UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
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x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172023
or
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o | 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
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Entegris, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | 41-1941551 |
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Delaware | 41-1941551 |
(State or Other Jurisdiction of
Incorporation or Organization)
| (I.R.S. Employer
Identification No.)
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129 Concord Road, Billerica, Massachusetts 01821
(Address of principal executive offices and zip code)
(978) 436-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol(s) | Name of Exchange on which Registered |
| Common Stock, $0.01 Par Value | ENTG | The Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. x☒ Yes o☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. o☐ Yes x☒ No
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 x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ��Yes x☒ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. o
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“large accelerated filer," "accelerate” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12-b-212b-2 of the Exchange Act.
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| Large Accelerated Filer | x☒ | Accelerated Filer | o☐ |
| Non-Accelerated Filer | o (Do not check if a smaller reporting company)
☐ | Smaller reporting company | o☐ |
| | Emerging growth company | o☐ |
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant, based on the last sale price of the Common Stock on July 1, 2017,3, 2023, the last business day of registrant’s most recently completed second fiscal quarter, was $3,091,161,474.$14.7 billion. Shares held by each officer and director of the registrant and by each person who owned 10 percent or more of the outstanding Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. ThisThe determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes.
As of February 12, 2018, 141,141,2392024, 150,396,207 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for its 20182024 Annual Meeting of Stockholders scheduled to be held on May 9, 2018, or the 2018April 24, 2024 (the “2024 Proxy Statement,Statement”) which willis scheduled to be filed with the Securities and Exchange Commission or SEC,(the “SEC”) not later than 120 days after December 31, 2017,2023, are incorporated by reference into Part III of this Annual Report on Form 10-K. With the exception of the portions of the 20182024 Proxy Statement expressly incorporated into this Annual Report on Form 10-K by reference, such document shall not be deemed filed asto constitute part of this Annual Report on Form 10-K.
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| Auditor Name | Auditor Location | Auditor Firm ID |
| KPMG LLP | Minneapolis, Minnesota | 185 |
ENTEGRIS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20172023
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PART I
Item 1. Business.
OUR COMPANY
Entegris, Inc. (“Entegris”, “the Company”, “us”, “we”, or “our”) is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals andmission-critical advanced materials handlingand process solutions for manufacturing processes in the semiconductor and other high-technology industries. Our mission is toWe leverage our unique breadth of capabilities to create value forhelp our customers by developing mission-critical solutions to maximizeimprove their productivity, performance and technology in the most advanced manufacturing yields, reduce manufacturing costs and enable higher device performance.environments.
Semiconductors, or integrated circuits, are key components in modern electronic devices. Smartphones, cloud computing,devices that have changed, and that we believe will continue to change, the way we live, communicate and work. Products and emerging applications such as smartphones, wearable technology, self-driving vehicles, artificial intelligence, the Internet of Things, artificial intelligencegaming and other applicationsvirtual reality, high-performance and cloud computing, and smart healthcare will require faster, more powerful, more compact and more energy efficient semiconductors. In response toWe believe these trends, combined with existing applications, will drive long-term secular growth for semiconductors. We believe that semiconductor sales will double and reach $1 trillion by 2030, which we expect will create significant opportunities for our products.
Advanced products and applications require improved chip performance, higher chip density, and greater energy efficiency. To meet these requirements, and the growing demand from these applications, semiconductor makers have been adding more capacity and semiconductor manufacturing technology hasprocesses have rapidly beenbecome increasingly complex, for example, by moving to smaller dimensions,geometries and adopting new device architectures, such as FinFET transistors and 3D-NAND, and utilizingarchitectures. These complex processes are enabled by new and innovative manufacturing materials to increase transistor and bit density. As the technology node becomes increasingly complex, to enable improvements and to maximize yields, manufacturers require the effective development and application of new materials, a reliable and consistent supply of high-value materials and contamination-free transportation, storage and deliverythe increasing need to ensure materials purity throughout these process steps. We believe Entegris offers the industry’s most comprehensive electronic materials portfolio, especially in the areas of these materials seamlessly integrated into the semiconductor manufacturing process, at ever-increasing levels ofscience, materials purity, and contaminant control. Additionally, the effective management and maintenance of the entire materials handling system, from initial production of process chemistry, to transportation and dispensing onto the wafer, has grown in importance to enhanced device yield.
Entegris is uniquely positioned to rapidly respond to these challenges. We deliver advanced materials and high-purity chemistries, free from contamination, with optimized packaging and delivery solutions and in-process filtration and purificationcomplementary solutions that ensure high-value liquid chemistries and gasesenable faster time to yield. We believe these capabilities are free from contaminants before reaching the wafer. Ourquickly becoming critical enablers of our customers’ technology portfolio includes approximately 20,000 standard and customizedroadmaps. We expect these trends to translate into a higher served addressable market for our products and solutionsexpanding Entegris’ content per semiconductor wafer, which we believe will allow us to achieve growth that outperforms our markets.
In the highest levelsthird quarter of purity and performance that are essential to2023, the manufacture of semiconductors, flat panel displays, light emitting diodes, or LEDs, high-purity chemicals, solar cells, gas lasers, optical and magnetic storage devices, and critical components for aerospace, glass manufacturing and biomedical applications. The majority of our products are consumed at various times throughout the manufacturing process, with demand driven in part by the level of semiconductor and other manufacturing activity.
Our business is organized and operated inCompany realigned its segments into three operatingreportable segments discussed below, which align with the key elements of the advanced semiconductor manufacturing ecosystem. The Specialty Chemicalscurrent annual and Engineeredsucceeding annual periods will disclose the reportable segments with prior periods recast to reflect the change.
•The Materials Solutions segment, or SCEM, segmentMS, provides high-performancematerials-based solutions, such as chemical mechanical planarization (“CMP”) slurries and high-puritypads, deposition materials, process chemistries and gases, and materials, and safe and efficient delivery systems to support semiconductorformulated cleans, etchants and other advanced manufacturing processes. specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership.
•The Microcontamination Control segment, or MC, segment offers advanced solutions to filterthat improve customers’ yield, device reliability and purifycost by filtering and purifying critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.
•The Advanced Materials Handling segment, or AMH, segment develops solutions tothat improve customers’ yields by protecting critical materials during manufacturing, transportation, and storage, including products that monitor, protect, transport and deliver critical liquid chemistries, wafers, and other substrates for a broad set of applications in the semiconductor, industrylife sciences and other high-technology industries. While these
These segments have separate products and technical know-how, they share a global generalist sales force, common business systems and processes, technology centers and strategic and technology roadmaps. We leverage our expertise fromWith the complementary capabilities across these three segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers.customers, which should translate into improved device performance, lower cost of ownership and faster time to market. This capability has been further enhanced with the acquisition of CMC Materials. For example, we can now develop and provide complementary offerings solving customers’ complex manufacturing challenges across the deposition, CMP process and post-CMP modules with co-optimized products from each of our divisions, such as advanced deposition materials, CMP slurries, pads and post-CMP cleaning chemistries from our MS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.
ACQUISITIONS AND DIVESTITURES
On July 6, 2022 (the “Closing Date”), we completed the acquisition of CMC Materials, Inc. (now known as CMC Materials LLC) (“CMC Materials”). We acquired all of the issued and outstanding common shares of CMC Materials for $133.00 in cash and 0.4506 shares of our common stock per share, representing a total purchase price (inclusive of debt retired and cash assumed) of $6.0 billion (based on our closing price on June 30, 2022), including $3.8 billion in cash paid to CMC Materials’ shareholders, the issuance of 12.9 million shares of our common stock (excluding unvested CMC stock options and unvested CMC Materials restricted stock units, restricted shares and performance share units equity awards assumed), $0.9 billion of debt
retired and approximately $0.3 billion of acquired cash. We financed the cash portion of the purchase price through debt financing.
On February 10, 2023, the Company terminated a definitive agreement to sell its Pipeline and Industrial Materials (“PIM”) business, which became part of the Company with the acquisition of CMC Materials, to Infineum USA L.P. At the time of the termination, the transaction had not received clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On March 1, 2023, the Company completed the sale of QED Technologies International, Inc. (“QED”), which became part of the Company with the acquisition of CMC Materials, to an affiliate of Quad-C Management, Inc. for $134.3 million.
On June 5, 2023, the Company terminated an Alliance Agreement (the “Alliance Agreement”) between the Company and MacDermid Enthone Inc., a global business unit of Element Solutions Inc (“MacDermid Enthone”). In connection with the termination of the Alliance Agreement, Entegris received net proceeds of approximately $191.2 million.
On October 2, 2023, the Company completed the sale of its Electronic Chemicals (“EC”) business to FUJIFILM Holdings America Corporation (“Fujifilm”) for cash proceeds of $737.1 million, or net proceeds of $675.2 million, subject to customary final post-closing adjustments. The EC business, which was a separate reporting unit within the MS reportable segment, was acquired by Entegris with the acquisition of CMC Materials in July 2022.
THE SEMICONDUCTOR ECOSYSTEM
The manufacture of semiconductors requires hundreds of highly complex and sensitive manufacturing steps, during which a variety of materials are repeatedly applied to a silicon wafer to build integrated circuits on the wafer surface. We serve the semiconductor ecosystem by providing specialty materials and chemicals utilized in many process steps, offering a broad range of products to monitor, protect, transport, and deliver these critical process materials during the manufacturing process and providing systems to purify liquid chemistry and gases throughout the manufacturing process. The areas of the semiconductor ecosystem that rely most heavily on our products and solutions are described below.
Deposition. Deposition processes include physical vapor deposition (PVD), where a thin film is deposited on a wafer surface in a low-pressure gas environment, chemical vapor deposition (CVD), where a thin film is deposited on a wafer surface by exposing it to one or more volatile precursors which react with the wafer surface, atomic-layer deposition (ALD), where a thin film is deposited on a wafer surface by exposing it to one or more precursors which react through a series of sequential, self-limiting reactions, and electro-plating, where a metal layer, such as copper, is deposited using chemical baths. Our advanced precursor materials and electro-plating chemicals are utilized to meet the semiconductor industry’s composition, uniformity and
thickness needs of deposited films. Our filtration and purification products are used to remove contaminants during the deposition process, consequently reducing defects on wafers. These products are critical to ensuring device performance and the manufacturing yields of semiconductor manufacturers.
Chemical Mechanical Planarization (CMP). CMP is a polishing process used by semiconductor manufacturers to planarize, or flatten, many of the layers of material that have been deposited upon silicon wafers. We offer a broad range of products used by semiconductor manufacturers during and immediately following the CMP process. Our formulated cleaning chemistries remove residue from wafer surfaces after the CMP process, and prevent subsequent corrosion. Our filtration and purification systems are used to filter liquid slurries and cleaning chemistries in order to remove select particles and contaminants that can cause defects on a wafer’s surface. Our roller brushes are used in conjunction with our cleans chemistries to clean the wafer after completion of the CMP process in order to prepare the wafer for subsequent operations and our pad conditioners are used to prepare the surface of the CMP polishing pad prior to every polishing cycle.
Photolithography. Photolithography, is a process repeated many times that uses lightduring semiconductor fabrication, is used to print complex circuit patterns onto the wafer. To print the projected optical pattern,During this process, the wafer is coated with a thin film of light-sensitive material, called photoresist. Light is projected to expose the photoresist, which is then developed (somewhat like photographic film) to create a stenciled image pattern. Our liquidproduct offerings that are used throughout the photolithography process include:
•Liquid filtration, and liquidhigh-purity packaging and high-precision dispense systems play a vital role in assuringdesigned to ensure the pure, accurate and uniform dispensedistribution of contamination-free photoresists onto the wafer, so thatenabling manufacturers canto achieve acceptableoptimum yields in the manufacturing process,process; and our gas
•Gas microcontamination control systemssolutions designed to eliminate airborne contaminants that canoften disrupt effective photolithography processes.
Etch and Resist Strip. During the etch process, specific areas of the thin film that have been deposited on the surface of a wafer are removed to leave a desired circuit pattern. After the etch process, the hardened resist needs tomust be completely removed. Our formulated chemicalremoved and the etched area must be cleaned, which requires the use of high purity chemicals. Several of our products are utilized during and after the etch process, including:
•Selective etch chemistries to enable high aspect ratio structures, such as 3D-NAND;
•Formulated cleaning solutions to remove photo resistsphotoresists and post-etch residues and our gas filtersresidues;
•Filters and purifiers, which help assureto ensure the purity of the process gas streams usedformulated cleaning chemistries and to achieve desired yields in the etch process. Our precision-engineeredprocessing steps; and
•Precision-engineered coatings to provide barriers to corrosive chemistries in the etch environment, protect surfaces of equipment components from erosion and minimize particle generation.
Deposition. Deposition is a process during which certain materials are transferred to the surface of a wafer. Deposition processes include physical vapor deposition, or PVD, chemical vapor deposition, or CVD, atomic-layer deposition, or ALD, and electro-plating. We provide products that are used during these deposition processes and that are critical to enabling new device architectures. These products, which are designed to ensure device performance and achieve the targeted manufacturing yields of semiconductor manufacturers, include:
•Advanced precursor materials, which are utilized to meet the semiconductor industry’s composition, uniformity and thickness requirements of deposited films; and
•Filtration and purification products, which are used to remove contaminants during the deposition process, consequently reducing defects on wafers.
Ion Implant. Ion implantation is a key technology for forming transistors and is usedmethod repeated many times during semiconductor fabrication. Duringfabrication where dopants are introduced into a semiconductor wafer enhancing conductivity. Our products used during the ion implantation, wafers are bombarded by a beam of electrically-charged ions, called dopants, which change the electrical properties of the exposed surface films. Our implant process include:
•Safe Delivery Source® (SDS®(“SDS®”) and VAC® (VacuumVacuum Actuated Cylinders)Cylinders (“VAC®”) gas delivery systems assuredesigned to ensure the safe, effective and efficient delivery of the toxic gases necessary for the implant process. In addition, ourspecialty gases; and
•Electrostatic chucks and proprietary low temperature plasma coating processes for core components, which are critical elements of ion implantation equipment.
Wet Cleaning
Chemical Mechanical Planarization. Ultra-high purity chemicalsCMP is a polishing process used by semiconductor manufacturers to planarize, or flatten, many of precise compositionthe layers of material that have been deposited on silicon wafers. With the acquisition of CMC Materials, we expanded our offerings used during and immediately following the CMP process. Our offerings include:
•CMP slurries, used for polishing a wide range of materials used in semiconductors, including tungsten, dielectric materials, copper, tantalum (commonly referred to as “barrier”), aluminum, silicon carbide (“SiC”) and gallium nitride (“GaN”);
•CMP polishing pads, which are used in conjunction with slurries in the CMP process on a variety of polishing tools and wafers over a range of technology nodes and applications, including tungsten, copper, and dielectrics;
•Formulated cleaning chemistries, which remove residues from wafer surfaces after the CMP process;
•Filtration and purification solutions, which are used to remove select particles and contaminants from slurries and cleaning chemistries that can cause defects on a wafer’s surface;
•Roller brushes, which are used in conjunction with our formulated cleaning chemistries to clean the wafers before andwafer after severalcompletion of the processes described above, to pattern circuit images and to remove photoresists after etch. The cleaning chemicals must be maintained at very high purity levels without the presence of foreign material such as particles, ions or organic contaminantsCMP process in order to prepare the wafer for subsequent steps in the manufacturing process; and
•Process monitoring and control equipment, which maintain manufacturing yieldsthe integrity of the CMP slurries.
Wafer and avoid defective products. Our proprietary formulated cleaning chemistries are used in these wet cleaning processes and our liquid filters and purifiers ensure the purity of these chemicals.
Wafer SolutionsReticle Transport. Our wafer and reticle carriers are high-purity “micro-environments” that carry wafers between manufacturing process steps. These critical products protect wafers from damage or abrasion and minimize contamination during transportation and automated processing. Front-endProtection of processed wafers is essential to our customers because wafer processing can involveinvolves hundreds of steps and can take several weeks. Protectionweeks, making the scrapping of the processed waferdamaged wafers costly. Our extreme ultraviolet (“EUV”) reticle pod is essential, as a batchdesigned to provide defect-free protection of fully processed 200 mm or 300 mm wafers transported in one of our products can be worth over a million dollars.EUV reticles during shipping, storage, handling, and vacuum-transferring operations.
Chemical ContainersHandling. Semiconductor manufacturing and other high-technology manufacturing processes utilize large volumes of high-purity corrosive and hazardous chemicals. Our ultrahighWe provide solutions for the handling of such chemicals, including:
•Ultra-high purity chemical container products, such as drums, flexible packaging and associated coded connection systems, which are designed to maintain chemical purity, maximize utilization and ensure safe transport, containment and dispense of valuable, ultracleanultra-clean process fluids, from storage bybulk chemical manufacturing to point-of-use in the chemical manufacturer to point-of-use. Our FluoroPure® containersmanufacturing process; and NOWPak® liner-based systems maximize chemical retrieval and minimize chemical waste, which lowers our semiconductor manufacturer customers’ costs. Our portfolio of bottles, canisters, closures and accessories enhance tool productivity, increase yields and reduce operating costs. Relatedly, our ultrapure
•Ultra-pure valves, fitting,fittings, tubings and sensing and control products, which are used to distribute these chemicals around the fab and in wet process tools.
Other Markets
Wafer and Package Testing. ManyIn our Advanced Cleaning Materials business, which was added as part of the processes used toCMC Materials acquisition, we develop and manufacture semiconductors arehigh-performance consumable products for cleaning advanced probe cards and test sockets at semiconductor manufacturing facilities. We also used to manufacture photovoltaic cells, LEDs, flat panel displaysdesign innovative polymer products for semiconductor fabs that improve front-end tool uptime and magnetic storage devices resulting in the need for similar filtration, purification, control and measurement capabilities. We seek to leverage our products, technologies and expertise to address these important market opportunities.reduce operating costs.
INDUSTRY TRENDS
Emerging and Existing Applications.The market for semiconductors has grown significantly over the past few decades, and we expect this long-term trend to continue. We believe that smartphones, wearable technology, self-driving vehicles, artificial intelligence, the smartphone, Internet of Things, gaming and emerging applications invirtual reality, high performance and cloud computing, machine learning and artificial intelligence, autonomous vehicles, cryptocurrency, and virtual realitysmart healthcare will drive growth in the demand for semiconductors, drive wafer starts and create significant opportunities for our products. Existing applications in data processing, wireless communications, broadband infrastructure, personal computers, handheld
electronic devices and other consumer electronics are also expected to drive demand for semiconductors, and in turn, demand for our products.
Manufacturing Complexity and Architecture.The emergingEmerging applications described above require more powerful, faster and more energy efficientenergy-efficient semiconductors. SemiconductorIn response, semiconductor architectures are changing, with transistor design increasing in complexity, the use of multilayered patterning vertical(for example, extreme ultraviolet lithography), structures such as FinFET, 3D NAND and 3D-NAND,gate-all-around, and shrinking dimensions. These advanced architectures require an increase in the number ofmore process steps, required to manufacture these semiconductors. We believe that demand for ournew and innovative materials and consumable products will be driven by the increase in process steps and the associated lithography, deposition, CMP, and etch and clean required to manufacture leading edge semiconductors. Additionally, new materials have played a significant role in enabling improved devices performance and we expect this trend to continue. As dimensions get smaller, new materials will be required for transistor connectivity.more sophisticated contamination control solutions. For example, leading edgeleading-edge semiconductor manufacturers are moving towards atomic layer scale, where the precision of the manufacturing process and purity of the materials used is extremely importantvital to maintain the device integrity. These materials need to be supplied and delivered at ever-increasingincreasing levels of purity and control, from point-of-production to point-of-use and dispensepoint-of-dispense on the wafer.wafer to improve and maximize yields. We believe that demand for our materials and consumable products will benefit from the increase in process steps in lithography, deposition, CMP and etch and clean required to manufacture leading-edge semiconductors.
New and Advanced Materials.New and advanced materials have played a significant role in enabling improved device performance, and we expect this trend to continue. As dimensions get smaller, more novel materials will be required to enable transistor connectivity. We believe our portfolio of critical materials addresses the trendchallenges our customers face as they introduce more complex architectures and search for new materials supplied at high levelsto improve the performance of purity to drive the demandtheir devices. These critical materials include advanced deposition materials, implant gases, CMP slurries, formulated cleaning chemistries, selective etch chemistries and high-purity wet chemicals.
Materials Purity. As feature size decreases and 3D structures proliferate, contamination control has become a critical enabler for our semiconductor customers in achieving acceptable device yields. Our advanced materialsfiltration and ourpurification products and solutions for air, bulk or specialty gas, and wet chemicals are designed to purify, monitor,reduce defects and enable higher yields for our customers. Our materials handling solutions protect transport, and deliver critical materials. To addressmaterials throughout the challenges of the advanced technology nodes, we collaborate withfabrication process, allowing our customers to develop new materials, to enhance our filtration and purification capabilities and to introduce advanced materials packaging and monitoring capabilities.
Material Handling Solutions. Our semiconductor customers have become increasingly focused on materials handling solutions that enable them to safely store, handle, process and transport critical materials in ultra-pure environments throughout the manufacturing process to minimize the potential for damage or degradation to their materials and to protect their investment in processed wafers.process. We believe that these trendsthe trend for greater materials purity will provide opportunities for us to utilize our unique breadth of capabilities to provide innovative materials materials management, filtration, purification, wafer transport and process solutions to semiconductor customers.
Geopolitical Implications of the Semiconductor Industry. We have seen, and expect to continue to see, governments have an interest in fostering the development of a domestic or local semiconductor ecosystem. Examples include the United States (“U.S.”) and European Union (“EU”) CHIPS Acts and similar initiatives in Japan and Korea. We have been proactive in light of these trends by developing a manufacturing strategy to better serve our customers as they build new fabs in various countries and seek local reliable supply chain partners. Recent examples of this strategy include our new facilities located in Kaohsiung Science Park (“KSP”) in Taiwan and in Colorado Springs, Colorado. Our KSP site, which opened in May 2023, will be our largest manufacturing facility and will enhance our ability to enable themserve our customers efficiently and effectively in Taiwan and other Asia-pacific locations. Additionally, we recently began constructing our new state-of-the-art Colorado Springs manufacturing facility, which is intended to successfully manage this growing complexity.increase our service levels to new fabs expected to be built in the U.S. and provide us with greater manufacturing resiliency in the form of enhanced business continuity plans.
Reliance on Trusted Suppliers.Our customers require that their key materials suppliers demonstrate greater capabilities such asand efficiencies in their processes, including sustainability, scalability, flexible manufacturing, quality control, supply chain management and the ability to effectively collaborate on solutions to problems. We have responded to these demands by deploying resources to enable us to align with their requirements and drive operational excellence. For example, in 2016 and 2017, to enhance local development and collaboration and to strengthen relationships with our key customers,believe that we expanded our technology centers in South Korea and Taiwan, adding to our research and development capabilities. We believe these trends will allow usbe able to leverage our manufacturing, operational and technical capabilities, along with our broad technology portfolio and expanding scale, to become an increasingly important strategic supplier to our customers. We have deployed technical and manufacturing resources in strategic locations to enable us to collaborate with our customers. Furthermore, we believe that the greater scale we achieved from the acquisition of CMC Materials will allow us to better serve our customers, invest more in engineering, research and development (“ER&D”) and bring complementary, co-optimized solutions to market faster than ever before.
Continued Consolidation.Our customer base within the semiconductor industry has consolidated in recent years through mergers and acquisitions. As a result, the importance of maintaining and developing strong and close relationships with our customers becomes even more essential. While continuing to strengthen these relationships, weWe also seek to further broaden our customer base by leveraging our products, technologies, expertise and expertisecore capabilities in serving semiconductor applications to address adjacent market opportunities, including in manufacturing processes for flat panel displays, high-purity chemicals, solar cells,hydrogen purification, clean energy, batteries, LEDs, optical magnetic storage devicesspace systems and products for life sciences.sciences applications.
Manufacturing
OUR COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
We believe that our platform is well-positioned and sets us apart from our competitors for several reasons.
•Approximately 75% of our revenue during 2023 was unit driven or recurring in China. An additional factor that could spur future industry growth is sustained semiconductor industry development in China, which has experienced recent growth in semiconductor production. Expansion and growthnature, from products repeatedly consumed as a result of the semiconductor industry in China could increasemanufacturing process. As a result, our revenue is generally more impacted by overall global semiconductor demand and global GDP growth, rather than the needsales of semiconductor capital equipment, which has historically been more cyclical.
•Our solutions are increasingly specified and demandtailored to meet our customers’ unique process conditions and technical roadmaps. We collaborate closely with our customers to create end-to-end solutions across platforms and modules allowing them to optimize value and accelerate time to yield. Therefore, switching away from our products may be costly and time consuming for our products.customers and may introduce risk to their manufacturing yields.
OUR COMPETITIVE STRENGTHS•Our product portfolio is broad and not overly concentrated on any single product or product platform. As of December 31, 2023, we offered over 28,000 standard and customized products, and in 2023 no single product platform represented more than 4% of our net sales.
Technology Leadership•We have a broad and diverse customer base. As of December 31, 2023, our top ten customers make up 43% of our sales. Our customers include a broad cross-section of the semiconductor ecosystem, from chemical companies, and equipment manufacturers, to semiconductor fabs.
•We have been actively assessing certain portions of our portfolio and are executing transactions to streamline our platform to focus on the core areas of our businesses, which we believe have the greatest strategic value in supporting our customers and their technology roadmaps. To that end, as further described above, during 2023, we completed the divestiture of QED and our EC business and terminated the Alliance Agreement with MacDermid Enthone.
•We believe the cash generated from our business, together with proceeds received from the strategic transactions described above will allow us to pay down our debt, while also investing in research and development and the advanced manufacturing capabilities necessary to maintain and expand our technology leadership and to drive organic growth.
Customers Collaboration. We are committed to being able to provideview the strong relationships we have with our customers, which include leading logic and memory semiconductor manufacturers, original equipment manufacturers (“OEMs”) and semiconductor materials suppliers, as critical to our long-term success. Our expansive global presence allows us to meet our customers where they operate, which has enabled us to build strong relationships with them. The construction of our KSP manufacturing facility in Taiwan and a new research center in South Korea are examples of the Company’s commitment to effectively collaborate with our customers locally to jointly uncover novel solutions to their yield, reliability and performance challenges. We are actively engaged with our key customers to design technology roadmaps specifically tailored to their short- and long-term strategic plans. These customer relationships provide us with collaboration opportunities at the early product design stage (in certain cases years ahead of commercialization), which facilitate our ability to introduce new products and applications that serve our customers’ needs. We intend to reinforce and further strengthen these relationships through, among other things, collaborations and joint development activity. Due to the specialized nature of our products, complexity of our customers’ manufacturing processes, customer qualification requirements and costs associated with re-formulation and re-qualification, we believe we have a strong position with our customers.
Supporting the Integration of New Materials. We understand the significant challenges our customers face as they introduce new materials into processes to manufacture increasingly innovative solutions for their manufacturing needs.and complex semiconductor chips. New materials must outperform incumbent materials and deliver equivalent or higher yields, without causing integration issues with other process steps. For example, we have introduced sub-10 nanometer and 7 nanometer filtration products, advancedthe decision to introduce a new material at the deposition materials for next generation transistor and interconnect technologies, advanced reticle pods for extreme ultra-violet, or EUV, photolithography applications, advanced 300 mm wafer carriers and advanced coatings to meet the rigorous demandsstage of the advanced technology nodes faced bysemiconductor manufacturing process will impact CMP and the post-CMP clean, as well as the selection of filters in several other stages of the process. We believe one of our customers. As described in further detail below in “Engineering, Researchvalue propositions is our ability to both manufacture new materials and Development”, this commitment to technology leadership is demonstrated by our ER&D expenditures in 2017, 2016 and 2015 of $107.0 million, $107.0 million and $105.9 million, respectively.
Comprehensive and Diverse Product Offerings. As semiconductor manufacturers are driving towards more advanced technology nodes,support our customers are seekingin evaluating how those new materials interact with other stages in the manufacturing process. Specifically, we leverage our understanding of upstream and downstream interactions between unit process steps and tailor our product offerings to lower the risk of issues arising as a result of new material introduction into these processes. We believe this approach is critical for accelerating the introduction of new material innovations because it reduces development cycles of learning while accelerating the time to market and yield for our customers.
Technology Leadership and Strong, Diverse Portfolio. Our customers need suppliers whothat can provide a broad range of advanced, customized, reliable flexible and cost-effective products and materials, as well as the technological and application design expertise necessary to enhancingenhance their productivity, quality and yield.yield, especially as they drive towards more advanced technology nodes. We are committed to our strategy of providing customers with innovative technologies and solutions for their evolving manufacturing needs. For example, we have introduced sub-5 nanometer filtration products, advanced deposition materials for
next generation transistor and interconnect technologies, polishing slurry and pad solutions with post-cleaning formulations to meet the needs of advanced memory applications, advanced reticle pods for EUV photolithography applications, advanced 300 millimeter wafer carriers and advanced coatings to meet the rigorous defectivity specifications for the manufacturing of advanced technology nodes. We believe our comprehensive offering of materials and products creates a competitive advantage as it enables us to meet a broad range of customer needs and provide a single source of product offerings for semiconductor device and equipment manufacturers, as they seekwhich can often translate to consolidate their supplier relationshipsshorter time-to-solution and pursue advanced technology nodes.time-to-market for our customers. Additionally, our broad product and solution portfolioit allows us to serve many aspects of the semiconductor manufacturing ecosystem and to create synergies among certainleverage our technology to develop co-optimized solutions.
We have made significant investments in ER&D initiatives to continue to advance our technology and product offerings, particularly to meet the needs of next generation technology nodes. We spent approximately $277.3 million, $229.0 million and $167.6 million on such activities in 2023, 2022 and 2021, respectively, representing 7.9%, 7.0% and 7.3% of our products. For example, our microenvironmentnet sales, in 2023, 2022 and fluidics products are utilized when a fab is being built2021, respectively. Our ER&D efforts have been increasingly directed towards innovation for advanced technology nodes. We plan to move wafers and materials throughout the fab, our chemistries and gas products are consumed during operation of the fab, and our contamination control products ensure the purity of chemistries and gases throughout the fab and its supply chain.continue making substantial investments in ER&D activities.
Global PresenceInfrastructure. We have established a global infrastructure of design, manufacturing, logistics, distribution, service and technical support facilities to meet the needs of our global customers. We have, for example, expanded ourfurther enhanced this footprint with the opening of a new manufacturing operations and increased our investment in advanced technology centerscenter of excellence in Taiwan, our KSP facility, in May 2023, which will become our largest manufacturing facility. In addition, we recently began construction on a new manufacturing facility in Colorado Springs, Colorado and a new, state-of-the-art research facility in South KoreaKorea. Additionally, we have recently added new capacity in liquid filtration in Billerica, Massachusetts and Yonezawa, Japan, in deposition materials in Toronto, Ontario, and materials handling in Chaska, Minnesota and JangAn, Korea. These investments are intended to better support our important customers in these regions, established new salesregionally and service offices in China in anticipationto be even more responsive to our customers’ future growth and innovation.
Operational Excellence. Our customers are increasingly focused on the effectiveness, dependability and consistency of a growing semiconductor manufacturing base in that country,their supply chains. Our strategy is to continue to develop and expandedimprove our presence in Singapore to enhance our global and regional management ofextensive supply chain and manufacturing processes. We servicecapabilities into a competitive advantage by driving operational excellence and operating in a manner that ensures the safety of our customer relationships in Asia, North America, Europeemployees and the Middle East predominantly via direct sales and support personnel and to a lesser extent through selected independent sales representatives and distributors.
Advanced Manufacturing. We have established leading-edge manufacturing plants located in the United States, Malaysia, Japan, South Korea and Taiwan that possess the advanced manufacturing capabilities described under “Manufacturing” below.
Strong Relationships with Broad Customer Base. We have strong relationships with our customers, which include leading semiconductor manufacturers, original equipment manufacturers, or OEMs, and semiconductor materials suppliers. These relationships provide us with significant collaboration opportunities at the product design stage, which facilitate our ability to introduce new products and applications. For example, we work with our key customers in the development of advanced manufacturing processes to identify and respond to their requests for current and future generations of products for emerging applications requiring cleaner materials, as well as systems that maintain the integrity and stability of materials during transport through the manufacturing process. We believe that our customer base will continue to be an important source of new product development opportunities. Due to the specialized naturequality of our products, manufacturing complexity, qualification requirementsproducts. Our significant investments in customers’ fabrication processes, high customer re-formulationour new KSP facility in Taiwan and qualification change costs, and extensive proprietary products, we believe our supply position withfacility in Colorado Springs, Colorado are intended to enhance our customers is strong.
Strong Financial Performance and Cash Flow Generation. We have a strong financial profile with net income of $85.1 million, operating margin of 18.0% and Adjusted EBITDA margin of 26.6% for the fiscal year ended December 31, 2017. In addition to servicing our debt obligations and effecting our capital allocation strategy, we expect that our financial profile will allow us to invest in the research and development and advanced manufacturing capabilities necessary to maintain and expand our technology leadership and to drive organic growth. Additionally,operational excellence as we have done infocus on the past,following priorities that we expect that our cash flow generation willbelieve enable us to grow inorganically through smaller acquisitionsperform at the high level that our customers expect.
•Investing in and using manufacturing equipment and facilities incorporating leading-edge process technology, including advanced cleanroom and cleaning procedures;
•Implementing automated manufacturing, statistical process controls, quality and supply chain management systems; and
•Maintaining a highly-skilled and agile organization, capable of product lines or technology that expand upon our product portfolio or through larger acquisitions where we act as a consolidator in the industryrapid design, prototyping and increase our scaleramping to high volume manufacturing while promptly responding to new customer requirements and strengthen our position as a leading supplier to our customers. For an explanation of Adjusted EBITDA and Adjusted EBITDA Margin and a reconciliation to GAAP net income, see "Non-GAAP Information" in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of this Annual Report on Form 10-K.feedback.
OUR BUSINESS STRATEGY
We intend to build upon our position as a leading worldwide developer, manufacturer and supplier of advanced specialty materials, filtration and purification solutions, delivery systems, and materials packaging solutions to expand our core business and to grow in other high value-added manufacturing process markets.Leveraging Our strategy includes the following key elements:
Commitment to Technology Leadership. We continuously improve our products and develop new products as our customers’ needs evolve. As semiconductor devices become smaller and more powerful, and new materials and processes are deployed to produce them, we seek to expand our technological capabilities by developing advanced products that address the requirements for greater purification, protection and transport of high value-added materials and by developing advanced chemical materials for use in critical fabrication processes.
Leveraging ourCollective Expertise. We leverage our broad expertise across our three segments and across our broad portfolio of advanced materials, materials handling and purification capabilities to create innovative, new and co-optimized solutions to address unmet customer needs. For example, certain of our industry-leading post-CMPformulated cleaning chemistry isproducts are developed and manufactured by our SCEMMS segment, with collaboration from our filtration expertise in our MC
segment, packaged with our ultra cleanultra-clean container and connector system made by our AMH segment, and delivered to the process tools through fluid handling systems also made by our AMH segment. Furthermore, in theIn process tool,tools, these chemistries may go through one or several purification systems madeproduced by our MC segment to eliminate particles and contaminants. Another example of the results of this strategy issegment. Similarly, our advanced deposition materials business where we leverage our ability to synthesizerequires comprehensive capabilities across several disciplines, including the synthetization of unique molecules, ourspecialized knowledge of how to purify these materials and ourthe capability to safely transport these materials and deliver them onto the wafer at a high throughput. With the highest throughput. We believe oneaddition of CMC Materials and through the creation of our competitive advantages is our diverseMS segment, we are working to develop co-optimized, end-to-end solutions and unique expertise in areas of increasing importancebring them to semiconductor manufacturers,market more quickly, such as developing advancedpolishing solutions for new deposition materials and ensuringoptimized filtration solutions for new abrasive materials. Further, as the puritysemiconductor industry looks to new interconnect metals like molybdenum, our portfolio of high-value materials,deposition precursors, CMP slurries and pads, post-CMP cleans, selective etch formulations, combined with our ability to work collaboratively across our three segments, which enablesfiltration, sensing, and delivery products will enable us to quicklycreate end-to-end solutions and effectively develop optimized and complimentary solutions for our customers.
Operational Excellence. Our strategy is to continue to develop our advanced manufacturing capabilities into a competitive advantage withposition our customers by focusingto enhance their device performance and optimize time to yield.
Corporate Social Responsibility. We seek to embed our corporate social responsibility program into our business strategy. Our program is built around the four core pillars of Innovation, Safety, Personal Development and Inclusion and Sustainability. The program includes goals for each of the four pillars to guide us towards 2030. During 2023, we released our third annual corporate social responsibility report, which introduced new and updated 2030 goals to include the impact of the acquisition of CMC, provided an update on our progress toward our existing 2030 goals and performance on our objectives from our 2020
baseline. Our recent corporate social responsibility accomplishments included achieving a “Gold” rating from EcoVadis, with a ranking in the following priorities:97th percentile, and an “A” rating from MSCI. The annual corporate social responsibility report is published on our website at http://www.Entegris.com under “About Us - Corporate Social Responsibility.”
use of manufacturing equipment and facilities incorporating leading-edge technology including advanced cleanroom and cleaning procedures;
implementation of standardized manufacturing systems stressing optimization of equipment effectiveness, predictive maintenance, and direct labor productivity;
implementation of automated quality systemsAdjacent Markets. We leverage the expertise that provide both process monitoring and process control throughoutwe have gained from serving the manufacturing processsemiconductor industry, as well as predictive quality dataour core capabilities in material science and material purity, to mitigate against potential quality excursions;
implementation of supply chain management systems that assure a reliable and responsive supply of high-quality raw materials;
conduct of manufacturing operations to assure the safety of our employees and of the individuals using our products; and
maintaining an agile manufacturing organization that is capable of rapid design and development of prototypes of new and derivative products, as well as promptly responding to customer feedback concerning prototypes so that we quickly commercialize and ramp production acceptable to our customers.
Continued Focus on Customers. We view the strong relationships we have with our customers, which include leading semiconductor manufacturers, OEMs, and semiconductor materials suppliers, as critical to our long term success. We intend to reinforce and further strengthen these relationships, through, among other things, collaborations and joint development. Customer intimacy enables us to respond rapidly and thoroughly to their manufacturing challenges and enables us to bring forth new products that serve an existing need.
Adjacent Markets. We leverage our expertise in the semiconductor industry by developingdevelop products for other industries that employ similar technologies and production processes and that utilizerequire materials integrity management, high-purity fluids and integrated dispense systems. For example, outside of the semiconductor industry,in only a few years, we brought to market our productsAramus high-purity bag assemblies which are used in manufacturing processesthe production of biologics, including COVID-19 vaccines. We plan to expand the use of these solutions into non-COVID-19 biologics, provide ancillary solutions around our Aramus bags, and expand our filter offerings for flat panel displays, high-purity chemicals, solar cells,bioprocessing applications. In addition, our products and technologies are well-suited to create innovation in industries like hydrogen purification, clean energy, batteries, light-emitting diodes (“LEDs”) and optical magnetic storage devices and products for life sciences.space systems. We plan to continue to identifyidentifying and developselectively developing derivative products that address needs in adjacent markets. We believe that by utilizing our technology to provide manufacturing solutions across multiple industries,In doing so, we are ableexpect to increase the total available market for our products and reduce, to an extent,increase our exposure to the cyclicality of the semiconductor industry.return on ER&D investments.
Strategic Acquisitions, Partnerships and Related Transactions. We have largely completed the integration of CMC Materials into the Company and have made significant progress towards reducing our outstanding debt as a result of the divestitures of QED and our EC business and the termination of the Alliance Agreement with MacDermid Enthone. As we continue making progress toward achieving our debt reduction targets, we will continue to pursue strategic acquisitions and business partnerships that enable us to address gaps in our product offerings, secure new customers, diversify into complementary product markets, broaden our technological capabilities and product offerings, access local or regional markets and achieve benefits of increased scale. We believe we have a strong track record of executing these transactions and their integration.Our 2014 acquisition of ATMI,CMC Materials significantly broadened our product and technology capabilities and increased our scale. In the last several years, we have strengthened and expanded our product portfolio with the following acquisitions: BASF’s precision microchemicals business in 2021; Sinmat in 2020 (CMP slurries in hard substrate applications); and Global Measurement Technologies, Inc., or ATMI, is an example of this strategy, bringing a whole new portfolio of technologies in 2020 (analytical instruments for chemistry management and materials products to serve our semiconductor customers. Another example is our 2017 acquisition of the water and chemical filtration product line for microelectronics applications from W. L. Gore & Associates, Inc., or Gore, where we acquired a synergistic product line that leverages our existing platform and expands our served markets.monitoring). Further, as the dynamics of the markets that we serve shift, we will reevaluate our existing businesses from time to time and in the event that we conclude that a business is not ablemay decide to provide value-added solutions to its markets in a manner that contributes to achieving our financial objectives, we expect tosell, restructure or replace that business.one or more businesses. Finally, we are continuously evaluatingregularly evaluate opportunities for strategic alliances, such as our strategic alliance with Enthone, joint development programs and collaborative marketing efforts with key customers and other industry leaders. For example, in connection withstrategic investments to achieve a variety of objectives including expanding our strategic commitmentmanufacturing capacity, producing products closer to support the growing semiconductor and related microelectronics industries in China, in 2017, we entered into agreements with local partners to expand our capability to manufacture our specialty chemical and deposition products locally and shorten our supply chain for our customers, in China.developing optimized products more quickly and developing new sources of supply to provide us with a competitive advantage.
OUR SEGMENTS
As discussed,Following a segment realignment in the third quarter of 2023, our business is organized and operated in three operating segments which align with the key elements of the advanced semiconductor manufacturing ecosystem: Specialty Chemicals and Engineered Materials Solutions, or SCEM;MS; Microcontamination Control, or MC; and Advanced Materials Handling, or AMH. We leverage our expertise from these three segments to create new and increasingly integrated solutions for our customers. The following is a detailed description of our three segments:segments.
SPECIALTY CHEMICALS AND ENGINEERED
MATERIALS SOLUTIONS SEGMENT
The SCEMMS segment is the segment resulting from combining the Advanced Planarization Solutions (“APS”) segment and the Specialty Chemicals and Engineered Materials (“SCEM”) segment, both of which were unit-driven and offered highly complementary products. MS provides end-to-end materials solutions around the primary modules in the semiconductor manufacturing process and in the emerging area of advanced packaging. These modules include integrated circuit chemical mechanical polishing solutions, high-performance etch and high-purity processclean chemistries, gases and materials, and safe and efficient materials delivery systems that enable enhanced deviceenhance our customers’ product performance. TheseOur ability to deliver advanced materials are utilized in critical semiconductor manufacturing processes such as deposition, cleaning, and integration of complex materials. Advanced materials, delivered at high purity, aretogether with critical products like CMP slurries and pads, enables our customers’ technical roadmap, improves device performance, enhances their yields and is critical to enabling the performance of leading-edge logic and memory applications.devices. We believe the growing long-term demand in the 3D-NANDadvanced logic and memory market, challenges with metallizationnew materials and device design schemes and the need for specialized cleaning solutions will drive consumption for materialsdemand in our SCEMMS segment.
The MS segment partners closely with our other two segments to create solutions for our customers across various processes and modules. For example, the MS segment leverages the expertise of the AMH segment to ensure that its products and solutions are transported, delivered and monitored in a way that ensures maximum purity and stability. In conjunctionaddition, as products such as CMP slurries and cleans require advanced filtration both in manufacturing and at the point of use in the semiconductor manufacturing environment, the MS segment collaborates with our MC segment to optimize its products and processes in order to achieve industry-leading purity levels and maximize yield.
Deposition and Etch Solutions.We offer the following Deposition and Etch Solutions products:
Advanced Deposition Materials Products. Our advanced deposition materials include advanced liquid, gaseous and solid precursors, including organometallic precursors for the deposition of tungsten, titanium, cobalt, aluminum, molybdenum and other emerging metal films and organosilane precursors for the deposition of silicon oxide, silicon nitride and advanced dielectric materials films. These precursors are designed in close collaboration with OEM process tool manufacturers and device makers to produce application specific solutions that are compatible with complex integrations of material solutions used to build the semiconductor device. We offer delivery systems and containers that allow for reliable storage and delivery of low volatility solid and liquid precursors required in atomic layer deposition processes. When combined with our proprietary corrosion-resistant coatings and filtration solutions from our MC segment, we believe our advanced deposition solutions enable the industry’s highest purity levels, resulting in improved device performance.
Surface Preparation and Integration Products. We offer a range of materials used to prepare the surface of a semiconductor wafer during the manufacturing process and to integrate with materials being used on the wafer. We offer a broad range of cleaning solutions for applications such as semiconductor post-etch residue removal, wafer etching, organics removal, negative resist removal, edge bead removal and corrosion prevention. In addition, we offer selective etch products designed to enable advanced architectures such as 3D-NAND. Our wet chemistry solutions, combined with filtration solutions from our MC segment and fluid handling solutions from our AMH segments, the materialssegment, are designed to provide enhanced purity, which results in improvements in our SCEM segment provide uniquecustomers’ processes.
Advanced Cleaning Materials. We develop and manufacture high-performance consumable products for cleaning advanced probe cards and test sockets at semiconductor manufacturing facilities. These engineered polymer solutions are designed to safelyimprove customer yields and efficiently deliver critical materials to supportthroughput in wafer and package test operations at semiconductor device manufacturers, foundries, and other advanced manufacturing processes.outsourced semiconductor assembly and test (OSAT) facilities. We also design innovative polymer products for semiconductor fabs that improve front-end tool uptime and reduce operating costs.
Dry Process Solutions. We offer the following Dry Process Solutions products:
Specialty Gas ProductsGases. Our specialty gas solutions provide advanced safety and process capabilities to semiconductor, display and solar panel manufacturers. Our SDS cylinders safely store and deliver hazardous gases, such as arsine, phosphine, germanium tetrafluoride and boron trifluoride, at sub-atmospheric pressure through the use of our proprietary carbon-based adsorbent materials. These products are designed to minimize potential leaks during transportation and use and allow more gas to be stored in the cylinder,cylinder. These features which provide significant safety, environmental and productivity benefits over traditional high-pressure cylinders. New generations of SDS products further increase the gas storage capacity, reducing tool down time, therefore, resulting in significant cost savings for our customers. We also offer VAC, a complementary technology to SDS, where select implant gases and gas mixtures are stored under high pressure but are delivered sub-atmospherically.
Specialty Materials Products. Our high-performance specialty coatings, such as our Pegasus™ and Cearus™ coatings, provide erosion resistance, minimize particle generation and prevent contamination on critical components in semiconductor environments and other high-technology manufacturing operations. Our specialty materials include specialized graphite, silicon carbideprovide customized solutions for applications challenged with unique temperature, corrosive, chemical or process environments, such as electrostatic chucks used to hold wafers during processing.
Integrated Circuits (“IC”) Polishing Solutions. Our IC Polishing Solutions enables us to fully leverage our capabilities as a CMP solutions provider to the semiconductor industry by providing the following products:
CMP Slurries. We develop, produce, and sell CMP slurries for polishing a varietywide range of unique, high purity coatings for dry or plasma etch, chemical vapor depositionmaterials used in semiconductor devices, including tungsten, dielectric materials, copper, barrier, aluminum, and ion implantother emerging materials used in semiconductor device fabrication. We believe that we are uniquely positioned to be able to develop and optimize new slurries that can be utilized on emerging materials used in semiconductor device fabrication, such as molybdenum and ruthenium.
CMP Pads. CMP pads are critical in the CMP process to flatten and polish wafers and can have a significant impact on process performance. Our CMP Pads, such as our NexPlanar™, Medea™ and Ultra pad products are designed to provide the exact hardness, pore sizes, compressibility, and groove patterns needed to meet and exceed the requirements of various CMP applications. Our Epic Power™ CMP Pads are designed for SiC wafers and offer a balance of best-in-class performance, quality, and cost of ownership.
Post-CMP Cleans. Our post-CMP clean chemistry products, such as PlanarClean® and ESC 784, are designed to efficiently remove the abrasive slurry particles and organic residue from the wafer after the CMP process, removing residue that might affect yield while not contributing to contamination. In addition, our consumable polyvinyl alcohol roller brush products are used to clean the wafer following the CMP process.
Advanced Materials Markets (“AMM”). AMM focuses on developing and selling products to customers in new and emerging market areas outside of the semiconductor manufacturing process. AMM includes our POCO® premium graphite isproducts, used to make precision consumable electrodes for electrical discharge machining, hot glass contact materials for glass product manufacturing and forming and other consumable products for various industrial applications, including aerospace, optical, medical devices, air bearings and printing. Our high-performance specialty coatings, such asIt also includes our Pegasus™ coatings, provide corrosion and erosion resistance, minimize particle generation and prevent contamination on critical components in a semiconductor etch environmentslurry products used for polishing bare silicon wafers and other high-technology manufacturing operations. Our specialtyultra-hard surface materials, including SiC and coatings provide customized solutions for applications challenged with unique temperature, corrosive, chemical or process environments, such as electrostatic chucks used to hold wafers during processing, plasma etch chamber components, aircraft bearings, and ultrasonic transducers.
Advanced Deposition Materials Products. Our advanced deposition materials include advanced liquid, gaseous and solid precursors which are incorporated in chemical vapor deposition (CVD) and atomic layer deposition (ALD) processes by the semiconductor industry, including organometallic precursors for the deposition of tungsten, titanium, cobalt and aluminum containing films and organosilane precursors for the deposition of silicon oxide and silicon nitride films. These precursors are designed in close collaboration with OEM process tool manufacturersGaN substrates as well as device makersdisk substrates and magnetic heads used in hard disk drives, which are utilized in power electronics and advanced communications end-markets. AMM also provides specialty chemicals and specialty materials to produce application specificenable advanced performance of product solutions that are compatible with complex integrations of material solutions used to build the semiconductor device. We offer containers that allow for reliable storage and delivery of low volatility solid and liquid precursors required in ALD processes. When combined with our proprietary corrosion resistant coatings and filtration solutions from our MC segment, our advanced deposition materials enable the industry’s highest purity levels, resulting in improved device performance.
Surface Preparation and Integration Products. We offer a wide range of materials used to prepare the surfaceend markets, including aircraft, aerospace, wound care and medical devices.
In addition, our PIM business, which consists of a semiconductor wafer during the manufacturing processdrag reducing agents, valve greases, cleaners and to integrate with materials being used on the wafer. We also provide advanced plating solutions, such assealants, and related equipment supporting pipeline and adjacent industries, reports into our Viaform® product (a trademark of and exclusively licensed from Enthone Inc., or Enthone, a subsidiary of Platform Specialty Products Corporation), which includes inorganic and proprietary organic molecules that provide the wiring for copper interconnects. We also offer CMP cleaning solutions for applications such as semiconductor post-etch residue removal, wafer etching, organics removal, negative resist removal, edge bead removal, and corrosion prevention. Our wet chemistries solutions, combined with filtration solutions from our MC segment and fluid handling solutions from our AMH segment, provide enhanced purity, which results in improvements in our customers' processes. Our consumable PVA roller brush products are used to clean the wafer following the CMP process and our pad conditioners, based on our silicon carbide capabilities, lengthen CMP pad life.MS segment.
MICROCONTAMINATION CONTROL SEGMENT
The MC segment offers solutions to purify critical liquid chemistries and process gases used in semiconductor manufacturing processes and other high-technology industries. The design and performance of ourOur liquid and gas filtration and purification products are critical to the semiconductor manufacturing process because they remove contamination, and directly reduce defects, and improve manufacturing yield.yield and enhance the long-term reliability of the semiconductor device. Our proprietary filters remove organic and inorganic nanometer-sized contaminants from the differentvarious fluids and gases used in the manufacturing process, including photolithography, deposition, planarization and surface etching and cleaning. As our customers leverage leading edge lithography tools and multi-patterning technology to enable each subsequent generation of products, our filtration and purification products are utilized to achieve necessary levels of purity and contamination control. We believe demand for purification and filtration products is being driven by the continuous node shrink in logic semiconductors and the ramp in the 3D-NAND3D NAND market, as the risk and cost of yield loss grows with the incremental manufacturing steps needed for the production of these devices. We utilize expertise from the AMH segment in polymer science and from the SCEMMS segment in chemical manufacturingformulated cleaning chemistries and in slurry formulation to develop differentiated filtration and purification solutions for our customers.
Liquid Microcontamination Control Products. We offer a variety of unique products that are optimized to control contaminants in our customers’ liquid processes.wet processes both in the fab environment and upstream at the chemical manufacturers. For example, our Torrento® series of filters is used for the filtration of aggressive acid and base chemistries for both semiconductor fabs as well as specialty chemical manufacturers, including our SCEMMS segment. Manufacturers of high purity chemicals as well asand semiconductor fabs use our Trinzik® and Microgard™ products for the filtration of chemicals as well asand ultra-pure water. Our Impact® series of filters are used in point-of-use photochemical dispense applications, including those provided by our AMH segment, where the delivery of superior flow rate performance and reduced microbubble formation is critical. Our Protego® series of liquid purifier/filter products are used to reduce metallic contamination in chemical manufacturing and in critical wafer rinsing and drying applications by our customers. In addition, we provide membrane and liquid filtration offerings serving semiconductor, pharmaceutical and medical applications.
Gas Microcontamination Control Products. We offer a broad portfolio of products designed to remove particulate and molecular contaminants from controlled environments and gas streams in semiconductor, flat panel display and LED fabs. Our Wafergard® gas filters reduce outgassing and improve corrosion resistance. Our purifiers chemically react with and absorb contaminants, such as oxygen and water, to prevent contamination, and our vent diffusers reduceremove particle contamination and processing cycle times.contamination. Our GateKeeper® gas purifiers leverage technology developedand large facility-wide gas purification systems provide continuous purified gas supply to customer fabs from our SCEM segmentthe point of creation on the gas pads to the point-of-use at the wafer by chemically reacting and absorbing contaminants, effectively removeremoving gaseous contaminants down to part-per-trillion levels. Our Chambergard™ gas diffusers provide semiconductor equipment manufacturers with the capability to rapidly vent their tools to atmosphere to dramatically reduce process cycle times without adding particles to the wafers under process.wafers. In addition, our Vaporsorb products are used to eliminate airborne molecular contamination from critical process tool areas or cleanrooms in the fab. These products are used in or alongside critical processing tools to improve yield and reduce tool downtime. In addition, we provide filters used to eliminate airborne molecular contamination from critical process tool areas or cleanrooms in the fab, improving process yield.
ADVANCED MATERIALS HANDLING SEGMENT
The AMH segment develops solutions to monitor, protect, transport and deliver critical liquid chemistries, wafers and substrates for a broad set of applications in the semiconductor industry and other high-technology industries. These systems and products improve our customers’ yields by protecting wafers from abrasion, degradation and contamination during
manufacturing and transportation and by assuring the consistent, clean and safe delivery of advanced chemicals from the chemical manufacturer to the point-of-use in the semiconductor fab. As advanced semiconductor fabs are built, demand is driven for our wafer handling and fluid handling products. As those fabs move into production, we see demand for wafer carrying and fluid containment solutions offered by this segment. The AMH segment collaborates closely with the SCEMour MS segment in developing products that are compatible with advanced chemistries to enhance yield, while integratingyields and integrates liquid filtration technology from our MC segment to deliver consistent and pure chemistry.
Wafer
Microenvironment Solutions. We lead the market with ourOur high-volume line of Ultrapak® and Crystalpak® products for wafers ranging from 100 to 200 mm, whichmillimeters ensure the clean and secure transport of wafers from the wafer manufacturers to the semiconductor fab.fabs. We also offer a front-opening shipping box or FOSB,(“FOSB”) for the transportation and automated interface of 300 mmmillimeter wafers. We lead the market for 300mm front opening300 millimeter front-opening unified pods or FOUPs,(“FOUPs”), wafer transport and process carriers and standard mechanical interface pods or (“SMIF pods,pods”) for 200mm200 millimeter wafer applications. These microenvironmentWe are a leader in reticle protection products safelyfor photolithography, including products that protect the high-value EUV lithography masks during both the mask manufacturing process and accurately deliver wafers withintheir use in the semiconductor fab environment to the various process fabrication steps.fab.
Chemical Containers
Fluid Management Products. We have aOur broad portfolio of flexible and rigid polymer packaging and container products, from low-volume containers to transport high-value photoresist chemistries, such as our NOWPak® products, to large intermediate bulk containers, (IBCs) to safely and efficiently transport chemicals in bulk, such as our FluoroPure® products. Our connection systems provide for safe and efficient chemical dispense from the container in the fab. Chemical companies utilize our packaging products, to ensureensures the purity of the chemistries shipped to semiconductor fabs, resulting in enhance yields. We optimize the compatibility and performance of these products on chemistries through close collaboration with our SCEM segment.
Fluidics.they contain. We are a leader in high-purity fluid transferhandling products such as valves, measurement, fittings, tubing, pipe, custom fabricated productspiping and associated connection systems, such as our PrimeLock® connections, for high-purity chemical applications and ourapplications. Our proprietary digital flow control technology improves the uniformity of chemicals applied on wafers. OurFor example, our IntelliGen® integrated,
high-precision liquid dispense systems enable the uniform application of advanced chemistries during the wafer fabrication process, integrating our valve control expertise with filter device technologies from our MC segment, so that filtering and dispensing of photochemicals can occur at different rates, conservingin order to conserve high-value chemistry and reducingreduce defects on wafers. Our comprehensive product linesFurther, we provide market-leading instrumentation solutions to ensure consistency and monitoring of complex blended chemistries, such as our on-tool Accusizer® system, which performs automated online particle size and count analysis with applications in both semiconductor manufacturers, process tool makers and life science industries, and our SemiChem® systems and our Invue® products, which measure chemical customers with a single-source provider for their high-purity chemical management needs throughout the manufacturing process.concentration in CMP slurries and formulated cleaning chemistries.
OUR CUSTOMERS AND MARKETS
Our most significant customers include logic and memory semiconductor device manufacturers, semiconductor equipment makers, gas and chemical manufacturing companies leadingand wafer grower companies and manufacturers of high-precision electronics.serving the global semiconductor industry. We also sell our products to outsourced semiconductor assembly and test (OSAT) facilities, flat panel display equipment makers, materials suppliers and panel manufacturers, and manufacturers of hard disk drive components and devices.devices and their related ecosystems.
Our other high-technology markets include manufacturers and suppliers in the solar and life science industries, electrical discharge machining customers, glass and glass container manufacturers, aerospace manufacturers and manufacturers of biomedical implantation devices.
In 2017, 2016 and 2015, net sales to our top ten customers accounted for 47%, 45% and 44%, respectively, of combined net sales. In 2017, 2016 and 2015, Taiwan Semiconductor Manufacturing Company Limited, accounted for $168 million, $162 million and $134 million of net sales, respectively, or approximately 13%, 14% and 12%
Below is a table showing the percentage of our net sales respectively, including sales from each of our three reporting segments. In addition, in 2017, Samsung Electronics Co. accounted for $141 million of net sales or approximately 10%to top customers and the percentage of our net sales including sales from all ofthat are international during the Company's segments.three most recent fiscal years.
International net sales represented 79%, 78% and 77%, respectively, of net sales in 2017, 2016 and 2015. Approximately 2,200 customers purchased products from us during 2017. For the fiscal year ended December 31, 2017, our revenue breakdown by customer segment was as follows: semiconductor manufacturers 50%; OEMs 13%; electronic materials customers 13%; other semiconductor customers 13%; and non-semiconductor customers 12%.
| | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| Percentage of net sales to top customers: | | | |
| TSMC | 11 | % | 12 | % | 12 | % |
| Remaining top ten customers | 32 | % | 31 | % | 31 | % |
| Total top ten customers | 43 | % | 43 | % | 43 | % |
| | | |
| Percentage of net sales by market: | | | |
| Domestic/U.S. | 25 | % | 24 | % | 23 | % |
| Foreign/International | 75 | % | 76 | % | 77 | % |
We may enter into supply agreements with our customers. These agreements generally have a term of one to three years, buttypically do not contain any long-term purchase commitments. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. However, customers may cancel their orders, change production quantities from forecasted volumes or delay production for a number of reasons beyond our control.
SALES, MARKETING AND SUPPORT
We sell our products worldwide, primarily through our direct sales force and strategic independent distributors located in all major semiconductor markets. IndependentWe also use independent distributors are also used in other semiconductor market territories and for specific market segments. As of December 31, 2017,2023, our sales and marketing force consisted of approximately 520783 employees worldwide.
Our unique capabilities and long-standing industry relationships have provided us with the opportunity for significant collaboration with our customers at the product design stage, which has facilitated our ability to introduce new materials and new solutions that meet our customers’ needs. We are constantly identifyingcontinuously seek to identify for our customers a variety of materials, purificationcontamination and process control challenges that may be addressed by our product solutions. Our sales representatives provide our customers with worldwide technical support and information about our products and materials.
We believe that our technical and application support services are important to our sales and marketing efforts. These services include assisting in defining a customer’s needs, evaluating alternative products and materials, designing a specific system to perform the desired operation, training users and assisting customers in compliance with relevant government regulations. Additionally, our field applicationsapplication engineers, located in all of the major markets we serve, work directly with our customers on product qualification and process improvements in their facilities. We maintain a network of service centers, applications laboratories and technology centers located in all key markets internationally and in the United StatesU.S. to support our products and our customers with their advanced development needs, provide local technical service, application support and help ensure fast turnaround time.
COMPETITION
The market for our products is highly competitive. While price is an important factor, we compete primarily on the basis of the following factors: | | | | | |
| technical expertise; | time to solution; |
| product quality and performance; | complementary solutions; |
technical expertise; advanced manufacturing capabilities; | supply chain resiliency; |
| total cost of ownership; | breadth of geographic presence; |
| historical customer relationships; | customer collaboration, service and support; and |
breadth of product line; |
product quality and performance;offerings; | breadth of geographic presence; |
advanced manufacturing capabilities; | customer service and support; and |
total cost of ownership; | after-sales service. |
historical customer relationships; | |
We believe that we compete favorably with respect to all of the factors listed above. We believe that our key competitive strengths include our broad product line,offerings, our strong research and development infrastructure and investment, our manufacturing excellence, our advanced quality control systems, the low total cost of ownership of our products, our willingness to closely collaborate with our customers to create technical roadmaps aligned with their short- and long-term strategies, our ability to provideco-optimize our customers with quick order fulfillmentproducts and our applications expertise in semiconductor manufacturing processes. However, our competitive position varies depending on the market segment and specific product areas within these segments. While we have longstanding relationships with a number of semiconductor and other electronic device manufacturers, we alsostill face significant competition from companies that also have longstanding relationships with other semiconductor and electronic device manufacturers and, as a result, have been able to have their products specified by those customers for use in manufacturers’their fabrication facilities.
The competitive landscape is varied, ranging from business segments within large multinational companies to small regional or regionally-focused companies. While product quality and technology remain critical, overall, industry trends are indicatingoverall indicate a shift to localized, cost-competitive and consolidated supply chains.
Because of the unique breadth of our capabilities, we believe that there are no global competitors that compete with us across the full range of our product offerings. Many of ourNotable competitors are local companies that participate in only a few products or in specific geographies. While there are other larger, broad-based materials suppliers, many are concentrated inwith respect to certain specific product areas such as filtration, specialty chemicals or materials handling. Key competitors include Pall Corporation (part of Danaher Corporation), Shin-Etsu Polymer Co., Ltd., Gemu Valves,the EMD Performance Materials division of Merck KGaA, the Electronics & Industrial division of DuPont de Nemours, Inc., Tokyo Keisothe Electronics Advanced Materials division of Air Liquide, Linde plc, Anji Microelectronics (Shanghai) Co., Ltd., Mersen, Versum Materials, Inc., DuPont Electronic Technologies, Dow Chemical Company, Air Liquide, Praxair, Inc., SAES Pure Gas, Inc., Donaldson Company, Inc. and Parker Hannifin Corp.Mersen.
ENGINEERING, RESEARCH AND DEVELOPMENT
We believe that technology is important to the success of our businesses, and webusinesses. We plan to continue to devote significant resources to engineering, research and development (R&D),ER&D, balancing efforts between shorter-term market needs and longer-term investments. Our aggregate engineering, research and development expenses in 2017, 2016 and 2015 were $107.0 million, $107.0 million and $105.9 million, respectively. As of December 31, 2017,2023, we had approximately 4301,361 employees in engineering, research and development.ER&D. We have supplemented and may continue to supplement our internal research and development efforts by licensing technology from unaffiliated third parties and/or acquiring rights with respect to products incorporating externally owned technologies. Our RER&D expenses consist of personnel and other direct and indirect costs for internally funded project development, including the use of outside service providers.
We believe we have a rich pipeline of development projects. For example, our engineering, research and developmentOur ER&D efforts have been focusingfocus on growth opportunities in areas such as bulk photochemical filtration, new boron mixtures for ion implant, new precursors for deposition, specialty coatings for key applications and new cleans chemistries. Our engineering, research and development efforts are directed toward developing and improving our technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications, often working directly with our customers to address their particular needs.
We have engineering, research and developmentER&D capabilities in California, Colorado, Connecticut, Massachusetts, Minnesota, Texas, Japan,many locations where our customers operate, including Taiwan, South Korea, Taiwan,the U.S., Japan, Canada, China, Singapore and Malaysia to meet the global needs of our customers.Malaysia. We use sophisticated methodologies to research, develop and characterize our materials and products. Our capabilities to test and characterize our materials and products are focused on continuously reducing risks and threats to the integrity of the critical materials that our customers use in their manufacturing processes.
We participate in Semiconductor Equipment and Materials International (SEMI®), an association of semiconductor equipment suppliers, as well as
In addition, we collaborate with leading universities and industry consortia, such as Stanford University, Yale University, the Massachusetts Institute of Technology (MIT), University of California andIllinois (Champaign Urbana), SUNY Albany, the Fraunhofer Institute, the Interuniversity Microelectronics CentreCenter (imec®). and CEA-LETI. We undertake this work to extend the reach of our internal RER&D and to gain access to leadershipleading ideas and concepts beyond the time horizon of our internal development activities.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
As of December 31, 2017,2023, we ownowned approximately 2,2504,400 active patents worldwide, of which about 690 are United States patents and815 were U.S. patents. Additionally, we owned about 1,170 are2,200 pending patent applications globally. In addition, weWe also license certain patents owned by third parties. We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights. We seek to refresh our intellectual property on an ongoing basis through continued innovation. While we license and willexpect to continue to license technology used in the manufacture and distribution of products from third parties, we do not consider any particular patent or license to be material to our business.
We vigorously protect and defend our intellectual property. We require each of our employees, including our executive officers, to enter into standard agreements with us pursuant to which the employee agrees to keep confidential all of our proprietary information confidential and to assign to us all inventions made while employed by us.during the course of employment. We also require all outside scientific collaborators, sponsored researchers and other advisors and consultants who are provided confidential information to execute confidentiality agreements upon the commencement of the consulting or collaboration relationship in question.with us. These agreements generally provide that all confidential information developed or made known to the entity or individual during the course of the entity’s or individual’s relationship with the Company is to be kept confidential and not disclosed to third parties except in specific limited circumstances.
MANUFACTURING
Our customers rely on our products and materials to assureensure the integrity of the critical materials used in their manufacturing processes by providing purity, cleanliness, consistent performance, dimensional precision and stability. Our ability to meet our customers’ expectations, combined with our substantial investments in worldwide manufacturing capacity positionand comprehensive supply chain strategy, positions us well to respond to the increasing demands from our customers for yield-enhancing materials and solutions.
To meet our customers'customers’ needs worldwide, we have established an extensive global manufacturing network with facilities in the United States,U.S., Canada, China, Japan, Taiwan, Malaysia, Singapore, South Korea and South Korea.Taiwan. Because we work in an industry where contamination control is paramount, we maintain Class 100 to Class 10,000 cleanrooms for manufacturing and assembly. We believe that our worldwide advanced manufacturing capabilities are important competitive advantages. These include:
| | | | | |
| |
| engineered polymer conversion and processing; | specialty coating capabilities; |
| advanced membrane modification and cleaning; | solids and powders compounding and handling; |
chemical formulation, blending, distillation,
synthesis and purification; | graphite synthesis; |
| gas delivery systems; | blow molding; |
| high-purity gas handling and transfilling; | rotational molding; |
| high-purity materials packaging; | machining; and |
| membrane casting; | assembly. |
| cartridge manufacturing and assembly; | |
We have made significant investments in systems and equipment to create innovative products and tool designs, including metrology and 3D printing capabilities for rapid analysis and production prototype of products.production. In addition, we use contract manufacturers for certain of our gas purification systems and certain electronic materials products both in the U.S. and Asia.
RAW MATERIALS
Our products are made from a wide variety of raw materials that are generally available from multiple sources of supply. However, whileOur strategy is to secure various sources of different raw materials, as appropriate, to enable the desired performance of our products, and monitor those sources as necessary to provide supply assurance. While we seek to have several sources of supply for all of theseraw materials, certain materials included in our products, such as certain filtration membranes in our MC segment, petroleum coke andcertain engineered abrasive particles, specialty and commodity chemicals and petroleum coke in our SCEMMS segment, and certain polymer resins in our AMH segment, are obtained from a single source, or a limited group of suppliers or from suppliers in a single country. We have entered into multi-year supply agreements with a number ofcertain suppliers for the purchase of raw materials in the interestinterests of supply assurance and to control costs.cost control.
GOVERNMENTAL REGULATION
Our operations are subject to federal, state and local regulatory requirements relating to export controls, environmental, waste management and health and safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and wastes, as well as practices and procedures applicable to the construction and operation of our plants. Although some risk of costs and liabilities related to these matters is inherent in our business, as with many similar businesses, we believe that our business is operated in substantial compliance with applicable regulations. However, new, modified or more stringent requirements or enforcement policies could be adopted, which could adversely affect us. While we expect that capital expenditures will be necessary to assureensure that any new manufacturing facility is in compliance with environmental and health and safety laws, we do not expect these expenditures to be material.
EMPLOYEESSee “Item 1A. Risk Factors” for a more detailed description of the regulatory risks we face.
HUMAN CAPITAL RESOURCES
We believe that our employees are a critical asset in achieving our mission of helping our customers improve their productivity, performance and technology by providing enhanced materials and process solutions for the most advanced manufacturing environments. In order to attract and retain top talent, we are focused on creating a diverse, inclusive and safe workplace. We are committed to providing competitive total rewards and quality development and training opportunities for our employees.
As of December 31, 2017,2023, we had approximately 3,900 employees.8,000 employees, of whom approximately 55%, 13%, 9%, 9%, 6%, 5% and 2% are located in North America, Southeast Asia, Japan, Taiwan, South Korea, China and Europe, respectively. Given the variability of business cycles in the semiconductor industry and the quickrapid response time required by our customers, it is critical that we be able to quickly adjust the size of our production staff to meet our customers’ demands and maximize efficiency. Therefore,efficiency and we use skilled temporary labor as required.
when possible. None of our employees areis represented by a labor union or covered by a collective bargaining agreement other than statutorily mandatedstatutorily-mandated programs in certain European countries.international jurisdictions. We believe that our labor relations have generally been good.
FINANCIAL INFORMATION ABOUT OUR OPERATING SEGMENTS
ForCulture. Our organization is built around what we refer to as our PACE values: our core values of treating people with respect and dignity, acting honestly and consistently, encouraging creativity and innovation and a discussiondedication to excellence. We believe that by continuing to focus on these values, we provide our employees with a positive work environment that allows them to develop professionally and encourages them to continue innovating.
We regularly conduct surveys of revenueour employees to understand their perspectives on a number of topics. During 2023, these topics included commitment to Entegris’ core values, safety and segment profitabilitygeneral employee satisfaction. Management uses the information gathered from these surveys to inform its decision making with respect to eachemployee matters, aiming to continue to be an employer of choice.
Diversity and Inclusion. We believe that maintaining a culture of diversity and inclusion helps enable us to innovate more effectively and perform better overall. We are committed to making progress on our diversity and inclusion journey. To that end, we seek to promote diverse backgrounds and perspectives throughout our organization and strive to provide fair and equal opportunity for career development and advancement to all our employees. An example of our reporting segments, see Item 7. Management’s Discussioncommitment to fostering and Analysispromoting diversity and inclusion at Entegris is our Employee Network groups, which are designed to advance diversity and inclusion and to promote our workplace as an environment where all individuals are valued for their talents and feel empowered to reach their fullest potential. As of Financial ConditionDecember 31, 2023, our six Employee Networks included groups focused on gender identity, people of color, sexual orientation, age, sustainability and Resultsveteran status.
Health and 77%Safety. Our success depends on the well-being of our net sales were madeemployees. We maintain a culture with an intense focus on safety and strive to customers outside North Americaidentify, eliminate and control risk in 2017, 2016the workplace in an effort to prevent injury and 2015, respectively. Industryillness. Our employees have access to a global safety management system and geographic segmentare encouraged to report incidents, near misses or other observations in the system. Management uses the information generated by the system to set safety-related policies and to set goals for future performance.
We also design our products with the safety of the people who are using them in mind. Our Safe Delivery Source products are designed to minimize potential leaks during transportation and use of hazardous gases, features which provide significant safety, environmental and productivity benefits over traditional high-pressure cylinders. In addition, our fluid-handling products, such as tubing, valve, fittings and drum products, are used to safely store, transport and dispense volatile and dangerous chemistries, protecting those who work with them.
Total Rewards. Our total rewards program is also discusseddesigned to be attractive and competitive and to enable our employees to reach their highest potential by directly impacting their financial security, career growth opportunities, and the health and well-being of them and their families. We seek to attract and retain talented employees by providing a compelling total rewards package consisting of competitive pay, health and welfare, work/life benefits and financial wellness programs. We design our programs with the core belief that our employees are at their best when they prioritize their emotional and physical health. We offer a Global Employee Support Program through which our employees and their families have access to resources in note 15support of their mental and emotional well-being. Our medical programs encourage healthy behaviors by rewarding employees for completing wellness activities. Our Employee Education Assistance Program is designed to encourage our employees to continue their education in courses that will help them advance their career at Entegris.
Talent Development and Training. We are committed to the ongoing training and development of our employees. We foster an on-the-job training and development culture by investing in rotational development programs in operations, supply chain, and engineering. We are continuously expanding and delivering technical and leadership training for internal talent through our Entegris Inc. consolidated financial statements includedGreat Leader Profile, Management Achievement, and Supervisor Training programs that are aimed at advancing leadership and management skills for current and future career growth. Employees are provided feedback and continuous development discussions through formal and informal review sessions throughout the year. While we continue to search for new perspectives and insights with external hires, we also seek to provide opportunities for our employees to grow their careers at the Company and regularly fill open vacancies with internal candidates. In addition, management periodically assesses succession planning for certain key positions and reviews our workforce to identify high potential employees for future growth and development. It remains crucial for our organization to invest in responsethe growth of our team members so that their unique talents and perspectives are cultivated to Item 8 below, whichdrive innovation and excellence.
Philanthropy. Recognizing our unique opportunity as a science-based company to effect positive change, the Entegris Foundation was established in 2020 to expand access to science, technology, engineering and math (“STEM”) education in underrepresented communities. The Entegris Foundation provides scholarship opportunities to underrepresented students pursuing a STEM major in colleges across the U.S. and in Korea, Taiwan and Japan. In 2023, Entegris invested $3 million in the Entegris Foundation and we have set a goal of investing more than $35 million in STEM scholarships and engineering internships for women and individuals from underrepresented communities by 2030.
Oversight. Our Board of Directors, through the Management Development and Compensation Committee, provides oversight on human capital matters through a variety of methods and processes. These include receiving regular updates from our Senior Vice President, Global Human Resources, and facilitating discussion related to human capital management efforts and other initiatives impacting the workforce, health and safety matters, employee survey results, hiring and retention, employee demographics, labor relations, compensation and benefits, succession planning and employee training initiatives. We believe the Board’s oversight of these matters helps identify and mitigate exposure to labor and human capital management risks, and is incorporated herein by reference.part of the broader framework that guides how we attract, retain and develop a workforce that aligns with our values and strategies.
For additional information on these important initiatives, see our annual corporate social responsibility report on our website at http://www.Entegris.com under “About Us - Corporate Social Responsibility.”
OUR HISTORY
The Company was incorporated in Delaware on March 17, 2005 in connection with a merger between Entegris, Inc., a Minnesota corporation, and Mykrolis Corporation, a Delaware corporation. On April 30, 2014, the Company acquired ATMI, based in Danbury, CT.Connecticut. On July 6, 2022, the Company acquired CMC Materials, based in Aurora, Illinois. Entegris has
been helping its customers solve their critical materials challenges and enhance their manufacturing yields for over 5055 years, tracing its corporate origins back to Fluoroware, Inc., which began operating in 1966.
AVAILABLE INFORMATION
Our Internet address is www.entegris.com. On this web site,website, under the “Investors-Financial Information-SEC Filings”“About Us-Investor Relations-Financial Information” section, we post the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission, (SEC):or SEC: our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; our proxy statements; any amendments to those reports or statements, and Form SD. All such filings are available on our web sitewebsite free of charge. The SEC also maintains a web sitewebsite (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on our website and any other website as referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.
Item 1A. Risk Factors.
You should carefully considerIn addition to the following risks and other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating us and our common stock. Any of the following risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of operations or cash flows. Our operations could be affected by various risks, many of which are beyondflows or cause our control. Based on current information, we believe that the following list identifies the most significant risk factors that could affect our financial condition,actual results of operations or cash flows. Thereto differ materially from those projected in any forward-looking statements. We may be additionalalso face other risks and uncertainties that adversely affect our financial condition, results of operations or cash flows in the future that are not presently known, are not currently believed to be material or are not identified below because they are common to all businesses. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. For more information, see “Cautionary Statement”Statements” in Item 7 of this Annual Report on Form 10-K.
Risks Related to Our Business and Industry
WORLDWIDE ECONOMIC AND INDUSTRY CONDITIONS MAY CAUSE DEMAND FOR OUR PRODUCTS TO DECREASE AND MAY ADVERSELY AFFECT OUR BUSINESS.
Worldwide economicFluctuations in the demand for semiconductors and industry conditionsthe overall volume of semiconductor manufacturing may decrease demand for our products and may adversely affect our business.
Our revenue is primarily dependent upon demand from the semiconductor manufacturers, whichecosystem. The semiconductor industry has historically been, and is driven by the current and anticipatedlikely to continue to be, cyclical with periodic downturns, resulting in decreased demand for semiconductorsour products. The semiconductor industry may be negatively impacted by factors such as decreased consumer spending, macroeconomic uncertainty and slow or negative economic growth. Each of these factors could decrease consumer spending and business investment in technologies and products utilizingthat contain semiconductors. While we believe drivers for semiconductor demand, such as smartphones, cloud computing, the Internet of Things, artificial intelligenceWe have previously experienced a reduction in revenue and other applications, have broadened and provide for a more stable overall industry environment, historically,operating losses during downturns in the semiconductor industry, has been,which can occur suddenly. During such downturns, we typically experience greater pricing pressure and mayshifts in the future be, highly cyclical with periodic significant downturns, resulting in significantly decreased expenditures by semiconductor manufacturers. We are unable to predict the ultimate duration or severity of any future downturns for the semiconductor industry. We have in the past experienced significant revenue deteriorationproduct and operating losses due to a severe downturn in the semiconductor industry.customer mix, which can adversely affect our gross margin and net income. The semiconductor industry is also affected by seasonal shifts in demand. Even moderate cyclicality or seasonality can causedemand, and as a result, we may experience short-term fluctuation in our operating results to fluctuate significantlyof operations from one period to the next. We are unable to predict the timing, duration or severity of any current or future downturns in the semiconductor industry.
Furthermore, sinceTo remain competitive in the semiconductor industry, we must continue tomay maintain a satisfactory level of engineering, researchor even increase our ER&D activity and development expenditures, continue to invest in our infrastructure, and maintain the ability to respond to any significant increases in demand, if they occur,even during downturns. As a result of such expenditures, a lower sales volume in periods of reduced demandsales can have a large and disproportionate impact on our profitability. ChangesThe fluctuating nature of the semiconductor industry requires us to maintain flexibility to respond to changes in order patterns have an immediatedemand, particularly during industry downturns, which may impact on our revenues becauseability to effectively manage our production capacity, workforce and inventory. Additionally, we typicallymay incur unexpected or additional costs to align our operations with demand. If we do not, have significant backlog. During downturns, our revenue is reduced and there is likelyor are unable to, be an increase in pricing pressure and shifts in product and customer mix, all of which may affect gross margin and net income. Such fluctuationsadequately anticipate changes in our business environment, we may lack the infrastructure, manufacturing capacity and resources to scale up our business to meet customer expectations and compete successfully during a period of growth. Conversely, we may expand our capacity too rapidly, resulting in excess fixed costs, and lower profitability.
Global economic uncertainty may materially and adversely affect our business, financial condition and results of operations.
Uncertain and volatile economic conditions, including uncertain and volatile financial markets, rising inflation and interest rates, economic slowdowns and/or recessions, national debt and bank failures, could materially and adversely impact our operating results. Such uncertain and volatile conditions in any of our key sales or manufacturing regions can cause or exacerbate negative trends in business and consumer spending and have historically impacted customer demand for our stock price to decline significantly. We believe that period-to-period comparisonsproducts and costs of manufacturing and delivering our products.
These conditions can cause material adverse changes in our results of operations and financial condition, including:
•a decline in demand for our products, which would have an immediate negative impact on our revenues;
•an increase in reserves for accounts receivable due to our customers’ inability to pay us;
•lower utilization of our manufacturing facilities, which could lead to lower margins;
•an increase in write-offs for excess or obsolete inventory that we cannot sell;
•potential impairment charges relating to goodwill, intangible assets, manufacturing equipment or other long-lived assets, to the extent that any downturn indicates that the carrying amount of the asset may not be meaningful,recoverable;
•limiting our suppliers’ ability to deliver parts and you should not rely upon them as indicatorsraw materials, which would negatively affect our ability to manage operations, manage our costs and sell our products;
•consolidation or strategic alliances among other suppliers to semiconductor manufacturers, which could adversely affect our ability to compete effectively;
•greater challenges in forecasting operating results, making business decisions and identifying and prioritizing business risks; and
•additional cost reduction efforts, including additional restructuring activities, which may adversely affect our ability to capitalize on opportunities.
Our revenues and operating results have fluctuated in the past and may do so in the future, which could impact our stock price.
Our revenues and operating results may fluctuate significantly from quarter-to-quarter or year-to-year due to a number of factors, many of which are outside our control. We manage our expenses based in part on our expectations of future revenues. Because some of our future performance.expenses are relatively fixed in the short term, a change in the timing of revenue or the amount of profit we generate from a small number of transactions can unfavorably affect operating results in a particular period. Factors that may cause our financial results to fluctuate unpredictably include:
OUR DEPENDENCE ON SINGLE AND LIMITED SOURCE SUPPLIERS OR AN INTERRUPTION IN OUR ORDINARY SOURCES OF SUPPLY COULD AFFECT OUR ABILITY TO MANUFACTURE OUR PRODUCTS AND HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
•legal, tax, accounting or regulatory changes (including changes in import/export regulations and tariffs, such as regulations imposed by the U.S. government restricting exports to China) or changes in the interpretation or enforcement of existing requirements;
•trends in the semiconductor industry, macroeconomic and market conditions and geopolitical uncertainty, including impacts caused by the Russian invasion of Ukraine, the war between Israel and Hamas, the current conflict in the Red Sea or bank failures;
•the size and timing of customer orders;
•consolidation of our customers, which could impact their purchasing decisions and negatively affect our revenues;
•procurement shortages, increased prices, the failure of suppliers to perform their obligations and additional expenses to respond promptly to any supply shortages or other supplier problems;
•decisions to increase or accelerate our purchasing of raw materials, components or other supplies in an effort to mitigate supply risk;
•changes in our capital expenditure requirements, such as our new facilities in Taiwan and Colorado, and the schedule and timing, including potential delays, thereof;
•manufacturing difficulties;
•customer decisions to decelerate orders in order to draw down their inventory;
•customer cancellations of or delays in shipments, installations or customer acceptances or, alternatively, acceleration of orders from customers to increase their inventory;
•our customers’ rate of replacement of our consumable products or decision to delay expansion projects;
•changes in average selling prices, customer mix and product mix;
•our ability to develop, introduce and market new, enhanced and competitive products in a timely manner;
•our competitors’ introduction of new products;
•disruptions in transportation, communication, demand, information technology (“IT”) or supply, including strikes, acts of God, wars, terrorist activities and natural or man-made disasters;
•changes in our estimated tax rate; and
•foreign currency exchange rate fluctuations.
Interruptions in our supply chain, including those from our single and limited source suppliers, could affect our ability to manufacture our products and meet demand, which, in turn, could have an adverse effect on our revenue and results of operations.
Our ability to increase sales of our products depends in part upon our ability, in a very short timeframe, to ramp up our manufacturing capacity and to mobilize our supply chain. If we are unable to expand our manufacturing capacity on a timely basis, manage the expansion effectively and obtain larger quantities of raw materials, our customers could obtain products from our competitors, which would reduce our market share, harm our reputation as a trusted partner and impact our results of operations. Ensuring a robust and resilient supply chain is critical in order for us to meet the demand, quality and technological requirements of our customers. We rely on the timely delivery of parts, materials and services, including components and subassemblies, from our suppliers and contract manufacturers. While we seek to limit instances where we rely on sole or limited source suppliers and utilize alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business, these strategies are not feasible or practical solution in all circumstances. For example, we rely on single or limited source suppliers for certain raw materials such as plastic polymers, filtration membranes, petroleum coke and other materials, whichthat are critical to the manufacturing of our products.products, such as plastic polymers, filtration membranes, abrasive particles, petroleum coke and other materials. If we lostwere to lose any one of these or other critical sources, it may be difficult for us to find an alternative supplier and we would need to qualify this new source through our customers’ rigorous qualification processes. Although we seek to reduce dependence on these sole and limited source suppliers, the partial or complete loss of these sources could interrupt our manufacturing operations and result in an adverse effect on our results of operations.
At times, we have experienced a limited supply of certain raw materials, as well as the need to substitute raw materials, resulting in delays, increased costs and risks associated with qualifying products made from such new raw materials with our customers. Events suchthere is as an industry-wide increase in demand for, or the discontinuation of, raw materials or other
components used in our products, it could affectbe difficult for us, or we may be unable, to find an alternative supplier to provide certain raw materials and components, in which case our operations could be adversely affected.
Demand for semiconductors and other factors outside of our control have resulted in, and may in the future result in, a shortage of raw materials and components needed to manufacture and deliver our products, higher raw materials costs, costly and time-consuming re-qualification of products manufactured with new raw materials and delays in, and unpredictability of, shipments due to transportation interruptions. These results could harm our reputation or the competitiveness of our products. Such shortages, delays and unpredictability have adversely impacted, and may continue to adversely impact or impact in the future (1) our suppliers’ ability to meet our demand requirements, (2) our manufacturing operations, (3) our ability to acquire sufficient quantitiesmeet customer demand, (4) our gross margins and (5) our manufacturing operations mayother operating results. Our actions to counteract adverse impacts to our gross margins and other operating results could be interrupted. For example, globalunsuccessful or reduce demand, for fluoropolymers increased unexpectedly in 2017 due to greater requirements from certain markets. While we were able to maintainwhich would adversely impact our supply of this raw material and prevent delays in customer shipments by holding forecast reviews with our key suppliers and securing higher levels of fluoropolymers inventory, no assurances can be made that future raw materials shortages will not affect our operations.revenue. Additionally, our supplierssuppliers may not have the capacity to meet increases in our demand for raw materials and other components, in turn, making it difficult for us unable to meet customer demand from our customers. Furthermore, prices for our products. If our suppliers or sub-suppliers are unable to maintain their operations, due to operational restrictions or financial hardship caused by an economic slowdown or recession, we may increase our safety stocks of raw materials can vary widely. Whileor components or alter our payment terms with such suppliers, including prepaying for raw materials, which could put downward pressure on our cash flow.
Further, increased restrictions imposed on a class of chemicals known as per- and polyfluoroalkyl substances (“PFAS”), which are used in a number of products, including parts and materials that are incorporated into our products, may negatively impact our supply chain due to the potentially decreased availability, or non-availability, of PFAS-containing products. Proposed regulations under consideration could require that we have long-term arrangementstransition away from the usage of PFAS-containing products, which could adversely impact our business, operations, revenue, costs, and competitive position. Suitable replacements for PFAS-containing parts and materials may not be available at similar costs, or at all.
Because a significant amount of our sales and manufacturing activity occurs outside the U.S., we are exposed to risks inherent in operating a global business.
Sales to customers outside the U.S. accounted for approximately 75%, 76% and 77% of our net sales in 2023, 2022 and 2021, respectively. We anticipate that international sales will continue to account for a majority of our net sales. In addition, a number of our key domestic customers derive a significant portion of their revenues from sales in international markets. We also manufacture a significant portion of our products outside the U.S. and depend on international suppliers for many of our parts and raw materials. We intend to continue to pursue opportunities in both sales and manufacturing internationally. Our international operations are subject to a number of risks and potential costs that could adversely affect our revenue and profitability, including:
•changes and uncertainties with respect to trade and export regulations (including new and changing regulations for exports of certain key suppliers that fixtechnologies to China), trade policies and sanctions, tariffs, international trade disputes and any retaliatory measures, which impact countries in which we conduct significant business could (1) impose additional costs on our price foroperations, (2) limit our ability to operate our business and (3) adversely impact us, our customers or our suppliers;
•positions taken by governmental agencies regarding possible national, commercial and/or security issues posed by the purchasedevelopment, sale or export of certain raw materials, ifproducts and technologies;
•geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, the costwar between Israel and Hamas, the current conflict in the Red Sea and increasing tensions with China, and other political and economic instability and uncertainty, which may result in severely diminished liquidity and credit availability, rating downgrades of sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in unemployment rates, increased logistics costs and delays and uncertainty about economic stability;
•challenges in hiring and integrating workers in different countries;
•challenges in managing a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, along with differing employment practices and labor issues;
•challenges of maintaining appropriate business processes, procedures and internal controls and complying with legal, environmental, health and safety, anti-bribery, anti-corruption, data privacy, cybersecurity and other regulatory requirements that vary by jurisdiction;
•challenges in developing relationships with local customers, suppliers and governments;
•fluctuating pricing and availability of raw materials and supply chain interruptions or slowdowns, including as a result of difficulties, financial or otherwise, faced by segments of the transportation industry;
•public health crises, such as the COVID-19 pandemic, and related implications thereof;
•expense and complexity of complying with U.S. and foreign import and export regulations, including the ability to obtain and renew required import and export licenses;
•fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against foreign currencies that are important to our business, including the Japanese yen, euro, Taiwanese dollar, Korean won, Chinese renminbi, Singapore dollar, Malaysian ringgit, Canadian dollar or Israeli shekel, which could cause our sales and profitability to decline;
•liability for foreign taxes assessed at rates higher than those applicable to our domestic operations;
•imposition of a global minimum tax rate, including by the Organization of Economic Co-operation and Development (“OECD”);
•challenges and costs associated with the protection of our intellectual property throughout the world;
•challenges associated with managing global and regional third-party service providers, including certain engineering, software development, manufacturing, IT and other functions; and
•customer or government efforts to encourage operations and sourcing in a particular country, such as Korea or China, including efforts to develop and grow local competitors, require local manufacturing, and provide special incentives to government-backed local customers to buy from local competitors.
In the past, these factors have disrupted our operations and increased our costs, and we expect that these factors will continue to do so in the future. Furthermore, there is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the U.S., that political, diplomatic and national security influences could lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry. This can adversely affect our business with China, Japan, Korea, and/or Taiwan and potentially the entire Asia Pacific region or global economy. A significant trade dispute, impact and/or disruption in any area where we do business could have a materially adverse impact on our future revenue and profits.
Tariffs, export controls and other trade laws and restrictions resulting from international trade disputes, strained international relations and changes to foreign and national security policy, especially as they relate to China, could have an adverse impact on our operations and reduce the competitiveness or availability of our products relative to local and global competitors.
Tariffs, additional taxes, trade barriers and other measures, particularly those arising out of relations between the U.S. and China, may increase costs of raw materials increases and we are unable to correspondingly increaseour manufacturing costs, decrease margins, reduce the sales pricecompetitiveness of our products or findinhibit our ability to sell products or purchase necessary equipment and supplies, any of which could have a material adverse effect on our business, results of operations or financial condition. Both the U.S. and China have implemented several rounds of tariffs and countermeasures with respect to certain products imported from the other cost savings,country, some of which have impacted certain raw materials we use.
In addition, we are subject to export control and economic sanctions laws and regulations that restrict the delivery of some of our profit margins will decline.products and services to certain countries (and nationals thereof), to certain end users, and for certain end uses. These restrictions may prohibit the transfer of certain of our products, services and technologies, and they may require us to obtain a license from the U.S. government before delivering the controlled item or service. Obtaining export licenses may be difficult, costly and time-consuming, and we may fail to receive licenses that we apply for on a timely basis or at all. We must also comply with export control and economic sanctions laws and regulations imposed by other countries. Our export and trade control compliance program may be ineffective or circumvented, exposing us to legal liabilities. Compliance with these laws could significantly limit our sales in the future. Changes in, and responses to, U.S. trade controls could reduce the competitiveness of our products and cause our sales to decline, which could have a material adverse effect on our business, financial condition and results of operations.
Over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. On October 17, 2023, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) announced updates to export control regulations, originally issued on October 7, 2022, regarding the sale of certain products and services related to advanced computing items, semiconductor manufacturing equipment, and items that can support end uses related to the development and production of advanced-node integrated circuits and semiconductor manufacturing equipment, among others. The updated rules modify and expand restrictions on the sale of products and the provision of certain services by U.S. persons to certain companies and domestic fabs located in countries of concern, including China, without prior U.S. governmental authorization. Additionally, effective June 29, 2020, the U.S. Department of Commerce imposed new export controls on the transfer of many U.S. products and technologies, including many commercial-grade electronics, to “military end users” in China, a term which may include many Chinese commercial companies that sell products to or do business with the military. These and other regulations have reduced our ability to sell our products to customers in China and it is possible future regulation could further
reduce demand for our products. As a result of these restrictive measures, certain of our customers have made efforts to source products domestically in order to mitigate perceived risks to their supply chain. If these efforts are successful, are widespread amongst our customers and expand to our products and solutions broadly, overall global demand for our customers’ products or for other products produced or manufactured in the United States or based on U.S. technology may be reduced, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, government authorities may take retaliatory actions, impose conditions that require the use of local suppliers or partnerships with local companies, or require the license or other transfer of intellectual property, which could have a significant adverse impact on our business. Such risks may be especially exacerbated as they relate to China, a market that is important to our business, representing approximately 16% of our sales in 2023.
A SIGNIFICANT AMOUNT OF OUR SALES IS CONCENTRATED ON A LIMITED NUMBER OF KEY CUSTOMERS AND, THEREFORE, OUR NET SALES AND PROFITABILITY MAY MATERIALLY DECLINE IF WE LOST ONE OR MORE OF THESE CUSTOMERS.significant portion of our sales is concentrated on a limited number of key customers, and our net sales and profitability may materially decline if we were to lose one or more of these customers.
Sales to a limited number of large customers constitute a significant portion of our overall revenue, shipments, cash flows, collections and profitability. Our top ten customers accounted for 47%43%, 45%43% and 44%43% of our net sales in 2017, 20162023, 2022 and 2015,2021, respectively. OurWe would have no or limited contractual recourse if our customers coulddecided to stop buying and using our products in their manufacturing processes with limited advance notice to us and suffer little or no penalty for doing so.us. The cancellation, reduction or deferral of purchases of our products by even a single customerany one of these customers could significantly reduce our revenues in any particular quarter. If we were to lose any of our significant customers, if our products are not specified for theseour significant customers’ products or production processes, or if we suffer a material reduction in their purchase orders, our revenue could decline and our business, financial condition and results of operations could be materially and adversely affected. Due to the long design and development cycle and lengthy customer product qualification periods required for most of our new products, we may be unable to quickly replace these customers quickly, if at all.
Furthermore, the In addition, our principal customers hold considerable purchasing power and may be able to negotiate sales terms that result in decreased pricing, increased costs, lower margins and/or limit our ability to share jointly-developed technology with others. The semiconductor industry has been undergoing, and is expected tomay continue to undergo consolidation. Ifconsolidation, and if any of our customers merge or are acquired, we may experience lower overall sales fromto the merged or survivingcombined companies. In addition, our principal
Our customer base is also geographically concentrated, particularly in Taiwan, Korea, Japan, China and the U.S. As a result, export regulations or other trends that apply to customers also hold considerable purchasing powerin certain countries, such as those in China, have exposed and may be ablefurther expose our business and results of operations to negotiategreater volatility. The geographic concentration of our customer base could shift over time as a result of government policy and incentives to develop regional semiconductor industries.
If we are unable to anticipate and respond to rapid technological change and customer requirements that result inby continuing to innovate and introduce new and enhanced products and solutions, we may experience a loss of market share, decreased pricing, increased costs, and/or lower margins for us,sales, revenue, profitability and limitations on our ability to share jointly developed technology with others.
We could also lose our key customers or significant salesdamage to our key customers because of factors beyond our control, such as a significant disruption in our customers’ businesses generally or in a specific product line, a change in the manufacturing sourcing policies or practices of these customers or the timing of customer inventory adjustments. For example, our customers’ aggressive management of inventory has adversely affected revenue in our SCEM segment in the past and may adversely affect future results of operations.reputation.
IF WE ARE UNABLE TO CONTINUE OUR TECHNOLOGICAL INNOVATION AND INTRODUCTION OF NEW PRODUCTS, WE WILL NOT BE ABLE TO SUCCESSFULLY COMPETE.
The semiconductor industry is subject to rapid technological change, changing customer requirements and frequent new product introductions. AsIn our industry, the first company to introduce an innovative product that addresses an identified market need will often have a result,significant advantage over competing products. Following development, it may take several years for sales of a new product to reach a substantial level, if ever. If a product concept does not progress beyond the life cycle ofdevelopment stage or only achieves limited acceptance in the marketplace, we may not receive a direct return on our products is difficultexpenditures, we may lose market share and our revenue, and profitability may decline. In the past, we incurred significant impairment charges for capital expenditures related to determine. developing the capability to manufacture shippers and FOUPs for 450 millimeter wafers, which major semiconductor manufacturers announced that they would not initiate manufacturing for in the foreseeable future.
We believe that our future success will depend upon our ability to continue to develop mission-critical solutions to maximize our customers’ manufacturing yields and enable higher performance of end-market materials orsemiconductor devices. This requires that weA failure to successfully anticipate and respond to technological changes inby developing, marketing and manufacturing processes in a cost-effective and timely manner. A failure to develop new products or enhancements to our existing products or the inability to timely manufacture and ship these products or enhancements in sufficient volume could harm our business prospects and significantly reduce our sales. We cannot guarantee that the new products and technology we choose to develop and market will be successful. In addition, if new products have reliability or quality problems, we may experience reduced orders, higher manufacturing costs, delays in acceptance and payment, additional service and warranty expense and damage to our reputation.
COMPETITION FROM NEW OR EXISTING COMPANIES COULD HARM OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW.
We operate in a highly competitive industry. We compete against many domesticManufacturing interruptions or delays, or other disruptions to our operations, could adversely affect our business, financial condition and foreign companies, some of which have substantially greater manufacturing, financial, research and development, and marketing resources than we do. In addition, some of our competitors may have better-established customer relationships than we do, which may enable them to have their products specified for use more frequently and more quickly by these customers. We also face competition from smaller, regional companies, which focus on serving those customers in their same region. Another source of competition is from the manufacturing engineering teams of our customers, who continually evaluate the benefits of internal manufacturing versus outsourcing. If we are unable to maintain our competitive position, we could experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and a loss of market share, which could have a material adverse effect on our results of operations. Further, we expect that existing and new competitors will improve the design of their existing products and will introduce new products with enhanced performance characteristics. The introduction of new products or more efficient production of existing products by our competitors could diminish our market share and increase pricing pressure on our products.
IF WE ARE UNABLE TO OBTAIN FUTURE BUSINESS OPPORTUNITIES ASSOCIATED WITH NEW PRODUCT INITIATIVES AND RELATED INVESTMENTS, OUR REVENUE AND PROFITABILITY MAY DECLINE.
In the semiconductor market, while the development period for a product can be very long, the first company to introduce an innovative product meeting an identified customer need will often have a significant advantage over offerings of competitive products. For this reason, we may make significant cash expenditures to research, develop, engineer and market new products and make significant capital investments in technology and manufacturing capacity in advance of future business developing and without any purchase commitment from our customers. For example, to support new product and technology development, we incurred $107.0 million, $107.0 million and $105.9 million for engineering, research and development expense in 2017, 2016 and 2015, respectively.
Following development, it may take a number of years for sales of a new product to reach a substantial level, if ever. A product concept may never progress beyond the development stage or may only achieve limited acceptance in the marketplace. If this occurs, we do not receive a direct return on our expenditures, we may not realize any indirect benefits, we may lose market share and our revenue and profitability may decline. For example, from 2011 to 2014, our capital expenditures relating to developing the capability to manufacture shippers and FOUPs for 450 mm wafers were approximately $16.5 million. However, major semiconductor manufacturers have announced that they would not initiate 450 mm manufacturing in the foreseeable future. As a result, we have taken impairment charges related to certain 450 mm-related equipment and are exiting a location dedicated to 450 mm wafer handling solutions. We cannot assure you that the new products and technology we choose to develop and market in the ordinary course of our business will be successful.
WE MAY ACQUIRE OTHER BUSINESSES, FORM JOINT VENTURES OR DIVEST BUSINESSES, WHICH COULD NEGATIVELY AFFECT OUR FINANCIAL PERFORMANCE.
As part of our business strategy, and as we have done in the past, we expect to address gaps in our product offerings, adjust our portfolio of businesses to meet our ongoing strategic objectives, and diversify into complementary markets through acquisitions, joint ventures or other types of collaborations. As a result, we may enter markets in which we have no or limited prior experience and may encounter difficulties in divesting businesses that no longer meet our objectives. Competition for acquiring attractive businesses in our industry is substantial. We may experience difficulty in identifying suitable acquisition candidates or in completing selected transactions at appropriate valuations, in a timely manner, on a cost-effective basis or at all, and we may not realize the anticipated benefits of any such transaction. Alternatively, we may be required to undertake multiple transactions at the same time in order to take advantage of acquisition opportunities that do arise. This could strain our ability to effectively execute and integrate these transactions. Further, we may not be able to successfully integrate any acquisitions that we do make into our existing business operations, and we could assume unknown or contingent liabilities or experience negative effects on our reported results of operations from dilutive results from operations and/or from future potential impairment of acquired assets, including goodwill, related to future acquisitions. For example, if we fail to successfully integrate the water and chemical filtration product line for microelectronics applications we acquired in 2017 from Gore, we may not meet our revenue and bottom line objectives for these
filtration products. We may experience difficulties in retaining key employees or customers of an acquired business, and our management’s attention could be diverted from other business issues.
MANUFACTURING INTERRUPTIONS OR DELAYS, FAILURES TO ACCURATELY FORECAST CUSTOMER DEMAND OR TO RESPOND TO SHIFTS IN DEMAND, AND THE RISKS ASSOCIATED WITH THE MANUFACTURE OF HAZARDOUS MATERIALS, IN PARTICULAR SPECIALTY CHEMICALS, COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our manufacturing processes are complex and require the use of expensive and technologically sophisticated equipment and materials. These processes are frequently modified to improve manufacturing yields, process stability and product quality. We
have, on occasion, experienced manufacturing difficulties, such as occasional critical equipment breakdowns or the introduction of impurities in the manufacturing process, whichprocess. Any future difficulties could cause lower manufacturing yields, make our products unmarketable and/or delay deliveries to customers. In addition, any modification to the manufacturing process of our products maya product could require that the affected product be re-qualified by our customers, which can increase our costs and delay our ability to sell this product to our customers. We could experience thesehave moved, and we may again move, the manufacture of certain products from one plant to another. If we fail to transfer and re-establish the manufacturing processes in the destination plant efficiently and effectively, we may not be able to meet customer demand, we may lose credibility with our customers and our business may be harmed. Even if we successfully move our manufacturing processes, we may not achieve the anticipated levels of cost savings or efficiencies, if any. These and other manufacturing difficulties which mightmay result in athe loss of customerssales and exposure to warranty and product liability claims.
A number
Disruptions to our operations may be caused by factors outside of our product lines are manufactured at only one or two facilities in different countries,control, including severe weather events and natural catastrophes, civil unrest, outbreaks of disease, and terrorist actions. Our continuity plans designed to mitigate the impact of disruptions to our operations may be insufficient, and any prolonged disruption could impact our sales until another facility could commence or expand production of such products. We have in the past, we may in the future, move the manufacture of certain product lines from one of our plants to another, usually to enhance efficiency and cost effectiveness of our manufacturing operations and to better serve customers located in various countries. Production may be disrupted and we may not be able to meet customer orders if we fail to efficiently and effectively transfer and re-establish the manufacturing processes in the destination plant. This may cause us to lose credibility with our customers and harm our business. Even if we successfully move our manufacturing processes, there is no assurance that we will achieve anticipated cost savings and efficiencies.
Our ability to increase sales of our products, particularly our capital equipment products, depends in part uponimpede our ability to ramp up our manufacturing capacity for suchmanufacture and deliver products in a timely manner, often in as little as a few months, and to quickly mobilize our supply chain. If we are unable to expand our manufacturing capacity on a timely basis, manage such expansion effectively or obtain an increase in required raw materials from our supply chain, our customers, could seek such products from our competitors, and our market share could be reduced. Because demand shiftsresulting in the semiconductor industry are rapid and difficult to foresee, we may not be able to increase capacity quickly enough to respond to any such increase in demand.
We typically operatean adverse impact on our business on a just-in-time shipment basis with a modest leveland results of backlogoperations.
Our operations use hazardous materials that expose us to various risks, including potential liability for personal injury and we order supplies and plan production based on internal forecasts of demand. We have, in the past, and may again in the future, fail to accurately forecast demand for our products, in terms of both volume and product type. This has led to, and may in the future lead to, delays in product shipments, disappointment of customer expectations, or, alternatively, an increased risk of excess and obsolescence of our inventory. If we fail to accurately forecast demand for our products, our business, financial condition and operating results could be materially and adversely affected.potential remediation obligations.
Our operations involve, and we are exposed to the risks associated with, the use and the manufacture of hazardous materials,materials. In particular, we manufacture specialty chemicals, which is an inherently hazardous process that may result in particular, specialty chemical manufacturing,accidents, and the related storagestore and transportation oftransport hazardous raw materials, products and waste in, to and from various facilities. Potential risks that may disrupt our manufacturing facilitiesoperations or distribution centers. In addition,expose us to significant losses and liabilities include explosions and fires, chemical spills and other discharges, releases of toxic or hazardous substances or gases, and pipeline and storage tank leaks and ruptures. These and other hazards may result in (1) liability for personal injury, death, damage to property and contamination of the environment; (2) suspension of operations; (3) the imposition of civil or criminal fines, penalties and other sanctions; (4) cleanup costs; (5) claims by governmental entities or third parties; (6) reputational harm; (7) increases in our insurance costs; and (8) other adverse impacts on our results of operations. Moreover, a failure of one of our products at a customer site could interrupt the business operations of the customer. For example, while we believe that our SDS and VAC delivery systems are the safest available in the industry, as with any products involved in thesafe to transport, store and storage ofdeliver toxic gases, if a leak were to occur during transport or during storage at our customers’ location,any leakage could cause serious damage, could result including injury or death, to any person exposed to those toxic gases, potentially creating significant product liability exposure for us. There canOur insurance coverage may be no assurance that our insurance will be adequateinadequate to satisfy any such liabilities, and our financial results or financial condition could be adversely affected.
LOSS OF OUR KEY PERSONNEL, WHO HAVE SIGNIFICANT EXPERIENCE IN THE SEMICONDUCTOR INDUSTRY AND TECHNOLOGICAL EXPERTISE, COULD HARM OUR BUSINESS, WHILE OUR INABILITY TO ATTRACT AND RETAIN NEW QUALIFIED PERSONNEL COULD INHIBIT OUR ABILITY TO OPERATE AND GROW OUR BUSINESS SUCCESSFULLY.
We carry a significant amount of goodwill on our balance sheet.
As of December 31, 2023, we had goodwill of $3,945.9 million. The future occurrence of a potential indicator of impairment, such as a significant adverse change in business climate, an adverse action or assessment by a regulator, unanticipated competition, a material negative change in relationships with significant customers, strategic decisions made in response to economic or competitive conditions, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could result in goodwill impairment charges. We have recorded goodwill impairment charges in the past, and such charges have materially affected our historical results of operations. For additional information, see Note 10 – Goodwill and Intangible Assets to the accompanying consolidated financial statements.
Loss of any of our key personnel could harm our business, and our inability to attract and retain new qualified personnel could inhibit our ability to operate and grow our business successfully.
Many of our key personnel have significant experience in the semiconductor industry and deep technical expertise. The loss of the services of one or severalany of our key employees or an inability to attract, hire, train and retain qualified and skilled employees, specificallyparticularly research and development and engineering personnel, including as a result of changes to immigration policies, could cause business interruptions and inhibit our ability to operate and grow our business successfully.business. As the semiconductor industry has experienced growthgrown in recent years, the competition between industry participants for qualified talent, particularly those with significant industry experience, has intensified. We have experienced in the semiconductor industry, has intensified.past, and may in the future continue to experience, an increasingly competitive and constrained labor market, which may limit our ability to add headcount required to meet our customers’ demand, decrease our productivity due to an influx of inexperienced workers and cause our labor costs to increase and our profitability to decline. As a result, the difficulty and costs associated with attracting and retaining key employees has risen and may rise further in the futurecontinue to rise.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND TECHNOLOGY, IF OUR COMPETITORS WERE TO DEVELOP SIMILAR OR SUPERIOR INTELLECTUAL PROPERTY OR
If we fail to obtain, protect and enforce intellectual property rights, our business and prospects could be harmed.
TECHNOLOGY, OR, IF OUR INTELLECTUAL PROPERTY OR TECHNOLOGY VIOLATE THIRD-PARTY RIGHTS, OUR BUSINESS AND PROSPECTS COULD BE HARMED.
Our future success and competitive position depend in part upon our ability to obtain, maintain and maintain proprietary technology.enforce intellectual property rights. We rely in part, on patent, trade secret and trademark lawlaws to protect many of our major product platforms. We have obtained a number of patents relating to our products and have filedAlthough we often file new applications for additional patents. We cannot assure you that any ofpatents, our pending patent applications willmay not be approved, in key jurisdictions or at all,approved. Moreover, any patents that we will develop additional proprietary technology that is patentable, that any patents owned byown or issued to us willobtain may not provide us with any competitive advantagesadvantage or that thesemay be designed around. These patents will notmay also expire or be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised by third parties. In addition, if we do notany failure to obtain intellectual property protection in the international jurisdictions we serve our competitiveness in these markets could be significantly impaired,expose us to increased competition, which could limit our growth and future revenue. WhileThe confidentiality agreements we routinely enter into confidentiality agreements with our employees and withcertain third parties to protect our proprietary information and technology these agreementsmay be inadequate to protect our interests, and the remedies available to us for any breach may not be enforceable or they may be breached by such employees or third parties, and we may not have adequate remedies for such breaches. Furthermore, ouradequately mitigate any breach. Our confidential and proprietary information and technology may be replicated or obtained through lawful means. Additionally, we may lose trade secret protection as a result of actions or omissions by us, our employees or third parties. Furthermore, the failure to effectively implement artificial intelligence strategies may result in the loss of intellectual property and raise complex compliance, intellectual property and other issues.Infringement or misappropriation of our intellectual property rights could be independently developed by or become otherwise known to thirdresult in uncompensated lost market and revenue opportunities, which could adversely affect our business and financial condition.
Third parties and third parties could design around our patents.
Competitors may misappropriate our intellectual property rights, and disputes as to ownership ofregarding intellectual property rights may arise. We may institutebring litigation in order to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation could (1) result in substantial costs and the diversion of resources, (2) require us to pay damages or royalties, alter our products or processes, or obtain a license to continue selling the impacted product, which we may be unable to do on commercially acceptable terms, or at all and could(3) negatively affect our sales, profitability and prospects regardless of whether we are ableprospects. We continue to successfullyvigorously defend and enforce our rights. For example, in January 2011, we settled multiple patent litigations with Pall Corporation (which was acquired by Danaher Corporation in 2015). We prosecutedpatents and defended these cases vigorously and incurred substantial costs in pursuing them. It may become necessary forrights, which will cause us to incur costs. We may initiate other costly patent litigation against our competitors or other third parties in order to protect and/or perfect our intellectual property rights. We cannot predict how any existing or future litigation will be resolved or what its impact will beit may have on us.
Our commercial success depends, in part,
From time to time third parties have asserted, and may continue to assert, intellectual property claims against us and our products. Claims that our products infringe the rights of others, whether or not meritorious, can be expensive and time-consuming to defend and resolve, and may divert the efforts and attention of management and personnel. The inability to obtain rights to use third-party intellectual property on commercially reasonable terms could have an adverse impact on our ability to avoid infringingbusiness. We may face claims based on the theft, unauthorized use or misappropriating any patents or other proprietary rights owned by third parties. If we are found to infringe or misappropriate a third party’s patent or other proprietary rights, we could be required to pay damages to such third party, alter our products or processes, obtain a license from the third party or cease activities utilizing such proprietary rights, including making or selling products utilizing such proprietary rights. If we are required to obtain a license from a third party, there can be no assurance that we will be able to do so on commercially favorable terms or at all.
OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY CLIMATE CHANGE OR NATURAL CATASTROPHES IN THE LOCATIONS IN WHICH WE, OUR CUSTOMERS OR OUR SUPPLIERS OPERATE, SUCH AS THE MARCH 2011 EARTHQUAKE AND TSUNAMI IN JAPAN, HURRICANE HARVEY IN EAST TEXAS, HURRICANE IRMA IN FLORIDA IN 2017 AND THE WILDFIRES IN COLORADO SPRINGS, COLORADO AND CALIFORNIA IN 2012 AND 2017.
We have manufacturingdisclosure of third-party trade secrets and other operationsconfidential business information. Any such incidents and claims could severely harm our business and reputation, result in locations subject to severe weathersignificant expenses, harm our competitive position, and natural catastrophesprevent us from selling certain products, all of which could disrupt operations, such as typhoons in Taiwanhave a material and China, earthquakes and tsunamis in Japan in 2011, hurricanes in east Texas (Hurricane Harvey) and in Florida (Hurricane Irma), each in 2017, and wildfires in Colorado Springs, Colorado in 2012 and in California in 2017. In addition, our suppliers and customers also have operations in such locations. A natural disaster that results in a prolonged disruption to our operations, or our customers’ or suppliers’ operations, may adversely affect our results of operations and financial condition. Also, climate change poses both regulatory and physical risks that could harm our results of operations or affect the way we conduct our businesses. While our business continuity plans enabled us to mitigate the impact to our operations of the events described above, there can be no assurance that such plans will be effective in the future or that such catastrophes will not disrupt our ability to manufacture and deliver products to our customers, resulting in an adverse impact on our business and results of operations.
WE MAY BE SUBJECT TO INFORMATION TECHNOLOGY SYSTEM FAILURES, NETWORK DISRUPTIONS AND BREACHES IN DATA SECURITY, WHICH COULD DAMAGE OUR REPUTATION AND ADVERSELY AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS.
We may be subject to IT system failures, network disruptions and breaches in data security, which could damage our reputation and adversely affect our financial condition, results of operations and cash flows. New laws and regulations regarding data privacy may also increase our costs.
In the ordinary course ofconducting our business, we use, collect and store sensitive data, including our financial information, intellectual property, confidential information, proprietary business information and thatpersonally identifiable information of our employees and others, as well as similar information of our customers, suppliers and business partners and personally identifiablepartners. We maintain this information of our employees in our data centers, on our networks and on our networks.IT systems owned and maintained by third parties. The secure processing, maintenance and transmission of this information is critical to our operations. Information technologyAll IT systems are subject to disruptions, security breaches, outages and failures. We and our third-party suppliers have experienced, and expect to continue to be subject to, cybersecurity threats and incidents ranging from employee or contractor error or misuse, to individual attempts to gain unauthorized access to systems, to sophisticated and targeted measures known as advanced persistent threats. Cybersecurity threats may target us directly or indirectly through our third-party providers and global supply chain. Cybersecurity attacks are increasing in number and the attackers are increasingly organized and well-financed, or at times supported by state actors. Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine or increasing tensions with China, may create a heightened risk of cybersecurity attacks. Artificial intelligence capabilities may be used by threat actors to identify vulnerabilities and craft increasingly sophisticated cybersecurity attacks. The use of artificial intelligence by us, our customers, suppliers and other business partners and third-party providers may introduce vulnerabilities onto our IT systems and data. We continue to devote significant resources to network security, threat monitoring and other measures to protect our systems and data from unauthorized access or misuse, and we may be required to expend greater resources in the future, especially in the face of evolving and increasingly sophisticated cybersecurity threats and laws, regulations, and other actual and asserted obligations to which we are or may become subject relating to privacy, data protection, and cybersecurity.
IT system failures, network disruptions and breaches of data security from cyber-attacks, employee error or social media use on our computers or through failure of our internet service providers and other cloud computing service providers to successfully secure their own systems could disrupt(1) cause disruption in our operations, causeissues with customer communication and order management, issues, cause the unauthorized or unintentional disclosure of customer, employee and proprietarysensitive information, and cause disruptionor disruptions in our transaction processing or (2) undermine the integrity of our disclosure controls and procedures and our
internal control over financial reporting, which could affect our reputation, result in significant liabilities and reporting ofexpenses, adversely affect our ability to report our financial results.
While our management has implemented network security procedures, virus protection software, intrusion prevention systems, access control, emergency recovery processesresults in a timely manner and internal control measures, there can be no assurance that a system failure or data security breach will not occur andcould have a material adverse effect on our financial condition, results of operations and cash flows.
WITH A SIGNIFICANT AMOUNT OF OUR SALES AND MANUFACTURING ACTIVITY OCCURRING OUTSIDE THE UNITED STATES, WE ARE EXPOSED TO THE RISKS OF OPERATING A GLOBAL BUSINESS.
SalesOur efforts to comply with current and evolving laws, regulations and other obligations, such as contractual or commercial obligations from our customers outsideor other third parties, concerning privacy, cybersecurity, and data protection, increase our compliance costs and could result in significant additional expenses. Any actual or alleged failure to comply with these obligations could result in inquiries, investigations, and other proceedings against us by regulatory authorities or other third parties.
Our environmental, social and governance commitments could result in additional costs, and our inability to achieve them could have an adverse impact on our reputation and performance.
From time to time we communicate our strategies, commitments and targets related to sustainability, carbon emissions, diversity and inclusion, human rights, and other environmental, social and governance matters. These strategies, commitments and targets reflect our current plans and aspirations, and we may be unable to achieve them. Changing customer sustainability requirements, as well as our sustainability targets, could cause us from time to time to alter our manufacturing, operations or products, and incur substantial additional expense to meet such requirements and targets. Any failure or perceived failure to timely meet these sustainability requirements or targets could adversely impact the United States accounteddemand for approximately 79%, 78% and 77% of our net sales in 2017, 2016 and 2015, respectively. We anticipate that international sales will continue to account for a majority of our net sales. In addition, a number of our key domestic customers derive a significant portion of their revenues from sales in international markets. We also manufacture a significant portion of our products outside the United States and are dependent on international suppliers for many of our partssubject us to significant costs and raw materials. We intend to continue to pursue opportunities in both salesliabilities and manufacturing internationally. Our international operations are subject to a number ofreputational risks and potential costs that could adversely affect our revenuebusiness, financial condition and profitability, including:
unexpected changesresults of operations. In addition, standards and processes for measuring and reporting carbon emissions and other sustainability metrics may change over time and result in regulatory requirements that could impose additional costs oninconsistent data or significant revisions to our operations or limitstrategies, commitments and targets, and our ability to operateachieve them. Any scrutiny of our business;carbon emissions or other sustainability disclosures or our failure to achieve related strategies, commitments and targets, or our failure to disclose our sustainability measures consistent with applicable laws and regulations or to the satisfaction of our stakeholders, could negatively impact our reputation or performance.
challenges
Risks Related to Our Acquisition of CMC Materials
Our acquisition of CMC Materials involves a number of risks that could adversely affect our business, and we may not realize the financial and strategic goals we anticipate.
In July 2022, we completed our acquisition of CMC Materials, which we refer to in hiring and integrating workers in different countries;
managementthis risk factor as the “acquisition”. The ultimate success of a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, along with differing employment practices and labor issues;
maintenance of appropriate business processes, procedures and internal controls, and compliance with, legal, environmental, health and safety, anti-corruption andthe acquisition will depend on, among other regulatory requirements;
development of relationships with local customers, suppliers and governments;
fluctuating pricing and availability of raw materials and supply chain interruptions;
expense and complexity of complying with U.S. and foreign import and export regulations, includingthings, the ability to obtain required importcontinue to combine the two businesses in a manner that facilitates growth opportunities. While we have completed many key integration steps, such as migrating the core legacy CMC Materials businesses onto our Enterprise Resource Planning system, there are other processes, policies, procedures, operations and export licenses;
liability for foreign taxes assessed at ratessystems that we continue to integrate. The combined company has and may continue to incur ongoing restructuring, integration and other costs associated with combining the operations of the two companies. For example, we have recently combined two legacy segments, the Advanced Planarization Solutions and the Specialty Chemicals and Engineered Materials segments, to form the Materials Solutions segment to better position our business to service our customers across critical semiconductor process steps such as etch, deposition, CMP and post-CMP, which resulted in an organizational restructuring. It is possible that the ongoing integration process could result in (1) the loss of customers, (2) the disruption of ongoing businesses, (3) inconsistencies in standards, controls, procedures and policies, (4) unexpected integration issues, (5) higher than those applicableexpected integration costs and (6) an overall integration process that takes longer than originally anticipated. Actual growth, if achieved, may be lower than what we expect and may take longer to our domestic operations;
unanticipated government actions, such as trade wars, or laws, rules, regulations and policies that favor domestic companies over nondomestic companies, including customer or government efforts to provide for the development and growth of local competitors;
customer or government efforts to encourage operations and sourcing in a particular country, such as Korea and China; and
political and economic instability and uncertainty.
In the past,achieve than anticipated. Even if we have incurred costs or experienced disruptions due to the factors described above andsuccessfully integrate CMC Materials, we expectmay not be able to do so in a way that maximizes the future. For example,combined business to the fullest extent. If we are not able to successfully achieve our objectives, the benefits of the acquisition may not be fully realized or may take longer to achieve than expected. Furthermore, in responseconnection with the completed sale of the EC business to recent explosions at gas storage facilitiesFujifilm, we are actively working to transition corporate support services relating to this business to Fujifilm, and it is possible that this process could result in Singaporedistraction from our core business, unexpected transition issues, higher than expected transition costs and China, the importa transition process that takes longer than originally anticipated.
Risks Related to Government Regulation
We are subject to a variety of gas canistersenvironmental laws and chemicals viewed as dangerous have come under increased regulatory scrutiny by governmental officials. As a result, we have established partnerships with local suppliers. However, this increased regulation may impair the ability of our SCEM segment to import those products into Singapore and China and mayregulations that could cause us to lose sales. Also, in the past, our operations in Asia,incur significant liabilities and particularly South Korea, Taiwan and Japan, have been negatively impacted as a result of regional economic instability. There have historically been strained relations between China and Taiwan and there are continuing tensions between North Korea and other countries, including South Korea and the United States. Any adverse developments in those relations could significantly disrupt the worldwide production of semiconductors, which may lead to reduced sales of our products.expenses.
WE ARE SUBJECT TO A VARIETY OF ENVIRONMENTAL LAWS AND REGULATIONS THAT COULD CAUSE US TO INCUR SIGNIFICANT LIABILITIES AND EXPENSES.
Failure to comply with theThe wide variety of federal, state, local and non-U.S. regulatory requirements relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of, and human exposure to, hazardous chemicals which have tended to become stricter over time, could result in future
liabilities, remediation efforts or the suspension of production or shipment. For example, the Frank R. Lautenberg Chemical Safety for the 21st Century Act modified the Toxic Control Substances Act, or TSCA, by requiring the Environmental Protection Agency, or the EPA, to prioritizeThese requirements are dynamic and evaluate the environmental and health risks of existing chemicals and provides EPA with greater authority to regulate chemicals posing unreasonable risks. According to this statute, the EPA is required to make an affirmative finding that a new chemical will not pose an unreasonable risk before such chemical can go into production. As a result, TSCA has been updated so that it operates in a similar fashion to the Registration, Evaluation, and Authorization of Chemicals, or REACH, legislation in Europe. Regulations similar to REACH have been enacted in South Korea and Taiwan.become more strict over time. These laws and regulations, among others, increase the complexity and costs of transporting our products from the country in which they are manufactured to the location of our customer. Any furthercustomers. Further changes to or our failure to comply with these and similar regulations in the countries in which we operate or sell into could (1) restrict our ability to expand, our facilities or to build or acquire new facilities, (2) require us to acquire costly control equipment, (3) cause us to incur expenses associated with remediation of contamination, (4) cause us to modify
our manufacturemanufacturing or shipping processes or (5) otherwise increase our cost of doing business, andwhich may have a negative impact on our financial condition, results of operations and cash flows. In addition, the potential adoption of new laws, rules or regulations related to climate change and the use or sale of PFAS-containing products poses risks, including subjecting us to future costs and liabilities, that could harm our results of operations or affect the way we conduct our businesses. For example, new or modified regulations could require us to make substantial expenditures to enhance our environmental compliance efforts.
The nature
We are exposed to various risks from our regulatory environment.
We are subject to risks related to new, different, inconsistent, or even conflicting laws, rules, and regulations that may be enacted by legislative or executive bodies and/or regulatory agencies in the countries where we operate; disagreements or disputes related to international trade; and the interpretation and application of laws, rules, and regulations. As a public company with global operations, we are subject to the laws of multiple jurisdictions and the rules and regulations of various governing bodies, including those related to health and safety, export controls, financial and other disclosures, corporate governance, privacy, anti-corruption, such as the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials or customers, conflict minerals or other social responsibility legislation, employment practices, immigration or travel regulations and antitrust regulations, among others. Each of these laws, rules and regulations imposes costs on our business, including financial costs and potential diversion of our management’s attention, and may present risks to our business, exposes usincluding potential fines, restrictions on our actions and reputational damage if we do not fully comply. The volume of changes to risksuch laws, rules and regulations may increase in the countries where we operate.
To maintain high standards of liability for environmental contamination if hazardous materialscorporate governance and public disclosure, we intend to invest in appropriate resources to comply with evolving standards. Changes in or ambiguous interpretations of laws, regulations and standards may create uncertainty regarding compliance matters. Efforts to comply with new and changing regulations have resulted in, and are released into the environment, which couldlikely to continue to result in, substantial losses, reputational harm, increaseincreased administrative expenses and diversion of management’s time and attention from revenue-generating activities to compliance activities. If we are found by a court or regulatory agency not to be in compliance with laws and regulations, our insurance cost reputation, business, financial condition and/or otherwiseresults of operations could be adversely impactaffected, we may be disqualified or barred from participating in certain activities and we may be forced to modify our operations to achieve full compliance.
Changes in taxation or adverse tax rulings could adversely affect our results of operations.
CHANGES IN TAXATION OR ADVERSE TAX RULINGS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
We have facilitiesoperate in many foreign countries and as a result, are subject to taxation at various rates and audit by a number ofmultiple taxing authorities. Our results of operations could be affected by tax audits, changes in applicable tax rates, or audits by the taxing authorities in countries in which we operate or in the countries from which we purchase raw materials, changes in laws and regulations governing the calculation, location and locationtaxation of earned profit, and taxation thereof, changes in laws and regulations affecting our ability to realize deferred tax assets on our balance sheet and changes in laws and regulations relating to the repatriation of cash into the United States. Each quarter, we forecast our tax liability based on our forecast of our performance for the year.year in each tax jurisdiction. If thatour performance forecast changes, our forecasted tax liability may change.would also likely change, perhaps materially.
We have undertaken and expect to continue to undertake a number of complex internal reorganizations of our foreign subsidiaries in order to rationalize and streamline our foreign operations, focus our management efforts on certain local opportunities and take advantage of favorable business conditions in certain localities. While we have exercised diligence in undertaking this internal reorganization, there can be no assurance that this reorganization,These or any future internal reorganization, will notreorganizations could result in adverse tax consequences in the United Statesone or in foreign countries inmore jurisdictions, which we have operations. This could adversely impact our profitability from foreign operations and result in a material reduction in our results of operations.
The U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) significantly changes how the U.S. taxes corporations. The Tax Cuts and Jobs Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation
Various other jurisdictions, including members of the Organization for Economic Cooperation and Development, are considering changes to their tax laws, including provisions intended to address base erosion and profit shifting by taxpayers. Any tax reform adopted in these or other countries may exacerbate the risks described above.
Risks Related to Our Indebtedness
We have a substantial amount of the Tax Cutsindebtedness and Jobs Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Cuts and Jobs Act will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the Tax Cuts and Jobs Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period infuture incur substantially more debt, each of which the adjustments are made.
FLUCTUATIONS IN THE VALUE OF THE U.S. DOLLAR IN RELATION TO OTHER CURRENCIES MAY LEAD TO LOWER NET INCOME AND SHAREHOLDERS’ EQUITY OR MAY CAUSE US TO RAISE PRICES, WHICH COULD RESULT IN REDUCED NET SALES.
Foreign currency exchange rate fluctuations could have an adverse effect on our net sales, results of operations and shareholders’ equity. Foreign currency fluctuations against the U.S. dollar could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the prices for our products in response to foreign currency fluctuations, our profitability could decline. In addition, sales made by our foreign subsidiaries are generally denominated in the currency of the country in which these products are sold, and the currency we receive in payment for such sales could be less valuable at the time of receipt versus the time of sale as a result of foreign currency exchange rate fluctuations.
VOLATILITY IN THE GLOBAL ECONOMY COULD ADVERSELY AFFECT OUR RESULTS.
Financial markets in the United States, Europe and Asia have experienced extreme disruption in the recent past. Such disruption included, among other things, volatility in securities prices, severely diminished liquidity and credit availability, rating downgrades of sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in unemployment rates, and uncertainty about economic stability. Such conditions have had a significant adverse impact on our industry, our financial condition and results of operations. There may be further changes in the global economy, which could lead to further challenges in our business and negatively impact our financial results. For example, the U.K. vote in favor of leaving the European Union may cause instability and uncertainty in European economies and may negatively impact the outlook for the global economy. Tightness of credit in financial markets could adversely affect theour ability of our customers and suppliers to obtain financing for significant purchasesin the future and operations and could resultreact to changes in a decrease in orders and spending for our products and services. We are unable to predict the likely duration and severitybusiness.
Risks Related to Our Indebtedness
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND OUR ABILITY TO OBTAIN FINANCING IN THE FUTURE, REACT TO CHANGES IN OUR BUSINESS AND MAKE PAYMENTS ON THE INDEBTEDNESS.
As of December 31, 2017,2023, we have approximately $683.9 millionhad an aggregate principal amount of $4.7 billion of indebtedness outstanding, including our 4.625% senior unsecured notes due April 1, 2026 (the “Notes”) andthe $1.4 billion from our senior secured term loan facility due 20212029 (the “Term Loan”Loan Facility”), $1.6 billion aggregate principal amount of the 4.75% senior secured notes due April 15, 2029, $1.7 billion aggregate principal amount of the 5.95% senior unsecured notes due June 15, 2030, our 4.375% senior unsecured notes due April 15, 2028, and our 3.625% senior unsecured notes due May 1, 2029 (collectively, the “Notes”). In addition, we have approximately $75$575.0 million of unutilized capacity under our senior secured asset-based revolving credit facility whichdue 2027 (the “Revolving Facility”). We refer to the Term Loan Facility and the Revolving Facility as the “Credit Facilities”. The credit agreements that govern the Credit Facilities are referred to collectively as the “Amended Credit Agreement”. Further, we may incur significant additional secured and unsecured indebtedness in the future.
Although the indentures governing the Notes (the “Indentures”), and the Amended Credit Agreement restrict our ability to incur additional indebtedness, the restrictions have a number of significant qualifications and exceptions. For example, the Amended Credit Agreement provides that we can request additional loans and commitments up to the greater of $1.1 billion or 100% of our EBITDA, as well as additional amounts if our secured net leverage ratio is subjectless than a specified ratio. Further, these restrictions do not prevent us from incurring monetary obligations that do not constitute indebtedness. If we add new indebtedness and other monetary obligations to a borrowing base (the “ABL Facility”).our current debt levels, the related risks that we now face would intensify.
Our high level of debt could have important consequences, including:
making it more difficult for us to satisfy our obligations with respect to the Notes, the Term Loan and the ABL Facility;
•limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate purposes;
•requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions and other general corporate purposes;
•increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;
•exposing us to the risk of increased interest expense for borrowings with variable interest rates, as certain of our borrowings, including borrowings under the Term LoanCredit Facilities; and the ABL Facility, include variable interest rates;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
preventing us from raising funds necessary to repurchase all Notes tendered to us upon the occurrence of certain change of control repurchase events, which could constitute a default under the indenture governing the Notes;
•placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt athaving more favorable interest rates; andterms.
increasing our cost of borrowing.
In addition, the indenture that governs the Notes and the credit agreements governing our Term Loan and our ABL Facility contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all of our debt.
DESPITE OUR CURRENT LEVEL OF INDEBTEDNESS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD FURTHER EXACERBATE THE RISKS TO OUR FINANCIAL CONDITION DESCRIBED ABOVE AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR EXISTING INDEBTEDNESS.
We may incur significant additional indebtedness in the future. Although the indenture that governs the Notes and the credit agreements governingbe unable to generate sufficient cash to service our Term Loan and our ABL Facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, such as indebtedness to finance working capital, capital expenditures, investments or acquisitions, or for other purposes, and the additional indebtedness incurred in compliance with these restrictions could be substantial. For example, our Term Loan provides that we have the right to request additional loans and commitments, and to the extent that the aggregate amount of such additional loans and commitments exceeds $225 million, the incurrence thereof will be subject to our secured net leverage ratio being less than a specified ratio, or in the case of unsecured loans or other unsecured debt, or loans or other debt secured by junior liens, our total net leverage ratio being less than a specified ratio. If we incur any additional indebtedness that ranks equally with the Notes, subject to collateral arrangements, the holders of that debt will be entitled to share ratably with the holders of the Notes and the lenders under the Term Loan and the ABL Facility in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our Company. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. In addition, the indenture governing the Notes does not limit the Company’s ability to incur unsecured indebtedness and the restrictions in the indenture onmay be forced to take other actions, which may not be successful, to satisfy our ability to incur additional secured indebtedness is subject to a number of significant exceptions and qualifications and the amount of such secured indebtedness could be substantial. Further, although the indenture governing the Notes limits the incurrence of indebtedness by a non-guarantor subsidiary unless such subsidiary also guarantees the Notes, such limitation is subject to a number of significant exceptions and qualifications and the amount of indebtedness incurred in compliance with the indenture could be substantial. If new debt is added toobligations under our current debt levels, the related risks that the Company now faces could intensify.indebtedness.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH TO SERVICE OUR INDEBTEDNESS AND MAY BE FORCED TO TAKE OTHER ACTIONS, WHICH MAY NOT BE SUCCESSFUL, TO SATISFY OUR OBLIGATIONS UNDER OUR INDEBTEDNESS.
We may be unable to maintain a level ofsufficient cash flow from operating activities sufficient to permit us to pay the principal of, premium, if any, and interest on our indebtedness. Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance and the condition of the capital markets, which are subject to prevailing economic, industry and competitive conditions, as well as certainmany financial, business, legislative, political, regulatory and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems, be forced to reduce or delay investments and capital expenditures, dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness, andany of which could have a material adverse effect on our business, financial position and results of operations. In addition, the level and quality of our earnings, operations, couldbusiness and management, among other things, will impact the determination of our credit ratings. A decrease in the ratings assigned to us by the ratings agencies may negatively impact our access to the debt capital markets and increase our cost of borrowing. In addition, we may be materiallyunable to maintain the current credit worthiness or prospective credit rating of the Company. Any actual or anticipated changes or downgrades in such credit rating may have a negative impact on our liquidity, capital position or access to capital markets and adversely affected.affect our ability to obtain any future required financing on acceptable terms or at all.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. We may not be able to effectimplement any such alternative measuresrefinancing on commercially reasonable terms or at all and, even if successful, those alternative actionsa refinancing may not allow us to meet our scheduled debt service obligations. OurThe agreements governing our indebtedness restrict our ability to dispose of assets and use the proceeds from thoseof such dispositions, is restricted by the agreements governing our indebtedness and we may not be ableunable to consummate thoseany dispositions or to obtaingenerate proceeds in an amount sufficient to meet anyour debt service obligations then due.obligations.
If we cannot make scheduled payments on our debt, we will be in default and holders of the Notes and lenders under the Credit Facilities could declare all outstanding principal and interest to be due and payable, the lenders under the Term Loan and the ABLRevolving Facility could terminate their commitments to loan money,advance further loans, our secured lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
THE TERMS OF THE CREDIT AGREEMENTS GOVERNING OUR TERM LOAN AND OUR ABL FACILITY RESTRICT OUR CURRENT AND FUTURE OPERATIONS, PARTICULARLY OUR ABILITY TO RESPOND TO CHANGES OR TO CONDUCT OUR BUSINESS OR RAISE ADDITIONAL FUNDS.
The credit agreements governingterms of the Amended Credit Agreement and the Indentures may restrict our Term Loan andoperations, particularly our ABL Facility contain a numberability to respond to changes or raise additional funds.
The Amended Credit Agreement contains restrictive covenants that impose significant operating and financial restrictions on us andthat may limit our and our restricted subsidiaries’ ability to engage in actstake actions that may be in our long-term best interest, including restrictions on our and our restricted subsidiaries’ ability to:
incur certain liens;
•incur additional indebtedness and guarantee indebtedness;
•pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;
•prepay, redeem or repurchase certain debt;
•make investments, loans, advances and acquisitions;
•engage in sale-leaseback or hedging transactions;
•create liens on, sell or otherwise dispose of assets, including capital stock of our subsidiaries;
•enter into transactions with affiliates;
•enter into agreements that restrict the ability to create liens, pay dividends or make loan repayments;
•alter the businesses we conduct; and
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
consolidate, •merge or sell all or substantially all of our assets.assets or incur a change of control in our capital stock ownership.
Also, the Indentures contain limited covenants, such as a covenant restricting our ability and certain of our subsidiaries’ ability to incur certain debt secured by liens, engage in sale-leaseback and incur additional indebtedness by any restricted subsidiary.
In addition, the restrictive covenants inunder the credit agreement governing our ABLthe Revolving Facility may, at certain times,depending on the amount of revolving borrowings, unreimbursed letter of credit drawings and undrawn letters of credit, require us to maintain a fixed charge coverage ratio. Our abilitysecured net leverage ratio, which we may be unable to meet this financial ratio can be affected by events beyond our control.
meet. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of some or all of our indebtedness, which could lead to bankruptcy, reorganization or insolvency.
These restrictions may affect our ability to grow in accordance with our plans and could adversely affect our ability to:
finance our operations;
make needed capital expenditures;
make strategic acquisitions or investments or enter into joint ventures;
withstand a future downturn in our business, the industry or the economy in general;
compete effectively and engage in business activities, including future opportunities, that may be in our best interest; and
plan for or react to market conditions or otherwise execute our business strategies.
Risks Related to Owning our Common Stock
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE FUTURE.
The price of our common stock has been volatile in the past and may be volatile in the future.remain volatile.
The price of our common stock has been volatile. In 2017,2023, the closing price of our stock on The NASDAQNasdaq Global Select Market or NASDAQ,(“Nasdaq”) ranged from a low of $18.10$64.13 to a high of $32.80,$121.60, and, as in past years, the price of our common stock may show even greater volatility.
volatility in the future. The trading price of our common stock is subject to significant volatility in response to variousnumerous factors, somemany of which are beyond our control or may be unrelated to our operating results, and which may adversely affect the market price of our common stock, including the following: the
•changes to our financial guidance, as well as potential decreased confidence in any guidance we do provide;
•changes in global economic and geopolitical conditions, including those resulting from trade tensions, rising inflation, and fluctuations in foreign currency exchange and interest rates;
•failure to meet the published expectations of securities analysts; analysts, which may vary significantly from our actual results;
•changes in financial estimates by securities analysts;
•press releases or announcements by, or changes in market values of, comparable companies;
•high volatility in price and volume in the markets for high-technology stocks, general stock market price and volume fluctuations, which are particularly common among securities of high-technology companies; stock market price and volume fluctuations attributable to inconsistent trading volume levels; the stocks;
•public perception of equity values of publicly traded companiescompanies;
•fluctuations in our results of operations; and the
•other risks and uncertainties described in this Annual Report on Form 10-K and in our other filings with the SEC.
Fluctuations in our results of operations could cause our stock price to decline significantly. We believe that period-to-period comparisons of our results of operations may not be meaningful, and you should not rely upon them as indicators of our future performance. Future decreases in our stock price may adversely impact our ability to raise sufficient additional capital in the future, if needed.
THERE CAN BE NO ASSURANCE THAT WE WILL CONTINUE TO DECLARE CASH DIVIDENDS OR REPURCHASE OUR SHARES AT ALL OR IN ANY PARTICULAR AMOUNTS
Our Board of Directors initiated a quarterly dividend in November 2017. Our intent to continue to pay quarterlyWe may decrease or discontinue cash dividends and may never adopt a new program to repurchase our shares isof common stock.
Future payments of quarterly dividends and any future repurchases of shares of our common stock are subject to capital availability and periodic determinations by our Board of Directors that such actionsthey are in the best interest of our stockholders and are in compliancecomply with all laws and applicable agreements. Future dividends and any future share repurchases may also be affected by, among other factors, our views on potential future capital requirements for investments in acquisitions and the funding of our research and development;development activities; legal risks; changes in federal and state income tax laws or corporate laws; contractual restrictions, such as financial or operating covenants in our debt arrangements; availability of onshoredomestic cash flow; and changes to our business model. Our The amounts of our
dividend payments and share repurchases may change from time to time, and we cannot provide assurance that we will continuemay decide at any time to declarereduce, suspend or discontinue the payment of dividends or the repurchase shares at all or in any particular amounts.of shares. A reduction, suspension or suspension indiscontinuation of our dividend payments or the cessation of our share repurchase program could have a negative effect on the price of our common stock.stock and may harm our reputation.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT AN ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF YOUR SHARES.
Provisions in our charter documents and Delaware law may delay or prevent an acquisition of us, which could decrease the value of our shares.
Our restated certificate of incorporation, andour by-laws and Delaware law contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors. These provisions include limitations on actions by written consent of our stockholders by written consent.stockholders.
Our restated certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits publicly held Delaware corporations to which it applies from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. This provision could discourage othersparties from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.
Our restated certificate of incorporation provides thatauthorizes our boardBoard of directors is authorizedDirectors to issue, from time to time, without further stockholder approval, up to 5,000,000 shares of preferred stock in one or more series and to fix and designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, redemption rights and terms of redemption and liquidation preferences. SuchThe holders of any shares of preferred stock could have preferences over the holders of our common stock with respect to dividends and liquidation rights. OurAny issuance of preferred stock may have the effect of delaying, deterring or preventing a change in control. OurAny issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock orand could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have the effect of decreasing the market price of our common stock.
YOUR PERCENTAGE OWNERSHIP IN US MAY BE DILUTED BY FUTURE ISSUANCES OF CAPITAL STOCK, WHICH COULD REDUCE YOUR INFLUENCE OVER MATTERS ON WHICH STOCKHOLDERS VOTE.
Subject to applicable NASDAQ standards,General Risks
Competition from new or existing companies could harm our boardfinancial condition, results of directors has the authority, without action or voteoperations and cash flow.
We operate in a highly competitive, global industry. We face many domestic and international competitors, some of which have substantially greater manufacturing, financial, research and development and marketing resources than we do. In addition, some of our stockholders,competitors may have better-established customer relationships than we do, which may enable them to issuehave their products specified for use more frequently and more quickly by these customers. We also face competition from smaller, regional companies that focus on serving customers in their regions. Further, customers continually evaluate the benefits of internal manufacturing versus outsourcing, and a customer’s decision to internally manufacture products that we provide may negatively impact us. If we are unable to maintain our competitive position, we could experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and a loss of market share, any of which could have a material adverse effect on our results of operations. Further, we expect that existing and new competitors will improve their products and introduce new products with enhanced performance characteristics. The introduction of new products or more efficient production of existing products by competitors could diminish our market share and increase pricing pressure on our products.
Our competitors include companies outside of the U.S., including companies in countries where foreign governments seek to build a domestic-centric semiconductor ecosystem. From time to time, governments around the world may provide incentives or make other investments that could benefit and give competitive advantages to our competitors. For example, in August 2022, the U.S. government enacted the CHIPS and Science Act of 2022 (the “CHIPS Act”) to provide financial incentives to the U.S. semiconductor industry. Government incentives, including any that may be offered in connection with the CHIPS Act, may not be available to us on acceptable terms or at all. If our competitors can benefit from such government incentives and we cannot, it could strengthen our competitors' relative position and have a material adverse effect on our business.
We may acquire other businesses, form joint ventures or divest businesses, any of which could negatively affect our financial performance.
We intend to continue to engage in business combinations, acquisitions, joint ventures, investments, divestitures or other types of collaborations to (1) address gaps in our product offerings, (2) adjust our business and product portfolio to meet our ongoing strategic objectives, (3) diversify into new and complementary markets, (4) increase our scale or (5) accomplish other strategic objectives. These transactions involve numerous risks to our business, financial condition and operating results, including but not limited to:
•difficulty in identifying suitable acquisition candidates and completing transactions at appropriate valuations, in a timely manner, on a cost-effective basis or at all, due to substantial competition for acquisition targets;
•inability to successfully integrate any acquired businesses into our business operations;
•failure to realize the anticipated synergies or other benefits of any partsuch transaction;
•entry into markets in which we have limited or no prior experience;
•finding acquirors and obtaining adequate value for businesses that no longer meet our strategic objectives;
•difficulties surrounding the disentanglement of a divested business, including the diversion of resources away from our business operations to address such matters;
•inability to complete proposed or pending transactions due to factors such as the failure or inability to obtain regulatory or other approvals, which may be exacerbated by the recent, more aggressive regulatory approaches to merger control globally, such as the July 19, 2023 joint statement of antitrust policy by the Department of Justice and Federal Trade Commission and the April 15, 2023 Provisions on the Review of Concentrations of Undertakings issued by China’s State Administration for Market Regulation, among others;
•requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things, divestitures and restrictions on the conduct of our authorized but unissued shares. Issuances of common stockexisting business or the exercise of employee stock options would dilute your percentage ownership interest, which will haveacquired business;
•undertaking multiple transactions at the effect of reducing your influence over matters on which our stockholders vote. In addition, we may issue substantial quantities of our common stocksame time in order to effect acquisitionstake advantage of acquisition or divestiture opportunities that do arise, which wouldcould strain our ability to effectively execute and integrate such transactions;
•diversion of management’s attention from our day-to-day business due to dedication of significant management resources to such transactions;
•employee uncertainty and lack of focus during the integration process that may also dilute your ownership interest. Ifdisrupt our business;
•risk of litigation or claims associated with a proposed or completed transaction;
•challenges associated with managing new, more diverse and more widespread operations, projects and people, potentially located in regions where we have not historically conducted or operated our business;
•dependence on unfamiliar or less secure supply chains and inefficient scale of the issuancesacquired entity;
•increasing costs of performing due diligence to meet the expectations of investors and government regulators;
•despite our due diligence, we could assume unknown, underestimated or contingent liabilities, such as potential environmental, health and safety liabilities, any of which could lead to costly litigation or mitigation actions;
•an acquired technology or product may have inadequate or invalid intellectual property protection or may be subject to claims of infringement by a third party, which may result in claims for damages and lower than anticipated revenue;
•negative effects on our reported results of operations from dilutive results from operations and/or from future potential impairment of acquired assets, including goodwill, related to acquisitions;
•an acquired company may have inadequate or ineffective internal controls over financial reporting, disclosure controls and procedures, cybersecurity, privacy, environmental, health and safety, anti-bribery, anti-corruption, human resource or other policies or practices, which may require unexpected or additional integration, mitigation and remediation costs;
•reductions in cash or increases in debt to finance transactions, which reduce the cash flow available for general corporate or other purposes, including share repurchases and dividends; and
•difficulties in retaining key employees or customers of an acquired business.
Climate change may have a long-term impact on our business.
There are made at prices that reflect a discount frominherent climate-related risks wherever our business is conducted. Changes in market dynamics, stakeholder expectations, local, national and international climate change policies, and the then current trading pricefrequency and intensity of our common stock, your interestextreme weather events on critical infrastructure in the book valueUnited States and abroad, all have the potential to disrupt our business and operations. Such events could result in a significant increase in our costs and expenses and harm our future revenue, cash flows and financial performance. Global climate change is resulting in, and may continue to result, in certain natural disasters and adverse weather events, such as drought, wildfires, storms, sea-level rise and flooding, occurring more frequently or with greater intensity, which could cause business disruptions and impact employees’ abilities to commute or to work from home effectively.
Item 1B. Unresolved Staff Comments.
Not Applicable.
Item 1C. Cybersecurity
Risk management and strategy
As a key supplier to in the semiconductor ecosystem, security and risk management of our technology systems and processes is critical to ensuring our ability to serve our customers without interruption.
Management of Cybersecurity Risks
Our management of cybersecurity risks is integrated into our company-wide enterprise risk management program. As part of this process, our risk management team works closely with our IT department to identify and evaluate potential cybersecurity risks to the Company and to develop controls to mitigate and protect against those risks.
Each quarter, our Chief Information Security Officer (“CISO”) presents an overview of the Company’s cybersecurity risk landscape to our Enterprise Risk Management Committee, which includes our Executive Leadership Team and Vice President, Internal Audit. In addition, our CISO Council, which includes our CISO and our Chief Information and Digital Officer, holds meetings with our Executive Leadership Team on a quarterly basis to review these cybersecurity risks and mitigation measures in further detail.
Our cybersecurity risk management program is aligned with the National Institute of Standards and Technology (NIST) Cybersecurity Framework. We identify key assets that are critical to our business and assess potential cyber threats and vulnerabilities associated with those assets and the operations they enable. Following that assessment, we implement strategies and design controls to manage those risks. For example, we use single sign-on to limit access to our networks and multi-factor authentication to verify users’ identities. We also continuously monitor our systems and networks to protect against internal and external threat actors. We have policies and procedures in place, such as our Privileged Access Management process, to limit and control access to our confidential information by our vendors and other third parties. We also conduct due diligence and reviews of cybersecurity policies of third parties that access our systems or data. Additionally, we are focused on segregating our manufacturing processes from the Company’s other networks to minimize the risk of interruptions to our manufacturing operations resulting from cyber breaches. To increase our employees’ vigilance of cybersecurity risks and educate them on best practices relating to those risks, we conduct cybersecurity trainings and awareness campaigns, such as quarterly phishing campaigns.
Engagement of Third Parties
Given the complex and evolving nature of cybersecurity threats, the Company engages third parties to assist us in developing and maintaining effective cybersecurity risk management. Partnering with third parties enables us to leverage specialized knowledge and insights, ensuring our cybersecurity strategies and processes are well-designed and effective. For example, in 2023, we engaged a global law firm to conduct an external assessment of our cybersecurity governance framework and processes and provide recommendations to improve our cybersecurity readiness and posture. We also work with third party specialists who perform threat and vulnerability assessments, audits and develop strategies to mitigate cybersecurity-related risks.
Oversight of Third-party Risk
We are aware of the cybersecurity risks associated with engaging third-party service providers. To mitigate such risks, we conduct security assessments of high-risk third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. The monitoring includes annual assessments by our CISO and ongoing assessments by our security engineers. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third-parties.
Risks from Cybersecurity Threats
The Company’s information and operational technology systems and its third-party providers’ systems have been, and will likely continue to be, subject to cybersecurity threats, such as computer viruses or other malicious codes, ransomware,
unauthorized access attempts, business email compromise, cyber extortion, denial of service attacks, phishing, social engineering, hacking and other cyberattacks attempting to exploit vulnerabilities.
To date, the Company is not aware that its business or operations have been materially impacted by these cyberattacks. However, the Company’s security efforts and the efforts of its third-party providers may not prevent or timely detect attacks and resulting breaches or breakdowns of the Company’s, or its third-party service providers’, databases or systems.
Governance
Board of Directors’ Oversight
The Audit and Finance Committee (the “Audit and Finance Committee”) of our Board of Directors is responsible for reviewing and monitoring general information technology and cybersecurity matters, including related risks and reporting to the Board its determinations, actions and recommendations related thereto. Our Audit and Finance Committee is composed of independent directors with extensive executive leadership and risk management experience. Our CISO, together with our Chief Information and Digital Officer (“CIDO”), provide quarterly updates to our Audit and Finance Committee regarding the cybersecurity risk landscape, specific risks affecting the Company and solutions to mitigate those risks, and legal and regulatory requirements relating to cybersecurity. These updates assist the Board in performing its oversight and risk management function. In addition, the full Board receives an annual report on cybersecurity directly from the CISO.
Management’s Role Managing Risk
Our CISO is responsible for the implementation, operation and monitoring of our cybersecurity risk management program. Our current CISO, who reports to our CIDO, has over 20 years of experience managing the information technology and cybersecurity operations within large, global organizations. His extensive experience assessing and mitigating cybersecurity risk, implementing governance structures and developing employee training programs is critical in developing and executing our cybersecurity strategies.
Monitoring of Cybersecurity Incidents
Our Cybersecurity Incident Response Plan establishes how we monitor and respond to cybersecurity incidents impacting our environment. The CISO works closely with members of our Executive Leadership Team and his cybersecurity team to monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents. We engage a third-party managed security services provider (MSSP) to provide 24/7 continuous monitoring of the Company’s IT and operational technology environments for potential cybersecurity incidents. In the event such an incident is identified by our MSSP or any of our employees, the incident is assigned a severity classification (minor, moderate or major) by our cybersecurity team and escalated accordingly. Depending on the severity of the incident, certain key personnel are notified and work together to further investigate the incident and take actions to respond, which may include engaging with external specialists, regulatory authorities and our cybersecurity insurance carrier. The CISO receives daily and weekly updates on all incidents and incident responses, which the CISO shares with our Executive Leadership Team on a weekly basis. Our cybersecurity team conducts a post-incident review of all major cybersecurity incidents, which review includes identification of vulnerabilities, assessment of the incident’s impact on the Company and recommendations to help prevent similar incidents in the future.
Item 2. Properties.
Our principal executive offices are located in Billerica, Massachusetts. We also have manufacturing, research and equipment cleaning facilities in the United States, Japan, France, Taiwan, South Korea, Singapore and Malaysia. Information about our principal and certain other facilities is set forth below:
|
| | | | | | | | | | | | | |
| Location | Principal Function | Approximate Square Feet | Leased/ Owned | Reporting Segment |
| Bedford, Massachusetts | Research & Manufacturing | 80,000 | Owned | MC & SCEMMS |
Billerica, Massachusetts(1) | Executive Offices, Research & Manufacturing | 175,000 | Leased | MC, MS & SCEMAMH |
Bloomington, MNBurnet, Texas | Research & Manufacturing | 68,000 | Leased | AMH |
Burnet, TX | Research & Manufacturing | 77,00086,000 | Owned | SCEMMS |
| Decatur, Texas | Manufacturing | 359,000 | Owned | MS |
| Waller, Texas | Manufacturing | 210,000 | Owned | MS |
| Chaska, Minnesota | Executive Offices, Research & Manufacturing | 186,000 | Owned | AMH |
Colorado Springs, COColorado | Manufacturing | 82,000 | Owned | AMH |
Colorado Springs, CO | Manufacturing | 40,000 | Leased | AMH |
Danbury, CTConnecticut | Research & Manufacturing | 73,000 | Leased | SCEMMS |
Decatur, TexasSan Luis Obispo, California | Manufacturing | 359,00057,867 | Owned | SCEMMC |
| San Luis Obispo, California | Manufacturing | 59,124 | Leased | MC |
| Aurora, Illinois | Manufacturing | 414,000 | Owned | MS |
| Hillsboro, Oregon | Manufacturing | 112,344 | Leased | MS |
| Hsin-chu, Taiwan | Executive Offices, Sales Research & Manufacturing | 109,000146,330 | Leased | MC, SCEMMS & AMH |
YangmeiKaohsiung City,Taiwan (North) | Manufacturing | 40,000105,874 | LeasedOwned | MS |
| Kaohsiung City,Taiwan (South) | Manufacturing | 573,696 | Owned | MC, MS & AMH |
| JangAn, South Korea | Manufacturing | 127,000 | Owned | SCEMMC, MS & AMH |
Kulim, MalaysiaOseong, South Korea | Manufacturing | 195,000108,355 | Owned | SCEM & AMH |
Montpellier, France | Cleaning Services | 53,000 | Owned | AMH |
Russellville, Arkansas | Manufacturing | 113,127 | Leased | SCEMMS |
| Suwon, South Korea | Executive Offices & Research | 42,000 | Leased | MC & SCEMMS |
Tokyo, Japan | Executive Offices, Sales & Research | 27,000 | Leased | MC, SCEM & AMH |
Wonju City, South KoreaKulim, Malaysia | Manufacturing | 39,000195,000 | Owned | MS & AMH |
| Yonezawa, Japan | Manufacturing | 185,000 | Owned | MC & AMH |
| Tsu, Mie, Japan | Manufacturing | 160,259 | Owned | MS |
| Singapore | Manufacturing | 215,235 | Owned | MS |
(1) This lease has been extended through September 30, 2026 and is subject to one five-year renewal option.
We lease approximately 13,000 square feet of research and development and manufacturing office space located in San Diego, California, approximately 31,000 square feet of manufacturing space located in Franklin, Massachusetts, an aggregate of approximately 23,000 square feet of manufacturing space in Anseong, South Korea, approximately 15,000 square feet of office space in Round Rock, Texas, and approximately 3,300 square feet of office space in Tempe, Arizona.
We lease approximately12,000 square feet for our Asia manufacturing management offices in Singapore. In addition, we maintain a worldwide network ofown and lease space for manufacturing, distribution, technical support, sales, service, repair, or cleaning centersand general administrative purposes in the United States,U.S., Canada, China, Germany, France, Israel, Japan, Malaysia, Taiwan, Singapore, ChinaSouth Korea and South Korea.Taiwan. Leases for our facilities expire through December 2024.October 2031. We currently expect to be able to extend the terms of expiring leases or to find suitable replacement facilities on reasonable terms.
We believe that our facilities are well-maintained and suitable for their respective operations. AllWe regularly assess the size, capability and location of our facilities are generally utilized within a normal range of production volume.global infrastructure and periodically make adjustments based on these assessments.
Item 3. Legal Proceedings.
As of December 31, 2017, we were notWe are, from time-to-time, involved in various claims, proceedings and lawsuits relating to our business, employees, intellectual property and other matters. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, that could require significant expenditures or result in lost revenues. We record a liability for these matters when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any legal proceedings that weother, the minimum amount of the range is accrued. There is judgment required in the determination of the likelihood of outcome, and if necessary determination of the estimate or range of potential outcomes. Based on the current information, the Company does not believe willany known matters have a reasonable possibility of a material impact on our consolidated financial position, results of operations or cash flows. From time to time the Company may be a party to litigation involving claims against the Company arising in the ordinary course of our business. We are not aware of any material potentialamount for litigation or claims against us which would have a material adverse effect upon our financial statements.other contingencies related to legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of our Executive Officers and their ages, as of the date of this this Annual Report on Form 10-K.
|
| | | |
| Name | Age | Office | First Appointed To Office* |
| Bertrand Loy | 52 | President & Chief Executive Officer | 2001 |
| Gregory B. Graves | 57 | Executive Vice President, Chief Financial Officer & Treasurer | 2002 |
Todd Edlund
| 55 | Executive Vice President & Chief Operating Officer | 2007 |
| Sue Lee | 41 | Senior Vice President, Secretary & General Counsel
| 2016
|
| Sue Rice | 59 | Senior Vice President, Human Resources | 2017 |
| Corey Rucci | 58 | Senior Vice President, Business Development | 2014 |
| Gregory Marshall | 60 | Senior Vice President, Quality, EH&S and Entegris Business Support | 2011 |
| Stuart Tison | 54 | Senior Vice President & General Manager, Specialty Chemicals and Engineered Materials | 2016 |
| Clint Haris | 45 | Senior Vice President & General Manager, Microcontamination Control | 2016 |
| William Shaner | 50 | Senior Vice President & General Manager, Advanced Materials Handling | 2007 |
| Bruce W. Beckman | 50 | Senior Vice President, Finance | 2018 |
| Michael D. Sauer | 52 | Vice President, Controller & Chief Accounting Officer | 2011 |
* With either the Company or a predecessor company
Gregory B. Graves has served as our Executive Vice President and Chief Financial Officer since July 2008. Prior to that he served as Senior Vice President and Chief Financial Officer since April 2007. Prior to April 2007, he served as Senior Vice President, Strategic Planning & Business Development since the effectiveness of the merger with Mykrolis. Mr. Graves served as the Chief Business Development Officer of Entegris Minnesota since September 2002 and from September 2003 until August 2004 he also served as Senior Vice President of Finance. Prior to joining Entegris Minnesota, Mr. Graves held positions in investment banking and corporate development, including at U.S. Bancorp Piper Jaffray from June 1998 to August 2002 and at Dain Rauscher from October 1996 to May 1998. Since May 2017, Mr. Graves has served as a director of Power Plug Inc. (energy solutions provider).
Todd Edlund has been our Executive Vice President and Chief Operating Officer since July 2016. Prior to that he was our Senior Vice President and Chief Operating Officer since November 2014. After the merger with ATMI, Mr. Edlund served as Senior Vice President and General Manager of our Critical Materials Handling business and prior to the merger with ATMI, he was the Vice President and General Manager of our Contamination Control Solutions division since December 2007. He served as the Vice President and General Manager of our Liquid Systems business unit from 2005 to 2007, and prior to that as Entegris Minnesota’s Vice President of Sales for semiconductor markets from 2003 to 2005. Prior to 2003, Mr. Edlund held a variety of positions with our predecessor companies since 1995.
Sue Lee has been our Senior Vice President, Secretary and General Counsel since April 2016. Prior to joining Entegris, Ms. Lee was general counsel and corporate secretary with CYREN, a network security firm since 2013. From 2010 to 2013, Ms. Lee served as general counsel for Harmonix Music Systems, a former MTV company. Prior to that, Ms. Lee was vice president of business
and legal affairs for MTV Networks and counsel at Genzyme Corporation. Prior to going in-house in 2005, Ms. Lee was an attorney at the law firm, Cleary Gottlieb Steen & Hamilton, in New York.
Sue Rice joined us as our Senior Vice President of Human Resources in September 2017. Prior to that, Ms. Rice served as Senior Vice President and Chief Human Resources Officer for Thermo Fisher Scientific from 2013 to 2017, Region Vice President HR Asia Pacific & Emerging Markets from 2009 to 2013 and Group Vice President, HR Analytical Technologies Group from 2006 to 2009. Prior to that, Ms. Rice held senior human resource positions with Fidelity Human Resources Services Company and Sherbrooke Associates.
Gregory Marshallhas been our Senior Vice President, Quality, EH&S and Entegris Business Support since August 2016. Prior to that Mr. Marshall served as our Vice President, Quality and EH&S since March 2010 and our Global Director of Quality since the merger with Mykrolis Corporation, prior to which he served as the Director of Quality for Mykrolis. Prior to joining Mykrolis, Mr. Marshall served as the Director of US Quality for Kokusai Semiconductor Equipment Corporation.
Corey Rucci has served as our Senior Vice President, Business Development since January 2018, having served as Vice President, Business Development since February 2014. Prior to that he served as Vice President and General Manager of our Specialty Materials Division since 2011 and as General Manager of Poco Graphite, Inc. (POCO) since 2008 when we acquired POCO. Prior to joining Entegris, Mr. Rucci served POCO as the President and Chief Operating Officer since 2007, Chief Operating Officer since 2005, Chief Financial Officer since 2001 and Vice President of Business Development since 1998. Prior to that he worked at UNOCAL Corp. for 17 years in a variety of accounting, marketing and business development roles.
Stuart Tison has been our Senior Vice President, Specialty Chemicals and Engineered Materials since July 2016. Prior to that, Mr. Tison served as Vice President, Specialty Gas Solutions since February 2015, as Vice President, Business Development since January 2010 and as Vice President, Corporate Development since July 2007. Prior to that he served Celerity, Inc. as Vice President, Engineering and served Entegris predecessor companies Mykrolis and Millipore in a variety of sales, marketing, business development and engineering roles.
Clint Haris has been our Senior Vice President, Microcontamination Control since July 2016. Prior to that, Mr. Haris served as our Vice President, Liquid Microcontamination Control since August 2014. Prior to joining Entegris, Mr. Haris served in a variety of executive roles at Brooks Automation Inc. including Senior Vice President, Life Science Systems from 2010 to 2014 and Senior Vice President and General Manager, Systems Solutions from 2009 to 2010.
William Shaner has been our Senior Vice President, Advanced Materials Handling since July 2016. Prior to that, Mr. Shaner served as our Senior Vice President, Global Operations since February 2014 and as our Vice President and General Manager, Microenvironments division since 2007. He has served in a variety of sales, marketing, business development and engineering roles since joining Entegris in 1995.
Bruce W. Beckman has been our Senior Vice President, Finance since February 2018. Prior to that, Mr. Beckman served as Vice President, Finance since joining Entegris in 2015. From 1990 to 2015, Mr. Beckman worked in numerous capacities for General Mills, Inc., including Vice President, Finance, Meals Division and Director of Corporate Planning & Analysis.
Michael D. Sauer has been our Vice President, Controller and Chief Accounting Officer since June 2012. Prior to that, he served as the Corporate Controller since 2008. From the time of the merger with Mykrolis until April 2008, Mr. Sauer served as Director of Treasury and Risk Management. Mr. Sauer joined Fluoroware, Inc., a predecessor to Entegris Minnesota in 1988 and held a variety of finance and accounting positions until 2001 when he became the Director of Business Development for Entegris Minnesota, the successor to Fluoroware, serving in that position until the merger with Mykrolis.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders:Holders
Entegris’ Common Stock,common stock, $0.01 par value per share, trades on the NASDAQNasdaq Global Select Market under the symbol “ENTG”. The following table sets forth the high and low sales prices of the Company shares for each full quarterly period during 2017 and 2016. As of February 12, 20182024, there were 1,1301,030 shareholders of record. On February 12, 2018, the last sale price reported on the Nasdaq Global Select Market for our common stock was $31.10 per share. |
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Low | | High | | Low | | High |
| First quarter | $ | 17.65 |
| | $ | 23.85 |
| | $ | 10.37 |
| | $ | 13.80 |
|
| Second quarter | $ | 21.90 |
| | $ | 27.20 |
| | $ | 12.79 |
| | $ | 14.77 |
|
| Third quarter | $ | 21.78 |
| | $ | 28.85 |
| | $ | 13.97 |
| | $ | 17.73 |
|
| Fourth quarter | $ | 28.20 |
| | $ | 32.80 |
| | $ | 14.73 |
| | $ | 18.95 |
|
Dividend Policy:Policy
Holders of ourthe Company’s common stock are entitled to receive dividends when and if they are declared by our boardthe Company’s Board of directors. During 2017, our boardDirectors. The Company’s Board of directorsDirectors declared cash dividends of $0.10 per share during each of the first, second, third and fourth quarters of 2023, which totaled $60.3 million.
On January 17, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.07$0.10 per share during the fourth quarterto be paid on February 21, 2024 to shareholders of 2017, which was paid and totaled $9.9 million.record as of January 31, 2024.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our boardBoard of directors.Directors. Furthermore, the credit agreementsagreement governing our Term Loan and our ABL Facility containthe Credit Facilities contains restrictions that may limit our ability to pay dividends.
Issuer Sales of Unregistered Securities During the Past Three Years:Years
None
None.
Comparative Stock Performance
The following graph compares the cumulative total shareholder return on the common stock of Entegris, Inc. from December 31, 20122018 through December 31, 20172023 with the cumulative total return ofon (1) The NASDAQNasdaq Composite Index, and (2) The Philadelphia Semiconductor Index, assuming $100 was invested at the close of trading on December 31, 20122018 in Entegris, Inc. common stock, the NASDAQNasdaq Composite Index and the Philadelphia Semiconductor Index and that all dividends are reinvested.
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2023.
Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved.
| | | | December 31, 2012 | | December 31, 2013 | | December 31, 2014 | | December 31, 2015 | | December 31, 2016 | | December 31, 2017 |
| December 31, 2018 | | | December 31, 2018 | | December 31, 2019 | | December 31, 2020 | | December 31, 2021 | | December 31, 2022 | | December 31, 2023 |
| Entegris, Inc. | $100.00 | | $126.25 | | $143.90 | | $144.55 | | $194.99 | | $332.42 | Entegris, Inc. | $100.00 | | $180.85 | | $348.72 | | $504.19 | | $239.52 | | $439.54 |
| NASDAQ Composite | 100.00 | | 140.12 | | 160.78 | | 171.97 | | 187.22 | | 242.71 |
| Nasdaq Composite | | Nasdaq Composite | 100.00 | | 136.69 | | 198.09 | | 242.03 | | 163.27 | | 236.15 |
| Philadelphia Semiconductor Index | 100.00 | | 141.84 | | 186.38 | | 183.36 | | 237.14 | | 333.28 | Philadelphia Semiconductor Index | 100.00 | | 163.26 | | 250.87 | | 358.36 | | 233.36 | | 389.73 |
Issuer Purchases of Equity Securities:Securities
On February 13, 2017, the Company’s BoardThe Company did not repurchase any of Directors authorized a repurchase program covering up to an aggregate of $100 million of the Company’sits common stock in open market transactions and in accordance with one or more pre-arranged2023 under a Board-authorized common stock trading plans to be established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The authorization expires on February 15, 2019. This repurchase program represents a further renewal of the repurchase program originally authorized by the Board of Directors on February 5, 2016, which expired February 15, 2017, and that had been subsequently renewed to February 15, 2018.
The following table provides information concerning shares of the Company’s Common Stock $0.01 par value purchased during the three months ended December 31, 2017: |
| | | | | | |
| Period |
(a) Total Number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 through November 4, 2017 | 137,500 |
| $30.27 | 137,500 |
| $70,265,481 |
| November 5 through December 2, 2017 | 95,500 |
| $31.58 | 95,500 |
| $67,249,688 |
| December 3 through December 31, 2017 | 92,962 |
| $30.36 | 92,962 |
| $64,427,356 |
| Total | 325,962 |
| $30.68 | 325,962 |
| $64,427,356 |
plan.
The Company issues restrictedcommon stock unit awards (RSUs) under its equity incentive plans. In the consolidated financial statements, the Company treats shares of common stock withheld for tax purposes on behalf of its employees in connection with the vesting or exercise of RSUsthe awards as common stock repurchases because they reduce the number of shares that would have been issued upon vesting.vesting or exercise. These withheld shares of common stock are not considered common stock repurchases under the Company's authorizedpursuant to a Board-authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals in the preceding table.plan.
Item 6. Selected Financial Data.[Reserved]
The table that follows presents selected financial data for each of the last five years from the Company’s consolidated financial statements and should be read in conjunction with the Company’s Consolidated Financial Statements and the related Notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The selected financial data set forth below as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 are derived from our audited financial statements included in this Annual Report on Form 10-K. All other selected financial data set forth below is derived from our audited financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our results of operations to be expected in the future.
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 | | Year ended December 31, 2014 | | Year ended December 31, 2013 |
| Operating Results | | | | | | | | | |
| Net sales | $ | 1,342,532 |
| | $ | 1,175,270 |
| | $ | 1,081,121 |
| | $ | 962,069 |
| | $ | 693,459 |
|
| Gross profit | 608,985 |
| | 508,691 |
| | 470,231 |
| | 376,683 |
| | 294,214 |
|
| Selling, general and administrative expenses | 216,194 |
| | 201,901 |
| | 198,914 |
| | 231,833 |
| | 137,123 |
|
| Engineering, research and development expenses | 106,951 |
| | 106,991 |
| | 105,900 |
| | 87,711 |
| | 55,320 |
|
| Amortization of intangible assets | 44,023 |
| | 44,263 |
| | 47,349 |
| | 37,067 |
| | 9,347 |
|
| Contingent consideration fair value adjustment | — |
| | — |
| | — |
| | (1,282 | ) | | (1,813 | ) |
| Operating income | 241,817 |
| | 155,536 |
| | 118,068 |
| | 21,354 |
| | 94,237 |
|
| Income (loss) before income taxes and equity in net loss of affiliate | 184,731 |
| | 119,999 |
| | 92,185 |
| | (13,392 | ) | | 96,195 |
|
| Income tax expense (benefit) | 99,665 |
| | 22,852 |
| | 10,202 |
| | (21,572 | ) | | 21,669 |
|
| Net income | 85,066 |
| | 97,147 |
| | 80,296 |
| | 7,887 |
| | 74,526 |
|
| Earnings Per Share Data | | | | | | | | | |
| Diluted earnings per share | $ | 0.59 |
| | $ | 0.68 |
| | $ | 0.57 |
| | $ | 0.06 |
| | $ | 0.53 |
|
| Weighted average shares outstanding – diluted | 143,518 |
| | 142,050 |
| | 141,121 |
| | 140,062 |
| | 139,618 |
|
| Operating Ratios – % of net sales | | | | | | | | | |
| Gross profit | 45.4 | % | | 43.3 | % | | 43.5 | % | | 39.2 | % | | 42.4 | % |
| Selling, general and administrative expenses | 16.1 |
| | 17.2 |
| | 18.4 |
| | 24.1 |
| | 19.8 |
|
| Engineering, research and development expenses | 8.0 |
| | 9.1 |
| | 9.8 |
| | 9.1 |
| | 8.0 |
|
| Amortization of intangible assets | 3.3 |
| | 3.8 |
| | 4.4 |
| | 3.9 |
| | 1.3 |
|
| Contingent consideration fair value adjustment | — |
| | — |
| | — |
| | (0.1 | ) | | (0.3 | ) |
| Operating income | 18.0 |
| | 13.2 |
| | 10.9 |
| | 2.2 |
| | 13.6 |
|
| Income (loss) before income taxes and equity in net loss of affiliate | 13.8 |
| | 10.2 |
| | 8.5 |
| | (1.4 | ) | | 13.9 |
|
| Effective tax rate | 54.0 |
| | 19.0 |
| | 11.1 |
| | 161.1 |
| | 22.5 |
|
| Net income | 6.3 |
| | 8.3 |
| | 7.4 |
| | 0.8 |
| | 10.7 |
|
| Cash Flow Statement Data | | | | | | | | | |
| Depreciation and amortization | $ | 102,231 |
| | $ | 99,886 |
| | $ | 101,654 |
| | $ | 83,704 |
| | $ | 38,815 |
|
| Capital expenditures | 93,597 |
| | 65,260 |
| | 71,977 |
| | 57,733 |
| | 60,360 |
|
| Net cash provided by operating activities | 293,373 |
| | 207,555 |
| | 120,918 |
| | 126,423 |
| | 109,402 |
|
| Net cash used in investing activities | (112,455 | ) | | (66,686 | ) | | (63,638 | ) | | (860,295 | ) | | (47,029 | ) |
| Net cash provided by (used in) financing activities | 27,251 |
| | (81,747 | ) | | (92,787 | ) | | 747,648 |
| | (3,895 | ) |
| Balance Sheet and Other Data | | | | | | | | | |
| Current assets | $ | 1,057,608 |
| | $ | 800,131 |
| | $ | 708,787 |
| | $ | 763,604 |
| | $ | 612,305 |
|
| Current liabilities | 290,971 |
| | 261,571 |
| | 175,550 |
| | 262,520 |
| | 97,585 |
|
| Working capital | 766,637 |
| | 538,560 |
| | 533,237 |
| | 501,084 |
| | 514,720 |
|
| Current ratio | 3.63 |
| | 3.06 |
| | 4.04 |
| | 2.91 |
| | 6.27 |
|
| Long-term debt, including current maturities | 674,380 |
| | 584,677 |
| | 656,044 |
| | 753,012 |
| | — |
|
| Shareholders’ equity | 993,018 |
| | 899,218 |
| | 802,883 |
| | 748,441 |
| | 756,843 |
|
| Total assets | 1,976,172 |
| | 1,699,532 |
| | 1,646,697 |
| | 1,748,307 |
| | 875,294 |
|
| Return on average shareholders’ equity – % | 9.0 | % | | 11.4 | % | | 10.4 | % | | 1.0 | % | | 10.3 | % |
| Shares outstanding at end of year | 141,283 |
| | 141,320 |
| | 140,716 |
| | 139,793 |
| | 138,734 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes to the consolidated financial informationthereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the “Cautionary Statements” sectionssection of this Item 7 below. The Company’s actual results may differ materially from those contained in any forward-looking statements. You should review the Item 1A “Risk Factors” of this Annual Report on Form 10-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 has elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented except for the segment analysis. Information pertaining to fiscal year 2021 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2022 and 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 23, 2023.
Cautionary Statements
This Annual Report on Form 10-K and the documentsportions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form 10-K contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.statements.” The words “believe,” “expect,” “anticipate,” “intends,“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 thosestatements about supply chain matters; inflationary pressures; future period guidance; projected sales, net income, net income per diluted share, non-GAAP EPS, non-GAAP net income and other financial metrics; ourguidance or projections; the Company’s performance relative to our markets;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 our engineering, research and developmentthe Company’s ER&D projects; ourthe Company’s ability to execute on our business strategies; ourstrategies, including with respect to the Company’s expansion of its manufacturing presence in Taiwanand 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 effectimpact of the Tax Cutsacquisitions and Jobs Act;divestitures the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials (now known as CMC Materials LLC) (“CMC Materials”); trends relating to the fluctuation of currency exchange rates; future capital and other expenditures;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 Annual Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; raw material shortages, supply and labor constraints, price increases, inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations; the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements; 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, between Israel and Hamas and the current conflict in the Red Sea, 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 matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report on Form 10-K,10-K. They 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, the risk factors and additional information described in this Annual Report on Form 10-K under the caption “Risk Factors,” elsewhere in this Annual Report on Form 10-K and in ourthe Company’s other periodic filings. Except as required under the federal securities laws and the rules and regulations of the SEC, we undertake the Company undertakes
no obligation to update publicly any forward-looking statements or information contained herein.herein, which speak as of their respective dates.
Overview
This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.
The Company is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals andmission-critical advanced materials handlingand process solutions for manufacturing processes in the semiconductor and other high-technology industries. Our mission is toWe leverage our unique breadth of capabilities to create value forhelp our customers by developing mission-critical solutions to maximize manufacturing yields, reduce manufacturing costsimprove their productivity, performance and enable higher device performance.
Our technology portfolio includes approximately 20,000 standard and customized products and solutions to achieve the highest levels of purity and performance that are essential to the manufacture of semiconductors, flat panel displays, light emitting diodes, or LEDs, high-purity chemicals, solar cells, gas lasers, optical and magnetic storage devices, and critical components for aerospace, glass manufacturing and biomedical applications. The majority of our products are consumed at various times throughout the manufacturing process, with demand driven in part by the level of semiconductor and other manufacturing activity. The Company’s customers consist primarily of semiconductor manufacturers, semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display (TFT-LCD) and hard disk manufacturers, which are served through direct sales efforts, as well as sales and distribution relationships, in the United States, Asia, Europe andmost advanced manufacturing environments.
In the Middle East.
Our business is organized and operated inthird quarter of 2023, the Company realigned its segments into three operatingreportable segments discussed below, which align with the key elements of the advanced semiconductor manufacturing ecosystem. The Specialty Chemicalscurrent annual and Engineeredsucceeding annual periods will disclose the reportable segments with prior periods recast to reflect the change.
•The Materials Solutions segment, or SCEM, segmentMS, provides high-performancematerials-based solutions, such as chemical mechanical planarization (“CMP”) slurries and high-puritypads, deposition materials, process chemistries and gases, and materials, and safe and efficient delivery systems to support semiconductorformulated cleans, etchants and other advanced manufacturing processes. specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership.
▪The Microcontamination Control segment, or MC, segment offers advanced solutions to filterthat improve customers’ yield, device reliability and purifycost by filtering and purifying critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.
▪The Advanced Materials Handling segment, or AMH, segment develops solutions tothat improve customers’ yields by protecting critical materials during manufacturing, transportation, and storage, including products that monitor, protect, transport and deliver critical liquid chemistries, wafers, and other substrates for a broad set of applications in the semiconductor,
industry life sciences and other high-technology industries. While these
These segments have separate products and technical know-how, they share a global generalist sales force, common business systems and processes, technology centers and strategic and technology roadmaps. We leverage our expertise fromWith the complementary capabilities across these three segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers.customers, which should translate into improved device performance, lower cost of ownership and faster time to market. This capability has been further enhanced with the acquisition of CMC Materials. For example, we can now develop and provide complementary offerings solving customers’ complex manufacturing challenges across the deposition, CMP process and post-CMP modules with co-optimized products from each of our divisions, such as advanced deposition materials, CMP slurries, pads and post-CMP cleaning chemistries from our MS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.
Impact of New Export Control Regulations
On October 17, 2023, the U.S Department of Commerce, Bureau of Industry and Security (“BIS”) announced updates to export control regulations, originally issued on October 7, 2022, regarding the sale of certain products and services related to advanced computing items, semiconductor manufacturing equipment, and items that can support end uses related to the development and production of advanced-node integrated circuits and semiconductor manufacturing equipment, among others. The updated rules modify and expand restrictions on the sale of products and the provision of certain services by U.S. persons to some companies and domestic fabs located in certain countries, including China, without prior U.S. governmental authorization. See note 15Item 1A, “Risk Factors,” in this Annual Report on Form 10-K for additional information regarding risk associated with the impact of new export control regulations, including under the caption “Tariffs, export controls and other trade laws and restrictions resulting from international trade disputes, strained international relations and changes to foreign and national security policy, especially as they relate to China, could have an adverse impact on our operations and reduce the competitiveness or availability of our products relative to local and global competitors.”
Impact of Conflicts in the Middle East
The military conflict between Israel and militant groups led by Hamas and the current conflict in the Red Sea have caused uncertainty in the global markets, including, but not limited to, disruptions to shipping routes. Revenue relating to products manufactured from raw materials or components sourced from or through this region does not constitute a material portion of our business and historically we have not had significant revenue in this region. There continues to be uncertainty regarding the ultimate impact these conflicts will have on the global economy, supply chains, logistics, fuel prices, raw material pricing and our business.
Recent Events
On February 10, 2023, the Company terminated the definitive agreement with Infineum to sell its PIM business. At the time of the termination, the transaction had not received clearance under the HSR Act. In accordance with the terms of the definitive agreement, the Company received a $12.0 million termination fee from Infineum in the first quarter of 2023. Also in the first quarter of 2023, the Company incurred a fee of $1.1 million to the third-party financial adviser it had engaged to assist with the transaction. The assets and liabilities of the PIM business are classified as held for sale as of December 31, 2023. See Note 5 to our consolidated financial statements for additional information onfurther discussion.
On March 1, 2023, the Company's three segments.
Key operating factors Key factors, which management believes have the largest impact on the overall results of operationsCompany completed its divestiture of the QED business. The Company include:received proceeds of $134.3 million. See Note 5 to our consolidated financial statements for further discussion.
Level of sales Since a significant portionOn March 10, 2023 and September 11, 2023, the Company amended its Existing Credit Agreement. The First Amendment, dated March 10, 2023, provided for, among other things, the refinancing of the Company’s product costs (except for raw materials, purchased components and direct labor) are largely fixedthen-outstanding term loans B under the senior secured term loan facility due 2029 in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also, increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions, which are highly variable in nature. The Company’s sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing pressures and foreign currency fluctuation.
Variable margin on sales The Company’s variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials. This is affected by a number of factors, which include the Company’s sales mix, purchase prices of raw material (especially polymers, membranes, stainless steel and purchased components), domestic and international competition, direct labor costs, and the efficiency of the Company’s production operations, among others.
Fixed cost structure The Company’s operations include a number of large fixed or semi-fixed cost components, which include salaries, indirect labor and benefits, facility costs, lease expenses, and depreciation and amortization. It is not possible to vary these costs easily in the short-term as volumes fluctuate. Accordingly, increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components, resulting in a large impact on the Company’s profitability.
Overall Summary of Financial Results for the Year Ended December 31, 2017
Total net sales for the year ended December 31, 2017 were $1,342.5 million, up $167.3 million, or 14%, from sales of $1,175.3 million for the year ended December 31, 2016.
Exclusive of unfavorable foreign currency translation effects of $0.9 million, the Company's sales increased 14%, reflecting an increase in overall demand for the Company's products from semiconductor industry customers, particularly in the sale of gas microcontamination filters, liquid chemistry filtration solutions and certain specialty materials products. The sales increase in 2017 was driven primarily by higher volume and the effect of selling price erosion was nominal. Semiconductor industry demand in 2017 was driven by improved demand from device makers, as wafer starts and semiconductor unit production increased, higher industry fab utilization rates, and increased capital spending levels. The Company believes sales of its products in 2017 exceeded the overall semiconductor industry growth rate.
The Company's gross profit rose by $100.3 million for the year ended December 31, 2017, to $609.0 million, up from $508.7 million for the year ended December 31, 2016. Accordingly, the Company reported a 45.4% gross margin rate compared to 43.3% in 2016. The gross profit and gross margin figures in 2017 and 2016 included impairment charges of $6.1 million and $6.3 million, respectively, related to certain equipment-related impairment and severance charges. Excluding those charges, the Company's gross margin for 2017 was 45.8% and for 2016 was 43.8%.
The Company's selling, general and administrative (SG&A) and engineering, research and development (ER&D) expenses increased slightly in 2017, mainly reflecting higher compensation costs of $7.5 million and impairment charges related to certain acquired intangible assets of $3.9 million.
The Company's income tax expense increased significantly in 2017, primarily reflecting a one-time charge of $66.7 million related to the impact of the Tax Cuts and Jobs Act that was enacted into legislation in December 2017.
As a result of the aforementioned and other factors discussed below, net income for 2017 was $85.1 million, or $0.59 per diluted share, compared to net income of $97.1 million, or $0.68 per diluted share, in 2016.
On April 24, 2017, the Company acquired the microelectronic water and chemical filtration product line of W.L. Gore & Associates, Inc. for $20.0 million in cash as described in note 2 to the consolidated financial statements. The acquisition of these products complements our portfolio of advanced liquid filtration solutions. It also reflects our strategy to grow our served markets through the deployment of capital for strategic accretive acquisitions that augment our internal development initiatives.
On October 18, 2017, the Company's Board of Directors declared an initial quarterly cash dividend of $0.07 per share to be paid on November 22, 2017 to shareholders of record on the close of business on November 1, 2017. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company's Board of Directors.
In November 2017, the Company issued $550 million aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026 (the “2026 Notes”). The Company used the net proceeds of the offering to redeem all of its 6.000% senior unsecured notes due 2022 (the “2022 Notes”), of which an aggregate principal amount of $360 million$2.495 billion with a new tranche of term loans B in an aggregate principal amount of $2.495 billion. The amended loans under the First Amendment bore interest at a rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.75% which was currently outstanding asa reduction from the applicable margin of immediately3.00% prior to the redemption, to pay fees and expenses related toFirst Amendment. The Second Amendment, dated September 11, 2023, provides for, among other things, the redemption and for general corporate purposes. The Company redeemed the 2022 Notes, at its option, at the redemption price of 104.5% (expressed as percentage of principal amount), plus accrued and unpaid interest of $2.5 million. The redemption of the 2022 Notes resulted in a loss on extinguishment of debt of $20.7 million.
During 2017, the Company’s operating activities provided cash flow of $293.4 million. Cash and cash equivalents, and short-term investments were $625.4 million at December 31, 2017 compared with $406.4 million at December 31, 2016. The Company had long-term borrowings, including current maturities, of $674.4 million at December 31, 2017 compared with $584.7 million at December 31, 2016.
Subsequent Events
On January 22, 2018, the Company acquired Particle Sizing Systems, LLC ("PSS"), a company focused on particle sizing instrumentation for liquid applications in both semiconductor and life science industries. The total purchase price of the acquisition was approximately $37 million in cash, subject to customary working capital adjustments. The acquisition of PSS does not constitute a material business combination.
On February 13, 2018, the Company’s Board of Directors authorized a repurchase program covering up to an aggregate of $100 millionrefinancing of the Company’s common stock, during a period of twenty-four months, in open market transactions and in accordance with one or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1outstanding term loans B under the Securities Exchange Actsenior secured term loan facility due 2029 in an aggregate principal amount of 1934, as amended. This repurchase program represents$2.318 billion with a new tranche of term loans B in an aggregate principal amount of $2.318 billion. The outstanding term loans B under the amended senior secured term loan facility due 2029 bear interest, at a rate per annum equal to the SOFR plus an applicable margin of 2.50% which is a reduction from the applicable margin of 2.75% provided for in the First Amendment. See Note 11 to our consolidated financial statements for further renewaldiscussion.
On June 5, 2023, the Company announced the termination of an Alliance Agreement (the “Alliance Agreement”) between the Company and MacDermid Enthone Inc., a global business unit of Element Solutions Inc. (“MacDermid Enthone”). In connection with the termination of the repurchase program originally authorized byAlliance Agreement, Entegris received net proceeds of $191.2 million in 2023. See Note 5 to our consolidated financial statements for further discussion.
On October 2, 2023, the BoardCompany completed its divestiture of Directors on Februarythe Electronic Chemicals (“EC”) business. The Company received cash proceeds of $737.1 million, or net proceeds of $675.2 million. See Note 5 2016 and first renewed on February 15, 2017. to our consolidated financial statements for further discussion.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.States (“GAAP”). The preparation of these 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. At each balance sheet date, management evaluates its estimates, including, but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangibles)intangible assets), goodwill and income taxes and business combinations.taxes. The Company bases its estimates on historical experience and various other assumptions that are believedmanagement believes to be reasonable under the circumstances. If management madeManagement’s utilization of different judgments or utilized different estimates this could result in material differences in the amount and timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings.
TheOur critical accounting policies affectedthat are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below. See Note 1 to the Company’s consolidated financial statements are discussed below.for additional information about the Company’s other significant accounting policies.
Impairment of Long-Lived Assets As of December 31, 2017, the Company had $359.5 million of net property, plant and equipment and $182.4 million of net intangible assets. The Company routinely considers whether indicators of impairment of the value of its long-lived assets, particularly its manufacturing equipment, and its intangible assets, are present. A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances (triggering events) indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances:
| |
a. | A significant decrease in the market price of a long-lived asset (asset group); |
| |
b. | A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; |
| |
c. | A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; |
| |
d. | An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); |
| |
e. | A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and |
| |
f. | A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. |
Goodwill
If such indicators are present, it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value. If less, an impairment loss is recognized based on the excess of the carrying amount of the assets in the group over its respective fair value. Fair value is determined by discounting estimated future cash flows, appraisals or other methods deemed appropriate. If the asset groups determined to be impaired are to be held and used, the Company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets’ carrying value. The fair value of the assets then becomes the assets’ new carrying value, which is depreciated or amortized over the remaining estimated useful life of the assets.
The Company’s long-lived assets are grouped with other assets and liabilities at the lowest level (asset groups) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities. As described above, the evaluation of the recoverability of long-lived assets requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the identification of the asset group at the lowest level of independent cash flows, the primary asset of the group and long-range forecasts of revenue and costs, reflecting management’s assessment of general economic and industry conditions, operating income, depreciation and amortization and working capital requirements.
Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates. In addition, changes in the underlying assumptions would have a significant impact on the conclusion that an asset group’s carrying value is recoverable, or the determination of any impairment charge if it was determined that the asset values were indeed impaired. The Company continually monitors circumstances and events to determine whether asset impairment testing is warranted. It is possible that in the future the Company may conclude that there is impairment of certain of its long-lived assets, and that significant impairment charges of long-lived assets may occur in future periods.
GoodwillGoodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. The Company performs its annual impairment test as of August 31. The Company first assesses qualitative factors to determine whether it isIf circumstances change during interim periods between annual tests that would more likely than not (that is, a likelihood of more than 50%) thatreduce the fair value of a reporting unit is less thanbelow its carrying amount, including goodwill. If, after assessing qualitative factors,value, the Company determineswill test goodwill for impairment. Factors that it is more likely than not thatwould necessitate an interim goodwill impairment assessment include a sustained decline in the fair value ofCompany's stock price, effects on a reporting unit is less thansuch as a change in the composition or carrying amounts of its carrying amount, thennet assets, prolonged negative industry or economic trends, or significant under-performance relative to expected, historical or projected future operating results. Management uses judgment to determine whether to use a two-stepqualitative analysis or a quantitative fair value measurement for its goodwill impairment testing. The Company's fair value measurement approach combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market
comparable, projected future cash flows (including timing and profitability), the discount rate reflecting the risk inherent in future cash flows, the perpetual growth rate, and projected future economic and market conditions.
If a reporting unit fails the quantitative impairment test, impairment expense is performedimmediately recorded as the difference between the reporting unit’s fair value and carrying value not to identify potential goodwill impairment and measureexceed the amount of goodwill impairment loss to be recognized, if any.
As of August 31, 2017, the Company’s assessment of qualitative factors informed its conclusion that it was more likely than not that a goodwill impairment did not occur. The significant qualitative factors considered include a significant increase in the Company’s share price, increasing revenues and operating cash flow for each of the Company's reporting units combined with solid demand in the semiconductor industry driven by the Internet of Things, virtual reality, autonomous car and artificial intelligence/machine learning applications. The Company noted that a significant number of its very largest customers purchase from all of the Company’s reporting units. For example, approximately 25 customers, accounting for over 60% of net sales, purchase from all of the Company’s reporting units.
Income Taxes In the preparation of the Company’s consolidated financial statements, the income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operations and incorporates assumptions about the amount of future state, federal and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates management is using to manage the underlying business. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income.
The Company has deferred tax assets related to certain federal and state credit carryforwards, and foreign net operating loss carryforwards of $18.0 million and $31.8 million as of December 31, 2017 and 2016, respectively. Management believes it is more likely than not that the benefit from a portion of these carryforwards will not be realized. In recognition of this risk, the Company provided a valuation allowance of $17.5 million and $14.7 million as of December 31, 2017 and 2016, respectively, relating to these carryforwards. If the Company’s assumptions change and it determines it will be able to realize these carryforwards, the tax benefits relating to any reversal of the valuation allowance on the deferred tax assets will be recognized as a reduction of income tax expense.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.
U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35 percent to 21 percent effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Tax Cuts and Jobs Act in its year end income tax provision in accordance with management's understanding of the Tax Cuts and Jobs Act and guidance available as of the date of this filing and as a result has recorded $66.7 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The amount related to the remeasurement of deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was a benefit of $10.2 million. Included in this benefit are provisional amounts related to certain deferred tax assets and liabilities where the necessary information is not available, prepared or analyzed. Examples of this include fixed assets and compensation. The provisional expense related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $73.0 million based on cumulative foreign earnings of $943.7 million. Additional expense of $4.0 million was recorded related to no longer asserting that a significant portion of the Company's earnings are considered indefinitely reinvested overseas.recorded.
Business Acquisitions
The Company accounts for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Accordingly, for significant items, the Company typically obtains assistance from a third-party valuation firm.
There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For intangible assets, the Company normally utilizes the “income method.method,” This methodwhich 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. SomeDepending on the asset valued, the key assumptions included one or more of the more significant estimatesfollowing: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and assumptions inherent in the income method (or other methods) include the projected future cash flows (including timing)administrative expenses, (4) royalty rates, and the(5) discount rate reflecting the risks inherent in the future cash flows.rates.
Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives, influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net income.
Results of Operations
Year ended December 31, 20172023 compared to year ended December 31, 20162022
The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for the years ended December 31, 20172023 and 2016. The Company’s historical financial data was derived2022. | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2023 | | 2022 |
| | | % of net sales | | | | % of net sales |
| Net sales | $ | 3,523,926 | | | 100.0 | % | | $ | 3,282,033 | | | 100.0 | % |
| Cost of sales | 2,026,321 | | | 57.5 | | | 1,885,620 | | | 57.5 | |
| Gross profit | 1,497,605 | | | 42.5 | | | 1,396,413 | | | 42.5 | |
| Selling, general and administrative expenses | 576,194 | | | 16.4 | | | 543,485 | | | 16.6 | |
| Engineering, research and development expenses | 277,313 | | | 7.9 | | | 228,994 | | | 7.0 | |
| Amortization of intangible assets | 214,477 | | | 6.1 | | | 143,953 | | | 4.4 | |
| Goodwill impairment | 115,217 | | | 3.3 | | | — | | | — | |
| Gain on termination of Alliance Agreement | (184,754) | | | (5.2) | | | — | | | — | |
| Operating income | 499,158 | | | 14.2 | | | 479,981 | | | 14.6 | |
| Interest expense | 312,378 | | | 8.9 | | | 212,669 | | | 6.5 | |
| Interest income | (11,257) | | | (0.3) | | | (3,694) | | | (0.1) | |
| Other expense, net | 25,367 | | | 0.7 | | | 23,926 | | | 0.7 | |
| Income before income taxes | 172,670 | | | 4.9 | | | 247,080 | | | 7.5 | |
| Income tax (benefit) expense | (8,413) | | | (0.2) | | | 38,160 | | | 1.2 | |
| Equity in net loss of affiliates | 414 | | | — | | | — | | | — | |
| Net income | $ | 180,669 | | | 5.1 | | | $ | 208,920 | | | 6.4 | |
from its consolidated financial statements and related notes included elsewhere in this annual report. |
| | | | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 |
| | | % of net sales | | | | % of net sales |
| Net sales | $ | 1,342,532 |
| | 100.0 | % | | $ | 1,175,270 |
| | 100.0 | % |
| Cost of sales | 733,547 |
| | 54.6 |
| | 666,579 |
| | 56.7 |
|
| Gross profit | 608,985 |
| | 45.4 |
| | 508,691 |
| | 43.3 |
|
| Selling, general and administrative expenses | 216,194 |
| | 16.1 |
| | 201,901 |
| | 17.2 |
|
| Engineering, research and development expenses | 106,951 |
| | 8.0 |
| | 106,991 |
| | 9.1 |
|
| Amortization of intangible assets | 44,023 |
| | 3.3 |
| | 44,263 |
| | 3.8 |
|
| Operating income | 241,817 |
| | 18.0 |
| | 155,536 |
| | 13.2 |
|
| Interest expense | 32,343 |
| | 2.4 |
| | 36,846 |
| | 3.1 |
|
| Interest income | (715 | ) | | (0.1 | ) | | (318 | ) | | — |
|
| Other expense (income), net | 25,458 |
| | 1.9 |
| | (991 | ) | | (0.1 | ) |
| Income before income taxes | 184,731 |
| | 13.8 |
| | 119,999 |
| | 10.2 |
|
| Income tax expense | 99,665 |
| | 7.4 |
| | 22,852 |
| | 1.9 |
|
| Net income | $ | 85,066 |
| | 6.3 |
| | $ | 97,147 |
| | 8.3 |
|
Net sales For the year ended December 31, 2017,2023, net sales were $1,342.5$3,523.9 million, up $167.3increased by $241.9 million, or 14%7%, from sales for the year ended December 31, 2016.2022. An analysis of the factors underlying the increase in net sales is presented in the following table:
|
| | | |
| (In thousands) | |
| Net sales in 2016 | $ | 1,175,270 |
|
| Organic growth associated with volume and pricing | 164,505 |
|
| Increase associated with liquid filtration product line acquisition | 3,643 |
|
| Decrease associated with effect of foreign currency translation | (886 | ) |
| Net sales in 2017 | $ | 1,342,532 |
|
| | | | | |
| (In thousands) | |
| Net sales in 2022 | $ | 3,282,033 | |
| Increase associated with CMC Materials acquisition | 537,837 | |
| Decrease associated with divestitures | (116,211) | |
| Decrease mainly associated with volume exclusive of CMC Materials | (146,503) | |
| Decrease associated with effect of foreign currency translation | (33,230) | |
| Net sales in 2023 | $ | 3,523,926 | |
The Company's sales increase was dueattributable, in part, to strong across-the-board demand for the Company's products from semiconductor industry customers, reflecting both higher industry fab utilization and semiconductor industry capital spending compared to the year-ago period. This sales increase reflected improveda total of $537.8 million of sales of gas microcontamination filters, liquid chemistry filtration solutionsnew products resulting from the acquisition of CMC Materials. This increase was partially offset by an absence of sales totaling $116.2 million resulting from the divestitures of QED and certain specialty materials products. Exclusivethe Electronic Chemicals business as well as the termination of the Alliance Agreement. Total net sales of the acquired liquid filtration product line of $3.6 million of revenue for 2017 and thealso reflected unfavorable foreign currency translation effects of $0.9$33.2 million, for the year, mainly due to the significant weakening of the Japanese yen relative to the U.S. dollar, and decreased demand from customers in the Company's sales grew 14%semiconductor market, resulting in 2017 whena decrease of $146.5 million compared to 2016.the year ago period ended December 31, 2022.
Sales percentage on a geographic basis for 2023 and 2022 and the percentage increase (decrease) in 2017, total sales for 2023 compared to Taiwansales for 2022 were 22%, to North America were 21%, to South Korea were 16%, to Japan were 13%, to China were 11%, to Europe were 9% and to Southeast Asia were 8%. In 2016, total sales to Taiwan were 25%, to North America were 22%, to Japan were 13%, to South Korea were 12%, to China were 10%, to Europe were 9%, and to Southeast Asia were 9%. From 2016 to 2017, netas follows: | | | | | | | | | | | | | | | | | |
| Year ended | | |
| December 31, 2023 | | December 31, 2022 | | Percentage increase (decrease) in sales |
| North America | 25 | % | | 24 | % | | 12 | % |
| Taiwan | 17 | % | | 20 | % | | (11) | % |
| China | 16 | % | | 15 | % | | 13 | % |
| South Korea | 13 | % | | 13 | % | | 7 | % |
| Japan | 10 | % | | 11 | % | | 5 | % |
| Europe | 11 | % | | 10 | % | | 24 | % |
| Southeast Asia | 7 | % | | 7 | % | | 12 | % |
The increase in sales to customers for all countries and regions, except Taiwan, in South Korea, China, Europe, North America, Japan and Southeast Asia increased 49%, 26%, 14%, 13%, 9%, and 6%, respectively, while netthe table above was principally driven by the inclusion of sales to customersfrom the acquisition of CMC Materials. The decrease in sales in Taiwan were down 1%.
Demand drivers for the Company’s business primarily consistrelates to lower sales demand of semiconductor fab utilizationAMH and production (unit-driven) as well as capital spending for new or upgraded semiconductor fabrication equipment and facilities (capital-driven). The Company analyzes sales of itsMC products partially offset by these two key drivers. Sales of unit-driven products represented 74% of total sales and sales of capital-driven products represented 26% of total sales in 2017. This compares to a unit-driven to capital-driven ratio of 76%:24% for 2016.
Gross profit Gross profit for 2017 increased by $100.3 million, to $609.0 million, an increase in sales resulting from the inclusion of 20%sales from $508.7 million for 2016. the CMC Materials acquisition.
Gross margin
The following table sets forth gross margin rateas a percentage of net sales:
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | Percentage point change |
| Gross margin as a percentage of net sales: | 42.5 | % | | 42.5 | % | | — | |
Gross margin was unchanged for 20172023 compared to 2022, which was 45.4% versus 43.3% for 2016. The gross profit and gross margin improvements reflect the improved factory utilization associated with strong sales levels, a slightly favorable sales mix andprimarily due to the absence of a $61.9 million charge for fair value write-up of acquired CMC Materials inventory sold during the qualification and start-up costs incurred at the Company's i2M center in the prior year period. These factors were partly offset by modest price erosion for certain products in response to normal competitive pressures. In addition, the gross profit and gross margin figures include impairment charges of $6.1 million and $6.3 million for the years ended December 31, 2017 and 2016, respectively, related to equipment-related and severance charges.2022, partially offsetting the effect of lower plant utilization in 2023.
Selling, general and administrative expenses
Selling, general and administrative expense (SG&A) consists(“SG&A”) expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 20172023 increased $14.3$32.7 million, or 7%6%, to $216.2$576.2 million from $201.9$543.5 million in 2016. SG&A expenses, as a percent of net sales, decreased to 16.1% from 17.2% a year earlier, reflecting the increase in net sales.2022.
An analysis of the factors underlying the increase in SG&A expenses is presented in the following table:
|
| | | |
| (In thousands) | |
| Selling, general and administrative expenses in 2016 | $ | 201,901 |
|
| Employee costs | 7,455 |
|
| Impairment charge related to acquired intangible assets | 3,866 |
|
| Other increases, net | 2,972 |
|
| Selling, general and administrative expenses in 2017 | $ | 216,194 |
|
| | | | | |
| (In thousands) | |
| Selling, general and administrative expenses in 2022 | $ | 543,485 | |
| Employee costs, mainly driven by the inclusion of CMC Materials | 35,671 | |
| Impairment on long-lived assets, see Note 3 to the Company’s Consolidated Financial Statements | 30,464 | |
| Loss on sale of businesses, see Note 5 to the Company’s Consolidated Financial Statements | 23,822 | |
| Professional costs, mainly driven by the inclusion of CMC Materials | 14,321 | |
| Computer supplies expense, mainly driven by the inclusion of CMC Materials | 6,367 | |
| Project related expense, mainly driven by the inclusion of CMC Materials | 3,995 | |
| Integration, deal and transaction costs, mainly due to CMC Materials acquisition in prior year | (95,712) | |
| Other increases, net | 13,781 | |
| Selling, general and administrative expenses in 2023 | $ | 576,194 | |
Engineering, research and development expenses
Engineering, research and development (ER&D)ER&D expenses related toconsist of expenses for the support of current product lines and the development of new products and manufacturing technologies was $107.0technologies. These expenses were $277.3 million in both 20172023 and 2016. ER&D expenses as a percent$229.0 million in 2022.
An analysis of the factors underlying the increase in net sales.ER&D expenses is presented in the following table: | | | | | |
| (In thousands) | |
| Engineering, research and development expense in 2022 | $ | 228,994 | |
| Employee costs, mainly driven by the inclusion of CMC Materials | 27,434 | |
| Depreciation expense, mainly driven by the inclusion of CMC Materials | 11,983 | |
| Project related costs, mainly driven by the inclusion of CMC Materials | 4,902 | |
| Other increases, net | 4,000 | |
| Engineering, research and development expense in 2023 | $ | 277,313 | |
The Company’s overall ER&D efforts will continue to focus on the support or extension of current product lines, the development ofdeveloping and improving its technologies to create differentiatedtechnology platforms for semiconductor and high-valueadvanced processing applications and identifying and developing products for the most advanced and demanding semiconductor applications and leveraging its unique and diverse technology portfolio to develop innovative, integrated solutions for unmet customer needs.new applications. The Company expects ER&D costsoften works directly with its customers to stay relatively stable as a percentage of net sales.address their particular needs.
Amortization of intangible assets Amortization of intangible assets was $44.0$214.5 million in 20172023 compared to $44.3$144.0 million for 2016.2022. The declineincrease primarily reflects the absencefull-year of amortization expense for certain identifiable trademarkassociated with the intangible assets acquired in the ATMI merger that became fully amortizedCMC Materials acquisition.
Goodwill impairment The Company recorded a goodwill impairment charges of $115.2 million in early 2017, offset by additional amortization expense from2023. See Note 3 to the liquid filtration product line acquisitionCompany’s consolidated financial statements for further discussion.
Gain on termination of Alliance Agreement In connection with the termination of the Alliance Agreement, the Company recognized a pre-tax gain, net of $184.8 million in 2017.2023. See Note 5 to the Company’s consolidated financial statements for further discussion.
Interest expense Interest expense was $32.3 million and $36.8$312.4 million in the years ended December 31, 20172023 and 2016, respectively.$212.7 million in 2022. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. The decreaseincrease was primarily driven by a full year of interest expense based on timing on CMC Materials close in 20172022.
Interest income Interest income was $11.3 million in 2023 and $3.7 million in 2022. The increase reflects lowerrising average outstanding borrowings due to the Company's payments on the Term Loan in 2017.interest rates and cash balances.
Other expense, (income), net Other expense, net, was $25.5$25.4 million in 20172023 compared to other income, net, of $1.0$23.9 million in 2016.2022.
In 2017,2023, other expense, net included an impairment chargeconsisted mainly of $2.8 million, a loss of extinguishment and modification of debt of $20.7$29.9 million associated with the redemptionrepayments on the Company’s bridge credit facility and senior secured term loan facility and the amendments of the Company's 2022 NotesCompany’s Existing Credit Agreement (see note 7Note 11 to the Company'sCompany’s consolidated financial statements), and foreign currency transaction losses of $2.3 million.$5.7 million, partially offset by net proceeds received of $10.9 million resulting from the termination of the definitive agreement with Infineum related to the PIM business.
In 2016,2022, other income,expense, net includedconsisted mainly of consisted mainly of foreign currency transaction gainslosses of $0.6 million and other gains of $0.4$23.0 million.
Income tax expense The Company recorded income tax expensebenefit of $99.7$8.4 million in 20172023 compared to income tax expense of $22.9$38.2 million in 2016.2022. The Company’s effective tax expense rate was 54.0%(4.9)% in 2017,2023 compared to an effective tax rate of 19.0%15.4% in 2016.2022.
The increasedecrease in the effective tax rate from 2022 to 2023 relates to a tax benefit of $17.4 million recorded in 20172023 related to divestiture and impairment activity. Additionally, the tax rate was lower in 2023 due to changes to the jurisdictional income mix resulting from 2016the acquisition of CMC Materials and the variancetemporary changes in both years from the U.S. statutorytax regulations pertaining to foreign tax credits. The tax rate of 35% reflects several factors. The increase in the effective rate is primarily2022 was higher due to the recognition of the one-time mandatory repatriation transition tax of $73.0 million on the net accumulated earningsnon-deductible acquisition related costs and profits of the Company’s foreign subsidiaries and $4.0 million of incremental taxa decrease in discrete benefits related to no longer asserting that a significant portion of the Company’s undistributed earnings are considered indefinitely invested overseas. This increase was partially offset by the remeasurement of the U.S. deferred taxes for $10.2 million to reflect the lower U.S. federal tax rate and an increase in the federal research and development tax credit. The effective tax rates in both years reflect a greater concentration in the Company's geographic composition of income toward jurisdictions with lower tax rates than in the U.S.share-based compensation.
Net income Net income was $85.1$180.7 million, or $0.59$1.20 per diluted share, in 20172023 compared to net income of $97.1$208.9 million, or $0.68$1.46 per diluted share, in 2016.2022. The decrease reflects the Company'sCompany’s aforementioned operating results described in greater detail above.
Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Company also utilizes certain non-GAAP financial
measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of GAAP measures to the Company’s non-GAAP measures.
The Company’s non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and non-GAAP Earnings Per Share (EPS).
Adjusted EBITDA increased 35% to $357.1 million in 2017, compared to $263.7 million in 2016. Adjusted EBITDA, as a percent of net sales, was 26.6% in 2017 compared to 22.4% in 2016. Adjusted Operating Income increased 44% to $298.9 million in 2017, compared to $208.0 million in 2016. Adjusted Operating Income, as a percent of net sales, was 22.3% in 2017 compared to 17.7% in 2016. Non-GAAP Earnings Per Share increased 53% to $1.44 in 2017, compared to $0.94 in 2016. The improvement in the Adjusted EBITDA and Adjusted Operating Income reflect the increase in net sales and related increase in gross profit. In addition, Non-GAAP Earnings Per Share was positively affected by a lower adjusted effective tax rate.
Segment Analysis
The following table and discussion concern the results of operations of the Company’s three reportable segments for the years ended December 31, 2017 and 2016. |
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Specialty Chemicals and Engineered Materials | | | |
| Net sales | $ | 485,470 |
| | $ | 428,328 |
|
| Segment profit | 132,859 |
| | 96,060 |
|
| Microcontamination Control | | | |
| Net sales | $ | 436,225 |
| | $ | 362,658 |
|
| Segment profit | 160,715 |
| | 110,042 |
|
| Advanced Materials Handling | | | |
| Net sales | 420,837 |
| | 384,284 |
|
| Segment profit | 77,971 |
| | 73,452 |
|
Specialty Chemicals and Engineered Materials (SCEM)
For the year ended December 31, 2017, SCEM net sales increased to $485.5 million, up 13%, from $428.3 million in the comparable period last year. The sales increase primarily reflects strong product sales for specialty gases, glass forming products and advanced deposition materials.
SCEM reported a segment profit of $132.9 million for the year ended December 31, 2017 compared to a $96.1 million segment profit in the year-ago period. The increase in the SCEM's profit in 2017 was primarily due to increased sales, partially offset by higher operating expenses of 3%.
Microcontamination Control (MC)
For the year ended December 31, 2017, MC net sales increased to $436.2 million, up 20%, from $362.7 million in the comparable period last year. The sales increase primarily reflects strength in photolithography applications, gas filter products, and liquid chemistry filters for wet, etch and clean driven by strong industry tool shipments.
MC reported a segment profit of $160.7 million for the year ended December 31, 2017 compared to a $110.0 million segment profit in the year-ago period. The increase in the MC's profit in 2017 reflects increased sales and the absence of the qualification and start-up costs incurred at the Company's i2M center in the year-ago period, partially offset by higher operating expenses of 1%.
Advanced Materials Handling (AMH)
For the year ended December 31, 2017, AMH net sales increased 10% to $420.8 million, from $384.3 million in 2016. The increase primarily reflects strong sales of wafer and reticle handling, wafter shipping and fluid handling products.
AMH reported a segment profit of $78.0 million in 2017, up 6% from $73.5 million in 2016. The increase in the AMH's profit in 2017 was due to higher sales, partially offset by a 7% increase in operating expenses. Results in 2017 include impairment and severance charges of $7.5 million compared to $6.8 million a year ago.
Unallocated general and administrative expenses
Unallocated general and administrative expenses for the year ended December 31, 2017 totaled $85.7 million compared to $79.8 million for the year ended December 31, 2016. The $6.0 million increase includes the $3.9 million impairment charge related to certain acquired intangible assets.
Results of Operations
Year ended December 31, 2016 compared to year ended December 31, 2015
The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for the years ended December 31, 2016 and 2015. The Company’s historical financial data was derived from its consolidated financial statements and related notes included elsewhere in this annual report. |
| | | | | | | | | | | | | |
| (Dollars in thousands) | 2016 | | 2015 |
| | | % of net sales | | | | % of net sales |
| Net sales | $ | 1,175,270 |
| | 100.0 | % | | $ | 1,081,121 |
| | 100.0 | % |
| Cost of sales | 666,579 |
| | 56.7 |
| | 610,890 |
| | 56.5 |
|
| Gross profit | 508,691 |
| | 43.3 |
| | 470,231 |
| | 43.5 |
|
| Selling, general and administrative expenses | 201,901 |
| | 17.2 |
| | 198,914 |
| | 18.4 |
|
| Engineering, research and development expenses | 106,991 |
| | 9.1 |
| | 105,900 |
| | 9.8 |
|
| Amortization of intangible assets | 44,263 |
| | 3.8 |
| | 47,349 |
| | 4.4 |
|
| Operating income | 155,536 |
| | 13.2 |
| | 118,068 |
| | 10.9 |
|
| Interest expense | 36,846 |
| | 3.1 |
| | 38,667 |
| | 3.6 |
|
| Interest income | (318 | ) | | — |
| | (429 | ) | | — |
|
| Other income, net | (991 | ) | | (0.1 | ) | | (12,355 | ) | | (1.1 | ) |
| Income before income taxes and equity in net loss of affiliate | 119,999 |
| | 10.2 |
| | 92,185 |
| | 8.5 |
|
| Income tax expense | 22,852 |
| | 1.9 |
| | 10,202 |
| | 0.9 |
|
| Equity in net loss of affiliate | — |
| | — |
| | 1,687 |
| | 0.2 |
|
| Net income | $ | 97,147 |
| | 8.3 |
| | $ | 80,296 |
| | 7.4 |
|
Net sales For the year ended December 31, 2016, net sales were $1,175.3 million, up $94.1 million, or 9%, from sales for the year ended December 31, 2015. An analysis of the factors underlying the increase in net sales is presented in the following table:
|
| | | |
| (In thousands) | |
| Net sales in 2015 | $ | 1,081,121 |
|
| Organic growth associated with volume and pricing | 80,375 |
|
| Increase associated with effect of foreign currency translation | 13,774 |
|
| Net sales in 2016 | $ | 1,175,270 |
|
The Company's sales increase was due to improved demand for the Company's products from semiconductor industry customers, reflecting both higher industry fab utilization and semiconductor industry capital spending compared to the year-ago period. This sales increase reflected improved sales of 300mm transport modules, liquid chemistry filtration solutions and certain specialty materials products. Exclusive of favorable currency translation effects of $13.8 million for the year, mainly due to the strengthening of the Japanese yen relative to the U.S. dollar, the Company's sales grew 7% in 2016 when compared to 2015.
On a geographic basis, in 2016, total sales to North America were 22%, to Asia Pacific were 56%, to Europe were 9% and to Japan were 13%. In 2015, total sales to North America were 23%, to Asia Pacific were 55%, to Europe were 10% and to Japan were 12%. From 2015 to 2016, net sales to customers in Japan and Asia Pacific increased, 19%, and 12%, respectively, while net sales to customers in North America and Europe were flat.
Demand drivers for the Company’s business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for new or upgraded semiconductor fabrication equipment and facilities (capital-driven). The Company analyzes sales of its products by these two key drivers. Sales of unit-driven products represented 76% of total sales and sales of capital-driven products represented 24% of total sales in 2016. This compares to a unit-driven to capital-driven ratio of 78%:22% for 2015.
Gross profit Gross profit for 2016 increased by $38.5 million, to $508.7 million, an increase of 8% from $470.2 million for 2015. The gross margin rate for 2016 was 43.3% versus 43.5% for 2015. An analysis of the factors underlying the increase in gross profit is presented in the following table:
|
| | | |
| (In thousands) | |
| Gross profit in 2015 | $ | 470,231 |
|
| Growth associated with volume and pricing | 44,717 |
|
| Decrease associated with impairment of equipment and severance related to organization realignment | (6,257 | ) |
| Gross profit in 2016 | $ | 508,691 |
|
The gross profit improvements primarily reflect the growth associated with volume and pricing, offset by charges related to the impairment of equipment and severance related to the organization realignment. Excluding the latter item, the Company's gross margin in 2016 was 43.8%.
Selling, general and administrative expenses
Selling, general and administrative expense (SG&A) consists primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2016 increased $3.0 million, or 2%, to $201.9 million from $198.9 million in 2015. SG&A expenses, as a percent of net sales, decreased to 17.2% from 18.4% a year earlier, reflecting the increase in net sales.
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 2015 | $ | 198,914 |
|
| Integration costs recorded in prior year | (12,667 | ) |
| Professional fees | 2,335 |
|
| Employee costs | 12,962 |
|
| Other increases, net | 357 |
|
| Selling, general and administrative expenses in 2016 | $ | 201,901 |
|
Engineering, research and development expenses
Engineering, research and development (ER&D) expenses related to the support of current product lines and the development of new products and manufacturing technologies increased by $1.1 million, or 1%, to $107.0 million in 2016 compared to $105.9 million in 2015. ER&D expenses as a percent of net sales were 9.1% compared to 9.8% a year ago, reflecting the increase in net sales, offset by the increase in ER&D expenditure levels, primarily due to higher employee costs.
Amortization of intangible assets Amortization of intangible assets was $44.3 million in 2016 compared to $47.3 million for 2015. The decline reflects the absence of amortization expense for certain identifiable non-compete intangible assets acquired in the ATMI merger that became fully amortized in early 2016.
Interest expense Interest expense was $36.8 million and $38.7 million in the years ended December 31, 2016 and 2015, respectively. Interest expense includes interest associated with debt outstanding issued to help fund the acquisition of ATMI in 2014 and the amortization of debt issuance costs associated with such borrowings.
The decrease in 2016 reflects lower outstanding borrowings due to the Company's payments on the Term Loan in 2016, offset partly by higher amortization of debt issuance costs due to the acceleration of actual and expected payments on the Company's Term Loan.
Other income, net Other income, net, was $1.0 million in 2016 compared to other expense, net, of $12.4 million in 2015.
In 2016, other income, net, included foreign currency transaction gains of $0.6 million and other gains of $0.4 million.
In 2015, other income, net, included foreign currency transaction gains of $9.1 million and a gain of $3.4 million related to the sale of an equity investment.
Income tax expense The Company recorded income tax expense of $22.9 million in 2016 compared to income tax expense of $10.2 million in 2015. The Company’s effective tax expense rate was 19.0% in 2016, compared to an effective tax rate of 11.1% in 2015.
The increase in the effective tax rate in 2016 from 2015 and the variance in both years from the U.S. statutory rate of 35% reflects several factors. The effective tax rates in both years reflects a greater concentration in the Company's geographic
composition of income toward jurisdictions with lower tax rates than in the U.S. In addition, the 2015 effective tax rate reflects the benefit of the Malaysian tax holiday which expired December 31, 2015.
Net income Net income was $97.1 million, or $0.68 per diluted share, in 2016 compared to net income of $80.3 million, or $0.57 per diluted share, in 2015. The significant increase reflects the Company's aforementioned operating results described in greater detail above.
Non-GAAP Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP).States. 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 “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of GAAPthe Company’s non-GAAP measures to the Company’s non-GAAPmost directly comparable GAAP measures.
The Company’s non-GAAP financial measures areinclude Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof,percentage changes, and non-GAAPNon-GAAP Earnings Per Share, (EPS).or EPS.
Adjusted EBITDA increased 13%decreased to $263.7$942.4 million in 2016,2023, compared to $232.4$973.2 million in 2015.2022. Adjusted EBITDA as a percent of net sales was 22.4%26.7% in 20162023 compared to 21.5%29.7% in 2015.2022. Adjusted Operating Income increased 17%decreased by 8.1% to $208.0$769.7 million in 2016,2023, compared to $178.1$837.9 million in 2015.2022. Adjusted Operating Income as a percent of net sales was 17.7%21.8% in 20162023 compared to 16.5%25.5% in 2015.2022. Non-GAAP Earnings Per Share increased 11%EPS decreased 29.2% to $0.94$2.64 in 2016,2023, compared to $0.85$3.73 in 2015.2022. The improvementdecreases in the Adjusted EBITDA and Adjusted Operating Income reflectare primarily due to lower plant utilization and higher operating expenses. The decrease in Non-GAAP EPS is primarily attributable to higher interest expense associated with debt financing in connection with the increase in net sales and related increase in gross profit. In addition, Non-GAAP Earnings Per Share was positively affected by a lower adjusted effective tax rate.CMC Materials acquisition.
Segment Analysis
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. Accordingly, our segment information was restated retroactively in the third quarter of fiscal year 2023. The segment realignment had no impact on the Microcontamination Control or Advanced Materials Handling segment financial reporting. See Note 21 to the consolidated financial statements for additional information on the Company’s three segments.
The following table and discussion concernreflects the results of operations of the Company’s three reportable segments for the years ended December 31, 20162023, 2022 and 2015.2021. | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Materials Solutions | | | | | |
| Net sales | $ | 1,689,467 | | | $ | 1,380,208 | | | $ | 711,291 | |
| Segment profit | 296,375 | | | 219,189 | | | 167,807 | |
| Microcontamination Control | | | | | |
| Net sales | $ | 1,127,555 | | | $ | 1,105,996 | | | $ | 919,363 | |
| Segment profit | 395,348 | | | 411,475 | | | 321,300 | |
| Advanced Materials Handling | | | | | |
| Net sales | $ | 758,648 | | | $ | 846,492 | | | $ | 704,946 | |
| Segment profit | 136,100 | | | 183,738 | | | 159,995 | |
| | | | | |
| Unallocated general and administrative expenses | $ | 114,188 | | | $ | 190,468 | | | $ | 49,478 | |
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Specialty Chemicals and Engineered Materials | | | |
| Net sales | $ | 428,328 |
| | $ | 418,878 |
|
| Segment profit | 96,060 |
| | 100,370 |
|
| Microcontamination Control | | | |
| Net sales | $ | 362,658 |
| | $ | 315,817 |
|
| Segment profit | 110,042 |
| | 83,076 |
|
| Advanced Materials Handling | | | |
| Net sales | 384,284 |
| | 346,426 |
|
| Segment profit | 73,452 |
| | 66,419 |
|
Specialty Chemicals and Engineered Materials (SCEM)Solutions (MS)
For the year ended December 31, 2016, SCEM2023, MS net sales increased to $428.3$1,689.5 million, up 2%,22% from $418.9$1,380.2 million in the comparable period last year.2022. The sales increase primarily reflects strongthe inclusion of sales of product lines resulting from the acquisition of CMC Materials totaling $537.8 million, partially offset by an absence of sales for advanced deposition materials, with flat salestotaling $116.2 million resulting from the divestitures of QED and the EC business, the termination of the Alliance Agreement and decline in demand across the segment's other product lines.semiconductor market.
SCEMMS reported a segment profit of $96.1$296.4 million for the year ended December 31, 20162023, up 35% compared to $219.2 million in 2022. The increase in MS’s profit in 2023 was primarily associated with a $100.4gain of $184.8 million segment profitresulting from the termination of the Alliance Agreement (see Note 5 to our consolidated financial statements for further discussion), the absence of a $61.9 million charge for a fair value write-up resulting from the sale of acquired CMC Materials inventory that was recorded in the year-ago period.period and segment profit attributed to the CMC Materials acquisition, partially offset by a goodwill impairment charge of $104.8 million related to the EC reporting unit (see Note 3 to our consolidated financials statements for further discussion), a $8.9 million loss on asset held for sale related to the EC reporting unit, a goodwill impairment charge of $10.4 million, long-lived asset impairment charge of $30.5 million (see Note 3 to our consolidated financials statements for further discussion) and a $14.9 million loss on the sale of QED.
For 2022, MS net sales increased to $1,380.2 million, up 94% from $711.3 million in 2021. The decreasesales increase primarily reflects the inclusion of sales of $594.4 million attributed to acquisitions, primarily of CMC Materials, and also reflects modestly improved sales of advanced deposition materials, formulated cleans, selective etch and specialty coating products.
MS reported a segment profit of $219.2 million for 2022, up 31% compared to $167.8 million in the SCEM's2021. The increase in MS’s profit in 2016 reflects lower margins reflecting2022 was primarily due to the segment profit attributed to the CMC Materials acquisition, partially offset by unfavorable product mix and higher operating expensesa $61.9 million charge for a fair value write-up resulting from the sale of 2%.acquired CMC Materials inventory.
Microcontamination Control (MC)
For the year ended December 31, 2016,2023, MC net sales increased to $362.7$1,127.6 million, up 15%,2% from $315.8$1,106.0 million in the comparable period last year.2022. The sales increase was primarily reflects strength indue to improved sales from liquid chemistry filters for wet, etch and clean and bulk photo applications and strength in gas filter products driven by strong industry tool shipments.filtration products.
MC reported a segment profit of $110.0$395.3 million for the year ended December 31, 20162023, down 4% compared to $411.5 million in 2022. The decrease in MC’s profit in 2023 was primarily due to increased costs associated with the ramp up of our new manufacturing facility in Taiwan and increased investment in research and development.
For 2022, MC net sales increased to $1,106.0 million, up 20% from $919.4 million in 2021. The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products.
MC reported a $83.1 million segment profit of $411.5 million for 2022, up 28% compared to $321.3 million in the year-ago period.2021. The increase in the MC's MC’s
profit in 2016 reflects2022 was primarily due to higher gross profit related to the higherincreased sales and improved plant utilizationvolume, partially offset by higher operating
expenses of 2%.17%, primarily due to higher compensation costs.
Advanced Materials Handling (AMH)
For the year ended December 31, 2016,2023, AMH net sales increased 11%decreased 10% to $384.3$758.6 million from $346.4$846.5 million in 2015.2022. The increase primarily reflects strong sales of 300mm transport modules, fluid handlingdecrease was mainly due to lower sales from our microenvironment solutions and containers.products.
AMH reported a segment profit of $73.5$136.1 million for 2023, down 26% compared to $183.7 million in 2016, up 11%2022. The decrease in AMH’s profit in 2023 was primarily due to lower sales and lower factory utilization.
For 2022, AMH net sales increased 20% to $846.5 million from $66.4$704.9 million in 2015.2021. The sales increase was mainly due to improved sales from wafer handling and fluid handling.
AMH reported a segment profit of $183.7 million for 2022, up 15% compared to $160.0 million in 2021. The increase in the AMH'sAMH’s profit in 20162022 was primarily due to higher sales and its associated slightly favorable sales mix,volume, partially offset by a 10%16% increase in operating expenses.
expenses, primarily due to higher compensation costs.
Unallocated general and administrative expenses
Unallocated general and administrative expenses for the year ended December 31, 20162023 totaled $79.8$114.2 million compared to $84.4$190.5 million for the year ended December 31, 2015.2022. The $4.7$76.3 million decline includes the absence of integration expenses of $12.7 million, offset by the increased employee and severance costs and higher professional fees noted above.
Quarterly Results of Operations
The following table presents selected data from the Company’s consolidated statements of operations for the eight quarters ended December 31, 2017. This unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this annual report. All adjustments that management considers necessary for the fair presentation of the unaudited information have been included in the quarters presented.
QUARTERLY STATEMENTS OF OPERATIONS DATA |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2017 |
| | Q1 | | Q2 | | Q3 | | Q4 | | Q1 | | Q2 | | Q3 | | Q4 |
| (In thousands) | | | | | | | | | | | | | | | |
| Net sales | $ | 267,024 |
| | $ | 303,052 |
| | $ | 296,692 |
| | $ | 308,502 |
| | $ | 317,377 |
| | $ | 329,002 |
| | $ | 345,591 |
| | $ | 350,562 |
|
| Gross profit | 114,706 |
| | 139,205 |
| | 122,980 |
| | 131,800 |
| | 139,596 |
| | 150,303 |
| | 155,407 |
| | 163,679 |
|
| Selling, general and administrative expenses | 47,956 |
| | 53,597 |
| | 51,614 |
| | 48,734 |
| | 50,492 |
| | 52,985 |
| | 57,699 |
| | 55,018 |
|
| Engineering, research and development expenses | 25,902 |
| | 28,146 |
| | 25,720 |
| | 27,223 |
| | 27,239 |
| | 27,221 |
| | 26,002 |
| | 26,489 |
|
| Amortization of intangible assets | 11,289 |
| | 11,062 |
| | 10,974 |
| | 10,938 |
| | 10,945 |
| | 11,007 |
| | 11,051 |
| | 11,020 |
|
| Operating income | 29,559 |
| | 46,400 |
| | 34,672 |
| | 44,905 |
| | 50,920 |
| | 59,090 |
| | 60,655 |
| | 71,152 |
|
| Net income (loss) | 16,212 |
| | 32,890 |
| | 21,947 |
| | 26,098 |
| | 32,514 |
| | 39,991 |
| | 40,902 |
| | (28,341 | ) |
| | | | | | | | | | | | | | | | |
| | Q1 | | Q2 | | Q3 | | Q4 | | Q1 | | Q2 | | Q3 | | Q4 |
| (Percent of net sales) | | | | | | | | | | | | | | | |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Gross profit | 43.0 |
| | 45.9 |
| | 41.5 |
| | 42.7 |
| | 44.0 |
| | 45.7 |
| | 45.0 |
| | 46.7 |
|
| Selling, general and administrative expenses | 18.0 |
| | 17.7 |
| | 17.4 |
| | 15.8 |
| | 15.9 |
| | 16.1 |
| | 16.7 |
| | 15.7 |
|
| Engineering, research and development expenses | 9.7 |
| | 9.3 |
| | 8.7 |
| | 8.8 |
| | 8.6 |
| | 8.3 |
| | 7.5 |
| | 7.6 |
|
| Amortization of intangibles | 4.2 |
| | 3.7 |
| | 3.7 |
| | 3.5 |
| | 3.4 |
| | 3.3 |
| | 3.2 |
| | 3.1 |
|
| Operating income | 11.1 |
| | 15.3 |
| | 11.7 |
| | 14.6 |
| | 16.0 |
| | 18.0 |
| | 17.6 |
| | 20.3 |
|
| Net income (loss) | 6.1 |
| | 10.9 |
| | 7.4 |
| | 8.5 |
| | 10.2 |
| | 12.2 |
| | 11.8 |
| | (8.1 | ) |
The Company’s quarterly results of operations have been, and will likely continue to be, subject to significant fluctuationsdecrease is primarily due to a myriad$95.7 million decrease in deal, transaction and integration costs related to the acquisition of factors, manyCMC Materials, partially offset by an increase in employee costs of which are beyond the Company’s control. The variability in sales, and its corresponding effect on gross profit, are generally the most important factors underlying the changes in the Company’s operating income and net income over the past eight quarters.$14.1 million.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources: | | | | | | | | | | | |
| In thousands | December 31, 2023 | | December 31, 2022 |
| Cash, cash equivalents and restricted cash | $ | 456,929 | | | $ | 563,439 | |
| Working capital | 1,463,332 | | | 1,573,254 | |
| Total debt | 4,577,141 | | | 5,784,893 | |
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. In fiscal 2000 and 2009, the Company raised capital via public offerings of its common stock.
Operating activities
Net cash flow provided by operating activities totaled $293.4 million for the year ended December 31, 2017. Cash generated by the Company’s operations included net income of $85.1 million, as adjusted for the impact of various non-cash charges, most notably depreciation and amortization of $102.2 million, and share-based compensation expense of $15.3 million. These operating cash flows were partly offset by changes in operating assets and liabilities, mainly due to an increase in accounts receivables and inventories, an increase in accounts payable and accrued liabilities, and an increase in income taxes payable and refundable income taxes, primarily from the Tax Cuts and Jobs Act.
Working capital was $766.6 million at December 31, 2017, which included $625.4 million in cash and cash equivalents, an increase from $538.6 million as of December 31, 2016, which included $406.4 million in cash and cash equivalents.
Accounts receivable increased by $17.8 million during 2017, or $15.4 million after accounting for the effect of foreign currency translation. The net increase reflects the year-over-year increase in fourth quarter sales of the Company’s products. The Company’s days sales outstanding measure (DSO) stood at 48 days at December 31, 2017 compared to 49 days at the beginning of the year.
Inventories at December 31, 2017 increased by $14.6 million from a year earlier, or $20.2 million after accounting for foreign currency translation and the provision for excess and obsolete inventory. The net increase reflects higher levels of all categories of inventory, due to higher sales and production activity.
Accounts payable and accrued liabilities were $23.0 million higher than a year ago, or $16.0 million higher after accounting for the effect of foreign currency translation. The increase reflects higher accounts payable associated with increased levels of business activity and higher accrued bonuses in 2017.
Investing activities Cash flow used in investing activities totaled $112.5 million in 2017.
Acquisition of property and equipment totaled $93.6 million, which primarily reflected investments in equipment and tooling. Capital expenditures in 2017 generally reflected more normalized capital spending levels. The Company expects its capital expenditures in 2018 to be approximately $100 to $110 million.
On April 24, 2017, the Company acquired the microelectronic water and chemical filtration product line of W.L. Gore & Associates, Inc. The purchase price for the product line included cash considerations of $20.0 million, funded from the Company's existing cash on hand. The transaction is described in further detail in note 2 to the Company's consolidated financial statements.
Financing activities Cash flow provided by financing activities totaled $27.3 million during 2017.
In November 2017, the Company issued debt with a principal amount of $550 million of 4.625% senior unsecured notes due February 10, 2026 (the "2026 Notes"). The Company used the net proceeds of the offering to redeem all of the Company's 6.0% Senior Unsecured Notes due 2022 (the "2022 Notes"), to pay fees and expenses related to the redemption and for general corporate purposes. Debt issuance costs of $7.1 million paid to third parties are capitalized as debt issuance costs.
The Company redeemed its $360 million aggregate principal amount of 2022 Notes, at its option, at the redemption price of 104.5% (expressed as percentage of principal amount), plus accrued and unpaid interest of $2.5 million. The redemption of the 2022 Notes resulted in a loss of extinguishment of debt of $20.7 million.
The Company made payments of $100.0 million on its senior secured term loan facility due 2021 (the "Term Loan"). On April 30, 2014, the Company entered into the Term Loan that provided senior secured financing of $460 million. Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Company’s option, a base rate (such as prime rate or LIBOR) plus, an applicable margin. The Company may voluntarily prepay outstanding loans under the Term Loan at any time. During the first quarter of 2017, the Company and its lenders agreed to an amendment of the credit agreement governing the Term Loan that decreases the applicable margin for the Company’s term loan from 2.75% to 2.25% per annum for LIBOR borrowings, with a LIBOR floor of 0.0%, and from 1.75% to 1.25% per annum for base rate borrowings, with a base rate floor of 1.00%. The principal amount outstanding under the Term Loan at December 31, 2017 was $133.9 million. Based on management's plans and intent, the Company reflects $100 million of the Term Loan as current maturities of long-term debt in its consolidated balance sheet as of December 31, 2017.
The Company has a senior secured asset-based revolving credit facility maturing April 30, 2019 (the "ABL Facility") that provides financing of $75 million, subject to a borrowing base. As of December 31, 2017, the Company had no outstanding borrowings and $0.2 million undrawn on outstanding letters of credit under the ABL Facility.
Through December 31, 2017, the Company was in compliance with all applicable financial covenants included in the terms of indenture governing its 2026 Notes and the credit agreements governing its Term Loan and ABL Facility.
The Company also has a line of credit with two banks that provide for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $10.7 million. There were no outstanding borrowings under these lines of credit at December 31, 2017.
In addition, the Company repurchased shares of the Company's common stock during 2016 at a total cost of $28.0 million under the stock repurchase program authorized by the Company's Board of Directors. In the fourth quarter of 2017, the Company declared and paid an initial quarterly cash dividend of $0.07 per share, totaling $9.9 million. The Company received proceeds of $5.6 million in connection with common shares issued under the Company’s stock plans less $5.9 million paid for taxes related to the net share settlement of equity awards.
At December 31, 2017, the Company’s shareholders’ equity stood at $993.0 million, up 10% from $899.2 million at the beginning of the year. The 2017 increase reflects net income of $85.1 million, additional paid-in capital of $15.3 million associated with the Company’s share-based compensation expense and favorable foreign currency translation effects of $29.3 million mainly associated with the weakening of the U.S. dollar versus the Korean won. These increases to shareholders’ equity were partly offset by cash dividends paid of $9.9 million and the repurchase and retirement of the Company's stock of $28.0 million.
As of December 31, 2017, the Company’s sources of available funds were its cash and cash equivalents of $625.4 million, funds available under the ABL Facility and international credit facilities and cash flow generated from operations. As of December 31, 2017, the amount of cash and cash equivalents held in certain of our foreign operations totaled approximately $356.5 million. As a result of U.S. tax reform, the $356.5 million held byanalysis, we believe our non-U.S. subsidiaries was subject to current tax in
the U.S. in 2017. As of December 31, 2017, we had not repatriated any of these funds to the U.S. However, to the extent we repatriate these funds to the U.S., 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 provisional taxes for the tax effect of repatriating the funds to the U.S.
The Company believes its existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet the Company’s domesticour cash needs arising in the ordinary course of business for the next twelve months.months and for the longer term.
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. During 2023, we did not experience difficulty accessing capital and credit markets, but 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.
New Accounting Pronouncements
Recently adopted accounting pronouncements ReferIn summary, our cash flows for each period were as follows: | | | | | | | | | | | | | |
(in thousands) | Year ended December 31, 2023 | | Year ended December 31, 2022 | | |
| Net cash provided by operating activities | $ | 629,562 | | | $ | 352,283 | | | |
| Net cash provided by (used in) investing activities | 553,071 | | | (4,945,709) | | | |
| Net cash (used in) provided by financing activities | (1,282,629) | | | 4,766,203 | | | |
| (Decrease) increase in cash and cash equivalents | (106,510) | | | 160,874 | | | |
Operating activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
Compared to note 12022, the $277.3 million increase in cash provided by operating activities in 2023 was primarily driven by $288.9 million of changes in operating assets and liabilities, offset by a $11.7 million decrease of net income adjusted for non-cash reconciling items.
Changes in operating assets and liabilities were driven by changes in trade accounts and notes receivable, inventories, accounts payable and accrued liabilities, income taxes payable and refundable income taxes. The change for trade receivables was mainly due to lower sales. The change for inventory was driven by the Company’s initiative to reduce inventory. The change for accounts payable and accrued liabilities was driven by lower vendor purchases and timing of payments. The change for income taxes payable and refundable income taxes was due to larger tax payments compared to the previous year.
Investing activities
Investing cash flows consist primarily of capital expenditures, cash used for acquisitions, proceeds from sales of businesses and proceeds from sales of property and equipment.
In 2023, there was $553.1 million of cash provided by investing activities compared to $4,945.7 million cash used in investing activities in 2022. The decrease resulted primarily from the absence of the prior-year acquisition of CMC Materials, partially offset by proceeds from the sale of QED and the EC businesses totaling $815.0 million, net proceeds from the termination of the Alliance Agreement totaling $199.3 million in the current year, and a $9.4 million decrease in capital expenditures in the current year compared to the prior year.
Acquisition of property and equipment totaled $456.8 million in 2023, which primarily reflected investments in facilities, equipment and tooling, compared to $466.2 million in 2022, which also primarily reflected investments in equipment and tooling. Capital expenditures in 2023 generally reflected more spending related to growth capacity, including our previously announced investment in our KSP site and new facility in Colorado Springs, Colorado.
In 2022, the Company acquired CMC Materials. The cash used to acquire these assets was $4,474.9 million, net of cash acquired. The transaction is described in further detail in Note 4 to the Company’s consolidated financial statements.
Financing activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
In 2023, there was $1,282.6 million of cash used in financing activities compared to $4,766.2 million cash provided by in financing activities in 2022. The change was primarily due to the net debt activity, which was a use of cash of $1,259.7 million in 2023 compared to a source of cash of $4,831.3 million. See Note 11 to the Company’s consolidated financial statements for afurther discussion of accounting pronouncements implementedthe debt financing that occurred during the year.
The Company’s total dividend payments were $60.2 million in 2023 compared to $57.3 million in 2022. The Company has paid a cash dividend in each quarter since the fourth quarter of 2017. On January 17, 2024, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on February 21, 2024 to shareholders of record as of January 31, 2024.
Other thanLiquidity and Capital Resources Considerations
Debt at par value outstanding
| | | | | | | | | | | |
| (In thousands) | December 31, 2023 | | December 31, 2022 |
| Senior secured term loan due 2029 | $ | 1,373,774 | | | $ | 2,495,000 | |
| Senior secured notes due 2029 at 4.75% | 1,600,000 | | | 1,600,000 | |
| Senior unsecured notes due 2030 at 5.95% | 895,000 | | | 895,000 | |
| Senior unsecured notes due 2029 at 3.625% | 400,000 | | | 400,000 | |
| Senior unsecured notes due 2028 at 4.375% | 400,000 | | | 400,000 | |
| Bridge credit facility due 2023 | — | | | 135,000 | |
| Revolving facility due 2027 | — | | | — | |
| Total debt (par value) | $ | 4,668,774 | | | $ | 5,925,000 | |
On March 10, 2023, and September 11, 2023, the adoption of ASU 2016-09, there were no recently issued accounting pronouncements adopted in 2017.
Recently issued accounting pronouncements Refer to note 1Company amended its Existing Credit Agreement. The First Amendment, dated March 10, 2023, provided for, among other things, the refinancing of the Company'sCompany’s outstanding term loans B under the senior secured term loan facility due 2029 in an aggregate principal amount of $2.495 billion with a new tranche of term loans B in an aggregate principal amount of $2.495 billion. The amended loans under the First Amendment bore interest at a rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.75% which was a reduction from the applicable margin of 3.00% prior to the First Amendment. The Second Amendment, dated September 11, 2023, provides for, among other things, the refinancing of the Company’s outstanding term loans B under the senior secured term loan facility due 2029 in an aggregate principal amount of $2.318 billion with a new tranche of term loans B in an aggregate principal amount of $2.318 billion. Under the Second Amendment, the outstanding term loans B under the amended senior secured term loan facility due 2029 will bear interest, at a rate per annum equal to the SOFR plus an applicable margin of 2.50% which is a reduction from the applicable margin of 2.75% provided for in the First Amendment. See Note 11 to our consolidated financial statements for further discussion.
During the fiscal year 2023, the Company repaid $1.1 billion of the outstanding borrowings under the New Tranche B Term Loan and $135.0 million in full repayment of all outstanding borrowings under the bridge credit facility.
Through December 31, 2023, the Company was in compliance with all applicable financial covenants included in the terms of its debt arrangements.
The Company has commitments under the Revolving Facility of $575.0 million. The Revolving Facility bears interest at a discussionrate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the twelve months ended December 31, 2023, there were no borrowings under this Revolving Facility and no balance was outstanding at December 31, 2023.
The Company also has a line of accounting pronouncements recently issuedcredit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $7.1 million. There were no outstanding borrowings under this line of credit and no balance was outstanding at December 31, 2023.
Cash and cash requirements
| | | | | | | | | | | |
| (In thousands) | December 31, 2023 | | December 31, 2022 |
| Cash and cash equivalents | $ | 456,929 | | | $ | 561,559 | |
| U.S. | 154,015 | | | 136,262 | |
| Non-U.S. | 302,914 | | | 425,297 | |
| | | |
| Restricted cash - U.S. | — | | | 1,880 | |
| Cash, cash equivalents and restricted cash | $ | 456,929 | | | $ | 563,439 | |
Our cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.
Our restricted cash represented cash held in a “Rabbi” trust and is not available for general corporate purposes. See Note 6 to the consolidated financial statements for additional information. The Company had no restricted cash as of December 31, 2023.
Cash requirements
We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements, but not yet adopted.in the event that additional liquidity is required we may also borrow under our Revolving Facility.
Contractual Obligations
The following table summarizes the maturities of the Company’s significant financial obligationsour short and long-term cash requirements as of December 31, 2017:2023: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
Long-term debt1 | $ | 683,850 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 133,850 |
| | $ | — |
| | $ | 550,000 |
|
Interest2 | 223,396 |
| | 30,549 |
| | 30,549 |
| | 30,549 |
| | 27,141 |
| | 25,438 |
| | 79,170 |
|
| Pension obligations | 6,774 |
| | 102 |
| | 103 |
| | 205 |
| | 186 |
| | 437 |
| | 5,741 |
|
| Capital lease obligations | 6,000 |
| | 750 |
| | 1,000 |
| | 1,000 |
| | 1,000 |
| | 1,000 |
| | 1,250 |
|
Capital purchase obligations3 | 2,259 |
| | 2,259 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Operating leases | 42,557 |
| | 9,805 |
| | 7,663 |
| | 5,015 |
| | 4,911 |
| | 3,369 |
| | 11,794 |
|
| Total | $ | 964,836 |
| | $ | 43,465 |
| | $ | 39,315 |
| | $ | 36,769 |
| | $ | 167,088 |
| | $ | 30,244 |
| | $ | 647,955 |
|
| | | | | | | | | | | | | | |
Unrecognized tax benefits4 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (In thousands) | Total | | Due within one year of December 31, 2023 | | Due later than one year from December 31, 2023 |
| Long-term debt (principal) | $ | 4,668,774 | | | $ | — | | | $ | 4,668,774 | |
| Interest payments on long-term debt | 1,314,383 | | | 236,790 | | | 1,077,593 | |
| Capital purchase obligations | 136,357 | | | 57,363 | | | 78,994 | |
| Supply purchase obligations | 11,658 | | | 6,333 | | | 5,325 | |
| Operating and financing leases | 105,841 | | | 20,343 | | | 85,498 | |
| Income tax liabilities | 267,545 | | | 77,403 | | | 190,142 | |
| Total | $ | 6,504,558 | | | $ | 398,232 | | | $ | 6,106,326 | |
1Long-term debt and interest payments on long-term debt. We have contractual obligations for principal and interest payments on our long-term debt. See Note 11 of the consolidated financials for additional information. Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets.
2Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 20172023 and do not include $9.5$91.6 million for net unamortized discounts and debt issuance costs. On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount of the swap is $1.4 billion at December 31, 2023 and is scheduled to decrease quarterly and will expire on December 30, 2025. The impact of the interest rate swap is not considered in the interest payments above.
3Capital purchase obligations. We have capital purchase obligations that represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2017,2023, as the Company had not yet received the related goods or taken title to the property.
4TheWe expect capital expenditure spending to be approximately $350.0 million in 2024 for growth capacity investments and the construction of our new manufacturing facility in Colorado.
Supply purchase obligations. We have non-cancelable commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2023, as the Company had $12.6 million of total gross unrecognized tax benefits at December 31, 2017. The timing of any payments associated with these unrecognized tax benefits will depend on a number of factors. Accordingly,not yet received the Company cannot make reasonably reliable estimatesrelated goods or taken title to the property.
Operating and financing lease commitments. Commitments under operating and financing leases primarily relate to leasehold properties. See Note 15 of the amount and period of potential cash settlements, if any, with taxing authorities and are notconsolidated financials for additional information.
Income tax liabilities. Of the tax liabilities included in the table above.above, $67.7 million relates to uncertain tax positions. We are unable to accurately predict when these amounts will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to an unforeseeable event (such as a tax audit settlement). See Note 17 of the consolidated financials for additional information.
New Accounting Pronouncements
Recently adopted accounting pronouncements Refer to Note 1 to the Company’s consolidated financial statements for a discussion of accounting pronouncements implemented in 2023.
Recently issued accounting pronouncements Refer to Note 1 of the Company’s consolidated financial statements for a discussion of accounting pronouncements recently issued but not yet adopted.
Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP).GAAP.
The Company also providesutilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other regulations under the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. The Company providesThese non-GAAP financial measures ofinclude Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and Non-GAAP EPS, as well as certain other supplemental non-GAAP Earnings Per Share (EPS).financial measures included in the discussion of the Company’s financial results.
Adjusted EBITDA a non-GAAP term, is defined by the Company as net income before, as applicable, (1) equity in net loss of affiliate, (2) income tax (benefit) expense, (2) interest expense, (3) interest expenseincome, (4) interest income (5) other expense, (income), net, (5) goodwill impairment, (6) deal and transaction costs, (7) integration costs, (7)
severance related to organizational realignment, (8) contractual costs and non-cash integration costs, (9) restructuring costs, (10) loss (gain) on sale of businesses, (11) charge for fair value write-up of acquired inventory sold, (12) gain on termination of the Alliance Agreement, (13) impairment of equipment and intangibles, (9)long-lived assets, (14) amortization of intangible assets and (10)(15) depreciation. Adjusted Operating Income another non-GAAP term, is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes ratios of non-GAAP financial measures wherebysuch as Adjusted EBITDA to Company net sales and Adjusted Operating Income are each divided by the Company’s net sales(referred to deriveas Adjusted EBITDA Margin and Adjusted Operating Margin, respectively.respectively).
Non-GAAP EPS, a non-GAAP term,Net Income is defined by the Company as net income before, as applicable, (1) goodwill impairment, (2) deal and transaction costs, (3) integration costs, (2) severance (3)(4) contractual costs and non-cash integration costs, (5) restructuring costs, (6) loss on extinguishment of debt and modification, (7) loss (gain) on sale of businesses, (8) gain on termination of the Alliance Agreement, (9) Infineum termination fee, net, (10) charge for fair value write-up of sale of acquired inventory, (11) interest expense, net, (12) impairment of equipment and intangibles, (4) loss on debt extinguishment (5) net gain on impairment/sale of short-term and equity investment, (6)long-lived assets, (13) amortization of intangible assets, (7) the tax effect of those adjustments to net income and discrete tax items and (8)(14) the tax effect of the Tax Cuts and Jobs Act.
The integration costsforegoing adjustments underlying Adjusted EBITDA andto net income, stated on a per share basis, divided by diluted weighted average shares outstanding. Non-GAAP EPS relate specifically to the 2014 ATMI acquisition.is defined as our Non-GAAP Net Income divided by our diluted weighted-average shares outstanding.
The Company provides supplemental non-GAAP financial measures to help management and investors to better understand and manage its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.
Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides greater consistency in its financial reporting from period-to-period 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-GAAPNon-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use Adjusted EBITDA measures to evaluate the Company’s creditworthiness.
The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.
Management notes that the use of non-GAAP measures has limitations: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 adjustedAdjusted 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 expenseexpenses 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, gainsdeal and transaction costs, integration costs, asset or lossesgoodwill impairments, loss on saleextinguishment of equity investments, contingent consideration fair value adjustmentsdebt 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 fromin 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,Operating Income, and non-GAAPNon-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents, are presented below in the accompanying tables.
The reconciliation of GAAP measures to Adjusted Operating Incomeadjusted operating income and Adjusted EBITDA for the years ended December 31, 2017, 20162023 and 20152022 are presented below: | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | |
| Net sales | $ | 3,523,926 | | | $ | 3,282,033 | | | |
| Net income | $ | 180,669 | | | $ | 208,920 | | | |
| Net income - as a % of net sales | 5.1 | % | | 6.4 | % | | |
| Adjustments to net income | | | | | |
| Equity in net loss of affiliates | 414 | | | — | | | |
| Income tax (benefit) expense | (8,413) | | | 38,160 | | | |
| Interest expense | 312,378 | | | 212,669 | | | |
| Interest income | (11,257) | | | (3,694) | | | |
| Other expense, net | 25,367 | | | 23,926 | | | |
| GAAP – Operating income | 499,158 | | | 479,981 | | | |
| Operating margin - as a % of net sales | 14.2 | % | | 14.6 | % | | |
Goodwill impairment 1 | 115,217 | | | — | | | |
Deal and transaction costs 2 | 3,001 | | | 39,543 | | | |
| Integration costs: | | | | | |
Professional fees 3 | 36,650 | | | 35,422 | | | |
Severance costs 4 | 1,478 | | | 6,269 | | | |
Retention costs 5 | 1,687 | | | 1,987 | | | |
Other costs 6 | 13,710 | | | 7,053 | | | |
| Contractual and non-cash integration costs: | | | | | |
CMC Materials retention costs 7 | — | | | 18,030 | | | |
Stock-based compensation alignment 8 | — | | | 21,584 | | | |
Change in control costs 9 | — | | | 22,350 | | | |
Restructuring costs 10 | 14,745 | | | — | | | |
Loss (gain) on sale of businesses 11 | 23,839 | | | (254) | | | |
Charge for fair value write-up of acquired inventory sold 12 | — | | | 61,932 | | | |
Gain on termination of Alliance Agreement 13 | (184,754) | | | — | | | |
Impairment of long-lived assets 14 | 30,464 | | | — | | | |
Amortization of intangible assets 15 | 214,477 | | | 143,953 | | | |
| Adjusted Operating Income | 769,672 | | | 837,850 | | | |
| Adjusted Operating Margin | 21.8 | % | | 25.5 | % | | |
| Depreciation | 172,683 | | | 135,371 | | | |
| Adjusted EBITDA | $ | 942,355 | | | $ | 973,221 | | | |
| Adjusted EBITDA – as a % of net sales | 26.7 | % | | 29.7 | % | | |
|
| | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 | | 2015 |
| Net sales | $ | 1,342,532 |
| | $ | 1,175,270 |
| | $ | 1,081,121 |
|
| Net income | $ | 85,066 |
| | $ | 97,147 |
| | $ | 80,296 |
|
| Adjustments to net income | | | | | |
| Equity in net loss of affiliate | — |
| | — |
| | 1,687 |
|
| Income tax expense | 99,665 |
| | 22,852 |
| | 10,202 |
|
| Interest expense | 32,343 |
| | 36,846 |
| | 38,667 |
|
| Interest income | (715 | ) | | (318 | ) | | (429 | ) |
| Other expense (income), net | 25,458 |
| | (991 | ) | | (12,355 | ) |
| GAAP – Operating income | 241,817 |
| | 155,536 |
| | 118,068 |
|
| Integration costs | — |
| | — |
| | 12,667 |
|
| Severance related to organizational realignment | 2,700 |
| | 2,405 |
| | — |
|
Impairment of equipment and intangibles 1 | 10,400 |
| | 5,826 |
| | — |
|
| Amortization of intangible assets | 44,023 |
| | 44,263 |
| | 47,349 |
|
| Adjusted operating income | 298,940 |
| | 208,030 |
| | 178,084 |
|
| Depreciation | 58,208 |
| | 55,623 |
| | 54,305 |
|
| Adjusted EBITDA | $ | 357,148 |
| | $ | 263,653 |
| | $ | 232,389 |
|
| Adjusted operating margin | 22.3 | % | | 17.7 | % | | 16.5 | % |
| Adjusted EBITDA – as a % of net sales | 26.6 | % | | 22.4 | % | | 21.5 | % |
1Includes product lineNon-cash impairment charges associated with goodwill.
2 Deal and transaction costs associated with CMC Materials acquisition and completed and announced divestitures.
3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations. These fees arise outside of $5,330the ordinary course of our continuing operations.
4 Represents severance charges related to the integration of the CMC Materials acquisition.
5 Represents retention charges related directly to the CMC Materials acquisition and $5,826 classified ascompleted and announced divestitures, and are not part of our normal, recurring cash operating expenses.
6 Represents other employee related costs and other costs incurred relating to the CMC Materials acquisition and the completed and announced divestitures. These costs arise outside of the ordinary course of our continuing operations.
7 Represents non-recurring costs associated with the CMC Materials retention program that was agreed upon and set forth in the definitive acquisition agreement.
8 Represents the non-cash incremental expense associated with adopting retirement vesting obligations on Entegris equity awards, similar to those of CMC Materials equity awards.
9 Relates to the change in control agreements that were in place with management of CMC Materials prior to the acquisition and the associated expense post-acquisition.
10 Restructuring charges resulting from cost saving initiatives.
11 Loss (gain) from the sale of our businesses.
12 Represents the additional cost of sales forgoods sold recognized in connection with the years ended December 31, 2017 and 2016, respectively.step-up of inventory valuation related to CMC Materials acquisition.
13 Gain on termination of the Alliance Agreement with MacDermid Enthone.
Includes intangible impairment charge14 Impairment of $3,866 classified as selling general and administrativelong-lived assets.
15 Non-cash amortization expense for the year ended December 31, 2017. associated with intangibles acquired in acquisitions.
Includes product line impairment charge of $320 classified as selling general and administrative expense for the year ended December 31, 2017.
Includes product line impairment charge of $884 classified as engineering, research and development expense for the year ended December 31, 2017.
The reconciliation of GAAP measures to Non-GAAP Earnings per ShareEPS for the years ended December 31, 2017, 20162023 and 20152022 are presented below: | | | | | | | | | | | | | |
| (In thousands, except per share data) | 2023 | | 2022 | | |
| Net income | $ | 180,669 | | | $ | 208,920 | | | |
| Adjustments to net income: | | | | | |
Goodwill impairment 1 | 115,217 | | | — | | | |
Deal and transaction costs 2 | 3,001 | | | 39,543 | | | |
| Integration costs: | | | | | |
Professional fees 3 | 36,650 | | | 35,422 | | | |
Severance costs 4 | 1,478 | | | 6,269 | | | |
Retention costs 5 | 1,687 | | | 1,987 | | | |
Other costs 6 | 13,710 | | | 7,053 | | | |
| Contractual and non-cash integration costs: | | | | | |
CMC Materials retention costs 7 | — | | | 18,030 | | | |
Stock-based compensation alignment 8 | — | | | 21,584 | | | |
Change in control costs 9 | — | | | 22,350 | | | |
Restructuring costs 10 | 14,745 | | | — | | | |
Loss on extinguishment of debt and modification 11 | 29,896 | | | 3,287 | | | |
Loss (gain) on sale of businesses 12 | 23,839 | | | (254) | | | |
Gain on termination of Alliance Agreement 13 | (184,754) | | | — | | | |
Infineum termination fee, net 14 | (10,877) | | | — | | | |
Charge for fair value write-up of acquired inventory sold 15 | — | | | 61,932 | | | |
Interest expense, net 16 | — | | | 29,822 | | | |
Impairment on long-lived assets 17 | 30,464 | | | — | | | |
Amortization of intangible assets 18 | 214,477 | | | 143,953 | | | |
| | | | | |
| | | | | |
Tax effect of adjustments to net income and discrete tax items 19 | (71,284) | | | (65,728) | | | |
| Non-GAAP net income | $ | 398,918 | | | $ | 534,170 | | | |
| Diluted earnings per common share | $ | 1.20 | | | $ | 1.46 | | | |
| Effect of adjustments to net income | $ | 1.45 | | | $ | 2.27 | | | |
| Diluted non-GAAP earnings per common share | $ | 2.64 | | | $ | 3.73 | | | |
| | | | | |
| Diluted weighted average shares outstanding | 150,945 | | | 143,146 | | | |
|
| | | | | | | | | | | |
| (Dollars in thousands) | 2017 | | 2016 | | 2015 |
| Net income | $ | 85,066 |
| | $ | 97,147 |
| | $ | 80,296 |
|
| Adjustments to net income: | | | | | |
| Integration costs | — |
| | — |
| | 12,667 |
|
| Severance | 2,700 |
| | 2,405 |
| | — |
|
Impairment of equipment and intangibles1 | 13,200 |
| | 5,826 |
| | — |
|
| Loss on debt extinguishment | 20,687 |
| | — |
| | — |
|
| Net gain on impairment/sale of short-term investment or equity investment | — |
| | (156 | ) | | (1,449 | ) |
| Amortization of intangible assets | 44,023 |
| | 44,263 |
| | 47,349 |
|
Tax effect of adjustments to net income and discrete tax items 2 | (26,046 | ) | | (16,637 | ) | | (18,248 | ) |
| Tax effect of Tax Cuts and Jobs Act | 66,713 |
| | — |
| | — |
|
| Non-GAAP net income | $ | 206,343 |
| | $ | 132,848 |
| | $ | 120,615 |
|
| Diluted earnings per common share | $ | 0.59 |
| | $ | 0.68 |
| | $ | 0.57 |
|
| Effect of adjustments to net income | $ | 0.85 |
| | $ | 0.25 |
| | $ | 0.29 |
|
| Diluted non-GAAP earnings per common share | $ | 1.44 |
| | $ | 0.94 |
| | $ | 0.85 |
|
1Includes product lineNon-cash impairment charges associated with goodwill.
2 Deal and transaction costs associated with the CMC Materials acquisition and completed and announced divestitures.
3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations. These fees arise outside of $5,330the ordinary course of our continuing operations.
4 Represents severance charges related to the integration of CMC Materials.
5 Represents retention charges related directly to the CMC Materials acquisition and $5,826 classified ascompleted and announced divestitures, and are not part of our normal, recurring cash operating expenses.
6 Represents other employee-related costs and other costs incurred relating to the CMC Materials acquisition and completed and announced divestitures. These costs arise outside of the ordinary course of our continuing operations.
7 Represents non-recurring costs associated with the CMC retention program that was agreed upon and set forth in the definitive acquisition agreement.
8 Represents the non-cash incremental expense associated with adopting retirement vesting obligations on Entegris equity awards, similar to those of CMC Materials equity awards.
9 Relates to the change in control agreements that were in place with management of CMC Materials prior to the acquisition and the associated expense post-acquisition.
10 Restructuring charges resulting from cost saving initiatives.
11 Non-recurring loss on extinguishment of debt and modification of our debt.
12 Loss (gain) from the sale of our businesses.
13 Gain on termination of the Alliance Agreement with MacDermid Enthone.
14 Non-recurring gain from the termination fee with Infineum.
15 Represents the additional cost of sales forgoods sold recognized in connection with the years ended December 31, 2017 and 2016, respectively.step-up of inventory valuation related to the CMC Materials acquisition.
16 Non-recurring interest costs related to the financing of the CMC Materials acquisition.
Includes intangible impairment charge17 Impairment of $3,866 classified as selling general and administrativelong-lived assets.
18 Non-cash amortization expense for the year ended December 31, 2017. associated with intangibles acquired in acquisitions.
Includes product line impairment charge of $320 classified as selling general and administrative expense for the year ended December 31, 2017.
Includes product line impairment charge of $884 classified as engineering, research and development expense for the year ended December 31, 2017.
Includes product line impairment charge of $2,800 classified as other expense for the year ended December 31, 2017.
219 The tax effect of the non-GAAPpre-tax adjustments to net income was calculated using the applicable marginal tax rate during thefor each respective years.year.
Item 7A. Quantitative and Qualitative Disclosure About Market RisksRisks.
Entegris’ principal financial market risks are sensitivities to interest rates and foreign currency exchange rates. The Company’s interest-bearing cash and cash equivalents and short-term investmentsvariable rate debt are subject to interest rate fluctuations. The Company’s cash and cash equivalents are instrumentsinclude cash on hand and highly liquid debt securities with original maturities of three months or less. A 100 basis100-basis point change in interest rates would potentially increase or decrease annual net income by approximately $3.1$3.4 million annually.and $15.5 million annually for the years ended December 31, 2023 and 2022, respectively. On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount of the swap is $1.4 billion at December 31, 2023 and is scheduled to decrease quarterly and will expire on December 30, 2025.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign currency exchange rates. Approximately 22.0% and 22.7% of the Company’s sales during 2023 and 2022 were collectively denominated in the South Korean won, New Taiwan dollar, Chinese renminbi, Canadian dollar, Malaysian ringgit, Singapore dollar, euro, Israeli shekel and the Japanese yen. Financial results therefore will be affected by changes in currency exchange rates. If all foreign currencies were to see a 10% reduction versus the U.S. dollar during the years ended December 31, 2023 and 2022, revenue would be negatively impacted by approximately $76.8 million and $62.6 million, respectively.
The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based operations. At December 31, 2017,However, we are unlikely to be able to hedge these exposures completely. We do not enter into forward contracts or other derivative instruments for speculative or trading purposes. See Note 13 of the Company had no net exposure to any foreign currency forward contracts.consolidated financials for additional information.
Item 8. Financial Statements and Supplementary Data.
The information called for by this item is set forth in the Consolidated Financial Statements covered by the Report of Independent Registered Public Accounting Firm at the end of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
This item is notNot applicable.
Item 9A. Controls and Procedures.
DISCLOSURE CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures
Management evaluatedBased on management’s evaluation (with the effectivenessparticipation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)), as of December 31, 2017, the end of the fiscal period covered by this report on Form 10-K. The Securities and Exchange Commission, or SEC, rules define the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in its reports filed under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management team with the participation of the Chief Executive Officer and the Chief Financial Officer, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to management, including theour principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Changes in Internal Control Over Financial Reporting
There waswere no change in the Company’schanges to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recently completed fiscal quarter ended December 31, 2023 that hashave materially affected, or isare reasonably likely to materially affect, our internal controlscontrol over financial reporting.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting of(as defined in Rules 13a-15(f) and 15d-15(f) under the Company. This system of internal financial reporting controls is designedExchange Act) to provide reasonable assurance that assets are safeguardedregarding the reliability of our financial reporting and transactions are properly recorded and executedthe preparation of consolidated financial statements for external purposes in accordance with management’s authorization. The design, monitoring and revision of the system of internal financial reporting controls involves, among other things, management’s judgments with respect to the relative cost and expected benefits of specific control measures. The effectiveness of the control system is supported by the selection, retention and training of qualified personnel and an organizational structure that provides an appropriate division of responsibility and formalized procedures. The system of internal accounting controls is periodically reviewed and modified in response to changing conditions. Designated Company employees regularly monitor the adequacy and effectiveness of internal accounting controls.GAAP.
Because of its inherent limitations, a system of
Management assessed our internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, becauseas of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time. Our system contains control-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.
December 31, 2023. Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based its assessment on the frameworkcriteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013)(2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.
Based on this evaluation,its assessment, management has concluded that the Company’s system ofour internal control over financial reporting was effective as of December 31, 2017.the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. We reviewed the results of management’s assessment with the Audit and Finance Committee of our Board of Directors.
KPMG LLP, the independent registered public accounting firm which audited the consolidated financial statements included in this annual report,Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
Report of Independent Registered Public Accounting Firm
The
To the Stockholders and Board of Directors and Stockholders
Entegris, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Entegris, Inc. and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31, 2017,2023, based on criteria established inInternal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 14, 20182024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’sManagement Report on Internal Control overOver Financial Reporting” appearing under Item 9A of the Company’s December 31, 2017 Annual Report on Form 10-K.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Minneapolis, Minnesota
February 14, 20182024
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Except as set forth below, the information required by this Item 10 has been omitted from this report, and is incorporated by reference to the sections “Section 16(a) Beneficial Ownership Reporting Compliance,” “Election of Directors,” “Corporate Governance” in our definitiveDefinitive Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders, which is currently scheduled to be held on May 9, 2018,April 24, 2024, and to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 20172023 fiscal year.
Information called for by this item with respect to registrant’s executive officers is set forth under “Executive OfficersIn 2005, our board of the Registrant” in Part I of this report.
At their first meeting following the August 10, 2005 merger described under "Our History" in Item 1 of Part I above, our Board of Directorsdirectors adopted a code of business ethics, The Entegris, Inc. Code of Business Ethics, applicable to all of our executives, directors and employees, as well as a set of corporate governance guidelines.guidelines, which have been updated from time to time. The Entegris, Inc. Code of Business Ethics was amended by the Entegris Board of Directors on July 30, 2014. The amended Entegris, Inc. Code of Business Ethics, the Corporate Governance Guidelines and the charters for our Audit & Finance Committee, Environmental, Health, Safety & Sustainability Committee, Governance & Nominating Committee and our Management Development & Compensation Committee all appear on our website at http://www.Entegris.com under “Investors“Investor Relations - Corporate Governance”. The Entegris, Inc. Code of Business Ethics, Corporate Governance Guidelines and committee charters are also available, free of charge, in print to any shareholder that requests a copy. Copies may be obtained by contacting Sue Lee, our Senior Vice President, Secretary and General Counsel through our corporate headquarters. The Company intends to comply with the requirements of Item 5.05 of Form 8-K with respect to any amendment to, or waiver of, the provisions of the Entegris, Inc. Code of Business Ethics applicable to the registrant’s Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer or Controller by posting notice of any such amendment or waiver at the same location on our website.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following is a list of our Executive Officers, their ages and their offices, as of the date of this Annual Report on Form 10-K. | | | | | | | | |
| Name | Age | Office |
| Bertrand Loy | 58 | President and Chief Executive Officer |
| Linda LaGorga | 55 | Senior Vice President, Chief FinancialOfficer and Treasurer |
| Sue Rice | 65 | Senior Vice President, Global Human Resources |
| Joe Colella | 42 | Senior Vice President, General Counsel, Chief Compliance Officer and Secretary |
| Jim O’Neill | 59 | Senior Vice President and Chief Technology Officer |
| Olivier Blachier | 50 | Senior Vice President, Business and New Markets Development |
| Clint Haris | 51 | Senior Vice President and President, Microcontamination Control |
| William Shaner | 56 | Senior Vice President and President, Advanced Materials Handling |
| Daniel Woodland | 53 | Senior Vice President and President, Materials Solutions |
| Michael Besnard | 53 | Senior Vice President and Chief Commercial Officer |
| Neil Richards | 51 | Senior Vice President, Global Operations, Supply Chain, and Quality |
| Michael D. Sauer | 58 | Vice President, Controller & Chief Accounting Officer |
Bertrand Loy has been our Chief Executive Officer, President and a director since November 2012 and Chair of our Board of Directors since 2023. From July 2008 to November 2012, he served as our Executive Vice President and Chief Operating Officer. From August 2005 until July 2008, he served as our Executive Vice President in charge of our IT, global supply chain and manufacturing operations. He served as the Vice President and Chief Financial Officer of Mykrolis, a company spun out of Millipore Corporation, a life science products company, from January 2001 until August 2005. Prior to that, Mr. Loy served as the Chief Information Officer of Millipore Corporation during 1999 and 2000, and previously served in various strategic planning, global supply chain and financial roles with Millipore and Sandoz Pharmaceuticals (now Novartis), a pharmaceutical company. He has served on the board of directors of Harvard Bioscience, Inc., a global manufacturer of a broad range of life sciences solutions, since November 2014, and is currently the lead independent director. Since July 2013, Mr. Loy has also been on the board of directors of SEMI, the global industry association representing the electronics manufacturing supply chain, serving as the chairman of the association until December 2022.
Linda LaGorga has been our Senior Vice President and Chief Financial Officer since May 2023. Ms. LaGorga joined the Company from Honeywell International Inc., where she most recently served from March 2022 until April 2023 as vice president and Chief Financial Officer of Honeywell’s UOP business unit, which provides process technology, catalysts, adsorbents, and equipment to the refining, gas processing, and petrochemical industries. Previously, from 2021 until 2022, she served as vice president and Chief Financial Officer of the Honeywell aerospace mechanical systems and components business. From 2018 to 2021, she led Honeywell’s corporate financial planning and analysis organization.Prior to joining Honeywell, from 2013 until 2018, Ms. LaGorga served as the global treasurer and led business development for Bausch Health Companies Inc. Earlier in her career, she held various positions of increasing responsibilities at Goldman Sachs, most recently serving as a managing director in the investment banking division.
Sue Rice has been our Senior Vice President of Global Human Resources since September 2017. Prior to that, Ms. Rice served as Senior Vice President and Chief Human Resources Officer for Thermo Fisher Scientific, a scientific equipment company, from 2013 to 2017, Region Vice President HR Asia Pacific & Emerging Markets from 2009 to 2013 and Group Vice President, HR Analytical Technologies Group from 2006 to 2009. Prior to that, Ms. Rice held senior human resource positions with Fidelity Human Resources Services Company and Sherbrooke Associates.
Joe Colella has been our Senior Vice President, General Counsel, Chief Compliance Officer and Secretary since April 2020. Previously, Mr. Colella served as our Vice President, Deputy General Counsel from December 2018 until April 2020, Assistant General Counsel from April 2018 until December 2018 and Senior Corporate Counsel from December 2013 until April 2018. Prior to joining Entegris, Mr. Colella served as an associate at an international law firm from 2007 until 2013.
Jim O’Neill, Ph.D. has been our Senior Vice President and Chief Technology Officer since September 2019, having previously served as our Vice President, Chief Technology Officer beginning in April 2014 when he joined Entegris as part of our acquisition of ATMI. At ATMI, Dr. O’Neill was Senior Vice President of Electronic Materials from January 2012 to April 2014. Prior to that, he held numerous technical and leadership roles in semiconductor research and development with over 23 years at IBM.
Olivier Blachier has been our Senior Vice President, Business and New Markets Development since November 2021 and is responsible for the Company’s merger and acquisition activities and for the commercialization of emerging businesses. Before joining Entegris, Mr. Blachier held various senior leadership positions between 2007 and 2021 at Air Liquide Group, a global leader in gases, technologies and services for the industrial and healthcare sectors. Most recently, he served as President of Air Liquide Far Eastern from September 2018 until June 2021 and APAC Vice President, Hydrogen & Energy Transition, from June 2021 until October 2021. From 1997 to 2007, Mr. Blachier worked for Edwards, Ltd., a global vacuum and abatement process leader and subsidiary of BOC Group, where he held multiple roles in the U.S. and United Kingdom, including leading acquisitions and joint ventures.
Clint Haris has been our Senior Vice President and President, Microcontamination Control since July 2022. Previously, he served as our Senior Vice President and General Manager, Microcontamination Control from July 2016 until July 2022 and our Vice President, Liquid Microcontamination Control from August 2014 until July 2016. Prior to joining Entegris, Mr. Haris served in a variety of executive roles at Brooks Automation Inc., including Senior Vice President, Life Science Systems from 2010 until 2014 and Senior Vice President and General Manager, Systems Solutions from 2009 until 2010.
William Shaner has been our Senior Vice President and President, Advanced Materials Handling since July 2022. Previously, he served as our Senior Vice President and General Manager, Advanced Materials Handling from July 2016 until July 2022, our Senior Vice President, Global Operations from February 2014 until July 2016 and our Vice President and General Manager, Microenvironments division from 2007 until February 2014. Prior to that, he served in a variety of sales, marketing, business development and engineering roles since joining Entegris in 1995.
Daniel Woodland, Ph.D. joined Entegris in 2022 as part of the acquisition of CMC Materials. In September 2023, Dr. Woodland became Senior Vice President and President, Materials Solutions. From July 2022 until September 2023, Dr. Woodland served as Senior Vice President and President, Advanced Planarization Solution. Prior to joining Entegris, Dr. Woodland served several roles at CMC Materials (previously Cabot Microelectronics) since 2003, including as Vice President and President, Electronic Materials from September 2019 until July 2022, Vice President and Chief Marketing and Operations Officer from October 2017 until November 2018, and Vice President of Marketing from January 2015 until October 2017.
Michael Besnard has been our Senior Vice President and Chief Commercial Officer since 2016. Prior to that, Mr. Besnard served as Vice President of Global Strategic Accounts from 2014 until 2016. Prior to joining Entegris, Mr. Besnard served ATMI as the vice president of global strategic accounts and MacDermid Enthone (previously Enthone) as director of business development for Copper Plating.
Neil Richards has been our Senior Vice President, Global Operations, Supply Chain, and Quality since September 2019. Prior to that, Mr. Richards served as Vice President of Operations for the Company’s Specialty Chemicals and Engineered Materials
division from 2016 until September 2019. Prior to joining Entegris, Mr. Richards held several positions with the BOC Group, which merged with Linde in 2006.
Michael D. Sauer has been our Vice President, Controller and Chief Accounting Officer since June 2012. Prior to that, he served as the Corporate Controller since 2008. From the time of the merger with Mykrolis in August 2005 until April 2008, Mr. Sauer served as Director of Treasury and Risk Management. Mr. Sauer joined Fluoroware, Inc., a predecessor to Entegris Minnesota, in 1988 and held a variety of finance and accounting positions until 2001 when he became the Director of Business Development for Entegris Minnesota, the successor to Fluoroware, serving in that position until the merger with Mykrolis.
Item 11. Executive Compensation.
The information required by this Item 11 has been omitted from this report, and is incorporated by reference to the sections entitled "Compensation of Executive Officers" and "Management Development & Compensation Committee Report" in our definitiveDefinitive Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders to be held on May 9, 2018, and toApril 24, 2024, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 20172023 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans:
As of December 31, 2017,2023, our equity compensation plan information is as follows:
Equity Compensation Plan Information | | | | | | | | | | | | | | | | | | | | |
| | Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights(1) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(2) (3) |
| Plan category | | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | | 2,697,007 | | | $ | 63.08 | | | 8,596,920 | |
| Equity compensation plans not approved by security holders | | — | | | — | | | — | |
| Total | | 2,697,007 | | | $ | 63.08 | | | 8,596,920 | |
|
| | | | | | | | | | |
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights (1) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) |
| Plan category | | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | | 4,129,624 |
| | $ | 13.46 |
| | 8,815,168 |
|
| Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
|
| Total | | 4,129,624 |
| | $ | 13.46 |
| | 8,815,168 |
|
(1)The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units, which have no exercise price.
| |
(1) | The weighted average exercise price does not take into account the shares issuable upon outstanding restricted stock unit vesting, which have no exercise price. |
| |
(2) | These shares are available under the 2010 Stock Plan for future issuance for stock options, restricted stock units, performance shares and stock awards in accordance with the terms of the 2010 Stock Plan. |
(2)These shares are available for future issuance under the 2020 Stock Plan in the form of stock options, restricted stock units, performance shares and other stock awards in accordance with the terms of the 2020 Stock Plan.
(3)Includes 1,067,981 shares remaining available for future issuance under the Company’s Employee Stock Purchase Plan as of December 31, 2023.
The other information called forrequired by this Item 12 has been omitted from this report, and is incorporated by reference to the section entitled “Ownership of Entegris Common Stock” in our definitiveDefinitive Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders to be held on May 9, 2018, and toApril 24, 2024, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 20172023 fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 has been omitted from this report, and is incorporated by reference to the section entitled "Corporate Governance" in our definitiveDefinitive Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders to be held on May 9, 2018,April 24, 2024, and towhich will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 20172023 fiscal year.
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 has been omitted from this report, and is incorporated by reference to the section entitled "Proposal 2 - Ratification of Selection of Independent Registered Public Accounting Firm for 2018" in our definitiveDefinitive Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders to be held on May 9, 2018, and toApril 24, 2024, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 20172023 fiscal year.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)The following Financial Statements are included in Item 8 herein:
| | |
1.Financial Statements: |
(a) | The following documents are filed as a partReport of this report: |
| Independent Registered Public Accounting Firm |
1. | Financial Statements. The Consolidated FinancialBalance Sheets at December 31, 2023 and 2022
|
Consolidated Statements listed under Item 8 of this reportOperations for the Years Ended December 31, 2023, 2022 and in2021 |
Consolidated Statements of Comprehensive Income for the IndexYears Ended December 31, 2023, 2022 and 2021 |
| Consolidated Statements of Equity for the Years Ended December 31, 2023, 2022 and 2021 |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 |
Notes to Consolidated Financial Statements on page F-1 of this report are incorporated by reference herein. |
| 2. Financial Statement Schedule - All financial statement schedules have been omitted since the information is either not applicable or is included in the consolidated financial statements notes thereof. |
| A.
3. Exhibits - The following exhibits are incorporated by reference:reference into this Annual Report on Form 10-K: |
| | | | | | | | | | | | | | |
| | | | |
Reg. S-K
Item 601(b)
Reference
| | Document Incorporated | | Referenced Document on file with the Commission |
(2)2.1 | | Agreement and Plan of Merger, dated as of February 4, 2014,December 14, 2021, by and among Entegris, Inc., AtomicCMC Materials, Inc. and Yosemite Merger Corporation and ATMI,Sub, Inc. | | Exhibit 2.1 to Entegris, IncInc. Current Report on Form 8-K filed with the Securities and Exchange Commission on February 4, 2014December 16, 2021 |
(3)3.1 | | By-Laws of Entegris, Inc., as amended December 17, 2008 | | Exhibit 3 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008 |
(3) | | | | Exhibit 3.1 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2011 |
(4)3.2 | | | | Exhibit 3.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2022 |
| 4.1 | | | | Exhibit 4.1 to Form S-4 Registration Statement of Entegris, Inc. and Eagle DE, Inc. (No. 333-124719) |
(4)4.2 | | Indenture, dated as of November 10, 2017,April 30, 2020, by and among the Company, certain of subsidiaries of the Company and Wells Fargo Bank, National Association, Bank, as trustee, including the form of note representing the 20262028 Notes | | Exhibit 4.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2017April 30, 2020 |
(10)4.3 | | ABL Credit and Guaranty Agreement, | | Exhibit 10.14.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2014April 30, 2021 |
(10)4.4 | | Term Loan Credit and Guaranty Agreement,Indenture, dated as of April 30, 2014,14, 2022, by and among the Company, certain subsidiaries of the CompanyEntegris Escrow Corporation, as guarantors, the lenders party theretoescrow issuer and Goldman SachsTruist Bank, USA as administrative agenttrustee and notes collateral agent, including the form of note issuable thereunder | | Exhibit 10.24.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2014April 15, 2022 |
(10)4.5 | | | | Exhibit 4.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2022 |
| 4.6 | | | | Exhibit 4.3 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2022 |
| 4.7 | | | | Exhibit 4.4 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2022 |
| | | | | | | | | | | | | | |
| 4.8 | | | | Exhibit 4.5 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2022 |
| 4.9 | | | | Exhibit 4.7 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2022 |
| 4.10 | | | | Exhibit 4.9 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2022 |
| 4.11 | | | | Exhibit 4.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2022 |
| 4.12 | | Amendment No. 1and Restatement Agreement, dated as of July 6, 2022, among Entegris, as borrower, certain subsidiaries of Entegris, as guarantors, the lenders party thereto, the issuing banks party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent. | | Exhibit 4.10 to TermEntegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2022 |
| 4.13 | | 364-Day Bridge Credit and Guaranty Agreement, dated as of March 14, 2017,July 6, 2022, among Entegris, as borrower, certain subsidiaries of Entegris, as guarantors, the Company, Goldman Sachs Bank USA,lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agentagent. | | Exhibit 4.11 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and collateral agent,Exchange Commission on July 6, 2022 |
| 4.14 | | | | Exhibit 4.3 to Entegris, Inc. Registration Statement on Form S-8 filed with the Securities and each participating lenderExchange Commission on July 7, 2022 |
| 4.15 | | | | Exhibit 10.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 201713, 2023 |
(10)4.16 | | ABL Pledge and Security Agreement,Amendment No. 2, dated as of April 30, 2014,September 11, 2023, among Entegris, Inc., as borrower, the Company, certain subsidiaries of the Company as guarantors,other credit parties party thereto, the lenders party thereto and Goldman Sachs Bank USAMorgan Stanley Senior Funding, Inc., as collateral agentadministrative agent. | | Exhibit 10.310.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2014September 13, 2023 |
(10)4.17 | | | | Term Loan Pledge and Security Agreement, dated as of April 30, 2014, among the Company, certain subsidiaries of the Company as guarantors, the lenders party thereto and Goldman Sachs Bank USA as collateral agent | Exhibit 10.44.1 to Entegris, Inc. CurrentAnnual Report on Form 8-K10-K filed with the Securities and Exchange Commission on May 1, 2014February 7, 2020 |
(10)10.1 | | | | ABL Intercreditor Agreement, dated as of April 30, 2014, among Goldman Sachs Bank USA, as ABL Collateral Agent, Goldman Sachs Bank USA, as Term Collateral Agent, and acknowledged by the Company and its wholly owned domestic subsidiaries | Exhibit 10.510.1 to Entegris Inc. Current ReportRegistration Statement on Form 8-KS-3 filed with the Securities and Exchange Commission on May 1, 2014July 7, 2022 |
(10)10.2 | | | | Exhibit 10.2 to Entegris Registration Statement on Form S-3 filed with the Securities and Exchange Commission on July 7, 2022 |
| 10.3 | | | | Exhibit 10.1 to Entegris, Inc. Quarterly Report on Form 10-Q for the period ended July 3, 2010 |
(10)10.4 | | | | Annex 1 to the Entegris, Inc. Schedule 14A proxy statement for its 2020 Annual Meeting of Stockholders (No. 001-32598), as filed with the Securities and Exchange Commission on March 18, 2020 |
| 10.5 | | | | Exhibit 10.2 to Entegris, Inc. Registration Statement on Form S-1 (No. 333-33668) |
| | | | | | | | | | | | | | |
| 10.6 | | | | |
(10) | | | | Exhibit 4.1 to Entegris, Inc. Registration Statement on Form S-8 (No. 333-211444) |
(10)10.7 | | | | Exhibit 10.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2017 |
(10)10.8 | | Trust Agreement between Entegris, Inc. Fidelity Management Trust Company and Entegris Inc. 401(k) Savings and Profit Sharing Plan Trust, dated December 29, 2007. | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2007 |
(10) | | Entegris, Inc. - 401(k) Savings and Profit Sharing Plan (2017 Restatement)*
| | Exhibit 10.1 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2017 |
(10) | | Entegris, Inc. 2007 Deferred Compensation Plan* | | Exhibit 10.2 to Entegris, Inc. Quarterly Report on Form10-Q for the fiscal period ended June 30, 2007 |
(10)10.9 | | Amended and Restated Supplemental Executive Retirement Plan for Key Salaried Employees* | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2008 |
(10) | | Amendment to Amended and Restated SERP* | | Exhibit 10.15 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2009. |
(10) | | | | Exhibit 10.1.3 to Mykrolis Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 |
(10)10.10 | | | | Exhibit 10.1 to Entegris, Inc. Quarterly Report on Form 10-Q for the period ended June 30, 2012 |
(10)10.11 | | | | Exhibit 10.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on March 11, 2016 |
(10)10.12 | | | | Fluoropolymer Purchase and SaleExhibit 10.4 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2021 |
| 10.13 | | | | Exhibit 10.210.1 to Entegris, Inc. Quarterly Report on Form 10-Q for the quarterperiod ended April 2, 2011October 1, 2022 |
(10)10.14 | | | | Exhibit 10.30 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended August 27, 2005 |
(10)10.15 | | | | Exhibit 10.31 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended August 27, 2005 |
(10)10.16 | |
| | Exhibit 10.1 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016 |
(10)10.17 | | | | Exhibit 10.1 to Entegris, Inc. Quarterly Report on Form 10-Q for the fiscal period ended April 3, 2010 |
(10) | | Entegris, Inc. 2011 Stock Option Award Agreement* | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2012 |
(10) | | Entegris, Inc. 2012 Stock Option Grant Agreement* | | Exhibit 10.3 to Entegris, Inc. Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2012 |
(10) | | Entegris, Inc. 2013 Stock Option Grant Agreement* | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2015 |
|
| | | | |
(10) | | Entegris, Inc. 2014 Performance Award Agreement* | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2015
|
(10) | | Entegris, Inc. 2014 RSU Unit Award Agreement* | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 201515, 2018 |
(10)10.18 | | | | Exhibit 10.4 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2015 |
(10) | | Entegris, Inc. 2015 Performance Share Award Agreement* | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016 |
(10) | | Entegris, Inc. 2015 RSU Unit Award Agreement* | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 201611, 2019 |
(10)10.19 | | | | Exhibit 10.4 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016 |
(10) | | Entegris, Inc. 2016 Performance Share Award Agreement* | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2017 |
(10) | | Entegris, Inc. 2016 RSU Unit Award Agreement* | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 20177, 2020 |
(10)10.20 | | | | Exhibit 10.2 to Entegris, Inc. Quarterly Report on Form 10-Q for the period ended March 28, 2020 |
| 10.21 | | | | Exhibit 10.3 to Entegris, Inc. Quarterly Report on Form 10-Q for the period ended March 28, 2020 |
| 10.22 | | | | Exhibit 10.1 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2020 |
| 10.23 | | | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2020 |
| 10.24 | | | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2020 |
| | | | | | | | | | | | | | |
| 10.25 | | | | Exhibit 10.4 to Entegris, Inc. Annual Report on Form 10-K filed withfor the Securities and Exchange Commission on February 17, 2017fiscal year ended December 31, 2020 |
(10)10.26 | | | | Exhibit 10.1 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2021 |
| 10.27 | | | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2021 |
| 10.28 | | | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2021 |
| 10.29 | | | | Exhibit 10.1 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2022 |
| 10.30 | | | | Exhibit 10.2 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2022 |
| 10.31 | | | | Exhibit 10.3 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2022 |
| 10.32 | | | | Exhibit 10.1 to Entegris, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2012 |
(10)10.33 | | | | Exhibit 99.1 to Entegris, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2013 |
(10)10.34 | | Severance Protection Agreement, | | Exhibit 10.4 to Entegris, Inc. Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 7, 2020 |
| 10.35 | |
| | Exhibit 10.2 to Entegris, Inc. Quarterly Report on Form 10-Q for the period ended July 2, 2011October 1, 2022 |
(10)10.36 | | Amendment No. 1, | | Exhibit 10.3 to Entegris, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on April 28, 2016 |
(10) | | Executive Separation Letter Agreement, dated as of June 13, 2016, by and8, 2023, between Entegris, Inc. and Christian F. Kramer*Linda LaGorga* | | Exhibit 10.1 to Entegris, Inc. Quarterly Report on Form 10-Q filed withfor the Securities and Exchange Commission on July 28, 2016period ended April 1, 2023 |
(10)10.37 | | Executive Separation Letter | | Exhibit 10.110.2 to Entegris, Inc. Quarterly Report on Form 10-Q filed withfor the Securities and Exchange Commission onperiod ended April 28, 20161, 2023 |
* A “management contract or compensatory plan”
B.The Company hereby files as exhibits to this Annual Report on Form 10-K the following documents:
Reg. S-K
Item 601(b)
|
| | | | |
| Reference | | Exhibit No. | | Documents Filed Herewith |
| (10) | | 10.1 | | |
| (10) | | 10.2 | | |
| (10) | | 10.3 | | |
| (21) | | 21 | | |
| (23) | | 23 | | |
| (24) | | 24 | | |
| (31) | | 31.1 | | |
| (31) | | 31.2 | | |
| (32) | | 32.1 | | |
| (32) | | 32.2 | | |
| (101) | | 101.INS | | XBRL Instance Document |
| (101) | | 101.SCH | | XBRL Taxonomy Extension Schema Document |
| (101) | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| (101) | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| (101) | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| (101) | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | | | | | | | | | | | | | |
| Reference | | Exhibit No. | | Documents Filed Herewith |
| (10) | | 10.38 | | |
| (10) | | 10.39 | | |
| (10) | | 10.40 | | |
| (10) | | 10.41 | | |
| (21) | | 21.1 | | |
| (23) | | 23.1 | | |
| (24) | | 24.1 | | |
| (31) | | 31.1 | | |
| (31) | | 31.2 | | |
| (32) | | 32.1 | | |
| (32) | | 32.2 | | |
| (97) | | 97 | | |
| (101) | | 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| (101) | | 101.SCH | | XBRL Taxonomy Extension Schema Document |
| (101) | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| (101) | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| (101) | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| (101) | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
| (104) | | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* A “management contract or compensatory plan”
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| ENTEGRIS, INC. |
| | | |
| ENTEGRIS, INC. |
| | | |
Date: February 14, 20182024 | By | | /s/ BERTRAND LOY |
| | | | | Bertrand Loy |
| | | | | President & Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | | | | | | | | | | | | |
SIGNATURE | | TITLE | | DATE |
/s/ BERTRAND LOY | | President, Chief Executive Officer and Director
(Principal executive officer)
| | February 14, 20182024 |
| Bertrand Loy | | | |
| | | | |
/s/ GREGORY B. GRAVES LINDA LAGORGA | | ExecutiveSenior Vice President, Chief Financial Officer & Treasurer (Principal financial officer) | | February 14, 20182024 |
Gregory B. GravesLinda LaGorga | | | |
| | | | |
/s/ MICHAEL D. SAUER | | Vice President, Controller & Chief Accounting Officer (Principal accounting officer) | | February 14, 20182024 |
| Michael D. Sauer | | | |
| | | | |
JAMES R. ANDERSON* | | Director | | February 14, 2024 |
| James R. Anderson | | | | |
| | | | |
| RODNEY CLARK* | | Director | | February 14, 2024 |
PAUL L.H. OLSON*
Rodney Clark | | | Director, Chairman of the Board | | February 14, 2018
| Paul L.H. Olson | | | |
| | | | |
MICHAEL A. BRADLEY*
| | Director | | February 14, 2018 |
Michael A. Bradley | | | | |
| | | | |
R. NICHOLAS BURNS*
| | Director | | February 14, 2018 |
R. Nicholas Burns | | | | |
| | | | |
DANIEL W. CHRISTMAN*
| | Director | | February 14, 2018 |
Daniel W. Christman | | | | |
| | | | |
JAMES F. GENTILCORE* | | Director | | Director | February 14, 20182024 |
| James F. Gentilcore | | | | |
| | | | |
| YVETTE KANOUFF* | | Director | | February 14, 2024 |
| Yvette Kanouff | | | | |
| | | | |
| JAMES P. LEDERER* | | Director | | Director | February 14, 20182024 |
| James P. Lederer | | | | |
| | | | |
| AZITA SALEKI-GERHARDT* | | Director | | February 14, 2024 |
| Azita Saleki-Gerhardt | | | | |
| | | | | | | | |
| *By | | | /s/ LINDA LAGORGA |
AZITA SALEKI-GERHARDT* | | Director | | February 14, 2018 |
Azita Saleki-Gerhardt | | | | |
| | | | |
BRIAN F. SULLIVAN*
| | Director | | February 14, 2018 |
Brian F. Sullivan | | | | Linda LaGorga, Attorney-in-fact |
|
| | |
*By | | /s/ SUE LEE |
Sue Lee, Attorney-in-fact |
EXHIBIT INDEX
Reg. S-K Item 601(b)
|
| | | | |
| Reference | | Exhibit No. | | Documents Filed Herewith |
| (10) | | 10.1 | | |
| (10) | | 10.2 | | |
| (10) | | 10.3 | | |
| (21) | | 21 | | |
| (23) | | 23 | | |
| (24) | | 24 | | |
| (31) | | 31.1 | | |
| (31) | | 31.2 | | |
| (32) | | 32.1 | | |
| (32) | | 32.2 | | |
| (101) | | 101.INS | | XBRL Instance Document |
| (101) | | 101.SCH | | XBRL Taxonomy Extension Schema Document |
| (101) | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| (101) | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| (101) | | 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| (101) | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
* A “management contract or compensatory plan”
ENTEGRIS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors and Stockholders
Entegris, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Entegris, Inc. and subsidiaries (the “Company”)Company) as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, comprehensive income, (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2023, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 14, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our auditsaudit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill impairment evaluation for APS reporting unit prior to segment realignment
As discussed in Note 10 to the consolidated financial statements, the goodwill balance as of December 31, 2023 was $3,945.9 million, of which $3,631.3 million related to the Materials Solutions (MS) reportable segment. The MS reportable segment was the result of the realignment in the third quarter of 2023 combining the Advanced Planarization Solutions (APS) reportable segment and the Specialty Chemicals and Engineered Materials (SCEM) reportable segment. Prior to the realignment, the APS reportable segment was aligned to the APS reporting unit. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The realignment was identified as a triggering event related to the APS reporting unit. In determining the fair value of the APS reporting unit the Company utilized a discounted cash flow model and certain market information.
We identified the goodwill impairment evaluation for the APS reporting unit prior to the segment realignment as a critical audit matter. We performed sensitivity analysis to determine the significant assumptions in the valuation of the goodwill. A high degree of subjective auditor judgment was required to evaluate the Company’s estimates of future revenue growth rates used in the discounted cash flow model. Specifically, the revenue growth rates used to estimate the fair value of the reporting unit were challenging to evaluate as they involved subjective assessments of future
market and economic conditions that were sensitive to variation. Minor changes in the revenue growth rates could have had a significant impact on the fair value.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment process. This included the control related to the Company’s estimates of the future revenue growth rates used to determine the fair value of the APS reporting unit. We evaluated the Company’s forecasted revenue growth rates for the APS reporting unit by comparing them to forecasted future growth rates in the Company’s and its peer companies’ analyst reports and industry reports. In addition, we compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast.
/s/ KPMG LLP
We or our predecessor firms have served as the Company'sCompany’s auditor since 1966.
Minneapolis, Minnesota
February 14, 20182024
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| (In thousands, except share and per share data) | December 31, 2023 | | December 31, 2022 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 456,929 | | | $ | 561,559 | |
| Restricted cash | — | | | 1,880 | |
| Trade accounts and notes receivable, net | 457,052 | | | 535,485 | |
| Inventories, net | 607,051 | | | 812,815 | |
| Deferred tax charges and refundable income taxes | 63,879 | | | 47,618 | |
| Assets held-for-sale | 278,753 | | | 246,531 | |
| Other current assets | 113,663 | | | 129,297 | |
| Total current assets | 1,977,327 | | | 2,335,185 | |
| Property, plant and equipment, net | 1,468,043 | | | 1,393,337 | |
| Other assets: | | | |
| Right-of-use assets - Operating lease | 57,990 | | | 79,228 | |
| Right-of-use assets - Finance lease | 22,409 | | | 15,712 | |
| Goodwill | 3,945,860 | | | 4,408,331 | |
| Intangible assets, net | 1,281,969 | | | 1,841,955 | |
| Deferred tax assets and other noncurrent tax assets | 31,432 | | | 28,867 | |
| Other noncurrent assets | 27,561 | | | 36,242 | |
| Total assets | $ | 8,812,591 | | | $ | 10,138,857 | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
| Short-term debt, including current portion of long-term debt | $ | — | | | $ | 151,965 | |
| Accounts payable | 134,211 | | | 172,488 | |
| Accrued payroll and related benefits | 109,559 | | | 142,340 | |
| Accrued interest payable | 24,759 | | | 25,571 | |
| Liabilities held-for-sale | 19,223 | | | 10,637 | |
| Other accrued liabilities | 148,840 | | | 160,873 | |
| Income taxes payable | 77,403 | | | 98,057 | |
| Total current liabilities | 513,995 | | | 761,931 | |
| Long-term debt, excluding current maturities | 4,577,141 | | | 5,632,928 | |
| Pension benefit obligations and other liabilities | 53,733 | | | 54,090 | |
| Deferred tax liabilities and other noncurrent tax liabilities | 190,142 | | | 391,192 | |
| Long term lease liability - Operating lease | 49,719 | | | 68,091 | |
| Long term lease liability - Finance lease | 19,267 | | | 12,625 | |
| Equity: | | | |
| Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of December 31, 2023 and December 31, 2022 | — | | | — | |
| Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of December 31, 2023: 150,566,007 and 150,363,607, respectively; issued and outstanding shares as of December 31, 2022: 149,339,486 and 149,137,086, respectively | 1,506 | | | 1,493 | |
| Treasury stock, common, at cost: 202,400 shares held as of December 31, 2023 and December 31, 2022 | (7,112) | | | (7,112) | |
| Additional paid-in capital | 2,305,367 | | | 2,205,325 | |
| Retained earnings | 1,151,765 | | | 1,031,391 | |
| Accumulated other comprehensive loss | (42,932) | | | (13,097) | |
| Total equity | 3,408,594 | | | 3,218,000 | |
| Total liabilities and equity | $ | 8,812,591 | | | $ | 10,138,857 | |
See the accompanying notes to consolidated financial statements. |
| | | | | | | |
| (In thousands, except share and per share data) | December 31, 2017 | | December 31, 2016 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 625,408 |
| | $ | 406,389 |
|
| Trade accounts and notes receivable, net | 183,434 |
| | 165,675 |
|
| Inventories, net | 198,089 |
| | 183,529 |
|
| Deferred tax charges and refundable income taxes | 18,012 |
| | 20,140 |
|
| Other current assets | 32,665 |
| | 24,398 |
|
| Total current assets | 1,057,608 |
| | 800,131 |
|
| Property, plant and equipment, net | 359,523 |
| | 321,562 |
|
| Other assets: | | | |
| Goodwill | 359,688 |
| | 345,269 |
|
| Intangible assets, net | 182,430 |
| | 217,548 |
|
| Deferred tax assets and other noncurrent tax assets | 9,103 |
| | 8,022 |
|
| Other | 7,820 |
| | 7,000 |
|
| Total assets | $ | 1,976,172 |
| | $ | 1,699,532 |
|
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
| Long-term debt, current maturities | $ | 100,000 |
| | $ | 100,000 |
|
| Accounts payable | 68,762 |
| | 61,617 |
|
| Accrued payroll and related benefits | 64,860 |
| | 54,317 |
|
| Other accrued liabilities | 34,514 |
| | 29,213 |
|
| Income taxes payable | 22,835 |
| | 16,424 |
|
| Total current liabilities | 290,971 |
| | 261,571 |
|
| Long-term debt, excluding current maturities | 574,380 |
| | 484,677 |
|
| Pension benefit obligations and other liabilities | 32,130 |
| | 27,220 |
|
| Deferred tax liabilities and other noncurrent tax liabilities | 85,673 |
| | 26,846 |
|
| Commitments and contingent liabilities | — |
| | — |
|
| Equity: | | | |
| Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding | — |
| | — |
|
| Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares: 141,282,539 and 141,319,964 | 1,413 |
| | 1,413 |
|
| Additional paid-in capital | 867,699 |
| | 859,778 |
|
| Retained earnings | 147,418 |
| | 92,303 |
|
| Accumulated other comprehensive loss | (23,512 | ) | | (54,276 | ) |
| Total equity | 993,018 |
| | 899,218 |
|
| Total liabilities and equity | $ | 1,976,172 |
| | $ | 1,699,532 |
|
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | Year ended December 31, 2023 | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| Net sales | $ | 3,523,926 | | | $ | 3,282,033 | | | $ | 2,298,893 | |
| Cost of sales | 2,026,321 | | | 1,885,620 | | | 1,239,229 | |
| Gross profit | 1,497,605 | | | 1,396,413 | | | 1,059,664 | |
| Selling, general and administrative expenses | 576,194 | | | 543,485 | | | 292,408 | |
| Engineering, research and development expenses | 277,313 | | | 228,994 | | | 167,632 | |
| Amortization of intangible assets | 214,477 | | | 143,953 | | | 47,856 | |
| Goodwill impairment | 115,217 | | | — | | | — | |
| Gain on termination of Alliance Agreement | (184,754) | | | — | | | — | |
| Operating income | 499,158 | | | 479,981 | | | 551,768 | |
| Interest expense | 312,378 | | | 212,669 | | | 41,240 | |
| Interest income | (11,257) | | | (3,694) | | | (243) | |
| Other expense, net | 25,367 | | | 23,926 | | | 31,695 | |
| Income before income tax (benefit) expense | 172,670 | | | 247,080 | | | 479,076 | |
| Income tax (benefit) expense | (8,413) | | | 38,160 | | | 69,950 | |
| Equity in net loss of affiliates | 414 | | | — | | | — | |
| Net income | $ | 180,669 | | | $ | 208,920 | | | $ | 409,126 | |
| | | | | |
| Basic net income per common share | $ | 1.21 | | | $ | 1.47 | | | $ | 3.02 | |
| Diluted net income per common share | $ | 1.20 | | | $ | 1.46 | | | $ | 3.00 | |
| | | | | |
| Weighted average shares outstanding | | | | | |
| Basic | 149,900 | | | 142,294 | | | 135,411 | |
| Diluted | 150,945 | | | 143,146 | | | 136,574 | |
See the accompanying notes to consolidated financial statements.
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME | | | | | | | | | | | | | | | | | |
| (In thousands) | Year ended December 31, 2023 | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| Net income | $ | 180,669 | | | $ | 208,920 | | | $ | 409,126 | |
| Other comprehensive (loss) income, net of tax | | | | | |
| Foreign currency translation adjustments | (12,797) | | | (10,220) | | | (2,275) | |
| Pension adjustments | 397 | | | 1,139 | | | (382) | |
| Interest rate swap - cash flow hedge, net of tax (benefit) expense of $(5,085) and $10,520 for December 31, 2023 and December 31, 2022 | (17,435) | | | 36,069 | | | — | |
| Other comprehensive (loss) income | (29,835) | | | 26,988 | | | (2,657) | |
| Comprehensive income | $ | 150,834 | | | $ | 235,908 | | | $ | 406,469 | |
|
| | | | | | | | | | | |
| (In thousands, except per share data) | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 |
| Net sales | $ | 1,342,532 |
| | $ | 1,175,270 |
| | $ | 1,081,121 |
|
| Cost of sales | 733,547 |
| | 666,579 |
| | 610,890 |
|
| Gross profit | 608,985 |
| | 508,691 |
| | 470,231 |
|
| Selling, general and administrative expenses | 216,194 |
| | 201,901 |
| | 198,914 |
|
| Engineering, research and development expenses | 106,951 |
| | 106,991 |
| | 105,900 |
|
| Amortization of intangible assets | 44,023 |
| | 44,263 |
| | 47,349 |
|
| Operating income | 241,817 |
| | 155,536 |
| | 118,068 |
|
| Interest expense | 32,343 |
| | 36,846 |
| | 38,667 |
|
| Interest income | (715 | ) | | (318 | ) | | (429 | ) |
| Other expense (income), net | 25,458 |
| | (991 | ) | | (12,355 | ) |
| Income before income tax expense and equity in net loss of affiliate | 184,731 |
| | 119,999 |
| | 92,185 |
|
| Income tax expense | 99,665 |
| | 22,852 |
| | 10,202 |
|
| Equity in net loss of affiliate | — |
| | — |
| | 1,687 |
|
| Net income | $ | 85,066 |
| | $ | 97,147 |
| | $ | 80,296 |
|
| | | | | | |
| Basic net income per common share | $ | 0.60 |
| | $ | 0.69 |
| | $ | 0.57 |
|
| Diluted net income per common share | $ | 0.59 |
| | $ | 0.68 |
| | $ | 0.57 |
|
| Weighted shares outstanding | | | | | |
| Basic | 141,553 |
| | 141,093 |
| | 140,353 |
|
| Diluted | 143,518 |
| | 142,050 |
| | 141,121 |
|
See the accompanying notes to consolidated financial statements.
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | |
| (In thousands) | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 |
| Net income | $ | 85,066 |
| | $ | 97,147 |
| | $ | 80,296 |
|
| Other comprehensive income (loss), net of tax | | | | | |
| Foreign currency translation adjustments | 29,294 |
| | (7,352 | ) | | (44,569 | ) |
| Unrealized gain on available-for-sale investment | — |
| | — |
| | 611 |
|
| Reclassification of cumulative translation adjustment associated with liquidated and planned sale of subsidiaries | 1,702 |
| | — |
| | — |
|
| Reclassification adjustment associated with sale of available-for-sale investments | — |
| | (611 | ) | | — |
|
| Pension liability adjustments, net of income tax (benefit) expense of $(26), $82, and $(45) for year ended December 31, 2017, 2016, and 2015 | (232 | ) | | 462 |
| | (142 | ) |
| Other comprehensive income (loss) | 30,764 |
| | (7,501 | ) | | (44,100 | ) |
| Comprehensive income | $ | 115,830 |
| | $ | 89,646 |
| | $ | 36,196 |
|
See the accompanying notes to consolidated financial statements
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Common
shares
issued | | Treasury shares | | Common
shares
outstanding | | Common
stock | | 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, 2020 | 135,149 | | | (202) | | | 134,947 | | | $ | 1,351 | | | $ | (7,112) | | | $ | 844,850 | | | $ | 577,833 | | | $ | (36,588) | | | | | $ | (840) | | | $ | — | | | $ | 1,379,494 | |
| Shares issued under stock plans | 1,133 | | | — | | | 1,133 | | | 11 | | | — | | | 8,643 | | | — | | | — | | | | | — | | | — | | | 8,654 | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | 29,884 | | | — | | | — | | | | | — | | | — | | | 29,884 | |
| Repurchase and retirement of common stock | (563) | | | — | | | (563) | | | (5) | | | — | | | (3,547) | | | (63,557) | | | — | | | | | — | | | — | | | (67,109) | |
| Dividends declared ($0.32 per share) | — | | | — | | | — | | | — | | | — | | | 15 | | | (43,626) | | | — | | | | | — | | | — | | | (43,611) | |
| Pension adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | (382) | | | — | | | (382) | |
| Foreign currency translation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,275) | | | | | — | | | — | | | (2,275) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 409,126 | | | — | | | | | — | | | — | | | 409,126 | |
| Balance at December 31, 2021 | 135,719 | | | (202) | | | 135,517 | | | 1,357 | | | (7,112) | | | 879,845 | | | 879,776 | | | (38,863) | | | | | (1,222) | | | — | | | 1,713,781 | |
| Shares issued under stock plans | 692 | | | — | | | 692 | | | 7 | | | — | | | (6,659) | | | — | | | — | | | | | — | | | — | | | (6,652) | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | 66,578 | | | — | | | — | | | | | — | | | — | | | 66,578 | |
| Issuance of common stock in connection with CMC Materials acquisition | 12,928 | | | — | | | 12,928 | | | 129 | | | — | | | 1,265,561 | | | — | | | — | | | | | — | | | — | | | 1,265,690 | |
| Dividends declared ($0.40 per share) | — | | | — | | | — | | | — | | | — | | | — | | | (57,305) | | | — | | | | | — | | | — | | | (57,305) | |
| Interest Rate Swap - Cash flow hedge | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | | | 36,069 | | | 36,069 | |
| Pension adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 1,139 | | | — | | | 1,139 | |
| Foreign currency translation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,220) | | | | | — | | | — | | | (10,220) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 208,920 | | | — | | | | | — | | | — | | | 208,920 | |
| Balance at December 31, 2022 | 149,339 | | | (202) | | | 149,137 | | | 1,493 | | | (7,112) | | | 2,205,325 | | | 1,031,391 | | | (49,083) | | | | | (83) | | | 36,069 | | | 3,218,000 | |
| Shares issued under stock plans | 1,227 | | | — | | | 1,227 | | | 13 | | | — | | | 38,671 | | | — | | | — | | | | | — | | | — | | | 38,684 | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | 61,371 | | | — | | | — | | | | | — | | | — | | | 61,371 | |
| Dividends declared ($0.40 per share) | — | | | — | | | — | | | — | | | — | | | — | | | (60,295) | | | — | | | | | — | | | — | | | (60,295) | |
| Interest Rate Swap - Cash flow hedge | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | | | (17,435) | | | (17,435) | |
| Pension adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 397 | | | — | | | 397 | |
| Foreign currency translation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12,797) | | | | | — | | | — | | | (12,797) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 180,669 | | | — | | | | | — | | | — | | | 180,669 | |
| Balance at December 31, 2023 | 150,566 | | | (202) | | | 150,364 | | | $ | 1,506 | | | $ | (7,112) | | | $ | 2,305,367 | | | $ | 1,151,765 | | | $ | (61,880) | | | | | $ | 314 | | | $ | 18,634 | | | $ | 3,408,594 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Common shares outstanding | | Common stock | | Additional paid-in capital | | Retained earnings (deficit) | | Foreign currency translation adjustments | | Available-for-sale investments - Change in net unrealized gains | | Defined benefit pension adjustments | | Total |
| Balance at December 31, 2014 | 139,793 |
| | $ | 1,398 |
| | $ | 830,430 |
| | $ | (80,712 | ) | | $ | (1,668 | ) | | $ | — |
| | $ | (1,007 | ) | | $ | 748,441 |
|
| Shares issued under stock plans | 923 |
| | 9 |
| | 1,747 |
| | — |
| | — |
| | — |
| | — |
| | 1,756 |
|
| Share-based compensation expense | — |
| | — |
| | 11,033 |
| | — |
| | — |
| | — |
| | — |
| | 11,033 |
|
| Tax benefit associated with stock plans | — |
| | — |
| | 5,457 |
| | — |
| | — |
| | — |
| | — |
| | 5,457 |
|
| Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (142 | ) | | (142 | ) |
| Available-for-sale investment, change in net unrealized gain, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | 611 |
| | — |
| | 611 |
|
| Foreign currency translation | — |
| | — |
| | — |
| | — |
| | (44,569 | ) | | — |
| | — |
| | (44,569 | ) |
| Net income | — |
| | — |
| | — |
| | 80,296 |
| | — |
| | — |
| | — |
| | 80,296 |
|
| Balance at December 31, 2015 | 140,716 |
| | 1,407 |
| | 848,667 |
| | (416 | ) | | (46,237 | ) | | 611 |
| | (1,149 | ) | | 802,883 |
|
| Shares issued under stock plans | 1,123 |
| | 11 |
| | 815 |
| | — |
| | — |
| | — |
| | — |
| | 826 |
|
| Share-based compensation expense | — |
| | — |
| | 13,436 |
| | — |
| | — |
| | — |
| | — |
| | 13,436 |
|
Repurchase and retirement of common stock
| (519 | ) | | (5 | ) | | (3,140 | ) | | (4,428 | ) | | — |
| | — |
| | — |
| | (7,573 | ) |
| Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 462 |
| | 462 |
|
| Available-for-sale investment, change in net unrealized gain, net of taxes | — |
| | — |
| | — |
| | — |
| | — |
| | (611 | ) | | — |
| | (611 | ) |
| Foreign currency translation | — |
| | — |
| | — |
| | — |
| | (7,352 | ) | | — |
| | — |
| | (7,352 | ) |
| Net income | — |
| | — |
| | — |
| | 97,147 |
| | — |
| | — |
| | — |
| | 97,147 |
|
| Balance at December 31, 2016 | 141,320 |
| | 1,413 |
| | 859,778 |
| | 92,303 |
| | (53,589 | ) | | — |
| | (687 | ) | | 899,218 |
|
| Shares issued under stock plans | 1,040 |
| | 11 |
| | (332 | ) | | — |
| | — |
| | — |
| | — |
| | (321 | ) |
| Share-based compensation expense | — |
| | — |
| | 15,306 |
| | — |
| | — |
| | — |
| | — |
| | 15,306 |
|
| Repurchase and retirement of common stock | (1,077 | ) | | (11 | ) | | (6,565 | ) | | (21,424 | ) | |
|
| |
|
| |
|
| | (28,000 | ) |
| Dividends | — |
| | — |
| | — |
| | (9,896 | ) | | — |
| | — |
| | — |
| | (9,896 | ) |
| Pension liability adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (232 | ) | | (232 | ) |
| Foreign currency translation | — |
| | — |
| | — |
| | — |
| | 29,294 |
| | — |
| | — |
| | 29,294 |
|
| Reclassification of cumulative translation adjustment associated with liquidated and planned sale of subsidiaries | — |
| | — |
| | — |
| | — |
| | 1,702 |
| | — |
| | — |
| | 1,702 |
|
| Cumulative effect of change in accounting principle | — |
| | — |
| | (488 | ) | | 1,369 |
| | — |
| | — |
| | — |
| | 881 |
|
| Net income | — |
| | — |
| | — |
| | 85,066 |
| | — |
| | — |
| | — |
| | 85,066 |
|
| Balance at December 31, 2017 | 141,283 |
| | $ | 1,413 |
| | $ | 867,699 |
| | $ | 147,418 |
| | $ | (22,593 | ) | | $ | — |
| | $ | (919 | ) | | $ | 993,018 |
|
See the accompanying notes to consolidated financial statements.
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | |
| (In thousands) | Year ended December 31, 2023 | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| Operating activities: | | | | | |
| Net income | $ | 180,669 | | | $ | 208,920 | | | $ | 409,126 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 172,683 | | | 135,371 | | | 90,311 | |
| Amortization | 214,477 | | | 143,953 | | | 47,856 | |
| Share-based compensation expense | 61,371 | | | 66,577 | | | 29,884 | |
| Charge for fair value mark-up of acquired inventory sold | — | | | 61,932 | | | 428 | |
| Provision for deferred income taxes | (145,606) | | | (102,744) | | | (18,433) | |
| Impairment of goodwill | 115,217 | | | — | | | — | |
| Loss on extinguishment of debt | 27,865 | | | 3,287 | | | 23,338 | |
| Loss from sale of businesses | 23,839 | | | — | | | — | |
| Impairment on long-lived assets | 30,464 | | | — | | | — | |
| Gain on termination of Alliance Agreement | (184,754) | | | — | | | — | |
| Charge for excess and obsolete inventory | 38,184 | | | 28,896 | | | 17,103 | |
| Amortization of debt issuance costs | 21,243 | | | 15,725 | | | 1,714 | |
| Other | 23,341 | | | 28,733 | | | (4,142) | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Trade accounts receivable and notes receivable | 608 | | | (59,643) | | | (86,766) | |
| Inventories | 102,751 | | | (203,335) | | | (168,372) | |
| Accounts payable and other accrued liabilities | (29,547) | | | 4,519 | | | 53,577 | |
| Other current assets | (11,912) | | | (13,641) | | | 2,870 | |
| Income taxes payable and refundable income taxes | (10,177) | | | 21,751 | | | (3,292) | |
| Other | (1,154) | | | 11,982 | | | 5,252 | |
| Net cash provided by operating activities | 629,562 | | | 352,283 | | | 400,454 | |
| Investing activities: | | | | | |
| Acquisition of property and equipment | (456,847) | | | (466,192) | | | (210,626) | |
| Acquisition of businesses, net of cash acquired | — | | | (4,474,925) | | | (91,942) | |
| Proceeds from sale of businesses | 814,960 | | | — | | | — | |
| Proceeds from termination of Alliance Agreement | 191,151 | | | — | | | — | |
| Other | 3,807 | | | (4,592) | | | 4,450 | |
| Net cash provided by (used in) investing activities | 553,071 | | | (4,945,709) | | | (298,118) | |
| Financing activities: | | | | | |
| Proceeds from revolving credit facility and short-term debt | — | | | 476,000 | | | 101,000 | |
| Payments of revolving credit facility and short-term debt | (135,000) | | | (341,000) | | | (101,000) | |
| Proceeds from long-term debt | 217,449 | | | 4,940,753 | | | 400,000 | |
| Payments of long-term debt | (1,338,675) | | | (145,000) | | | (550,000) | |
| Payments for debt issuance costs | (3,475) | | | (99,488) | | | (5,069) | |
| Payments for debt extinguishment costs | — | | | — | | | (19,080) | |
| Payments for dividends | (60,221) | | | (57,309) | | | (43,545) | |
| Issuance of common stock from employee stock plans | 50,792 | | | 16,168 | | | 24,744 | |
| Taxes paid related to net share settlement of equity awards | (12,108) | | | (22,820) | | | (16,090) | |
| Repurchase and retirement of common stock | — | | | — | | | (67,109) | |
| Other | (1,391) | | | (1,101) | | | (348) | |
| Net cash (used in) provided by financing activities | (1,282,629) | | | 4,766,203 | | | (276,497) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (6,514) | | | (11,903) | | | (4,167) | |
| (Decrease) increase in cash, cash equivalents and restricted cash | (106,510) | | | 160,874 | | | (178,328) | |
| Cash, cash equivalents and restricted cash at beginning of year | 563,439 | | | 402,565 | | | 580,893 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 456,929 | | | $ | 563,439 | | | $ | 402,565 | |
See the accompanying notes to consolidated financial statements
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
| | | | | | | | | | | |
| (In thousands) | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 |
| Operating activities: | | | | | |
| Net income | $ | 85,066 |
| | $ | 97,147 |
| | $ | 80,296 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 58,208 |
| | 55,623 |
| | 54,305 |
|
| Amortization | 44,023 |
| | 44,263 |
| | 47,349 |
|
| Share-based compensation expense | 15,306 |
| | 13,436 |
| | 11,033 |
|
| Provision for deferred income taxes | 1,628 |
| | (16,284 | ) | | (13,313 | ) |
| Charge for excess and obsolete inventory | 9,405 |
| | 9,302 |
| | 8,311 |
|
| Excess tax benefit from share-based compensation plans | — |
| | — |
| | (5,457 | ) |
| Amortization of debt issuance costs | 2,864 |
| | 3,947 |
| | 3,344 |
|
| Loss on extinguishment of debt | 20,687 |
| | — |
| | — |
|
| Other | 16,026 |
| | 9,744 |
| | (20,299 | ) |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Trade accounts receivable and notes receivable | (15,401 | ) | | (25,298 | ) | | 5,212 |
|
| Inventories | (20,214 | ) | | (19,871 | ) | | (26,670 | ) |
| Accounts payable and other accrued liabilities | 15,975 |
| | 31,294 |
| | (28,686 | ) |
| Other current assets | (3,330 | ) | | 185 |
| | 654 |
|
| Income taxes payable, refundable income taxes and noncurrent taxes payable | 64,516 |
| | 3,408 |
| | 4,955 |
|
| Other | (1,386 | ) | | 659 |
| | (116 | ) |
| Net cash provided by operating activities | 293,373 |
| | 207,555 |
| | 120,918 |
|
| Investing activities: | | | | | |
| Acquisition of property and equipment | (93,597 | ) | | (65,260 | ) | | (71,977 | ) |
| Acquisition of business, net of cash acquired | (20,000 | ) | | — |
| | — |
|
| Proceeds from sale or maturities of short-term investments | — |
| | 1,726 |
| | 7,692 |
|
| Other | 1,142 |
| | (3,152 | ) | | 647 |
|
| Net cash used in investing activities | (112,455 | ) | | (66,686 | ) | | (63,638 | ) |
| Financing activities: | | | | | |
| Proceeds from long-term debt | 550,000 |
| | — |
| | — |
|
| Payments of long-term debt | (460,000 | ) | | (75,000 | ) | | (100,000 | ) |
| Payments for debt issuance costs | (7,333 | ) | | — |
| | — |
|
| Payments for debt extinguishment costs | (16,200 | ) | | — |
| | — |
|
| Payments for dividends | (9,896 | ) | | — |
| | — |
|
| Issuance of common stock from employee stock plans | 5,566 |
| | 4,844 |
| | 4,264 |
|
| Taxes paid related to net share settlement of equity awards | (5,887 | ) | | (4,018 | ) | | (2,508 | ) |
| Repurchase and retirement of common stock | (28,000 | ) | | (7,573 | ) | | — |
|
| Other | (999 | ) | | — |
| | 5,457 |
|
| Net cash provided by (used in) financing activities | 27,251 |
| | (81,747 | ) | | (92,787 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 10,850 |
| | (2,558 | ) | | (4,367 | ) |
| Increase (decrease) in cash and cash equivalents | 219,019 |
| | 56,564 |
| | (39,874 | ) |
| Cash and cash equivalents at beginning of year | 406,389 |
| | 349,825 |
| | 389,699 |
|
| Cash and cash equivalents at end of year | $ | 625,408 |
| | $ | 406,389 |
| | $ | 349,825 |
|
Supplemental Cash Flow Information | | | | | | | | | | | | | | | | | |
| (In thousands) | Year ended December 31, 2023 | | Year ended December 31, 2022 | | Year ended December 31, 2021 |
| Non-cash transactions: | | | | | |
| Equity consideration on acquisition of CMC Materials, Inc. | $ | — | | | $ | 1,265,690 | | | $ | — | |
| Deferred acquisition and divestiture payments, net | 5,474 | | | — | | | 250 | |
| Equipment purchases in accounts payable | 20,573 | | | 28,295 | | | 29,042 | |
| | | | | |
| | | | | |
| Dividends payable | 730 | | | 654 | | | 658 | |
| Schedule of interest and income taxes paid: | | | | | |
| Interest paid | $ | 287,846 | | | $ | 164,183 | | | $ | 46,791 | |
| Income taxes paid, net of refunds received | 138,875 | | | 113,666 | | | 88,059 | |
|
| | | | | | | | | | | |
| (In thousands) | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 |
| Non-cash transactions: | | | | | |
| Equipment purchases in accounts payable | $ | 8,608 |
| | $ | 5,104 |
| | $ | 3,757 |
|
| Capital lease obligations incurred | $ | 4,768 |
| | — |
| | $ | — |
|
| Schedule of interest and income taxes paid: | | | | | |
| Interest paid | $ | 30,392 |
| | $ | 32,085 |
| | $ | 35,126 |
|
| Income taxes, net of refunds received | $ | 33,330 |
| | $ | 35,722 |
| | $ | 16,060 |
|
See the accompanying notes to consolidated financial statements.statements
ENTEGRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20172023
(1)1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations Entegris, Inc. (Entegris(“Entegris”, the “Company”, “we”, or the Company)“our”) is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals and advanced materials handlingand process solutions for manufacturing processes in the semiconductor and other high-technology industries.
Principles of Consolidation The 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 Estimatesand Basis of Presentation The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, Entegris evaluates its estimates, including those related to receivables, inventories, property, plant and equipment, goodwill, intangible assets, accrued liabilities, income taxes and share-based compensation, among others. Actual results could differ from those estimates. Reclassifications of certain prior year amounts have been made to conform to the current year presentation.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximatesapproximate fair value.
Allowance for Doubtful AccountsCredit Losses An allowance for uncollectible trade receivables is estimated based on a combination of write-off history, aging analysis and any specific, known troubled accounts. The Company maintains an allowance for doubtful accountscredit losses that management believes is adequate to cover expected losses on trade receivables.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out (FIFO) method. The Company records a charge to cost of sales for excess and obsolete inventory to reduce the carrying value of inventories to net realizable value.
Leases The Company determines if an arrangement is a lease at inception. Right-of-use (ROU) assets include operating and financing leases. Short-term operating lease liabilities are classified in “Other accrued liabilities” and Long-term operating lease liabilities are classified in “Long-term lease liability - Operating lease” in the consolidated balance sheet. Short-term finance leases are classified in “Other accrued liabilities” and long-term finance lease liabilities are classified in “Long-term lease liability - Finance lease” in our consolidated balance sheet.
Lease assets and liabilities greater than 12 months are recognized at commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU assets include prepaid lease payments and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an original term of 12 months or less are not recorded in the accompanying consolidated balance sheet.
Lease and non-lease components are generally accounted for separately for real estate leases. For non-real estate leases, we account for the lease and non-lease components as a single lease component.
Property, Plant and Equipment Property, plant and equipment are carried at cost and are depreciated onusing the straight-line method over the estimated useful lives of the assets. When assets are retired or disposed of, the cost and related accumulated depreciation are removed from the accounts, and gains or losses are recognized in the same period. Maintenance and repairs are expensed as incurred, while significant additions and improvements are capitalized. Long-lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable based on estimated future undiscounted cash flows. The amount of impairment, if any, is measured as the difference between the net book value and the estimated fair value of the asset(s).
Investments The Company’s nonmarketable investments are accounted for under either the cost or equity method of accounting, as appropriate. All nonmarketable investments are periodically reviewed to determine whether declines, if any, in fair value below cost basis are other-than-temporary. If the decline in fair value is determined to be other-than-temporary, an impairment loss is recorded and the investment is written down to a new cost basis.
Fair Value of Financial Instruments The carrying value of cash equivalents, accounts receivable, accounts payable, accrued payroll and related benefits, and other accrued liabilities approximates fair value due to the short maturity of those instruments. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level hierarchy for disclosure is based on the extent and level of judgment used to estimate fair value. Level 1 inputs consist of valuations based on quoted market prices in active markets for identical assets or liabilities. Level 2 inputs consist of valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or
liabilities in an inactive market, or other observable inputs. Level 3 inputs consist of valuations based upon models utilizingon unobservable inputs that are supported by little or no market observable (Level 2) inputs and credit risk, was $686 million at December 31, 2017 compared to the carrying amount of long-term debt, including current maturities, of $674 million.activity.
Goodwill and Intangible Assets Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is not subject to amortization, but is tested for impairment annually at August 31, the Company'sCompany’s annual testing date, and whenever events or changes in circumstances indicate that impairment may have occurred. The Company compares the carrying value of its reporting units, including goodwill, to their fair value. For reporting units in which the assessment indicates that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.
Based on its annual analysis,In the third quarter of 2023, a triggering event was identified when the Company announced the combination of the Specialty Chemical and Engineered Materials and Advanced Planarization Solutions reportable segments into one reportable segment called Materials Solutions, resulting in a change to the reporting units for purposes of goodwill impairment evaluation. In assessing the fair value of the reporting units before and after the change the Company utilized a discounted cash flow model and certain market information to determine the fair value. The Company determined there was no indication of impairment of goodwill andrelated to the estimated fair valuechange in reporting units.
The Company performed its annual goodwill impairment test as of eachAugust 31, 2023. No impairment charge was identified in connection with the annual goodwill impairment test with respect to the Company’s reporting unit substantially exceeded its carrying value.unit.
Amortizable intangible assets include, among other items, patented, unpatented and other developed technology and customer-based intangibles, and are amortized using the straight-line method over their respective estimated useful lives. The Company reviews intangible assets along withand other long-lived assets - primarily property, plant and equipment - for impairment if changes in circumstances or the occurrence of events suggest the remaining value may not be recoverable.
Derivative Financial Instruments The Company recordsis exposed to various market risks, including risks associated with interest rates and foreign currency exchange rates. We enter into certain derivative transactions to mitigate the volatility associated with these exposures. We have policies in place that define acceptable instrument types we may enter into and we have established controls to limit our market risk exposure. We do not use derivative financial instruments for trading or speculative purposes. In addition, all derivatives, whether designated in hedging relationships or not, are recorded on the consolidated balance sheets at fair value on a gross basis.
Interest Rate Swap
The fair value of the interest rate swap is estimated using standard valuation models using market-based observable inputs over the contractual term, including one-month Secured Overnight Financing Rate (“SOFR”) based yield curves, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value. We have designated this swap agreement as a cash flow hedge. As a cash flow hedge, unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. Unrealized gains and losses are designated as effective or liabilitiesineffective based on a comparison of the balance sheet and measures such instruments at fair value. Changeschanges in fair value of derivativesthe interest rate swap and changes in fair value of the underlying exposures being hedged. The effective portion is recorded as a component of accumulated other comprehensive loss, while the ineffective portion is recorded as a component of Interest expense. Changes in the method by which we pay interest from one-month SOFR to another rate of interest could create ineffectiveness in the swap, and result in amounts being reclassified from other comprehensive income (loss) into net income. Hedge effectiveness is tested quarterly to determine if hedge treatment is appropriate. Realized gains and losses are recorded each periodon the same financial statement line as the hedged item, which is Interest expense.
Foreign Currency Contracts Not Designated as Hedges
On a periodic basis, we enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures. These foreign exchange contracts do not qualify for hedge accounting; therefore, the gains and losses resulting from the impact of currency exchange rate movements on our forward foreign exchange contracts are recognized as Other expense (income), net in the Company’saccompanying consolidated statements of operations.
The Company periodically enters into forward foreign currency contracts to reduce exposures relating to rate changes in certain foreign currencies. Certain exposures to credit losses related to counterparty nonperformance exist. However, the Company does not anticipate nonperformance by the counterparties since they are large, well-established financial institutions. None of these derivatives is accounted for as a hedge transaction. Accordingly, changesoperations in the fair value of forward foreign currency contracts are recorded as other (income) expense, net,period in which the Company’s consolidated statements of operations. The fair values of the Company’s derivative financial instruments are based on prices quoted by financial institutions for these instruments.exchange rates change.
Foreign Currency Translation Assets and liabilities of certain foreign subsidiaries are translated from foreign currencies into U.S. dollars at period-end exchange rates, and the resulting gains and losses arising from translation of net assets located outside the U.S. are recorded as a cumulative translation adjustment, a component of accumulated other comprehensive loss in the consolidated balance sheets. Income statement amounts are translated at the weighted average exchange rates for the year. Translation adjustments are not adjusted for income taxes, as substantially all translation adjustments relate to permanent investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in otherOther expense (income) expense,, net, in the Company'sCompany’s consolidated statements of operations.
Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the relatedCompany from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales are generally recognized upon shipmentsales.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.
When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from advance payments received on sales of the Company’s products. RevenueThe Company makes the required disclosures with respect to deferred revenue in Note 2 to the consolidated financial statements.
The Company does not disclose information about remaining performance obligations that have original expected durations of one year or less.
The following is a description of principal activities from which the Company generates its revenues. The Company has three reportable segments. For more detailed information about reportable segments, see Note 21 to the consolidated financial statements. For each of the three reportable segments, the recognition of revenue regarding the nature of goods and services provided by the segments are similar and described below. The Company recognizes revenue for product sales is recognizedat a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment or delivery, when persuasive evidencedepending on the terms of an arrangement exists, when titlethe underlying contracts. For product sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and riskrecognizes the related revenue as control of loss have beeneach individual product is transferred to the customer collectabilityin satisfaction of the corresponding performance obligations. All material revenue is reasonably assured,being recognized at a point in time.
The Company generally recognizes revenue for sales of services when the Company has satisfied the performance obligation. The payment terms and pricing is fixedrevenue recognized are based on time and materials.
The Company also enters into arrangements to license its intellectual property. These arrangements typically permit the customer to use a specialized manufacturing process and in return the Company receives a royalty fee. The Company recognizes revenue for a sales-based or determinable. Shippingusage-based royalty promised in exchange for a license of intellectual property when the subsequent sale or usage occurs.
The Company offers certain customers cash discounts and handling fees related tovolume rebates as sales transactions are billed to customersincentives. The discounts and volume rebates are recorded as revenue.
a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations. The Company sellsperiodically reviews the assumptions underlying its products throughoutestimates of discounts and volume rebates and adjusts its revenues accordingly.
In addition, the world primarilyCompany offers free product rebates to companies in the microelectronics industry.certain customers. The Company performs continuing credit evaluationsutilizes an adjusted market approach to estimate the stand-alone selling price of its customersthe loyalty program and generally does not require collateral. Lettersallocates a portion of credit may be required from its customers in certain circumstances. the consideration received to the free product offering. The free product offering is redeemable upon future purchases of the Company’s products. The amount associated with free product rebates is recorded as deferred revenue on the balance sheet and is recognized as revenue when the free product is redeemed or when the likelihood of redemption is remote. The Company has deemed that the amount is immaterial for disclosure.
The Company provides for the estimated returnscosts of fulfilling its obligations under product warranties at the time the related revenue is recognized. The Company estimates the costs based on historical failure rates, projected repair costs, and current trendsknowledge of specific product failures (if any). The specific warranty terms and conditions vary depending upon the product sold and the country in both saleswhich we do business, but generally include parts and product returns.labor over a period generally ranging from 90 days to one year. The Company regularly reevaluates its estimates to assess the adequacy of the recorded warranty liabilities and adjusts the amounts as necessary.
The Company’s contracts are generally short-term in nature. Most contracts do not exceed twelve months. Payment terms vary by the type and location of the Company’s customers and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company collects various sales and value-added taxes on certain product and service salesrequires payment before the products or services are delivered to the customer. Those customers that prepay are accounted for on a net basis.represented by the contract liabilities until the performance obligations are satisfied.
Shipping and Handling Costs Shipping and handling costs incurred are recorded in cost of sales in the Company's consolidated statements of operations.
Engineering, Research and Development Expenses Engineering, research and development costsexpenses are expensed as incurred.
Share-based Compensation The Company measures the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. CompensationShare-based compensation expense is recognized using the straight-line attribution method to recognize share-based compensation over the service period of the award, with adjustments recorded for forfeitures as they occur. Awards issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis.
Government Grants The Company entered into certain incentive arrangements with the state of Colorado. We account for funds we receive from government grants by either reducing the costs of the assets (if the grant relates to capital expenditures) or expenses which could be Cost of goods sold, Selling, general and administrative, and Research and development expenses in the consolidated statements of income once the conditions and restrictions of the grant have been met and payment has been received. As of December 31, 2023, the Company did not record any incentives from these agreements since it had not satisfied all the conditions under the respective agreements.
Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax expense in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that the Company would not be able to realize all or part of its deferred tax assets. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income before taxes. Penalties and interest to be paid or received are recorded in other expense (income), net, in the statement of operations.
Comprehensive Income(Loss) Comprehensive income (loss) represents the change in equity resulting from items other than shareholder investments and distributions. The Company’s foreign currency translation adjustments, unrealized gains and losses on available-for-sale investments, interest rate swap - cash flow hedge and minimum pension liability adjustments are included in accumulated other
comprehensive loss. Comprehensive income (loss) and the components of accumulated other comprehensive loss are presented in the accompanying consolidated statements of comprehensive income (loss) and consolidated statements of equity.
Recent Accounting Pronouncements Adopted in 2017 In April 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718), which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for tax effects related to share-based payments, forfeitures, and statutory tax withholding requirements, as well as the classification of tax-related cash flows in the statement of cash flows. The update eliminates the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital. ASU No. 2016-09 became effective for the Company on January 1, 2017. 2023 The Company adopted ASU No. 2016-09 using the modified retrospective approach. In connection with the adoption of ASU No. 2016-09, the Company elected as anbelieves that no recently issued accounting policystandards will have a material impact on its Consolidated Financial statements, or apply to record forfeitures as they occur and recorded a cumulative-effect adjustment of $0.4 million to retained earnings as of January 1, 2017. The Company also recorded a cumulative-effect adjustment of $1.0 million to retained earnings as of January 1, 2017 with respect to previously unrecognized excess tax benefits. Under ASU No. 2016-09, excess tax benefits or deficiencies related to stock option exercises and restricted stock unit vesting are recognized in the consolidated statement ofits operations. Accordingly, for the twelve months ended December 31, 2017, the Company recorded a tax benefit of $3.6 million in the consolidated statement of operations. Also related to the adoption of ASU No. 2016-09, the Company elected to present the cash flow statement using the prospective transition method. No prior periods have been adjusted.
Recent Accounting Pronouncements Yet to be Adopted
In May 2014,November 2023, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers2023-07, "Segment Reporting (Topic 606)280): Improvements to Reportable Segment Disclosures", which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in fiscal year 2024 and interim periods beginning in the first quarter of fiscal year 2025. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU No. 2014-09 outlines a new, single comprehensive model2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for entitiesenhanced income tax information primarily through changes to usethe rate reconciliation and income taxes paid information. Early adoption is permitted. The updated standard is effective for our annual periods beginning in fiscal year 2025. The Company is currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
The Company currently has no other material recent accounting for revenue arisingpronouncements yet to be adopted.
2. REVENUES
The following table provides information about current contract liabilities from contracts with customerscustomers. The contract liabilities are included in other accrued liabilities balance in the consolidated balance sheet.
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Balance at beginning of year | $ | 60,476 | | | $ | 23,050 | |
| Additions due to acquisition | — | | | 11,108 | |
| Revenue recognized that was included in the contract liability balance at the beginning of the period | (37,830) | | | (30,667) | |
| Increases due to cash received, excluding amounts recognized as revenue during the period | 52,720 | | | 57,490 | |
| Contract liabilities included as part of dispositions and held for sale | (6,315) | | | (505) | |
| Balance at end of year | $ | 69,051 | | | $ | 60,476 | |
3. GOODWILL AND LONG-LIVED ASSET IMPAIRMENT
Electronic Chemicals (“EC”)
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 EC reporting unit within what is now the Materials Solutions segment (the segment resulting from combining our prior Advanced Planarization Solutions and supersedes most current revenue recognition guidance. Under ASU No. 2014-09, revenuethe Specialty Chemicals and Engineered Materials segments). In connection with the sale process, management determined that certain impairment indicators were present and evaluated intangible assets, long-lived assets and goodwill 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 Company’s contracts will be recognized when controlreporting 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 products or services transfersassets and determined no modification to the customer at anuseful life of the assets was necessary.
Goodwill
The Company compared the reporting unit’s fair value to its carrying amount, that reflectsincluding goodwill, as of April 1, 2023. As the considerationreporting unit’s carrying amount, including goodwill, exceeded its fair value, the Company expectsdetermined the goodwill was impaired and recorded an impairment of $88.9 million during the three months ended April 1, 2023 and an incremental impairment charge of $15.9 million was recorded as a result of certain purchase price adjustments during the three months ended September 30, 2023. The impairment is classified as goodwill impairment in the Company's consolidated statement of operations. The goodwill impairment is not tax deductible. The fair value of the reporting unit was determined using a market-based approach, which was aligned to receivethe expected selling price. We consider this a Level 3 measurement in exchange for those goods or services,the fair value hierarchy.
Following the end of our third quarter of fiscal year 2023, on October 2, 2023, we completed the sale of the EC reporting unit, which is generally consistentreported into the Materials Solutions segment. For more information, see Note 5.
Other Business
During the fourth quarter of 2023, the Company began the process to sell a small, industrial specialty chemicals business that reports within the MS segment. The related assets and liabilities of the business were classified as held-for-sale in the Company’s consolidated balance sheet at December 31, 2023. In connection with the revenue recognition model currently usedsale 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 December 31, 2023.
Goodwill
The Company compared the reporting unit’s fair value to its carrying value, including goodwill, as of December 31, 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 $10.4 million during the year ended December 31, 2023. The impairment is classified as goodwill impairment in the Company’s consolidated statement of operations. The goodwill impairment is not deductible for tax purposes. The fair value of the reporting unit was determined using a market and income-based approach. We consider this a Level 3 measurement in the fair value hierarchy.
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 Company's contracts. ASU No. 2014-09 provides a five-step analysis for determining whenreporting unit and how revenue is recognized.determined that the undiscounted cash flows did not exceed the carrying value. The Company performed and completed a review of its revenue streams asnext compared the reporting unit’s fair value to its current accounting policies for customer contractscarrying amount. As the reporting unit’s carrying amount
exceeded its fair value, the Company determined long-lived assets were impaired and recorded an impairment of $30.5 million during the year ended December 31, 2023. The impairment is classified as Selling, general and administrative expense in 2017.the Company's consolidated statement of operations. The Company designed and implemented specific controls over its evaluationfair value of the impactreporting unit was determined using a market-based approach. We consider this a Level 3 measurement in the fair value hierarchy.
4. ACQUISITION
CMC Materials, Inc.
On July 6, 2022 (the “Closing Date”), the Company completed its acquisition of ASU No. 2014-09, including its calculationCMC Materials, Inc. (“CMC Materials”), a Delaware corporation, for approximately $6.0 billion in cash and stock (the “Acquisition”) pursuant to an Agreement and Plan of the cumulative effectAcquisition dated as of adopting the standard.December 14, 2021 (the “Acquisition Agreement”). As a result of its evaluation, the Company also identified changes to and modified certain of its accounting policies and practices. Although there were no significant changes to its accounting systems or controls upon adoption, the Company modified certain of its existing controls to incorporate the revisions made to its accounting policies and practices. The Company adopted ASU No. 2014-09 on January 1,2018 onAcquisition, CMC Materials became a modified retrospective basis and has concluded that the adoption of this ASU did not have a material impact on the Company’s consolidated financial statementsand its internal controls over financial reporting. The Company recorded a cumulative adjustment that decreased retained earnings by approximately $0.7 million reflecting the cumulative impact of changes to revenue recognition related to certain customer incentive arrangements and to product deliveries using certain shipping terms made upon adoption of ASU No. 2014-09. ASU No. 2014-09 also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, these arrangements must now be recognized as assets and liabilities on the balance sheetwholly owned subsidiary of the lessee. Under ASU No. 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases, and amortization and interest expense for financing leases.Company. The balance sheet amount recorded for existing leases at the date of adoption of ASU No. 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. ASU No. 2016-02 is effective beginning January 1, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and disclosures, and the timing of adoption.
(2) ACQUISITION
On April 24, 2017, the Company acquired the microelectronic water and chemical filtration product line of W.L. Gore & Associates, Inc. (Gore). The acquired assets became part of the Company’s Microcontamination Control (MC) segment. The transactionAcquisition was accounted for under the acquisition method of accounting and the results of operations of the product lineCMC Materials are included in the Company's consolidated financial statements as of and since April 24, 2017. The acquisitionJuly 6, 2022. CMC Materials reports into the MS segment of the product line’s assets and liabilities does not constitute a material business combination.
The purchase price for the product line was cash considerationCompany. Direct costs of $20.0$39.5 million funded from the Company's existing cash on hand. Costs associated with the acquisition of the product line were not significantCMC Materials, consisting primarily of professional and consulting fees, were expensed as incurred.incurred in the twelve months ended December 31, 2022, respectively. These costs are classified as selling, general and administrative expense in the Company's consolidated statement of operations. The amounts of net sales and net loss from CMC Materials since the acquisition date included in the consolidated statement of operations for the twelve months ended December 31, 2022 are $581.0 million and $75.8 million, respectively.
CMC Materials is a global supplier of consumable materials, primarily to semiconductor manufacturers. The Company’s products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The acquisition was executed to expand the Company’s product offering base and technological base, to better serve its customers, to enhance the Company’s materials and process solutions for the most advanced manufacturing environments and to help customers improve productivity, performance and total cost of ownership.
The purchase price of CMC Materials consisted of the product line exceedsfollowing:
| | | | | |
| (In thousands) | |
| Cash paid to CMC Materials’ shareholders | $ | 3,836,983 | |
| Stock paid to CMC Materials’ shareholders | 1,265,690 | |
| Repayment of CMC Materials’ indebtedness | 918,578 | |
| Total purchase price | 6,021,251 | |
| Less cash and cash equivalents acquired | 280,636 | |
| Total purchase price, net of cash acquired | $ | 5,740,615 | |
Under the terms of the Acquisition Agreement, the Company paid $133.00 per share for all outstanding shares of CMC Materials (excluding treasury shares). In addition, the Company settled all outstanding share-based compensation awards held by CMC Materials’ employees at the same per share price except for certain unvested performance units that were replaced by the Company’s restricted share units. The acquisition method of accounting requires the Company to include the amount associated with pre-combination service as purchase price for the acquisition, reflected in the table immediately above.
The Acquisition was funded with existing cash balances as well as funds raised by the Company through the issuance of debt in the form of a new term loan facility in the aggregate principal amount of $2,495.0 million, senior secured notes due 2029 in an aggregate principal amount of $1,600.0 million, senior unsecured notes due 2030 in an aggregate principal amount of $895.0 million, and a 364-Day Bridge Credit Facility in the aggregate principal amount of $275.0 million (collectively “CMC Materials Acquisition Financing”).
The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the Acquisition as originally reported and as of December 31, 2022:
| | | | | | | | |
| (In thousands) | As of 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.
The Company recognized the following intangible assets as part of the acquisition of CMC Materials and finite lived assets will be 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 | | | 1.2 |
| $ | 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 fair value each of the identifiable intangible assets. The Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy.
The purchase price of CMC Materials exceeded the fair value of the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $8.0$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 which is expected to be deductible for income 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 as of the beginning of the years presented. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations 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.
| | | | | | | | | | | | | | |
| | | Year Ended |
| (In thousands) | | December 31, 2022 | | December 31, 2021 |
| Net sales | | $ | 3,920,850 | | | $ | 3,518,893 | |
| Net income (loss) | | 292,867 | | | (145,732) | |
| | | | |
| Per share amounts: | | | | |
| Net income (loss) per common share - basic | | $ | 1.97 | | | $ | (0.98) | |
| Net income (loss) per common share - diluted | | $ | 1.95 | | | $ | (0.98) | |
The unaudited pro forma financial information above gives effect to the following:
•The elimination of transactions between Entegris and CMC Materials, which upon completion of the Acquisition would be considered intercompany transactions. 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 gain on the termination of two swap instruments which were terminated on June 24, 2022 associated with the extinguished CMC Materials’ debt outstanding.
•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 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.
•The income tax effect of the transaction accounting adjustments related to the Acquisition calculated using a blended statutory income tax rate of 22.5%.
5. ASSETS HELD-FOR-SALE AND DIVESTITURES
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 consolidated statement of operations.
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 based on the held-for-sale criteria. The assets and liabilities continue to be marketed for sale and are classified as held-for-sale at December 31, 2023 based on the carrying value.
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.
PIM Assets-held-for sale comprise the following as of December 31, 2023:
| | | | | | | | |
| (In thousands) | | |
| Assets: | | December 31, 2023 |
| Current assets | | $ | 50,975 | |
| Property, Plant and Equipment, net | | 115,920 | |
| Intangible assets, net | | 76,692 | |
| Goodwill | | 12,707 | |
| Other assets | | 1,373 | |
| Total assets-held-for sale | | $ | 257,667 | |
| | |
| Liabilities: | | |
| Accounts payable | | $ | 8,867 | |
| Accrued expenses | | 7,662 | |
| Long-term liabilities | | 1,508 | |
| Total liabilities-held-for sale | | $ | 18,037 | |
Income before income taxes attributable to the PIM business was $45.0 million and tax expense totaled $7.5 million for the twelve months ended December 31, 2023.
Asset Held-For-Sale - Other
During the fourth quarter of 2023, the Company began the process to sell a small, industrial specialty chemicals business that reports within the Materials Solutions segment. The related assets and liabilities of the business 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 proposed disposition of the 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.
Other Assets-held-for sale comprise the following as of December 31, 2023:
| | | | | | | | |
| (In thousands) | | |
| Assets: | | December 31, 2023 |
| Current assets | | $ | 8,315 | |
| Property, Plant and Equipment, net | | 2,454 | |
| Intangible assets, net | | 10,317 | |
| Total assets-held-for sale | | $ | 21,086 | |
| | |
| Liabilities: | | |
| Accounts payable | | $ | 711 | |
| Accrued expenses | | 475 | |
| Total liabilities-held-for sale | | $ | 1,186 | |
Loss before income taxes attributable to the business was $45.0 million and a tax benefit of $9.2 million for the twelve months ended December 31, 2023. The loss before income taxes attributable to the business includes a goodwill impairment charge of $10.4 million and long-lived asset impairment charge of $30.5 million.
Divestiture - EC Business
During the second quarter of 2023, the Company announced entry into a definitive agreement to sell its EC business, which became part of the Company with the acquisition of CMC Materials, to FUJIFILM Holdings America Corporation. The EC business specializes in purification, formulation, blending, packaging and distribution of high-purity process chemicals used within the semiconductor and microelectronic manufacturing processes. The EC business was a part of what is now the Materials Solutions segment and became part of the Company with the acquisition of CMC Materials.
The Company completed the divestiture of the EC business on October 2, 2023. The Company received gross cash proceeds of $737.1 million, or expected net proceeds of $675.2 million, which remains subject to customary final post-closing adjustments. The following table summarizes the final allocationfair value of the purchase pricesale proceeds received in connection with the divestiture, which are subject to the fair values assignedfurther final post-closing adjustment:
| | | | | | | | |
| (In thousands) | | October 2, 2023 |
| Cash proceeds received, gross | | $ | 737,100 | |
| Preliminary working capital adjustment | | (5,474) | |
| Cash transferred to the buyer on the closing balance sheet | | (42,845) | |
| Direct costs to sell | | (13,581) | |
| Fair value of sale consideration | | $ | 675,200 | |
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.
The carrying amount of net assets associated with the EC business was approximately $681.5 million. The major classes of assets and liabilities assumed atsold consisted of the datefollowing:
| | | | | | | | |
| (In thousands) | | |
| Assets: | | October 2, 2023 |
| Current assets | | $ | 103,927 | |
| Property, Plant and Equipment, net | | 177,397 | |
| Intangible assets, net | | 263,686 | |
| Goodwill | | 250,638 | |
| Other assets | | 7,966 | |
| Total assets-held-for sale | | $ | 803,614 | |
| | |
| Liabilities: | | |
| Accounts payable | | $ | 18,975 | |
| Accrued expenses | | 21,141 | |
| Long-term liabilities | | 81,963 | |
| Total liabilities-held-for sale | | $ | 122,079 | |
As a result of acquisition:
|
| | | |
| (In thousands) | Amount |
| Other current assets | $ | 726 |
|
| Property, plant and equipment | 2,447 |
|
| Identifiable intangible assets | 8,820 |
|
| Net assets acquired | 11,993 |
|
| Goodwill | $ | 8,007 |
|
| Total purchase price | 20,000 |
|
Intangible assets, consisting mostlythe EC business divestiture, the Company recognized a pre-tax loss of technology-related intellectual property, generally will be amortized$8.9 million, including a $2.6 million loss reclassified from accumulated other comprehensive income for foreign currency translation and minimum pension liability, presented in selling, general and administrative expenses on a straight-line basis overthe consolidated statements of operations for the twelve months ended December 31, 2023. The Company recorded an estimated useful lifeincome tax benefit associated with the EC business divestiture of approximately 7 years.$63.4 million.
AsDivestiture - 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 accounting for thisCompany 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 Company allocatedcriteria to be classified as a discontinued operation in the purchase price ofCompany’s financial statements since the acquired product line baseddisposition 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:
| | | | | | | | |
| (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, net proceeds | | $ | 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 | | 841 | |
| 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 consolidated statements of operations for the twelve months ended December 31, 2023. The Company recorded an income tax expense associated with the QED divestiture of approximately $16.9 million.
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 net proceeds of $191.2 million for the twelve months ended December 31, 2023. The Company recognized a pre-tax gain of $184.8 million (tax expense of $41.7 million) presented in gain on termination of the Alliance Agreement on the consolidated statements of operations for the twelve months ended December 31, 2023.
6. RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the consolidated statement of cash flows.
| | | | | | | | | | | |
| (In thousands) | December 31, 2023 | | December 31, 2021 |
| Cash and cash equivalents | $ | 456,929 | | | $ | 561,559 | |
| Restricted cash | — | | | 1,880 | |
| Total cash, cash equivalents and restricted cash | $ | 456,929 | | | $ | 563,439 | |
The restricted cash represents cash held in a “Rabbi” trust. CMC Materials’ change in control severance protection agreements required CMC Materials to establish a Rabbi trust prior to its acquisition by the Company and to fully fund the trust to cover all the assets acquired.severance benefits that would become payable under the agreements. The valuation of the assets acquired was based on the information that was availableCompany had no restricted cash as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company's management.December 31, 2023.
In performing these valuations, the Company used independent appraisals, discounted cash flows and other factors, as the best evidence
(3)7. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable from customers at December 31, 20172023 and 20162022 consist of the following: | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Accounts receivable | $ | 457,566 | | | $ | 536,256 | |
| Notes receivable | 5,898 | | | 4,672 | |
| Total trade accounts and notes receivable | 463,464 | | | 540,928 | |
| Less allowance for credit losses | 6,412 | | | 5,443 | |
| Trade accounts and notes receivable, net | $ | 457,052 | | | $ | 535,485 | |
|
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Accounts receivable | $ | 179,194 |
| | $ | 163,759 |
|
| Notes receivable | 5,100 |
| | 4,390 |
|
| | 184,294 |
| | 168,149 |
|
| Less allowance for doubtful accounts | 860 |
| | 2,474 |
|
| | $ | 183,434 |
| | $ | 165,675 |
|
(4)8. INVENTORIES
Inventories at December 31, 20172023 and 20162022 consist of the following: | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Raw materials | $ | 248,656 | | | $ | 337,576 | |
| Work-in-process | 49,704 | | | 60,182 | |
Finished goods (1) | 308,691 | | | 415,057 | |
| Inventories, net | $ | 607,051 | | | $ | 812,815 | |
|
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Raw materials | $ | 58,226 |
| | $ | 53,109 |
|
| Work-in-process | 16,193 |
| | 15,976 |
|
Finished goods (a) | 123,670 |
| | 114,444 |
|
| | $ | 198,089 |
| | $ | 183,529 |
|
(a) (1) Includes consignment inventories held by customers for $15.6of $20.8 million and $16.4$46.2 million at December 31, 20172023 and 2016,2022, respectively.
(5)9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 20172023 and 20162022 consists of the following: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | Estimated
useful lives in
years |
| Land | $ | 44,177 | | | $ | 62,192 | | | |
| Buildings and improvements | 779,589 | | | 490,903 | | | 5-35 |
| Manufacturing equipment | 685,504 | | | 569,224 | | | 5-10 |
| Canisters and cylinders | 186,231 | | | 168,516 | | | 3-12 |
| Molds | 83,745 | | | 76,388 | | | 3-5 |
| Office furniture and lab equipment | 299,438 | | | 330,284 | | | 3-8 |
| Construction in progress | 297,448 | | | 465,923 | | | |
| Total property, plant and equipment | 2,376,132 | | | 2,163,430 | | | |
| Less accumulated depreciation | 908,089 | | | 770,093 | | | |
| Property, plant and equipment, net | $ | 1,468,043 | | | $ | 1,393,337 | | | |
|
| | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | Estimated useful lives in years |
| Land | $ | 16,795 |
| | $ | 15,903 |
| | |
| Buildings and improvements | 174,615 |
| | 155,769 |
| | 5-35 |
| Manufacturing equipment | 274,723 |
| | 248,201 |
| | 5-10 |
| Canisters and cylinders | 77,325 |
| | 65,100 |
| | 3-12 |
| Molds | 80,198 |
| | 76,782 |
| | 3-5 |
| Office furniture and equipment | 121,345 |
| | 107,194 |
| | 3-8 |
| Construction in progress | 42,288 |
| | 40,136 |
| | |
| | 787,289 |
| | 709,085 |
| | |
| Less accumulated depreciation | 427,766 |
| | 387,523 |
| | |
| | $ | 359,523 |
| | $ | 321,562 |
| | |
The table below sets forth the depreciation expense for the years ended December 31, 2017, 20162023, 2022 and 2015:2021: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Depreciation expense | $ | 172,683 | | | $ | 135,371 | | | $ | 90,311 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Depreciation expense | $ | 58,208 |
| | $ | 55,623 |
| | $ | 54,305 |
|
(6)10. GOODWILL AND INTANGIBLE ASSETS
Goodwill activity for each of the Company'sCompany’s reportable segments, that carry goodwill, Specialty Chemicals and Engineered Materials (SCEMSolutions (“MS”), Microcontamination Control (MC)(“MC”), and Advanced Materials Handling (AMH)(“AMH”), for the years ended December 31, 20172023 and 20162022 is shown below:
|
| | | | | | | | | | | | | | | |
| (In thousands) | SCEM | | MC | | AMH | | Total |
| December 31, 2015 | $ | 294,700 |
| | $ | — |
| | $ | 47,411 |
| | $ | 342,111 |
|
| Addition due to purchase accounting adjustments | 4,434 |
| | — |
| | — |
| | 4,434 |
|
| Other, including foreign currency translation | (1,276 | ) | | — |
| | — |
| | (1,276 | ) |
| December 31, 2016 | 297,858 |
| | — |
| | 47,411 |
| | 345,269 |
|
| Addition due to acquisition | — |
| | 8,007 |
| | — |
| | 8,007 |
|
| Other, including foreign currency translation | 6,412 |
| | — |
| | — |
| | 6,412 |
|
| December 31, 2017 | $ | 304,270 |
| | $ | 8,007 |
| | $ | 47,411 |
| | $ | 359,688 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | MS | | MC | | AMH | | Total |
| December 31, 2021 | $ | 470,875 | | | $ | 248,725 | | | $ | 74,102 | | | $ | 793,702 | |
| Addition due to acquisitions | 3,628,457 | | | — | | | — | | | 3,628,457 | |
| Purchase accounting adjustments | 5 | | | — | | | — | | | 5 | |
| | | | | | | |
| Goodwill included in assets held-for-sale | (8,822) | | | — | | | — | | | (8,822) | |
| Foreign currency translation | 1,626 | | | (6,637) | | | — | | | (5,011) | |
| December 31, 2022 | 4,092,141 | | | 242,088 | | | 74,102 | | | 4,408,331 | |
| Goodwill impairment | (115,217) | | | — | | | — | | | (115,217) | |
| Disposition of businesses | (340,643) | | | — | | | — | | | (340,643) | |
| Purchase accounting adjustments | (1,021) | | | — | | | — | | | (1,021) | |
| Goodwill included in assets held-for-sale | (3,885) | | | — | | | — | | | (3,885) | |
| Foreign currency translation | (25) | | | (1,680) | | | — | | | (1,705) | |
| December 31, 2023 | $ | 3,631,350 | | | $ | 240,408 | | | $ | 74,102 | | | $ | 3,945,860 | |
As of December 31, 2017,2023, goodwill amounted to approximately $359.7$3,945.9 million, an increasea decrease of $14.4$462.5 million from the balance at December 31, 2016.2022. The increasedecrease in goodwill in 20172023 reflects (1) the acquisitiongoodwill impairment of our EC reporting unit of $104.8 million and for a small, industrial specialty chemicals business of $10.4 million, as described in Note 3, (2) the sale of the microelectronic waterQED and chemical filtration product lineEC businesses and related goodwill of Gorethe respective business of $90.0 million and $250.6 million respectively as described in note 2. In addition,Note 5, (3) purchase accounting adjustments recognized during the one-year measurement period of $1.0 million, (4) goodwill increased duereclassified to asset held-for-sale of $3.9 million related to the PIM business as described in Note 5 and (5) foreign currency translation.translation of $1.7 million.
Identifiable intangible assets at December 31, 20172023 and 20162022 consist of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| (In thousands) | Gross carrying
amount | | Accumulated
amortization | | Net carrying
value | | Weighted
average life in
years |
| Developed technology | $ | 1,256,469 | | | $ | 455,720 | | | $ | 800,749 | | | 7.2 |
| Trademarks and trade names | 172,031 | | | 37,877 | | | 134,154 | | | 14.0 |
| Customer relationships | 630,743 | | | 293,782 | | | 336,961 | | | 14.0 |
In-process research and development (1) | 7,100 | | | — | | | 7,100 | | | |
| Other | 23,924 | | | 20,919 | | | 3,005 | | | 5.6 |
| $ | 2,090,267 | | | $ | 808,298 | | | $ | 1,281,969 | | | 9.7 |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| (In thousands) | Gross carrying
amount | | Accumulated
amortization | | Net carrying
value | | Weighted
average life in
years |
| Developed technology | $ | 1,302,101 | | | $ | 313,876 | | | $ | 988,225 | | | 7.3 |
| Trademarks and trade names | 250,473 | | | 29,565 | | | 220,908 | | | 14.3 |
| Customer relationships | 863,947 | | | 273,039 | | | 590,908 | | | 15.4 |
In-process research and development (1) | 31,100 | | | — | | | 31,100 | | | |
| Other | 31,206 | | | 20,392 | | | 10,814 | | | 4.3 |
| $ | 2,478,827 | | | $ | 636,872 | | | $ | 1,841,955 | | | 10.8 |
(1) Intangible assets acquired in a business combination that are in-process and used in research and development activities are considered indefinite-lived until the completion or abandonment of the research and development efforts. Once the research and development efforts are completed, we determine the useful life and begin amortizing the assets.
|
| | | | | | | | | | | | | |
| 2017 |
| (In thousands) | Gross carrying Amount | | Accumulated amortization | | Net carrying value | | Weighted average life in years |
| Developed technology | 206,224 |
| | 149,215 |
| | 57,009 |
| | 6.6 |
| Trademarks and trade names | 16,807 |
| | 13,712 |
| | 3,095 |
| | 9.9 |
| Customer relationships | 220,806 |
| | 110,281 |
| | 110,525 |
| | 10.3 |
| Other | 20,032 |
| | 8,231 |
| | 11,801 |
| | 6.7 |
| | $ | 463,869 |
| | $ | 281,439 |
| | $ | 182,430 |
| | 8.5 |
|
| | | | | | | | | | | | | |
| 2016 |
| (In thousands) | Gross carrying amount | | Accumulated amortization | | Net carrying value | | Weighted average life in years |
| Developed technology | 202,591 |
| | 126,077 |
| | 76,514 |
| | 6.7 |
| Trademarks and trade names | 16,661 |
| | 12,617 |
| | 4,044 |
| | 9.9 |
| Customer relationships | 216,918 |
| | 90,581 |
| | 126,337 |
| | 10.3 |
| Other | 18,585 |
| | 7,932 |
| | 10,653 |
| | 6.5 |
| | $ | 454,755 |
| | $ | 237,207 |
| | $ | 217,548 |
| | 8.5 |
The table below sets forth the amortization expense for finite-lived intangible assets for the years ended December 31, 2017, 2016,2023, 2022, and 2015:2021: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Amortization expense | $ | 214,477 | | | $ | 143,953 | | | $ | 47,856 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Amortization expense | $ | 44,023 |
| | $ | 44,263 |
| | $ | 47,349 |
|
The amortization expense for each of the five succeeding years and thereafter relating to finite-lived intangible assets currently recorded in the Company'sCompany’s consolidated balance sheets is estimated to be the following at December 31, 2017:2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
| Future amortization expense | $ | 191,213 | | | 185,102 | | | 182,265 | | | 178,479 | | | 175,983 | | | 368,927 | | | $ | 1,281,969 | |
|
| | | |
| Fiscal year ending December 31 | (In thousands) |
| 2018 | $ | 43,670 |
|
| 2019 | 41,540 |
|
| 2020 | 26,767 |
|
| 2021 | 20,055 |
|
| 2022 | 19,907 |
|
| Thereafter | 30,491 |
|
| | $ | 182,430 |
|
(7)11. DEBT
Long-termThe Company’s debt at December 31, 20172023 and 20162022 consists of the following: | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
Senior secured term loan due 2029 (1) | $ | 1,373,774 | | | $ | 2,495,000 | |
| Senior secured notes due 2029 at 4.75% | 1,600,000 | | | 1,600,000 | |
| Senior unsecured notes due 2030 at 5.95% | 895,000 | | | 895,000 | |
| Senior unsecured notes due 2029 at 3.625% | 400,000 | | | 400,000 | |
| Senior unsecured notes due 2028 at 4.375% | 400,000 | | | 400,000 | |
| Bridge Credit Facility due 2023 | — | | | 135,000 | |
Revolving facility due 2027 (2) | — | | | — | |
| $ | 4,668,774 | | | $ | 5,925,000 | |
| Unamortized discount and debt issuance costs | 91,633 | | | 140,107 | |
| Total debt, net | $ | 4,577,141 | | | $ | 5,784,893 | |
| Less short-term debt, including current portion of long-term debt | — | | | 151,965 | |
| Total long-term debt, net | $ | 4,577,141 | | | $ | 5,632,928 | |
|
| | | | | | | |
| (In thousands) | December 31, 2017 | | December 31, 2016 |
| Senior secured term loan facility due 2021 | $ | 133,850 |
| | $ | 233,850 |
|
| Senior unsecured notes due 2022 | — |
| | 360,000 |
|
| Senior unsecured notes due 2026 | 550,000 |
| | — |
|
| | 683,850 |
| | 593,850 |
|
| Unamortized discount and debt issuance costs | 9,470 |
| | 9,173 |
|
| Total long-term debt | 674,380 |
| | 584,677 |
|
| Less current maturities of long-term debt | 100,000 |
| | 100,000 |
|
| Long-term debt less current maturities | $ | 574,380 |
| | $ | 484,677 |
|
Annual maturities of long-term debt, contractuallyexcluding unamortized discount and issuance costs, due as of December 31, 20172023 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
| Contractual debt obligation maturities* | $ | — | | | — | | | — | | | — | | | 400,000 | | | 4,268,774 | | | $ | 4,668,774 | |
|
| | | |
| Fiscal year ending December 31 | (In thousands) |
| 2018 | $ | — |
|
| 2019 | — |
|
| 2020 | — |
|
| 2021 | 133,850 |
|
| 2022 | — |
|
| Thereafter | 550,000 |
|
| | $ | 683,850 |
|
In November 2017,(1)As of Amendment No.2 to the Credit and Guaranty Agreement on September 11, 2023, the Term Loans due 2029 bear interest at a rate per annum equal to the SOFR plus an applicable margin of 2.50%.
(2) The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin.
On March 10, 2023 and September 11, 2023, the Company issued $550 million aggregate principal amountand certain of 4.625% senior unsecured notes due February 10, 2026its subsidiaries entered into Amendment No. 1 (the "2026 Notes"“First Amendment”). The Company used the net proceeds of the issuance of the 2026 Senior Unsecured Notes to redeem all of the Company's 6.000% Senior Unsecured Notes due 2022 and Amendment No. 2 (the "2022 Notes"“Second Amendment”), to pay fees and expenses related to the issuance and the redemption, and for general corporate purposes. Debt issuance costs of $7.1 million paid to third parties
are capitalized as debt issuance costs in connectionrespectively, with the 2026 Notes. These debt issuance costs are being amortizedlenders party thereto and Morgan Stanley Senior Funding, Inc., as interest expense inadministrative agent, which amended the Company's consolidated statements of operations over the term of the debt instrument using the straight-line method. The 2022 Notes were redeemed at the redemption price of 104.5% (expressed as percentage of principal amount), plus accruedCredit and unpaid interest. The redemption of the 2022 Notes resulted in a loss of $20.7 million on extinguishment of debt, which is included in other expense in the Company's consolidated statement of operations.
2022 Senior Unsecured Notes
On April 1, 2014, the Company issued $360 million aggregate principal amount of 6.000% senior unsecured notes due April 1, 2022. The 2022 Notes were issued under an indentureGuaranty Agreement, dated as of April 1, 2014November 6, 2018 (as amended and restated as of July 6, 2022 and as further amended, restated, amended and restated, supplemented, modified and otherwise in effect prior to the effectiveness of the First Amendment and the Second Amendment, the “Existing Credit Agreement” and, the Existing Credit Agreement as amended by the First Amendment and the Second Amendment, the “Amended Credit Agreement”), by and among the Company, and Wells Fargo Bank, National Association, as trustee. Interest on the 2022 Notes is payable semi-annually in arrears on April 1 and October 1, commencing October 1, 2014. As stated above, the 2022 Notes were redeemed in November 2017.
2026 Senior Unsecured Notes
On November 10, 2017,borrower, certain subsidiaries of the Company issued $550 millionparty thereto, as guarantors, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent.
The First Amendment provided for, among other things, the refinancing of the Company’s outstanding term B loans under the Existing Credit Agreement in an aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026. The 2026 Notes were issued under an indenture dated as$2.495 billion (the “Original Tranche B Term Loans”) with a new tranche of November 10, 2017 (the "2026 Notes Indenture") by and among the Company and Wells Fargo Bank, National Association, as trustee. Interest on the 2026 Notes is payable semi-annually in arrears on February 15 and August 15, commencing February 15, 2018.
The 2026 Notes are guaranteed, jointly and severally, fully and unconditionally, on a senior unsecured basis, by, subject to certain exclusions, each of the Company’s domestic subsidiaries (the Guarantors) that guarantee indebtednessterm B loans under the Company’s senior secured term loan facility and senior secured asset-based revolving credit facility (Senior SecuredAmended Credit Facilities).
As providedAgreement in the 2026 Notes Indenture, the Company may at its option on one or more occasions redeem all or a part of the 2026 Notes at a redemption price equal to (a) 100% of the principal amount of the 2026 Notes redeemed plusa make-whole premium if redeemed prior to November 10, 2020, or (b) 100% of the principal amount of the 2026 Notes redeemed plus a percentage of principal amount between 100% and 103.469% of thean aggregate principal amount of notes to be redeemed depending on$2.495 billion (the “New Tranche B Term Loans”). Under the period of redemption, if redeemed on or after November 10, 2020, plus, in each case, accrued and unpaidFirst Amendment, the New Tranche B Term Loans bore interest on the amount of 2026 Notes being redeemed.
Upon a change in control accompanied by certain rating events, the Company is required to offer to repurchase all of the 2026 Notes at a price in cashrate per annum equal to, 101%at the Company’s option, either (i) Term SOFR plus an applicable margin of the aggregate principal amount thereof,2.75% or (ii) a base rate plus accrued and unpaid interest, if any, to, but not including, the datean applicable margin of repurchase.1.75%.
The 2026 Notes Indenture contains covenants that,Second Amendment provides for, among other things, and subject to certain exceptions, limit the Company's ability and the abilityreduction of the Company's restricted subsidiaries to create liens, enter into sale and leaseback transactions, engage in consolidations or mergers, or sell, transfer or otherwise dispose of all or substantially all of their assets. The 2026 Notes Indenture also, subject to certain exceptions, limits the ability of any non-Guarantor subsidiaryapplicable rate of the Company to incur indebtedness. The Company is in compliance with all of the above covenants at December 31, 2017.
The 2026 Notes Indenture also provides for events of default which, if certain of them occur, would permit the trustee or the holders of at least 25% in aggregate principal amount of the thenCompany’s outstanding 2026 Notes to declare the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding 2026 Notes to be due and payable immediately.
Senior Secured Term Loan Facility
On April 30, 2014, the Company entered into a term loan credit and guaranty agreement with Goldman Sachs Bank USA, as administrative agent, collateral agent, sole lead arranger, sole bookrunner and sole syndication agent (the Term Loan Facility), that provides senior secured financing of $460 million (which may be increased by up to $225 million in certain circumstances). During the first quarter of 2017, the Company and its lenders agreed to an amendment of the term loan agreement that decreases the applicable margins for the Company’s term loan. BorrowingsB loans under the Term Loan FacilityExisting Credit Agreement (as amended by the First Amendment). After giving effect to the Second Amendment, such outstanding term B loans bear interest, at a rate per annum equal to, at the Company’s option, either (i) Term SOFR plus an applicable margin of 2.50% or (ii) a base rate (such as prime rate or LIBOR) plus an applicable margin. margin of 1.50%. Consistent with the Original Tranche B Term Loans, the new Tranche B Term Loans had a mature on July 6, 2029. Other than as described herein (and more fully described in the Second Amendment), the terms of the Amended Credit Agreement are substantially similar to the terms of the Existing Credit Agreement.
Additionally, as of December 31, 2023, during the fiscal year 2023, the Company has repaid $1.1 billion of the outstanding borrowings under the Amended Credit Agreement. In connection with this repayment and entry into the First Amendment and the Second Amendment, the Company incurred a pre-tax loss on extinguishment and modification of debt of $29.2 million for the twelve months ended December 31, 2023, which is included in Other expense, net on the consolidated statements of operations.
On April 20, 2023, the Company repaid the principal amount of the $135.0 million bridge credit facility. In connection with the repayment of this debt, the Company incurred a pre-tax loss on extinguishment of debt of $0.7 million for the twelve months ended December 31, 2023, which is included in Other expense, net on the consolidated statements of operations.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company'sCompany is required to record certain assets and liabilities at fair value. The valuation methods used for determining the fair value of these financial instruments by hierarchy are as follows:
Level 1Cash and cash equivalents consist of various bank accounts used to support our operations and investments in institutional money-market funds that are traded in active markets. The restricted cash represents cash held in a “Rabbi” trust, further described in Note 6.
Level 2 Derivative financial instruments include an interest rate swap contract and foreign exchange contracts. The fair value of our derivative instruments is 3.819%estimated using standard valuation models and market-based observable inputs over the contractual term, including the prevailing SOFR based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap curve for forward foreign exchange contracts, among others. The fair value of our debt is estimated based on independent broker/dealer bids or by comparison to other debt securities having similar durations, yields and credit ratings.
Level 3 No Level 3 financial instruments
The following table presents financial instruments that we measure at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using |
| (In thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | 2023 | 2022 | | 2023 | 2022 | | 2023 | 2022 | | 2023 | 2022 |
| Cash and cash equivalents | $ | 456,929 | | $ | 561,559 | | | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | 456,929 | | $ | 561,559 | |
| Restricted cash | — | | 1,880 | | | — | | — | | | — | | — | | | — | | 1,880 | |
| Derivative financial instruments - Interest rate swap - cash flow hedge | — | | — | | | 24,069 | | 46,589 | | | — | | — | | | 24,069 | | 46,589 | |
| Derivative financial instruments -Forward exchange contracts | — | | — | | | — | | 726 | | | — | | — | | | — | | 726 | |
| Total Assets | $ | 456,929 | | $ | 563,439 | | | $ | 24,069 | | $ | 47,315 | | | $ | — | | $ | — | | | $ | 480,998 | | $ | 610,754 | |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | |
| Derivative financial instruments - Forward exchange contracts | $ | — | | $ | — | | | $ | — | | $ | 193 | | | $ | — | | $ | — | | | $ | — | | $ | 193 | |
| Total Liabilities | $ | — | | $ | — | | | $ | — | | $ | 193 | | | $ | — | | $ | — | | | $ | — | | $ | 193 | |
Other Fair Value Disclosures
The fair value of our debt is considered Level 2. The estimated fair value and carrying value of our debt as of December 31, 2017. 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 |
| (In thousands) | | Carrying Value | Fair Value | | Carrying Value | Fair Value |
| Total debt, net | | $ | 4,577,141 | | $ | 4,536,238 | | | $ | 5,784,893 | | $ | 5,428,900 | |
13. DERIVATIVE INSTRUMENTS
The Company is exposed to various market risks, including risks associated with interest rates and foreign currency exchange rates. One objective of the Company's risk management program is to mitigate these risks using derivative instruments.
Cash Flow Hedges - Interest Rate Swap Contract
In addition to paying interestJuly 2022, the Company entered into a floating-to-fixed swap agreement on the outstanding principalits variable rate debt under the Term Loan Facility. The interest rate swap was designated specifically to the Term Loan Facility, is highly effective and qualifies as a cash flow hedge. The notional amount is scheduled to decrease quarterly and will expire on December 30, 2025. As cash flow hedges, unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. Unrealized gains and losses are designated as effective or ineffective based on a comparison of the changes in fair value of the interest rate swaps and changes in fair value of the underlying exposures being hedged. The effective portion is recorded as a component of accumulated other comprehensive income (loss) and will be reflected in earnings during the period the hedged transaction effects earnings, while the ineffective portion is recorded as a component of interest expense.
Foreign Currency Contracts Not Designated as Hedges
The Company is requiredenters into foreign exchange contracts in an effort to pay customary agency fees.mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures. These foreign exchange contracts do not qualify for hedge accounting. The
DuringCompany recognizes the change in fair value of its foreign currency forward contracts in the consolidated statement
of operations.
The notional amounts of our derivative instruments are as follows:
| | | | | | | | | | | |
| (In thousands) | December 31, 2023 | | December 31, 2022 |
| Derivatives designated as hedging instruments: | | | |
| Interest rate swap contract - Cash flow hedge | $ | 1,350,000 | | | $ | 1,950,000 | |
| | | |
| | | |
| Derivatives not designated as hedging instruments: | | | |
| Foreign exchange contracts to purchase U.S. dollars | $ | — | | | $ | 3,995 | |
| Foreign exchange contracts to sell U.S. dollars | — | | | 26,255 | |
The fair values of our derivative instruments included in the consolidated balance sheets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Derivative Assets | | Derivative Liabilities |
| Consolidated Balance Sheet Location | December 31, 2023 | | December 31, 2022 | | December 31, 2023 | | December 31, 2022 |
| Derivatives designated as hedging instruments - Interest rate swap contract -cash flow hedge | | | | | | | |
| Other current assets | $ | 21,451 | | | $ | 32,481 | | | $ | — | | | $ | — | |
| Other assets - long-term | 2,618 | | | 14,108 | | | — | | | — | |
| Derivatives not designated as hedging instruments -Foreign exchange contracts | | | | | | | |
| Other current assets | $ | — | | | 726 | | | $ | — | | | $ | — | |
| Other accrued liabilities | — | | | — | | | — | | | 193 | |
The following table summarizes the effects of our derivative instruments on our consolidated statements of operations for the years ended December 31, 20172023, 2022 and 2016,2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Consolidated Statements of Operations Location | | | (Gain) Loss Recognized in Condensed Consolidated Statements of Income |
| Derivatives designated as hedging instruments: | | | | 2023 | | 2022 | | 2021 |
| Interest rate swap contract-cash flow hedge | Interest expense, net | | | $ | (37,220) | | | $ | — | | | $ | — | |
| | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | 2023 | | 2022 | | 2021 |
| Foreign exchange contracts | Other expense, net | | | $ | (374) | | | $ | (3,435) | | | $ | — | |
The following table summarizes the effects of our derivative instruments on Accumulated Other Comprehensive (Loss) Income for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) recognized in Other Comprehensive Income (Loss) |
| (In thousands) | | 2023 | | 2022 | | 2021 |
| Derivatives designated as hedging instruments: | | | | | | |
| Interest rate swap contract - Cash flow hedge | | $ | (17,435) | | | $ | 36,069 | | | $ | — | |
We expect approximately $21.5 million to be reclassified from Accumulated other comprehensive (loss) income into Interest expense, net during the next twelve months related to our interest rate swap based on projected rates of the SOFR forward curve as of December 31, 2023.
14. OTHER EXPENSE, NET
The table below sets forth the Other expense, net for the years ended December 31, 2023, 2022 and 2021: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Infineum termination fee, net | $ | (10,876) | | | $ | — | | | $ | — | |
| Loss on foreign currency remeasurement | 5,718 | | | 23,034 | | | 7,857 | |
| Loss on extinguishment of debt and modification | 29,896 | | | 3,287 | | | 23,338 | |
| Other, net | 629 | | | (2,395) | | | 500 | |
| Other expense, net | $ | 25,367 | | | $ | 23,926 | | | $ | 31,695 | |
Infineum termination fee, net
On October 11, 2022, the Company made paymentsand Infineum entered into a definitive agreement for the sale of $100.0the Company’s PIM business. On February 10, 2023, the Company terminated the definitive agreement. In accordance with the terms of the definitive agreement, the Company received a $12.0 million termination fee from Infineum in the first quarter of 2023 and $75.0incurred a transaction fee of $1.1 million respectively, onto the Term Loan Facility. third-party financial adviser it had engaged to assist with the transaction.
15. LEASES
As of December 31, 2017, under the terms of the Term Loan Facility, the Company is not obligated to remit payments on the Term Loan Facility in 2018. However, based on management's plans and intent, the Company reflects $100 million as the current maturity of long-term debt in its consolidated balance sheet as of December 31, 2017.
The credit agreement governing the Term Loan Facility requires the Company to prepay outstanding term loans, subject to certain exceptions, with (a) up to 50% of the Company’s annual Excess Cash Flow (as defined in the credit agreement
governing the Term Loan Facility) and (b) 100% of the net cash proceeds of (i) certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and (ii) any incurrence or issuance of certain debt, other than debt permitted under the Term Loan Facility.
The Company may voluntarily prepay outstanding loans under the Term Loan Facility at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.
All obligations under the Term Loan Facility are unconditionally guaranteed by certain of the Company’s existing wholly owned domestic subsidiaries, and are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Company's subsidiary guarantors.
The Term Loan Facility contains a number of negative covenants that, subject to certain exceptions, restrict the Company’s ability and each of the Company’s subsidiaries' ability to incur additional indebtedness; pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its other indebtedness; make investments, loans and acquisitions; create restrictions on the payment of dividends or other amounts to the Company from the Company’s restricted subsidiaries; engage in transactions with its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions. The credit agreement governing the Term Loan Facility additionally contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default. The Company is in compliance with all of the above covenants at December 31, 2017.
Senior Secured Asset-Based Revolving Credit Facility
The Company has an asset-based credit agreement with Goldman Sachs Bank USA, as administrative agent, collateral agent, sole lead arranger, sole bookrunner and sole syndication agent (the ABL Facility), that provides senior secured financing of $75 million (which may be increased by up to $35 million in certain circumstances), subject to a borrowing base limitation. The borrowing base for the ABL Facility at any time equals the sum of certain percentages of various accounts and inventories and stood at $65.0 million at December 31, 2017. The ABL Facility includes borrowing capacity in the form of letters of credit up to $35 million of the facility, and up to $20 million in U.S. dollars for borrowings on same-day notice, referred to as swingline loans.
Borrowings under the ABL Facility bear interest at a rate per annum equal to, at the Company’s option, a base rate (prime rate or LIBOR), plus an applicable margin. Swingline loans shall bear interest at a rate per annum equal to the base rate plus the applicable margin.
In addition to paying interest on outstanding principal under the ABL Facility, the Company is required to pay a commitment fee of 0.33% per annum in respect of the unutilized commitments thereunder. The Company must also pay customary letter of credit fees and agency fees.
The Company may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time. Prepayments of the loans may be made without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.
There is no scheduled amortization under the Company’s ABL Facility. The principal amount outstanding under the ABL Facility is due and payable in full on April 30, 2019. There is no outstanding balance under the ABL Facility at December 31, 2017.
All obligations under the ABL Facility are unconditionally guaranteed by certain of the Company’s existing wholly owned domestic subsidiaries and are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Company's subsidiaries that have guaranteed the ABL Facility.
The ABL Facility contains a number of negative covenants that, among other things, subject to certain exceptions, restrict the Company’s ability and the ability of each of the Company’s subsidiaries to incur additional indebtedness; pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its other indebtedness; make investments, loans and acquisitions; create restrictions on the payment of dividends or other amounts to the Company from the Company’s restricted subsidiaries; engage in transactions with its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions. The credit agreement governing the ABL Facility additionally contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default. The Company is in compliance with all of the above covenants at December 31, 2017.
(8) LEASE COMMITMENTS
As of December 31, 2017,2023, the Company was obligated under noncancellable operating and finance lease agreements for certain sales officesoffice space and manufacturing facilities, manufacturing equipment, vehicles, information technology equipment and warehouse space. Future minimumOur leases have remaining lease paymentsterms of 1 year to 30 years, some of which may include options to extend the lease for noncancellableup to 10 years, and some of which may include options to terminate the leases within 1 year.
As of December 31, 2023 and 2022, the Company’s operating leasesand financing lease components with initial or remaining terms in excess of one year were classified on the consolidated balance sheets as follows, together with certain supplemental balance sheet information: | | | | | | | | | | | | | | | |
(In thousands) | Classification | 2023 | | 2022 | |
| Assets | | | | | |
| Right-of-use assets: | | | | | |
| Operating lease | Right-of-use assets | 57,990 | | | 79,228 | | |
| Finance lease | Right-of-use assets | 22,409 | | | 15,712 | | |
| Total right-of-use assets | | $ | 80,399 | | | $ | 94,940 | | |
| Liabilities | | | | | |
| Short-term lease liability: | | | | | |
| Operating lease | Other accrued liabilities | 14,475 | | | 18,013 | | |
| Finance lease | Other accrued liabilities | 1,880 | | | 1,012 | | |
| Total short-term lease liability | | $ | 16,355 | | | $ | 19,025 | | |
| Long-term lease liability: | | | | | |
| Operating leases | Long-term lease liability | 49,719 | | | 68,091 | | |
| Finance leases | Long-term lease liability | 19,267 | | | 12,625 | | |
| Total long-term lease liability | | $ | 68,986 | | | $ | 80,716 | | |
| Total lease liabilities | | $ | 85,341 | | | $ | 99,741 | | |
| Lease Term and Discount Rate | | | | | |
| Weighted average remaining lease term (years) - Operating leases | 6.9 | | 7.2 | |
| Weighted average remaining lease term (years) - Finance leases | 14.7 | | 11.3 | |
| Weighted average discount rate - Operating leases | 4.2 | % | | 4.1 | % | |
| Weighted average discount rate - Finance leases | 5.0 | % | | 4.4 | % | |
Expense for leases less than 12 months for the year ended December 31, 2023, 2022 and 2021 were not material. The components of lease expense for the year ended December 31, 2023, 2022 and 2021 are as follows: | | | | | | | | | | | | | | | | | |
(In thousands) | 2023 | | 2022 | | 2021 |
| Operating lease cost | $ | 18,107 | | | $ | 17,997 | | | $ | 13,127 | |
| Finance lease cost : | | | | | |
| Amortization of ROU assets | 1,841 | | | 1,213 | | | 408 | |
| Interest on lease liabilities | 821 | | | 401 | | | 155 | |
| | | | | |
|
| | | |
| Fiscal year ending December 31 | (In thousands) |
| 2018 | $ | 9,805 |
|
| 2019 | 7,663 |
|
| 2020 | 5,015 |
|
| 2021 | 4,911 |
|
| 2022 | 3,369 |
|
| Thereafter | 11,794 |
|
| Total minimum lease payments | $ | 42,557 |
|
Total rental expense for all equipmentThe Company combines the amortization of the right-of-use assets and buildingthe change in the operating lease liability in the same line item in the Statement of Cash Flows. Other information related to the Company’s operating leases for the yearsyear ended December 31, 2017, 20162023, 2022 and 2015,2021 are as follows: | | | | | | | | | | | | | | | | | |
(In thousands) | 2023 | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Cash flows - Operating leases | $ | 18,528 | | | $ | 14,916 | | | $ | 11,009 | |
| Cash flows - Finance leases | 2,164 | | | 1,300 | | | 502 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | | | |
| Operating leases | $ | 6,155 | | | $ | 16,241 | | | $ | 31,492 | |
| Finance leases | 8,806 | | | 7,357 | | | — | |
| | | | | |
Future minimum lease payments for noncancellable leases as of December 31, 2023, were $10.6 million, $13.3 million and $13.8 million, respectively.as follows: | | | | | | | | | | | |
| (In thousands) | Operating leases | | Finance leases |
| One Year | $ | 17,624 | | | $ | 2,719 | |
| Two Years | 13,507 | | | 2,325 | |
| Three Years | 9,662 | | | 2,214 | |
| Four Years | 7,753 | | | 2,209 | |
| Five Years | 5,907 | | | 2,244 | |
| Beyond Five Years | 20,406 | | | 19,271 | |
| Total minimum lease payments | $ | 74,859 | | | $ | 30,982 | |
| Less: Interest | 10,665 | | | 9,835 | |
| Present value of lease liabilities | $ | 64,194 | | | $ | 21,147 | |
(9)
16. ASSET RETIREMENT OBLIGATIONS
The Company has asset retirement obligations (AROs)(“AROs”) related to environmental disposal obligations associated with cylinders used to supply customers with gas products, and certain restoration obligations associated with certain of its leased facilities.
Changes in the carrying amounts of the Company’s AROs for the years ended December 31, 20172023 and 20162022 are shown below:
|
| | | | | | |
| (In thousands) | 2017 | 2016 |
| Balance at beginning of year | $ | 11,529 |
| $ | 11,334 |
|
| Liabilities settled | (577 | ) | (975 | ) |
| Liabilities incurred | 412 |
| 491 |
|
| Accretion expense | 215 |
| 188 |
|
| Revision of estimate | 588 |
| 491 |
|
| Balance at end of year | $ | 12,167 |
| $ | 11,529 |
|
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Balance at beginning of year | $ | 28,035 | | | $ | 17,494 | |
| Liabilities assumed in acquisitions | — | | | 12,531 | |
| Liabilities settled | (7,254) | | | (453) | |
| Liabilities incurred | 2,869 | | | 788 | |
| Accretion expense | 139 | | | 213 | |
| Disposition | — | | | (2,815) | |
| Revision of estimate | (2,074) | | | 277 | |
| Balance at end of year | $ | 21,715 | | | $ | 28,035 | |
ARO liabilities expected to be settled within twelve months are included in the consolidated balance sheets in otherOther accrued liabilities, while all other ARO liabilities are included in pensionPension benefit obligations and other liabilities in the consolidated balance sheets.
(10)17. INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act makes broad and complex changes to the U.S. tax code that will affect 2017, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The Tax Cuts and Jobs Act also provides for a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017 and the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including the repeal of the domestic manufacturing deduction, additional limitations on executive compensation and limitations on the deductibility of interest.
The Security and Exchange Commission (SEC) staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Cuts and Jobs Act enactment date for entities to complete the accounting under ASC 740. In accordance with SAB 118, an entity must reflect the income tax effects of those aspects of the Tax Cuts and Jobs Act for which the accounting under Accounting Standards Codification (ASC) 740 is complete. To the extent that an entity's accounting for certain income tax effects of the Tax Cuts and Jobs Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If an entity cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Cuts and Jobs Act.
The Company has calculated its best estimate of the impact of the Tax Cuts and Jobs Act in its year end income tax provision in accordance with its understanding of the Tax Cuts and Jobs Act and guidance available as of the date of this filing. As a result, the Company recorded a discrete net tax expense of $66.7 million in the period ending December 31, 2017. This net expense primarily consists of a net benefit for the corporate rate reduction of $10.2 million and a net expense for the transition tax of $73.0 million and $4.0 million of additional tax related to no longer asserting that a significant portion of the Company's undistributed earnings are considered indefinitely reinvested overseas. For various reasons that are discussed more fully below, the Company has not completed its accounting for the income tax effects of certain elements of the Tax Cuts and Jobs Act. If the Company was able to make reasonable estimates of the effects of elements for which its analysis is not yet complete, the Company recorded provisional adjustments. If the Company was not yet able to make reasonable estimates of the impact of certain elements, it has not recorded any adjustments related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Cuts and Jobs Act. The Company continues to analyze the implications of the global intangible low taxed income ("GILTI") provision of the Tax Cuts and Jobs Act and delays finalizing its GILTI policy election under SAB 118 until it has the necessary information available to analyze and make an informed policy decision. The changes to existing U.S. tax laws as a result of the Tax Cuts and Jobs Act, which the Company believes have the most significant impact on the Company’s federal income taxes are as follows:
Reduction of U.S. federal corporate tax rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a $10.2 million decrease in income tax expense for the year ended December 31, 2017 and a corresponding decrease in net deferred tax liabilities as of December 31, 2017. Included in this benefit are provisional amounts related to certain deferred tax assets and liabilities where the necessary information is not available, prepared or analyzed. Examples of this include fixed assets and compensation. The Company expects to complete its analysis of these provisional items when the necessary information becomes available to accurately analyze and compute in reasonable detail under ASC Topic 740. The Company estimates such analysis will be completed in the second half of 2018.
Transition Tax on Foreign Earnings
The Deemed Repatriation Transition Tax ("Transition Tax") is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company recognized a provisional income tax expense of $73.0 million for the year ended December 31, 2017 related to the one-time Transition Tax on certain foreign earnings. This resulted in a corresponding decrease in deferred tax assets due to the utilization of foreign tax credit carryforwards of $10.2 million and research and development credit carryforwards of $11.8 million. The determination of the Transition Tax requires further analysis regarding the amount and composition of the Company’s historical earnings, which is expected to be completed when the necessary information becomes available to accurately analyze and compute in reasonable detail under ASC Topic 740. The Company estimates such analysis will be completed in the second half of 2018.
Acceleration of Depreciation
The Company recorded a provisional benefit of $1.3 million attributable to the accelerated depreciation for certain assets placed into service after September 27, 2017. This resulted in a decrease of approximately $3.2 million to our current income tax payable and a corresponding increase in our deferred tax liabilities of approximately $1.9 million (after considering the effects of the reduction in income tax rates). The income tax effects for this position requires further analysis due to the volume of data required to complete the calculations. The Company expects to complete this analysis when the necessary information becomes available to accurately analyze and compute in reasonable detail under ASC Topic 740. The Company estimates such analysis will be completed in the second half of 2018.
Excessive Compensation under Sec. 162(m)
The Tax Cuts and Jobs Act repeals the exceptions to the section 162(m) deduction limitation for commissions and performance-based compensation. The Tax Cuts and Jobs Act provides a transition rule which states that the expansion of section 162(m) does not apply to any remuneration paid under a written, binding contract in effect on November 2, 2017, which was not materially modified on or after this date. The Tax Cuts and Jobs Act does not specifically define the criteria for a binding contract and no further guidance was provided on this topic. The Company has determined this change would be immaterial and its analysis will be completed when the necessary information becomes available to accurately analyze and compute in reasonable detail under ASC Topic 740. The Company estimates such analysis will be completed in the second half of 2018.
Undistributed Foreign Earnings
As of December 31, 2017, the Company has accumulated undistributed earnings generated by its foreign subsidiaries of approximately $943.7 million subject to the one-time Transition Tax on foreign earnings required by the Tax Cuts and Jobs Act or has otherwise been previously taxed. As of January 1, 2017, the Company removed its assertion on its Korean entities. Additionally, due to tax reform, the Company removed its prior year assertion on all but certain entities and recorded the associated withholding tax of $4.0 million. At December 31, 2017, there were approximately $30.7 million of accumulated undistributed earnings of subsidiaries outside of United States, all of which are considered to be indefinitely reinvested. Management estimates that no material withholding taxes would be incurred if these undistributed earnings were distributed.
Income (loss) before income taxes for the years ended December 31, 2017, 20162023, 2022 and 20152021 was derived from the following sources: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Domestic | $ | (457,888) | | | $ | (272,365) | | | $ | 137,145 | |
| Foreign | 630,558 | | | 519,445 | | | 341,931 | |
| Income before income tax expense | $ | 172,670 | | | $ | 247,080 | | | $ | 479,076 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Domestic | $ | 13,363 |
| | $ | (7,328 | ) | | $ | (16,751 | ) |
| Foreign | 171,368 |
| | 127,327 |
| | 108,936 |
|
| Income before income tax expense and equity in net loss of affiliate | $ | 184,731 |
| | $ | 119,999 |
| | $ | 92,185 |
|
Income tax (benefit) expense for the years ended December 31, 2017, 20162023, 2022 and 20152021 is summarized as follows: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Current: | | | | | |
| Federal | $ | 10,835 | | | $ | 39,216 | | | $ | 9,187 | |
| State | 1,267 | | | 4,077 | | | 2,939 | |
| Foreign | 125,091 | | | 97,611 | | | 76,257 | |
| 137,193 | | | 140,904 | | | 88,383 | |
| Deferred (net of valuation allowance): | | | | | |
| Federal | (135,408) | | | (90,238) | | | (11,726) | |
| State | (5,829) | | | (5,749) | | | (498) | |
| Foreign | (4,369) | | | (6,757) | | | (6,209) | |
| (145,606) | | | (102,744) | | | (18,433) | |
| Income tax (benefit) expense | $ | (8,413) | | | $ | 38,160 | | | $ | 69,950 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | 60,529 |
| | $ | 7,759 |
| | $ | 4,170 |
|
| State | 808 |
| | (10 | ) | | 528 |
|
| Foreign | 36,700 |
| | 31,387 |
| | 18,817 |
|
| | 98,037 |
| | 39,136 |
| | 23,515 |
|
| Deferred (net of valuation allowance): | | | | | |
| Federal | 249 |
| | (8,183 | ) | | (11,374 | ) |
| State | (891 | ) | | 250 |
| | (738 | ) |
| Foreign | 2,270 |
| | (8,351 | ) | | (1,201 | ) |
| | 1,628 |
| | (16,284 | ) | | (13,313 | ) |
| Income tax expense | $ | 99,665 |
| | $ | 22,852 |
| | $ | 10,202 |
|
Income tax (benefit) expense differs from the expected amounts based upon the statutory federal tax rates for the years ended December 31, 2017, 20162023, 2022 and 20152021 as follows: |
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Expected federal income tax at statutory rate | $ | 64,656 |
| | $ | 42,000 |
| | $ | 32,265 |
|
| State income taxes before valuation allowance, net of federal tax effect | (1,376 | ) | | (769 | ) | | (576 | ) |
| Effect of foreign source income | (27,581 | ) | | (22,242 | ) | | (23,374 | ) |
| Tax contingencies | 2,816 |
| | 1,103 |
| | 1,483 |
|
| Valuation allowance | 3,195 |
| | 1,713 |
| | 1,109 |
|
| U.S. federal research credit | (4,881 | ) | | (1,676 | ) | | (3,905 | ) |
Equity compensation
| (2,321 | ) | | 815 |
| | 739 |
|
Transition tax
| 72,993 |
| | — |
| | — |
|
| Remeasurement of deferred taxes | (10,248 | ) | | — |
| | — |
|
Incremental taxes on unremitted foreign earnings release
| 3,968 |
| | — |
| | — |
|
| Other items, net | (1,556 | ) | | 1,908 |
| | 2,461 |
|
| Income tax expense | $ | 99,665 |
| | $ | 22,852 |
| | $ | 10,202 |
|
As a result of commitments made by the Company related to investments in tangible property and equipment, the establishment of a research and development center in 2006 and certain employment commitments, income from certain manufacturing activities in Malaysia has been exempt from tax for years up through 2015. The income tax benefits attributable to the tax status of this subsidiary is $10.2 million ($0.07 per diluted share) for the year ended December 31, 2015. The 2017, 2016 and 2015 effective tax rates include additional benefits of $2.0 million, $4.3 million, and $4.4 million, respectively, because the corporate tax rate in Malaysia is lower than the U.S. rate.
In 2012, Entegris' Korean subsidiary made commitments to produce a certain line of products. In return for this commitment, the Company has a tax holiday on income earned on sales of these products for five years and a partial holiday for two additional years. The income tax benefits attributable to this tax holiday are $7.4 million ($0.05 per diluted share), $3.3 million ($0.02 per diluted share) and $1.5 million ($0.01 per diluted share) for the years ended December 31, 2017, 2016 and 2015, respectively. The 2017, 2016 and 2015 effective tax rates include additional benefits of $4.3 million, $1.9 million and $0.9 million, respectively, because the corporate tax rate in Korea is lower than the U.S. rate. | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Expected federal income tax at statutory rate | $ | 36,261 | | | $ | 51,887 | | | $ | 100,606 | |
| State income taxes before valuation allowance, net of federal tax effect | (9,374) | | | (5,907) | | | (1,333) | |
| Effect of foreign source income | (18,383) | | | (7,607) | | | (15,862) | |
| Tax contingencies | 11,048 | | | 5,762 | | | 4,696 | |
| Valuation allowance | 9,032 | | | 8,052 | | | 9,984 | |
| U.S. federal research credit | (18,679) | | | (13,525) | | | (8,469) | |
| Equity compensation | 7,431 | | | 5,290 | | | (8,899) | |
| | | | | |
| | | | | |
| | | | | |
| Foreign derived intangible income | (5,144) | | | (15,265) | | | (6,496) | |
| Legal entity restructuring capital loss | — | | | — | | | (5,079) | |
| Acquisition related retention, severance, and transaction costs | — | | | 8,924 | | | — | |
| Legal entity divestiture activity | (20,311) | | | — | | | — | |
| Other items, net | (294) | | | 549 | | | 802 | |
| Income tax (benefit) expense | $ | (8,413) | | | $ | 38,160 | | | $ | 69,950 | |
The Company also has made employment and spending commitments to Singapore. In return for those commitments, the Company has beenwas granted a partial tax holiday for eight years starting in 2013. During 2017, this agreement was extended to 2027 in exchange for revised employment and spending commitments. The income tax benefits attributable to the tax status are $4.7$19.7 million ($0.03 cents0.13 per diluted share), $2.3$24.8 million ($0.02 cent0.17 per diluted share) and $1.7$13.9 million ($0.01 cent0.10 per diluted share) for the years ending December 31, 2017, 20162023, 2022 and 2015,2021, respectively. The 2017, 20162023, 2022 and 20152021 effective tax rates include additional benefits of $12.4$12.1 million, $6.5$14.2 million and $4.6$8 million because the corporate tax rate in Singapore is lower than the U.S. rate.
The Company has remeasured its deferred tax assets and liabilities as a resultAt December 31, 2023, there were approximately $136.0 million of passageaccumulated undistributed earnings of subsidiaries outside of the Tax Cuts and Jobs Act. The primary impactUnited States, all of this remeasurement was a reduction in deferred tax assets and liabilities in connection with the reductionwhich are considered to be indefinitely reinvested. Management estimates that approximately $16.1 million of the U.S. corporate income tax rate as described above. withholding taxes would be incurred if these undistributed earnings were distributed.
The significant components of the Company’s deferred tax assets and deferred tax liabilities at December 31, 20172023 and 20162022 are as follows: |
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Deferred tax assets attributable to: | | | |
| Accounts receivable | $ | 32 |
| | $ | 470 |
|
| Inventory | 4,132 |
| | 5,061 |
|
| Accruals not currently deductible for tax purposes | 8,641 |
| | 3,729 |
|
| Net operating loss and credit carryforwards | 15,184 |
| | 27,198 |
|
| Capital loss carryforward | 2,391 |
| | 3,134 |
|
| Depreciation | — |
| | 8,395 |
|
| Equity compensation | 3,658 |
| | 5,134 |
|
| Asset impairments | 452 |
| | 1,467 |
|
| Other, net | 2,549 |
| | 4,356 |
|
| Gross deferred tax assets | 37,039 |
| | 58,944 |
|
| Valuation allowance | (17,494 | ) | | (14,661 | ) |
| Total deferred tax assets | 19,545 |
| | 44,283 |
|
| Deferred tax liabilities attributable to: | | | |
| Purchased intangible assets | (28,956 | ) | | (55,809 | ) |
Depreciation
| (2,512 | ) | | — |
|
| Total deferred tax liabilities | (31,468 | ) | | (55,809 | ) |
| Net deferred tax liabilities | $ | (11,923 | ) | | $ | (11,526 | ) |
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Deferred tax assets attributable to: | | | |
| Accounts receivable | $ | 1,304 | | | $ | 1,239 | |
| Inventory | 12,456 | | | 14,862 | |
| Accruals not currently deductible for tax purposes | 16,341 | | | 25,787 | |
| Net operating loss and credit carryforwards | 55,685 | | | 57,760 | |
| Capital loss carryforward | 5,281 | | | 895 | |
| Equity compensation | 11,382 | | | 15,249 | |
| Interest expense limitations | 37,691 | | | 8,067 | |
| Capitalization of ER&D expense | 100,832 | | | 53,179 | |
| Other, net | 15,064 | | | — | |
| Gross deferred tax assets | 256,036 | | | 177,038 | |
| Valuation allowance | (60,330) | | | (48,047) | |
| Total deferred tax assets | 195,706 | | | 128,991 | |
| Deferred tax liabilities attributable to: | | | |
| Purchased intangible assets | (230,550) | | | (364,979) | |
| Other, net | — | | | (2,397) | |
| Depreciation and Amortization | (44,007) | | | (55,898) | |
| Total deferred tax liabilities | (274,557) | | | (423,274) | |
| Net deferred tax liabilities | $ | (78,851) | | | $ | (294,283) | |
Deferred tax assets are generally required to be reduced by a valuation allowance if based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As of December 31, 20172023 and 2016,2022, the Company had a net U.S. deferred tax liabilityliabilities of $5.1$76.7 million and $3.5deferred tax assets of $298.5 million, respectively, which are composed of temporary differences and various tax credit carryforwards. The Company had state operating loss and credit carryforwards of approximately $23.3 million, which begin to expire in 2024. Management believes that it is more likely than not that the benefit from certain state net operating loss carryforwards, state credits, capital asset impairments, and a federalcredit carryforwards, capital loss carryforwardcarryforwards and certain federal foreign tax credit carryforwards will not be realized. In recognition of this risk, management has provided a valuation allowanceallowances of $10.6$29.7 million and $9.6$18.5 million as of December 31, 20172023 and 2016,2022, respectively, on the related deferred tax assets. If the assumptions change and management determines the assets will be realized, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets at December 31, 20172023 will be recognized as a reduction of income tax expense.
As of December 31, 20172023 and 2016,2022, the Company had a net non-U.S. deferred tax assetassets of $10.7$58.2 million and $6.6$52.3 million, respectively, for which management determined based upon the available evidence a valuation allowance of $6.9$30.6 million and $5.0$29.5 million as of December 31, 20172023 and 2016,2022, respectively, was required against the non-U.S. gross deferred tax assets. For other non-U.S. jurisdictions, management is relyingrelies upon projections of future taxable income to utilize deferred tax assets.
At December 31, 2017,2023, the Company had stateforeign operating loss and credit carryforwards of approximately $7.9$60.8 million, which begin to expire in 2019 and foreign operating loss carryforwards of $25.0 million, which begin to expire in 2018.
2024.
Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax positions will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that fail to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The provisions also provide guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.
Reconciliations of the beginning and ending balances of the total amounts of gross unrecognized tax benefits for the years ended December 31, 20172023 and 20162022 are as follows: |
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Gross unrecognized tax benefits at beginning of year | $ | 8,293 |
| | $ | 7,621 |
|
| Increase in tax positions from prior years | 298 |
| | 14 |
|
| Increases in tax positions for current year | 4,724 |
| | 1,944 |
|
| Lapse in statute of limitations | (754 | ) | | (1,286 | ) |
| Gross unrecognized tax benefits at end of year | $ | 12,561 |
| | $ | 8,293 |
|
| | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Gross unrecognized tax benefits at beginning of year | $ | 53,478 | | | $ | 23,789 | |
| Increase from acquisition | — | | | 24,452 | |
| Increase in tax positions from prior years | 242 | | | 175 | |
| Decrease in tax positions from prior years | — | | | (248) | |
| Increases in tax positions for current year | 17,111 | | | 13,577 | |
| Settlement of tax positions for current year | — | | | (6,395) | |
| Lapse in statute of limitations | (3,114) | | | (1,872) | |
| Gross unrecognized tax benefits at end of year | $ | 67,717 | | | $ | 53,478 | |
The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $9.9$53.4 million at December 31, 2017.2023.
Penalties and interest paid or received are recorded in other income, net in the consolidated statements of operations. For the years endedAs of December 31, 20172023 and 2016,2022, the Company hashad accrued interest and penalties related to unrecognized tax benefits of $1.0$6.6 million and $0.7$4.2 million, respectively. Expenses of $0.3$2.5 million, $0.1$2.0 million and $0.1$1.0 million were recognized as interest and penalties in the consolidated statements of operations for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
The Company files income tax returns in the U.S. and in various state, local and foreign jurisdictions. The statutes of limitations related to both the consolidated Federalfederal income tax return and state returns are closed for all years up to and including 20132019 and 2013,2019, respectively. With respect to foreign jurisdictions, the statute of limitations varies from country to country, with the earliest open year for the Company’s major foreign subsidiaries being 2011.2017.
Due to the expiration of various statutes of limitations and settlementsettlements of audits, it is reasonably possible that the Company’s gross unrecognized tax benefit balance may decrease within the next twelve months by approximately $1.8$1.9 million.
The Organization Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax by January 1, 2025. We are currently evaluating the potential impact on our consolidated financial statements and related disclosures. (11)
18. EQUITY
DividendDividends
Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s board of directors. The Company’s board of directors declared quarterly cash dividends of $0.10 per share during 2023, payments for which totaled $60.3 million. The Company’s board of directors declared quarterly cash dividends of $0.10 per share during 2022, payments for which totaled $57.3 million. During 2021, the Company’s board of directors declared quarterly cash dividends of $0.08 per share, payments for which totaled $43.6 million.
On October 18, 2017,January 17, 2024, the Company's BoardCompany’s board of Directorsdirectors declared its initiala quarterly cash dividend of $0.07$0.10 per share totaling $9.9 million,to be paid on November 22, 2017February 21, 2024 to shareholders of record on the closeas of business on November 1, 2017. January 31, 2024.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s Boardboard of Directors.directors.
Share Repurchase Program
On February 15, 2017,December 14, 2020, the Company's BoardCompany’s board of Directorsdirectors authorized a repurchase program, which expireseffective February 15, 201816, 2021, covering the repurchase of up to an aggregate of $100.0$125.0 million of the Company'sCompany’s common stock, during a period of twelve months, in open market transactions and in accordance with one or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the Securities and Exchange Act of 1934, as amended. TheThis repurchase program represents a renewal and replacementexpired pursuant to its terms on February 15, 2022. In anticipation of its acquisition of CMC Materials, the Company suspended its previously announced share repurchase program originally authorized on February 5, 2016, which expired February 15, 2017.in the fourth quarter of 2021. The Company repurchased $28.0 milliondid not repurchase any of shares and $7.6 million ofits common stock in 2023 under a Board-authorized common stock repurchase plan.
The Company did not repurchase any shares for the years ended December 31, 20172023 and 2022, respectively, and repurchased $67.1 million of shares for the year ended December 31, 2016, respectively.2021.
The credit agreement governing the New Credit Facilities contains restrictions that may limit the Company’s ability to continue to repurchase shares in the future.
2020 Stock Plan
In 2009,2020, the Company’s Boardboard of Directorsdirectors and stockholders approved the 2010Entegris, Inc. 2020 Stock Plan subject to the approval by the Company’s stockholders in 2010.(the “2020 Stock Plan”). The 20102020 Stock Plan replaced the predecessor plansEntegris, Inc. 2010 Stock Plan for future stock awards and stock option grants. Subsequent to the acquisition of ATMI, Inc. in 2014, the Company's Board of Directors approved the absorption of 5.7 million additional shares of the ATMI, Inc. 2010 Stock Plan (ATMI Plan) into the Company's 2010 Stock Plan for the remaining term of the ATMI Plan.
The 20102020 Stock Plan has a term of ten years and provides for the issuance of stock options and other share-based awards to selected employees, directors, and other individuals or entities that provide services to the Company or its affiliates. Under the
2010 2020 Stock Plan, the Boardboard of Directorsdirectors or a committee selected by the Boardboard of Directorsdirectors will determine for each award, the term, price, number of shares, rate at which each award is exercisable and whether restrictions are imposed on the shares subject to the awards. The exercise price for option awards generally may not be less than the fair market value per share of the underlying common stock on the date granted. The 20102020 Stock Plan allowsprovides that after December 31, 20092019, any shares subject to stock awards that were awarded from the Company’s expired plans mentioned aboveand that are forfeited, expired or otherwise terminated without issuance of such stock awardshares will again be available for issuance under the 20102020 Stock Plan.
Stock Plan assumed from CMC Materials
Subsequent to the acquisition of CMC Materials, the Company's Board of Directors approved the absorption of the CMC Materials 2021 Omnibus Incentive Plan (the “OIP”) into the Company's 2020 Stock Plan for the remainder of the term of the OIP Plan. The 2021 OIP provides for grants of equity awards in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, performance-based awards, other stock-based awards such as substitute awards in connection with an acquisition, and cash incentive awards. 3.9 million additional shares became available for grant by the Company upon absorption of the OIP Plan.
Each outstanding option to purchase shares of CMC Materials common stock under CMC Materials’ stock plan became an option to acquire, on the same terms and condition as were applicable under the CMC Materials stock plan, the Company’s common stock, with the number of shares and exercise prices thereof adjusted for the exchange ratio of 1.82. Accordingly, options to purchase 0.6 million shares of CMC Materials common stock were exchanged for options to purchase 1.2 million shares of the Company’s common stock.
Each outstanding performance-based restricted stock unit of CMC Materials under CMC Materials’ stock plan became a time-based restricted stock unit with the same terms and conditions as were applicable under the CMC Materials stock plan, the Company’s common stock, with the number of shares and exercise price thereof adjusted for the exchange ratio of 1.82. Accordingly, 0.1 million shares of performance-based restricted stock units of CMC Materials common stock were exchanged for restricted stock units of 0.2 million shares of the Company’s common stock.
For all plans, exclusive of the employee stock purchase plan, the Company had shares available for future grants of 10.2 million, 10.9 million, and 8.7 million shares at December 31, 2023, 2022 and 2021, respectively.
Stock Options
Stock option activity for the 2010 Stock Plan and predecessor plans for the years ended December 31, 2017, 20162023, 2022 and 20152021 is summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| (Shares in thousands) | Number of
shares | | Weighted
average
exercise
price | | Number of
shares | | Weighted
average
exercise
price | | Number of
shares | | Weighted
average
exercise
price |
| Options outstanding, beginning of year | 1,839 | | | $ | 62.59 | | | 657 | | | $ | 55.32 | | | 1,082 | | | $ | 33.38 | |
| Granted | 232 | | | 81.79 | | | 146 | | | 128.44 | | | 167 | | | 98.11 | |
| Assumed in CMC acquisition | — | | | — | | | 1,178 | | | 55.8 | | | — | | | — | |
| Exercised | (715) | | | 51.04 | | | (141) | | | 40.00 | | | (592) | | | 27.32 | |
| Cancelled or forfeited | (42) | | | 76.02 | | | (1) | | | 61.42 | | | — | | | — | |
| Options outstanding, end of year | 1,314 | | | $ | 71.83 | | | 1,839 | | | $ | 62.59 | | | 657 | | | $ | 55.32 | |
| Options exercisable, end of year | 900 | | | $ | 63.08 | | | 1,386 | | | $ | 54.53 | | | 111 | | | $ | 34.54 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| (Shares in thousands) | Number of shares | | Weighted average exercise price | | Number of shares | | Weighted average exercise price | | Number of shares | | Weighted average exercise price |
| Options outstanding, beginning of year | 1,907 |
| | $ | 11.54 |
| | 2,139 |
| | $ | 10.57 |
| | 2,034 |
| | $ | 9.67 |
|
| Granted | 335 |
| | 21.60 |
| | 549 |
| | 12.20 |
| | 411 |
| | 13.49 |
|
| Exercised | (359 | ) | | 10.89 |
| | (633 | ) | | 8.66 |
| | (219 | ) | | 7.62 |
|
| Expired or forfeited | (14 | ) | | 12.78 |
| | (148 | ) | | 12.32 |
| | (87 | ) | | 10.72 |
|
| Options outstanding, end of year | 1,869 |
| | $ | 13.46 |
| | 1,907 |
| | $ | 11.54 |
| | 2,139 |
| | $ | 10.57 |
|
| Options exercisable, end of year | 872 |
| | $ | 11.11 |
| | 776 |
| | $ | 10.65 |
| | 961 |
| | $ | 9.07 |
|
Options outstanding forunder the Company’s stock plans at December 31, 20172023 are summarized as follows:
|
| | | | | | | | | | | | | | | |
| (Shares in thousands) | Options outstanding | | Options exercisable |
| Range of exercise prices | Number outstanding | | Weighted average remaining life in years | | Weighted- average exercise price | | Number exercisable | | Weighted average exercise
price
|
| $9.27 to $9.88 | 396 |
| | 1.9 years | | $ | 9.71 |
| | 396 |
| | $ | 9.71 |
|
| $11.71 to $11.71 | 382 |
| | 3.1 years | | 11.71 |
| | 255 |
| | 11.71 |
|
| $12.20 to $12.20 | 467 |
| | 5.1 years | | 12.20 |
| | 95 |
| | 12.20 |
|
| $13.49 to $13.49 | 289 |
| | 4.1 years | | 13.49 |
| | 126 |
| | 13.49 |
|
| $21.60 to $21.60 | 335 |
| | 6.1 years | | 21.60 |
| | — |
| | — |
|
| | 1,869 |
| | 4.1 years | | 13.46 |
| | 872 |
| | 11.11 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Shares in thousands) | Options outstanding | | Options exercisable |
| Range of exercise prices | Number
outstanding | | Weighted
average
remaining life
in years | | Weighted-
average
exercise
price | | Number
exercisable | | Weighted
average
exercise
price |
| $0.00 to $31.10 | 99 | | | 1.5 years | | $ | 27.45 | | | 99 | | | $ | 27.45 | |
| $31.11 to $43.47 | 164 | | | 2.4 years | | 33.54 | | | 164 | | | 33.54 | |
| $43.48 to $55.72 | 200 | | | 3.3 years | | 54.33 | | | 153 | | | 53.91 | |
| $55.73 to $80.00 | 303 | | | 5.4 years | | 69.47 | | | 303 | | | 69.47 | |
| $80.01 to $128.44 | 548 | | | 5.1 years | | 98.90 | | | 181 | | | 106.16 | |
| 1,314 | | | 4.3 years | | $ | 71.83 | | | 900 | | | $ | 63.08 | |
The weighted average remaining contractual term for options outstanding and options exercisable for all plans at December 31, 20172023 was 4.14.3 years and 2.93.9 years, respectively.
For all plans,Under the Company had shares available for future grants of 8.8 million shares, 9.4 million shares, and 10.4 million shares at December 31, 2017, 2016 and 2015, respectively.
For allstock plans, the total pre-tax intrinsic value of stock options exercised during the years ended December 31, 20172023 and 20162022 was $4.8$29.2 million and $5.1$11.4 million, respectively. The aggregate intrinsic value, which represents the total pre-tax intrinsic value based on the Company’s closing stock price of $30.45$119.82 at December 31, 2017,2023, which theoretically could have been received by the option holders had all option holders exercised their options as of that date, was $31.8$64.3 million and $16.9$51.6 million for options outstanding and options exercisable, respectively.
Share-based payment awards in the form of stock option awards for 0.30.2 million, 0.50.1 million and 0.40.2 million optionsshares were granted to employees during the years ended December 31, 2017, 20162023, 2022 and 2015.2021, respectively. Compensation expense is based on the grant date fair value. The awards vest annually over a three-year or four-year period of four years and have a contractual term of 7 years. The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, the risk-free rate and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of reasonableness of the original estimates of fair value made by the Company.
The fair value of each stock option grant was estimated at the date of grant using a Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted for the years ended December 31, 2017, 20162023, 2022 and 2015:
|
| | | | | | | | | | | |
| Employee stock options: | 2017 | | 2016 | | 2015 |
| Volatility | 26.9 | % | | 27.6 | % | | 34.6 | % |
| Risk-free interest rate | 1.7 | % | | 1.1 | % | | 1.3 | % |
| Dividend yield | — | % | | — | % | | — | % |
| Expected life (years) | 4.1 |
| | 4.0 |
| | 3.9 |
|
| Weighted average fair value per option | $ | 5.25 |
| | $ | 2.85 |
| | $ | 3.86 |
|
| | | | | | | | | | | | | | | | | |
| Employee stock options: | 2023 | | 2022 | | 2021 |
| Volatility | 46.5 | % | | 40.9 | % | | 38.0 | % |
| Risk-free interest rate | 3.7 | % | | 1.5 | % | | 0.4 | % |
| Dividend yield | 0.5 | % | | 0.3 | % | | 0.3 | % |
| Expected life (years) | 4.7 | | 4.2 | | 4.6 |
| Weighted average fair value per option | $ | 34.40 | | | $ | 43.47 | | | $ | 30.69 | |
A historical daily measurement of volatility is determined based on the expected life of the option granted. The risk-free interest rate is determined by reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by reference to the Company’s historical experience. The Company determines the dividend yield by dividing the expected annual dividend on the Company’s stock by the option exercise price.
Employee Stock Purchase Plan
The Company maintains the Entegris, Inc. Amended and Restated Employee Stock Purchase Plan (ESPP)(“ESPP”). The ESPP allows employees to elect, at six-month intervals, to contribute up to 10% of their compensation, subject to certain limitations, to purchase shares of the Company’s common stock at a discount of 15% from the fair market value on the first day or last day of each six-month period. The Company treats the ESPP as a compensatory plan. At December 31, 2017, 2.12023, 1.1 million shares remained available for issuance under the ESPP. Employees purchased 0.2 million, shares, 0.30.2 million shares, and 0.30.1 million shares, at a weighted-average price of $16.92, $11.56,$68.87, $65.25, and $11.21$90.89 during the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
Restricted Stock AwardsUnits
Restricted stock awardsunits are awards of common stock made under the 2010 Stock PlanPlans that are subject to a risk of forfeiture if the awardee terminates employment with the Company prior to the lapse of the restrictions. The value of such restricted stock units is determined using the market price on the grant date. Compensation expense for restricted stock awardsunits is generally recognized using the straight-line single-option method. A summary of the Company’s restricted stock unit activity for the years ended December 31, 2017, 20162023, 2022 and 20152021 is presented in the following table: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
(Shares in thousands) | Number
of
shares | | Weighted
average
grant date
fair value | | Number
of
shares | | Weighted
average
grant date
fair value | | Number
of
shares | | Weighted
average
grant date
fair value |
| Unvested, beginning of year | 844 | | | $ | 90.37 | | | 897 | | | $ | 62.69 | | | 1,083 | | | $ | 41.31 | |
| Granted | 640 | | | 80.45 | | | 366 | | | 117.82 | | | 293 | | | 101.04 | |
| Assumed in CMC acquisition | — | | | — | | | 155 | | | 92.96 | | | — | | | — | |
| Vested | (389) | | | 78.17 | | | (523) | | | 64.77 | | | (439) | | | 35.58 | |
| Forfeited | (90) | | | 89.23 | | | (51) | | | 85.16 | | | (40) | | | 57.39 | |
| Unvested, end of year | 1,005 | | | 89.08 | | | 844 | | | 90.37 | | | 897 | | | 62.69 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
(Shares in thousands) | Number of shares | | Weighted average grant date fair value | | Number of shares | | Weighted average grant date fair value | | Number of shares | | Weighted average grant date fair value |
| Unvested, beginning of year | 2,164 |
| | $ | 12.49 |
| | 1,882 |
| | $ | 12.25 |
| | 1,613 |
| | $ | 10.53 |
|
| Granted | 659 |
| | 22.14 |
| | 1,249 |
| | 12.42 |
| | 1,043 |
| | 13.47 |
|
| Vested | (801 | ) | | 12.22 |
| | (711 | ) | | 11.74 |
| | (638 | ) | | 10.13 |
|
| Forfeited | (165 | ) | | 14.48 |
| | (256 | ) | | 12.44 |
| | (136 | ) | | 11.26 |
|
| Unvested, end of year | 1,857 |
| | 15.86 |
| | 2,164 |
| | 12.49 |
| | 1,882 |
| | 12.25 |
|
The weighted average remaining contractual term for unvested restricted shares at December 31, 2017 and 2016 was 2.1 years and 2.4 years, respectively.
During the years ended December 31, 2017, 20162023, 2022 and 2015,2021, the Company awarded performanceperformance-based restricted stock units for up to 0.2 million, 0.1 million and 0.1 million shares 0.2 million shares and 0.2 million shares,of common stock, respectively, to be issued upon the achievement of performance conditions (Performance shares) under the Company’s 2010 Stock Planstock plans to certain officers and other key employees.officers. Compensation expense is based on the grant date fair value. The awards vest on the third anniversary of the award date.date if the performance conditions have been satisfied. The Company estimates the fair value of the Performanceperformance shares using a Monte Carlo simulation process.
As of December 31, 2017,2023, the total compensation cost related to unvested stock options, performance-based restricted stock units and restricted stock unit awards not yet recognized was $2.6$3.7 million, $3.1 million and $21.1$46.9 million, respectively, and is expected to be recognized over the next 2.5 years on a weighted-average basis.
Modifications
During the year ended December 31, 2022, the Company modified all employee awards of restricted share units, options, and performance-based restricted share units that were granted in the 2022 fiscal year to provide that the awards will generally vest in connection with the grantee’s qualifying retirement. The Company accounted for this as a modification of awards and recognized incremental compensation cost of $15.3 million. The incremental compensation cost was measured as the accelerated expense over the requisite service period. The fair-value-based measure of the modified awards was the same as the fair-value based measure of the original award immediately before modification because the modification only affects the service period of the award.
During the years ended December 31, 2023 and 2022, the Company modified restricted share units, options, and performance-based restricted share units granted prior to the 2022 fiscal year for certain employees to accelerate the unvested awards upon their respective retirements from the Company. The Company accounted for this as a modification of awards and recognized incremental compensation cost of $0.7 million and $6.2 million for the years ended December 31, 2023 and 2022, respectively. The incremental compensation cost is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms modified and recognized as compensation cost on the date of the modification for the vested awards.
Valuation and Expense Information
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on their estimated fair values on the date of grant. Compensation expense is recognized using the straight-line attribution method
to recognize share-based compensation over the service period of the award, with adjustments recorded for forfeitures as they occur. Awards issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis. The following table summarizes the allocation of share-based compensation expense related to employee stock options, restricted stock awards, performance-based restricted stock awards and grants under the employee stock purchase plan for the
years ended December 31, 2017, 20162023, 2022 and 2015:2021: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Cost of sales | $ | 8,896 | | | $ | 5,780 | | | $ | 3,844 | |
| Engineering, research and development expenses | 7,999 | | | 4,596 | | | 3,504 | |
| Selling, general and administrative expenses | 44,476 | | | 56,201 | | | 22,536 | |
| Share-based compensation expense | $ | 61,371 | | | $ | 66,577 | | | $ | 29,884 | |
| Tax benefit | 12,472 | | | 13,977 | | | 5,488 | |
| Share-based compensation expense, net of tax | $ | 48,899 | | | $ | 52,600 | | | $ | 24,396 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Cost of sales | $ | 1,031 |
| | $ | 1,579 |
| | $ | 1,317 |
|
| Engineering, research and development expenses | 1,457 |
| | 1,124 |
| | 1,000 |
|
| Selling, general and administrative expenses | 12,818 |
| | 10,733 |
| | 8,716 |
|
| Share-based compensation expense | 15,306 |
| | 13,436 |
| | 11,033 |
|
| Tax benefit | 4,978 |
| | 4,153 |
| | 3,362 |
|
| Share-based compensation expense, net of tax | $ | 10,328 |
| | $ | 9,283 |
| | $ | 7,671 |
|
(12)19. BENEFIT PLANS
401(k) Plan
The Company maintains 401(k) defined contribution plans covering employees in the Entegris, Inc. 401(k) Savings and Profit Sharing Plan (the 401(k) Plan) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan, eligible employees may defer a portion of their pre-tax wages, up to the Internal Revenue Service annual contribution limit. Entegris matches employees’ contributions to a maximum match of 4% of the employee’s eligible wages.U.S. The employer matching contributionrelated expense under the Plan was $5.1totaled $25.4 million, $4.9$21.9 million and $5.0$10.1 million in the fiscal years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. During the year ended December 31, 2023, the Company matched employees’ contributions to a maximum of 5% of the employee’s eligible wages for legacy and new Entegris employees. During the year ended December 31, 2023, the Company matched legacy CMC Materials employees’ contributions to a maximum of 6% of each such employee’s eligible wages and those employees were also eligible to receive a 3% non-elective contribution. The Company’s United Kingdom, Singapore and South Korea subsidiaries also make immaterial contributions to retirement plans that function as defined contribution retirement plans.
Defined Benefit Plans
The employees of the Company’s subsidiaries in Japan, Taiwan, South Korea, France and Germany are covered in defined benefit pension plans. The benefit obligation was reduced by $1.4 million due to the EC disposition in the year ended December 31, 2023. On December 31, 2023, the Company converted its South Korea defined pension plans to defined contribution plans. As a result of this conversion, the Company settled and paid out to beneficiaries an amount of $2.3 million on January 2, 2024. The Company uses a December 31 measurement date for its pension plans. A summary of these combined plans are:
The tables below set forth the Company’s estimated funded status as of December 31, 2017 and 2016: | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 |
| Projected benefit obligation | $ | 12,618 | | | $ | 15,253 | |
| Fair value of plan assets | 1,407 | | | 1,014 | |
| Plan assets less benefit obligation - net amount recognized | (11,211) | | | (14,239) | |
| Accumulated benefit obligation | 10,375 | | | 12,151 | |
|
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Change in benefit obligation: | | | |
| Benefit obligation at beginning of year | $ | 7,073 |
| | $ | 8,194 |
|
| Service cost | 38 |
| | 66 |
|
| Interest cost | 46 |
| | 91 |
|
| Actuarial (gain) loss | 302 |
| | (481 | ) |
| Benefits paid | (222 | ) | | (1,000 | ) |
| Other | 7 |
| | — |
|
| Foreign exchange impact | 438 |
| | 203 |
|
| Benefit obligation at end of year | 7,682 |
| | 7,073 |
|
| Change in plan assets: | | | |
| Fair value of plan assets at beginning of year | 743 |
| | 718 |
|
| Return on plan assets | 5 |
| | 7 |
|
| Employer contributions | 88 |
| | 6 |
|
| Foreign exchange impact | 72 |
| | 12 |
|
| Fair value of plan assets at end of year | 908 |
| | 743 |
|
| Funded status: | | | |
| Plan assets less than benefit obligation - Net amount recognized | $ | (6,774 | ) | | $ | (6,330 | ) |
Amounts recognized in the consolidated balance sheets consist of: |
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Noncurrent liability | $ | (6,774 | ) | | $ | (6,330 | ) |
| Accumulated other comprehensive loss, net of taxes | 919 |
| | 681 |
|
Amounts recognized in accumulated other comprehensive loss, net of tax consist of: |
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Net actuarial loss | $ | 490 |
| | $ | 170 |
|
| Prior service cost | 705 |
| | 712 |
|
| Gross amount recognized | 1,195 |
| | 882 |
|
| Deferred income taxes | (276 | ) | | (195 | ) |
| Net amount recognized | $ | 919 |
| | $ | 687 |
|
Information for pension plans with an accumulated benefit obligation in excess of plan assets: |
| | | | | | | |
| (In thousands) | 2017 | | 2016 |
| Projected benefit obligation | $ | 6,774 |
| | $ | 7,073 |
|
| Accumulated benefit obligation | 6,497 |
| | 6,145 |
|
| Fair value of plan assets | 908 |
| | 743 |
|
The components of the net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 were as follows: |
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Pension benefits: | | | | | |
| Service cost | $ | 38 |
| | $ | 66 |
| | $ | 65 |
|
| Interest cost | 46 |
| | 91 |
| | 119 |
|
| Expected return on plan assets | (11 | ) | | (10 | ) | | (17 | ) |
| Amortization of prior service cost | 69 |
| | 65 |
| | 76 |
|
| Amortization of net transition obligation | 22 |
| | — |
| | (1 | ) |
| Amortization of plan loss | — |
| | — |
| | 28 |
|
| Recognized actuarial net loss | — |
| | 17 |
| | 14 |
|
| Curtailments | — |
| | — |
| | 160 |
|
| Net periodic pension benefit cost | $ | 164 |
| | $ | 229 |
| | $ | 444 |
|
The estimated amount that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2018 is as follows: |
| | | |
| (In thousands) | |
| Prior service cost | $ | 70 |
|
| Net actuarial loss | 21 |
|
| | $ | 91 |
|
Assumptions used in determining the benefit obligation and net periodic benefit cost for the Company’s pension plans for the years ended December 31, 2017, 2016 and 2015 are presented in the following table as weighted-averages: |
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Benefit obligations: | | | | | |
| Discount rate | 0.82 | % | | 0.63 | % | | 1.10 | % |
| Rate of compensation increase | 3.05 | % | | 2.90 | % | | 3.70 | % |
| Net periodic benefit cost: | | | | | |
| Discount rate | 1.45 | % | | 1.70 | % | | 1.94 | % |
| Rate of compensation increase | 3.00 | % | | 3.43 | % | | 4.41 | % |
| Expected return on plan assets | 1.80 | % | | 1.43 | % | | 1.76 | % |
The plans’ expected return on assets as shown above is based on management’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions. The discount rate primarily used by the Company is based on market yields at the valuation date on government bonds as well as the estimated maturity of benefit payments.
Plan Assets
At December 31, 2017, the majority of the Company’s pension plan assets are deposited in Bank of Taiwan in the form of money market funds, where the Bank of Taiwan is the assigned funding vehicle for the statutory retirement benefit. The remaining portion of the Company's plan assets is deposited in a German insurance company's investment fund.
The fair value measurements of the Company’s pension plan assets at December 31, 2017, by asset category are as follows: |
| | | | | | | | | | | | | |
| (In thousands) | | | Quoted prices in active markets for identical assets | | Significant observable inputs | | Significant unobservable inputs |
| Asset category | Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Taiwan plan assets (a) | $ | 830 |
| | $ | 830 |
| | — |
| | — |
|
| Germany plan assets (b) | $ | 78 |
| | $ | 78 |
| | — |
| | — |
|
| | $ | 908 |
| | $ | 908 |
| | — |
| | — |
|
| |
(a) | This category includes investments in the government of Taiwan’s pension fund. The government of Taiwan is responsible for the strategy and allocation of the investment contributions. |
| |
(b) | This category includes investments in an insurer's balanced asset fund. The insurer is responsible for the strategy and allocation of the investment contributions. The Company selects a pre-packaged portfolio pooled investment fund that is conservative. The majority of the funs are invested broadly in German mortgage bonds, construction loans and government bonds with good credit rating. |
At December 31, 2016, the Company’s pension plan assets are deposited in Bank of Taiwan in the form of money market funds, where the Bank of Taiwan is the assigned funding vehicle for the statutory retirement benefit.
The fair value measurements of the Company’s pension plan assets at December 31, 2016, by asset category are as follows: |
| | | | | | | | | | | | | |
| (In thousands) | | | Quoted prices in active markets for identical assets | | Significant observable inputs | | Significant unobservable inputs |
| Asset category | Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Taiwan plan assets (a) | $ | 743 |
| | $ | 743 |
| | — |
| | — |
|
| |
(a) | This category includes investments in the government of Taiwan’s pension fund. The government of Taiwan is responsible for the strategy and allocation of the investment contributions. |
Cash Flows
Benefits for the combined plans were $1.0 million, $0.7 million and $0.1 million in fiscal years 2023, 2022 and 2021, respectively, consisting primarily of service costs. Net service costs are included in Cost of sales and Operating expenses, and all other costs are recorded in Other expense, net in our Consolidated Statements of Operations. The Company expects to make the following contributions and benefit payments: | | | | | | | | |
| (In thousands) | | Payments |
| 2024 | | $ | 700 | |
| 2025 | | 976 | |
| 2026 | | 404 | |
| 2027 | | 453 | |
| 2028 | | 641 | |
| Years 2029-2033 | | 3,029 | |
|
| | | | | | | |
| (In thousands) | Contributions | | Payments |
| 2018 | $ | 112 |
| | $ | 102 |
|
| 2019 | — |
| | 103 |
|
| 2020 | — |
| | 205 |
|
| 2021 | — |
| | 186 |
|
| 2022 | — |
| | 437 |
|
| Years 2023-2027 | — |
| | 2,021 |
|
(13) FAIR VALUE MEASUREMENTS
Generally accepted accounting principles establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1—Quoted prices in active markets accessible at the reporting date for identical assets and liabilities.
Level 2—Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3—Prices or valuations that require inputs that are significant to the valuation and are unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Financial Assets Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis at December 31, 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| (In thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Other current assets: | | | | | | | | | | | | | | | |
| Foreign exchange forward contracts asset | $ | — |
| | $ | 36 |
| | $ | — |
| | $ | 36 |
| | $ | — |
| | $ | 4,784 |
| | $ | — |
| | $ | 4,784 |
|
| Total assets measured and recorded at fair value | $ | — |
| | $ | 36 |
| | $ | — |
| | $ | 36 |
| | $ | — |
| | $ | 4,784 |
| | $ | — |
| | $ | 4,784 |
|
The following table provides information about derivative positions held by the Company as of December 31, 2017 and 2016: |
| | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| (In thousands) | Gross
amounts of
recognized assets | | Gross
amounts
offset in the
consolidated
balance
sheet | | Net amount
of assets in the
consolidated
balance
sheet | | Gross
amounts
of
recognized
assets | | Gross
amounts
offset in the
consolidated
balance
sheet | | Net amount of assets in the
consolidated
balance sheet |
| Foreign exchange forward contracts | $36 | | $0 | | $36 | | $4,784 | | $0 | | $4,784 |
Gains and losses associated with derivatives are recorded in other expense (income), net, in the consolidated statements of operations. Losses associated with derivative instruments not designated as hedging instruments for the years ended December 31, 2017, 2016 and 2015 were as follows:
|
| | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Losses on foreign currency forward contracts | $(2,209) | | $(1,647) | | $(10,787) |
(14)20. EARNINGS PER SHARE (EPS)(“EPS”)
Basic EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. The following table presents a reconciliation of the share amounts used in the computation of basic and diluted
earnings per share: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Basic earnings per share—Weighted common shares outstanding | 149,900 | | | 142,294 | | | 135,411 | |
| Weighted common shares assumed upon exercise of options and vesting of restricted stock units | 1,045 | | | 852 | | | 1,163 | |
| Diluted earnings per share—Weighted common shares outstanding | 150,945 | | | 143,146 | | | 136,574 | |
|
| | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Basic earnings per share—Weighted common shares outstanding | 141,553 |
| | 141,093 |
| | 140,353 |
|
| Weighted common shares assumed upon exercise of options and vesting of restricted stock units | 1,965 |
| | 957 |
| | 768 |
|
| Diluted earnings per share—Weighted common shares outstanding | 143,518 |
| | 142,050 |
| | 141,121 |
|
The Company excluded the following shares underlying stock-based awards from the calculations of diluted EPS because their inclusion would have been anti-dilutive for the years ended December 31, 2017, 20162023, 2022 and 2015:2021: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Shares excluded from calculations of diluted EPS | 657 | | | 447 | | | 136 | |
|
| | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Shares excluded from calculations of diluted EPS | 303 |
| | 434 |
| | 998 |
|
(15)21. SEGMENT INFORMATION
In the third quarter of 2023, the Company realigned its segments into three reportable segments discussed below, which align with the key elements of the advanced semiconductor manufacturing ecosystem. The Company's financial segment reporting reflects an organizational alignment intendedcurrent annual and succeeding annual periods will disclose the reportable segments with prior periods recast to leveragereflect the Company's unique portfolio of capabilities to create value for its customers by developing mission-criticalchange.
•Materials Solutions: MS provides materials-based solutions, to maximize manufacturing yieldssuch as chemical mechanical planarization (“CMP”) slurries and enable higher performance of devices. While these segments have separate products and technical know-how, they share a global generalist sales force, common business systems and processes, technology centers, and strategic and technology roadmaps. The Company leverages its expertise from these three segments to create new and increasingly integrated solutions for its customers. The Company's business is reported in the following segments:
Specialty Chemicals and Engineered Materials (SCEM): SCEM provides high-performance and high-puritypads, deposition materials, process chemistries and gases, and materials and safe and efficient delivery systems to support semiconductorformulated cleans, etchants and other advanced manufacturing processes.
specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership.•Microcontamination Control (MC): MC offers advanced solutions purifythat improve customers’ yield, device reliability and cost by filtering and purifying critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.
•Advanced Materials Handling (AMH): AMH develops solutions tothat improve customers’ yields by protecting critical materials during manufacturing, transportation, and storage, including products that monitor, protect, transport and deliver critical liquid chemistries, wafers, and other substrates for a broad set of applications in the semiconductor, industrylife sciences and other high-technology industries.
Inter-segment sales
These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are not significant. uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers, which should translate into improved device performance, lower cost of ownership and faster time to market. This capability has been further enhanced with the acquisition of CMC Materials. For example, we can now develop and provide complementary offerings solving customers’ complex manufacturing challenges across the deposition, CMP process and post-CMP modules with co-optimized products from each of our divisions, such asadvanced deposition materials, CMP slurries, pads and post-CMP cleaning chemistries from our MS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.
Segment profit is defined as net sales less direct and indirect segment operating expenses, excludingincluding certain unallocated expenses, consisting mainly of general and administrative costs for the Company’s human resources, finance and information technology functions. The Company generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at approximate market prices. Inter-segment sales are presented as an elimination below. The remaining unallocated expenses consist mainly of the Company’s corporate functions as well as interest expense, interest income, amortization of intangible assets and income taxes and equity in net loss of affiliate.tax expense.
Corporate assets consist primarily of cash and cash equivalents, property, plant and equipment, deferred tax assets and deferred tax charges.
Summarized financial information for the Company’s reportable segments is shown in the following tables.tables: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Net sales: | | | | | |
| MS | 1,689,467 | | | 1,380,208 | | | 711,291 | |
| MC | 1,127,555 | | | 1,105,996 | | | 919,363 | |
| AMH | 758,648 | | | 846,492 | | | 704,946 | |
| Inter-segment elimination | (51,744) | | | (50,663) | | | (36,707) | |
| Total net sales | $ | 3,523,926 | | | $ | 3,282,033 | | | $ | 2,298,893 | |
| | | | | |
(In thousands) | 2023 | | 2022 | | 2021 |
| Segment profit: | | | | | |
| MS | 296,375 | | | 219,189 | | | 167,807 | |
| MC | 395,348 | | | 411,475 | | | 321,300 | |
| AMH | 136,100 | | | 183,738 | | | 159,995 | |
| Total segment profit | $ | 827,823 | | | $ | 814,402 | | | $ | 649,102 | |
| | | | | |
(In thousands) | 2023 | | 2022 | | 2021 |
| Total assets: | | | | | |
| MS | 6,405,693 | | | 7,535,706 | | | 1,191,465 | |
| MC | 1,157,414 | | | 1,161,636 | | | 946,336 | |
| AMH | 697,243 | | | 801,591 | | | 598,547 | |
| Corporate | 552,241 | | | 639,924 | | | 455,548 | |
| Total assets | $ | 8,812,591 | | | $ | 10,138,857 | | | $ | 3,191,896 | |
| | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Depreciation and amortization: | | | | | |
| MS | 286,632 | | | 203,320 | | | 66,983 | |
| MC | 57,432 | | | 42,514 | | | 41,536 | |
| AMH | 43,096 | | | 33,490 | | | 29,648 | |
| | | | | |
| Total depreciation and amortization | $ | 387,160 | | | $ | 279,324 | | | $ | 138,167 | |
| | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Capital expenditures: | | | | | |
| MS | 141,851 | | | 151,331 | | | 74,410 | |
| MC | 227,996 | | | 178,800 | | | 69,120 | |
| AMH | 87,000 | | | 136,061 | | | 67,096 | |
| | | | | |
| Total capital expenditures | $ | 456,847 | | | $ | 466,192 | | | $ | 210,626 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Net sales: | | | | | |
| SCEM | $ | 485,470 |
| | $ | 428,328 |
| | $ | 418,878 |
|
| MC | 436,225 |
| | 362,658 |
| | 315,817 |
|
| AMH | 420,837 |
| | 384,284 |
| | 346,426 |
|
| Total net sales | $ | 1,342,532 |
| | $ | 1,175,270 |
| | $ | 1,081,121 |
|
(In thousands) | 2017 | | 2016 | | 2015 |
| Segment profit: | | | | | |
| SCEM | $ | 132,859 |
| | $ | 96,060 |
| | $ | 100,370 |
|
| MC | 160,715 |
| | 110,042 |
| | 83,076 |
|
| AMH | 77,971 |
| | 73,452 |
| | 66,419 |
|
| Total segment profit | $ | 371,545 |
| | $ | 279,554 |
| | $ | 249,865 |
|
(In thousands) | 2017 | | 2016 | | 2015 |
| Total assets: | | | | | |
| SCEM | $ | 749,379 |
| | $ | 766,126 |
| | $ | 801,250 |
|
| MC | 251,216 |
| | 200,399 |
| | 183,518 |
|
| AMH | 278,079 |
| | 267,085 |
| | 259,377 |
|
| Corporate | 697,498 |
| | 465,922 |
| | 402,552 |
|
| Total assets | $ | 1,976,172 |
| | $ | 1,699,532 |
| | $ | 1,646,697 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Depreciation and amortization: | | | | | |
| SCEM | $ | 65,559 |
| | $ | 64,062 |
| | $ | 65,352 |
|
| MC | 12,881 |
| | 9,222 |
| | 8,733 |
|
| AMH | 20,167 |
| | 22,874 |
| | 23,604 |
|
| Corporate | 3,624 |
| | 3,728 |
| | 3,965 |
|
| Total depreciation and amortization | $ | 102,231 |
| | $ | 99,886 |
| | $ | 101,654 |
|
| | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Capital expenditures: | | | | | |
| SCEM | $ | 41,216 |
| | $ | 27,348 |
| | $ | 29,333 |
|
| MC | 24,909 |
| | 6,281 |
| | 11,408 |
|
| AMH | 16,078 |
| | 19,029 |
| | 23,617 |
|
| Corporate | 11,394 |
| | 12,602 |
| | 7,619 |
|
| Total capital expenditures | $ | 93,597 |
| | $ | 65,260 |
| | $ | 71,977 |
|
The following table reconciles total segment profit to income before income taxes and equity in net loss of affiliate: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Total segment profit | $ | 827,823 | | | $ | 814,402 | | | $ | 649,102 | |
| Less: | | | | | |
| Amortization of intangibles | 214,477 | | | 143,953 | | | 47,856 | |
| Unallocated general and administrative expenses | 114,188 | | | 190,468 | | | 49,478 | |
| Operating income | $ | 499,158 | | | $ | 479,981 | | | 551,768 | |
| Interest expense | 312,378 | | | 212,669 | | | 41,240 | |
| Interest income | (11,257) | | | (3,694) | | | (243) | |
| Other expense, net | 25,367 | | | 23,926 | | | 31,695 | |
| Income before income tax (benefit) expense | $ | 172,670 | | | $ | 247,080 | | | $ | 479,076 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Total segment profit | $ | 371,545 |
| | $ | 279,554 |
| | $ | 249,865 |
|
| Less: | | | | | |
| Amortization of intangibles | 44,023 |
| | 44,263 |
| | 47,349 |
|
| Unallocated general and administrative expenses | 85,705 |
| | 79,755 |
| | 84,448 |
|
| Operating income | 241,817 |
| | 155,536 |
| | 118,068 |
|
| Interest expense | 32,343 |
| | 36,846 |
| | 38,667 |
|
| Interest income | (715 | ) | | (318 | ) | | (429 | ) |
| Other expense (income), net | 25,458 |
| | (991 | ) | | (12,355 | ) |
| Income before income tax expense and equity in net loss of affiliate | $ | 184,731 |
| | $ | 119,999 |
| | $ | 92,185 |
|
TheIn the following table presents amortization of intangibles for eachtables, revenue is disaggregated by country or region based on the ship to location of the Company’s segmentscustomer for the years ended December 31, 2017, 20162023, 2022 and 2015:2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| (In thousands) | MS | | MC | | AMH | | | Inter-segment | | Total |
| North America | $ | 540,347 | | | $ | 170,816 | | | $ | 231,833 | | | | $ | (51,744) | | | $ | 891,252 | |
| Taiwan | 231,982 | | | 234,078 | | | 124,573 | | | | — | | | 590,633 | |
| South Korea | 218,192 | | | 120,036 | | | 104,957 | | | | — | | | 443,185 | |
| Japan | 104,977 | | | 219,340 | | | 42,991 | | | | — | | | 367,308 | |
| China | 196,970 | | | 229,689 | | | 140,245 | | | | — | | | 566,904 | |
| Europe | 229,368 | | | 93,059 | | | 79,923 | | | | — | | | 402,350 | |
| Southeast Asia | 167,631 | | | 60,537 | | | 34,126 | | | | — | | | 262,294 | |
| $ | 1,689,467 | | | $ | 1,127,555 | | | $ | 758,648 | | | | $ | (51,744) | | | $ | 3,523,926 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| (In thousands) | MS | | MC | | AMH | | | Inter-segment | | Total |
| North America | $ | 422,185 | | | $ | 158,627 | | | $ | 265,510 | | | | $ | (50,663) | | | $ | 795,659 | |
| Taiwan | 202,565 | | | 305,899 | | | 151,663 | | | | — | | | 660,127 | |
| South Korea | 162,601 | | | 129,750 | | | 121,726 | | | | — | | | 414,077 | |
| Japan | 107,239 | | | 183,485 | | | 59,278 | | | | — | | | 350,002 | |
| China | 198,022 | | | 184,609 | | | 119,325 | | | | — | | | 501,956 | |
| Europe | 150,914 | | | 85,696 | | | 88,405 | | | | — | | | 325,015 | |
| Southeast Asia | 136,682 | | | 57,930 | | | 40,585 | | | | — | | | 235,197 | |
| $ | 1,380,208 | | | $ | 1,105,996 | | | $ | 846,492 | | | | $ | (50,663) | | | $ | 3,282,033 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| (In thousands) | MS | | MC | | AMH | | | Inter-segment | | Total |
| North America | $ | 208,997 | | | $ | 133,653 | | | $ | 219,853 | | | | $ | (36,707) | | | $ | 525,796 | |
| Taiwan | 117,056 | | | 225,086 | | | 111,968 | | | | — | | | 454,110 | |
| South Korea | 97,568 | | | 114,211 | | | 105,493 | | | | — | | | 317,272 | |
| Japan | 89,767 | | | 161,569 | | | 51,267 | | | | — | | | 302,603 | |
| China | 102,791 | | | 164,471 | | | 97,157 | | | | — | | | 364,419 | |
| Europe | 50,136 | | | 70,011 | | | 89,121 | | | | — | | | 209,268 | |
| Southeast Asia | 44,976 | | | 50,362 | | | 30,087 | | | | — | | | 125,425 | |
| $ | 711,291 | | | $ | 919,363 | | | $ | 704,946 | | | | $ | (36,707) | | | $ | 2,298,893 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Amortization of intangibles: | | | | | |
| SCEM | $ | 38,836 |
| | $ | 40,034 |
| | $ | 42,909 |
|
| MC | 881 |
| | — |
| | — |
|
| AMH | 4,306 |
| | 4,229 |
| | 4,440 |
|
| Total amortization of intangibles | $ | 44,023 |
| | $ | 44,263 |
| | $ | 47,349 |
|
The following table summarizes total net sales, based upon the country or region to which sales to external customers were made for the years ended December 31, 2017, 2016 and 2015: |
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Net sales: | | | | | |
| Taiwan | $ | 289,714 |
| | $ | 291,309 |
| | $ | 248,842 |
|
| United States | 286,339 |
| | 253,868 |
| | 253,141 |
|
| South Korea | 216,868 |
| | 145,661 |
| | 148,016 |
|
| Japan | 169,480 |
| | 156,021 |
| | 131,336 |
|
| China | 148,890 |
| | 118,435 |
| | 97,148 |
|
| Europe | 120,481 |
| | 105,779 |
| | 106,036 |
|
| Southeast Asia | 110,760 |
| | 104,197 |
| | 96,602 |
|
| | $ | 1,342,532 |
| | $ | 1,175,270 |
| | $ | 1,081,121 |
|
The following table summarizes property, plant and equipment, net, attributed to significant countries for the years ended December 31, 2017, 20162023, 2022 and 2015:2021: | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2022 | | 2021 |
| Property, plant and equipment, net: | | | | | |
| North America | $ | 747,823 | | | $ | 776,913 | | | $ | 417,549 | |
| South Korea | 101,107 | | | 84,253 | | | 58,725 | |
| Japan | 118,872 | | | 104,282 | | | 56,357 | |
| Malaysia | 50,183 | | | 46,703 | | | 29,443 | |
| China | 32,884 | | | 31,592 | | | 32,133 | |
| Taiwan | 412,346 | | | 253,285 | | | 58,444 | |
| Other | 4,828 | | | 96,309 | | | 1,447 | |
| $ | 1,468,043 | | | $ | 1,393,337 | | | $ | 654,098 | |
|
| | | | | | | | | | | |
| (In thousands) | 2017 | | 2016 | | 2015 |
| Property, plant and equipment: | | | | | |
| United States | $ | 257,584 |
| | $ | 226,394 |
| | $ | 229,558 |
|
| South Korea | 39,562 |
| | 33,441 |
| | 32,400 |
|
| Japan | 23,648 |
| | 25,248 |
| | 23,619 |
|
| Malaysia | 19,212 |
| | 19,180 |
| | 19,878 |
|
| Taiwan | 16,073 |
| | 14,151 |
| | 11,333 |
|
| Other | 3,444 |
| | 3,148 |
| | 4,513 |
|
| | $ | 359,523 |
| | $ | 321,562 |
| | $ | 321,301 |
|
InThe Company reported net sales of 10 percent or more for one customer in the amount of $382.9 million, $408.6 million and $271.9 million for the years ended December 31, 2017, 20162023, 2022 and 2015, Taiwan Semiconductor Manufacturing Company Limited, accounted for $167.9 million, $161.9 million and $134.1 million of net sales,2021, respectively, all of which include sales from all of the Company's segments. In addition, in the year ended December 31, 2017, Samsung Electronics Co. accounted for $140.6 million of net sales which include sales from all of the Company'sCompany’s segments.
(16)22. COMMITMENTS AND CONTINGENT LIABILITIES
We are, from time-to-time, involved in various claims, proceedings and lawsuits relating to our business, employees, intellectual property and other matters. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, that could require significant expenditures or result in lost revenues. We record a liability for these legal actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. There is judgment required in the determination of the likelihood of outcome, and if necessary determination of the estimate or range of potential outcomes. Based on the current information, the Company does not believe any known matters have a reasonable possibility of a material amount for litigation or other contingencies related to legal proceedings.
23. QUARTERLY INFORMATION-UNAUDITED | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal quarter ended |
| (In thousands, except per share data) | April 1, 2023 | | July 1, 2023 | | September 30, 2023 | | December 31, 2023 |
| Net sales | $ | 922,396 | | | $ | 901,000 | | | $ | 888,239 | | | $ | 812,291 | |
| Gross profit | 401,685 | | | 384,166 | | | 367,074 | | | 344,680 | |
| Net (loss) income | (88,166) | | | 197,646 | | | 33,212 | | | 37,977 | |
| Basic net (loss) income per common share | (0.59) | | | 1.32 | | | 0.22 | | | 0.25 | |
| Diluted net (loss) income per common share | (0.59) | | | 1.31 | | | 0.22 | | | 0.25 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal quarter ended |
| (In thousands, except per share data) | April 2, 2022 | | July 2, 2022 | | October 1, 2022 | | December 31, 2022 |
| Net sales | $ | 649,646 | | | $ | 692,489 | | | $ | 993,828 | | | $ | 946,070 | |
| Gross profit | 309,820 | | | 310,397 | | | 371,671 | | | 404,525 | |
| Net income (loss) | 125,705 | | | 99,491 | | | (73,703) | | | 57,427 | |
| Basic net income (loss) per common share | 0.93 | | | 0.73 | | | (0.50) | | | 0.39 | |
| Diluted net income (loss) per common share | 0.92 | | | 0.73 | | | (0.50) | | | 0.38 | |
24. SUBSEQUENT EVENTS
The Company is subjecthas evaluated subsequent events to various claims, legal actions, and complaints arising in the ordinary coursedate of business. The Company believes the final outcomeissuance of these matters will not have a material adverse effect on itsthe consolidated financial statements. The Company expenses legal costshas determined that there are no events occurring in this period that require disclosure or adjustment, except as incurred.disclosed above.
(17) QUARTERLY INFORMATION-UNAUDITED |
| | | | | | | | | | | | | | | |
| Fiscal quarter ended |
| (In thousands, except per share data) | April 1, 2017 | | July 1, 2017 | | September 30, 2017 | | December 31, 2017 |
| Net sales | $ | 317,377 |
| | $ | 329,002 |
| | $ | 345,591 |
| | $ | 350,562 |
|
| Gross profit | 139,596 |
| | 150,303 |
| | 155,407 |
| | 163,679 |
|
| Net income (loss) | 32,514 |
| | 39,991 |
| | 40,902 |
| | (28,341 | ) |
| Basic net income (loss) per common share | 0.23 |
| | 0.28 |
| | 0.29 |
| | (0.20 | ) |
| Diluted net income (loss) per common share | 0.23 |
| | 0.28 |
| | 0.28 |
| | (0.20 | ) |
|
| | | | | | | | | | | | | | | |
| Fiscal quarter ended |
| (In thousands, except per share data) | April 2, 2016 | | July 2, 2016 | | October 1, 2016 | | December 31, 2016 |
| Net sales | $ | 267,024 |
| | $ | 303,052 |
| | $ | 296,692 |
| | $ | 308,502 |
|
| Gross profit | 114,706 |
| | 139,205 |
| | 122,980 |
| | 131,800 |
|
| Net income | 16,212 |
| | 32,890 |
| | 21,947 |
| | 26,098 |
|
| Basic net income per common share | 0.12 |
| | 0.23 |
| | 0.16 |
| | 0.18 |
|
| Diluted net income per common share | 0.11 |
| | 0.23 |
| | 0.15 |
| | 0.18 |
|
(18) SUBSEQUENT EVENTS
On January 22, 2018, the Company acquired Particle Sizing Systems, LLC (PSS), a company focused on particle sizing instrumentation for liquid applications in both the semiconductor and life science industries. The total purchase price of the acquisition was approximately $37 million in cash, subject to customary working capital adjustments. The acquisition of PSS does not constitute a material business combination.
On February 13, 2018, the Company’s Board of Directors authorized a repurchase program covering up to an aggregate of $100 million of the Company’s common stock, during a period of twenty-four months, in open market transactions and in accordance with one or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. This repurchase program represents a further renewal of the repurchase program originally authorized by the Board of Directors on February 5, 2016 and first renewed on February 15, 2017.
