with, our indebtedness; and other risk factors and additional information described in our filings with the Securities and Exchange Commission, including under the heading “Risks Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed on February 15, 2018, and in our other periodic filings. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we undertake no obligation to update publicly any forward-looking statements contained herein.

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PART 1.
FINANCIAL INFORMATION
Item 1. Financial Statements
ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
(In thousands, except share and per share data)
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
550,236

 
$
625,408

Trade accounts and notes receivable, net of allowance for doubtful accounts of $917 and $860
195,284

 
183,434

Inventories
214,145

 
198,089

Deferred tax charges and refundable income taxes
17,373

 
18,012

Other current assets
34,012

 
32,665

Total current assets
1,011,050

 
1,057,608

Property, plant and equipment, net of accumulated depreciation of $443,614 and $427,766
364,301

 
359,523

Other assets:
 
 
 
Goodwill
375,340

 
359,688

Intangible assets, net of accumulated amortization of $293,265 and $281,439
190,814

 
182,430

Deferred tax assets and other noncurrent tax assets
10,186

 
9,103

Other
9,639

 
7,820

Total assets
$
1,961,330

 
$
1,976,172

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Long-term debt, current maturities
$
100,000

 
$
100,000

Accounts payable
68,406

 
68,762

Accrued payroll and related benefits
30,107

 
64,860

Other accrued liabilities
39,959

 
34,514

Income taxes payable
27,996

 
22,835

Total current liabilities
266,468

 
290,971

Long-term debt, excluding current maturities, net of unamortized discount and debt issuance costs of $9,029 and $9,470
549,821

 
574,380

Pension benefit obligations and other liabilities
33,778

 
32,130

Deferred tax liabilities and other noncurrent tax liabilities
86,869

 
85,673

Commitments and contingent liabilities

 

Equity:
 
 
 
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2018 and December 31, 2017

 

Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of March 31, 2018 and December 31, 2017: 141,802,172 and 141,282,539
1,418

 
1,413

Additional paid-in capital
856,373

 
867,699

Retained earnings
186,276

 
147,418

Accumulated other comprehensive loss
(19,673
)
 
(23,512
)
Total equity
1,024,394

 
993,018

Total liabilities and equity
$
1,961,330

 
$
1,976,172

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended
(In thousands, except per share data)
March 31, 2018
 
April 1, 2017
Net sales
$
367,199

 
$
317,377

Cost of sales
191,202

 
177,781

Gross profit
175,997

 
139,596

Selling, general and administrative expenses
58,269

 
50,492

Engineering, research and development expenses
27,586

 
27,239

Amortization of intangible assets
11,669

 
10,945

Operating income
78,473

 
50,920

Interest expense
8,159

 
8,473

Interest income
(933
)
 
(80
)
Other expense, net
139

 
902

Income before income tax expense
71,108

 
41,625

Income tax expense
13,546

 
9,111

Net income
$
57,562

 
$
32,514

 
 
 
 
Basic net income per common share
$
0.41

 
$
0.23

Diluted net income per common share
$
0.40

 
$
0.23

Weighted shares outstanding:
 
 
 
Basic
141,581

 
141,501

Diluted
143,652

 
143,315

See the accompanying notes to condensed consolidated financial statements.


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ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Net income
$
57,562

 
$
32,514

Other comprehensive income, net of tax
 
 
 
Foreign currency translation adjustments
3,835

 
16,123

Pension liability adjustments
4

 
(11
)
Other comprehensive income
3,839

 
16,112

Comprehensive income
$
61,401

 
$
48,626

See the accompanying notes to condensed consolidated financial statements.


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ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Operating activities:
 
 
 
Net income
$
57,562

 
$
32,514

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
15,897

 
13,977

Amortization
11,669

 
10,945

Share-based compensation expense
4,128

 
3,870

Provision for deferred income taxes
(721
)
 
3,422

Other
1,503

 
3,633

Changes in operating assets and liabilities:
 
 
 
Trade accounts and notes receivable
(6,011
)
 
(7,546
)
Inventories
(14,955
)
 
(5,415
)
Accounts payable and accrued liabilities
(33,985
)
 
(23,490
)
Other current assets
(682
)
 
5,061

Income taxes payable and refundable income taxes
6,692

 
(1,252
)
Other
(2,280
)
 
(2,287
)
Net cash provided by operating activities
38,817

 
33,432

Investing activities:
 
 
 
Acquisition of property, plant and equipment
(21,047
)
 
(22,190
)
Acquisition of business
(37,656
)
 

Other
146

 
186

Net cash used in investing activities
(58,557
)
 
(22,004
)
Financing activities:
 
 
 
Payments of long-term debt
(25,000
)
 
(25,000
)
Payments for dividends
(9,883
)
 

Issuance of common stock
473

 
1,041

Repurchase and retirement of common stock
(10,000
)
 
(4,000
)
Taxes paid related to net share settlement of equity awards
(14,123
)
 
(4,575
)
Other
(246
)
 
(270
)
Net cash used in financing activities
(58,779
)
 
(32,804
)
Effect of exchange rate changes on cash and cash equivalents
3,347

 
6,146

Decrease in cash and cash equivalents
(75,172
)
 
(15,230
)
Cash and cash equivalents at beginning of period
625,408

 
406,389

Cash and cash equivalents at end of period
$
550,236

 
$
391,159

Supplemental Cash Flow Information
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Schedule of interest and income taxes paid:
 
 
 
Interest paid
$
8,000

 
$
2,029

Income taxes paid, net of refunds received
$
8,031

 
$
7,132


See the accompanying notes to condensed consolidated financial statements.


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ENTEGRIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations Entegris, Inc. (“Entegris”, “the Company”, “us”, “we”, or “our”) is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries.
Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, particularly receivables, inventories, property, plant and equipment, goodwill, intangibles, accrued expenses, and income taxes and related accounts, and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and contain all adjustments considered necessary, and are of a normal recurring nature, to present fairly the financial position as of March 31, 2018 and December 31, 2017, and the results of operations, comprehensive income and cash flows for the three months ended March 31, 2018 and April 1, 2017.
The condensed consolidated financial statements and accompanying notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company’s annual consolidated financial statements and notes. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2017. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.

Fair Value of Financial Instruments The carrying value of cash equivalents, accounts receivable, accounts payable, accrued payroll and related benefits, and other accrued liabilities approximates fair value due to the short maturity of those items. The fair value of long-term debt, including current maturities, was $637.3 million at March 31, 2018, compared to the carrying amount of long-term debt, including current maturities, of $649.8 million.

Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
Recent Accounting Pronouncements Adopted in 2018 In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers. ASU No. 2014-09 supersedes previous revenue recognition requirements and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted the provisions of ASU No. 2014-09 as of January 1, 2018 using the modified retrospective transition method. See note 2 to the condensed consolidated financial statements for further details.
Recent Accounting Pronouncements Yet to be Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU No. 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU No. 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases, and amortization and

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interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU No. 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU No. 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. ASU No. 2016-02 is effective beginning January 1, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and disclosures, and the timing of adoption.
2. REVENUES
Adoption of ASC ASU No. 2014-09, Revenue from Contracts with Customers On January 1, 2018, the Company adopted ASU No. 2014-09 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the provisions of ASU No. 2014-09, while prior period amounts are not adjusted and continue to be reported in accordance with previous accounting guidance.
The Company adopted ASU No. 2014-09 with a date of initial application of January 1, 2018. As a result, the Company changed its accounting policy for revenue recognition for two items as detailed below. The first change concerns transactions where the Company offers customers incentives in the form of free products. The new revenue standard requires that a portion of the transaction price be allocated to the free product and deferred until the product has been delivered. The Company previously accrued for undelivered free product as a charge to cost of goods sold. The second change concerns revenue recognition involving certain shipping terms that included freight and export costs. Under the new revenue standard, the Company recognizes revenue at the point at which products are delivered to a particular port or loaded onto a vessel and control has transferred, whereas prior to the date of initial application of ASU No. 2014-09, revenue recognition was previously deferred for those sales until they reached their destination.

The Company adopted ASU No. 2014-09 using the modified retrospective method, recognizing the cumulative effect of application as an adjustment to the opening balance of equity at January 1, 2018. Therefore, prior year information has not been adjusted and continues to be reported under previous applicable guidance. The details of the impact of the changes made to the Company's balance sheet date as of January 1, 2018 are reflected in the following table.
        
(In thousands)
Increase (decrease)

Trade accounts and note receivable
$765
Inventory
(223)
Other accrued liabilities
1,276
Deferred tax liabilities and other noncurrent tax liabilities

(144)
Retained earnings
(590)

Based on an analysis of the financial statement line items affected in the quarter ended March 31, 2018 in the application of ASU No. 2014-09 as compared with previous reporting, the Company has determined that the quantitative changes to each financial statement line item are immaterial. As a result, for the quarter ended March 31, 2018, the Company is not disclosing the quantitative amount by which each financial statement line item is affected in the current reporting by the application of Topic 606 as compared with the guidance that was in effect before the change.

As part of its adoption of ASU No. 2014-09 in the first quarter of 2018, the Company elected to use the allowed practical expedient, pursuant to which it has excluded disclosures of transaction prices allocated to remaining performance obligations and when it expects to recognize such revenue for all periods prior to the date of initial application of ASU No. 2014-09.

Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
 
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.

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When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from advance payments received on sales of the Company’s products. The deferred revenue balance at quarter end is deemed immaterial and, accordingly, the Company does not make the required disclosures.

The Company does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Nature of goods and services The following is a description of principal activities from which the Company generates its revenues. The Company has three reportable segments. For more detailed information about reportable segments, see note 9 to the condensed consolidated financial statements. For each of the three reportable segments, the recognition of revenue regarding the nature of goods and services provided by the segments are similar and described below. The Company recognizes revenue product sales at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment, or delivery depending on the terms of the underlying contracts. For product sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.

The Company generally recognizes revenue for sales of services over time at which the Company has satisfied the performance obligation.

The Company also enters into arrangements to license its intellectual property. These arrangements typically permit the customer to use a specialized manufacturing process and in return the Company receives a royalty fee. If applicable, the Company recognizes revenue when the subsequent sale or usage occurs.

The Company offers certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations. The Company periodically reviews the assumptions underlying its estimates of discounts and volume rebates and adjusts its revenues accordingly.

In addition, the Company offers free product rebates to certain customers. The Company utilizes an adjusted market approach to estimate the stand-alone selling price of the loyalty program and allocates a portion of the consideration received to the free product offering. The free product offering is redeemable upon future purchases of the Company’s products. The amount associated with free product rebates is deferred in the balance sheet and is recognized as revenue when the free product is redeemed or when the likelihood of redemption is remote. The Company deems the amount immaterial for disclosure. The Company applies the practical expedient in ASU No. 2014-09 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

The Company provides for the estimated costs of fulfilling our obligations under product warranties at the time the related revenue is recognized. The Company estimates the costs based on historical failure rates, projected repair costs, and knowledge of specific product failures (if any). The specific warranty terms and conditions vary depending upon the product sold and the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days to one year. The Company regularly reevaluates its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.

The Company’s contracts are generally short-term in nature. Most contracts do not exceed twelve months. Payment terms vary by the type and location of the Company’s customers and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
3. ACQUISITION
On January 22, 2018, the Company acquired Particle Sizing Systems, LLC(PSS), which provides particle sizing instrumentation for liquid applications to the semiconductor and life science industries. The acquired assets and assumed liabilities became part of the Company’s Advanced Materials Handling (AMH) segment. The transaction was accounted for

9


under the acquisition method of accounting and the results of operations of PSS are included in the Company's consolidated financial statements since January 22, 2018. The acquisition does not constitute a material business combination.

The purchase price for PSS was cash consideration of $37.7 million, subject to revision for customary working capital adjustments, funded from the Company's existing cash on hand. Costs associated with the acquisition of the product line were not significant and were expensed as incurred.

The purchase price of PSS exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $15.4 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.

The following table summarizes the preliminary allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of acquisition:
(In thousands):
Amount
Accounts receivable
$
3,616

Inventory
1,889

Other current assets
14

Other assets
21

Identifiable intangible assets
20,000

Accounts payables
(438
)
Accrued expenses
(2,799
)
       Net assets acquired
22,303

Goodwill
15,353

Total purchase price
$
37,656


As of March 31, 2018, the Company has not finalized its fair value determinations of the assets acquired and liabilities assumed. The preliminary valuation of the assets acquired and liabilities assumed was based on the information that was available as of the acquisition date, and the expectations and assumptions that have been deemed reasonable by the Company's management. The valuation of the acquired assets and liabilities assumed is currently being reviewed, with the expectation of completion in the second quarter.

Intangible assets, consisting mostly of technology-related intellectual property, generally will be amortized on a straight-line basis over an expected useful life currently estimated at approximately 6.8 years. In performing the valuation of intangible assets, the Company used independent appraisals, discounted cash flows and other other factors, as the best evidence of fair value. The key underlying assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. There are inherent uncertainties and management judgment required in these determinations. No assurance can be given that the underlying assumptions will occur as projected. The fair value measurement of the assets acquired and liabilities assumed were based on valuation involving significant unobservable inputs, or Level 3 in the fair value hierarchy.
4. INVENTORIES
Inventories consist of the following:
 
(In thousands)
March 31, 2018
 
December 31, 2017
Raw materials
$
62,429

 
$
58,226

Work-in process
20,717

 
16,193

Finished goods
130,999

 
123,670

Total inventories
$
214,145

 
$
198,089


5. GOODWILL AND INTANGIBLE ASSETS


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Goodwill activity for each period was as follows:
(In thousands)
Specialty Chemicals and Engineered Materials
 
Micro-contamination Control
 
Advanced Materials Handling
 
Total
December 31, 2017
$
304,270

 
8,007

 
$
47,411

 
$
359,688

Addition due to acquisition

 

 
15,353

 
15,353

Foreign currency translation
299

 

 

 
299

March 31, 2018
$
304,569

 
$
8,007

 
$
62,764

 
$
375,340


Identifiable intangible assets at March 31, 2018 and December 31, 2017 consist of the following:
March 31, 2018
(In thousands)
Gross  carrying
Amount
 
Accumulated
amortization
 
Net  carrying
value
Developed technology
$
223,237

 
$
155,782

 
$
67,455

Trademarks and trade names
18,816

 
13,947

 
4,869

Customer relationships
221,993

 
115,051

 
106,942

Other
20,033

 
8,485

 
11,548

 
$
484,079

 
$
293,265

 
$
190,814

December 31, 2017
(In thousands)
Gross  carrying
amount
 
Accumulated
amortization
 
Net  carrying
value
Developed technology
$
206,224

 
$
149,215

 
$
57,009

Trademarks and trade names
16,807

 
13,712

 
3,095

Customer relationships
220,806

 
110,281

 
110,525

Other
20,032

 
8,231

 
11,801

 
$
463,869

 
$
281,439

 
$
182,430

Future amortization expense for each of the five succeeding years and thereafter relating to intangible assets currently recorded in the Company's consolidated balance sheets is estimated at March 31, 2018 to be the following:
 
 
Fiscal year ending December 31
(In thousands)
2018
$
35,712

2019
44,760

2020
30,251

2021
23,589

2022
23,444

Thereafter
33,058

 
$
190,814






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6. INCOME TAX

Income tax expense differs from the expected amounts based on the statutory federal tax rates for the three months ended March 31, 2018 and April 1, 2017 as follows:
 
Three months ended
(In thousands)
March 31, 2018

 
April 1, 2017
Expected federal income tax expense at statutory rate
$
14,933

 
$
14,569

State income taxes before valuation allowance, net of federal tax effect
495

 
50

Effect of foreign source income
1,797

 
(3,372
)
Tax contingencies
768

 
129

Valuation allowance
641

 
481

U.S. federal research credit
(900
)
 
(599
)
Equity compensation
(5,564
)
 
(2,295
)
Global intangible low tax income
1,114

 

Other items, net
262

 
148

Income tax expense
$
13,546

 
$
9,111


The Company’s year-to-date effective tax rate was 19.0% in 2018, compared to an effective tax rate of 21.9% during the same period in 2017. This variance reflects the benefit from the reduction in the corporate tax rate from 35% to 21% which was offset by the global intangible low tax income inclusion and various discrete items. The effective tax rate in 2017 reflects a greater concentration in the Company's geographic composition of income toward jurisdictions with lower tax rates.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the "Tax Cuts and Jobs Act") which makes broad and complex changes to the U.S. tax code. The Company calculated its best estimate of the impact of the Tax Cuts and Jobs Act in its 2017 year-end income tax provision in accordance with its understanding of the Tax Cuts and Jobs Act and guidance available as of the date of the filing. During the fourth quarter of fiscal 2017, the Company recorded a provisional net charge using reasonable estimates based on analysis and information available to date for the tax effects related to the remeasurement of deferred taxes, the deemed repatriation transition tax, accelerated depreciation, and the deductibility of certain executive compensation. This provisional net charge is subject to revisions as the Company completes its analysis of the Tax Cuts and Jobs Act, collects and prepares necessary data, and interprets any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service, Financial Accounting Standards Board, and other standard setting and regulatory bodies. Adjustments may materially impact the provision for income taxes and effective tax rate in the period in which the adjustments are made. As of March 31, 2018, the Company has not finalized its accounting for the tax effects of these items. The Company expects to complete its analysis of these provisional items when the necessary information becomes available to accurately analyze and compute in reasonable detail under ASC Topic 740. The Company estimates such analysis will be completed in the second half of 2018.
The Tax Cuts and Jobs Act also has provisions that impact the Company’s 2018 results, most notably a reduction in the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The U.S. tax law changes also (1) repeals the deduction for domestic production activities, (2) establishes a global intangible low tax income (GILTI) regime, (3) creates a base erosion anti-avoidance tax (BEAT), (4) establishes new limitations on deductible interest expense and certain executive compensation, (5) eliminates the corporate alternative minimum tax, (6) generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries and (7) changes the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
Global Intangible Low Taxed Income
The U.S. tax law changes created new rules that allow the Company to make an accounting policy election to treat taxes due on GILTI inclusions in taxable income as either a current period expense or reflect such inclusions related to temporary basis differences in the Company’s measurement of deferred taxes. The Company has elected to treat the GILTI inclusion as a current period expense. The Company recorded tax expense of $1.1 million related to GILTI in the quarter ended March 31, 2018.

12


7. EARNINGS PER COMMON SHARE
The following table presents a reconciliation of the denominators used in the computation of basic and diluted earnings per common share (EPS): 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Basic—weighted common shares outstanding
141,581

 
141,501

Weighted common shares assumed upon exercise of stock options and vesting of restricted common stock
2,071

 
1,814

Diluted—weighted common shares and common shares equivalent outstanding
143,652

 
143,315

The Company excluded the following shares underlying stock-based awards from the calculations of diluted EPS because their inclusion would have been anti-dilutive for the three months ended March 31, 2018 and April 1, 2017:
 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Shares excluded from calculations of diluted EPS
159

 
504

8. FAIR VALUE
Financial Assets Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets that are measured at fair value on a recurring basis at March 31, 2018 and December 31, 2017. Level 1 inputs are based on quoted prices in active markets accessible at the reporting date for identical assets and liabilities. Level 2 inputs are based on quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in a market. Level 3 inputs are based on prices or valuations that require inputs that are significant to the valuation and are unobservable.
 
March 31, 2018
 
December 31, 2017
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts(a)
$

 
$

 
$

 
$

 
$

 
$
36

 
$

 
$
36

Total assets measured and recorded at fair value
$

 
$

 
$

 
$

 
$

 
$
36

 
$

 
$
36

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other accrued liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts(a)
$

 
$
1,914

 
$

 
$
1,914

 
$

 
$

 
$

 
$

Total liabilities measured and recorded at fair value
$

 
$
1,914

 
$

 
$
1,914

 
$

 
$

 
$

 
$


(a)
Based on observable market transactions of spot currency rates and forward currency rates on equivalently-termed instruments.

A reconciliation of the net fair value of foreign currency contract assets and liabilities subject to master netting arrangements that are recorded in the March 31, 2018 and December 31, 2017 condensed consolidated balance sheets to the net fair value that could have been reported in the respective condensed consolidated balance sheets is as follows:

13

Table of Contents

 
March 31, 2018
 
December 31, 2017
(In thousands)
Gross
amounts
of
recognized
liabilities
 
Gross
amounts
offset in the
condensed
consolidated
balance
sheet
 
Net amount of
liabilities in the
condensed
consolidated
balance sheet
 
Gross
amounts
of
recognized
assets
 
Gross
amounts
offset in the
condensed
consolidated
balance
sheet
 
Net amount of
assets in the
condensed
consolidated
balance sheet
Foreign currency contracts
$
1,914

 
$

 
$
1,914

 
$
36

 
$

 
$
36


Losses associated with derivatives are recorded in other expense, net, in the condensed consolidated statements of operations. Losses associated with derivative instruments not designated as hedging instruments were as follows:
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Losses on foreign currency contracts
$
(1,914
)
 
$
(2,297
)
9. SEGMENT REPORTING
The Company's financial segment reporting reflects an organizational alignment intended to leverage the Company's unique portfolio of capabilities to create value for its customers by developing mission-critical solutions to maximize manufacturing yields and enable higher performance of devices. While these segments have separate products and technical know-how, they share a global generalist sales force, common business systems and processes, technology centers, and strategic and technology roadmaps. The Company leverages its expertise from these three segments to create new and increasingly integrated solutions for its customers. The Company's business is reported in the following segments:
Specialty Chemicals and Engineered Materials (SCEM): SCEM provides high-performance and high-purity process chemistries, gases, and materials and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes.
Microcontamination Control (MC): MC solutions purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.
Advanced Materials Handling (AMH): AMH develops solutions to monitor, protect, transport, and deliver critical liquid chemistries and substrates for a broad set of applications in the semiconductor industry and other high-technology industries.
Inter-segment sales are not significant. In the first quarter of 2018, the Company has changed its definition of segment profit. Segment profit is now defined as net sales less direct and indirect segment operating expenses, including certain general and administrative costs for the Company’s human resources, finance and information technology functions previously unallocated by the Company. The remaining unallocated expenses consist mainly the Company's corporate functions as well as interest expense, amortization of intangible assets and income tax expense. Prior quarter information was recast to reflect the change in the Company's definition of segment profit.
Summarized financial information for the Company’s reportable segments is shown in the following tables.

14


 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Net sales
 
 
 
SCEM
$
130,743

 
$
114,435

MC
118,637

 
100,055

AMH
117,819

 
102,887

Total net sales
$
367,199

 
$
317,377

 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Segment profit
 
 
 
SCEM
$
31,562

 
$
23,128

MC
41,991

 
30,987

AMH
23,142

 
13,960

Total segment profit
$
96,695

 
$
68,075

The following table reconciles total segment profit to income before income taxes:
 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Total segment profit
$
96,695

 
$
68,075

Less:
 
 
 
Amortization of intangible assets
11,669

 
10,945

Unallocated general and administrative expenses
6,553

 
6,210

Operating income
78,473

 
50,920

Interest expense
8,159

 
8,473

Interest income
(933
)
 
(80
)
Other expense, net
139

 
902

Income before income tax expense
$
71,108

 
$
41,625

In the following tables, revenue is disaggregated by country or region for the three months ended March 31, 2018 and April 1, 2017.
(In thousands)
Three months ended March 31, 2018
 
SCEM
 
MC
 
AMH
 
Total
Taiwan
$
27,642

 
$
22,532

 
$
14,917

 
$
65,091

United States
32,401

 
20,775

 
33,089

 
86,265

South Korea
20,327

 
19,823

 
22,588

 
62,738

Japan
14,506

 
25,992

 
11,032

 
51,530

China
14,980

 
13,304

 
12,211

 
40,495

Europe
7,796

 
9,684

 
15,407

 
32,887

Southeast Asia
13,091

 
6,527

 
8,575

 
28,193

 
$
130,743

 
$
118,637

 
$
117,819

 
$
367,199



15


(In thousands)
Three months ended April 1, 2017
 
SCEM
 
MC
 
AMH
 
Total
Taiwan
$
27,447

 
$
32,194

 
$
18,491

 
$
78,132

United States
28,618

 
15,270

 
21,901

 
65,789

South Korea
17,781

 
13,344

 
16,198

 
47,323

Japan
7,992

 
18,132

 
9,320

 
35,444

China
13,419

 
8,169

 
7,597

 
29,185

Europe
8,012

 
7,373

 
15,562

 
30,947

Southeast Asia
11,166

 
5,573

 
13,818

 
30,557

 
$
114,435

 
$
100,055

 
$
102,887

 
$
317,377


16




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s condensed consolidated financial condition and results of operations should be read along with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The information, except for historical information, contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. These forward-looking statements could differ materially from actual results. You should review the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The Company assumes no obligation to publicly release the results of any revision or updates to these forward-looking statements to reflect future events or unanticipated occurrences.

Overview
This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of the Company's financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.
The Company is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries. Our mission is to leverage our unique breadth of capabilities to create value for our customers by developing mission-critical solutions to maximize manufacturing yields, reduce manufacturing costs and enable higher device performance.
Our technology portfolio includes approximately 20,000 standard and customized products and solutions to achieve the highest levels of purity and performance that are essential to the manufacture of semiconductors, flat panel displays, light emitting diodes, or LEDs, high-purity chemicals, solar cells, gas lasers, optical and magnetic storage devices, and critical components for aerospace, glass manufacturing and biomedical applications. The majority of our products are consumed at various times throughout the manufacturing process, with demand driven in part by the level of semiconductor and other manufacturing activity. The Company’s customers consist primarily of semiconductor manufacturers, semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display (TFT-LCD) and hard disk manufacturers, which are served through direct sales efforts, as well as sales and distribution relationships, in the United States, Asia, Europe and the Middle East.
Our business is organized and operated in three operating segments which align with the key elements of the advanced semiconductor manufacturing ecosystem. The Specialty Chemicals and Engineered Materials, or SCEM, segment provides high-performance and high-purity process chemistries, gases, and materials, and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes. The Microcontamination Control, or MC, segment offers solutions to filter and purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. The Advanced Materials Handling, or AMH, segment develops solutions to monitor, protect, transport, and deliver critical liquid chemistries, wafers and other substrates for a broad set of applications in the semiconductor industry and other high-technology industries. While these segments have separate products and technical know-how, they share a global generalist sales force, common business systems and processes, technology centers, and strategic and technology roadmaps. We leverage our expertise from these three segments to create new and increasingly integrated solutions for our customers. See note 9 to the consolidated financial statements for additional information on the Company's three segments.
The Company’s fiscal year is the calendar period ending each December 31. The Company’s fiscal quarters consist of 13-week or 14-week periods that end on Saturday. The Company’s fiscal quarters in 2018 end March 31, 2018, June 30, 2018, September 29, 2018 and December 31, 2018. Unaudited information for the three months ended March 31, 2018 and April 1, 2017 and the financial position as of March 31, 2018 and December 31, 2017 are included in this Quarterly Report on Form 10-Q.
Key operating factors Key factors, which management believes have the largest impact on the overall results of operations of the Company, include:
Level of sales Since a significant portion of the Company’s product costs (except for raw materials, purchased components and direct labor) are largely fixed in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also, increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions, which are highly variable in nature. The Company’s sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing pressures and foreign currency fluctuation.

17

Table of Contents

Variable margin on sales The Company’s variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials. This is affected by a number of factors, which include the Company’s sales mix, purchase prices of raw material (especially polymers, membranes, stainless steel and purchased components), domestic and international competition, direct labor costs, and the efficiency of the Company’s production operations, among others.
Fixed cost structure The Company’s operations include a number of large fixed or semi-fixed cost components, which include salaries, indirect labor and benefits, facility costs, lease expenses, and depreciation and amortization. It is not possible to vary these costs easily in the short-term as volumes fluctuate. Accordingly, increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components, resulting in a large impact on the Company’s profitability.
Overall Summary of Financial Results

For the three months ended March 31, 2018, net sales increased 16% to $367.2 million, compared to $317.4 million for the three months ended April 1, 2017. The sales increase was due to strong across-the-board demand for the Company's products, in particular from semiconductor industry customers, reflecting both high industry fab utilization rates and increased capital spending compared to the year-ago period. Included in the quarterly sales increase were sales from acquired businesses of $4.8 million and favorable foreign currency translation effects of $6.5 million. Exclusive of those factors, the Company's sales increased 12%.

Sales were up 5% on a sequential basis over the fourth quarter of 2017, including sales from acquisitions of $3.9 million and favorable foreign currency translation effects of $3.9 million. The increase in revenue resulted from modest improvements across the Company's product lines.

Reflecting the net sales increase, the Company's gross profit for the three months ended March 31, 2018 rose to $176.0 million, up from $139.6 million for the three months ended April 1, 2017. The Company experienced a 47.9% gross margin rate for the three months ended March 31, 2018, compared to 44.0% in the comparable year-ago period. The gross margin improvement reflects the improved factory utilization associated with strong sales levels.

The Company's selling, general and administrative (SG&A) expenses increased by $7.8 million for the three months ended March 31, 2018 compared to the year-ago quarter, mainly due to higher compensation costs and professional fees.

As a result of the aforementioned factors, the Company reported net income of $57.6 million, or $0.40 per diluted share, for the quarter ended March 31, 2018, compared to net income of $32.5 million, or $0.23 per diluted share, a year ago.
On January 22, 2018, the Company acquired Particle Sizing Systems, LLC (PSS), which provides particle sizing instrumentation for liquid applications to the semiconductor and life science industries. The total purchase price of the acquisition was approximately $37.7 million in cash, subject to revision for customary working capital adjustments. The acquisition of PSS does not constitute a material business combination.
Cash and cash equivalents were $550.2 million at March 31, 2018, compared with cash and cash equivalents of $625.4 million at December 31, 2017. The Company had outstanding debt of $649.8 million at March 31, 2018, compared to $674.4 million at December 31, 2017.

Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies affected most significantly by estimates, assumptions and judgments used in the preparation of the Company’s condensed consolidated financial statements are described in Item 7 of its Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission. On an ongoing basis, the Company evaluates the critical accounting policies used to prepare its condensed consolidated financial statements, including, but not limited to, those related to impairment of long-lived assets, goodwill, income taxes and business acquisitions. There have been no material changes in these aforementioned critical accounting policies.

18

Table of Contents

Three Months Ended March 31, 2018 Compared to Three Months Ended April 1, 2017 and December 31, 2017
The following table compares operating results for the three months ended March 31, 2018 with results for the three months ended April 1, 2017 and December 31, 2017, both in dollars and as a percentage of net sales, for each caption.
 
Three months ended
(Dollars in thousands)
March 31, 2018
 
April 1, 2017
 
December 31, 2017
Net sales
$
367,199

 
100.0
 %
 
$
317,377

 
100.0
 %
 
$
350,562

 
100.0
 %
Cost of sales
191,202

 
52.1

 
177,781

 
56.0

 
186,883

 
53.3

Gross profit
175,997

 
47.9

 
139,596

 
44.0

 
163,679

 
46.7

Selling, general and administrative expenses
58,269

 
15.9

 
50,492

 
15.9

 
55,018

 
15.7

Engineering, research and development expenses
27,586

 
7.5

 
27,239

 
8.6

 
26,489

 
7.6

Amortization of intangible assets
11,669

 
3.2

 
10,945

 
3.4

 
11,020

 
3.1

Operating income
78,473

 
21.4

 
50,920

 
16.0

 
71,152

 
20.3

Interest expense
8,159

 
2.2

 
8,473

 
2.7

 
7,925

 
2.3

Interest income
(933
)
 
(0.3
)
 
(80
)
 

 
(392
)
 
(0.1
)
Other expense, net
139

 

 
902

 
0.3

 
21,696

 
6.2

Income before income taxes
71,108

 
19.4

 
41,625

 
13.1

 
41,923

 
12.0

Income tax expense
13,546

 
3.7

 
9,111

 
2.9

 
70,264

 
20.0

Net income (net loss)
$
57,562

 
15.7
 %
 
$
32,514

 
10.2
 %
 
$
(28,341
)
 
(8.1
)%

Net sales For the three months ended March 31, 2018, net sales increased by 16% to $367.2 million, compared to $317.4 million for the three months ended April 1, 2017. An analysis of the factors underlying the increase in net sales is presented in the following table:
(In thousands)
 
Net sales in the quarter ended April 1, 2017
$
317,377

Growth associated with volume and pricing
38,543

Increase associated with effect of foreign currency translation
6,525

Increase associated with acquired businesses
4,754

Net sales in the quarter ended March 31, 2018
$
367,199


The sales increase was due to strong across-the-board demand for the Company's products, in particular from semiconductor industry customers, reflecting both high industry fab utilization rates and increased capital spending compared to the year-ago period. As described below, each of the Company's segments experienced improved sales. Exclusive of sales associated with acquisitions of $4.8 million and favorable foreign currency translation effects of $6.5 million, mainly due to the strengthening of the Japanese yen and the Korean Won relative to the U.S. dollar, the Company's sales increased 12% for the quarter.

On a geographic basis, in the first quarter of 2018, total sales to Taiwan were 18%, to North America were 23%, to South Korea were 17%, to Japan were 14%, to China were 11%, to Europe were 9% and to Southeast Asia were 8% compared to prior year first quarter sales to Taiwan of 25%, to North America of 21%, to South Korea were 15%, to Japan of 11%, to China were 9% , to Europe of 10% and to Southeast Asia were 9%. Sales increased by 31%, 33%, 45%, 39% and 6% in North America, South Korea, Japan, China, and Europe, respectively, and sales decreased by 17% and 8% in Taiwan and Southeast Asia, respectively, in the first quarter of 2018 compared to the prior year's first quarter.

Sales were up 5% on a sequential basis over the fourth quarter of 2017, including favorable foreign currency translation effects of $3.9 million and sales associated with acquisitions of $3.9 million. The increase in revenue resulted from modest improvements across the Company's product lines.

Gross profit Due mainly to the sales increase, the Company's gross profit rose 26% for the three months ended March 31, 2018 to $176.0 million, compared to $139.6 million for the three months ended April 1, 2017. The Company experienced a 47.9% gross margin rate for the three months ended March 31, 2018, compared to 44.0% in the comparable year-ago period. The gross margin improvement reflects the improved factory utilization associated with strong sales levels. These factors were partly offset by price erosion for certain products in response to normal competitive pressures.


19

Table of Contents

Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses were $58.3 million for the three months ended March 31, 2018, up $7.8 million, or 15%, from the comparable three-month period a year earlier. An analysis of the factors underlying the increase in SG&A is presented in the following table:
(In thousands)
 
Selling, general and administrative expenses in the quarter ended April 1, 2017
$
50,492

Employee costs
4,901

Professional fees
1,709

Other increases, net
1,167

Selling, general and administrative expenses in the quarter ended March 31, 2018
$
58,269


Engineering, research and development expenses The Company’s engineering, research and development (ER&D) efforts focus on the support or extension of current product lines, and the development of new products and manufacturing technologies. ER&D expenses were $27.6 million in the three months ended March 31, 2018 compared to $27.2 million in the year-ago period. The increase for the quarter was mainly due to higher employee costs.

Amortization expenses Amortization of intangible assets was $11.7 million in the three months ended March 31, 2018 compared to $10.9 million for the three months ended April 1, 2017. The increase reflects the additional amortization expense associated with the liquid filtration product line acquisition completed in the second quarter of 2017 and the Particle Sizing Systems, LLC acquisition completed in the first quarter of 2018.

Interest expense Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. Interest expense was $8.2 million in the three months ended March 31, 2018, compared to $8.5 million in the three-month period ended April 1, 2017. The decrease reflects lower interest rates on outstanding borrowings offset in part by higher average debt levels.
Other expense, net Other expense, net was $0.1 million and $0.9 million in the three months ended March 31, 2018 and April 1, 2017, respectively, and consisted mainly of foreign currency transaction losses.

Income tax expense The Company recorded income tax expense of $13.5 million in the three months ended March 31, 2018, compared to income tax expense of $9.1 million in the three months ended April 1, 2017. The Company’s year-to-date effective tax rate was 19.0% in 2018, compared to 21.9% during the same period in 2017. As a result of the Tax Cuts and Jobs Act of 2017 (the Tax Cuts and Jobs Act), the tax rate in 2018 reflects the reduction of the corporate tax rate from 35% to 21% and the global intangible low taxed income inclusion. The tax rate in 2017 reflects the benefit of foreign source income being taxed at lower rates than the U.S. statutory rate. Year-to-date income tax expense in 2018 and 2017 includes discrete benefits of $5.7 million and $2.5 million, respectively, recorded in connection with share-based compensation. The tax rate in 2018 includes discrete charges of $2.6 million and $1.4 million related to Korean share repurchase withholding tax and a foreign exchange gain on undistributed earnings, respectively. Also included in income tax expense in 2017 was a discrete charge of $3.6 million to correct an error related to the tax effects of intercompany sales and the related intercompany profit.

Net income Due to the factors noted above, the Company recorded net income of $57.6 million, or $0.40 per diluted share, in the three-month period ended March 31, 2018, compared to net income of $32.5 million, or $0.23 per diluted share, in the three-month period ended April 1, 2017.

Non-GAAP Measures The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See the section "Non-GAAP Information" included below in this section for additional detail, including the definition of non-GAAP financial measures and the reconciliation of GAAP measures to the Company’s non-GAAP measures.

The Company’s non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and non-GAAP Earnings Per Share.

Adjusted EBITDA increased 40% to $106.0 million in the three-month period ended March 31, 2018, compared to $75.8 million in the three-month period ended April 1, 2017. Adjusted EBITDA, as a percent of net sales, increased to 28.9% from 23.9% in the year-ago period. These results generally reflect the same factors underlying the Company's GAAP results as described above.


20

Table of Contents

Adjusted Operating Income increased 46% to $90.1 million in the three-month period ended March 31, 2018, compared to $61.9 million in the three-month period ended April 1, 2017. Adjusted Operating Income, as a percent of net sales, increased to 24.5% from 19.5% in the year-ago period. Non-GAAP Earnings Per Share increased 68% to $0.47 in the three-month period ended March 31, 2018, compared to $0.28 in the three-month period ended April 1, 2017.

Segment Analysis
The Company reports its financial performance based on three reporting segments. The following is a discussion on the results of operations of these three business segments. See note 9 to the condensed consolidated financial statements for additional information on the Company’s three segments.

The following table presents selected net sales and segment profit data for the Company’s three reportable segments for the three months ended March 31, 2018, April 1, 2017 and December 31, 2017.
 
Three months ended
(In thousands)
March 31, 2018
April 1, 2017
December 31, 2017
Specialty Chemicals and Engineered Materials
 
 
 
Net sales
$
130,743

$
114,435

$
125,339

Segment profit
31,562

23,128

30,075

Microcontamination Control
 
 
 
Net sales
118,637

100,055

115,650

Segment profit
41,991

30,987

39,328

Advanced Materials Handling
 
 
 
Net sales
117,819

102,887

109,573

Segment profit
23,142

13,960

18,226

Specialty Chemicals and Engineered Materials (SCEM)
For the first quarter of 2018, SCEM net sales increased to $130.7 million, compared to $114.4 million in the comparable period last year. The sales increase was due to improved sales of specialty materials and specialty gas products. SCEM reported a segment profit of $31.6 million in the first quarter of 2018, up 36% from $23.1 million in the year-ago period. The segment profit improvement was primarily due to higher gross profit related to the increased sales, partially offset with a 8% increase in operating expenses.

Microcontamination Control (MC)
For the first quarter of 2018, MC net sales increased to $118.6 million, compared to $100.1 million in the comparable period last year. The sales increase was due to strength in liquid chemistry filters for wet, etch, and clean, gas microcontamination and bulk photo applications, and gas filter products. MC reported a segment profit of $42.0 million in the first quarter of 2018, up 36% from $31.0 million in the year-ago period. The segment profit improvement was primarily due to higher gross profit related to the increased sales, partially offset by a 15% increase in operating expenses.
Advanced Materials Handling (AMH)
For the first quarter of 2018, AMH net sales increased to $117.8 million, compared to $102.9 million in the comparable period last year. The sales increase was due to improved sales of liquid packaging and dispense products and fluid handling products, as well as PSS sales of $3.9 million. AMH reported a segment profit of $23.1 million in the first quarter of 2018, up 66% from $14.0 million in the year-ago period. The segment profit improvement was primarily due to higher gross profit related to the increased sales, partially offset by a 11% increase in operating expenses.

Unallocated general and administrative expenses
Unallocated general and administrative expenses totaled $6.6 million in the first quarter of 2018, compared to $6.2 million in the first quarter of 2017. The $0.3 million increase mainly reflects the increased employee costs referenced in the discussion of SG&A expenses above.


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Liquidity and Capital Resources
Operating activities Cash flows provided by operating activities totaled $38.8 million in the three months ended March 31, 2018. Operating cash flows reflecting net income adjusted for non-cash expenses (such as depreciation, amortization and share-based compensation) was offset by changes in operating assets and liabilities of $51.2 million, mainly reflecting increases in accounts receivable and inventories, and decreases in accounts payable and accrued liabilities.
Accounts receivable increased by $11.9 million during the three months ended March 31, 2018, or $6.0 million after accounting for foreign currency translation and receivables acquired from PSS, mainly reflecting the increase in sales and the rise in the Company’s days sales outstanding (DSO). The Company’s DSO was 49 days at March 31, 2018, compared to 48 days at the beginning of the year.

Inventories increased by $16.1 million during the three months ended March 31, 2018, or $15.0 million after accounting for foreign currency translation and the provision for excess and obsolete inventory. The increase reflects higher levels of all inventory categories due to higher levels of business activity.

Accounts payable and accrued liabilities decreased $29.7 million during the three months ended March 31, 2018, or $34.0 million after accounting for foreign currency translation. The key component of the decrease was the payment of 2017 incentive compensation during the first quarter of 2018.

Working capital at March 31, 2018 was $744.6 million, compared to $766.6 million as of December 31, 2017, and included $550.2 million in cash and cash equivalents, compared to cash and cash equivalents of $625.4 million as of December 31, 2017.

Investing activities Cash flows used in investing activities totaled $58.6 million in the three-month period ended March 31, 2018. Acquisition of property, plant and equipment totaled $21.0 million, which primarily reflected investments in equipment and tooling. As of March 31, 2018, the Company expects its full-year capital expenditures in 2018 to be approximately $100 million to $120 million. As of March 31, 2018, the Company had outstanding capital purchase obligations of $35.7 million for the construction or purchase of plant and equipment not yet recorded in the Company’s condensed consolidated financial statements as the Company had not yet received the related goods or property.
On January 22, 2018, the Company acquired Particle Sizing Systems, LLC, an entity which provides particle sizing instrumentation for liquid applications to the semiconductor and life science industries. The total purchase price of the acquisition was approximately $37.7 million in cash, subject to revision for customary working capital adjustments, funded from the Company's existing cash on hand. The transaction is described in further detail in note 3 to the Company's condensed consolidated financial statements.

Financing activities Cash flows used in financing activities totaled $58.8 million during the three-month period ended March 31, 2018. This included the Company's payment of $25.0 million on its senior secured term loan described below, cash dividends paid of $9.9 million and the Company's repurchase of shares of the Company’s common stock during the first quarter of 2018 at a total cost of $10.0 million under the stock repurchase program authorized by the Company’s Board of Directors. In addition, the Company expended $14.1 million for taxes related to the net share settlement of equity awards under the Company’s stock plans, offset in part by proceeds of $0.5 million in connection with common shares issued under the Company's stock plans.

As of March 31, 2018, the Company had outstanding long-term debt, including the current portion thereof, of $649.8 million, related to debt issued by the Company, as discussed in more detail below.

On November 10, 2017, the Company issued $550 million aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026. The principal amount outstanding under the senior unsecured notes at March 31, 2018 was $550 million.

On April 30, 2014, the Company entered into a term loan facility (as amended, the Term Loan Facility) that provided senior secured financing of $460 million due April 30, 2021. Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, a base rate (such as prime rate or LIBOR) plus, an applicable margin. The Company may voluntarily prepay outstanding loans under the Term Loan Facility at any time.  The principal amount outstanding under the Term Loan Facility at March 31, 2018 was $108.9 million. Based on management's plans and intent, the Company reflects $100 million of the term loan as current maturities of long-term debt in its condensed consolidated balance sheet as of March 31, 2018.
The Company has a senior secured asset-based revolving credit facility ("ABL Facility"). The ABL Facility provides financing of $75 million, subject to a borrowing base. The ABL Facility bears interest at a rate per annum equal to at the Company's

22

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option, a base rate (prime rate or LIBOR), plus an applicable margin. On March 1, 2018, the Company amended its ABL Facility to extend the final maturity of the ABL Facility from April 30, 2019 to March 1, 2023. In addition, the Company reduced the interest rate spreads applicable to loans under the ABL Facility by 0.25%, increased the maximum secured net leverage ratio that the Company must meet to incur indebtedness and liens from 2.00:1.00 to 2.75:1.00, and increased the thresholds for judgments and cross defaults to material indebtedness from $50 million to $75 million. As of March 31, 2018, the Company had no outstanding borrowings and $0.2 million undrawn on outstanding letters of credit under the ABL facility.
Through March 31, 2018, the Company was in compliance with all applicable financial covenants included in the terms of its senior unsecured notes, Term Loan Facility and ABL Facility.
The Company also has lines of credit with two banks that provide for borrowings of Japanese yen for the Company’s Japanese subsidiary, equivalent to an aggregate of approximately $11.3 million. There were no outstanding borrowings under these lines of credit at March 31, 2018.
The Company believes that its cash and cash equivalents, funds available under its ABL Facility and international credit facilities and cash flow generated from operations will be sufficient to meet its working capital and investment requirements for at least the next twelve months. If available liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms.
At March 31, 2018, the Company’s shareholders’ equity was $1,024.4 million, up from $993.0 million at the beginning of the year. The increase mainly reflected net income of $57.6 million, an increase to additional paid-in capital of $4.1 million associated with the Company’s share-based compensation expense, proceeds of $0.5 million in connection with common shares issued under the Company's stock plans, and foreign currency translation effects of $3.8 million, mainly associated with the weakening of the U.S. dollar versus the Korean won and Japanese yen. These increases were offset partly by the repurchase of the Company’s common stock at a total cost of $10.0 million, cash dividends paid of $9.9 million and the payment of $14.1 million for taxes related to the net share settlement of equity awards under the Company’s stock plans.
As of March 31, 2018, the Company’s resources included cash and cash equivalents of $550.2 million, funds available under its $75 million ABL Facility and international credit facilities, and cash flow generated from operations. As of March 31, 2018, the amount of cash and cash equivalents held by foreign subsidiaries was $238.1 million. These amounts held by foreign subsidiaries, certain of which are associated with indefinitely reinvested foreign earnings, may be subject to U.S. income taxation on repatriation to the United States. The Company does not anticipate the need to repatriate funds associated with indefinitely reinvested foreign earnings to the United States to satisfy domestic liquidity needs arising in the ordinary course of business. The Company believes its existing balances of domestic cash and cash equivalents, available cash and cash equivalents held by foreign subsidiaries not associated with indefinitely reinvested foreign earnings and operating cash flows will be sufficient to meet the Company’s domestic cash needs arising in the ordinary course of business for the next twelve months.
Recently adopted accounting pronouncements Refer to note 1 to the Company's condensed consolidated financial statements for a discussion of accounting pronouncements recently adopted.
Recently issued accounting pronouncements Refer to note 1 to the Company's condensed consolidated financial statements for a discussion of accounting pronouncements recently issued by not yet adopted.
Non-GAAP Information The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP).

The Company also provides certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other regulations under the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. The Company provides non-GAAP financial measures of Adjusted EBITDA and Adjusted Operating Income together with related measures thereof, and non-GAAP Earnings Per Share (EPS).

Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income before (1) income tax expense, (2) interest expense, (3) interest income, (4) other expense, net, (5) amortization of intangible assets and (6) depreciation. Adjusted Operating Income, another non-GAAP term, is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes non-GAAP measures whereby Adjusted EBITDA and Adjusted Operating Income are each divided by the Company’s net sales to derive Adjusted EBITDA Margin and Adjusted Operating Margin, respectively.

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Non-GAAP EPS, a non-GAAP term, is defined by the Company as net income before (1) amortization of intangible assets, (2) the tax effect of those adjustments to net income and certain discrete items and (3) the tax effect of the Tax Cuts and Jobs Act, stated on a per share basis.
The Company provides supplemental non-GAAP financial measures to better understand its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.
Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.
Management uses Adjusted EBITDA and Adjusted Operating Income to assist it in evaluations of the Company’s operating performance by excluding items that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its business.
In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s Board of Directors uses non-GAAP financial measures in the evaluation process to determine management compensation.
The Company believes that certain analysts and investors use Adjusted EBITDA, Adjusted Operating Income and non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use Adjusted EBITDA measures to evaluate the Company’s creditworthiness.
The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.
Management notes that the use of non-GAAP measures has limitations:
First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies. For example, the Company’s non-GAAP measure of Adjusted EBITDA may not be directly comparable to EBITDA or an adjusted EBITDA measure reported by other companies.
Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, a significant recurring expense with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.
Third, there is no assurance the Company will not have future restructuring activities, translation-related costs, gains or losses on sale of equity investments, or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon. The exclusion of these items from the Company’s non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring.

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Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of Adjusted EBITDA, Adjusted Operating Income, and non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents, are presented below in the accompanying tables.

Reconciliation of GAAP Net Income to Adjusted Operating Income and Adjusted EBITDA
 
 
Three months ended
(In thousands)
March 31, 2018
 
April 1, 2017
Net sales
$
367,199

 
$
317,377

Net income
$
57,562

 
$
32,514

Adjustments to net income
 
 
 
Income tax expense
13,546

 
9,111

Interest expense
8,159

 
8,473

Interest income
(933
)
 
(80
)
Other expense, net
139

 
902

GAAP – Operating income
78,473

 
50,920

Amortization of intangible assets
11,669

 
10,945

Adjusted operating income
90,142

 
61,865

Depreciation
15,897

 
13,977

Adjusted EBITDA
$
106,039

 
$
75,842

 
 
 
 
Adjusted operating income – as a % of net sales
24.5
%
 
19.5
%
Adjusted EBITDA – as a % of net sales
28.9
%
 
23.9
%

Reconciliation of GAAP Earnings per Share to Non-GAAP Earnings per Share
 
 
Three months ended
(In thousands, except per share data)
March 31, 2018
 
April 1, 2017
Net income
$
57,562

 
$
32,514

Adjustments to net income
 
 
 
Amortization of intangible assets
11,669

 
10,945

Tax effect of adjustments to net income and certain discrete tax items1
(2,710
)
 
(2,705
)
Tax effect of Tax Cuts and Jobs Act

$
1,494

 
$

Non-GAAP net income
$
68,015

 
$
40,754

 
 
 
 
Diluted earnings per common share
$
0.40

 
$
0.23

Effect of adjustments to net income
0.07

 
0.06

Diluted non-GAAP earnings per common share
$
0.47

 
$
0.28


1The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.


25

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Entegris’ principal financial market risks are sensitivities to interest rates and foreign currency exchange rates. The Company’s interest-bearing cash equivalents and senior secured financing obligation are subject to interest rate fluctuations. The Company’s cash equivalents are instruments with maturities of three months or less. A 100 basis point change in interest rates would potentially increase or decrease annual net income by approximately $3.4 million annually.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign exchange rates. The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based operations. At March 31, 2018, the Company had no net exposure to any foreign currency forward contracts.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the 1934 Act)) as of March 31, 2018. The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on management’s evaluation (with the participation of our CEO and CFO), as of March 31, 2018, the Company's CEO and CFO have concluded that the disclosure controls and procedures used by the Company, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



26

Table of Contents

PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 2018, the Company is subject to various claims, legal actions, and complaints arising in the ordinary course of business. The Company believes the final outcome of these matters will not have a material adverse effect on its condensed consolidated financial statements. The Company expenses legal costs as incurred.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table provides information concerning shares of the Company’s Common Stock $0.01 par value purchased during the three months ended March 31, 2018.
Period




(a)
Total Number of Shares Purchased(1)


(b)
Average Price Paid per Share

(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d)
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - February 3, 2018
121,300
$33.21
121,300
$60,399,006
February 4 - March 3, 2018
92,000
$32.51
92,000
$97,947,199
March 4 - March 31, 2018
82,678
$36.06
82,678
$94,966,129
Total
295,978
$33.79
295,978
$94,966,129

(1) On February 13, 2018, the Company’s Board of Directors authorized a repurchase program covering up to an aggregate of $100 million of the Company’s common stock, during a period of twenty-four months, in open market transactions and in
accordance with one or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended. This repurchase program represents a further renewal of the repurchase program
originally authorized by the Board of Directors on February 5, 2016 and first renewed on February 15, 2017.

The Company issues common stock awards under its equity incentive plans. In the consolidated financial statements, the Company treats shares of common stock withheld for tax purposes on behalf of its employees in connection with the vesting or exercise of the awards as common stock repurchases because they reduce the number of shares that would have been issued upon vesting or exercise. These withheld shares of common stock are not considered common stock repurchases under the Company's authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals in the preceding table.

Item 6. Exhibits

31.1
  
31.2
  
32.1
  
101.INS
  
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

27

Table of Contents


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
ENTEGRIS, INC.
 
 
 
Date: April 26, 2018
 
/s/ Gregory B. Graves
 
 
Gregory B. Graves
 
 
Executive Vice President and Chief Financial
 
 
Officer (on behalf of the registrant and as
 
 
principal financial officer)


28

Table of Contents

EXHIBIT INDEX
31.1
  
31.2
  
32.1
  
101.INS
  
XBRL Instance Document
101.SCH
  
XBRL Taxonomy Extension Schema Document
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
 


29
Exhibit


Exhibit 31.1
CERTIFICATIONS
I, Bertrand Loy, certify that:
1.
I have reviewed this Report on Form 10-Q of Entegris, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 26, 2018
/s/ Bertrand Loy
 
Bertrand Loy
 
Chief Executive Officer
 
(Principal Executive Officer)



Exhibit


Exhibit 31.2
CERTIFICATIONS
I, Gregory B. Graves, certify that:
1.
I have reviewed this Report on Form 10-Q of Entegris, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 26, 2018
/s/ Gregory B. Graves
 
Gregory B. Graves
 
Chief Financial Officer
 
(Principal Financial Officer)



Exhibit


EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q (the “Report”) of Entegris, Inc, a Delaware corporation (the “Company”), for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof, Bertrand Loy, President and Chief Executive Officer of the Company, and Gregory B. Graves, Chief Financial Officer of the Company, each hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: April 26, 2018
/s/ Bertrand Loy
 
Bertrand Loy
 
Chief Executive Officer
 
 
 
/s/ Gregory B. Graves
 
Gregory B. Graves
 
Chief Financial Officer



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