Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  Entegris, Inc.    ENTG

ENTEGRIS, INC.

(ENTG)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsPress ReleasesOfficial PublicationsSector news

ENTEGRIS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
07/23/2020 | 03:23pm EDT
The following discussion and analysis of the Company's condensed consolidated
financial condition and results of operations should be read along with the
condensed consolidated financial statements and the accompanying notes thereto
included elsewhere in this Quarterly Report on Form 10-Q. The information,
except for historical information, contained in this discussion and analysis or
set forth elsewhere in this Quarterly Report on Form 10-Q includes
forward-looking statements that involve risks and uncertainties. You should
review the section entitled "Risk Factors" in our Annual Report on Form 10-K for
the year ended December 31, 2019 as well as in our Quarterly Reports on Form
10-Q and Current Reports on Form 8-K for a discussion of important factors that
could cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion
and analysis. The Company assumes no obligation to publicly release the results
of any revision or updates to these forward-looking statements to reflect future
events or unanticipated occurrences.
Overview
This overview is not a complete discussion of the Company's financial condition,
changes in financial condition or results of operations; it is intended merely
to facilitate an understanding of the most salient aspects of the Company's
financial condition and operating performance and to provide a context for the
detailed discussion and analysis that follows. The discussion and analysis must
be read in its entirety in order to fully understand the Company's financial
condition and results of operations.
The Company is a leading global developer, manufacturer and supplier of
microcontamination control products, specialty chemicals and advanced materials
handling solutions for manufacturing processes in the semiconductor and other
high-technology industries. We leverage our unique breadth of capabilities to
create value for our customers by developing mission-critical solutions to
maximize manufacturing yields, reduce manufacturing costs and enable higher
device performance.
Our technology portfolio includes advanced materials and high-purity
chemistries, with optimized packaging and delivery systems and in-process
filtration and purification solutions that ensure high-value liquid chemistries
and gases are free from contaminants before use. Our standard and customized
products and solutions enable the highest levels of purity and performance that
are essential to the manufacture of semiconductors, flat panel displays, light
emitting diodes, high-purity chemicals, solar cells, gas lasers, optical and
magnetic storage devices, and critical components for aerospace, glass
manufacturing and biomedical applications. The majority of our products are
consumed at various times throughout the manufacturing process, with demand
driven in part by the level of semiconductor and other manufacturing activity.
Our business is organized and operated in three operating segments, which align
with the key elements of the advanced semiconductor manufacturing ecosystem. The
Specialty Chemicals and Engineered Materials, or SCEM, segment provides
high-performance and high-purity process chemistries, gases, and materials, and
safe and efficient delivery systems to support semiconductor and other advanced
manufacturing processes. The Microcontamination Control, or MC, segment offers
solutions to filter and purify critical liquid chemistries and gases used in
semiconductor manufacturing processes and other high-technology industries. The
Advanced Materials Handling, or AMH, segment develops solutions to monitor,
protect, transport, and deliver critical liquid chemistries, wafers and other
substrates for a broad set of applications in the semiconductor industry and
other high-technology industries. While these segments have separate products
and technical know-how, they share common business systems and processes,
technology centers, and strategic and technology roadmaps. We leverage our
expertise from these three segments and complementary product portfolios to
create new and increasingly integrated solutions for our customers. See note 10
to the condensed consolidated financial statements for additional information on
the Company's three segments.
The Company's fiscal year is the calendar period ending each December 31. The
Company's fiscal quarters consist of 13-week or 14-week periods that end on
Saturday. The Company's fiscal quarters in 2020 end March 28, 2020, June 27,
2020, September 26, 2020 and December 31, 2020. Unaudited information for the
three and six months ended June 27, 2020 and June 29, 2019 and the financial
position as of June 27, 2020 and December 31, 2019 are included in this
Quarterly Report on Form 10-Q.
Key operating factors Key factors, which management believes have the largest
impact on the overall results of operations of the Company, include:
•Level of sales Since a significant portion of the Company's product costs
(except for raw materials, purchased components and direct labor) are largely
fixed in the short-to-medium term, an increase or decrease in sales affects
gross profits and overall profitability significantly. Also, increases or
decreases in sales and operating profitability affect certain costs such as
incentive compensation and commissions, which are highly variable in nature. The
Company's sales are subject to the effects of industry cyclicality,
technological change, substantial competition, pricing pressures and foreign
currency fluctuations.
                                       23
--------------------------------------------------------------------------------
  Table of Contents
•Variable margin on sales The Company's variable margin on sales is determined
by selling prices and the costs of manufacturing and raw materials. This is
affected by a number of factors, which include the Company's sales mix, purchase
prices of raw materials (especially polymers, membranes, stainless steel and
purchased components), domestic and international competition, direct labor
costs, and the efficiency of the Company's production operations, among others.
•Fixed cost structure The Company's operations include a number of large fixed
or semi-fixed cost components, which include salaries, indirect labor and
benefits, facility costs, lease expenses, and depreciation and amortization. It
is not possible to vary these costs easily in the short-term as volumes
fluctuate. Accordingly, increases or decreases in sales volume can have a large
effect on the usage and productivity of these cost components, resulting in a
large impact on the Company's profitability.
Impact of COVID-19 on our Business
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in
December 2019, and subsequently declared a pandemic by the World Health
Organization. As a result of the COVID-19 pandemic, governmental authorities
have implemented and are continuing to implement numerous and constantly
evolving measures to try to contain the virus, such as travel bans and
restrictions, limits on gatherings, quarantines, shelter-in-place orders, and
business shutdowns. In some cases, governmental re-opening plans have been
delayed or reversed due to spikes in the number of infections. We continue to
monitor the situation regarding the COVID-19 pandemic, which remains fluid and
uncertain, and to proactively manage and adapt our responses in collaboration
with our employees, customers and suppliers. However, we are unable to
accurately predict the full impact of COVID-19 on our business, results of
operations, financial condition, liquidity and cash flows, which will depend on
future developments that are highly uncertain and cannot be predicted with
accuracy, including, but not limited to, the duration and continued spread of
the outbreak, its severity, potential additional waves of infection, the actions
to mitigate the virus or its impact, and how quickly and to what extent normal
economic and operating conditions can resume.
Health and Safety
From the earliest signs of the outbreak, we have taken, and continue to take,
proactive, aggressive action to protect the health and safety of our employees,
customers, partners and suppliers. We enacted rigorous safety measures in all of
our sites in accordance with applicable laws, including social distancing
protocols, encouraging employees who do not need to be physically present on the
manufacturing floor or in a lab to perform their work to work from home,
suspending non-essential travel, implementing temperature checks at the
entrances to our facilities, extensively and frequently disinfecting our
workspaces and providing masks to employees who are physically present at our
facilities. We expect to continue to implement these measures until the COVID-19
pandemic is adequately contained, and we may take further actions as government
authorities require or recommend or as we determine to be in the best interests
of our employees, customers, partners and suppliers. We expect that the pandemic
may abate at different times in different regions, and accordingly our health
and safety protocols may vary across regions.
Operations
We have important manufacturing operations in the U.S., Japan, Korea, China,
Malaysia, and Taiwan, all of which have been affected by the outbreak and have
taken measures to try to contain it. Measures providing for business shutdowns
have generally excluded certain essential services, and those essential services
have commonly included critical infrastructure and the businesses that support
that critical infrastructure. While all of our facilities currently remain
operational, these measures have impacted and may further impact our workforce
and operations, as well as those of our customers, suppliers and other third
parties with which we do business. For example, the government of Malaysia
issued an order that significantly reduced the number of employees who could be
physically present to operate our Malaysian plant, which had reduced the
productivity of that plant for a period of time. As of the date of this filing,
our Malaysian plant is back to full capacity. In addition to reduced
productivity, constraints and limits imposed on our operations may slow or
diminish our research and development and customer qualification activities. We
also experienced brief interruptions in operations at our sites in Hangzhou,
China, San Luis Obispo, California and Bedford, Massachusetts. While
governmental measures may be modified, extended or reimposed, we expect that,
absent a significant surge in infections in the relevant local area, our
manufacturing and research and development facilities will remain operational,
largely at or near full capacity. In connection with the COVID-19 pandemic, we
have experienced limited absenteeism from employees who are required to be
on-site to perform their jobs, and we have incurred incremental employee
compensation related to the COVID-19 pandemic. We do not currently expect that
our operations will be adversely affected by significant absenteeism.
Supply
We have not yet experienced any significant impacts or interruptions to our
supply chain as a result of the COVID-19 pandemic. However, certain of our
suppliers have faced and, as the pandemic continues, may continue to face,
difficulties maintaining operations in light of government-ordered restrictions
and shelter-in-place mandates and may face challenges in
                                       24
--------------------------------------------------------------------------------
  Table of Contents
maintaining their level of supply. For example, earlier in the year, one of our
critical valve suppliers was shut down and was unable to supply us with valves
for certain of our gas purification products. In this instance we were able to
procure this critical part from a second, pre-qualified source. Although we
regularly monitor the financial health of companies in our supply chain,
financial hardship on our suppliers or sub-suppliers caused by the COVID-19
pandemic could cause a disruption in our ability to obtain raw materials or
components required to manufacture our products, adversely affecting our
operations. To mitigate the risk of potential supply interruptions from the
COVID-19 pandemic, we chose to increase certain inventory levels during the
second quarter, and we continue to hold more inventory than we might otherwise
seek to maintain. These actions may result in increased charges for excess or
obsolete inventory, which would have the effect of reducing our profitability.
We may decide to take similar actions going forward. Additionally, restrictions
or disruptions of transportation, such as reduced availability of air transport,
port closures and increased border controls or closures, have resulted, in
certain instances, in higher costs and delays, both on obtaining raw materials
and shipping finished goods to customers. If these restrictions and disruptions
continue, they could harm our profitability, make our products less competitive,
or cause our customers to seek alternative suppliers.
Demand
The COVID-19 pandemic has significantly increased economic and demand
uncertainty. During the first and second quarters of 2020, we have seen strong
demand from leading-edge customers associated with end-uses in servers and other
data center applications. We believe that a portion of recent orders we have
received may be a result of customers increasing their inventory to reduce their
exposure to risks of future supply disruptions, which could offset demand for
our products in the future. We continue to see weakness in some mainstream fabs
associated with the slowdown in sales of automotive, aerospace, mobile phone,
and other applications. Across our three divisions, certain customers impacted
by governmental reactions to COVID-19 pushed out product deliveries and
acceptance inspections from the first quarter of 2020 to the second quarter of
2020. We anticipate that the pandemic will continue to contribute to the current
global economic slowdown, and it is possible that it could cause a global
recession. In the event of a recession, demand for our products would decline
and our business would be adversely affected.
Liquidity
Although there is uncertainty related to the anticipated impact of the COVID-19
pandemic on our future results, we believe our business model, our current cash
reserves and our balance sheet leave us well-positioned to manage our business
through this crisis as we expect it to unfold. We have taken recent steps to
strengthen our balance sheet. On April 30, 2020, we issued $400 million
aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028.
We used a portion of the net proceeds of the offering to repay approximately
$142 million of borrowings under our senior secured revolving facility due 2023,
or the Revolving Facility, representing the entire aggregate principal amount
outstanding thereunder. We also used a portion of the net proceeds of the
offering to repay approximately $151 million of outstanding borrowings under our
senior secured term loan facility, or the Term Loan Facility.
We have reviewed numerous potential scenarios in connection with the impact of
COVID-19 on the global economy and the semiconductor industry. Based on our
analysis, we believe our existing balances of domestic cash and cash equivalents
and our currently anticipated operating cash flows will be sufficient to meet
our cash needs arising in the ordinary course of business for the next twelve
months.
We continue to monitor the rapidly evolving situation and guidance from
international and domestic authorities, including federal, state and local
public health authorities, and may take additional actions based on their
recommendations. In these circumstances, there may be developments outside our
control requiring us to adjust our operating plan. As such, given the dynamic
nature of this situation, we cannot reasonably estimate the impacts that
COVID-19 may have on our financial condition, results of operations or cash
flows in the future. In addition, see Part II-Item 1A, "Risk Factors," included
herein for updates to our risk factors regarding risks associated with the
COVID-19 pandemic.
Overall Summary of Financial Results
For the three months ended June 27, 2020, net sales increased 18% to $448.4
million, compared to $378.9 million for the three months ended June 29, 2019.
Net sales for the three months ended June 27, 2020 included sales of $12.4
million from acquired businesses and favorable foreign currency translation
effects of $0.4 million. In addition to these factors, the increase in revenue
primarily resulted from increased customer demand from the semiconductor market
compared to the year-ago quarter.
Sales were up $36.1 million, or 9%, on a sequential basis over sales of $412.3
million in the first quarter of 2020, including favorable foreign currency
translation effects of $0.1 million and sales attributable to acquired
businesses of $2.0 million. The increase in revenue resulted primarily from
increased customer demand from the semiconductor market compared to the previous
quarter.
The Company's gross profit for the three months ended June 27, 2020 increased to
$207.4 million, up from $166.3 million for the three months ended June 29, 2019.
The Company experienced a 46.2% gross margin for the three months ended June 27,
2020, compared to 43.9% in the comparable year-ago period. The gross profit and
gross margin increases reflect higher factory utilization associated with higher
sales levels and a favorable sales mix.
                                       25
--------------------------------------------------------------------------------
  Table of Contents
The Company's selling, general and administrative (SG&A) expenses increased by
$2.7 million for the three months ended June 27, 2020 compared to the year-ago
quarter, mainly due to higher employee costs.
The Company's other income, net decreased by $121.5 million for the three months
ended June 27, 2020 compared to the year-ago quarter, mainly due to the net
proceeds of $122.0 million received from the termination of the merger agreement
with Versum in the three months ended June 29, 2019. See note 8 to the Company's
condensed consolidated financial statements for additional information.
As a result of the aforementioned factors, the Company reported net income of
$68.0 million, or $0.50 per diluted share, for the quarter ended June 27, 2020,
compared to net income of $124.0 million, or $0.91 per diluted share, a year
ago.
On April 30, 2020, the Company issued $400 million aggregate principal amount of
4.375% senior unsecured notes due April 15, 2028. The transaction is described
in further detail in note 6 to the Company's condensed consolidated financial
statements.
On July 10, 2020, the Company acquired Global Measurement Technologies, Inc., or
GMTI, an analytical instrument provider for critical processes in semiconductor
production, and its manufacturing partner Clean Room Plastics, Inc., for an
aggregate purchase price of approximately $36 million in cash, subject to
customary purchase price adjustments. The Company funded the acquisition from
its available cash on hand. GMTI will be a part of the AMH segment. The
acquisition does not constitute a material business combination.
Cash and cash equivalents were $532.7 million at June 27, 2020, compared with
cash and cash equivalents of $351.9 million at December 31, 2019. The Company
had outstanding debt of $1,184.0 million at June 27, 2020, compared to $936.5
million at December 31, 2019.
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of
operations are based upon the Company's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these condensed
consolidated financial statements requires the Company to make estimates,
assumptions and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
The critical accounting policies affected most significantly by estimates,
assumptions and judgments used in the preparation of the Company's condensed
consolidated financial statements are described in Item 7 of its Annual Report
on Form 10-K for the year ended December 31, 2019 filed with the Securities and
Exchange Commission. On an ongoing basis, the Company evaluates the critical
accounting policies used to prepare its condensed consolidated financial
statements, including, but not limited to, those related to impairment of
long-lived assets, goodwill, income taxes and business acquisitions. There have
been no material changes in these aforementioned critical accounting policies.
                                       26
--------------------------------------------------------------------------------
  Table of Contents
Three and Six Months Ended June 27, 2020 Compared to Three and Six Months Ended
June 29, 2019 and Three Months Ended March 28, 2020
The following table compares operating results for the three and six months
ended June 27, 2020 with results for the three and six months ended June 29,
2019 and three months ended March 28, 2020 both in dollars and as a percentage
of net sales, for each caption.
                                                                          Three months ended                                                                                                                                                  Six months ended
(Dollars in thousands)                 June 27, 2020June 29, 2019March 28, 2020June 27, 2020June 29, 2019
Net sales                     $    448,405            100.0  %       $ 378,874               100.0  %       $ 412,327            100.0  %       $     860,732            100.0  %       $ 769,921               100.0  %
Cost of sales                      241,033             53.8            212,600                56.1            226,849             55.0                467,882             54.4            426,254                55.4
Gross profit                       207,372             46.2            166,274                43.9            185,478             45.0                392,850             45.6            343,667                44.6
Selling, general and
administrative expenses             66,872             14.9             64,150                16.9             58,891             14.3                125,763             14.6            146,404                19.0
Engineering, research and
development expenses                32,572              7.3             30,624                 8.1             29,632              7.2                 62,204              7.2             59,615                 7.7
Amortization of intangible
assets                              13,216              2.9             16,591                 4.4             16,211              3.9                 29,427              3.4             35,248                 4.6
Operating income                    94,712             21.1             54,909                14.5             80,744             19.6                175,456             20.4            102,400                13.3
Interest expense                    13,005              2.9             11,315                 3.0             10,559              2.6                 23,564              2.7             22,199                 2.9
Interest income                       (213)               -             (1,623)               (0.4)              (321)            (0.1)                  (534)            (0.1)            (2,848)               (0.4)
Other (income) expense, net           (477)            (0.1)          (122,015)              (32.2)               878              0.2                    401                -           (122,263)              (15.9)
Income before income taxes          82,397             18.4            167,232                44.1             69,628             16.9                152,025             17.7            205,312                26.7
Income tax expense                  14,361              3.2             43,235                11.4              8,622              2.1                 22,983              2.7             48,657                 6.3
Net income                    $     68,036             15.2  %       $ 123,997                32.7  %       $  61,006             14.8  %       $     129,042             15.0  %       $ 156,655                20.3  %


Net sales For the three months ended June 27, 2020, net sales increased by 18%
to $448.4 million, compared to $378.9 million for the three months ended
June 29, 2019. An analysis of the factors underlying the increase in net sales
is presented in the following table:

(In thousands)

   Net sales in the quarter ended June 29, 2019                      $ 

378,874

   Increase associated with acquired businesses                         

12,448

   Increase associated with volume, pricing and mix                     

56,649

Increase associated with effect of foreign currency translation 434

   Net sales in the quarter ended June 27, 2020                      $ 

448,405



The Company's sales increase was primarily due to increased customer demand from
the semiconductor market compared to the year-ago quarter, sales of $12.4
million from the Company's recent acquisitions and favorable foreign currency
translation effects of $0.4 million.
On a geographic basis, sales percentage by customers' country or region for the
three months ended June 27, 2020 and June 29, 2019 and the percentage increase
(decrease) in sales for the three months ended June 27, 2020 compared to the
sales for the three months ended June 29, 2019 were as follows:
                                       27

--------------------------------------------------------------------------------

  Table of Contents
                                                             Three months ended
                                                                                                   Percentage increase
                                                    June 27, 2020          June 29, 2019           (decrease) in sales
North America                                                 25  %                  23  %                        26  %
Taiwan                                                        20  %                  17  %                        39  %
South Korea                                                   15  %                  17  %                         3  %
Japan                                                         13  %                  14  %                        16  %
China                                                         13  %                  14  %                        11  %
Europe                                                         9  %                   9  %                        14  %
Southeast Asia                                                 5  %                   6  %                        (2  %)


The increase in sales to customers in North America was primarily driven by
sales from our recent acquisitions of MPD Chemicals, or MPD, and Sinmat and
demand for our Microcontamination Control products. The increase in sales to
customers in Taiwan was primarily driven by demand for our Advanced Materials
Handling and Microcontamination Control products. The increase in sales to
customers in Japan was primarily driven by demand for our Microcontamination
Control and Specialty Chemicals and Engineered Materials products. The increase
in sales to customers in China was due to sales from our acquisition of Hangzhou
Anow Microfiltration Co., Ltd, or Anow. The increase in sales to customers in
Europe was driven by demand for our Microcontamination Control products.
Sales were up $36.1 million, or 9%, on a sequential basis over sales of $412.3
million for the first quarter of 2020, including favorable foreign currency
translation effects of $0.1 million and sales associated attributable to
acquired businesses of $2.0 million. The increase in revenue resulted from
increased customer demand from the semiconductor market compared to the previous
quarter.
Net sales for the six months ended June 27, 2020 were $860.7 million, up 12%
from $769.9 million in the comparable year-ago period. An analysis of the
factors underlying the increase in net sales is presented in the following
table:

(In thousands)

   Net sales in the six months ended June 29, 2019                   $ 

769,921

   Increase associated with volume, pricing and mix                     

62,858

Increase associated with effect of foreign currency translation 125

   Increase associated with acquired businesses                         

27,828

   Net sales in the six months ended June 27, 2020                   $ 

860,732



The Company's sales increase was primarily due to increased customer demand from
the semiconductor market compared to the year-ago period, sales of $27.8 million
from the Company's recent acquisitions and favorable foreign currency
translation effects of $0.1 million.
On a geographic basis, sales percentage by customers' country or region for the
six months ended June 27, 2020 and June 29, 2019 and the percentage increase
(decrease) in sales for the six months ended June 27, 2020 compared to the sales
for the six months ended June 29, 2019 were as follows:
                                                              Six months ended
                                                                                                   Percentage increase
                                                    June 27, 2020          June 29, 2019           (decrease) in sales
North America                                                 25  %                  23  %                        18  %
Taiwan                                                        21  %                  19  %                        24  %
South Korea                                                   14  %                  16  %                        (3  %)
Japan                                                         13  %                  13  %                        16  %
China                                                         12  %                  13  %                         5  %
Europe                                                         8  %                   9  %                         6  %
Southeast Asia                                                 6  %                   7  %                         -  %


The increase in sales to customers in North America was primarily driven by
sales from our recent acquisitions of MPD and Sinmat and demand for our
Microcontamination Control products. The increase in sales to customers in
Taiwan was primarily driven by demand for our Advanced Materials Handling and
Microcontamination Control products. The increase in sales to customers in Japan
was primarily driven by demand for our Microcontamination Control and Specialty
Chemicals and Engineered Materials products.
                                       28
--------------------------------------------------------------------------------
  Table of Contents
Gross profit The Company's gross profit increased 25% for the three months ended
June 27, 2020 to $207.4 million, compared to $166.3 million for the three months
ended June 29, 2019. The Company experienced a 46.2% gross margin rate for the
three months ended June 27, 2020, compared to 43.9% in the comparable year-ago
period. The gross profit and gross margin increases reflect higher factory
utilization associated with higher sales levels and a favorable sales mix. The
gross profit and gross margin figures include a cost of sales charge of $0.7
million associated with the sale of inventory acquired in recent business
acquisitions for the three months ended June 29, 2019.
For the six months ended June 27, 2020, the Company's gross profit increased 14%
to $392.9 million, compared to $343.7 million for the six months ended June 29,
2019. The Company experienced a 45.6% gross margin rate for the six months ended
June 27, 2020, compared to 44.6% in the comparable year-ago period. The gross
profit and gross margin increases reflect higher factory utilization associated
with higher sales levels and a favorable sales mix. The gross profit and gross
margin figures include incremental cost of sales charges of $0.4 million and
$2.9 million associated with the sale of inventory acquired in recent business
acquisitions for the six months ended June 27, 2020 and June 29, 2019,
respectively.
Selling, general and administrative expenses SG&A expenses were $66.9 million
for the three months ended June 27, 2020, up $2.7 million, or 4%, from the
comparable three-month period a year earlier. An analysis of the factors
underlying the increase in SG&A is presented in the following table:
(In thousands)
Selling, general and administrative expenses in the quarter ended June 29, 2019 $  64,150
Deal and transaction costs                                                           (661)
Integration costs                                                                     648
Employee costs                                                                      4,457
Travel costs                                                                       (2,219)
Provision for bad debt                                                              1,105
Professional fees                                                                  (1,005)
Other increases, net                                                                  397

Selling, general and administrative expenses in the quarter ended June 27, 2020$ 66,872



SG&A expenses were $125.8 million for the first six months of 2020, down 14%
compared to SG&A expenses of $146.4 million in the year-ago period. An analysis
of the factors underlying changes in SG&A is presented in the following table:
(In thousands)
Selling, general and administrative expenses in the six months ended June 29,
2019$ 146,404
Deal and transaction costs                                                        (18,366)
Integration costs                                                                  (2,224)
Employee costs                                                                      1,085
Travel costs                                                                       (2,954)
Provision for bad debt                                                              1,438
Other increases, net                                                                  380
Selling, general and administrative expenses in the six months ended June 27,
2020$ 125,763


Deal and transaction costs were $18.4 million lower in the six months ended June
27, 2020 compared to the six months ended June 29, 2019, mainly due to the deal
costs associated with the terminated Versum transaction.
Engineering, research and development expenses The Company's engineering,
research and development, or ER&D, efforts focus on the support or extension of
current product lines and the development of new products and manufacturing
technologies. ER&D expenses were $32.6 million in the three months ended
June 27, 2020 compared to $30.6 million in the year-ago period. An analysis of
the factors underlying the increase in ER&D is presented in the following table:
(In thousands)
Engineering, research and development expenses in the quarter ended June 29,
2019$  30,624
Employee costs                                                                     2,839
Travel costs                                                                        (349)
Other decreases, net                                                                (542)

Engineering, research and development expenses in the quarter June 27, 2020

$ 32,572

                                       29
--------------------------------------------------------------------------------
  Table of Contents
ER&D expenses increased 4% to $62.2 million in the first six months of 2020,
compared to $59.6 million in the year ago period. An analysis of the factors
underlying the increase in ER&D is presented in the following table:
(In thousands)
Engineering, research and development expenses in the six months ended June
29, 2019$  59,615
Employee costs                                                                     2,629
Depreciation                                                                       1,068
Travel costs                                                                        (548)
Other decreases, net                                                                (560)

Engineering, research and development expenses in the six months ended June 27, 2020

$ 62,204



Amortization expenses Amortization of intangible assets was $13.2 million in the
three months ended June 27, 2020, compared to $16.6 million for the three months
ended June 29, 2019. The decrease primarily reflects the elimination of
amortization expense of $6.0 million for identifiable intangible assets acquired
in recent acquisitions that became fully amortized in previous periods,
partially offset by additional amortization expense of $2.7 million associated
with recent acquisitions.
Amortization of intangible assets was $29.4 million in the six months ended
June 27, 2020, compared to $35.2 million for the six months ended June 29, 2019.
The decrease primarily reflects the elimination of amortization expense of $10.9
million for identifiable intangible assets acquired in recent acquisitions that
became fully amortized in previous periods, partially offset by additional
amortization expense of $5.3 million associated with recent acquisitions.
Interest expense Interest expense includes interest associated with debt
outstanding and the amortization of debt issuance costs associated with such
borrowings. Interest expense was $13.0 million in the three months ended
June 27, 2020 compared to $11.3 million in the three months ended June 29, 2019.
The increase primarily reflects higher average debt levels.
Interest expense was $23.6 million in the six months ended June 27, 2020,
compared to $22.2 million in the six months ended June 29, 2019. The increase
reflects higher average debt levels.
Interest income Interest income was $0.2 million in the three months ended
June 27, 2020, compared to $1.6 million in the three months ended June 29, 2019.
The decrease reflects lower average interest rates.
Interest income was $0.5 million in the six months ended June 27, 2020, compared
to $2.8 million in the six months ended June 29, 2019. The decrease reflects
lower average interest rates.
Other (income) expense, net Other income, net was $0.5 million in the three
months ended June 27, 2020 and consisted mainly of foreign currency transaction
gains of $2.0 million, partially offset by loss on debt extinguishment costs of
$1.5 million associated with payments on the Term Loan Facility. Other income,
net was $122.0 million in the three months ended June 29, 2019 and consisted of
net proceeds of $122.0 million received from the termination of the merger
agreement with Versum.
Other expense, net was $0.4 million in the six months ended June 27, 2020 and
consisted of loss on debt extinguishment costs of $1.5 million associated with
payments on the Term Loan Facility, partially offset by foreign currency
transaction gains of $1.3 million. Other income, net was $122.3 million in the
six months ended June 29, 2019 and consisted mainly of net proceeds of $122.0
million received from the termination of the merger agreement with Versum.
Income tax expense Income tax expense was $14.4 million and $23.0 million in the
three and six months ended June 27, 2020, respectively, compared to income tax
expense of $43.2 million and $48.7 million in the three and six months ended
June 29, 2019, respectively. The Company's year-to-date effective tax rate at
June 27, 2020 was 15.1% , compared to 23.7% at June 29, 2019.
The year-to-date effective tax rate at June 29, 2019 included a discrete tax
charge of $9.4 million related to the reversal of a dividend received deduction
that was recorded in 2018. This discrete charge was recorded based on the
issuance of final regulations during the quarter ended June 29, 2019.
Additionally, in 2019 the Company received a termination fee from Versum based
on the termination of the Versum merger agreement and recorded a discrete charge
of $23.5 million related to the termination fee, net of associated expenses. As
a result of the termination fee, the Company released a valuation allowance on
federal capital loss carryforwards and recorded a discrete benefit of $2.4
million. Furthermore, the year-to-date effective tax rate decreased from
June 29, 2019 to June 27, 2020 due to lower accrued withholding taxes as a
result of a portion of the Company's foreign earnings being permanently
reinvested in 2020 and an increase in the federal research and development
credits. The year-to-date income tax expense at June 27, 2020 and June 29, 2019
includes discrete benefits of $6.4 million and $3.1 million, respectively,
recorded in connection with share-based compensation.
                                       30
--------------------------------------------------------------------------------
  Table of Contents
Net income Due to the factors noted above, the Company recorded net income of
$68.0 million, or $0.50 per diluted share, in the three-month period ended
June 27, 2020, compared to net income of $124.0 million, or $0.91 per diluted
share, in the three months ended June 29, 2019. In the three months ended
June 27, 2020, net income, as a percentage of net sales, decreased to 15.2% from
32.7% in the year-ago period.
In the six months ended June 27, 2020, the Company recorded net income of $129.0
million, or $0.95 per diluted share, compared to net income of $156.7 million,
or $1.15 per diluted share, in the six months ended June 29, 2019. In the six
months ended June 27, 2020, net income, as a percentage of net sales, decreased
to 15.0% from 20.3% in the year-ago period.
Non-GAAP Measures The Company's condensed consolidated financial statements are
prepared in conformity with accounting principles generally accepted in the
United States, or GAAP. The Company also utilizes certain non-GAAP financial
measures as a complement to financial measures provided in accordance with GAAP
in order to better assess and reflect trends affecting the Company's business
and results of operations. See the section "Non-GAAP Information" included below
in this section for additional detail, including the definition of certain
non-GAAP financial measures and the reconciliation of these non-GAAP measures to
the Company's GAAP measures.
The Company's principal non-GAAP financial measures are Adjusted EBITDA and
Adjusted Operating Income, together with related measures thereof, and non-GAAP
Earnings Per Share.
Adjusted EBITDA increased 38% to $131.5 million in the three months ended
June 27, 2020, compared to $95.4 million in the three months ended June 29,
2019. In the three months ended June 27, 2020, Adjusted EBITDA, as a percentage
of net sales, increased to 29% from 25% in the year-ago period.
Adjusted EBITDA increased 23% to $251.8 million in the six months ended June 27,
2020, compared to $204.3 million in the six months ended June 29, 2019. In the
six months ended June 27, 2020, Adjusted EBITDA, as a percentage of net sales,
increased to 29% from 27% in the year-ago period.
Adjusted Operating Income increased 44% to $110.8 million in the three months
ended June 27, 2020, compared to $76.8 million in the three months ended
June 29, 2019. Adjusted Operating Income, as a percentage of net sales,
increased to 25% from 20% in the year-ago period.
Adjusted Operating Income increased 25% to $210.5 million in the six months
ended June 27, 2020, compared to $169.0 million in the six months ended June 29,
2019. In the six months ended June 27, 2020, Adjusted Operating Income, as a
percentage of net sales, increased to 24% from 22% in the year-ago period.
Non-GAAP Earnings Per Share increased 54% to $0.60 in the three months ended
June 27, 2020, compared to $0.39 in the three months ended June 29, 2019.
Non-GAAP Earnings Per Share increased 29% to $1.15 in the six months ended
June 29, 2019, compared to $0.89 in the six months ended June 29, 2019.
                                       31
--------------------------------------------------------------------------------
  Table of Contents
Segment Analysis
The Company reports its financial performance based on three reporting segments.
The following is a discussion of the results of operations of these three
business segments. See note 10 to the condensed consolidated financial
statements for additional information on the Company's three segments.
The following table presents selected net sales and segment profit data for the
Company's three reportable segments and unallocated general and administrative
expenses for the three months ended June 27, 2020, June 29, 2019 and March 28,
2020, and the six months ended June 27, 2020 and June 29, 2019.
                                                                    Three months ended                                                                             Six months ended
(In thousands)                                 June 27, 2020          June 29, 2019          March 28, 2020          June 27, 2020          June 29, 2019
Specialty Chemicals and Engineered Materials
Net sales                                     $     146,213$     127,552$      144,214$     290,427$     252,022
Segment profit                                       32,938                 24,000                  32,670                 65,608                 48,431
Microcontamination Control
Net sales                                     $     183,758$     150,185$      159,261$     343,019$     307,891
Segment profit                                       62,137                 43,126                  50,167                112,304                 90,449
Advanced Materials Handling
Net sales                                     $     126,434$     107,515$      116,137$     242,571$     223,579
Segment profit                                       22,809                 15,043                  20,632                 43,441                 37,410

Unallocated general and administrative
expenses                                      $       9,956$      10,669$        6,514$      16,470$      38,642


Specialty Chemicals and Engineered Materials (SCEM)
For the second quarter of 2020, SCEM net sales increased to $146.2 million,
compared to $127.6 million in the comparable period last year. The sales
increase was due to increased sales of advanced deposition materials and
cleaning chemistries, as well as additional sales of $8.2 million attributable
to the acquisitions of MPD in the third quarter of 2019 and Sinmat in the first
quarter of 2020. This growth was offset by declines in non-semi related sales,
particularly in end markets that were most impacted by the pandemic, such as
aerospace and handsets. SCEM reported a segment profit of $32.9 million in the
second quarter of 2020, up 37% from $24.0 million in the year-ago period. The
segment profit increase was primarily due to higher gross profit related to
increased sales volume, partially offset by a 9% increase in operating expenses,
primarily due to recent acquisitions and higher compensation costs.

For the six months ended June 27, 2020, SCEM net sales increased to $290.4
million, compared to $252.0 million in the comparable period last year. The
sales increase was mainly due to increased sales of advanced deposition
materials and cleaning chemistries, as well as additional sales of $20.6 million
attributable to the acquisitions of Digital Specialty Chemicals Limited, or DSC,
in the first quarter of 2019, MPD in the third quarter of 2019 and Sinmat in the
first quarter of 2020. This growth was offset by declines in non-semi related
sales, particularly in end markets that were most impacted by the pandemic, such
as aerospace and handsets. SCEM reported a segment profit of $65.6 million in
the six months ended June 27, 2020, up 35% from $48.4 million in the year-ago
period also due to higher sales levels, partially offset by a 7% increase in
operating expenses, primarily due to recent acquisitions and higher compensation
costs.
Microcontamination Control (MC)
For the second quarter of 2020, MC net sales increased to $183.8 million,
compared to $150.2 million in the comparable period last year. The sales
increase was mainly due to improved sales from liquid filtration and gas
filtration products, as well as additional sales of $4.0 million attributable to
the acquisition of Anow in the third quarter of 2019, partially offset by a
decrease in sales from gas purification products. MC reported a segment profit
of $62.1 million in the second quarter of 2020, up 44% from $43.1 million in the
year-ago period. The segment profit improvement was primarily due to higher
gross profit related to the increased sales volume.
For the six months ended June 27, 2020, MC net sales increased to $343.0
million, compared to $307.9 million in the comparable period last year. The
sales increase was due to improved sales from liquid filtration and gas
purification products, as well as additional sales of $7.2 million attributable
to the acquisition of Anow in the third quarter of 2019. MC reported a segment
profit of $112.3 million in the six months ended June 27, 2020,
up 24% from $90.4 million in the year-ago period. The segment profit improvement
was primarily due to higher gross profit related to the increased sales volume.
                                       32
--------------------------------------------------------------------------------
  Table of Contents
Advanced Materials Handling (AMH)
For the second quarter of 2020, AMH net sales increased to $126.4 million,
compared to $107.5 million in the comparable period last year. The sales
increase was mainly due to improved sales from high purity liquid containers and
wafer handling products. AMH reported a segment profit of $22.8 million in the
second quarter of 2020, up 52% from $15.0 million in the year-ago period. The
segment profit increase was primarily due to higher sales volume and a 5%
decrease in operating expenses, primarily due to lower spending and
restructuring initiatives from the previous year.
For the six months ended June 27, 2020, AMH net sales increased to $242.6
million, compared to $223.6 million in the comparable period last year. The
sales increase was mainly due to improved sales from high purity liquid
containers and wafer handling products. AMH reported a segment profit of $43.4
million in the six months ended June 27, 2020, up 16% from $37.4 million in the
year-ago period. The segment profit increase was primarily due to higher sales
volume and a 7% decrease in operating expenses, primarily due to lower spending
and restructuring initiatives from the previous year.
Unallocated general and administrative expenses
Unallocated general and administrative expenses totaled $10.0 million in the
second quarter of 2020, compared to $10.7 million in the comparable period last
year.
Unallocated general and administrative expenses for the six months ended
June 27, 2020 totaled $16.5 million, down from $38.6 million in the six months
ended June 27, 2020. The $22.2 million decrease mainly reflects a $20.6 million
decrease in deal and integration costs referenced in the discussion of SG&A
above.

Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
In thousands                   June 27, 2020       December 31, 2019
Cash and cash equivalents     $     532,667$        351,911
Working capital                     950,892                667,964
Total debt                        1,183,992                936,484


The Company has historically financed its operations and capital requirements
through cash flow from its operating activities, long-term loans, lease
financing and borrowings under domestic and international short-term lines of
credit. Although there is uncertainty related to the anticipated impact of the
COVID-19 pandemic on the Company's future results, we believe our business
model, our current cash reserves and the recent steps we have taken to
strengthen our balance sheet, such as our issuance of $400 million aggregate
principal amount of 4.375% senior unsecured notes due April 15, 2028 and related
repayments under the Revolving Facility and Term Loan Facility, will help us to
manage our business through this crisis as we expect it to unfold. We have
reviewed numerous potential scenarios in connection with the impact of COVID-19
on the global economy and the semiconductor industry. Based on our analysis, we
believe our existing balances of domestic cash and cash equivalents and our
currently anticipated operating cash flows will be sufficient to meet our cash
needs arising in the ordinary course of business for the next twelve months. As
the opportunity arises, we may seek to take advantage of opportunities to raise
additional capital through additional debt financing or through public or
private sales of securities. If in the future our available liquidity is not
sufficient to meet the Company's operating and debt service obligations as they
come due, management would need to pursue alternative arrangements through
additional equity or debt financing in order to meet the Company's cash
requirements. There can be no assurance that any such financing would be
available on commercially acceptable terms, or at all. To date, in fiscal 2020,
we have not experienced difficulty accessing the capital and credit markets;
however, future volatility in the capital and credit markets may increase costs
associated with issuing debt instruments or affect our ability to access those
markets. In addition, it is possible that our ability to access the capital and
credit markets could be limited at a time when we would like, or need, to do so,
which could have an adverse impact on our ability to refinance maturing debt
and/or react to changing economic and business conditions.
In summary, our cash flows for each period were as follows:
                                                                Six months 

ended

(in thousands)                                         June 27, 2020       June 29, 2019
Net cash provided by operating activities             $     141,424       $ 

228,363

Net cash used in investing activities                      (122,307)        

(109,171)

Net cash provided by (used in) financing activities 163,833

(79,166)

Increase in cash and cash equivalents                       180,756         

39,320

                                       33
--------------------------------------------------------------------------------
  Table of Contents
Operating activities
Cash provided by operating activities is net income adjusted for certain
non-cash items and changes in assets and liabilities. Cash flows provided by
operating activities totaled $141.4 million in the six months ended June 27,
2020 compared to cash flows provided by operating activities of $228.4 million
in the six months ended June 29, 2019. The decrease in cash provided by
operating activities was primarily due to lower net income and changes in
working capital and other assets and liabilities. The net change in working
capital and other assets and liabilities resulted in a decrease to cash provided
by operations of $81.9 million for the six months ended June 27, 2020 compared
to a decrease of $14.6 million for the six months ended June 29, 2019.
Changes in working capital and other assets and liabilities for the six months
ended June 27, 2020 were driven by increases in accounts receivable, inventories
and accounts payable. The change for accounts receivable was primarily due to
the Company's quarter closing date occurring several days prior to the end of
the calendar month, the period during which receivable collections are typically
heavy, particularly for the Company's Asia operations as compared to the six
months ended June 29, 2019. The change for inventory was driven by an increase
in raw material purchases to provide a buffer related to any potential supply
chain issues related to COVID-19. The change for accounts payable and accrued
liabilities was primarily driven by the timing of payments of accounts payable.
In addition, the Company paid out a lower incentive compensation payment for the
six months ended June 27, 2020 compared to the Company's analogous payment for
the six months ended June 29, 2019. Furthermore, the Company's incentive
compensation accrual is higher at June 27, 2020 than its incentive compensation
accrual at June 29, 2019.
Investing activities Cash flows used in investing activities totaled $122.3
million in the six months ended June 27, 2020 compared to cash flows used in
investing activities of $109.2 million in the six months ended June 29, 2019.
The change was due to higher cash paid for acquisitions, offset in-part by lower
cash paid for acquisition of property, plant and equipment.
Acquisition of property, plant and equipment totaled $46.9 million in the six
months ended June 27, 2020, which primarily reflected investments in equipment
and tooling, compared to $60.1 million in the six months ended June 29, 2019,
which primarily reflected investments in equipment and tooling.
On January 10, 2020, the Company acquired Sinmat, a CMP slurry manufacturer. The
cash used to acquire Sinmat for the six months ended June 27, 2020 was $75.6
million, net of cash acquired. The transaction is described in further detail in
note 3 to the Company's condensed consolidated financial statements.
In the six months ended June 29, 2019, the Company acquired DSC, which provides
advanced materials to the specialty chemical, technology and pharmaceutical
industries. The cash used to acquire DSC for the six months ended June 29, 2019
was $49.3 million, net of cash acquired. The transaction is described in further
detail in note 3 to the Company's condensed consolidated financial statements.
As of June 27, 2020, the Company expects its full-year capital expenditures in
2020 to be approximately $120.0 million. As of June 27, 2020, the Company had
outstanding capital purchase obligations of $42.1 million for the construction
or purchase of plant and equipment not yet recorded in the Company's condensed
consolidated financial statements as the Company had not received the related
goods or property as of such date.
Financing activities Cash flows provided by financing activities totaled $163.8
million during the six months ended June 27, 2020 compared to cash flows used in
financing activities of $79.2 million during the six months ended June 29, 2019.
The change was primarily due to net long-term debt activity, which was a source
of cash of $249.0 million in the six months ended June 27, 2020, compared to a
use of cash of $2.0 million in the comparable period in 2019, and a $20.8
million decrease of repurchases of the Company's common stock, partially offset
by a $16.1 million deferred acquisition payment related to our DSC acquisition,
a $4.4 million increase in cash used to pay taxes for net share settlements of
equity awards and $4.0 million increase in payments for debt issuance costs. In
March 2020, the Company suspended its share repurchase program.
Our total dividend payments were $21.7 million in the six months ended June 27,
2020 compared to $19.0 million in the six months ended June 29, 2019. We have
paid a cash dividend in each of the past 11 quarters. On July 15, 2020, the
Board declared a quarterly cash dividend of $0.08 per share of common stock,
payable on August 19, 2020 to stockholders of record on July 29, 2020.
Other Liquidity and Capital Resources Considerations
The Company's Term Loan Facility matures on November 6, 2025 and bears interest
rate at a rate per annum of 2.2% at June 27, 2020. During the six months ended
June 27, 2020, the Company made payments of $151.0 million on the Term Loan
Facility and had losses on debt extinguishment of $1.5 million. As of June 27,
2020, the aggregate principal amount outstanding under the Term Loan Facility
was $245 million.
The Company's Revolving Facility provides for lending commitments in an
aggregate principal amount of up to $300 million maturing on November 6, 2023.
The Revolving Facility bears interest at a rate per annum equal to, at the
Company's option,
                                       34
--------------------------------------------------------------------------------
  Table of Contents
either a base rate (such as prime rate) or LIBOR plus, in each case, an
applicable margin. At June 27, 2020, there was no balance outstanding under the
Revolving Facility and we had undrawn outstanding letters of credit of $0.2
million.
Through June 27, 2020, the Company was in compliance with all applicable
financial covenants under its credit facilities.
As of June 27, 2020, we had $550 million aggregate principal amount of 4.625%
senior unsecured notes due February 10, 2026 outstanding.
On April 30, 2020, the Company issued $400 million aggregate principal amount of
4.375% senior unsecured notes due April 15, 2028. The Company paid debt issuance
costs of $4.0 million in connection with the issuance of the notes during the
six months ended June 27, 2020. The transaction is described in further detail
in note 6 to the Company's condensed consolidated financial statements.
The Company also has lines of credit with two banks that provide for borrowings
of Japanese yen for the Company's Japanese subsidiary, equivalent to an
aggregate of approximately $11.2 million. There were no outstanding borrowings
under these lines of credit at June 27, 2020.
As of June 27, 2020, the Company's sources of available funds were its cash and
cash equivalents of $532.7 million, funds available under the Revolving Facility
and international credit facilities and cash flow generated from operations. As
of June 27, 2020, the amount of cash and cash equivalents held in certain of our
foreign operations totaled approximately $219.5 million. If we repatriate such
funds, we will be required to pay income taxes in certain U.S. states and
applicable foreign withholding taxes on those amounts during the period when
such repatriation occurs. We have accrued taxes for the tax effect of
repatriating the funds to the U.S.
Off-Balance Sheet Arrangements
As of June 27, 2020, we did not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a material current or future effect on
our financial condition, results of operations, liquidity, capital expenditures
or capital resources.
Contractual Obligations
There have been no significant changes to the contractual obligations reported
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,
except for long-term debt. On April 30, 2020, the Company issued $400 million
aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028.
The Company paid down $151 million on the Term Loan Facility during the second
quarter of 2020.
Recently adopted accounting pronouncements Refer to note 1 to the Company's
condensed consolidated financial statements for a discussion of accounting
pronouncements recently adopted.
Recently issued accounting pronouncements Refer to note 1 to the Company's
condensed consolidated financial statements for a discussion of accounting
pronouncements recently issued but not yet adopted.
Non-GAAP Information The Company's condensed consolidated financial statements
are prepared in conformity with GAAP.
The Company also utilizes certain non-GAAP financial measures as a complement to
financial measures provided in accordance with GAAP in order to better assess
and reflect trends affecting the Company's business and results of operations.
These non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating
Income, together with related measures thereof, and non-GAAP Earnings Per Share,
or EPS, as well as certain other supplemental non-GAAP financial measures
included in the discussion of the Company's financial results.
Adjusted EBITDA, a non-GAAP financial measure, is defined by the Company as net
income before (1) income tax expense, (2) interest expense, (3) interest income,
(4) other (income) expense, net, (5) charge for fair value write-up of acquired
inventory sold, (6) deal and transaction costs, (7) integration costs, (8)
severance and restructuring costs, (9) amortization of intangible assets and
(10) depreciation. Adjusted Operating Income, another non-GAAP financial
measure, is defined by the Company as Adjusted EBITDA exclusive of the
depreciation addback noted above. The Company also utilizes non-GAAP financial
measures whereby Adjusted EBITDA and Adjusted Operating Income are each divided
by the Company's net sales to derive Adjusted EBITDA Margin and Adjusted
Operating Margin, respectively.
Non-GAAP EPS, a non-GAAP financial measure, is defined by the Company as net
income before (1) charge for fair value write-up of acquired inventory sold, (2)
deal and transaction costs, (3) integration costs, (4) severance and
restructuring costs, (5) loss on debt extinguishment and modification, (6)
Versum termination fee, net, (7) amortization of intangible assets, (8) tax
effect of legal entity restructuring and (9) the tax effect of the foregoing
adjustments to net income, stated on a per share basis.
The Company provides supplemental non-GAAP financial measures to help management
and investors to better understand its business and believes these measures
provide investors and analysts additional and meaningful information for the
assessment
                                       35
--------------------------------------------------------------------------------
  Table of Contents
of the Company's ongoing results. Management also uses these non-GAAP measures
to assist in the evaluation of the performance of the Company's business
segments and to make operating decisions.
Management believes the Company's non-GAAP measures help indicate the Company's
baseline performance before certain gains, losses or other charges that may not
be indicative of the Company's business or future outlook and offer a useful
view of business performance in that the measures provide a more consistent
means of comparing performance. The Company believes the non-GAAP measures aid
investors' overall understanding of the Company's results by providing a higher
degree of transparency for such items and providing a level of disclosure that
will help investors understand how management plans, measures and evaluates the
Company's business performance. Management believes that the inclusion of
non-GAAP measures provides greater consistency in its financial reporting and
facilitates investors' understanding of the Company's historical operating
trends by providing an additional basis for comparisons to prior periods.
Management uses Adjusted EBITDA and Adjusted Operating Income to assist it in
evaluations of the Company's operating performance by excluding items that
management does not consider as relevant in the results of its ongoing
operations. Internally, these non-GAAP measures are used by management for
planning and forecasting purposes, including the preparation of internal
budgets; for allocating resources to enhance financial performance; for
evaluating the effectiveness of operational strategies; and for evaluating the
Company's capacity to fund capital expenditures, secure financing and expand its
business.
In addition, and as a consequence of the importance of these non-GAAP financial
measures in managing its business, the Company's Board of Directors uses
non-GAAP financial measures in the evaluation process to determine management
compensation.
The Company believes that certain analysts and investors use Adjusted EBITDA,
Adjusted Operating Income and non-GAAP EPS as supplemental measures to evaluate
the overall operating performance of firms in the Company's industry.
Additionally, lenders or potential lenders use Adjusted EBITDA measures to
evaluate the Company's creditworthiness.
The presentation of non-GAAP financial measures is not meant to be considered in
isolation, as a substitute for, or superior to, financial measures or
information provided in accordance with GAAP. Management strongly encourages
investors to review the Company's condensed consolidated financial statements in
their entirety and to not rely on any single financial measure.
Management notes that the use of non-GAAP measures has limitations, including
but not limited to:
First, non-GAAP financial measures are not standardized. Accordingly, the
methodology used to produce the Company's non-GAAP financial measures is not
computed under GAAP and may differ notably from the methodology used by other
companies. For example, the Company's non-GAAP measure of Adjusted EBITDA may
not be directly comparable to EBITDA or an adjusted EBITDA measure reported by
other companies.
Second, the Company's non-GAAP financial measures exclude items such as
amortization and depreciation that are recurring. Amortization of intangibles
and depreciation have been, and will continue to be for the foreseeable future,
a significant recurring expense with an impact upon the Company's results of
operations, notwithstanding the lack of immediate impact upon cash flows.
Third, there is no assurance that the Company will not have future charges for
fair value write-up of acquired inventory, restructuring activities, deal costs,
integration costs, or similar items and, therefore, may need to record
additional charges (or credits) associated with such items, including the tax
effects thereon. The exclusion of these items in the Company's non-GAAP measures
should not be construed as an implication that these costs are unusual,
infrequent or non-recurring.
Management considers these limitations by providing specific information
regarding the GAAP amounts excluded from these non-GAAP financial measures and
evaluating these non-GAAP financial measures together with their most directly
comparable financial measures calculated in accordance with GAAP. The
calculations of Adjusted EBITDA, Adjusted Operating Income, and non-GAAP EPS,
and reconciliations between these financial measures and their most directly
comparable GAAP equivalents, are presented below in the accompanying tables.
                                       36

--------------------------------------------------------------------------------

  Table of Contents
Reconciliation of GAAP Net Income to Adjusted Operating Income and Adjusted
EBITDA
                                                          Three months ended                                             Six months ended
(In thousands)                                   June 27, 2020          June 29, 2019          June 27, 2020           June 29, 2019
Net sales                                       $     448,405$     378,874$     860,732$       769,921
Net income                                      $      68,036          $   

123,997 $ 129,042$ 156,655 Net income - as a % of net sales

                         15.2  %                32.7  %                15.0  %                  20.3  %
Adjustments to net income
Income tax expense                                     14,361                 43,235                 22,983                   48,657
Interest expense                                       13,005                 11,315                 23,564                   22,199
Interest income                                          (213)                (1,623)                  (534)                  (2,848)
Other (income) expense, net                              (477)              (122,015)                   401                 (122,263)
GAAP - Operating income                                94,712                 54,909                175,456                  102,400
Operating margin -as a % of net sales                    21.1  %                14.5  %                20.4  %                  13.3  %
Charge for fair value write-up of acquired
inventory sold                                              -                    695                    361                    2,850
Deal and transaction costs                                503                  1,164                  1,934                   20,300
Integration costs                                         355                  1,264                    403                    4,184
Severance and restructuring costs                       2,049                  2,170                  2,892                    3,991

Amortization of intangible assets                      13,216                 16,591                 29,427                   35,248
Adjusted operating income                             110,835                 76,793                210,473                  168,973
Adjusted operating margin - as a % of net sales          24.7  %                20.3  %                24.5  %                  21.9  %
Depreciation                                           20,639                 18,596                 41,287                   35,317
Adjusted EBITDA                                 $     131,474          $    

95,389 $ 251,760$ 204,290


Adjusted EBITDA - as a % of net sales                    29.3  %                25.2  %                29.2  %                  26.5  %


Reconciliation of GAAP Net Income and Earnings per Share to Non-GAAP Net Income and Earnings per Share

                                                                Three months ended                                             Six months ended
(In thousands, except per share data)                  June 27, 2020          June 29, 2019          June 27, 2020           June 29, 2019
Net income                                            $      68,036$     123,997$     129,042$       156,655
Adjustments to net income
Charge for fair value write-up of acquired inventory
sold                                                              -                    695                    361                    2,850
Deal and transaction costs                                      503                  1,164                  1,934                   20,711
Integration costs                                               355                  1,264                    403                    4,184
Severance and restructuring costs                             2,049                  2,170                  2,892                    3,991
Loss on debt extinguishment and modification                  1,470                      -                  1,470                        -
Versum termination fee, net                                       -               (122,000)                     -                 (122,000)

Amortization of intangible assets                            13,216                 16,591                 29,427                   35,248
Tax effect of legal entity restructuring                          -                  9,398                      -                    9,398
Tax effect of adjustments to net income and certain
discrete tax items1                                          (4,048)                20,153                 (8,377)                  10,289

Non-GAAP net income                                   $      81,581$      53,432$     157,152$       121,326

Diluted earnings per common share                     $        0.50

$ 0.91$ 0.95 $ 1.15 Effect of adjustments to net income

                            0.10                  (0.52)                  0.21                    (0.26)
Diluted non-GAAP earnings per common share            $        0.60

$ 0.39$ 1.15 $ 0.89

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

                                       37

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses


share with twitter share with LinkedIn share with facebook
All news about ENTEGRIS, INC.
10/22ENTEGRIS : Management's Discussion and Analysis of Financial Condition and Resul..
AQ
10/22ENTEGRIS : Reports Third Quarter Results
PU
10/22ENTEGRIS INC : Results of Operations and Financial Condition (form 8-K)
AQ
10/22ENTEGRIS : 3Q Earnings Snapshot
AQ
10/22ENTEGRIS : Reports Results for Third Quarter Of 2020
BU
10/14ENTEGRIS INC : Other Events (form 8-K)
AQ
10/14ENTEGRIS : Declares Quarterly Cash Dividend
BU
10/08ENTEGRIS : to Report Results for Third Quarter of 2020 on Thursday, October 22, ..
BU
08/03ENTEGRIS : Asia Pte Ltd. and SIMTech Establish a Joint Research Laboratory Focus..
BU
07/28ENTEGRIS, INC. : Ex-dividend day for
FA
More news