SEC Filing | Entegris, Inc.

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entg-20230401

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________

FORM 10-Q

______________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2023


☐			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)

_______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value per share

ENTG

The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of May 8, 2023, there were 149,685,161 shares of the registrant’s common stock outstanding.

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ENTEGRIS, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

FOR THE QUARTER ENDED APRIL 1, 2023


Description			Page
PART I Financial Information

Item 1. Financial Statements			4
Condensed Consolidated Balance Sheets as of April 1, 2023 and December 31, 2022			4
Condensed Consolidated Statements of Operations for the Three Months Ended April 1, 2023 and April 2, 2022			5
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended April 1, 2023 and April 2, 2022			6
Condensed Consolidated Statements of Equity for the Three Months Ended April 1, 2023 and April 2, 2022			7
Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2023, and April 2, 2022			8
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			37
Item 4. Controls and Procedures			37

PART II Other Information

Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 6. Exhibits			40
Signatures			41

Cautionary Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “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 supply chain matters; inflationary pressures; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; 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 the Company’s engineering, research and development projects; the Company’s ability to execute on our business strategies, including with respect to Company’s expansion of its manufacturing presence in Taiwan and in Colorado Springs; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials, Inc. (now known as CMC Materials LLC) (“CMC Materials”); the closing of any announced divestitures, including the timing thereof; trends relating to the fluctuation of currency exchange rates; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; 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 the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; raw material shortages, supply and labor constraints, price increases, inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations; the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements;

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substantial competition; the Company’s concentrated customer base; the Company’s ability to identify, complete and integrate acquisitions, joint ventures, divestitures or other similar transactions; the Company’s ability to consummate pending transactions on a timely basis or at all and the satisfaction of the conditions precedent to consummation of such pending transactions, including the satisfaction of regulatory conditions on the terms expected, at all or in a timely manner; the Company’s ability to effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the ongoing conflict in Ukraine and the global response thereto; the increasing complexity of certain manufacturing processes; changes in government regulations of the countries in which the Company operates, including the imposition of tariffs, export controls and other trade laws and restrictions and changes to national security and international trade policy, especially as they relate to China; fluctuation of currency exchange rates; fluctuations in the market price of the Company’s stock; and other risk factors and additional information described in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including under the heading “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on February 23, 2023, and in the Company’s other SEC filings. Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.

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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)	April 1, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	707,838	$	561,559
Restricted cash	1,194		1,880
Trade accounts and notes receivable, net of allowance for credit losses of $5,341 and $5,443	511,435		535,485
Inventories, net	830,939		812,815
Deferred tax charges and refundable income taxes	38,845		47,618
Assets held-for-sale	247,932		246,531
Other current assets	118,864		129,297
Total current assets	2,457,047		2,335,185
Property, plant and equipment, net of accumulated depreciation of $820,644 and $770,093	1,464,420		1,393,337
Other assets:
Right-of-use assets	91,383		94,940
Goodwill	4,247,504		4,408,331
Intangible assets, net of accumulated amortization of $691,514 and $636,872	1,742,336		1,841,955
Deferred tax assets and other noncurrent tax assets	29,795		28,867
Other	34,602		36,242
Total assets	$	10,067,087	$	10,138,857
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt, including current portion of long-term debt	$	159,045	$	151,965
Accounts payable	167,177		172,488
Accrued payroll and related benefits	94,166		142,340
Accrued interest payable	66,192		25,571
Liabilities held-for-sale	11,617		10,637
Other accrued liabilities	179,525		160,873
Income taxes payable	103,901		98,057
Total current liabilities	781,623		761,931
Long-term debt, excluding current maturities, net of unamortized discount and debt issuance costs of $131,245 and $140,107	5,634,710		5,632,928
Pension benefit obligations and other liabilities	55,449		54,090
Deferred tax liabilities and other noncurrent tax liabilities	349,763		391,192
Long-term lease liability	77,319		80,716

Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of April 1, 2023 and December 31, 2022	—		—
Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of April 1, 2023: 149,869,777 and 149,667,377, respectively; issued and outstanding shares as of December 31, 2022: 149,339,486 and 149,137,086, respectively	1,499		1,493
Treasury stock, at cost: 202,400 shares held as of April 1, 2023 and December 31, 2022	(7,112)		(7,112)
Additional paid-in capital	2,244,984		2,205,325
Retained earnings	928,133		1,031,391
Accumulated other comprehensive loss	719		(13,097)
Total equity	3,168,223		3,218,000
Total liabilities and equity	$	10,067,087	$	10,138,857

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)	April 1, 2023		April 2, 2022
Net sales	$	922,396	$	649,646
Cost of sales	520,711		339,826
Gross profit	401,685		309,820
Selling, general and administrative expenses	169,867		87,108
Engineering, research and development expenses	71,906		46,715
Amortization of intangible assets	57,574		12,651
Goodwill Impairment	88,872		—
Operating income	13,466		163,346
Interest expense	86,146		12,876
Interest income	(1,325)		(12)
Other (income) expense, net	(4,658)		4,902
(Loss) income before income tax expense	(66,697)		145,580
Income tax expense	21,469		19,875
Net (loss) income	$	(88,166)	$	125,705

Basic (loss) earnings per common share	$	(0.59)	$	0.93
Diluted (loss) earnings per common share	$	(0.59)	$	0.92

Weighted shares outstanding:
Basic	149,426		135,670
Diluted	149,426		136,552

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three months ended
(In thousands)	April 1, 2023		April 2, 2022
Net (loss) income	$	(88,166)	$	125,705
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	23,734		(2,128)
Pension liability adjustments	37		73
Interest rate swap - cash flow hedge, change in fair value - loss, net of tax benefit of $2,903	(9,955)		—
Other comprehensive income (loss)	13,816		(2,055)
Comprehensive (loss) income	$	(74,350)	$	123,650

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


(In thousands)	Common shares outstanding	Common stock		Treasury shares	Treasury stock		Additional paid-in capital		Retained earnings		Foreign currency translation adjustments		Defined benefit pension adjustments		Interest Rate Swap - Cash flow hedge		Total
Balance at December 31, 2021	135,719	$	1,357	202	$	(7,112)	$	879,845	$	879,776	$	(38,863)	$	(1,222)	$	—	$	1,713,781
Shares issued under stock plans	366	4		—	—		(12,742)		—		—		—		—		(12,738)
Share-based compensation expense	—	—		—	—		9,285		—		—		—		—		9,285

Dividends declared ($0.10 per share)	—	—		—	—		—		(13,660)		—		—		—		(13,660)
Pension liability adjustment	—	—		—	—		—		—		—		73		—		73
Foreign currency translation	—	—		—	—		—		—		(2,128)		—		—		(2,128)
Net income	—	—		—	—		—		125,705		—		—		—		125,705
Balance at April 2, 2022	136,085	1,361		202	(7,112)		876,388		991,821		(40,991)		(1,149)		—		1,820,318


(In thousands)	Common shares outstanding	Common stock	Treasury shares	Treasury stock		Additional paid-in capital		Retained earnings		Foreign currency translation adjustments		Defined benefit pension adjustments		Interest Rate Swap - Cash flow hedge		Total
Balance at December 31, 2022	149,339	1,493	202	$	(7,112)	$	2,205,325	$	1,031,391	$	(49,083)	$	(83)	$	36,069	$	3,218,000
Shares issued under stock plans	530	6	—	—		8,981		—		—		—		—		8,987
Share-based compensation expense	—	—	—	—		30,678		—		—		—		—		30,678
Dividends declared ($0.10 per share)	—	—	—	—		—		(15,092)		—		—		—		(15,092)
Interest Rate Swap - Cash flow hedge	—	—	—	—		—		—		—		—		(9,955)		(9,955)
Pension liability adjustment	—	—	—	—		—		—		—		37		—		37
Foreign currency translation	—	—	—	—		—		—		23,734		—		—		23,734
Net loss	—	—	—	—		—		(88,166)		—		—		—		(88,166)
Balance at April 1, 2023	149,869	1,499	202	(7,112)		2,244,984		928,133		(25,349)		(46)		26,114		3,168,223

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)	April 1, 2023		April 2, 2022
Operating activities:
Net (loss) income	$	(88,166)	$	125,705
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation	46,775		23,905
Amortization	57,574		12,651
Share-based compensation expense	30,678		9,285

Provision for deferred income taxes	(34,826)		(11,230)
Impairment of goodwill	88,872		—
Loss on extinguishment of debt	2,787		—
Loss from sale of business	13,642		—
Charge for excess and obsolete inventory	13,287		5,811
Other	14,439		5,614
Changes in operating assets and liabilities:
Trade accounts and notes receivable	8,379		(31,171)
Inventories	(34,852)		(77,476)
Accounts payable and accrued liabilities	20,043		(22,323)
Other current assets	2,538		2,629
Income taxes payable and refundable income taxes	15,867		16,760
Other	(5,166)		3,628
Net cash provided by operating activities	151,871		63,788
Investing activities:
Acquisition of property, plant and equipment	(133,992)		(84,405)

Proceeds from sale of business	133,527		—
Other	108		1,123
Net cash used in investing activities	(357)		(83,282)
Financing activities:
Proceeds from revolving credit facility and short-term debt	—		79,000
Payments of revolving credit facility and short-term debt	—		(79,000)
Proceeds from long-term debt	117,170		—
Payments of long-term debt	(117,170)		—


Payments for dividends	(15,170)		(13,895)
Issuance of common stock	18,393		3,379

Taxes paid related to net share settlement of equity awards	(9,406)		(16,117)

Other	(299)		(962)
Net cash used in financing activities	(6,482)		(27,595)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	561		(2,744)
Increase (decrease) in cash, cash equivalents and restricted cash	145,593		(49,833)
Cash, cash equivalents and restricted cash at beginning of period	563,439		402,565
Cash, cash equivalents and restricted cash at end of period	$	709,032	$	352,732

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


Supplemental Cash Flow Information	Three months ended
(unaudited)
(In thousands)	April 1, 2023		April 2, 2022
Non-cash transactions:
Due from buyer on sale of business	$	1,330	$	—


Equipment purchases in accounts payable	22,041		18,629
Dividend payable	576		423
Schedule of interest and income taxes paid:
Interest paid less capitalized interest	38,146		1,002
Income taxes paid, net of refunds received	42,424		12,867

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 supplier of advanced materials and process solutions for 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, right-of-use assets, goodwill, intangibles, accrued expenses, short-term and long-term lease liability, 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 April 1, 2023 and December 31, 2022, and the results of operations and comprehensive income for the three months ended April 1, 2023 and April 2, 2022, the equity statements as of and for the three months ended April 1, 2023 and April 2, 2022, and cash flows for the three months ended April 1, 2023 and April 2, 2022.

Our recently acquired subsidiary, CMC Materials LLC (formerly known as CMC Materials, Inc.) (“CMC Materials”), follows a monthly reporting calendar. The first quarter of 2023 for CMC Materials refers to the three months ended March 31, 2023, whereas the Company’s first quarter is April 1, 2023. The Company believes that use of the different fiscal periods for this entity has not had a material impact on the Company’s consolidated financial position, results of operations, or liquidity. All significant intercompany balances and transactions have been eliminated in consolidation.

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 Quarterly Report on 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 Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three months ended April 1, 2023 are not necessarily indicative of the results to be expected for the full year.

Recently Adopted Accounting Pronouncements The Company currently has no material recently adopted accounting pronouncements.

Recently Issued Accounting Pronouncements The Company currently has no material recent accounting pronouncements yet to be adopted.

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2. REVENUES

The following table provides information about current contract liabilities from contracts with customers. The contract liabilities are included in other accrued liabilities balance in the condensed consolidated balance sheet.


(In thousands)	April 1, 2023		April 2, 2022
Balance at beginning of period	$	60,476	$	23,050
Revenue recognized that was included in the contract liability balance at the beginning of the period	(20,367)		(11,426)
Increases due to cash received, excluding amounts recognized as revenue during the period	43,270		15,987
Contract liabilities included as part of disposition	(6,226)		—

Balance at end of period	$	77,153	$	27,611

3. GOODWILL IMPAIRMENT

During the first quarter of 2023, while the criteria had not been met to classify the reporting unit as held for sale, the Company was exploring market interest in a potential sale of the Electronic Chemicals (“EC”) reporting unit within the Advanced Planarization Solutions segment. In connection with the sale process, management determined that certain impairment indicators were present and evaluated goodwill, intangible assets, and long-lived assets for impairment in connection with the quarter ending April 1, 2023.

Long-lived assets, including finite-lived intangible assets

The Company compared the estimated undiscounted future cash flows generated by the asset group to the carrying amount of the asset group for the reporting unit and determined that the undiscounted cash flows are expected to exceed the carrying value on a held and used basis, therefore no impairment was recorded on the long-lived asset or finite-lived intangible assets. The Company considered if the triggering event would cause a potential change to the useful life of the assets and did not consider a modification to the useful life necessary.

Goodwill

The Company compared the reporting unit’s fair value to its carrying amount, including goodwill as of April 1, 2023. As the reporting unit’s carrying amount, including goodwill, exceeded its fair value the Company determined the goodwill was impaired and recorded an impairment of $88.9 million during the quarter. The impairment is classified as goodwill impairment in the Company's condensed consolidated statement of operations. The goodwill impairment is non-taxable. The fair value of the reporting unit was determined using a market-based approach, which was aligned to the expected selling price of approximately $700.0 million. We consider this a Level 3 measurement in the fair value hierarchy.

4. ACQUISITION

CMC Materials

On July 6, 2022 (the “Closing Date”), the Company completed its acquisition of CMC Materials for approximately $6.0 billion in cash and stock (the “Acquisition”) pursuant to an Agreement and Plan of Acquisition dated as of December 14, 2021 (the “Acquisition Agreement”). As a result of the Acquisition, CMC Materials became a wholly owned subsidiary of the Company. The Acquisition was accounted for under the acquisition method of accounting and the results of operations of CMC Materials are included in the Company's condensed consolidated financial statements as of and since July 6, 2022. CMC Materials reports into the Advanced Planarization Solutions and Specialty Chemicals and Engineered Materials segments of the Company. Direct costs of $39.3 million associated with the acquisition of CMC Materials, consisting primarily of professional and consulting fees, were expensed as incurred in fiscal year 2022. These costs are classified as selling, general and administrative expense in the Company's condensed consolidated statement of operations.

CMC Materials is a global supplier of consumable materials, primarily to semiconductor manufacturers. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The acquisition broadened the Company’s solutions set and enables the Company to bring to market a broader array of innovative and high-value solutions, at a faster pace, to help customers improve productivity, performance and total cost of ownership.

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The purchase price of CMC Materials consisted of the following:


(In thousands):
Cash paid to CMC Materials’ shareholders	$	3,836,983
Stock paid to CMC Materials’ shareholders	1,265,690
Repayment of CMC Materials’ indebtedness	918,578
Total purchase price	6,021,251
Less cash and cash equivalents acquired	280,636
Total purchase price, net of cash acquired	$	5,740,615

Under the terms of the Acquisition Agreement, the Company paid $133.00 per share for all outstanding shares of CMC Materials (excluding treasury shares). In addition, the Company settled all outstanding share-based compensation awards held by CMC Materials’ employees at the same per share price except for certain unvested performance units that were replaced by the Company’s restricted share units. The acquisition method of accounting requires the Company to include the amount associated with pre-combination service as purchase price for the acquisition, reflected in the table immediately above.

The Acquisition was funded with existing cash balances as well as funds raised by the Company through the issuance of debt in the form of a new term loan facility in the aggregate principal amount of $2,495.0 million, senior secured notes due 2029 in an aggregate principal amount of $1,600.0 million, senior unsecured notes due 2030 in an aggregate principal amount of $895.0 million, and a 364-Day Bridge Credit Facility in the aggregate principal amount of $275.0 million (collectively “CMC Materials Acquisition Financing”).

The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the Acquisition:


(In thousands):	July 6, 2022
Cash and cash equivalents	$	280,636
Accounts receivable and other current assets	204,589
Inventory	256,598
Property, plant and equipment	537,387
Identifiable intangible assets	1,736,219
Other noncurrent assets	39,741
Current liabilities	(211,417)
Deferred tax liabilities and other noncurrent liabilities	(444,936)
Net assets acquired	2,398,817
Goodwill	3,622,434
Total purchase price	$	6,021,251

The fair value of acquired inventories was $256.6 million and was valued at the estimated selling price less the cost of disposal and reasonable profit for the selling effort. The fair value write-up of acquired finished goods inventory was $61.9 million. This amount was recorded as an incremental cost of sales charge, amortized over the expected turn of the acquired inventory, during the year ended December 31, 2022.

The fair value of acquired property, plant and equipment of $537.4 million is valued at its fair value assuming held and used,

unless market data was available supporting the fair value.

The Company recognized the following provisional intangible assets as part of the acquisition of CMC Materials and finite lived assets are amortized on a straight-line basis:

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(In thousands)	Amount		Weighted average life in years
Developed technology	$	1,043,000	7.3
Trademarks and trade names	236,600		14.9
Customer relationships	414,300		18.3
In-process research and development (1)	31,400
Other	10,919		1.0
	$	1,736,219	11.0

(1) In-process research and development assets are treated as indefinite-lived until the completion or abandonment of the associated research and development project, at which time the appropriate useful lives would be determined.

The fair value of acquired identifiable finite intangible assets was determined using an income method, which utilizes discounted cash flows to identify the fair value each of the identifiable intangible assets. The Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates. The valuations were 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. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy.

The purchase price of CMC Materials exceeded the fair value of the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $3,622.4 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. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company's ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill. No amount of goodwill is expected to be deductible for tax purposes.

The final valuation of assets acquired and liabilities assumed is expected to be completed as soon as possible, but no later than one year from the acquisition date. Given the size and complexity of the acquisition, the valuation of certain assets and liabilities is still being finalized. In addition to identifiable intangible assets, for the reasons noted above, the Company's valuation of the CMC Materials’ tax accounts is provisional pending the completion of and the Company's review of CMC Materials’ tax returns to be filed for periods up to the acquisition date. To the extent that the Company's estimates require adjustment, the Company will modify the value.

Pro Forma Results (Unaudited)

The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisition of CMC Materials had occurred January 1, 2021. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The pro forma information does not include any potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition.

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	Three months ended
(In thousands, except share data)		April 2, 2022
Net sales		$	969,091
Net income		$	100,264

Per share amounts:
Net income per common share - basic		$	0.67
Net income per common share - diluted		$	0.66

The unaudited pro forma financial information above gives effect to the following:

•The elimination of transactions between Entegris and CMC Materials, which upon completion of the Acquisition would be considered intercompany. This reflects the elimination of intercompany sales and associated intercompany accounts.

•Incremental amortization and depreciation expense related to the estimated fair value of identifiable intangible assets and property, plant and equipment from the purchase price allocation.

•Interest expense on the new debt raised to fund in part the consideration paid to effect the Acquisition using the effective interest rates.

•The elimination of interest expense associated with the repayment of the $145.0 million senior secured term loan facility due 2025.

•The amortization of deferred financing costs and original issue discount associated with the aggregate new debt facilities.

•Transaction and integration costs directly attributable to the Acquisition were reclassed as of the beginning of the comparable prior annual reporting period.

•The income tax effect of the transaction accounting adjustments related to the Acquisition calculated using a blended statutory income tax rate of 22.5%.

5. ASSET HELD-FOR-SALE AND DIVESTITURE

Asset Held-For-Sale

On October 11, 2022, the Company entered into a definitive agreement with Infineum USA L.P. (“Infineum”) for the sale of its Pipeline and Industrials Materials (“PIM”) business, which became part of the Company with the acquisition of CMC Materials. The PIM business reports into the Specialty Chemicals and Engineered Materials segment of the Company. Effective February 10, 2023, the Company terminated the definitive agreement. In accordance with the terms of the agreement, the Company received a $12.0 million termination fee from Infineum in the first quarter of 2023 and incurred a transaction adviser fee of $1.1 million. The net amount of $10.9 million is recorded in Other (income) expense, net in the condensed consolidated statement of operations. At the time of the termination, the transaction had not received clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”).

During the fourth quarter of 2022, the related assets and liabilities were classified as held-for-sale in the Company’s consolidated balance sheet and measured at the lower of their carrying amount or fair value less cost to sell. The assets and liabilities continue to be classified as held-for-sale at April 1, 2023.

The planned disposition of the PIM business did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements since the disposition did not represent a strategic shift that had, or will have, a major effect on the Company’s operations and financial results.

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Assets-held-for sale comprise the following as of April 1, 2023:


(In thousands)
Assets:	April 1, 2023
Accounts Receivable	$	25,838
Inventory	23,674
Other current assets	396
Property, Plant and Equipment, net	109,865
Intangible assets, net	76,692
Goodwill	10,213
Other assets	1,254
Total assets-held-for sale	$	247,932

Liabilities:
Accounts payable	$	4,829
Accrued expenses	5,447
Long-term liabilities	1,341
Total liabilities-held-for sale	$	11,617

Income before income taxes attributable to the PIM business was $8.6 million for the three months ended April 1, 2023.

Divestiture

During the first quarter of 2023, the Company announced entry into a definitive agreement to sell QED Technologies International, Inc. (“QED”), which offers magnetorheological finishing polishing and subaperture stitching interferometry metrology manufacturing solutions. QED was a part of Specialty Chemicals and Engineered Materials segment and became part of the Company with the acquisition of CMC Materials.

The Company completed the divestiture of the QED on March 1, 2023 and received proceeds of $134.8 million after adjustments with respect to cash, working capital, indebtedness and transaction expenses. The disposition of QED did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. The following table summarizes the fair value of the sale proceeds received in connection with the divestiture, which are subject to further post-closing adjustment:


(In thousands)	April 1, 2023
Fair value of sale consideration	$	137,500
Preliminary working capital adjustment	1,602
Cash transferred to the buyer on the closing balance sheet	(1,465)
Direct costs to sell	(2,780)
Fair value of sale consideration	$	134,857

The net sales proceeds received from the QED business divestiture presented under cash flows from investing activities represent the cash portion of the sale consideration, which was determined as the fair value of sale consideration reduced by the amount held in escrow. We expect that the amount held in escrow should be paid out within the next six months. The following table summarizes the different components of net proceeds received from the QED business divestiture presented under Cash flows from investing activities:


(In thousands)	April 1, 2023
Fair value of sale consideration	$	134,857
Amount held in escrow	1,330
Net sales proceeds received from business divestiture	$	133,527

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The carrying amount of net assets associated with the QED business was approximately $148.5 million. The major classes of assets and liabilities sold consisted of the following:


(In thousands)	April 1, 2023
Assets:
Trade accounts receivable, net	$	4,818
Inventories, net	8,658
Other current assets	5,743
Property, plant and equipment, net	2,663
Goodwill	89,271
Intangible assets, net	48,661
ROU assets	806
Other long-term assets	37
Total assets	$	160,657

Liabilities:
Accounts payable	$	1,340
Short-term lease obligation	271
Accrued expenses and other current liabilities	6,922
Payroll and related costs	1,557
Long-term lease obligation	517
Other long-term liabilities	1,551
Total liabilities	$	12,158

As a result of the QED divestiture, the Company recognized a pre-tax loss of approximately $13.6 million presented in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations for the quarter ended April 1, 2023. The Company also recognized the income tax expense associated with the QED divestiture of approximately $17.0 million based on preliminary estimates as of April 1, 2023. We consider this a Level 3 measurement in the fair value hierarchy.

6. RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same amounts shown in the condensed consolidated statement of cash flows.


(In thousands)	April 1, 2023		December 31, 2022
Cash and cash equivalents	$	707,838	$	561,559
Restricted cash	1,194		1,880
Total cash, cash equivalents and restricted cash	$	709,032	$	563,439

The restricted cash represents cash held in a “Rabbi” trust. Prior to the acquisition of CMC Materials, CMC Materials’ change in control severance protection agreements required CMC Materials to establish a Rabbi trust prior to a change in control and fully fund the trust to cover all the severance benefits that may become payable under the agreements.

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7. INVENTORIES

Inventories consist of the following:


(In thousands)	April 1, 2023		December 31, 2022
Raw materials	$	349,380	$	337,576
Work-in-process	58,886		60,182
Finished goods (1)	422,673		415,057
Total inventories, net	$	830,939	$	812,815

(1) Includes consignment inventories held by customers of $44.4 million and $46.2 million at April 1, 2023 and December 31, 2022, respectively.

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill activity for each of the Company’s reportable segments that carry goodwill, Specialty Chemicals and Engineered Materials (“SCEM”),Advanced Planarization Solutions (“APS”), Microcontamination Control (“MC”), and Advanced Materials Handling (“AMH”), and was as follows:


(In thousands)	SCEM		APS		MC		AMH		Total
December 31, 2022	$	561,328	$	3,530,813	$	242,088	$	74,102	$	4,408,331

Goodwill impairment	—		(88,872)		—		—		(88,872)
Disposition of business	(89,271)		—		—		—		(89,271)
Purchase accounting adjustments	10,435		(16,458)		—		—		(6,023)

Assets held-for-sale	(1,390)		—		—		—		(1,390)
Foreign currency translation	(3)		24,107		625		—		24,729
April 1, 2023	$	481,099	$	3,449,590	$	242,713	$	74,102	$	4,247,504

Our goodwill balances reflect the goodwill impairment of our EC reporting unit of $88.9 million, see Note 3. In addition, the Company sold its QED business and the related goodwill of the business of $89.3 million was included in the disposition, see Note 5.

Identifiable intangible assets at April 1, 2023 and December 31, 2022 consist of the following:


April 1, 2023
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying value
Developed technology	$	1,300,557	$	351,751	$	948,806
Trademarks and trade names	244,090		33,404		210,686
Customer relationships	832,016		286,038		545,978
In-process research and development (1)	31,400		—		31,400
Other	25,787		20,321		5,466
	$	2,433,850	$	691,514	$	1,742,336


December 31, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying value
Developed technology	$	1,302,101	$	313,876	$	988,225
Trademarks and trade names	250,473		29,565		220,908
Customer relationships	863,947		273,039		590,908
In-process research and development (1)	31,100		—		31,100
Other	31,206		20,392		10,814
	$	2,478,827	$	636,872	$	1,841,955

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(1) Intangible assets acquired in a business combination that are in-process and used in research and development activities are considered indefinite-lived until the completion or abandonment of the research and development efforts. Once the research and development efforts are completed, we determine the useful life and begin amortizing the assets.

Future amortization expense relating to intangible assets currently recorded in the Company’s condensed consolidated balance sheets is estimated to be the following at April 1, 2023:


(In thousands)	Remaining 2023		2024	2025	2026	2027	Thereafter	Total
Future amortization expense	$	168,531	210,501	203,951	201,015	197,507	760,831	$	1,742,336

9. DEBT

The Company’s debt as of April 1, 2023 and December 31, 2022 consists of the following:


(In thousands)	April 1, 2023		December 31, 2022
Senior secured term loan facility due 2029	2,495,000		2,495,000
Senior secured notes due 2029	1,600,000		1,600,000
Senior unsecured notes due 2030	895,000		895,000
Senior unsecured notes due 2029	400,000		400,000
Senior unsecured notes due 2028	400,000		400,000
Bridge credit facility due 2023	135,000		135,000


Total debt (par value)	5,925,000		5,925,000
Unamortized discount and debt issuance costs	131,245		140,107
Total debt, net	$	5,793,755	$	5,784,893
Less short-term debt, including current portion of long-term debt	159,045		151,965
Total long-term debt, net	$	5,634,710	$	5,632,928

Annual maturities of long-term debt, excluding unamortized discount and issuance costs, due as of April 1, 2023 are as follows:


(In thousands)	Remaining 2023		2024	2025	2026	2027	Thereafter	Total
Contractual debt obligation maturities(1)	$	153,713	24,950	24,950	24,950	24,950	5,671,487	$	5,925,000

(1) Subject to Excess Cash Flow payments to the lenders.

On March 10, 2023, the Company and certain of its subsidiaries entered into Amendment No. 1 (the “Amendment”) with the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, which amended the Credit and Guaranty Agreement, dated as of November 6, 2018 (as amended and restated as of July 6, 2022 and as further amended, restated, amended and restated, supplemented, modified and otherwise in effect prior to the effectiveness of the Amendment, the “Existing Credit Agreement” and, the Existing Credit Agreement as amended by the Amendment, the “Amended Credit Agreement”), by and among the Company, as borrower, certain subsidiaries of the Company party thereto, as guarantors, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent.

The Amendment provides for, among other things, the refinancing of the Company’s outstanding term B loans under the Existing Credit Agreement in an aggregate principal amount of $2.495 billion (the “Original Tranche B Term Loans”) with a new tranche of term B loans under the Amended Credit Agreement in an aggregate principal amount of $2.495 billion (the “New Tranche B Term Loans”). The New Tranche B Term Loans will bear interest under the Amended Credit Agreement, at a rate per annum equal to, at the Company’s option, either (i) Term SOFR plus an applicable margin of 2.75% or (ii) a base rate plus an applicable margin of 1.75%. Consistent with the Original Tranche B Term Loans, the new Tranche B Term Loans will mature on July 6, 2029. Other than as described herein (and more fully described in the Amendment), the terms of the Amended Credit Agreement are substantially similar to the terms of the Existing Credit Agreement.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company is required to record certain assets and liabilities at fair value. The valuation methods used for determining the fair value of these financial instruments by hierarchy are as follows:

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Level 1 Cash and cash equivalents consist of various bank accounts used to support our operations and investments in institutional money-market funds that are traded in active markets. The restricted cash represents cash held in a “Rabbi” trust, further described in Note 6.

Level 2 Derivative financial instruments include an interest rate swap contract and foreign exchange contracts. The fair value of our derivative instruments is estimated using standard valuation models and market-based observable inputs over the contractual term, including the prevailing SOFR based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap curve for forward foreign exchange contracts, among others.

Level 3 No Level 3 financial instruments.

The following table presents financial instruments, other than debt, that we measure at fair value on a recurring basis. See Note 9 of this Report on Form 10-Q for a discussion of our debt. In instances where the inputs used to measure the fair value of an asset fall into more than one level of the hierarchy, we have classified it based on the lowest level input that is significant to the determination of the fair value.

Fair Value Measurements at Reporting Date Using

(In thousands):

Level 1<