SEC Filing | Entegris, Inc.

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entg-20230930

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 September 30, 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 October 30, 2023, there were 150,158,883 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 SEPTEMBER 30, 2023


Description			Page
PART I Financial Information

Item 1. Financial Statements			4
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and October 1, 2022			5
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and October 1, 2022			6
Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and October 1, 2022			7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and October 1, 2022			9
Notes to Condensed Consolidated Financial Statements			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			42
Item 4. Controls and Procedures			42

PART II Other Information

Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			43
Item 5. Other Information			43
Item 6. Exhibits			44
Signatures			45

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 the 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 and divestitures 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”); 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;

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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; 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 effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the impact of regional and global instabilities, hostilities and geopolitical uncertainty, including, but not limited to, the ongoing conflicts between Ukraine and Russia and between Israel and Hamas, as well as the global responses 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)	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	594,020	$	561,559
Restricted cash	—		1,880
Trade accounts and notes receivable, net of allowance for credit losses of $4,126 and $5,443	463,083		535,485
Inventories, net	662,169		812,815
Deferred tax charges and refundable income taxes	67,848		47,618
Assets held-for-sale	1,045,217		246,531
Other current assets	111,223		129,297
Total current assets	2,943,560		2,335,185
Property, plant and equipment, net of accumulated depreciation of $869,951 and $770,093	1,406,357		1,393,337
Other assets:
Right-of-use assets	83,548		94,940
Goodwill	3,954,036		4,408,331
Intangible assets, net of accumulated amortization of $771,786 and $636,872	1,368,363		1,841,955
Deferred tax assets and other noncurrent tax assets	30,211		28,867
Other	38,541		36,242
Total assets	$	9,824,616	$	10,138,857
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt, including current portion of long-term debt	$	—	$	151,965
Accounts payable	139,637		172,488
Accrued payroll and related benefits	109,284		142,340
Accrued interest payable	65,195		25,571
Liabilities held-for-sale	139,270		10,637
Other accrued liabilities	166,258		160,873
Income taxes payable	63,515		98,057
Total current liabilities	683,159		761,931
Long-term debt, excluding current maturities, net of unamortized discount and debt issuance costs of $113,003 and $140,107	5,425,496		5,632,928
Pension benefit obligations and other liabilities	44,627		54,090
Deferred tax liabilities and other noncurrent tax liabilities	231,698		391,192
Long-term lease liability	71,347		80,716

Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of September 30, 2023: 150,357,237 and 150,154,837, respectively; issued and outstanding shares as of December 31, 2022: 149,339,486 and 149,137,086, respectively	1,504		1,493
Treasury stock, at cost: 202,400 shares held as of September 30, 2023 and December 31, 2022	(7,112)		(7,112)
Additional paid-in capital	2,283,823		2,205,325
Retained earnings	1,128,907		1,031,391
Accumulated other comprehensive loss	(38,833)		(13,097)
Total equity	3,368,289		3,218,000
Total liabilities and equity	$	9,824,616	$	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				Nine months ended
(In thousands, except per share data)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net sales	$	888,239	$	993,828	$	2,711,635	$	2,335,963
Cost of sales	521,165		622,157		1,558,710		1,344,075
Gross profit	367,074		371,671		1,152,925		991,888
Selling, general and administrative expenses	116,051		226,446		431,514		404,239
Engineering, research and development expenses	66,810		64,990		209,746		160,953
Amortization of intangible assets	51,239		65,346		163,493		90,491
Goodwill impairment	15,913		—		104,785		—
Gain on termination of alliance agreement	—		—		(154,754)		—
Operating income	117,061		14,889		398,141		336,205
Interest expense	77,820		84,150		244,874		129,027
Interest income	(2,226)		(1,395)		(5,854)		(2,065)
Other expense, net	10,243		12,852		13,309		27,373
Income (loss) before income tax (benefit) expense	31,224		(80,718)		145,812		181,870
Income tax (benefit) expense	(2,127)		(7,015)		2,851		30,377
Equity in net loss of affiliates	139		—		269		—
Net income (loss)	$	33,212	$	(73,703)	$	142,692	$	151,493

Basic earnings (loss) per common share	$	0.22	$	(0.50)	$	0.95	$	1.08
Diluted earnings (loss) per common share	$	0.22	$	(0.50)	$	0.95	$	1.08

Weighted shares outstanding:
Basic	150,127		148,570		149,793		140,045
Diluted	151,229		148,570		150,816		140,892

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				Nine months ended
(In thousands)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net income (loss)	$	33,212	$	(73,703)	$	142,692	$	151,493
Other comprehensive loss, net of tax
Foreign currency translation adjustments	(9,174)		(37,461)		(23,451)		(48,603)
Pension liability adjustments	(33)		—		4		73
Interest rate swap - cash flow hedge, change in fair value - (loss) income, net of tax (benefit) expense of ($598) and ($667) for the three and nine months ended September 30, 2023 and $9,285 and $9,285 for the three and nine months ended October 1, 2022, respectively.	(2,050)		30,743		(2,289)		30,743
Other comprehensive loss	(11,257)		(6,718)		(25,736)		(17,787)
Comprehensive income (loss)	$	21,955	$	(80,421)	$	116,956	$	133,706

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
Shares issued under stock plans	88	1			—		5,397		—		—		—		—		5,398
Share-based compensation expense	—	—		—	—		10,182		—		—		—		—		10,182

Dividends declared ($0.10 per share)	—	—		—	—		—		(13,661)		—		—		—		(13,661)

Foreign currency translation	—	—		—	—		—		—		(9,014)		—		—		(9,014)
Net income	—	—		—	—		—		99,491		—		—		—		99,491
Balance at July 2, 2022	136,173	$	1,362	202	$	(7,112)	$	891,967	$	1,077,651	$	(50,005)	$	(1,149)	—		$	1,912,714
Shares issued under stock plans	137	1			—		(4,644)		—		—		—		—		(4,643)
Share-based compensation expense	—	—		—	—		38,077		—		—		—		—		38,077
Issuance of common stock in connection with CMC Materials acquisition	12,927	129		—	—		1,265,561		—		—		—		—		1,265,690
Dividends declared ($0.10 per share)	—	—		—	—		—		(15,100)		—		—		—		(15,100)

Interest Rate Swap - Cash flow hedge	—	—		—	—		—		—		—		—		30,743		30,743
Foreign currency translation	—	—		—	—		—		—		(37,461)		—		—		(37,461)
Net loss	—	—		—	—		—		(73,703)		—		—		—		(73,703)
Balance at October 1, 2022	149,237	$	1,492	202	$	(7,112)	$	2,190,961	$	988,848	$	(87,466)	$	(1,149)	$	30,743	$	3,116,317

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(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
Shares issued under stock plans	439	4		—	—		18,130		—		—		—		—		18,134
Share-based compensation expense	—	—		—	—		11,458		—		—		—		—		11,458
Dividends declared ($0.10 per share)	—	—		—	—		—		(14,961)		—		—		—		(14,961)
Interest Rate Swap - Cash flow hedge	—	—		—	—		—		—		—		—		9,716		9,716
Pension liability adjustment	—	—		—	—		—		—		—		—		—		—
Foreign currency translation	—	—		—	—		—		—		(38,011)		—		—		(38,011)
Net Income	—	—		—	—		—		197,646		—		—		—		197,646
Balance at July 1, 2023	150,308	$	1,503	202	$	(7,112)	$	2,274,572	$	1,110,818	$	(63,360)	$	(46)	$	35,830	$	3,352,205
Shares issued under stock plans	49	1		—	—		(1,029)		—		—		—		—		(1,028)
Share-based compensation expense	—	—		—	—		10,280		—		—		—		—		10,280
Dividends declared ($0.10 per share)	—	—		—	—		—		(15,123)		—		—		—		(15,123)
Interest Rate Swap - Cash flow hedge	—	—		—	—		—		—		—		—		(2,050)		(2,050)
Pension liability adjustment	—	—		—	—		—		—		—		(33)		—		(33)
Foreign currency translation	—	—		—	—		—		—		(9,174)		—		—		(9,174)
Net Income	—	—		—	—		—		33,212		—		—		—		33,212
Balance at September 30, 2023	150,357	$	1,504	202	$	(7,112)	$	2,283,823	$	1,128,907	$	(72,534)	$	(79)	$	33,780	$	3,368,289

See the accompanying notes to condensed consolidated financial statements.

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ENTEGRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine months ended
(In thousands)	September 30, 2023		October 1, 2022
Operating activities:
Net income	$	142,692	$	151,493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	130,125		93,489
Amortization	163,493		90,491
Share-based compensation expense	52,416		57,544
Charge for fair value mark-up of acquired inventory sold	—		61,932
Provision for deferred income taxes	(95,366)		(56,964)
Impairment of goodwill	104,785		—
Loss on extinguishment of debt	10,862		2,235
Loss from sale of business and held-for-sale	28,579		—
Gain on termination of alliance agreement	(154,754)		—
Charge for excess and obsolete inventory	29,314		17,582
Amortization of debt issuance costs	16,718		9,211
Other	21,801		29,459
Changes in operating assets and liabilities:
Trade accounts and notes receivable	(295)		(34,378)
Inventories	63,340		(180,335)
Accounts payable and accrued liabilities	4,345		83,307
Other current assets	1,644		(4,248)
Income taxes payable and refundable income taxes	(36,774)		(15,637)
Other	(4,013)		15,049
Net cash provided by operating activities	478,912		320,230
Investing activities:
Acquisition of property, plant and equipment	(328,182)		(318,836)
Acquisition of businesses, net of cash acquired	—		(4,474,925)
Proceeds from sale of business	134,286		—
Proceeds from termination of alliance agreement	169,251		—
Other	1,919		1,124
Net cash used in investing activities	(22,726)		(4,792,637)
Financing activities:
Proceeds from revolving credit facility and short-term debt	—		476,000
Payments of revolving credit facility and short-term debt	(135,000)		(271,000)
Proceeds from long-term debt	217,449		4,940,753
Payments of long-term debt	(468,950)		(145,000)

Payments for debt issuance costs	(3,475)		(99,489)
Payments for dividends	(45,202)		(42,413)
Issuance of common stock	37,633		10,764

Taxes paid related to net share settlement of equity awards	(11,540)		(22,747)

Other	(923)		(859)
Net cash (used in) provided by financing activities	(410,008)		4,846,009
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(15,597)		(21,500)
Increase in cash, cash equivalents and restricted cash	30,581		352,102
Cash, cash equivalents and restricted cash at beginning of period	563,439		402,565
Cash, cash equivalents and restricted cash at end of period	$	594,020	$	754,667

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	Nine months ended
(In thousands)	September 30, 2023	October 1, 2022
Non-cash transactions:


Equipment purchases in accounts payable	35,684	19,362
Dividend payable	628	666
Equity consideration on acquisition of CMC Materials	—	1,265,690
Schedule of interest and income taxes paid:
Interest paid less capitalized interest	292,416	22,917
Income taxes paid, net of refunds received	129,474	96,729

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 September 30, 2023 and December 31, 2022, and the results of operations and comprehensive income for the three and nine months ended September 30, 2023 and October 1, 2022, the equity statements as of and for the three and nine months ended September 30, 2023 and October 1, 2022, and cash flows for the nine months ended September 30, 2023 and October 1, 2022.

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 and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year.

In the third quarter of 2023, in order to align its segment financial reporting with a change in its business structure, the Company realigned its segments. Following the segment realignment, the Company’s three reportable segments are as follows (1) Materials Solutions, (2) Microcontamination Control, and (3) Advanced Materials Handling. The current interim and succeeding annual periods will disclose the reportable segments with prior periods recast to reflect the change.

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.


	Nine months ended
(In thousands)	September 30, 2023		October 1, 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	(32,736)		(26,444)
Increases due to cash received, excluding amounts recognized as revenue during the period	56,145		40,725
Contract liabilities included as part of disposition	(6,226)		—
Additions due to acquisitions	—		11,108
Balance at end of period	$	77,659	$	48,439

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 what is now the Materials Solutions segment (the segment resulting from combining the Advanced Planarization Solutions and the Specialty Chemicals and Engineered Materials segments). 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 were 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 three months ended April 1, 2023 and an incremental impairment loss was recorded with the finalization of certain purchase price adjustments of $15.9 million during the three months ended September 30, 2023. 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. We consider this a Level 3 measurement in the fair value hierarchy.

Following the end of our third quarter of fiscal 2023, on October 2, 2023, we completed the sale of the EC reporting unit, which reported into the Materials Solutions segment, see Note 5.

4. ACQUISITION

CMC Materials

On July 6, 2022 (the “Closing Date”), the Company completed its acquisition of CMC Materials, Inc. (now known as CMC Materials LLC) (“CMC Materials”) for approximately $6.0 billion in cash and stock (the “Acquisition”) pursuant to an Agreement and Plan of Merger, 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 Materials Solutions segment (the segment resulting from combining the Advanced Planarization Solutions and the Specialty Chemicals and Engineered Materials segments) of the Company. Direct costs of $31.9 million and $39.3 million associated with the acquisition of CMC Materials, consisting primarily of professional and consulting fees, were expensed as incurred in the three and nine months ended

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October 1, 2022, respectively. 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. CMC Materials’ 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.

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.

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	207,472
Inventory	256,598
Property, plant and equipment	537,387
Identifiable intangible assets	1,736,219
Other noncurrent assets	39,725
Current liabilities	(211,417)
Deferred tax liabilities and other noncurrent liabilities	(452,805)
Net assets acquired	2,393,815
Goodwill	3,627,436
Total purchase price	$	6,021,251

The final valuation of assets acquired and liabilities assumed in connection with the Acquisition was completed in the second quarter of 2023.

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.

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


(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 of 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 $3,627.4 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.

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 condensed 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.


	Three months ended			Nine months ended
(In thousands, except share data)		October 1, 2022			October 1, 2022
Net sales		$	993,828		$	2,974,781
Net income		63,940			234,621

Per share amounts:
Net income per common share - basic		$	0.43		$	1.58
Net income per common share - diluted		$	0.43		$	1.56

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

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•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, net of the one-time gain on the termination of two swap instruments which were terminated on June 24, 2022 in connection with the repayment of CMC Materials’ debt upon completion of the Acquisition.

•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%.

•The incremental pro forma stock-based compensation expense for accelerated vesting upon the change in control for stock options, restricted stock units, restricted stock shares, phantom units, and other deferred restricted stock units.

•The additional cost of goods sold recognized in connection with the write-up of acquired finished goods inventory of $61.9 million. The write-up is recognized in cost of sales as the inventory is sold, which for purposes of these pro forma financial statements is assumed to occur within the first quarter after the Acquisition and is non-recurring in nature.

5. ASSET HELD-FOR-SALE AND DIVESTITURE

Asset Held-For-Sale - PIM

On October 11, 2022, the Company announced entry into a definitive agreement to sell its Pipeline and Industrials Materials (“PIM”) business, which became part of the Company with the acquisition of CMC Materials, to Infineum USA L.P. (“Infineum”). The PIM business specializes in the manufacture and sale of drag reducing agents and a range of valve maintenance products and services, and reports into the Materials Solutions segment (the segment resulting from combining the Advanced Planarization Solutions and the Specialty Chemicals and Engineered Materials segments) 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 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 September 30, 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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PIM Assets-held-for sale comprise the following as of September 30, 2023:


(In thousands)
Assets:	September 30, 2023
Current assets	$	49,277
Property, Plant and Equipment, net	113,305
Intangible assets, net	76,692
Goodwill	12,707
Other assets	1,364
Total assets-held-for sale	$	253,345

Liabilities:
Accounts payable	$	5,675
Accrued expenses	7,978
Long-term liabilities	1,959
Total liabilities-held-for sale	$	15,612

Income before income taxes attributable to the PIM business was $12.0 million and $33.3 million for the three and nine months ended September 30, 2023, respectively.

Asset held-for-sale - EC Business

On May 10, 2023, the Company announced entry into a definitive agreement to sell its Electronic Chemicals (“EC”) business, which became part of the Company with the acquisition of CMC Materials, to FUJIFILM Holdings America Corporation for approximately $700.0 million, subject to customary adjustments with respect to cash, working capital, indebtedness and transaction expenses. The EC business specializes in purification, formulation, blending, packaging and distribution of high-purity process chemicals used within the semiconductor and microelectronic manufacturing processes. In connection with the held-for-sale classification, upon the remeasurement of the disposal group to its fair value, less cost to sell, we recognized a loss on the assets held-for-sale of $13.6 million as loss on held for sale for the three months ended July 1, 2023 and a loss of $15.9 million on impairment of goodwill for the three months ended September 30, 2023. The loss on assets held-for-sale are included in Selling, general and administrative expenses and the goodwill impairment is included in goodwill impairment in the condensed consolidated statement of operations.

The disposition of the EC 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.

EC Assets-held-for sale comprise the following as of September 30, 2023:


(In thousands)
Assets:	September 30, 2023
Current assets	$	92,563
Property, Plant and Equipment, net	177,020
Intangible assets, net	263,686
Goodwill	250,638
Other assets	7,965
Total assets-held-for sale	$	791,872

Liabilities:
Accounts payable	$	18,975
Accrued expenses	15,255
Long-term liabilities	89,428
Total liabilities-held-for sale	$	123,658

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(Income)/Loss before income taxes attributable to the EC business was ($0.9) million and $85.7 million for the three and nine months ended September 30, 2023. The loss before income taxes attributed to the EC business for the three months ended September 30, 2023 includes incremental goodwill impairment of $15.9 million. The loss before income taxes attributable to the EC business for the nine months ended September 30, 2023 includes total goodwill impairment charges of $104.8 million and loss on assets held-for-sale of $13.6 million for expected transaction expenses.

On October 2, 2023, following the end of our third quarter of 2023, the Company completed the sale of the EC business. The Company received gross cash proceeds of $737.1 million, or net proceeds of $694.3 million, which includes cash sold of $42.8 million, which remains subject to customary final post-closing adjustments. The Company intends to use the proceeds of this transaction for early repayment of debt.

Divestiture - QED

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 to Quad-C Management, Inc. QED was a part of what is now the Materials Solutions segment (the segment resulting from combining the Advanced Planarization Solutions and the Specialty Chemicals and Engineered Materials segments) and became part of the Company with the acquisition of CMC Materials.

The Company completed the divestiture of QED on March 1, 2023 and received proceeds of $134.3 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)	March 1, 2023
Fair value of sale consideration	$	137,500
Final working capital adjustment	1,031
Cash transferred to the buyer on the closing balance sheet	(1,465)
Direct costs to sell	(2,780)
Fair value of sale consideration	$	134,286

The carrying amount of net assets associated with the QED business was approximately $149.2 million. The major classes of assets and liabilities sold consisted of the following:


(In thousands)
Assets:	March 1, 2023
Current assets	$	19,219
Property, plant and equipment, net	2,663
Goodwill	90,005
Intangible assets, net	48,661
Other assets	842
Total assets	$	161,390

Liabilities:
Accounts payable	$	1,340
Accrued expenses	8,750
Long-term liabilities	2,067
Total liabilities	$	12,157

As a result of the QED divestiture, the Company recognized a pre-tax loss of $14.9 million presented in selling, general and administrative expenses on the condensed consolidated statements of operations for the nine months ended September 30, 2023. The Company recorded an income tax benefit associated with the QED divestiture of approximately $6.8 million.

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Termination - Alliance Agreement

On June 5, 2023, the Company announced the termination of the Alliance Agreement (the “Alliance Agreement”) between the Company and MacDermid Enthone Inc., a global business unit of Element Solutions Inc (“MacDermid Enthone”). Under the Alliance Agreement, Entegris had been granted the exclusive right to distribute MacDermid Enthone's Viaform products, subject to certain conditions. In connection with the termination of the Alliance Agreement, Entegris received a payment of $170.0 million on June 2, 2023 and will receive $30.0 million payable upon completion of customer transitions, subject to certain adjustments. The Company recognized a pre-tax gain of $154.8 million presented in gain on termination of alliance agreement on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively.

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)	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	594,020	$	561,559
Restricted cash	—		1,880
Total cash, cash equivalents and restricted cash	$	594,020	$	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. The Company had no restricted cash as of September 30, 2023.

7. INVENTORIES

Inventories consist of the following:


(In thousands)	September 30, 2023		December 31, 2022
Raw materials	$	278,184	$	337,576
Work-in-process	51,596		60,182
Finished goods (1)	332,389		415,057
Total inventories, net	$	662,169	$	812,815

(1) Includes consignment inventories held by customers of $21.3 million and $46.2 million at September 30, 2023 and December 31, 2022, respectively.

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8. GOODWILL AND INTANGIBLE ASSETS

Goodwill activity for each of the Company’s reportable segments that carry goodwill, Materials Solutions (“MS”), Microcontamination Control (“MC”), and Advanced Materials Handling (“AMH”), was as follows at December 31, 2022 and September 30, 2023:


(In thousands)	MS		MC		AMH		Total
December 31, 2022	$	4,092,141	$	242,088	$	74,102	$	4,408,331

Goodwill impairment	(104,785)		—		—		(104,785)
Disposition of business	(90,005)		—		—		(90,005)
Purchase accounting adjustments	(1,021)		—		—		(1,021)

Assets held-for-sale	(254,524)		—		—		(254,524)
Foreign currency translation	(43)		(3,917)		—		(3,960)
September 30, 2023	$	3,641,763	$	238,171	$	74,102	$	3,954,036

The changes in our goodwill balance of $454.3 million reflect (1) the goodwill impairment of our EC reporting unit of $104.8 million, as described in Note 3, (2) the sale of the QED business and related goodwill of that business of $90.0 million, see Note 5, (3) purchase accounting adjustments of $1.0 million, (4) goodwill reclassified to asset held-for-sale of $254.5 million related to the PIM and EC businesses as described in Note 5 and (5) foreign currency translation of $4.0 million.

Identifiable intangible assets at September 30, 2023 and December 31, 2022 consist of the following:


September 30, 2023
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying value
Developed technology	$	1,262,647	$	421,703	$	840,944
Trademarks and trade names	172,260		35,395		136,865
Customer relationships	673,718		294,056		379,662
In-process research and development (1)	7,600		—		7,600
Other	23,924		20,632		3,292
	$	2,140,149	$	771,786	$	1,368,363


December 31, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying value
Developed technology	$	1,302,101	$	313,876