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ENTEGRIS INC - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-32598
 _______________________________________
 Entegris, Inc.
(Exact name of registrant as specified in its charter)
 _______________________________________
Delaware
 
41-1941551
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
129 Concord Road,
Billerica,
Massachusetts
 
01821
(Address of principal executive offices)
 
(Zip Code)
(978) 436-6500
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
 _______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, $0.01 par value per share
 
ENTG
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ý
As of July 22, 2019, there were 135,173,392 shares of the registrant’s common stock outstanding.
 


Table of Contents

ENTEGRIS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 29, 2019
Description
Page
 
 
 
 
 
 
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Cautionary Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements may include statements about future period guidance or projections; our performance relative to our markets; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of our engineering, research and development projects; our ability to execute on our business strategies; our capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the effect of the Tax Cuts and Jobs Act; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Quarterly Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for our products and solutions; our ability to meet rapid demand shifts; our ability to continue technological innovation and introduce new products to meet our customers’ rapidly changing requirements; our concentrated customer base; our dependence on sole source and limited source suppliers; raw material shortages and price increases; our ability to identify, effect and integrate acquisitions, joint ventures or other transactions; our ability to effectively implement any organizational changes; our ability to protect and enforce intellectual property rights; operational, political and legal risks of our international operations; the level of, and obligations associated with, our indebtedness; and other risk factors and additional information described in our filings with the Securities and Exchange Commission, including under the heading “Risks Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed on February 11, 2019, and in our other periodic filings. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we undertake no obligation to update publicly any forward-looking statements contained herein.

2

Table of Contents

PART 1.
FINANCIAL INFORMATION
Item 1. Financial Statements
ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) 
(In thousands, except share and per share data)
June 29, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
521,382

 
$
482,062

Trade accounts and notes receivable, net of allowance for doubtful accounts of $1,649 and $893
218,682

 
222,055

Inventories, net
261,934

 
268,140

Deferred tax charges and refundable income taxes
18,741

 
17,393

Other current assets
27,715

 
39,688

Total current assets
1,048,454

 
1,029,338

Property, plant and equipment, net of accumulated depreciation of $493,641 and $461,222
445,254

 
419,529

Other assets:
 
 
 
Right-of-use assets
44,176

 

Goodwill
583,328

 
550,202

Intangible assets, net of accumulated amortization of $377,799 and $343,088
266,425

 
295,687

Deferred tax assets and other noncurrent tax assets
23,153

 
10,162

Other
13,932

 
12,723

Total assets
$
2,424,722

 
$
2,317,641

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Long-term debt, current maturities
$
4,000

 
$
4,000

Accounts payable
56,986

 
93,055

Accrued payroll and related benefits
47,520

 
78,288

Other accrued liabilities
70,263

 
62,732

Income taxes payable
36,371

 
31,593

Total current liabilities
215,140

 
269,668

Long-term debt, excluding current maturities, net of unamortized discount and debt issuance costs of $10,325 and $11,137
933,675

 
934,863

Pension benefit obligations and other liabilities
42,898

 
31,795

Deferred tax liabilities and other noncurrent tax liabilities
89,848

 
69,290

Long-term lease liability
40,612

 

Commitments and contingent liabilities

 

Equity:
 
 
 
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of June 29, 2019 and December 31, 2018

 

Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of June 29, 2019: 135,343,680 and 135,141,280; issued and outstanding shares as of December 31, 2018: 136,179,381 and 135,976,981
1,353

 
1,362

Treasury stock, at cost: 202,400 shares held as of June 29, 2019 and December 31, 2018
(7,112
)
 
(7,112
)
Additional paid-in capital
830,922

 
837,658

Retained earnings
315,511

 
213,753

Accumulated other comprehensive loss
(38,125
)
 
(33,636
)
Total equity
1,102,549

 
1,012,025

Total liabilities and equity
$
2,424,722

 
$
2,317,641

See the accompanying notes to condensed consolidated financial statements.

3

Table of Contents

ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended
 
Six months ended
(In thousands, except per share data)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net sales
$
378,874

 
$
383,059

 
$
769,921

 
$
750,258

Cost of sales
212,600

 
200,681

 
426,254

 
391,883

Gross profit
166,274

 
182,378

 
343,667

 
358,375

Selling, general and administrative expenses
64,150

 
65,200

 
146,404

 
123,469

Engineering, research and development expenses
30,624

 
30,231

 
59,615

 
57,817

Amortization of intangible assets
16,591

 
12,014

 
35,248

 
23,683

Operating income
54,909

 
74,933

 
102,400

 
153,406

Interest expense
11,315

 
8,296

 
22,199

 
16,455

Interest income
(1,623
)
 
(1,371
)
 
(2,848
)
 
(2,304
)
Other (income) expense, net
(122,015
)
 
3,877

 
(122,263
)
 
4,016

Income before income tax expense
167,232

 
64,131

 
205,312

 
135,239

Income tax expense
43,235

 
9,782

 
48,657

 
23,328

Net income
$
123,997

 
$
54,349

 
$
156,655

 
$
111,911

 
 
 
 
 
 
 
 
Basic net income per common share
$
0.92

 
$
0.38

 
$
1.16

 
$
0.79

Diluted net income per common share
$
0.91

 
$
0.38

 
$
1.15

 
$
0.78

 
 
 
 
 
 
 
 
Weighted shares outstanding:
 
 
 
 
 
 
 
Basic
135,378

 
141,701

 
135,338

 
141,641

Diluted
136,581

 
143,238

 
136,637

 
143,445

See the accompanying notes to condensed consolidated financial statements.


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Table of Contents

ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net income
$
123,997

 
$
54,349

 
$
156,655

 
$
111,911

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(1,712
)
 
(12,626
)
 
(4,499
)
 
(8,791
)
Pension liability adjustments
(14
)
 
49

 
10

 
53

Other comprehensive loss
(1,726
)
 
(12,577
)
 
(4,489
)
 
(8,738
)
Comprehensive income
$
122,271

 
$
41,772

 
$
152,166

 
$
103,173

See the accompanying notes to condensed consolidated financial statements.


5

Table of Contents

ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Common
shares
outstanding
 
Common
stock
 
Treasury shares
 
Treasury stock
 
Additional
paid-in
capital
 
Retained earnings
(deficit)
 
Foreign currency translation adjustments
 
Defined benefit pension adjustments
 
Total
Balance at December 31, 2017
141,283

 
$
1,413

 

 
$

 
$
867,699

 
$
147,418

 
$
(22,593
)
 
$
(919
)
 
$
993,018

Shares issued under stock plans
815

 
8

 

 

 
(13,658
)
 

 

 

 
(13,650
)
Share-based compensation expense

 

 

 

 
4,128

 

 

 

 
4,128

Repurchase and retirement of common stock
(296
)
 
(3
)
 

 

 
(1,809
)
 
(8,187
)
 

 

 
(9,999
)
Dividends declared ($0.07 per share)

 

 

 

 
13

 
(9,926
)
 

 

 
(9,913
)
Pension liability adjustment

 

 

 

 

 

 

 
4

 
4

Foreign currency translation

 

 

 

 

 

 
3,835

 

 
3,835

Cumulative effect of change in accounting principle

 

 

 

 

 
(591
)
 

 

 
(591
)
Net income

 

 

 

 

 
57,562

 

 

 
57,562

Balance at March 31, 2018
141,802

 
$
1,418

 

 
$

 
$
856,373

 
$
186,276

 
$
(18,758
)
 
$
(915
)
 
$
1,024,394

Shares issued under stock plans
171

 
1

 

 

 
2,263

 

 

 

 
2,264

Share-based compensation expense

 

 

 

 
4,429

 

 

 

 
4,429

Repurchase and retirement of common stock
(282
)
 
(2
)
 

 

 
(1,708
)
 
(8,291
)
 

 

 
(10,001
)
Dividends declared ($0.07 per share)

 

 

 

 

 
(9,953
)
 

 

 
(9,953
)
Pension liability adjustment

 

 

 

 

 

 

 
49

 
49

Foreign currency translation

 

 

 

 

 

 
(12,626
)
 

 
(12,626
)
Net income

 

 

 

 

 
54,349

 

 

 
54,349

Balance at June 30, 2018
141,691

 
$
1,417

 

 
$

 
$
861,357

 
$
222,381

 
$
(31,384
)
 
$
(866
)
 
$
1,052,905

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
136,179

 
$
1,362

 
(202
)
 
$
(7,112
)
 
$
837,658

 
$
213,753

 
$
(32,776
)
 
$
(860
)
 
$
1,012,025

Shares issued under stock plans
572

 
5

 
 
 

 
(6,817
)
 

 

 

 
(6,812
)
Share-based compensation expense

 

 

 

 
4,653

 

 

 

 
4,653

Repurchase and retirement of common stock
(1,035
)
 
(10
)
 

 

 
(6,364
)
 
(23,413
)
 

 

 
(29,787
)
Dividends declared ($0.07 per share)

 

 

 

 
7

 
(9,517
)
 

 

 
(9,510
)
Pension liability adjustment

 

 

 

 

 

 

 
24

 
24

Foreign currency translation

 

 

 

 

 

 
(2,787
)
 

 
(2,787
)
Net income

 

 

 

 

 
32,658

 

 

 
32,658

Balance at March 30, 2019
135,716

 
$
1,357

 
(202
)
 
$
(7,112
)
 
$
829,137

 
$
213,481

 
$
(35,563
)
 
$
(836
)
 
$
1,000,464

Shares issued under stock plans
49

 

 
 
 

 
(572
)
 

 

 

 
(572
)
Share-based compensation expense

 

 

 

 
4,936

 

 

 

 
4,936

Repurchase and retirement of common stock
(422
)
 
(4
)
 

 

 
(2,579
)
 
(12,417
)
 

 

 
(15,000
)
Dividends declared ($0.07 per share)

 

 

 

 

 
(9,550
)
 

 

 
(9,550
)
Pension liability adjustment

 

 

 

 

 

 

 
(14
)
 
(14
)
Foreign currency translation

 

 

 

 

 

 
(1,712
)
 

 
(1,712
)
Net income

 

 

 

 

 
123,997

 

 

 
123,997

Balance at June 29, 2019
135,343

 
$
1,353

 
(202
)
 
$
(7,112
)
 
$
830,922

 
$
315,511

 
$
(37,275
)
 
$
(850
)
 
$
1,102,549


See the accompanying notes to condensed consolidated financial statements.

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Table of Contents

ENTEGRIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
Operating activities:
 
 
 
Net income
$
156,655

 
$
111,911

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
35,317

 
31,699

Amortization
35,248

 
23,683

Share-based compensation expense
9,589

 
8,557

Provision for deferred income taxes
(2,157
)
 
(1,757
)
Other
8,297

 
4,640

Changes in operating assets and liabilities:
 
 
 
Trade accounts and notes receivable
5,436

 
2,687

Inventories
3,709

 
(22,472
)
Accounts payable and accrued liabilities
(52,707
)
 
(14,966
)
Other current assets
13,028

 
1,976

Income taxes payable and refundable income taxes
15,391

 
(7,515
)
Other
557

 
(1,337
)
Net cash provided by operating activities
228,363

 
137,106

Investing activities:
 
 
 
Acquisition of property, plant and equipment
(60,101
)
 
(47,437
)
Acquisition of businesses, net of cash acquired
(49,267
)
 
(380,225
)
Other
197

 
1,905

Net cash used in investing activities
(109,171
)
 
(425,757
)
Financing activities:
 
 
 
Payments of long-term debt
(2,000
)
 
(27,000
)
Payments for dividends
(18,964
)
 
(19,802
)
Issuance of common stock
917

 
3,027

Repurchase of common stock
(50,321
)
 
(20,000
)
Taxes paid related to net share settlement of equity awards
(8,301
)
 
(14,413
)
Other
(497
)
 
1,504

Net cash used in financing activities
(79,166
)
 
(76,684
)
Effect of exchange rate changes on cash and cash equivalents
(706
)
 
(2,967
)
Increase (decrease) in cash and cash equivalents
39,320

 
(368,302
)
Cash and cash equivalents at beginning of period
482,062

 
625,408

Cash and cash equivalents at end of period
$
521,382

 
$
257,106

Supplemental Cash Flow Information
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
Non-cash transactions:
 
 
 
Deferred acquisition payment
$
14,001

 
$

Contingent consideration obligation
$
686

 
$

Equipment purchases in accounts payable
$
5,974

 
$
8,090

Dividends payable
$
96

 
$
64

Schedule of interest and income taxes paid:
 
 
 
Interest paid
$
21,637

 
$
9,159

Income taxes paid, net of refunds received
$
31,653

 
$
31,881

See the accompanying notes to condensed consolidated financial statements.

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Table of Contents

ENTEGRIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations Entegris, Inc. (“Entegris”, “the Company”, “us”, “we”, or “our”) is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries.
Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, particularly receivables, inventories, property, plant and equipment, right-of-use assets, goodwill, intangibles, accrued expenses, short-term and long-term lease liability, income taxes and related accounts, and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and contain all adjustments considered necessary, and are of a normal recurring nature, to present fairly the financial position as of June 29, 2019 and December 31, 2018, and the results of operations and comprehensive income for the three and six months ended June 29, 2019 and June 30, 2018, the equity statements as of and for the three and six-months periods ended June 29, 2019 and June 30, 2018, and cash flows for the six months ended June 29, 2019 and June 30, 2018.
The condensed consolidated financial statements and accompanying notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company’s annual consolidated financial statements and notes. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2018. The results of operations for the three and six months ended June 29, 2019 are not necessarily indicative of the results to be expected for the full year.
Leases The Company determines if an arrangement is a lease at inception. Right-of-use (ROU) assets include operating leases. Lease liabilities for operating leases are classified in “Other accrued liabilities” and “Long-term lease liabilities” in our condensed consolidated balance sheet. We do not have material financing leases.
Operating assets and liabilities 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 includes prepaid lease payments and excludes 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.
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.
Fair Value of Financial Instruments The carrying value of cash equivalents, accounts receivable, accounts payable, accrued payroll and related benefits, and other accrued liabilities approximates fair value due to the short maturity of those items. The fair value of long-term debt, including current maturities, was $946.4 million at June 29, 2019, compared to the carrying amount of long-term debt, including current maturities, of $937.7 million at June 29, 2019.
Recent Accounting Pronouncements Adopted in 2019 In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and expense recognition in the income statement.
The Company adopted ASU No. 2016-02 using the modified retrospective method. See Note 9 Leases to the condensed consolidated financial statements for further details.

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2. REVENUES
Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.
When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. Such deferred revenue typically results from advance payments received on sales of the Company’s products. The Company makes the required disclosures below.
The Company does not disclose information about remaining performance obligations that have original expected durations of one year or less.
Nature of goods and services The following is a description of principal activities from which the Company generates its revenues. The Company has three reportable segments. For more detailed information about reportable segments, see note 10 to the condensed consolidated financial statements. For each of the three reportable segments, the recognition of revenue regarding the nature of goods and services provided by the segments are similar and described below. The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment, or delivery depending on the terms of the underlying contracts. For product sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognizes the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.
The Company generally recognizes revenue for sales of services over time at which the Company has satisfied the performance obligation.
The Company also enters into arrangements to license its intellectual property. These arrangements typically permit the customer to use a specialized manufacturing process and in return the Company receives a royalty fee. If applicable, the Company recognizes revenue when the subsequent sale or usage occurs.
The Company offers certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations. The Company periodically reviews the assumptions underlying its estimates of discounts and volume rebates and adjusts its revenues accordingly.
In addition, the Company offers free product rebates to certain customers. The Company utilizes an adjusted market approach to estimate the stand-alone selling price of the loyalty program and allocates a portion of the consideration received to the free product offering. The free product offering is redeemable upon future purchases of the Company’s products. The amount associated with free product rebates is deferred in the balance sheet and is recognized as revenue when the free product is redeemed or when the likelihood of redemption is remote. The Company deems the amount immaterial for disclosure.
The Company provides for the estimated costs of fulfilling our obligations under product warranties at the time the related revenue is recognized. The Company estimates the costs based on historical failure rates, projected repair costs, and knowledge of specific product failures (if any). The specific warranty terms and conditions vary depending upon the product sold and the country in which we do business, but generally include parts and labor over a period generally ranging from 90 days to one year. The Company regularly reevaluates its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary.
The Company’s contracts are generally short-term in nature. Most contracts do not exceed twelve months. Payment terms vary by the type and location of the Company’s customers and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer. Those customers that prepay are represented by the contract liabilities below until the performance obligations are satisfied.
The following table provides information about contract liabilities from contracts with customers. The contract liabilities are included in other accrued liabilities balance in the condensed consolidated balance sheet.

9

Table of Contents

(In thousands)
June 29, 2019
 
December 31, 2018
Contract liabilities - current
$
14,322

 
$
15,364


Significant changes in the contract liabilities balances during the period are as follows:
 
Six Months Ended
(In thousands)
June 29, 2019
Revenue recognized that was included in the contract liability balance at the beginning of the period
$
(11,123
)
Increases due to cash received, excluding amounts recognized as revenue during the period
10,082


3. ACQUISITIONS
Digital Specialty Chemicals
On March 8, 2019, the Company acquired Digital Specialty Chemicals Limited (DSC), a Toronto, Canada-based provider of advanced materials to the specialty chemical, technology, and pharmaceutical industries. DSC reports into the Specialty Chemicals and Engineered Materials division of the Company. The acquisition was accounted for under the acquisition method of accounting and the results of operations of DSC are included in the Company’s condensed consolidated financial statements as of and since March 8, 2019. Costs associated with the acquisition of DSC were $2.1 million for the six months ended June 29, 2019 and were expensed as incurred. These costs are included in selling, general and administrative expense in the Company’s condensed consolidated statements of operations. The acquisition does not constitute a material business combination.
The purchase price for DSC is $64.0 million, net of cash acquired. The purchase price includes (1) cash consideration of $49.7 million, or $49.3 million net of cash acquired, subject to revision for customary working capital adjustments, which was funded from the Company’s existing cash on hand, (2) a fixed deferred payment of $16.1 million that is due on March 31, 2022, recorded at $14.0 million representing the fair value of this fixed deferred payment as of the acquisition date, and (3) an earnout-based contingent consideration of $0.7 million based on the operating performance of DSC for a twelve-month period ended March 31, 2021.
The fair value of the fixed deferred payment was determined by taking the present value of this fixed deferred payment based on the term and discount factor. The fixed deferred payment is reflected in the pension benefit obligations and other liabilities in the Company’s condensed consolidated balance sheets.
Upon closing the acquisition, the Company recorded a contingent consideration obligation of $0.7 million representing the fair value of the earnout-based contingent consideration. This amount was estimated based on a Black Scholes model. Subsequent changes in the fair value of this obligation will be recognized as adjustments to the contingent consideration obligation and reflected within the Company’s condensed consolidated statements of operations.
The purchase price of DSC exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $34.5 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.
The following table summarizes the provisional allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the acquisition and as adjusted as of June 29, 2019:

10


(In thousands):
As of March 8, 2019
 
As of June 29, 2019
Trade accounts and note receivable, net
$
1,840

 
$
1,840

Inventories, net
5,523

 
4,353

Other current assets
1,389

 
1,391

Property, plant and equipment
16,791

 
16,652

Identifiable intangible assets
7,976

 
6,886

Right-of-use assets
79

 
79

Deferred tax asset
1,104

 
1,104

Other noncurrent assets

 
28

Accounts payable and accrued liabilities
(2,461
)
 
(2,540
)
Deferred tax liabilities
(2,861
)
 
(318
)
Long-term lease liability
(37
)
 
(37
)
       Net assets acquired
29,343

 
29,438

Goodwill
35,133

 
34,516

Total purchase price, net of cash acquired
$
64,476

 
$
63,954



The final valuation of assets acquired and liabilities assumed is expected to be completed as soon as possible, but not later than one year from the acquisition date. Given the size and complexity of the acquisition, the valuation of certain assets and liabilities is still being completed and is subject to final review. To the extent that the Company’s estimates require adjustment, the Company will modify the values.
SAES Pure Gas
On June 25, 2018, the Company acquired the SAES Pure Gas business (SPG) from SAES Getters S.p.A. for approximately $352.7 million in cash, or $341.5 million net of cash acquired, funded from the Company’s existing cash on hand. The acquisition was accounted for under the acquisition method of accounting and the results of operations of SPG are included in the Company’s condensed consolidated financial statements as of and since June 25, 2018. Direct costs of $4.8 million associated with the acquisition of SPG, consisting mainly of professional and consulting fees, were expensed as incurred for the year ended December 31, 2018. These costs are included in selling, general and administrative expense in the Company’s condensed consolidated statements of operations.
SPG, based in San Luis Obispo, California, is a leading provider of high-capacity gas purification systems used in semiconductor manufacturing and adjacent markets, and reports into the Microcontamination Control Division of the Company. This acquisition expands the gas purification solutions portfolio in our Microcontamination Control Division with high-capacity products suited for bulk chemical purification applications. 
The following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at December 31, 2018 and as adjusted as of June 29, 2019:
(In thousands):
As of December 31, 2018
 
As of June 29, 2019
Trade accounts and note receivable, net
$
19,173

 
$
19,173

Inventories, net
42,758

 
42,758

Other current assets
1,322

 
706

Property, plant and equipment
6,653

 
6,653

Identifiable intangible assets
150,430

 
150,430

Deferred tax assets
831

 
734

Other noncurrent assets
12

 
12

Current liabilities
(26,473
)
 
(26,473
)
Deferred tax liabilities
(35,533
)
 
(35,271
)
Other noncurrent liabilities
(1,412
)
 
(1,412
)
       Net assets acquired
157,761

 
157,310

Goodwill
183,729

 
184,180

Total purchase price, net of cash acquired
$
341,490

 
$
341,490


11


The fair value of acquired inventories of $42.8 million is valued at the estimated selling price less cost of disposal and reasonable profit for the selling effort. The fair value write-up of acquired work-in-process and finished goods inventory was $8.9 million, the amount of which was amortized over the expected turn of the acquired inventory. Accordingly, $0.0 million and $2.0 million incremental cost of sales charge associated with the fair value write-up of inventory acquired in the acquisition of SPG was recorded for the three and six months ended June 29, 2019, respectively.
The fair value of acquired property, plant and equipment of $6.7 million is valued at its value-in-use.
The Company recognized the following finite-lived intangible assets as part of the acquisition of SPG:
(In thousands)
Amount
 
Weighted
average life in
years
Developed technology
$
20,070

 
8.0
Trademarks and trade names
6,670

 
12.0
Customer relationships
107,790

 
12.0
Other
15,900

 
0.9
 
$
150,430

 
10.0
The acquired identifiable intangible assets are being amortized on a straight-line basis. The fair value of acquired identifiable intangible assets was determined using the “income approach”. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. 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 inputs in the fair value hierarchy.
The purchase price of SPG exceeded the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $184.2 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company’s ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill. No amount of goodwill is expected to be deductible for income tax purposes.
During the quarter ended June 29, 2019, the Company finalized its fair value determination of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed was based on the information that was available as of the acquisitions date, and the expectations and assumptions that have been deemed reasonable by the Company’s management.
Particle Sizing Systems
On January 22, 2018, the Company acquired Particle Sizing Systems, LLC (PSS), which provides particle sizing instrumentation for liquid applications to the semiconductor and life science industries. The acquired assets and assumed liabilities became part of the Company’s Advanced Materials Handling (AMH) segment. The transaction was accounted for under the acquisition method of accounting and the results of operations of PSS are included in the Company’s condensed consolidated financial statements since January 22, 2018. The acquisition does not constitute a material business combination.
The purchase price for PSS was cash consideration of $37.3 million, funded from the Company’s existing cash on hand. Costs associated with the acquisition of the product line were not significant and were expensed as incurred.
The purchase price of PSS exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $8.8 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.
During the year ended December 31, 2018, the Company finalized its fair value determinations of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed was based on the information that was available as of the acquisition date, and the expectations and assumptions that have been deemed reasonable by the Company’s management.
Flex Concepts
On June 26, 2018, the Company acquired Flex Concepts, Inc. (Flex), a technology company focused on single-use fluid handling bags, tubing manifolds and hardware for the life sciences industry. The purchase price of Flex was for cash

12


consideration of $1.9 million. The transaction was accounted for under the acquisition method of accounting and the results of operations of Flex are included in the Company’s condensed consolidated financial statements since June 26, 2018. The acquisition does not constitute a material business combination.
During the year ended December 31, 2018, the Company finalized its fair value determinations of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed was based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management.
4. INVENTORIES
Inventories consist of the following:
 
(In thousands)
June 29, 2019
 
December 31, 2018
Raw materials
$
84,711

 
$
100,770

Work-in process
37,878

 
31,412

Finished goods
139,345

 
135,958

Total inventories, net
$
261,934

 
$
268,140


5. GOODWILL AND INTANGIBLE ASSETS
Goodwill activity for each period was as follows:
(In thousands)
Specialty Chemicals and Engineered Materials
 
Microcontamination Control
 
Advanced Materials Handling
 
Total
December 31, 2018
$
301,423

 
191,708

 
$
57,071

 
$
550,202

Addition due to acquisitions
34,516

 

 

 
34,516

Purchase accounting adjustments

 
451

 

 
451

Foreign currency translation
(1,850
)
 
9

 

 
(1,841
)
June 29, 2019
$
334,089

 
$
192,168

 
$
57,071

 
$
583,328


Identifiable intangible assets at June 29, 2019 and December 31, 2018 consist of the following:
June 29, 2019
(In thousands)
Gross  carrying
Amount
 
Accumulated
amortization
 
Net  carrying
value
Developed technology
$
252,127

 
$
190,191

 
$
61,936

Trademarks and trade names
26,249

 
15,403

 
10,846

Customer relationships
329,545

 
146,189

 
183,356

Other
36,303

 
26,016

 
10,287

 
$
644,224

 
$
377,799

 
$
266,425

December 31, 2018
(In thousands)
Gross  carrying
amount
 
Accumulated
amortization
 
Net  carrying
value
Developed technology
$
248,776

 
$
176,421

 
$
72,355

Trademarks and trade names
25,643

 
14,749

 
10,894

Customer relationships
328,050

 
133,068

 
194,982

Other
36,306

 
18,850

 
17,456

 
$
638,775

 
$
343,088

 
$
295,687



13

Table of Contents

Future amortization expense during the remainder of 2019, the next four years and thereafter relating to intangible assets currently recorded in the Company’s condensed consolidated balance sheets is estimated at June 29, 2019 to be the following:
(In thousands)
Remaining 2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
Future amortization expense
$
28,575

 
43,123

 
36,655

 
36,080

 
34,745

 
87,247

 
$
266,425


6. INCOME TAX
The Company recorded income tax expense of $43.2 million and $48.7 million, respectively, in the three and six months ended June 29, 2019, compared to income tax expense of $9.8 million and $23.3 million, respectively in the three and six months ended June 30, 2018. The Company’s year-to-date effective tax rate was 23.7% in 2019, compared to 17.2% in 2018.
The increase in the effective tax rate from 2018 to 2019 primarily relates to a discrete charge of $9.4 million related to the reversal of a dividend received deduction benefit recorded in 2018. This discrete charge was recorded based on the issuance of final regulations during the quarter. Additionally, the Company received a termination fee from Versum Materials, Inc. based on the termination of the Versum Merger Agreement and recorded a discrete charge of $23.5 million related to the termination fee, net of associated expenses. As a result of the termination fee, the Company released a valuation allowance on federal capital loss carryforwards and recorded a discrete benefit of $2.4 million. The year-to-date income tax expense in 2019 and 2018 includes discrete benefits of $3.1 million and $6.1 million, respectively, recorded in connection with share-based compensation. The tax rate in 2018 included a discrete charge of $2.6 million related to an internal repurchase of shares of a Korean subsidiary.
7. EARNINGS PER COMMON SHARE
The following table presents a reconciliation of the denominators used in the computation of basic and diluted earnings per common share (EPS): 
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Basic—weighted common shares outstanding
135,378

 
141,701

 
135,338

 
141,641

Weighted common shares assumed upon exercise of stock options and vesting of restricted common stock
1,203

 
1,537

 
1,299

 
1,804

Diluted—weighted common shares and common shares equivalent outstanding
136,581

 
143,238

 
136,637

 
143,445


The Company excluded the following shares underlying stock-based awards from the calculations of diluted EPS because their inclusion would have been anti-dilutive for the three and six months ended June 29, 2019 and June 30, 2018:
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Shares excluded from calculations of diluted EPS
295

 
298

 
530

 
231


8. OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the three and six months ended June 29, 2019 and June 30, 2018 consists of the following:
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Versum termination fee, net
$
(122,000
)
 
$

 
$
(122,000
)
 
$

(Gain) loss on foreign currency remeasurement
(203
)
 
2,987

 
(923
)
 
2,942

Other, net
188

 
890

 
660

 
1,074

Other (income) expense, net
$
(122,015
)
 
$
3,877

 
$
(122,263
)
 
$
4,016




14


Versum termination fee, net
On January 28, 2019, the Company and Versum Materials, Inc. (“Versum”) announced that they had entered into an Agreement and Plan of Merger, dated as of January 27, 2019 (the “Merger Agreement”), pursuant to which they agreed to combine in a merger of equals. On April 8, 2019, Versum announced that its Board of Directors had received a proposal from Merck KGaA to acquire Versum and that its Board of Directors had deemed such proposal as a “Superior Proposal” defined in the merger agreement. On April 12, 2019, the Company received a termination notice from Versum terminating the Merger Agreement. In accordance with the terms of the Merger Agreement, Entegris received a $140.0 million termination fee from Versum in the second quarter of 2019. Also in the second quarter of 2019, the Company paid a fee of $18.0 million to the third-party financial adviser it had engaged to assist with the transaction.
9. LEASES
Adoption of ASC ASU No. 2016-02, Leases On January 1, 2019, the Company adopted ASU No. 2016-02 using the modified retrospective method applied to existing leases in place as of January 1, 2019. Leases entered into after January 1, 2019 are presented under the provisions of ASU No. 2016-02, while prior periods are not adjusted and continue to be reported in accordance with previous accounting guidance. Leases commencing or renewing after the adoption date are evaluated based on the guidance in ASU No. 2016-02 and may result in more finance leases being recognized even for the renewal of previously classified operating leases.
The Company elected to adopt the ‘package of practical expedients’, which permitted the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient pertaining to land easements, which allowed the Company to exclude evaluation of all existing land easements in connection with the adoption of the new lease requirements to assess whether they meet the definition of a lease. The Company did not elect the use-of-hindsight practical expedient and therefore did not reassess the lease terms for purposes of calculation of the lease liabilities and right-of-use assets at the adoption date. The Company elected the short-term lease recognition exemption for all leases that qualified. This means, for those leases that qualified, the Company did not recognize right-of-use assets or lease liabilities, and this included not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all leases other than leases of real estate, and this included not separating lease and non-lease components for all leases other than leases of real estate in transition.
The Company adopted ASU 2016-02 using the modified retrospective method, recognizing the cumulative effect of application as an adjustment to the opening balance sheet. The standard had a material impact on our condensed consolidated balance sheets, but did not have a material impact on our condensed consolidated statement of income or cash flows. The most significant impact was the recognition of the right-of-use asset and lease liabilities for operating leases. As of June 29, 2019, we do not have any material finance leases.
The details of the impact of the changes made to the Company’s condensed consolidated balance sheet date as of January 1, 2019, the date of adoption, are reflected in the following table.
(In thousands)
Debit/(Credit)
Right-of-use assets
$
46,162

Prepaid rent
(646
)
Short-term lease liability
(8,892
)
Short-term deferred rent
274

Long-term lease liability
(42,639
)
Long-term deferred rent
5,741

Deferred tax asset
11,629

Deferred tax liability
(11,629
)

Leases As of June 29, 2019, the Company was obligated under operating lease agreements for certain sales offices and manufacturing facilities, manufacturing equipment, vehicles, information technology equipment and warehouse space. Our leases have remaining lease terms of 1 year to 13 years, some of which may include options to extend the lease for up to 6 years, and some of which may include options to terminate the leases within 1 year. As of June 29, 2019, the Company has obtained $3.0 million of operating lease assets in exchange for lease obligations.
As of June 29, 2019, the Company’s operating lease components with initial or remaining terms in excess of one year were classified on the condensed consolidated balance sheet as follows:

15

Table of Contents

(In thousands)
Classification
June 29, 2019
Assets
 
 
Right-of-use assets
Right-of-use assets
$
44,176

Liabilities
 
 
Short-term lease liability
Other accrued liabilities
8,820

Long-term lease liability
Long-term lease liability
40,612

Total lease liabilities
 
$
49,432


Expense for leases less than 12 months for the three and six months ended June 29, 2019 were not material. The components of lease expense for the three and six months ended June 29, 2019 are as follows:
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 29, 2019
Operating lease cost
$
2,792

 
$
5,812


The Company combines the amortization of the the ROU assets and the 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 was as follows:
(In thousands)
June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from leases
$
5,020

Lease Term and Discount Rate
 
Weighted average remaining lease term (years)
8.43

Weighted average discount rate
5.1
%
Future minimum lease payments for noncancellable operating leases as of June 29, 2019, were as follows:
(In thousands)
Operating Leases
Remaining 2019
$
5,917

2020
9,990

2021
7,898

2022
5,898

2023
5,313

Thereafter
27,149

Total
$
62,165

Less: Interest
12,733

Present value of lease liabilities
$
49,432



Future minimum lease payments for noncancellable operating leases as of December 31, 2018, were as follows:
(In thousands)
Operating Leases
2019
$
11,360

2020
8,906

2021
6,836

2022
5,431

2023
5,208

Thereafter
27,153

Total
$
64,894



10. SEGMENT REPORTING
The Company’s financial segment reporting reflects an organizational alignment intended to leverage the Company’s unique portfolio of capabilities to create value for its customers by developing mission-critical solutions to maximize manufacturing

16


yields and enable higher performance of devices. While these segments have separate products and technical know-how, they share common business systems and processes, technology centers, and strategic and technology roadmaps. The Company leverages its expertise from these three segments to create new and increasingly integrated solutions for its customers. The Company’s business is reported in the following segments:
Specialty Chemicals and Engineered Materials (SCEM): SCEM provides high-performance and high-purity process chemistries, gases, and materials and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes.
Microcontamination Control (MC): MC solutions purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.
Advanced Materials Handling (AMH): AMH develops solutions to monitor, protect, transport, and deliver critical liquid chemistries, wafers, and substrates for a broad set of applications in the semiconductor industry and other high-technology industries.
In the first quarter of 2019, the Company changed its definition of segment profit to include inter-segment sales. The Company updated its recognition of inter-segment sales to recognize the revenue and profit associated with products and components produced in one segment and supplied to another, before being sold to the ultimate end customer. The Company 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. Segment profit is defined as net sales less direct and indirect segment operating expenses, including certain general and administrative costs for the Company’s human resources, finance and information technology functions. The remaining unallocated expenses consist mainly of the Company’s corporate functions as well as interest expense, amortization of intangible assets and income tax expense. Prior quarter information was recast to reflect the change in the Company’s definition of segment profit.
Summarized financial information for the Company’s reportable segments is shown in the following tables.
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net sales
 
 
 
 
 
 
 
SCEM
$
127,552

 
$
134,336

 
$
252,022

 
$
265,079

MC
150,185

 
124,937

 
307,891

 
243,860

AMH
107,515

 
130,572

 
223,579

 
254,650

Inter-segment elimination
(6,378
)
 
(6,786
)
 
(13,571
)
 
(13,331
)
Total net sales
$
378,874

 
$
383,059

 
$
769,921

 
$
750,258

 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Segment profit
 
 
 
 
 
 
 
SCEM
$
24,000

 
$
36,728

 
$
48,431

 
$
67,649

MC
43,126

 
37,214

 
90,449

 
77,525

AMH
15,043

 
25,542

 
37,410

 
51,005

Total segment profit
$
82,169

 
$
99,484

 
$
176,290

 
$
196,179



17


The following table reconciles total segment profit to income before income taxes:
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Total segment profit
$
82,169

 
$
99,484

 
$
176,290

 
$
196,179

Less:
 
 
 
 
 
 
 
Amortization of intangible assets
16,591

 
12,014

 
35,248

 
23,683

Unallocated general and administrative expenses
10,669

 
12,537

 
38,642

 
19,090

Operating income
54,909

 
74,933

 
102,400

 
153,406

Interest expense
11,315

 
8,296

 
22,199

 
16,455

Interest income
(1,623
)
 
(1,371
)
 
(2,848
)
 
(2,304
)
Other (income) expense, net
(122,015
)
 
3,877

 
(122,263
)
 
4,016

Income before income tax expense
$
167,232

 
$
64,131

 
$
205,312

 
$
135,239


In the following tables, revenue is disaggregated by country or region for the three and six months ended June 29, 2019 and June 30, 2018, respectively.
 
Three months ended June 29, 2019
 
Six months ended June 29, 2019
(In thousands)
SCEM
 
MC
 
AMH
 
Inter-segment
 
Total
 
SCEM
 
MC
 
AMH
 
Inter-segment
 
Total
Taiwan
$
21,584

 
$
31,205

 
$
12,740

 
$

 
$
65,529

 
$
46,757

 
$
69,695

 
$
30,863

 
$

 
$
147,315

United States
33,676

 
25,092

 
35,193

 
(6,378
)
 
87,583

 
66,414

 
52,674

 
73,739

 
(13,571
)
 
179,256

South Korea
17,696

 
28,531

 
16,766

 

 
62,993

 
37,022

 
54,346

 
32,744

 

 
124,112

Japan
15,089

 
24,721

 
11,954

 

 
51,764

 
26,767

 
49,816

 
23,344

 

 
99,927

China
20,413

 
22,538

 
10,653

 

 
53,604

 
34,570

 
44,703

 
20,499

 

 
99,772

Europe
7,652

 
11,402

 
14,408

 

 
33,462

 
16,429

 
22,177

 
30,007

 

 
68,613

Southeast Asia
11,442

 
6,696

 
5,801

 

 
23,939

 
24,063

 
14,480

 
12,383

 

 
50,926

 
$
127,552

 
$
150,185

 
$
107,515

 
$
(6,378
)
 
$
378,874

 
$
252,022

 
$
307,891

 
$
223,579

 
$
(13,571
)
 
$
769,921

 
Three months ended June 30, 2018
 
Six months ended June 30, 2018
(In thousands)
SCEM
 
MC
 
AMH
 
Inter-segment
 
Total
 
SCEM
 
MC
 
AMH
 
Inter-segment
 
Total
Taiwan
$
26,575

 
$
23,572

 
$
17,280

 
$

 
$
67,427

 
$
54,217

 
$
46,104

 
$
32,197

 
$

 
$
132,518

United States
34,128

 
20,528

 
35,996

 
(6,786
)
 
83,866

 
66,529

 
41,589

 
75,344

 
(13,331
)
 
170,131

South Korea
20,791

 
19,982

 
23,961

 

 
64,734

 
41,118

 
39,805

 
46,549

 

 
127,472

Japan
14,060

 
28,545

 
12,079

 

 
54,684

 
28,566

 
54,537

 
23,111

 

 
106,214

China
16,726

 
15,753

 
14,319

 

 
46,798

 
31,706

 
29,057

 
26,530

 

 
87,293

Europe
7,970

 
10,406

 
17,553

 

 
35,929

 
15,766

 
20,090

 
32,960

 

 
68,816

Southeast Asia
14,086

 
6,151

 
9,384

 

 
29,621

 
27,177

 
12,678

 
17,959

 

 
57,814

 
$
134,336

 
$
124,937

 
$
130,572

 
$
(6,786
)
 
$
383,059

 
$
265,079

 
$
243,860

 
$
254,650

 
$
(13,331
)
 
$
750,258


11. SUBSEQUENT EVENTS
On July 15, 2019, the Company acquired MPD Chemicals, a provider of advanced materials to the specialty chemical, technology, and life sciences industries. The Company acquired MPD Chemicals for approximately $165.0 million, subject to customary purchase price adjustments. The Company funded the acquisition from its available cash. MPD Chemicals will be a part of the SCEM segment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s condensed consolidated financial condition and results of operations should be read along with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The information, except for historical information, contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. These forward-looking statements could differ materially from actual results. You should review the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The Company assumes no obligation to publicly release the results of any revision or updates to these forward-looking statements to reflect future events or unanticipated occurrences.
Overview
This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of the Company’s financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.
The Company is a leading global developer, manufacturer and supplier of microcontamination control products, specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries. Our mission is to leverage our unique breadth of capabilities to create value for our customers by developing mission-critical solutions to maximize manufacturing yields, reduce manufacturing costs and enable higher device performance.
Our technology portfolio includes approximately 21,000 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.
Our most significant customers include semiconductor device manufacturers, semiconductor equipment makers, gas and chemical manufacturing companies, leading wafer grower companies and manufacturers of high-precision electronics. We also sell our products to flat panel display equipment makers, materials suppliers and panel manufacturers, and manufacturers of hard disk drive components and devices. We sell our products worldwide, primarily through our direct sales force and strategic independent distributors located in all major semiconductor markets. Independent distributors are also used in other semiconductor market territories and for specific market segments.
Our business is organized and operated in three operating segments which align with the key elements of the advanced semiconductor manufacturing ecosystem. The Specialty Chemicals and Engineered Materials, or SCEM, segment provides high-performance and high-purity process chemistries, gases, and materials, and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes. The Microcontamination Control, or MC, segment offers solutions to filter and purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. The Advanced Materials Handling, or AMH, segment develops solutions to monitor, protect, transport, and deliver critical liquid chemistries, wafers and other substrates for a broad set of applications in the semiconductor industry and other high-technology industries. While these segments have separate products and technical know-how, they share common business systems and processes, technology centers, and strategic and technology roadmaps. We leverage our expertise from these three segments to create new and increasingly integrated solutions for our customers. See note 10 to the condensed consolidated financial statements for additional information on the Company’s three segments.
The Company’s fiscal year is the calendar period ending each December 31. The Company’s fiscal quarters consist of 13-week or 14-week periods that end on Saturday. The Company’s fiscal quarters in 2019 end March 30, 2019, June 29, 2019, September 28, 2019 and December 31, 2019. Unaudited information for the three and six months ended June 29, 2019 and June 30, 2018 and the financial position as of June 29, 2019 and December 31, 2018 are included in this Quarterly Report on Form 10-Q.
Key operating factors Key factors, which management believes have the largest impact on the overall results of operations of the Company, include:
Level of sales Since a significant portion of the Company’s product costs (except for raw materials, purchased components and direct labor) are largely fixed in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also, increases or decreases in sales and operating profitability

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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 three months ended June 29, 2019, net sales decreased 1% to $378.9 million, compared to $383.1 million for the three months ended June 30, 2018. Included in the quarterly sales were sales from acquired businesses of $32.3 million and unfavorable foreign currency translation effects of $2.8 million. Exclusive of those factors, the Company’s sales decreased 9%. The decrease in revenue resulted from decreased customer demand from the semiconductor market compared to the year-ago quarter.
Sales were down 3% on a sequential basis over the first quarter of 2019, including unfavorable foreign currency translation effects of $0.6 million. Exclusive of that factor, the Company’s sales decreased 3%. The decrease in revenue resulted from decreased customer demand from the semiconductor market compared to the prior year quarter.
Reflecting the net sales decrease, the Company’s gross profit for the three months ended June 29, 2019 decreased to $166.3 million, down from $182.4 million for the three months ended June 30, 2018. The Company experienced a 43.9% gross margin rate for the three months ended June 29, 2019, compared to 47.6% in the comparable year-ago period. The gross margin decrease reflects lower factory utilization associated with weaker sales levels and an unfavorable sales mix.
The Company’s selling, general and administrative (SG&A) expenses decreased by $1.1 million for the three months ended June 29, 2019 compared to the year-ago quarter, mainly due to lower deal costs offset by higher employee costs and professional fees.
The Company’s other income, net increased by $125.9 million for the three months ended June 29, 2019 compared to the year-ago quarter, mainly due to the net proceeds received of $122.0 million resulting from the termination of the merger agreement with Versum. See note 8 to condensed consolidated financial statements for additional information.
As a result of the aforementioned factors, the Company reported net income of $124.0 million, or $0.91 per diluted share, for the quarter ended June 29, 2019, compared to net income of $54.3 million, or $0.38 per diluted share, a year ago.
On March 8, 2019, the Company acquired Digital Specialty Chemicals Limited (DSC), which provides advanced materials to the specialty chemical, technology and pharmaceutical industries. The total purchase price of the acquisition was approximately $64.0 million, net of cash acquired. The acquisition does not constitute a material business combination. See note 3 to the condensed consolidated financial statements for additional information on the acquisition.
On July 15, 2019, the Company acquired MPD Chemicals, a provider of advanced materials to the specialty chemical, technology, and life sciences industries. The Company acquired MPD Chemicals for approximately $165 million, subject to customary purchase price adjustments. The Company funded the acquisition from its available cash. The acquisition does not constitute a material business combination.
Cash and cash equivalents were $521.4 million at June 29, 2019, compared with cash and cash equivalents of $482.1 million at December 31, 2018. The Company had outstanding debt of $937.7 million at June 29, 2019, compared to $938.9 million at December 31, 2018.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

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The critical accounting policies affected most significantly by estimates, assumptions and judgments used in the preparation of the Company’s condensed consolidated financial statements are described in Item 7 of its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission. On an ongoing basis, the Company evaluates the critical accounting policies used to prepare its condensed consolidated financial statements, including, but not limited to, those related to impairment of long-lived assets, goodwill, income taxes and business acquisitions. There have been no material changes in these aforementioned critical accounting policies.

Three and Six Months Ended June 29, 2019 Compared to Three and Six Months Ended June 30, 2018 and Three Months Ended March 30, 2019
The following table compares operating results for the three and six months ended June 29, 2019 with results for the three and six months ended June 30, 2018 and three months ended March 30, 2019 both in dollars and as a percentage of net sales, for each caption.
 
Three months ended
 
Six months ended
(Dollars in thousands)
June 29, 2019
 
June 30, 2018
 
March 30, 2019
 
June 29, 2019
 
June 30, 2018
Net sales
$
378,874

 
100.0
 %
 
$
383,059

 
100.0
 %
 
$
391,047

 
100.0
 %
 
$
769,921

 
100.0
 %
 
$
750,258

 
100.0
 %
Cost of sales
212,600

 
56.1

 
200,681

 
52.4

 
213,654

 
54.6

 
426,254

 
55.4

 
391,883

 
52.2

Gross profit
166,274

 
43.9

 
182,378

 
47.6

 
177,393

 
45.4

 
343,667

 
44.6

 
358,375

 
47.8

Selling, general and administrative expenses
64,150

 
16.9

 
65,200

 
17.0

 
82,254

 
21.0

 
146,404

 
19.0

 
123,469

 
16.5

Engineering, research and development expenses
30,624

 
8.1

 
30,231

 
7.9

 
28,991

 
7.4

 
59,615

 
7.7

 
57,817

 
7.7

Amortization of intangible assets
16,591

 
4.4

 
12,014

 
3.1

 
18,657

 
4.8

 
35,248

 
4.6

 
23,683

 
3.2

Operating income
54,909

 
14.5

 
74,933

 
19.6

 
47,491

 
12.1

 
102,400

 
13.3

 
153,406

 
20.4

Interest expense
11,315

 
3.0

 
8,296

 
2.2

 
10,884

 
2.8

 
22,199

 
2.9

 
16,455

 
2.2

Interest income
(1,623
)
 
(0.4
)
 
(1,371
)
 
(0.4
)
 
(1,225
)
 
(0.3
)
 
(2,848
)
 
(0.4
)
 
(2,304
)
 
(0.3
)
Other (income) expense, net
(122,015
)
 
(32.2
)
 
3,877

 
1.0

 
(248
)
 
(0.1
)
 
(122,263
)
 
(15.9
)
 
4,016

 
0.5

Income before income taxes
167,232

 
44.1

 
64,131

 
16.7

 
38,080

 
9.7

 
205,312

 
26.7

 
135,239

 
18.0

Income tax expense
43,235

 
11.4

 
9,782

 
2.6

 
5,422

 
1.4

 
48,657

 
6.3

 
23,328

 
3.1

Net income
$
123,997

 
32.7
 %
 
$
54,349

 
14.2
 %
 
$
32,658

 
8.4
 %
 
$
156,655

 
20.3
 %
 
$
111,911

 
14.9
 %
Net sales For the three months ended June 29, 2019, net sales decreased by 1% to $378.9 million, compared to $383.1 million for the three months ended June 30, 2018. An analysis of the factors underlying the increase in net sales is presented in the following table:
(In thousands)
 
Net sales in the quarter ended June 30, 2018
$
383,059

Decrease associated with volume
(33,636
)
Decrease associated with effect of foreign currency translation
(2,847
)
Increase associated with acquired businesses
32,298

Net sales in the quarter ended June 29, 2019
$
378,874

Included in the sales decrease were sales associated with acquisitions of $32.3 million. In addition, there were unfavorable foreign currency translation effects of $2.8 million, mainly due to the weakening of the Korean Won relative to the U.S. dollar. Exclusive of these factors, sales decreased 9% for the quarter, mainly from a decreased customer demand from the semiconductor market compared to the year-ago quarter.
Sales percentage on a geographic basis for the three months ended June 29, 2019 and June 30, 2018 and the percentage increase (decrease) in sales for the three months ended June 29, 2019 compared to the sales for the three months ended June 30, 2018 were
as follows:

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Three months ended
 
 
 
June 29, 2019
 
June 30, 2018
 
Percentage increase (decrease) in sales
Taiwan
17
%
 
18
%
 
(3
)%
North America
23
%
 
22
%
 
4
 %
South Korea
17
%
 
17
%
 
(3
)%
Japan
14
%
 
14
%
 
(5
)%
China
14
%
 
12
%
 
15
 %
Europe
9
%
 
9
%
 
(7
)%
Southeast Asia
6
%
 
8
%
 
(19
)%
Sales were down 3% on a sequential basis over the first quarter of 2019, including unfavorable foreign currency translation effects of $0.6 million. Exclusive of that factor, the Company’s sales decreased 3%. The decrease in revenue resulted from decreased customer demand from the semiconductor market compared to the previous quarter.
Net sales for the six months ended June 29, 2019 were $769.9 million, up 3% from $750.3 million in the comparable year-ago period. An analysis of the factors underlying the increase in net sales is present in the following table:
(In thousands)
 
Net sales in the six months ended June 30, 2018
$
750,258

Decrease associated with volume, pricing and mix
(42,628
)
Decrease associated with effect of foreign currency translation
(5,998
)
Increase associated with acquired businesses
68,289

Net sales in the six months ended June 29, 2019
$
769,921

Gross profit The Company’s gross profit declined 9% for the three months ended June 29, 2019 to $166.3 million, compared to $182.4 million for the three months ended June 30, 2018. The Company experienced a 43.9% gross margin rate for the three months ended June 29, 2019, compared to 47.6% in the comparable year-ago period. The gross profit and gross margin decrease reflects lower factory utilization associated with weaker sales levels and an unfavorable sales mix.
For the six months ended June 29, 2019, the Company’s gross profit declined 4% to $343.7 million, compared to $358.4 million for the six months ended June 30, 2018. The Company experienced a 44.6% gross margin rate for the six months ended June 29, 2019, compared to 47.8% in the comparable year-ago period. The gross profit and gross margin decrease reflects lower factory utilization associated with weaker sales levels and an unfavorable sales mix. In addition, the gross profit and gross margin figures include an incremental cost of sales charge of $2.9 million and $0.2 million associated with the sale of inventory acquired in the SAES Pure Gas business and DSC business for the six months ended June 29, 2019 and June 30, 2018, respectively.
Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses were $64.2 million for the three months ended June 29, 2019, down $1.1 million, or 2%, from the comparable three-month period a year earlier. An analysis of the factors underlying the increase in SG&A is presented in the following table:
(In thousands)
 
Selling, general and administrative expenses in the quarter ended June 30, 2018
$
65,200

Deal costs
(3,957
)
Integration costs
67

Employee costs
1,537

Professional fees
2,035

Other decreases, net
(732
)
Selling, general and administrative expenses in the quarter ended June 29, 2019
$
64,150

SG&A expenses were $146.4 million for the first six months of 2019, up 18.6%, compared to SG&A expenses of $123.5 million in the year-ago period. An analysis of the factors underlying changes in SG&A is presented in the following table:

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(In thousands)
 
Selling, general and administrative expenses in the six months ended June 30, 2018
$
123,469

Deal costs
15,179

Integration costs
2,987

Professional fees
1,846

Employee costs
2,299

Other increases, net
624

Selling, general and administrative expenses in the six months ended June 29, 2019
$
146,404

Engineering, research and development expenses The Company’s engineering, research and development (ER&D) efforts focus on the support or extension of current product lines, and the development of new products and manufacturing technologies. ER&D expenses were $30.6 million in the three months ended June 29, 2019 compared to $30.2 million in the year-ago period. The increase for the quarter was mainly due to higher employee costs and the acquired SPG business ER&D infrastructure, offset by lower project costs.
ER&D expenses increased 3% to $59.6 million in the first six months of 2019, compared to $57.8 million in the year ago period, primarily due to higher employee costs and the acquired SPG business ER&D infrastructure, offset by lower project costs.
Amortization expenses Amortization of intangible assets was $16.6 million in the three months ended June 29, 2019 compared to $12.0 million for the three months ended June 30, 2018. The increase reflects the additional amortization expense associated with the SPG acquisition completed in the second quarter of 2018 and the DSC acquisition completed in the first quarter of 2019.
Amortization of intangible assets was $35.2 million in the first six months ended June 29, 2019 compared to $23.7 million for the first six months ended June 30, 2018. The increase reflects the additional amortization for SPG acquisition and DSC acquisition.
Interest income Interest income was $1.6 million and $2.8 million in the three and six months ended June 29, 2019, respectively, compared to $1.4 million and $2.3 million in the three and six months ended June 30, 2018, respectively. The increase in interest income for the three and six months ended June 29, 2019 compared to comparable previous year periods was due to higher average cash levels earning a higher interest rate.
Interest expense Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. Interest expense was $11.3 million in the three months ended June 29, 2019 compared to $8.3 million in the three months ended June 30, 2018. The increase reflects higher average debt levels.
Interest expense was $22.2 million in the six-month period ended June 29, 2019, compared to $16.5 million in the six-month period ended June 30, 2018. The increase reflects higher average debt levels.
Other (income) expense, net Other income, net was $122.0 million and $122.3 million in the three and six months ended June 29, 2019 and consisted mainly of net proceeds received of $122.0 million resulting from the termination of the merger agreement with Versum.
Other expense, net was $3.9 million in the three months ended June 30, 2018 and consisted mainly of foreign currency transaction losses of $3.0 million and penalty charges of $0.9 million. Other expense, net was $4.0 million in the six months ended June 30, 2018 and consisted mainly of foreign currency transaction losses of $2.9 million and penalty charges of of $0.9 million.
Income tax expense The Company recorded income tax expense of $43.2 million and $48.7 million, respectively, in the three and six months ended June 29, 2019, compared to income tax expense of $9.8 million and $23.3 million, respectively, in the three and six months ended June 30, 2018. The Company’s year-to-date effective tax rate was 23.7% in 2019, compared to 17.2% in 2018. The tax rate in 2019 includes a discrete tax charge of $9.4 million related to the reversal of a dividend received deduction recorded in 2018. This discrete charge was recorded based on the issuance of final regulations during the quarter. Additionally, the Company received a termination fee from Versum based on the termination of the Versum Merger Agreement and recorded a discrete charge of $23.5 million related to the termination fee, net of associated expenses. As a result of the termination fee, the Company released a valuation allowance on federal capital loss carryforwards and recorded a discrete benefit of $2.4 million. The tax rate in 2018 included a discrete charge of $2.6 million related to an internal repurchase of shares of a Korean subsidiary.
Net income Due to the factors noted above, the Company recorded net income of $124.0 million, or $0.91 per diluted share, in the three-month period ended June 29, 2019, compared to net income of $54.3 million, or $0.38 per diluted share, in the three-month period ended June 30, 2018. In the six-month period ended June 29, 2019, the Company recorded net income of $156.7 million, or $1.15 per diluted share, compared to net income of $111.9 million, or $0.78 per diluted share, in the six-month period ended June 30, 2018.
Non-GAAP Measures The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Company also utilizes certain non-GAAP financial measures as a

23

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complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See the section “Non-GAAP Information” included below in this section for additional detail, including the definition of non-GAAP financial measures and the reconciliation of GAAP measures to the Company’s non-GAAP measures.
The Company’s non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and non-GAAP Earnings Per Share.
Adjusted EBITDA decreased 13% to $95.4 million in the three-month period ended June 29, 2019, compared to $109.3 million in the three-month period ended June 30, 2018. Adjusted EBITDA, as a percent of net sales, decreased to 25.2% from 28.5% in the year-ago period. Adjusted EBITDA decreased 5% to $204.3 million in the six-month period ended June 29, 2019, compared to $215.3 million in the six-month period ended June 30, 2018. In the six-month period ended June 29, 2019, Adjusted EBITDA, as a percent of net sales, decreased to 26.5% from 28.7% in the year-ago period.

Adjusted Operating Income decreased 18% to $76.8 million in the three-month period ended June 29, 2019, compared to $93.5 million in the three-month period ended June 30, 2018. Adjusted Operating Income, as a percent of net sales, decreased to 20.3% from 24.4% in the year-ago period. Adjusted Operating Income decreased 8% to $169.0 million in the six-month period ended June 29, 2019, compared to $183.6 million in the six-month period ended June 30, 2018. In the six-month period ended June 29, 2019, Adjusted Operating Income, as a percent of net sales, decreased to 21.9% from 24.5% in the year-ago period.

Non-GAAP Earnings Per Share decreased 20% to $0.39 in the three-month period ended June 29, 2019, compared to $0.49 in the three-month period ended June 30, 2018. Non-GAAP Earnings Per Share decreased 7% to $0.89 in the six-month period ended June 29, 2019, compared to $0.96 in the six-month period ended June 30, 2018.

Segment Analysis
The Company reports its financial performance based on three reporting segments. The following is a discussion on the results of operations of these three business segments. See note 10 to the condensed consolidated financial statements for additional information on the Company’s three segments.
The following table presents selected net sales and segment profit data for the Company’s three reportable segments for the three months ended June 29, 2019, June 30, 2018 and March 30, 2019 and six months ended June 29, 2019 and June 30, 2018.
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
March 30, 2019
 
June 29, 2019
 
June 30, 2018
Specialty Chemicals and Engineered Materials
 
 
 
 
 
 
 
 
 
Net sales
$
127,552

 
$
134,336

 
$
124,470

 
$
252,022

 
$
265,079

Segment profit
24,000

 
36,728

 
24,431

 
48,431

 
67,649

Microcontamination Control
 
 
 
 
 
 
 
 
 
Net sales
150,185

 
124,937

 
157,706

 
307,891

 
243,860

Segment profit
43,126

 
37,214

 
47,323

 
90,449

 
77,525

Advanced Materials Handling
 
 
 
 
 
 
 
 
 
Net sales
107,515

 
130,572

 
116,064

 
223,579

 
254,650

Segment profit
15,043

 
25,542

 
22,367

 
37,410

 
51,005

Specialty Chemicals and Engineered Materials (SCEM)
For the second quarter of 2019, SCEM net sales decreased to $127.6 million, compared to $134.3 million in the comparable period last year. The sales decrease was due to decreased sales of specialty materials, specialty gases and surface prep and integration products, partially offset by sales from the acquisition of DSC in the first quarter of 2019 and advanced deposition products. SCEM reported a segment profit of $24.0 million in the second quarter of 2019, down 35% from $36.7 million in the year-ago period. The segment profit decrease was primarily due to lower gross profit related to the decreased sales and unfavorable product mix offset by a 1% decrease in operating expenses.
For the six months ended June 29, 2019, SCEM net sales decreased to $252.0 million, compared to $265.1 million in the comparable period last year. The sales decrease was due to decreased sales of specialty materials, specialty gases and surface prep and integration products, partially offset by sales from the acquisition of DSC in the first quarter of 2019 and advanced deposition products. SCEM reported a segment profit of $48.4 million in the six months ended June 29, 2019, down 28% from $67.6 million in the year-ago period also due to lower sales levels, with operating expenses flat compared to the same period a year-ago.

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Microcontamination Control (MC)
For the second quarter of 2019, MC net sales increased to $150.2 million, compared to $124.9 million in the comparable period last year. The sales increase was mainly due to the acquisition of SPG in the second quarter of 2018, which contributed $33.2 million of sales, offset partially by weakened sales from gas microcontamination products. MC reported a segment profit of $43.1 million in the second quarter of 2019, up 16% from $37.2 million in the year-ago period. The segment profit improvement was primarily due to higher gross profit related to the increased sales, partially offset by a 7% increase in operating expenses, primarily due to SPG operating infrastructure.
For the six months ended June 29, 2019, MC net sales increased to $307.9 million, compared to $243.9 million in the comparable period last year. The sales increase was due mainly due to the acquisition of SPG in the second quarter of 2018, which contributed $66.1 million of sales and improved sales from liquid chemistry filters for wet, etch and clean applications, partially offset by weakened sales from gas microcontamination products. MC reported a segment profit of $90.4 million in the six months ended June 29, 2019, up 17% from $77.5 million in the year-ago period. The segment profit improvement was primarily due to higher gross profit related to the increased sales, partially offset by a 11% increase in operating expenses, primarily due to higher employee costs and SPG operating infrastructure.
Advanced Materials Handling (AMH)
For the second quarter of 2019, AMH net sales decreased to $107.5 million, compared to $130.6 million in the comparable period last year. The sales decrease was mainly due to decreased sales of fluid handling products, liquid packaging and dispense products and wafer and reticle handling products. AMH reported a segment profit of $15.0 million in the second quarter of 2019, down 41% from $25.5 million in the year-ago period. The segment profit decrease was primarily due to lower gross profit related to the decreased sales, partially offset by 3% decrease in operating expense.
For the six months ended June 29, 2019, AMH net sales decreased to $223.6 million, compared to $254.7 million in the comparable period last year. This decrease was mainly due to decreased sales of fluid handling products, liquid packaging and dispense products and wafer and reticle handling products. AMH reported a segment profit of $37.4 million in the six months ended June 29, 2019, down 27% from $51.0 million in the year-ago period. The segment profit decrease was primarily due to lower gross profit related the decreased sales, partially offset by a 2% decrease in operating expenses.
Unallocated general and administrative expenses
Unallocated general and administrative expenses totaled $10.7 million in the second quarter of 2019, compared to $12.5 million in the second quarter of 2018. The $1.9 million decrease mainly reflects a decrease in deal costs of $4.0 million, partially offset by higher professional fees of $2.2 million.
Unallocated general and administrative expenses for the six months ended June 29, 2019 totaled $38.6 million, up from $19.1 million in the six months ended June 30, 2018. The $19.6 million increase mainly reflects the deal and integration costs of $18.2 million referenced in the discussion of SG&A above and higher professional fees of $2.3 million.

Liquidity and Capital Resources
Operating activities Cash flows provided by operating activities totaled $228.4 million in the six months ended June 29, 2019. Operating cash flows reflecting net income adjusted for non-cash expenses (such as depreciation, amortization and share-based compensation) was offset by changes in operating assets and liabilities of $14.6 million, mainly reflecting decreases in accounts payable and accrued liabilities, offset by decreases in other current assets and increases in deferred tax liabilities and income tax payable.
Accounts receivable decreased by $3.4 million during the six months ended June 29, 2019, or $5.4 million after accounting for foreign currency translation and receivables acquired from DSC, mainly reflecting the decrease in the Company sales, offset by the increase in the Company’s DSO. The Company’s DSO was 53 days at June 29, 2019, compared to 50 days at December 31, 2018.
Inventories decreased by $6.2 million during the six months ended June 29, 2019, or $3.7 million after accounting for foreign currency translation, inventory acquired from DSC and the provision for excess and obsolete inventory. The decrease reflects lower levels of raw materials offset by higher levels of WIP and finished goods.
Accounts payable and accrued liabilities decreased $59.3 million during the six months ended June 29, 2019, or decreased $52.7 million after accounting for foreign currency translation and liabilities assumed from DSC. The key component of the decrease was timing of payments related to accounts payable for 2019 compared to previous year and the higher incentive compensation payment paid out in 2019 compared to the comparable previous period.

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Working capital at June 29, 2019 was $833.3 million, compared to $759.7 million as of December 31, 2018, and included $521.4 million in cash and cash equivalents, compared to cash and cash equivalents of $482.1 million as of December 31, 2018.

Investing activities Cash flows used in investing activities totaled $109.2 million in the six-month period ended June 29, 2019. Acquisition of property, plant and equipment totaled $60.1 million, which primarily reflected investments in equipment and tooling. As of June 29, 2019, the Company expects its full-year capital expenditures in 2019 to be approximately $110 million. As of June 29, 2019, the Company had outstanding capital purchase obligations of $29.4 million for the construction or purchase of plant and equipment not yet recorded in the Company’s condensed consolidated financial statements as the Company had not yet received the related goods or property.
On March 8, 2019, the Company acquired DSC, which provides advanced materials to the specialty chemical, technology and pharmaceutical industries. The total purchase price of the acquisition was approximately $64.0 million. The acquisition does not constitute a material business combination.The transaction is described in further detail in note 3 to the Company’s condensed consolidated financial statements.
Financing activities Cash flows used in financing activities totaled $79.2 million during the six-month period ended June 29, 2019. This included the Company’s payment of $2 million on its senior secured term loan, cash dividends of $19.0 million and the Company’s repurchase of shares of the Company’s common stock at a total cost of $50.3 million under the stock repurchase program authorized by the Company’s Board of Directors. In addition, the Company expended $8.3 million for taxes related to the net share settlement of equity awards under the Company’s stock plans, offset in part by proceeds of $0.9 million in connection with common shares issued under the Company’s stock plans.
As of June 29, 2019, the Company had outstanding long-term debt, including the current portion thereof, of $937.7 million, related to debt issued by the Company.
The Company has a senior secured revolving commitment facility (the “Revolving Facility”) in an aggregate amount of $300 million maturing November 6, 2023. The Revolving Facility bears 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. At June 29, 2019, the only outstanding amounts under the Revolving Facility were undrawn outstanding letters of credit of $0.2 million.
Through June 29, 2019, the Company was in compliance with all applicable financial covenants included in the terms of its debt obligations.
The Company also has lines of credit with two banks that provide for borrowings of Japanese yen for the Company’s Japanese subsidiary, equivalent to an aggregate of approximately $11.1 million. There were no outstanding borrowings under these lines of credit at June 29, 2019.
The Company believes that its cash and cash equivalents, funds available under its Revolving Facility and international credit facilities and cash flow generated from operations will be sufficient to meet its working capital and investment requirements for at least the next twelve months. If available liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms.
At June 29, 2019, the Company’s shareholders’ equity was $1,102.5 million, up from $1,012.0 million at the beginning of the year. The increase mainly reflects an increase in net income of $156.7 million, an increase to additional paid-in capital of $9.6 million associated with the Company’s share-based compensation expense and proceeds of $0.9 million in connection with common shares issued under the Company’s stock plan. These increases were offset partly by the repurchase of the Company’s common stock at a total cost of $44.8 million, cash dividends declared of $19.1 million, the payment of $8.3 million for taxes related to the net share settlement of equity awards under the Company’s stock plans and foreign currency translation effects of $4.5 million, mainly associated with the strengthening of the U.S. dollar versus the Korean won.
As of June 29, 2019, the Company’s resources included cash and cash equivalents of $521.4 million, funds available under its $300 million Revolving Facility and international credit facilities, and cash flow generated from operations. As of June 29, 2019, the amount of cash and cash equivalents held by foreign subsidiaries was $170.1 million. These amounts held by foreign subsidiaries, certain of which are associated with indefinitely reinvested foreign earnings, may be subject to U.S. income taxation on repatriation to the United States. The Company does not anticipate the need to repatriate funds associated with indefinitely reinvested foreign earnings to the United States to satisfy domestic liquidity needs arising in the ordinary course of business. The Company believes its existing balances of domestic cash and cash equivalents, available cash and cash equivalents held by foreign subsidiaries not associated with indefinitely reinvested foreign earnings and operating cash flows

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will be sufficient to meet the Company’s domestic cash needs arising in the ordinary course of business for the next twelve months.
Recently adopted accounting pronouncements Refer to note 1 to the Company’s condensed consolidated financial statements for a discussion of accounting pronouncements recently adopted.
Recently issued accounting pronouncements Refer to note 1 to the Company’s condensed consolidated financial statements for a discussion of accounting pronouncements recently issued by not yet adopted.
Non-GAAP Information The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP).
The Company also provides certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other regulations under the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. The Company provides non-GAAP financial measures of Adjusted EBITDA and Adjusted Operating Income together with related measures thereof, and non-GAAP Earnings Per Share (EPS).
Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income before (1) income tax expense, (2) interest expense, (3) interest income, (4) other (income) expense, net, (5) charge for fair value write-up of acquired inventory sold, (6) deal costs, (7) integration costs, (8) severance and restructuring costs, (9) amortization of intangible assets and (10) depreciation. Adjusted Operating Income, another non-GAAP term, is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes non-GAAP measures whereby Adjusted EBITDA and Adjusted Operating Income are each divided by the Company’s net sales to derive Adjusted EBITDA Margin and Adjusted Operating Margin, respectively.
Non-GAAP EPS, a non-GAAP term, is defined by the Company as net income before (1) charge for fair value write-up of acquired inventory sold, (2) deal costs, (3) integration costs, (4) severance and restructuring costs, (5) the Versum termination fee, net, (6) amortization of intangible assets, (7) the tax effect of a legal entity restructuring, (8) the tax effect of those adjustments to net income and certain discrete items and (9) the tax effect of the Tax Cuts and Jobs Act, stated on a per share basis.
The Company provides supplemental non-GAAP financial measures to better understand its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.
Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.
Management uses Adjusted EBITDA and Adjusted Operating Income to assist it in evaluations of the Company’s operating performance by excluding items that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its business.
In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s Board of Directors uses non-GAAP financial measures in the evaluation process to determine management compensation.
The Company believes that certain analysts and investors use Adjusted EBITDA, Adjusted Operating Income and non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use Adjusted EBITDA measures to evaluate the Company’s creditworthiness.

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The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s condensed consolidated financial statements in their entirety and to not rely on any single financial measure.
Management notes that the use of non-GAAP measures has limitations:
First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies. For example, the Company’s non-GAAP measure of Adjusted EBITDA may not be directly comparable to EBITDA or an adjusted EBITDA measure reported by other companies.
Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, a significant recurring expense with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.
Third, there is no assurance the Company will not have future charges for fair value write-up of acquired inventory, restructuring activities, deal costs, integration costs, or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon. The exclusion of these items from the Company’s non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring.
Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of Adjusted EBITDA, Adjusted Operating Income, and non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents, are presented below in the accompanying tables.
Reconciliation of GAAP Net Income to Adjusted Operating Income and Adjusted EBITDA
 
Three months ended
 
Six months ended
(In thousands)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net sales
$
378,874

 
$
383,059

 
$
769,921

 
$
750,258

Net income
$
123,997

 
$
54,349

 
$
156,655

 
$
111,911

Adjustments to net income
 
 
 
 
 
 
 
Income tax expense
43,235

 
9,782

 
48,657

 
23,328

Interest expense
11,315

 
8,296

 
22,199

 
16,455

Interest income
(1,623
)
 
(1,371
)
 
(2,848
)
 
(2,304
)
Other (income) expense, net
(122,015
)
 
3,877

 
(122,263
)
 
4,016

GAAP – Operating income
54,909

 
74,933

 
102,400

 
153,406

Charge for fair value write-up of acquired inventory sold
695

 
208

 
2,850

 
208

Deal costs
1,164

 
5,121

 
20,300

 
5,121

Integration costs
1,264

 
1,197

 
4,184

 
1,197

Severance and restructuring costs
2,170

 

 
3,991

 

Amortization of intangible assets
16,591

 
12,014

 
35,248

 
23,683

Adjusted operating income
76,793

 
93,473

 
168,973

 
183,615

Depreciation
18,596

 
15,802

 
35,317

 
31,699

Adjusted EBITDA
$
95,389

 
$
109,275

 
$
204,290

 
$
215,314

 
 
 
 
 
 
 
 
Adjusted operating income – as a % of net sales
20.3
%
 
24.4
%
 
21.9
%
 
24.5
%
Adjusted EBITDA – as a % of net sales
25.2
%
 
28.5
%
 
26.5
%
 
28.7
%

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Reconciliation of GAAP Earnings per Share to Non-GAAP Earnings per Share
 
Three months ended
 
Six months ended
(In thousands, except per share data)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net income
$
123,997

 
$
54,349

 
$
156,655

 
$
111,911

Adjustments to net income
 
 
 
 
 
 
 
Charge for fair value write-up of acquired inventory sold
695

 
208

 
2,850

 
208

Deal costs
1,164

 
5,121

 
20,711

 
5,121

Integration costs
1,264

 
1,197

 
4,184

 
1,197

Severance and restructuring costs
2,170

 

 
3,991

 

Versum termination fee, net
(122,000
)
 

 
(122,000
)
 

Amortization of intangible assets
16,591

 
12,014

 
35,248

 
23,683

Tax effect of legal entity restructuring
9,398

 

 
9,398

 

Tax effect of adjustments to net income and certain discrete tax items1
20,153

 
(3,702
)
 
10,289

 
(6,412
)
Tax effect of Tax Cuts and Jobs Act
$

 
$
648

 
$

 
$
2,142

Non-GAAP net income
$
53,432

 
$
69,835

 
$
121,326

 
$
137,850

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.91

 
$
0.38

 
$
1.15

 
$
0.78

Effect of adjustments to net income
(0.52
)
 
0.11

 
(0.26
)
 
0.18

Diluted non-GAAP earnings per common share
$
0.39

 
$
0.49

 
$
0.89

 
$
0.96

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

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Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s principal financial market risks are sensitivities to interest rates and foreign currency exchange rates. The Company’s interest-bearing cash equivalents and senior secured financing obligation are subject to interest rate fluctuations. The Company’s cash equivalents are instruments with maturities of three months or less. A 100 basis point change in interest rates would potentially increase or decrease annual net income by approximately $1.0 million annually.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign exchange rates. The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based operations. At June 29, 2019, the Company had no net exposure to any foreign currency forward contracts.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the 1934 Act)) as of June 29, 2019. The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on management’s evaluation (with the participation of our CEO and CFO), as of June 29, 2019, the Company’s CEO and CFO have concluded that the disclosure controls and procedures used by the Company, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company acquired the SAES Pure Gas business (SPG) on June 25, 2018. We are continuing to integrate SPG into the Company’s internal control over financial reporting.
(b) Changes in internal control over financial reporting.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of June 29, 2019, the Company is subject to various claims, legal actions, and complaints arising in the ordinary course of business. The Company believes the final outcome of these matters will not have a material adverse effect on its condensed consolidated financial statements. The Company expenses legal costs as incurred.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table provides information concerning shares of the Company’s Common Stock $0.01 par value purchased during the three months ended June 29, 2019.
Period




(a)
Total Number of Shares Purchased(1)


(b)
Average Price Paid per Share

(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d)
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
March 31, 2019 - April 4, 2019
$—
$—
April 5, 2019 - June 1, 2019
421,745
$35.57
421,745
$131,341,222
June 2, 2019 - June 29, 2019
$—
$—
Total
421,745
$35.57
421,745
$131,341,222

(1) On February 13, 2018, the Company’s Board of Directors authorized a repurchase program covering up to an aggregate of $100 million of the Company’s common stock, during a period of twenty-four months, in open market transactions and in
accordance with one or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended. On November 19, 2018, the Company’s Board of Directors authorized the repurchase of up to an additional $250 million in aggregate principal amount of the Company’s common stock.

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

Item 6. Exhibits
EXHIBIT INDEX
31.1
  
31.2
  
32.1
  
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.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
ENTEGRIS, INC.
 
 
 
Date: July 25, 2019
 
/s/ Gregory B. Graves
 
 
Gregory B. Graves
 
 
Executive Vice President and Chief Financial
 
 
Officer (on behalf of the registrant and as
 
 
principal financial officer)


32