2020
Annual
Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-K
________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
For the transition period from to
Commission file number: 001-32598
_______________________________________
Entegris, Inc.
(Exact name of registrant as specified in its charter)
_______________________________________
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
41-1941551
(I.R.S. Employer
Identification No.)
129 Concord Road, Billerica, Massachusetts 01821
(Address of principal executive offices and zip code)
(978) 436-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 Par Value
Trading Symbol(s)
ENTG
Name of Exchange on which Registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
_______________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☒
☐
Accelerated Filer
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant, based on the last sale price of the Common Stock on June 27, 2020, the last business day of registrant’s
most recently completed second fiscal quarter, was $6,656,221,289. Shares held by each officer and director of the registrant and by each person who owned 10 percent or more of the outstanding
Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. The determination of affiliate status for this purpose is not
necessarily a conclusive determination for other purposes.
As of February 1, 2021, 134,933,582 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders scheduled to be held on April 29, 2021, or the 2021 Proxy Statement, which is scheduled
to be filed with the Securities and Exchange Commission, or SEC, not later than 120 days after December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-
K. With the exception of the portions of the 2021 Proxy Statement expressly incorporated into this Annual Report on Form 10-K by reference, such document shall not be deemed to constitute
part of this Annual Report on Form 10-K.
ENTEGRIS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
Caption
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Index to Financial Statements
Page
1
14
26
27
27
27
30
32
34
53
53
53
53
56
56
56
56
57
57
58
61
62
F-1
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant, based on the last sale price of the Common Stock on June 27, 2020, the last business day of registrant’s
most recently completed second fiscal quarter, was $6,656,221,289. Shares held by each officer and director of the registrant and by each person who owned 10 percent or more of the outstanding
Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. The determination of affiliate status for this purpose is not
necessarily a conclusive determination for other purposes.
As of February 1, 2021, 134,933,582 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders scheduled to be held on April 29, 2021, or the 2021 Proxy Statement, which is scheduled
to be filed with the Securities and Exchange Commission, or SEC, not later than 120 days after December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-
K. With the exception of the portions of the 2021 Proxy Statement expressly incorporated into this Annual Report on Form 10-K by reference, such document shall not be deemed to constitute
part of this Annual Report on Form 10-K.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
ENTEGRIS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Caption
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Index to Financial Statements
Page
1
14
26
27
27
27
30
32
34
53
53
53
53
56
56
56
56
57
57
58
61
62
F-1
Item 1. Business.
OUR COMPANY
PART I
Entegris, Inc. (“Entegris”, “the Company”, “us”, “we”, or “our”) is a leading supplier of advanced materials and process solutions for the semiconductor
and other high-technology industries. Our mission is to help our customers improve their productivity, performance and technology by providing solutions
for the most advanced manufacturing environments. We leverage our unique breadth of capabilities to create mission-critical microcontamination control
products, specialty chemicals and advanced materials handling solutions that maximize manufacturing yields, reduce manufacturing costs and enable
higher device performance for our customers.
Semiconductors, or integrated circuits, are key components in the electronic devices that have changed the way we live, communicate and work. Products
and applications like smartphones, 5G wireless technology, cloud computing, the Internet of Things, machine learning and artificial intelligence,
autonomous vehicles and virtual reality will increasingly require faster, more powerful and more energy efficient semiconductors and we believe will
ultimately drive global chip demand.
To meet the requirements for improved chip performance and density, semiconductor manufacturing processes have rapidly become increasingly complex
by moving to smaller geometries, adopting new device architectures and utilizing new and innovative materials. These complex processes require new
materials of ever-increasing purity, quality and stability to improve and maximize yields. We expect to benefit from these two intersecting themes of the
growing importance of process materials and materials purity, and the impact they have on semiconductor performance, cost and reliability. We believe
these trends are leading to increasing materials content per wafer and filtration opportunity per wafer, which are growth opportunities for us.
Our customized materials solutions enable the highest levels of performance essential to the manufacture of semiconductors. As our customers introduce
more complex architectures and search for new materials with better electrical and structural properties to improve the performance of their devices, they
rely on Entegris as a trusted partner to address these challenges. We understand these challenges and have solutions to address them, such as our advanced
deposition materials, implant gases, formulated cleaning chemistries and selective etch chemistries. Our customers also require greater end-to-end materials
purity and integrity in their manufacturing processes that, when combined with smaller dimensions and more complex architectures, can be challenging to
achieve. To enable the use of new metals and the further miniaturization of chips, and to maximize yield and increase long-term device reliability, we
provide products such as our advanced liquid and gas filtration and purification products that help to selectively remove new classes of contaminants
throughout the semiconductor supply chain. In addition, to ensure purity levels are maintained across the entire supply chain, from bulk manufacturing, to
transportation to and delivery through a fab, to application onto the wafer, we provide high-purity packaging and materials handling products.
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, life sciences 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. With the technology, capabilities and complementary product portfolios from these three segments, we believe we
are uniquely positioned to collaborate across divisions to create new, co-optimized and increasingly integrated solutions for our customers. For example,
our SCEM segment offers a highly selective nitride etch chemistry, our MC segment provides a liquid filter that is specifically matched to that formulation
and our AMH segment ensures the integrity of the product as it is moved to and through the fab environment.
We believe that our platform is differentiated and resilient for several reasons. First, approximately 70% of our revenue during 2020 was unit driven or
recurring in nature, from products consumed as a result of the semiconductor manufacturing process. Our revenue is therefore generally more impacted by
overall global semiconductor demand than the sales of semiconductor capital equipment. Second, our solutions are increasingly specified and tailored to
meet our customers’ unique process conditions, and therefore switching away from our products may be costly and time-consuming and may introduce risk
to manufacturing yields. Third, our product portfolio is broad and not overly concentrated on any single product or product platform. As of December 31,
2020, we offered over 15,000 standard and customized products, and in 2020 no single product platform represented more than 4% of our net sales. Fourth,
our customer base is diverse, and we are not overly dependent on any one single customer. Our customers are represented across the semiconductor supply
chain, from chemical manufacturers,
1
to equipment manufacturers, to semiconductor manufacturers. During 2020, only one customer accounted for over 10% of our net sales, while our top 10
customers accounted for approximately 46% of our net sales. Lastly, we believe our strong financial profile will allow us to invest in the research and
development and advanced manufacturing capabilities necessary to maintain and expand our technology leadership and to drive organic growth. As we
have done in the past, we expect to act as a consolidator in the industry, to expand upon our product portfolio, increase our scale and strengthen our position
as a leading supplier to our customers.
THE SEMICONDUCTOR ECOSYSTEM
The manufacture of semiconductors requires hundreds of highly complex and sensitive manufacturing steps, during which a variety of materials are
repeatedly applied to a silicon wafer to build integrated circuits on the wafer surface. We serve the semiconductor ecosystem by providing specialty
materials and chemicals utilized in many process steps, offering a broad range of products to monitor, protect, transport and deliver these critical process
materials during the manufacturing process and providing systems to purify liquid chemistry and gases throughout the manufacturing process. The areas of
the semiconductor ecosystem that rely most heavily on our products and solutions are described below.
Etch and Resist Strip. During the etch process, specific areas of the thin film that have been deposited on the surface of a wafer are removed to leave a
desired circuit pattern. After the etch process, the hardened resist needs to be completely removed, which requires the use of ultra-high purity chemicals of
precise composition. In order to maintain manufacturing yields and avoid defective products, these chemicals must be maintained at very high purity levels
without the presence of foreign material such as particles, ions or organic contaminants. Several of our products are utilized by semiconductor
manufacturers during and after the etch process, including:
•
•
•
Formulated chemical solutions to remove photoresists and post-etch residues;
Filters and purifiers, which help to ensure the purity of cleaning chemistries and to achieve desired yields in the etch processing steps; and
Precision-engineered coatings to provide barriers to corrosive chemistries in the etch environment, protect surfaces from erosion and minimize
particle generation.
In addition to being utilized throughout the etch process, semiconductor manufacturers require ultra-high purity chemicals of precise composition to clean
wafers before and after several of the processes described below. Our proprietary formulated cleaning chemistries are used in these wet cleaning processes,
and our liquid filters and purifiers ensure the purity of these chemicals.
Deposition. Deposition is a process during which certain materials are transferred to the surface of a wafer. Deposition processes include physical vapor
deposition, or PVD, where a thin film is deposited on a wafer surface in a low-pressure gas environment; chemical vapor deposition, or CVD, where a thin
film is deposited on a wafer surface by exposing it to one or more volatile precursors which react with the wafer surface; atomic-layer deposition, or ALD,
where a thin film is deposited on a wafer surface by exposing it to one or more precursors which react through a series of sequential, self-limiting reactions;
and electro-plating, where a metal layer, such as copper, is deposited on a wafer surface using chemical baths. We provide products that are used during the
deposition process that are critical to enabling new device architectures, ensuring device performance and achieving the targeted manufacturing yields of
semiconductor manufacturers, including:
• Advanced precursor materials and electro-plating chemicals, which are utilized to meet the semiconductor industry’s composition, uniformity and
cells, optical magnetic storage devices and light-emitting diodes, or LEDs, resulting in the need for similar filtration, purification, control and measurement
•
thickness requirements of deposited films; and
Filtration and purification products, which are used to remove contaminants during the deposition process, consequently reducing defects on
wafers.
Photolithography. Photolithography is a process that uses light to print complex circuit patterns onto the wafer and is repeated many times throughout the
semiconductor manufacturing process. To print the projected optical pattern, the wafer is coated with a thin film of light-sensitive material, called
photoresist. Light is projected to expose the photoresist, which is then developed to create a stenciled image pattern. We offer products that semiconductor
manufacturers use throughout the photolithography process, including:
•
Liquid filtration and liquid packaging and dispense systems designed to ensure the pure, accurate and uniform dispense of photoresists onto the
wafer, enabling manufacturers to achieve acceptable yields in the manufacturing process; and
• Gas microcontamination control systems designed to eliminate airborne contaminants that often disrupt effective photolithography processes.
Related to Our Business and Industry” section of this Annual Report on Form 10-K, including under the heading “The industries we serve are constantly
2
3
Ion Implant. Ion implantation is a key technology for forming transistors and is used many times during semiconductor fabrication. During ion
implantation, wafers are bombarded by a beam of electrically-charged ions which change the electrical properties of the exposed surface films. Those of
our products that are used during the ion implant process include:
Safe Delivery Source®, or SDS®, and Vacuum Actuated Cylinders, or VAC®, gas delivery systems designed to ensure the safe, effective and
efficient delivery of the toxic gases necessary for the implant process; and
Electrostatic chucks and proprietary low temperature plasma coating processes for core components, which are critical elements of ion
implantation equipment.
Chemical Mechanical Planarization. Chemical mechanical planarization, or CMP, is a polishing process used by semiconductor manufacturers to
planarize, or flatten, many of the layers of material that have been deposited on silicon wafers. We offer a broad range of products used by semiconductor
manufacturers during and immediately following the CMP process, including:
CMP slurry products, which are used for polishing ultra-hard surface materials, including silicon carbide, or SiC, and gallium nitride, or GaN,
substrates;
Formulated cleaning chemistries, which remove residue from wafer surfaces after the CMP process and prevent subsequent corrosion;
Filtration and purification solutions, which are used to remove select particles and contaminants from slurries and cleaning chemistries that can
Roller brushes, which are used in conjunction with our cleaning chemistries to clean the wafer after completion of the CMP process in order to
cause defects on a wafer’s surface;
prepare the wafer for subsequent operations; and
Pad conditioners, which are used to prepare the surface of the CMP polishing pad prior to every polishing cycle.
•
•
•
•
•
•
•
Wafer Solutions. Our wafer and reticle carriers are high-purity “micro-environments” that carry wafers between manufacturing process steps. These
products protect wafers from damage or abrasion and minimize contamination during transportation and automated processing. Front-end wafer processing
can involve hundreds of steps and take several weeks. Protection of the processed wafer between steps is essential, as a batch of fully processed 200 mm or
300 mm wafers transported in one of our products can be worth over a million dollars.
Chemical Containers. Semiconductor manufacturing and other high-technology processes utilize large volumes of high-purity, corrosive and hazardous
chemicals. We provide solutions for the handling of such chemicals, including:
• Ultra-high purity chemical container products, such as drums, flexible packaging and associated coded connection systems, which are designed to
maintain chemical purity, maximize utilization and ensure safe transport, containment and dispense of valuable, ultra-clean process fluids, from
bulk chemical manufacturing to point-of-use in the semiconductor manufacturing process; and
• Ultra-pure valves, fittings, tubings and sensing and control products, which are used to distribute these chemicals around the fab and in wet
process tools.
Other Markets. Many of the processes used to manufacture semiconductors are also used to manufacture flat panel displays, high-purity chemicals, solar
capabilities. We seek to leverage our products, technologies, expertise and core capabilities to address these important market opportunities and pursue
opportunities in certain life sciences applications.
INDUSTRY TRENDS
Emerging Applications. The market for semiconductors has grown significantly over the past few decades, and we expect this trend to continue. We
believe that smartphones (including 5G), Internet of Things and emerging applications in cloud computing, machine learning and artificial intelligence,
autonomous vehicles and virtual reality will drive growth in the demand for semiconductors, drive wafer starts and create significant opportunities for our
products. Existing applications in data processing, wireless communications, broadband infrastructure, personal computers, handheld electronic devices and
other consumer electronics are also expected to drive demand for semiconductors, and in turn, our products, especially in light of the increased prevalence
of work-from-home and remote learning caused by the COVID-19 pandemic. For further information about our industries, see the “Risk Factors—Risks
evolving, and any failure to manage our business effectively during periods of rapid change may adversely affect our business performance and results of
operations.”
to equipment manufacturers, to semiconductor manufacturers. During 2020, only one customer accounted for over 10% of our net sales, while our top 10
customers accounted for approximately 46% of our net sales. Lastly, we believe our strong financial profile will allow us to invest in the research and
development and advanced manufacturing capabilities necessary to maintain and expand our technology leadership and to drive organic growth. As we
have done in the past, we expect to act as a consolidator in the industry, to expand upon our product portfolio, increase our scale and strengthen our position
Ion Implant. Ion implantation is a key technology for forming transistors and is used many times during semiconductor fabrication. During ion
implantation, wafers are bombarded by a beam of electrically-charged ions which change the electrical properties of the exposed surface films. Those of
our products that are used during the ion implant process include:
as a leading supplier to our customers.
THE SEMICONDUCTOR ECOSYSTEM
The manufacture of semiconductors requires hundreds of highly complex and sensitive manufacturing steps, during which a variety of materials are
repeatedly applied to a silicon wafer to build integrated circuits on the wafer surface. We serve the semiconductor ecosystem by providing specialty
materials and chemicals utilized in many process steps, offering a broad range of products to monitor, protect, transport and deliver these critical process
materials during the manufacturing process and providing systems to purify liquid chemistry and gases throughout the manufacturing process. The areas of
the semiconductor ecosystem that rely most heavily on our products and solutions are described below.
Etch and Resist Strip. During the etch process, specific areas of the thin film that have been deposited on the surface of a wafer are removed to leave a
desired circuit pattern. After the etch process, the hardened resist needs to be completely removed, which requires the use of ultra-high purity chemicals of
precise composition. In order to maintain manufacturing yields and avoid defective products, these chemicals must be maintained at very high purity levels
without the presence of foreign material such as particles, ions or organic contaminants. Several of our products are utilized by semiconductor
manufacturers during and after the etch process, including:
Formulated chemical solutions to remove photoresists and post-etch residues;
Filters and purifiers, which help to ensure the purity of cleaning chemistries and to achieve desired yields in the etch processing steps; and
Precision-engineered coatings to provide barriers to corrosive chemistries in the etch environment, protect surfaces from erosion and minimize
•
•
•
particle generation.
In addition to being utilized throughout the etch process, semiconductor manufacturers require ultra-high purity chemicals of precise composition to clean
wafers before and after several of the processes described below. Our proprietary formulated cleaning chemistries are used in these wet cleaning processes,
and our liquid filters and purifiers ensure the purity of these chemicals.
Deposition. Deposition is a process during which certain materials are transferred to the surface of a wafer. Deposition processes include physical vapor
deposition, or PVD, where a thin film is deposited on a wafer surface in a low-pressure gas environment; chemical vapor deposition, or CVD, where a thin
film is deposited on a wafer surface by exposing it to one or more volatile precursors which react with the wafer surface; atomic-layer deposition, or ALD,
where a thin film is deposited on a wafer surface by exposing it to one or more precursors which react through a series of sequential, self-limiting reactions;
•
•
Safe Delivery Source®, or SDS®, and Vacuum Actuated Cylinders, or VAC®, gas delivery systems designed to ensure the safe, effective and
efficient delivery of the toxic gases necessary for the implant process; and
Electrostatic chucks and proprietary low temperature plasma coating processes for core components, which are critical elements of ion
implantation equipment.
Chemical Mechanical Planarization. Chemical mechanical planarization, or CMP, is a polishing process used by semiconductor manufacturers to
planarize, or flatten, many of the layers of material that have been deposited on silicon wafers. We offer a broad range of products used by semiconductor
manufacturers during and immediately following the CMP process, including:
•
•
•
•
•
CMP slurry products, which are used for polishing ultra-hard surface materials, including silicon carbide, or SiC, and gallium nitride, or GaN,
substrates;
Formulated cleaning chemistries, which remove residue from wafer surfaces after the CMP process and prevent subsequent corrosion;
Filtration and purification solutions, which are used to remove select particles and contaminants from slurries and cleaning chemistries that can
cause defects on a wafer’s surface;
Roller brushes, which are used in conjunction with our cleaning chemistries to clean the wafer after completion of the CMP process in order to
prepare the wafer for subsequent operations; and
Pad conditioners, which are used to prepare the surface of the CMP polishing pad prior to every polishing cycle.
Wafer Solutions. Our wafer and reticle carriers are high-purity “micro-environments” that carry wafers between manufacturing process steps. These
products protect wafers from damage or abrasion and minimize contamination during transportation and automated processing. Front-end wafer processing
can involve hundreds of steps and take several weeks. Protection of the processed wafer between steps is essential, as a batch of fully processed 200 mm or
300 mm wafers transported in one of our products can be worth over a million dollars.
Chemical Containers. Semiconductor manufacturing and other high-technology processes utilize large volumes of high-purity, corrosive and hazardous
chemicals. We provide solutions for the handling of such chemicals, including:
• Ultra-high purity chemical container products, such as drums, flexible packaging and associated coded connection systems, which are designed to
maintain chemical purity, maximize utilization and ensure safe transport, containment and dispense of valuable, ultra-clean process fluids, from
bulk chemical manufacturing to point-of-use in the semiconductor manufacturing process; and
and electro-plating, where a metal layer, such as copper, is deposited on a wafer surface using chemical baths. We provide products that are used during the
• Ultra-pure valves, fittings, tubings and sensing and control products, which are used to distribute these chemicals around the fab and in wet
deposition process that are critical to enabling new device architectures, ensuring device performance and achieving the targeted manufacturing yields of
process tools.
semiconductor manufacturers, including:
• Advanced precursor materials and electro-plating chemicals, which are utilized to meet the semiconductor industry’s composition, uniformity and
•
Filtration and purification products, which are used to remove contaminants during the deposition process, consequently reducing defects on
thickness requirements of deposited films; and
wafers.
Photolithography. Photolithography is a process that uses light to print complex circuit patterns onto the wafer and is repeated many times throughout the
semiconductor manufacturing process. To print the projected optical pattern, the wafer is coated with a thin film of light-sensitive material, called
photoresist. Light is projected to expose the photoresist, which is then developed to create a stenciled image pattern. We offer products that semiconductor
manufacturers use throughout the photolithography process, including:
•
Liquid filtration and liquid packaging and dispense systems designed to ensure the pure, accurate and uniform dispense of photoresists onto the
wafer, enabling manufacturers to achieve acceptable yields in the manufacturing process; and
• Gas microcontamination control systems designed to eliminate airborne contaminants that often disrupt effective photolithography processes.
Other Markets. Many of the processes used to manufacture semiconductors are also used to manufacture flat panel displays, high-purity chemicals, solar
cells, optical magnetic storage devices and light-emitting diodes, or LEDs, resulting in the need for similar filtration, purification, control and measurement
capabilities. We seek to leverage our products, technologies, expertise and core capabilities to address these important market opportunities and pursue
opportunities in certain life sciences applications.
INDUSTRY TRENDS
Emerging Applications. The market for semiconductors has grown significantly over the past few decades, and we expect this trend to continue. We
believe that smartphones (including 5G), Internet of Things and emerging applications in cloud computing, machine learning and artificial intelligence,
autonomous vehicles and virtual reality will drive growth in the demand for semiconductors, drive wafer starts and create significant opportunities for our
products. Existing applications in data processing, wireless communications, broadband infrastructure, personal computers, handheld electronic devices and
other consumer electronics are also expected to drive demand for semiconductors, and in turn, our products, especially in light of the increased prevalence
of work-from-home and remote learning caused by the COVID-19 pandemic. For further information about our industries, see the “Risk Factors—Risks
Related to Our Business and Industry” section of this Annual Report on Form 10-K, including under the heading “The industries we serve are constantly
evolving, and any failure to manage our business effectively during periods of rapid change may adversely affect our business performance and results of
operations.”
2
3
Manufacturing Complexity and Architecture. The emerging applications described above require more powerful, faster and more energy-efficient
semiconductors. Semiconductor architectures are changing, with transistor design increasing in complexity, the use of multilayered patterning, vertical
structures such as FinFET and 3D NAND, and shrinking dimensions. These advanced architectures require more process steps to manufacture
semiconductors. We believe that demand for our materials and consumable products will benefit from the increase in process steps in lithography,
deposition, CMP and etch and clean required to manufacture leading-edge semiconductors.
productivity, quality and yield. We believe our comprehensive offering of materials and products creates a competitive advantage as it enables us to meet a
broad range of customer needs and provide a single source of product offerings for semiconductor device and equipment manufacturers, which can often
translate to shorter time-to-solution and time-to-market for our customers. Additionally, our broad product and solution portfolio allows us to serve many
aspects of the semiconductor manufacturing ecosystem and to create synergies among some of our products. For example, our highly selective nitride etch
formulations used in 3D NAND applications have been co-developed with specifically functionalized filter membranes designed to ensure the highest
process performance. Additionally, our sensing technology detects active components in the etch chemistry and allows customers to control the bath
Additionally, new materials have played a significant role in enabling improved device performance, and we expect this trend to continue. As dimensions
get smaller, new materials will be required to enable transistor connectivity. For example, leading-edge semiconductor manufacturers are moving towards
atomic layer scale, where the precision of the manufacturing process and purity of the materials used is vital to maintain device integrity. These materials
need to be supplied and delivered at ever-increasing levels of purity and control, from point-of-production to point-of-dispense on the wafer. We expect the
trend for new materials supplied at high levels of purity to drive the demand for our advanced materials and our products and solutions designed to purify,
monitor, protect, transport and deliver critical materials. To address the challenges related to advanced technology nodes, we collaborate with our customers
to develop new materials, to enhance our filtration and purification capabilities and to introduce advanced materials packaging and monitoring capabilities.
lifetime.
edge.
Materials Handling Solutions. To minimize the potential for damage or degradation to their materials and to protect their investment in processed wafers,
our semiconductor customers have become increasingly focused on materials handling solutions that enable them to safely store, handle, process and
transport critical materials throughout the manufacturing process. We believe that this trend provides opportunities for us to utilize our breadth of
capabilities to provide innovative materials management, purification, wafer transport and process solutions to semiconductor customers to enable them to
successfully manage this growing complexity.
Reliance on Trusted Suppliers. Our customers require that their key materials suppliers demonstrate greater capabilities and efficiencies in their
processes, including sustainability, scalability, flexible manufacturing, quality control, supply chain management and the ability to effectively collaborate
on solutions to problems. We have responded to these demands by deploying resources in strategic locations to enable us to align with customer
requirements and drive operational excellence. For example, in 2016 and 2017, we expanded our technology centers in South Korea and Taiwan, and in
2019, we opened a technology center in China, containing application and analytical labs, adding to our research and development capabilities to enhance
local development and collaboration and to strengthen relationships with our key customers. We believe that, as semiconductor manufacturers require
greater capabilities of their supply partners, we will be able to leverage our manufacturing, operational and technical capabilities, along with our broad
technology portfolio and expanding scale, to become an increasingly important strategic supplier to our customers.
Continued Consolidation. Our customer base within the semiconductor industry has consolidated in recent years through mergers and acquisitions. As a
result, the importance of maintaining and developing strong and close relationships with our customers becomes even more essential. While continuing to
strengthen these relationships, we also seek to further broaden our customer base by leveraging our products, technologies, expertise and core capabilities
in serving semiconductor applications to address adjacent market opportunities, including in manufacturing processes for flat panel displays, high-purity
chemicals, solar cells, optical magnetic storage devices, LEDs and products for life sciences applications. For further information, see the “Risk Factors—
Risks Related to Our Business and Industry” section of this Annual Report on Form 10-K under the heading “A significant portion of our sales is
concentrated on a limited number of key customers and our net sales and profitability may materially decline if we lost one or more of these customers.”
OUR COMPETITIVE STRENGTHS
Strong Technology Portfolio. In the highly competitive semiconductor industry, manufacturers seek partners that are applications experts with broad
technology portfolios to collaborate from product conception to high volume manufacturing. To that end, we are committed to being able to provide our
customers with innovative solutions for their manufacturing needs. For example, we have introduced sub-10 nanometer and 7 nanometer filtration
products, advanced deposition materials for next generation transistor and interconnect technologies, advanced reticle pods for extreme ultra-violet, or
EUV, photolithography applications, advanced 300 mm wafer carriers and advanced coatings to meet the rigorous demands related to the manufacturing of
advanced technology nodes faced by our customers. Given the competitive nature of the semiconductor industry, we continuously seek to engage with
leading logic and memory manufacturers to further advance their technology roadmaps.
Comprehensive and Diverse Product Offerings. As semiconductor manufacturers are driving towards more advanced technology nodes, our customers
are seeking suppliers that can provide a broad range of customized, reliable, flexible and cost-effective products and materials, as well as the technological
and application design expertise necessary to enhance their
To further strengthen and improve our product offerings, we are committed to significant investment in research and development initiatives, having spent
approximately $136.1 million, $121.1 million and $118.5 million on such activities in 2020, 2019 and 2018, respectively, representing 7.3%, 7.6% and
7.6% of our net sales, in 2020, 2019 and 2018, respectively. Our research and development expenditures have been increasingly directed towards
innovation for advanced technology nodes, and in 2020, a significant portion of our research and development expenditures were focused at the leading
Global Infrastructure. Complementing our strong technology portfolio and diverse product offerings, we have a global infrastructure of design,
manufacturing, logistics, distribution, service and technical support facilities to meet the needs of our global customers. For example, during 2020 we
announced our plan to expand our manufacturing presence in Taiwan, and we expect to start construction on a new manufacturing facility, which we expect
will be our largest such facility in the world, in that country during 2021. We expect that it will begin initial operations in late 2021 and ramp to full
production in subsequent phases. The new Taiwan facility will add to recent expansions of and investments in our manufacturing operations and advanced
technology centers in Taiwan and South Korea designed to support our customers in these regions. Further, we have established or acquired new facilities
in China to serve the semiconductor manufacturing base in that country, expanded manufacturing capacity in Malaysia and expanded our presence in
Singapore to enhance our global and regional management of supply chain and manufacturing processes. For more information on our advanced
manufacturing capabilities, see the “—Manufacturing” section below. We service our customer relationships in Asia, North America, Europe and the
Middle East predominantly via direct sales and support personnel and to a lesser extent through selected independent sales representatives and distributors.
Our expansive global presence allows us to meet our customers where they operate, which has enabled us to build strong relationships with them. Our
customers include logic and memory semiconductor manufacturers, original equipment manufacturers, or OEMs, and semiconductor materials suppliers.
These customer relationships provide us with significant collaboration opportunities at the early product design stage, which facilitate our ability to
introduce new products and applications. For example, we work with our key customers in the development of advanced manufacturing processes to
identify and respond to their requests for current and future generations of products for emerging applications requiring cleaner materials. Similarly, we
also collaborate with our customers to develop systems that maintain the integrity and stability of materials during transport and through the manufacturing
process. We believe that our customer base will continue to be an important source of new product development opportunities. Due to the specialized
nature of our products, manufacturing complexity, qualification requirements in customers’ fabrication processes, high customer re-formulation and
qualification change costs and extensive proprietary products, we believe our supply position with our customers is strong.
Operational Excellence. Our customers are increasingly focused on the effectiveness, dependability and consistency of their supply chains. We remain
committed to operational excellence and are especially focused on the following priorities that we believe enable us to perform at the high level that our
customers expect.
• Use of manufacturing equipment and facilities incorporating leading-edge technology, including advanced cleanroom and cleaning procedures.
As our customers introduce more complex architectures and search for new materials with better electrical and structural properties to improve the
performance of their devices, our equipment, technology and processes must evolve to keep pace. In response, we have invested heavily in
leading-edge manufacturing facilities, which are in strategic regions throughout the world. With our global presence, we are able to efficiently
utilize our portfolio of manufacturing facilities to meet our customers’ needs quickly and efficiently.
•
Implementation of automated manufacturing, quality and supply chain management systems. In recent years, we have made significant
investments in quality systems to help drive automation of our processes. During this time, we have implemented standardized manufacturing
systems to stress optimization of equipment effectiveness, predictive maintenance and direct labor productivity, automated quality systems that
provide both process monitoring and statistical process control throughout the manufacturing process as well as predictive quality data to mitigate
against potential quality deficiencies and supply chain management systems designed to ensure a reliable and responsive supply of high-quality
raw materials. These systems generate large amounts of data, which we utilize to further enhance our quality, productivity and stability. Our focus
on quality is evidenced by our sigma level moving from less than four in 2010 to greater than five in 2020, which represents a significant
improvement in quality performance and
4
5
Manufacturing Complexity and Architecture. The emerging applications described above require more powerful, faster and more energy-efficient
semiconductors. Semiconductor architectures are changing, with transistor design increasing in complexity, the use of multilayered patterning, vertical
structures such as FinFET and 3D NAND, and shrinking dimensions. These advanced architectures require more process steps to manufacture
semiconductors. We believe that demand for our materials and consumable products will benefit from the increase in process steps in lithography,
deposition, CMP and etch and clean required to manufacture leading-edge semiconductors.
Additionally, new materials have played a significant role in enabling improved device performance, and we expect this trend to continue. As dimensions
get smaller, new materials will be required to enable transistor connectivity. For example, leading-edge semiconductor manufacturers are moving towards
atomic layer scale, where the precision of the manufacturing process and purity of the materials used is vital to maintain device integrity. These materials
need to be supplied and delivered at ever-increasing levels of purity and control, from point-of-production to point-of-dispense on the wafer. We expect the
trend for new materials supplied at high levels of purity to drive the demand for our advanced materials and our products and solutions designed to purify,
monitor, protect, transport and deliver critical materials. To address the challenges related to advanced technology nodes, we collaborate with our customers
to develop new materials, to enhance our filtration and purification capabilities and to introduce advanced materials packaging and monitoring capabilities.
Materials Handling Solutions. To minimize the potential for damage or degradation to their materials and to protect their investment in processed wafers,
our semiconductor customers have become increasingly focused on materials handling solutions that enable them to safely store, handle, process and
transport critical materials throughout the manufacturing process. We believe that this trend provides opportunities for us to utilize our breadth of
capabilities to provide innovative materials management, purification, wafer transport and process solutions to semiconductor customers to enable them to
successfully manage this growing complexity.
Reliance on Trusted Suppliers. Our customers require that their key materials suppliers demonstrate greater capabilities and efficiencies in their
processes, including sustainability, scalability, flexible manufacturing, quality control, supply chain management and the ability to effectively collaborate
on solutions to problems. We have responded to these demands by deploying resources in strategic locations to enable us to align with customer
requirements and drive operational excellence. For example, in 2016 and 2017, we expanded our technology centers in South Korea and Taiwan, and in
2019, we opened a technology center in China, containing application and analytical labs, adding to our research and development capabilities to enhance
local development and collaboration and to strengthen relationships with our key customers. We believe that, as semiconductor manufacturers require
greater capabilities of their supply partners, we will be able to leverage our manufacturing, operational and technical capabilities, along with our broad
technology portfolio and expanding scale, to become an increasingly important strategic supplier to our customers.
Continued Consolidation. Our customer base within the semiconductor industry has consolidated in recent years through mergers and acquisitions. As a
result, the importance of maintaining and developing strong and close relationships with our customers becomes even more essential. While continuing to
strengthen these relationships, we also seek to further broaden our customer base by leveraging our products, technologies, expertise and core capabilities
in serving semiconductor applications to address adjacent market opportunities, including in manufacturing processes for flat panel displays, high-purity
chemicals, solar cells, optical magnetic storage devices, LEDs and products for life sciences applications. For further information, see the “Risk Factors—
Risks Related to Our Business and Industry” section of this Annual Report on Form 10-K under the heading “A significant portion of our sales is
concentrated on a limited number of key customers and our net sales and profitability may materially decline if we lost one or more of these customers.”
OUR COMPETITIVE STRENGTHS
Strong Technology Portfolio. In the highly competitive semiconductor industry, manufacturers seek partners that are applications experts with broad
technology portfolios to collaborate from product conception to high volume manufacturing. To that end, we are committed to being able to provide our
customers with innovative solutions for their manufacturing needs. For example, we have introduced sub-10 nanometer and 7 nanometer filtration
products, advanced deposition materials for next generation transistor and interconnect technologies, advanced reticle pods for extreme ultra-violet, or
EUV, photolithography applications, advanced 300 mm wafer carriers and advanced coatings to meet the rigorous demands related to the manufacturing of
advanced technology nodes faced by our customers. Given the competitive nature of the semiconductor industry, we continuously seek to engage with
leading logic and memory manufacturers to further advance their technology roadmaps.
Comprehensive and Diverse Product Offerings. As semiconductor manufacturers are driving towards more advanced technology nodes, our customers
are seeking suppliers that can provide a broad range of customized, reliable, flexible and cost-effective products and materials, as well as the technological
and application design expertise necessary to enhance their
productivity, quality and yield. We believe our comprehensive offering of materials and products creates a competitive advantage as it enables us to meet a
broad range of customer needs and provide a single source of product offerings for semiconductor device and equipment manufacturers, which can often
translate to shorter time-to-solution and time-to-market for our customers. Additionally, our broad product and solution portfolio allows us to serve many
aspects of the semiconductor manufacturing ecosystem and to create synergies among some of our products. For example, our highly selective nitride etch
formulations used in 3D NAND applications have been co-developed with specifically functionalized filter membranes designed to ensure the highest
process performance. Additionally, our sensing technology detects active components in the etch chemistry and allows customers to control the bath
lifetime.
To further strengthen and improve our product offerings, we are committed to significant investment in research and development initiatives, having spent
approximately $136.1 million, $121.1 million and $118.5 million on such activities in 2020, 2019 and 2018, respectively, representing 7.3%, 7.6% and
7.6% of our net sales, in 2020, 2019 and 2018, respectively. Our research and development expenditures have been increasingly directed towards
innovation for advanced technology nodes, and in 2020, a significant portion of our research and development expenditures were focused at the leading
edge.
Global Infrastructure. Complementing our strong technology portfolio and diverse product offerings, we have a global infrastructure of design,
manufacturing, logistics, distribution, service and technical support facilities to meet the needs of our global customers. For example, during 2020 we
announced our plan to expand our manufacturing presence in Taiwan, and we expect to start construction on a new manufacturing facility, which we expect
will be our largest such facility in the world, in that country during 2021. We expect that it will begin initial operations in late 2021 and ramp to full
production in subsequent phases. The new Taiwan facility will add to recent expansions of and investments in our manufacturing operations and advanced
technology centers in Taiwan and South Korea designed to support our customers in these regions. Further, we have established or acquired new facilities
in China to serve the semiconductor manufacturing base in that country, expanded manufacturing capacity in Malaysia and expanded our presence in
Singapore to enhance our global and regional management of supply chain and manufacturing processes. For more information on our advanced
manufacturing capabilities, see the “—Manufacturing” section below. We service our customer relationships in Asia, North America, Europe and the
Middle East predominantly via direct sales and support personnel and to a lesser extent through selected independent sales representatives and distributors.
Our expansive global presence allows us to meet our customers where they operate, which has enabled us to build strong relationships with them. Our
customers include logic and memory semiconductor manufacturers, original equipment manufacturers, or OEMs, and semiconductor materials suppliers.
These customer relationships provide us with significant collaboration opportunities at the early product design stage, which facilitate our ability to
introduce new products and applications. For example, we work with our key customers in the development of advanced manufacturing processes to
identify and respond to their requests for current and future generations of products for emerging applications requiring cleaner materials. Similarly, we
also collaborate with our customers to develop systems that maintain the integrity and stability of materials during transport and through the manufacturing
process. We believe that our customer base will continue to be an important source of new product development opportunities. Due to the specialized
nature of our products, manufacturing complexity, qualification requirements in customers’ fabrication processes, high customer re-formulation and
qualification change costs and extensive proprietary products, we believe our supply position with our customers is strong.
Operational Excellence. Our customers are increasingly focused on the effectiveness, dependability and consistency of their supply chains. We remain
committed to operational excellence and are especially focused on the following priorities that we believe enable us to perform at the high level that our
customers expect.
• Use of manufacturing equipment and facilities incorporating leading-edge technology, including advanced cleanroom and cleaning procedures.
As our customers introduce more complex architectures and search for new materials with better electrical and structural properties to improve the
performance of their devices, our equipment, technology and processes must evolve to keep pace. In response, we have invested heavily in
leading-edge manufacturing facilities, which are in strategic regions throughout the world. With our global presence, we are able to efficiently
utilize our portfolio of manufacturing facilities to meet our customers’ needs quickly and efficiently.
•
Implementation of automated manufacturing, quality and supply chain management systems. In recent years, we have made significant
investments in quality systems to help drive automation of our processes. During this time, we have implemented standardized manufacturing
systems to stress optimization of equipment effectiveness, predictive maintenance and direct labor productivity, automated quality systems that
provide both process monitoring and statistical process control throughout the manufacturing process as well as predictive quality data to mitigate
against potential quality deficiencies and supply chain management systems designed to ensure a reliable and responsive supply of high-quality
raw materials. These systems generate large amounts of data, which we utilize to further enhance our quality, productivity and stability. Our focus
on quality is evidenced by our sigma level moving from less than four in 2010 to greater than five in 2020, which represents a significant
improvement in quality performance and
4
5
reduction in defective parts produced. In addition, over the last several years we have earned awards from our customers for our performance and
focus on continuous improvement.
• Maintaining an agile manufacturing organization. Our manufacturing workforce is capable of the rapid design and development of prototypes of
new and derivative products, as well as promptly responding to customer feedback concerning prototypes so that we can quickly commercialize
and ramp our production within very tight process windows required by our customers. We believe that our focus on disciplined execution and
timeliness in customer interactions enables us to build even deeper connections with our customers, which in turn allows us to further understand
their technical roadmaps and to help them overcome technical hurdles.
OUR BUSINESS STRATEGY
We intend to build upon our position as a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology
industries to expand our core business and to grow in other high value-added manufacturing process markets. Our strategy includes the following key
elements:
Commitment to Technology Leadership. We seek to continuously improve our products and develop new products as our customers’ needs evolve. As
semiconductor devices become smaller and more powerful and new materials and processes are deployed to produce them, we seek to expand our
technological capabilities by developing advanced products that address our customers’ requirements for greater purification, protection and transport of
high value-added materials and by developing advanced materials for use in critical fabrication processes.
Leveraging Our Expertise. We leverage our broad expertise across our portfolio of advanced materials, materials handling and purification capabilities to
create innovative and new solutions to address unmet customer needs. For example, our industry-leading post-CMP cleaning chemistry is developed and
manufactured by our SCEM segment, with collaboration from our MC segment, packaged with our ultra-clean container and connector system made by our
AMH segment, and delivered to the process tools through fluid handling systems also made by our AMH segment. Furthermore, in process tools, these
chemistries may go through one or several purification systems produced by our MC segment to eliminate particles and contaminants. Similarly, our
advanced deposition materials business requires comprehensive capabilities across a number of disciplines, including the synthetization of unique
molecules, specialized knowledge of how to purify these materials and the capability to safely transport these materials and deliver them onto the wafer at a
high throughput. We seek to utilize our expertise in areas of strategic and increasing importance to semiconductor manufacturers, such as developing
advanced materials and ensuring the purity of high-value materials, and our ability to work collaboratively across our three segments enables us to quickly
and effectively develop optimized and complementary solutions for our customers.
Operational Excellence. Our strategy is to continue to develop our advanced manufacturing capabilities into a competitive advantage with our customers
by conducting our manufacturing operations in a manner that ensures the safety of our employees and of the individuals using our products and by
continuing to focus on the other priorities noted in the “—Our Competitive Strengths—Operational Excellence” section above.
Continued Focus on Customers. We view the strong relationships we have with our customers, which include leading logic and memory semiconductor
manufacturers, OEMs and semiconductor materials suppliers, as critical to our long-term success. We intend to reinforce and further strengthen these
relationships through, among other things, collaborations and joint development. Customer intimacy enables us to respond rapidly and thoroughly to their
manufacturing challenges and enables us to bring forth new products that serve existing needs.
Safety. A core component of our strategy is our intense focus on the safety of our employees and of the individuals using our products. With respect to
employee safety, we have put in place proactive programs designed to build a culture of safety in our facilities. And while the well-being of our employees
is always at the top of our mind, we also design our products with an eye towards the safety of the people who are using them. To illustrate, our Aramus
high-purity bags for biologics are designed to withstand cryogenic temperatures and to not break down in extremely cold environments. By reducing
ruptures during transportation, our bags enable the effective distribution of vaccines, including those that may be used in the battle against the COVID-19
pandemic, which may allow quicker access to a vaccine when compared to the use of traditional technologies. Also, our Safe Delivery Source products are
designed to minimize potential leaks during transportation and use of hazardous gases, features which provide significant safety, environmental and
productivity benefits over traditional high-pressure cylinders.
Adjacent Markets. We leverage the expertise that we have gained from serving the semiconductor industry to develop products for other industries that
employ similar technologies and production processes and that utilize materials integrity management, high-purity fluids and integrated dispense systems.
For example, outside of the semiconductor industry our products are used in manufacturing processes for flat panel displays, high-purity chemicals, solar
cells, optical magnetic storage devices, LEDs and products for life sciences and aerospace applications. We plan to continue to identify and develop
products that address needs in adjacent markets. We believe that by utilizing our technology and core capabilities to provide solutions
across multiple industries, we are able to increase the total available market for our products and increase our return on R&D investments.
Strategic Acquisitions, Partnerships and Related Transactions. We will continue to pursue strategic acquisitions and business partnerships that enable
us to address gaps in our product offerings, secure new customers, diversify into complementary product markets, broaden our technological capabilities
and product offerings, access local or regional markets and achieve benefits of increased scale. For example, we strengthened and broadened our specialty
chemicals and engineered materials product offerings while also addressing gaps in our portfolio when we acquired Sinmat, Inc., or Sinmat, in 2020 (CMP
slurries) and Digital Specialty Chemicals, or DSC, and MPD Chemicals, or MPD, in 2019 (specialty chemicals). Similarly, we made several targeted
acquisitions to diversify and expand our filtration and purification portfolio with the acquisitions of Hangzhou Anow Microfiltration Co., Ltd., or Anow, in
2019, the SAES Pure Gas business from SAES Getters S.p.A. in 2018, and the water and chemical filtration product line for microelectronics applications
from W. L. Gore & Associates, Inc. in 2017. Finally, we added a suite of analytical instruments utilized in chemistry management and monitoring in
semiconductor manufacturing processes to our product portfolio with our acquisitions of Global Measurement Technologies, Inc. in 2020 and Particle
Sizing Systems, LLC in 2018. Our 2014 acquisition of ATMI, Inc., or ATMI, serves as an example of a strategic transaction that significantly increased our
scale, as the acquisition brought a whole new portfolio of technologies and materials products to serve our semiconductor customers. Further, as the
dynamics of the markets that we serve shift, we will reevaluate our existing businesses and may decide to restructure or replace one or more businesses,
such as the sale of our small cleaning business in France in 2018 and exiting our small cleaning business in Taiwan in 2020. Finally, we regularly evaluate
opportunities for strategic alliances, such as our strategic alliance with Enthone, joint development programs and collaborative marketing efforts with key
customers and other industry leaders. For example, in 2017, we entered into agreements with local partners to expand our capability to manufacture certain
specialty chemical and deposition products locally and shorten our supply chain for our customers in China.
OUR SEGMENTS
three segments.
Our business is organized and operated in three segments which align with the key elements of the advanced semiconductor manufacturing ecosystem:
Specialty Chemicals and Engineered Materials, or SCEM; Microcontamination Control, or MC; and Advanced Materials Handling, or AMH. We leverage
our expertise from these three segments to create new and increasingly integrated solutions for our customers. The following is a detailed description of our
SPECIALTY CHEMICALS AND ENGINEERED MATERIALS SEGMENT
The SCEM segment provides high-performance and high-purity process chemistries, gases and materials that enhance our customers’ product performance.
These materials are utilized in critical semiconductor manufacturing processes such as deposition, cleaning and integration of complex process materials.
Advanced materials, delivered at high purity, are critical to enabling the performance of leading-edge logic and memory applications. We believe the
growing demand in the 3D NAND market, challenges with metallization schemes and the need for specialized cleaning solutions will drive demand in our
SCEM segment. In conjunction with products from our MC and AMH segments, the materials that our SCEM segment produces provide unique solutions
to safely and efficiently deliver critical materials to support semiconductor and other advanced manufacturing processes. In addition, certain of the
materials that our SCEM segment provides allow for enhanced product performance for our customers in aerospace, medical, pharmaceuticals and other
high-technology intensive material segments.
Specialty Gas Products. Our specialty gas solutions provide advanced safety and process capabilities to semiconductor, display and solar panel
manufacturers. Our SDS cylinders store and deliver hazardous gases, such as arsine, phosphine, germanium tetrafluoride and boron trifluoride, at sub-
atmospheric pressure through the use of our proprietary carbon-based adsorbent materials. These products minimize potential leaks during transportation
and use and allow more gas to be stored in the cylinder, features which provide significant safety, environmental and productivity benefits over traditional
high-pressure cylinders. New generations of SDS products further increase the gas storage capacity, reducing tool down time and thereby generating
significant cost savings for our customers. We also offer VAC, a complementary technology to SDS, where select implant gases and gas mixtures are stored
under high pressure but are delivered sub-atmospherically.
Specialty Materials Products. Our specialty materials include specialized graphite, silicon carbide and a variety of unique, high purity coatings for dry or
plasma etch, chemical vapor deposition and ion implant applications. Our POCO® premium graphite is used to make precision consumable electrodes for
electrical discharge machining, hot glass contact materials for glass product manufacturing and forming and other consumable products for various
industrial applications, including aerospace, optical, medical devices, air bearings and printing. Our high-performance specialty coatings, such as our
Pegasus™ and Cearus™ coatings, provide erosion resistance, minimize particle generation and prevent contamination on critical components in
semiconductor environments and other high-technology manufacturing operations. Our specialty materials provide customized solutions for applications
challenged with unique temperature, corrosive, chemical or process
6
7
reduction in defective parts produced. In addition, over the last several years we have earned awards from our customers for our performance and
focus on continuous improvement.
• Maintaining an agile manufacturing organization. Our manufacturing workforce is capable of the rapid design and development of prototypes of
new and derivative products, as well as promptly responding to customer feedback concerning prototypes so that we can quickly commercialize
and ramp our production within very tight process windows required by our customers. We believe that our focus on disciplined execution and
timeliness in customer interactions enables us to build even deeper connections with our customers, which in turn allows us to further understand
their technical roadmaps and to help them overcome technical hurdles.
OUR BUSINESS STRATEGY
elements:
We intend to build upon our position as a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology
industries to expand our core business and to grow in other high value-added manufacturing process markets. Our strategy includes the following key
Commitment to Technology Leadership. We seek to continuously improve our products and develop new products as our customers’ needs evolve. As
semiconductor devices become smaller and more powerful and new materials and processes are deployed to produce them, we seek to expand our
technological capabilities by developing advanced products that address our customers’ requirements for greater purification, protection and transport of
high value-added materials and by developing advanced materials for use in critical fabrication processes.
Leveraging Our Expertise. We leverage our broad expertise across our portfolio of advanced materials, materials handling and purification capabilities to
create innovative and new solutions to address unmet customer needs. For example, our industry-leading post-CMP cleaning chemistry is developed and
manufactured by our SCEM segment, with collaboration from our MC segment, packaged with our ultra-clean container and connector system made by our
AMH segment, and delivered to the process tools through fluid handling systems also made by our AMH segment. Furthermore, in process tools, these
chemistries may go through one or several purification systems produced by our MC segment to eliminate particles and contaminants. Similarly, our
advanced deposition materials business requires comprehensive capabilities across a number of disciplines, including the synthetization of unique
molecules, specialized knowledge of how to purify these materials and the capability to safely transport these materials and deliver them onto the wafer at a
high throughput. We seek to utilize our expertise in areas of strategic and increasing importance to semiconductor manufacturers, such as developing
advanced materials and ensuring the purity of high-value materials, and our ability to work collaboratively across our three segments enables us to quickly
and effectively develop optimized and complementary solutions for our customers.
Operational Excellence. Our strategy is to continue to develop our advanced manufacturing capabilities into a competitive advantage with our customers
by conducting our manufacturing operations in a manner that ensures the safety of our employees and of the individuals using our products and by
continuing to focus on the other priorities noted in the “—Our Competitive Strengths—Operational Excellence” section above.
Continued Focus on Customers. We view the strong relationships we have with our customers, which include leading logic and memory semiconductor
manufacturers, OEMs and semiconductor materials suppliers, as critical to our long-term success. We intend to reinforce and further strengthen these
relationships through, among other things, collaborations and joint development. Customer intimacy enables us to respond rapidly and thoroughly to their
manufacturing challenges and enables us to bring forth new products that serve existing needs.
Safety. A core component of our strategy is our intense focus on the safety of our employees and of the individuals using our products. With respect to
employee safety, we have put in place proactive programs designed to build a culture of safety in our facilities. And while the well-being of our employees
is always at the top of our mind, we also design our products with an eye towards the safety of the people who are using them. To illustrate, our Aramus
high-purity bags for biologics are designed to withstand cryogenic temperatures and to not break down in extremely cold environments. By reducing
ruptures during transportation, our bags enable the effective distribution of vaccines, including those that may be used in the battle against the COVID-19
pandemic, which may allow quicker access to a vaccine when compared to the use of traditional technologies. Also, our Safe Delivery Source products are
designed to minimize potential leaks during transportation and use of hazardous gases, features which provide significant safety, environmental and
productivity benefits over traditional high-pressure cylinders.
Adjacent Markets. We leverage the expertise that we have gained from serving the semiconductor industry to develop products for other industries that
employ similar technologies and production processes and that utilize materials integrity management, high-purity fluids and integrated dispense systems.
For example, outside of the semiconductor industry our products are used in manufacturing processes for flat panel displays, high-purity chemicals, solar
cells, optical magnetic storage devices, LEDs and products for life sciences and aerospace applications. We plan to continue to identify and develop
products that address needs in adjacent markets. We believe that by utilizing our technology and core capabilities to provide solutions
across multiple industries, we are able to increase the total available market for our products and increase our return on R&D investments.
Strategic Acquisitions, Partnerships and Related Transactions. We will continue to pursue strategic acquisitions and business partnerships that enable
us to address gaps in our product offerings, secure new customers, diversify into complementary product markets, broaden our technological capabilities
and product offerings, access local or regional markets and achieve benefits of increased scale. For example, we strengthened and broadened our specialty
chemicals and engineered materials product offerings while also addressing gaps in our portfolio when we acquired Sinmat, Inc., or Sinmat, in 2020 (CMP
slurries) and Digital Specialty Chemicals, or DSC, and MPD Chemicals, or MPD, in 2019 (specialty chemicals). Similarly, we made several targeted
acquisitions to diversify and expand our filtration and purification portfolio with the acquisitions of Hangzhou Anow Microfiltration Co., Ltd., or Anow, in
2019, the SAES Pure Gas business from SAES Getters S.p.A. in 2018, and the water and chemical filtration product line for microelectronics applications
from W. L. Gore & Associates, Inc. in 2017. Finally, we added a suite of analytical instruments utilized in chemistry management and monitoring in
semiconductor manufacturing processes to our product portfolio with our acquisitions of Global Measurement Technologies, Inc. in 2020 and Particle
Sizing Systems, LLC in 2018. Our 2014 acquisition of ATMI, Inc., or ATMI, serves as an example of a strategic transaction that significantly increased our
scale, as the acquisition brought a whole new portfolio of technologies and materials products to serve our semiconductor customers. Further, as the
dynamics of the markets that we serve shift, we will reevaluate our existing businesses and may decide to restructure or replace one or more businesses,
such as the sale of our small cleaning business in France in 2018 and exiting our small cleaning business in Taiwan in 2020. Finally, we regularly evaluate
opportunities for strategic alliances, such as our strategic alliance with Enthone, joint development programs and collaborative marketing efforts with key
customers and other industry leaders. For example, in 2017, we entered into agreements with local partners to expand our capability to manufacture certain
specialty chemical and deposition products locally and shorten our supply chain for our customers in China.
OUR SEGMENTS
Our business is organized and operated in three segments which align with the key elements of the advanced semiconductor manufacturing ecosystem:
Specialty Chemicals and Engineered Materials, or SCEM; Microcontamination Control, or MC; and Advanced Materials Handling, or AMH. We leverage
our expertise from these three segments to create new and increasingly integrated solutions for our customers. The following is a detailed description of our
three segments.
SPECIALTY CHEMICALS AND ENGINEERED MATERIALS SEGMENT
The SCEM segment provides high-performance and high-purity process chemistries, gases and materials that enhance our customers’ product performance.
These materials are utilized in critical semiconductor manufacturing processes such as deposition, cleaning and integration of complex process materials.
Advanced materials, delivered at high purity, are critical to enabling the performance of leading-edge logic and memory applications. We believe the
growing demand in the 3D NAND market, challenges with metallization schemes and the need for specialized cleaning solutions will drive demand in our
SCEM segment. In conjunction with products from our MC and AMH segments, the materials that our SCEM segment produces provide unique solutions
to safely and efficiently deliver critical materials to support semiconductor and other advanced manufacturing processes. In addition, certain of the
materials that our SCEM segment provides allow for enhanced product performance for our customers in aerospace, medical, pharmaceuticals and other
high-technology intensive material segments.
Specialty Gas Products. Our specialty gas solutions provide advanced safety and process capabilities to semiconductor, display and solar panel
manufacturers. Our SDS cylinders store and deliver hazardous gases, such as arsine, phosphine, germanium tetrafluoride and boron trifluoride, at sub-
atmospheric pressure through the use of our proprietary carbon-based adsorbent materials. These products minimize potential leaks during transportation
and use and allow more gas to be stored in the cylinder, features which provide significant safety, environmental and productivity benefits over traditional
high-pressure cylinders. New generations of SDS products further increase the gas storage capacity, reducing tool down time and thereby generating
significant cost savings for our customers. We also offer VAC, a complementary technology to SDS, where select implant gases and gas mixtures are stored
under high pressure but are delivered sub-atmospherically.
Specialty Materials Products. Our specialty materials include specialized graphite, silicon carbide and a variety of unique, high purity coatings for dry or
plasma etch, chemical vapor deposition and ion implant applications. Our POCO® premium graphite is used to make precision consumable electrodes for
electrical discharge machining, hot glass contact materials for glass product manufacturing and forming and other consumable products for various
industrial applications, including aerospace, optical, medical devices, air bearings and printing. Our high-performance specialty coatings, such as our
Pegasus™ and Cearus™ coatings, provide erosion resistance, minimize particle generation and prevent contamination on critical components in
semiconductor environments and other high-technology manufacturing operations. Our specialty materials provide customized solutions for applications
challenged with unique temperature, corrosive, chemical or process
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environments, such as electrostatic chucks used to hold wafers during processing, plasma etch chamber components, aircraft bearings and ultrasonic
transducers.
Advanced Deposition Materials Products. Our advanced deposition materials include advanced liquid, gaseous and solid precursors that are incorporated
in CVD and ALD processes by the semiconductor industry, including organometallic precursors for the deposition of tungsten, titanium, cobalt and
aluminum containing films and organosilane precursors for the deposition of silicon oxide and silicon nitride films. These precursors are designed in close
collaboration with OEM process tool manufacturers and device makers to produce application specific solutions that are compatible with complex
integrations of material solutions used to build the semiconductor device. We offer delivery systems and containers that allow for reliable storage and
delivery of low volatility solid and liquid precursors required in ALD processes. When combined with our proprietary corrosion-resistant coatings and
filtration solutions from our MC segment, our advanced deposition materials enable the industry’s highest purity levels, resulting in improved device
performance.
Surface Preparation and Integration Products. We offer a range of materials used to prepare the surface of a semiconductor wafer during the
manufacturing process and to integrate with materials being used on the wafer. We offer a broad range of cleaning solutions for applications such as
semiconductor post-etch residue removal, wafer etching, organics removal, negative resist removal, edge bead removal and corrosion prevention. Our wet
chemistries solutions, combined with filtration solutions from our MC segment and fluid handling solutions from our AMH segment, provide enhanced
purity, which results in improvements in our customers’ processes. Our consumable polyvinyl alcohol (PVA) roller brush products are used to clean the
wafer following the CMP process, and our pad conditioners, based on our silicon carbide capabilities, lengthen CMP pad life. Through the acquisition of
Sinmat, we now offer slurry products used for polishing ultra-hard surface materials, including SiC and GaN substrates, which are utilized in the power
electronics and advanced communications end-markets. We also provide advanced plating solutions, such as our Viaform® product (a trademark of and
exclusively licensed from Element Solutions, Inc.), which includes inorganic and proprietary organic molecules that provide the wiring for copper
interconnects.
Specialty Chemicals. Our specialty chemicals include advanced liquid and solid materials, which are used in a range of high-performance material
applications ranging from medical devices to materials used in semiconductor applications. Our product solutions include organometallic and organosilane
materials used in semiconductor device manufacturing, monomers and polymers used in the manufacture of medical devices, polyolefin catalysts used in
the manufacture of polyethene and polypropylene, chromic materials used in security dyes and inks, isotopic ally labeled materials used in clinical
diagnostics and a range of materials used in the manufacture of pharmaceutical ingredients. In addition, our specialty chemicals business provides materials
to a number of our other businesses to enable advanced performance of final product solutions.
MICROCONTAMINATION CONTROL SEGMENT
The MC segment offers solutions to purify critical liquid chemistries and process gases used in semiconductor manufacturing processes and other high-
technology industries. The design and performance of our liquid and gas filtration and purification products are important to the semiconductor
manufacturing process because they remove contamination, directly reduce defects, improve manufacturing yield and enhance the long-term reliability of
the semiconductor device. Our proprietary filters remove organic and inorganic nanometer-sized contaminants from the different fluids and gases used in
the manufacturing process, including photolithography, deposition, planarization and surface etching and cleaning. As our customers leverage leading-edge
lithography tools and multi-patterning technology to enable each subsequent generation of products, our filtration and purification products are utilized to
achieve necessary levels of purity and contamination control. We believe demand for purification and filtration products is being driven by the continuous
node shrink in logic semiconductors and the ramp in the 3D NAND market, as the risk of yield loss grows with the incremental manufacturing steps needed
for the production of these devices. We utilize expertise from the AMH segment in polymer science and from the SCEM segment in cleaning chemistries to
develop differentiated filtration and purification solutions for our customers.
Liquid Microcontamination Control Products. We offer a variety of products that control contaminants in our customers’ wet processes. For example,
our Torrento® series of filters is used for the filtration of aggressive acid and base chemistries for both semiconductor fabs as well as specialty chemical
manufacturers, including our SCEM segment. Manufacturers of high purity chemicals and semiconductor fabs use our Trinzik® and Microgard™ products
for the filtration of chemicals and ultra-pure water. Our Impact® series of filters are used in point-of-use photochemical dispense applications, including
those provided by our AMH segment, where the delivery of superior flow rate performance and reduced microbubble formation is critical. Our Protego®
series of liquid purifier/filter products are used to reduce metallic contamination in chemical manufacturing and in critical wafer rinsing and drying
applications by our customers. In addition, we provide membrane and liquid filtration offerings serving semiconductor, pharmaceutical and medical
applications.
Gas Microcontamination Control Products. We offer a broad portfolio of products designed to remove particulate and molecular contaminants from
controlled environments and gas streams in semiconductor, flat panel display and LED fabs. Our Wafergard® gas filters reduce outgassing and remove
particle contamination. Our GateKeeper® gas purifiers and large facility-
wide gas purification systems provide continuous purified gas supply to customer fabs from the point of creation on the gas pads to the point-of-use at the
wafer by chemically reacting and absorbing contaminants, effectively removing gaseous contaminants down to part-per-trillion levels. Our Chambergard™
gas diffusers provide semiconductor equipment manufacturers with the capability to rapidly vent their tools to atmosphere to dramatically reduce process
cycle times without adding particles to the wafers. In addition, our Vaporsorb products are used to eliminate airborne molecular contamination from critical
process tool areas or cleanrooms in the fab. These products are used in or alongside critical processing tools to improve yield and reduce tool downtime.
ADVANCED MATERIALS HANDLING SEGMENT
The AMH segment develops solutions to monitor, protect, transport and deliver critical liquid chemistries, wafers and substrates for a broad set of
applications in the semiconductor and other high-technology industries. These systems and products improve our customers’ yields by protecting wafers
from abrasion, degradation and contamination during manufacturing and transportation and by assuring the consistent, clean and safe delivery of advanced
chemicals from the chemical manufacturer to the point-of-use in the semiconductor fab. The AMH segment collaborates closely with our SCEM segment
in developing products that are compatible with advanced chemistries to enhance yields and integrates liquid filtration technology from our MC segment to
deliver consistent and pure chemistry.
Microenvironment Solutions. We lead the market with our high-volume line of Ultrapak® and Crystalpak® products for wafers ranging from 100 to 200
mm, which ensure the clean and secure transport of wafers from the wafer manufacturers to the semiconductor fabs. We also offer a front-opening shipping
box, or FOSB, for the transportation and automated interface of 300 mm wafers. We lead the market for 300mm front-opening unified pods, or FOUPs,
wafer transport and process carriers and standard mechanical interface pods, or SMIF pods, for 200mm wafer applications. These microenvironment
products safely and accurately deliver wafers within the semiconductor fab environment to the various process fabrication steps. We are a leader in reticle
protection products for photolithography, including products that protect the high-value EUV lithography masks during both the mask manufacturing
process and their use in the semiconductor fab.
Fluid Management Products. We offer various fluid management products that cover a range of applications, including liquid packaging, fluid handling
and process monitoring products. Our broad portfolio of flexible and rigid polymer packaging and container products, from low-volume containers to
transport high-value photoresist chemistries, such as our NOWPak® products, to large intermediate bulk containers allow our customers to safely and
efficiently transport chemicals in bulk, such as our FluoroPure® products. Our connection systems provide safe and efficient chemical dispense from the
container to the fab. Chemical companies utilize our packaging products to ensure the purity of chemistries shipped to semiconductor fabs, resulting in
enhanced yields.
In addition, we are a leader in high-purity fluid transfer products such as valves, fittings, tubing, pipe, custom fabricated products and associated connection
systems, such as our PrimeLock® connections, for high-purity chemical applications and our proprietary digital flow control technology improving the
uniformity of chemicals applied on wafers. Our IntelliGen® integrated, high-precision liquid dispense systems enable the uniform application of advanced
chemistries during the wafer fabrication process, integrating our valve control expertise with filter device technologies from our MC segment, in order to
conserve high-value chemistry and reduce defects on wafers. Our comprehensive product lines provide our customers with a single-source provider for
their high-purity chemical management needs throughout the manufacturing process.
Further, we provide market-leading instrumentation solutions to ensure consistency of complex blended chemistries and CMP slurries. For example, our
Single Particle Optical Sizing technology accurately determines particle size and counts. We also produce on-tool process monitoring systems that perform
automated online particle size and/or counts analysis of suspensions with the Accusizer® system. These applications include real-time monitoring of CMP
slurries and other instrumentation for liquid applications in both semiconductor and life science industries. Our SemiChem® systems and Invue® products
measure chemical concentration in CMP slurries and formulated clean chemistries. These process instruments provide our customers critical process
monitoring to enable improved semiconductor device yields.
OUR CUSTOMERS AND MARKETS
Our most significant customers include logic and memory semiconductor device manufacturers, semiconductor equipment makers, gas and chemical
manufacturing companies and wafer grower companies serving the global semiconductor industry. We also sell our products to flat panel display equipment
makers, panel manufacturers, manufacturers of hard disk drive components and devices and their related ecosystems.
Our other high-technology markets include manufacturers and suppliers in the solar and life science industries, electrical discharge machining customers,
glass and glass container manufacturers, aerospace manufacturers and manufacturers of biomedical implantation devices.
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collaboration with OEM process tool manufacturers and device makers to produce application specific solutions that are compatible with complex
ADVANCED MATERIALS HANDLING SEGMENT
wide gas purification systems provide continuous purified gas supply to customer fabs from the point of creation on the gas pads to the point-of-use at the
wafer by chemically reacting and absorbing contaminants, effectively removing gaseous contaminants down to part-per-trillion levels. Our Chambergard™
gas diffusers provide semiconductor equipment manufacturers with the capability to rapidly vent their tools to atmosphere to dramatically reduce process
cycle times without adding particles to the wafers. In addition, our Vaporsorb products are used to eliminate airborne molecular contamination from critical
process tool areas or cleanrooms in the fab. These products are used in or alongside critical processing tools to improve yield and reduce tool downtime.
The AMH segment develops solutions to monitor, protect, transport and deliver critical liquid chemistries, wafers and substrates for a broad set of
applications in the semiconductor and other high-technology industries. These systems and products improve our customers’ yields by protecting wafers
from abrasion, degradation and contamination during manufacturing and transportation and by assuring the consistent, clean and safe delivery of advanced
chemicals from the chemical manufacturer to the point-of-use in the semiconductor fab. The AMH segment collaborates closely with our SCEM segment
in developing products that are compatible with advanced chemistries to enhance yields and integrates liquid filtration technology from our MC segment to
deliver consistent and pure chemistry.
Microenvironment Solutions. We lead the market with our high-volume line of Ultrapak® and Crystalpak® products for wafers ranging from 100 to 200
mm, which ensure the clean and secure transport of wafers from the wafer manufacturers to the semiconductor fabs. We also offer a front-opening shipping
box, or FOSB, for the transportation and automated interface of 300 mm wafers. We lead the market for 300mm front-opening unified pods, or FOUPs,
wafer transport and process carriers and standard mechanical interface pods, or SMIF pods, for 200mm wafer applications. These microenvironment
products safely and accurately deliver wafers within the semiconductor fab environment to the various process fabrication steps. We are a leader in reticle
protection products for photolithography, including products that protect the high-value EUV lithography masks during both the mask manufacturing
process and their use in the semiconductor fab.
Fluid Management Products. We offer various fluid management products that cover a range of applications, including liquid packaging, fluid handling
and process monitoring products. Our broad portfolio of flexible and rigid polymer packaging and container products, from low-volume containers to
transport high-value photoresist chemistries, such as our NOWPak® products, to large intermediate bulk containers allow our customers to safely and
efficiently transport chemicals in bulk, such as our FluoroPure® products. Our connection systems provide safe and efficient chemical dispense from the
container to the fab. Chemical companies utilize our packaging products to ensure the purity of chemistries shipped to semiconductor fabs, resulting in
enhanced yields.
In addition, we are a leader in high-purity fluid transfer products such as valves, fittings, tubing, pipe, custom fabricated products and associated connection
systems, such as our PrimeLock® connections, for high-purity chemical applications and our proprietary digital flow control technology improving the
uniformity of chemicals applied on wafers. Our IntelliGen® integrated, high-precision liquid dispense systems enable the uniform application of advanced
chemistries during the wafer fabrication process, integrating our valve control expertise with filter device technologies from our MC segment, in order to
conserve high-value chemistry and reduce defects on wafers. Our comprehensive product lines provide our customers with a single-source provider for
their high-purity chemical management needs throughout the manufacturing process.
Further, we provide market-leading instrumentation solutions to ensure consistency of complex blended chemistries and CMP slurries. For example, our
Single Particle Optical Sizing technology accurately determines particle size and counts. We also produce on-tool process monitoring systems that perform
automated online particle size and/or counts analysis of suspensions with the Accusizer® system. These applications include real-time monitoring of CMP
slurries and other instrumentation for liquid applications in both semiconductor and life science industries. Our SemiChem® systems and Invue® products
measure chemical concentration in CMP slurries and formulated clean chemistries. These process instruments provide our customers critical process
monitoring to enable improved semiconductor device yields.
OUR CUSTOMERS AND MARKETS
Our most significant customers include logic and memory semiconductor device manufacturers, semiconductor equipment makers, gas and chemical
manufacturing companies and wafer grower companies serving the global semiconductor industry. We also sell our products to flat panel display equipment
makers, panel manufacturers, manufacturers of hard disk drive components and devices and their related ecosystems.
Our other high-technology markets include manufacturers and suppliers in the solar and life science industries, electrical discharge machining customers,
glass and glass container manufacturers, aerospace manufacturers and manufacturers of biomedical implantation devices.
environments, such as electrostatic chucks used to hold wafers during processing, plasma etch chamber components, aircraft bearings and ultrasonic
transducers.
performance.
Advanced Deposition Materials Products. Our advanced deposition materials include advanced liquid, gaseous and solid precursors that are incorporated
in CVD and ALD processes by the semiconductor industry, including organometallic precursors for the deposition of tungsten, titanium, cobalt and
aluminum containing films and organosilane precursors for the deposition of silicon oxide and silicon nitride films. These precursors are designed in close
integrations of material solutions used to build the semiconductor device. We offer delivery systems and containers that allow for reliable storage and
delivery of low volatility solid and liquid precursors required in ALD processes. When combined with our proprietary corrosion-resistant coatings and
filtration solutions from our MC segment, our advanced deposition materials enable the industry’s highest purity levels, resulting in improved device
Surface Preparation and Integration Products. We offer a range of materials used to prepare the surface of a semiconductor wafer during the
manufacturing process and to integrate with materials being used on the wafer. We offer a broad range of cleaning solutions for applications such as
semiconductor post-etch residue removal, wafer etching, organics removal, negative resist removal, edge bead removal and corrosion prevention. Our wet
chemistries solutions, combined with filtration solutions from our MC segment and fluid handling solutions from our AMH segment, provide enhanced
purity, which results in improvements in our customers’ processes. Our consumable polyvinyl alcohol (PVA) roller brush products are used to clean the
wafer following the CMP process, and our pad conditioners, based on our silicon carbide capabilities, lengthen CMP pad life. Through the acquisition of
Sinmat, we now offer slurry products used for polishing ultra-hard surface materials, including SiC and GaN substrates, which are utilized in the power
electronics and advanced communications end-markets. We also provide advanced plating solutions, such as our Viaform® product (a trademark of and
exclusively licensed from Element Solutions, Inc.), which includes inorganic and proprietary organic molecules that provide the wiring for copper
interconnects.
Specialty Chemicals. Our specialty chemicals include advanced liquid and solid materials, which are used in a range of high-performance material
applications ranging from medical devices to materials used in semiconductor applications. Our product solutions include organometallic and organosilane
materials used in semiconductor device manufacturing, monomers and polymers used in the manufacture of medical devices, polyolefin catalysts used in
the manufacture of polyethene and polypropylene, chromic materials used in security dyes and inks, isotopic ally labeled materials used in clinical
diagnostics and a range of materials used in the manufacture of pharmaceutical ingredients. In addition, our specialty chemicals business provides materials
to a number of our other businesses to enable advanced performance of final product solutions.
MICROCONTAMINATION CONTROL SEGMENT
The MC segment offers solutions to purify critical liquid chemistries and process gases used in semiconductor manufacturing processes and other high-
technology industries. The design and performance of our liquid and gas filtration and purification products are important to the semiconductor
manufacturing process because they remove contamination, directly reduce defects, improve manufacturing yield and enhance the long-term reliability of
the semiconductor device. Our proprietary filters remove organic and inorganic nanometer-sized contaminants from the different fluids and gases used in
the manufacturing process, including photolithography, deposition, planarization and surface etching and cleaning. As our customers leverage leading-edge
lithography tools and multi-patterning technology to enable each subsequent generation of products, our filtration and purification products are utilized to
achieve necessary levels of purity and contamination control. We believe demand for purification and filtration products is being driven by the continuous
node shrink in logic semiconductors and the ramp in the 3D NAND market, as the risk of yield loss grows with the incremental manufacturing steps needed
for the production of these devices. We utilize expertise from the AMH segment in polymer science and from the SCEM segment in cleaning chemistries to
develop differentiated filtration and purification solutions for our customers.
Liquid Microcontamination Control Products. We offer a variety of products that control contaminants in our customers’ wet processes. For example,
our Torrento® series of filters is used for the filtration of aggressive acid and base chemistries for both semiconductor fabs as well as specialty chemical
manufacturers, including our SCEM segment. Manufacturers of high purity chemicals and semiconductor fabs use our Trinzik® and Microgard™ products
for the filtration of chemicals and ultra-pure water. Our Impact® series of filters are used in point-of-use photochemical dispense applications, including
those provided by our AMH segment, where the delivery of superior flow rate performance and reduced microbubble formation is critical. Our Protego®
series of liquid purifier/filter products are used to reduce metallic contamination in chemical manufacturing and in critical wafer rinsing and drying
applications by our customers. In addition, we provide membrane and liquid filtration offerings serving semiconductor, pharmaceutical and medical
applications.
Gas Microcontamination Control Products. We offer a broad portfolio of products designed to remove particulate and molecular contaminants from
controlled environments and gas streams in semiconductor, flat panel display and LED fabs. Our Wafergard® gas filters reduce outgassing and remove
particle contamination. Our GateKeeper® gas purifiers and large facility-
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In 2020, 2019 and 2018, net sales to our top ten customers accounted for 46%, 43% and 44%, respectively, of our combined net sales. In 2020, 2019 and
2018, Taiwan Semiconductor Manufacturing Company Limited, accounted for $208 million, $187 million and $154 million of our net sales, respectively,
or approximately 11%, 12% and 10% of our net sales, respectively, including sales from each of our three reporting segments. In addition, in 2020, 2019
and 2018, Samsung Electronics Co. accounted for $172 million, $128 million and $164 million of our net sales, respectively, or approximately 9%, 8% and
11% of our net sales, respectively, including sales from all of the Company’s segments. International net sales represented approximately 75%, 76% and
78%, respectively, of our total net sales in 2020, 2019 and 2018. Approximately 2,900 customers purchased products from us during 2020.
We may enter into supply agreements with our customers. These agreements generally have a term of one to three years, but typically do not contain any
long-term purchase commitments. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. However,
customers may cancel their orders, change production quantities from forecasted volumes or delay production for reasons beyond our control.
SALES, MARKETING AND SUPPORT
areas, such as filtration, specialty chemicals or materials handling. Notable competitors with respect to certain specific product areas include Pall
Corporation (part of Danaher Corporation), Shin-Etsu Polymer Co., Ltd., Gemu Valves, Inc., Tokyo Keiso Co., Ltd., Mersen, the EMD Performance
Materials division of Merck KGaA, E. I. du Pont de Nemours, Company, Air Liquide, Praxair, Inc. (a subsidiary of Linde plc.), Donaldson Company, Inc.
and Parker Hannifin Corp.
ENGINEERING, RESEARCH AND DEVELOPMENT
We believe that technology is important to the success of our businesses, and we plan to continue to devote significant resources to engineering, research
and development, or ER&D, balancing efforts between shorter-term market needs and longer-term investments. As of December 31, 2020, we had
approximately 1,100 employees in ER&D. We have supplemented and may continue to supplement our internal research and development efforts by
licensing technology from third parties and/or acquiring rights with respect to products incorporating externally owned technologies. Our R&D expenses
consist of personnel and other direct and indirect costs for internally funded project development, including the use of outside service providers.
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 market territories and for specific market segments. As of December 31, 2020, our sales and marketing force
consisted of approximately 620 employees worldwide.
We believe we have a rich pipeline of development projects. Our ER&D efforts are directed toward developing and improving our technology platforms for
semiconductor and advanced processing applications and identifying and developing products for new applications, often working directly with our
customers to address their particular needs.
Our unique capabilities and long-standing industry relationships have provided us with the opportunity for significant collaboration with our customers at
the product design stage, which has facilitated our ability to introduce new materials and new solutions that meet our customers’ needs. We are constantly
seeking to identify for our customers a variety of materials, contamination and process control challenges that may be addressed by our product solutions.
Our sales representatives provide our customers with worldwide technical support and information about our products and materials.
We believe that our technical support services are important to our sales and marketing efforts. These services include assisting in defining a customer’s
needs, evaluating alternative products and materials, designing a specific system to perform the desired operation, training users and assisting customers in
compliance with relevant government regulations. Additionally, our field application engineers, located in all of the major markets we serve, work directly
with our customers on product qualification and process improvements in their facilities. We maintain a network of service centers, applications
laboratories and technology centers located in all key markets internationally and in the United States to support our products and our customers with their
advanced development needs, provide local technical service, application support and ensure fast turnaround time.
COMPETITION
The market for our products is highly competitive. While price is an important factor, we compete primarily on the basis of the following factors:
property on an ongoing basis through continued innovation. While we license and expect to continue to license technology used in the manufacture and
technical expertise;
product quality and performance;
advanced manufacturing capabilities;
total cost of ownership;
historical customer relationships;
breadth of product line;
breadth of geographic presence;
customer service and support; and
after-sales service.
We believe that we compete favorably with respect to the factors listed above. We believe that our key competitive strengths include our broad product line,
our strong research and development infrastructure and investment, our manufacturing excellence, our advanced quality control systems, the low total cost
of ownership of our products, our ability to provide our customers with quick order fulfillment and our applications expertise in semiconductor
manufacturing processes. However, our competitive position varies depending on the market segment and specific product areas within these segments.
While we have longstanding relationships with a number of semiconductor and other electronic device manufacturers, we still face significant competition
from companies that also have longstanding relationships with other semiconductor and electronic device manufacturers and, as a result, have been able to
have their products specified by those customers for use in manufacturers’ fabrication facilities.
The competitive landscape is varied, ranging from large multinational companies to small regional or regionally-focused companies. While product quality
and technology remain critical, overall, industry trends are indicating a shift to localized, cost-competitive and consolidated supply chains.
Because of the unique breadth of our capabilities, we believe that there are no global competitors that compete with us across the full range of our product
offerings. Many of our competitors are local companies that participate in only a few products or in specific geographies. While there are other larger,
broad-based materials suppliers, many are concentrated in specific product
advantages. These include:
We have ER&D capabilities in the United States, Canada, China, Japan, South Korea, Taiwan, Singapore and Malaysia to meet the global needs of our
customers. We use sophisticated methodologies to research, develop and characterize our materials and products. Our capabilities to test and characterize
our materials and products are focused on continuously reducing risks and threats to the integrity of the critical materials that our customers use in their
manufacturing processes.
In addition, we collaborate with leading universities and industry consortia, such as the University of California, Yale University, Pennsylvania State
University, the Interuniversity Microelectronics Center (imec®) and CEA-LETI. We undertake this work to extend the reach of our internal R&D and to
gain access to leadership ideas and concepts beyond the time horizon of our internal development activities.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
As of December 31, 2020, we own approximately 2,520 active patents worldwide, of which about 650 are United States patents. Additionally, we own
about 1,050 pending patent applications globally. In addition, we license certain patents owned by third parties. We rely on a combination of patent,
copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights. We seek to refresh our intellectual
distribution of products from third parties, we do not consider any particular patent or license to be material to our business.
We vigorously protect and defend our intellectual property. We require each of our employees, including our executive officers, to enter into agreements
with us pursuant to which the employee agrees to keep our proprietary information confidential and to assign to us inventions made during the course of
employment. We also require outside scientific collaborators, sponsored researchers and other advisors and consultants who are provided confidential
information to execute confidentiality agreements with us. These agreements generally provide that all confidential information developed or made known
to the entity or individual during the course of the entity’s or individual’s relationship with the Company is to be kept confidential and not disclosed to third
parties except in specific limited circumstances.
MANUFACTURING
Our customers rely on our products and materials to ensure the integrity of the critical materials used in their manufacturing processes by providing purity,
cleanliness, consistent performance, dimensional precision and stability. Our ability to meet our customers’ expectations, combined with our substantial
investments in worldwide manufacturing capacity, position us well to respond to the increasing demands from our customers for yield-enhancing materials
and solutions.
To meet our customers’ needs worldwide, we have established an extensive global manufacturing network with facilities in the United States, Canada,
Japan, Taiwan, Malaysia, South Korea and China. Because we work in an industry where contamination control is paramount, we maintain Class 100 to
Class 10,000 cleanrooms for manufacturing and assembly. We believe that our worldwide advanced manufacturing capabilities are important competitive
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In 2020, 2019 and 2018, net sales to our top ten customers accounted for 46%, 43% and 44%, respectively, of our combined net sales. In 2020, 2019 and
2018, Taiwan Semiconductor Manufacturing Company Limited, accounted for $208 million, $187 million and $154 million of our net sales, respectively,
or approximately 11%, 12% and 10% of our net sales, respectively, including sales from each of our three reporting segments. In addition, in 2020, 2019
and 2018, Samsung Electronics Co. accounted for $172 million, $128 million and $164 million of our net sales, respectively, or approximately 9%, 8% and
11% of our net sales, respectively, including sales from all of the Company’s segments. International net sales represented approximately 75%, 76% and
78%, respectively, of our total net sales in 2020, 2019 and 2018. Approximately 2,900 customers purchased products from us during 2020.
We may enter into supply agreements with our customers. These agreements generally have a term of one to three years, but typically do not contain any
long-term purchase commitments. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. However,
customers may cancel their orders, change production quantities from forecasted volumes or delay production for reasons beyond our control.
SALES, MARKETING AND SUPPORT
areas, such as filtration, specialty chemicals or materials handling. Notable competitors with respect to certain specific product areas include Pall
Corporation (part of Danaher Corporation), Shin-Etsu Polymer Co., Ltd., Gemu Valves, Inc., Tokyo Keiso Co., Ltd., Mersen, the EMD Performance
Materials division of Merck KGaA, E. I. du Pont de Nemours, Company, Air Liquide, Praxair, Inc. (a subsidiary of Linde plc.), Donaldson Company, Inc.
and Parker Hannifin Corp.
ENGINEERING, RESEARCH AND DEVELOPMENT
We believe that technology is important to the success of our businesses, and we plan to continue to devote significant resources to engineering, research
and development, or ER&D, balancing efforts between shorter-term market needs and longer-term investments. As of December 31, 2020, we had
approximately 1,100 employees in ER&D. We have supplemented and may continue to supplement our internal research and development efforts by
licensing technology from third parties and/or acquiring rights with respect to products incorporating externally owned technologies. Our R&D expenses
consist of personnel and other direct and indirect costs for internally funded project development, including the use of outside service providers.
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 market territories and for specific market segments. As of December 31, 2020, our sales and marketing force
consisted of approximately 620 employees worldwide.
We believe we have a rich pipeline of development projects. Our ER&D efforts are directed toward developing and improving our technology platforms for
semiconductor and advanced processing applications and identifying and developing products for new applications, often working directly with our
customers to address their particular needs.
Our unique capabilities and long-standing industry relationships have provided us with the opportunity for significant collaboration with our customers at
the product design stage, which has facilitated our ability to introduce new materials and new solutions that meet our customers’ needs. We are constantly
seeking to identify for our customers a variety of materials, contamination and process control challenges that may be addressed by our product solutions.
Our sales representatives provide our customers with worldwide technical support and information about our products and materials.
We have ER&D capabilities in the United States, Canada, China, Japan, South Korea, Taiwan, Singapore and Malaysia to meet the global needs of our
customers. We use sophisticated methodologies to research, develop and characterize our materials and products. Our capabilities to test and characterize
our materials and products are focused on continuously reducing risks and threats to the integrity of the critical materials that our customers use in their
manufacturing processes.
We believe that our technical support services are important to our sales and marketing efforts. These services include assisting in defining a customer’s
needs, evaluating alternative products and materials, designing a specific system to perform the desired operation, training users and assisting customers in
compliance with relevant government regulations. Additionally, our field application engineers, located in all of the major markets we serve, work directly
with our customers on product qualification and process improvements in their facilities. We maintain a network of service centers, applications
laboratories and technology centers located in all key markets internationally and in the United States to support our products and our customers with their
advanced development needs, provide local technical service, application support and ensure fast turnaround time.
The market for our products is highly competitive. While price is an important factor, we compete primarily on the basis of the following factors:
COMPETITION
technical expertise;
product quality and performance;
advanced manufacturing capabilities;
total cost of ownership;
historical customer relationships;
breadth of product line;
breadth of geographic presence;
customer service and support; and
after-sales service.
We believe that we compete favorably with respect to the factors listed above. We believe that our key competitive strengths include our broad product line,
our strong research and development infrastructure and investment, our manufacturing excellence, our advanced quality control systems, the low total cost
of ownership of our products, our ability to provide our customers with quick order fulfillment and our applications expertise in semiconductor
manufacturing processes. However, our competitive position varies depending on the market segment and specific product areas within these segments.
While we have longstanding relationships with a number of semiconductor and other electronic device manufacturers, we still face significant competition
from companies that also have longstanding relationships with other semiconductor and electronic device manufacturers and, as a result, have been able to
have their products specified by those customers for use in manufacturers’ fabrication facilities.
The competitive landscape is varied, ranging from large multinational companies to small regional or regionally-focused companies. While product quality
and technology remain critical, overall, industry trends are indicating a shift to localized, cost-competitive and consolidated supply chains.
Because of the unique breadth of our capabilities, we believe that there are no global competitors that compete with us across the full range of our product
offerings. Many of our competitors are local companies that participate in only a few products or in specific geographies. While there are other larger,
broad-based materials suppliers, many are concentrated in specific product
In addition, we collaborate with leading universities and industry consortia, such as the University of California, Yale University, Pennsylvania State
University, the Interuniversity Microelectronics Center (imec®) and CEA-LETI. We undertake this work to extend the reach of our internal R&D and to
gain access to leadership ideas and concepts beyond the time horizon of our internal development activities.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
As of December 31, 2020, we own approximately 2,520 active patents worldwide, of which about 650 are United States patents. Additionally, we own
about 1,050 pending patent applications globally. In addition, we license certain patents owned by third parties. We rely on a combination of patent,
copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights. We seek to refresh our intellectual
property on an ongoing basis through continued innovation. While we license and expect to continue to license technology used in the manufacture and
distribution of products from third parties, we do not consider any particular patent or license to be material to our business.
We vigorously protect and defend our intellectual property. We require each of our employees, including our executive officers, to enter into agreements
with us pursuant to which the employee agrees to keep our proprietary information confidential and to assign to us inventions made during the course of
employment. We also require outside scientific collaborators, sponsored researchers and other advisors and consultants who are provided confidential
information to execute confidentiality agreements with us. These agreements generally provide that all confidential information developed or made known
to the entity or individual during the course of the entity’s or individual’s relationship with the Company is to be kept confidential and not disclosed to third
parties except in specific limited circumstances.
MANUFACTURING
Our customers rely on our products and materials to ensure the integrity of the critical materials used in their manufacturing processes by providing purity,
cleanliness, consistent performance, dimensional precision and stability. Our ability to meet our customers’ expectations, combined with our substantial
investments in worldwide manufacturing capacity, position us well to respond to the increasing demands from our customers for yield-enhancing materials
and solutions.
To meet our customers’ needs worldwide, we have established an extensive global manufacturing network with facilities in the United States, Canada,
Japan, Taiwan, Malaysia, South Korea and China. Because we work in an industry where contamination control is paramount, we maintain Class 100 to
Class 10,000 cleanrooms for manufacturing and assembly. We believe that our worldwide advanced manufacturing capabilities are important competitive
advantages. These include:
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11
engineered polymer conversion and processing;
advanced membrane modification and cleaning;
chemical distillation, synthesis and purification;
gas delivery systems;
high-purity gas handling and transfilling;
high-purity materials packaging;
membrane casting;
cartridge manufacturing and assembly;
specialty coating capabilities;
solids and powders compounding and handling;
graphite synthesis;
blow molding;
rotational molding;
machining; and
assembly.
We have made significant investments in systems and equipment to create innovative products and tool designs, including metrology and 3D printing
capabilities for rapid analysis and prototype production. In addition, we use contract manufacturers for certain of our products both in the United States and
Asia.
RAW MATERIALS
Our products are made from a wide variety of raw materials that are generally available from multiple sources of supply. While we seek to have several
sources of supply for raw materials, certain materials included in our products, such as certain filtration membranes in our MC segment, petroleum coke
and specialty and commodity chemicals in our SCEM segment and certain polymer resins in our AMH segment, are obtained from a single source or a
limited group of suppliers or from suppliers in a single country. We have entered into multi-year supply agreements with a number of suppliers for the
purchase of raw materials in the interest of supply assurance and to control costs.
GOVERNMENTAL REGULATION
Our operations are subject to federal, state and local regulatory requirements relating to environmental, waste management and health and safety matters,
including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous
substances and wastes, as well as practices and procedures applicable to the construction and operation of our plants. Although some risk of costs and
liabilities related to these matters is inherent in our business, as with many similar businesses, we believe that our business is operated in substantial
compliance with applicable regulations. However, new, modified or more stringent requirements or enforcement policies could be adopted, which could
adversely affect us. While we expect that capital expenditures will be necessary to ensure that any new manufacturing facility is in compliance with
environmental and health and safety laws, we do not expect these expenditures to be material.
HUMAN CAPITAL RESOURCES
We believe that our employees are a critical asset in achieving our mission of helping our customers improve their productivity, performance and
technology by providing solutions for the most advanced manufacturing environments. In order to attract and retain top talent, we are focused on creating a
diverse, inclusive and safe workplace and are committed to providing quality development and training opportunities for our employees.
As of December 31, 2020, we had approximately 5,800 employees, of whom approximately 52%, 17%, 9%, 8%, 6%, 5% and 3% are located in North
America, Taiwan, South Korea, Japan, China, Europe and Southeast Asia, respectively. Given the variability of business cycles in the semiconductor
industry and the quick response time required by our customers, it is critical that we be able to quickly adjust the size of our production staff to maximize
efficiency. Therefore, we use skilled temporary labor as required. None of our employees is represented by a labor union or covered by a collective
bargaining agreement other than statutorily mandated programs in certain international jurisdictions.
Diversity and Inclusion. We believe that maintaining a culture of diversity and inclusion helps enable us to innovate more effectively. To that end, we seek
to promote diverse perspectives throughout our organization and are an equal opportunity employer committed to making employment decisions without
regard to race, religion, national or ethnic origin, sex, sexual orientation, gender identity or expression, age, disability, protected veteran status or other
characteristics protected by law.
Our commitment to diversity and inclusion is evidenced by the creation and support of our Employee Networks, which are networks of our employees who
share a common interest and are designed to advance diversity and inclusion and to promote our workplaces as environments where all individuals are
valued for their talents and empowered to reach their fullest potential. As of December 31, 2020, our Employee Networks included groups focused on
gender identity, sexual orientation, age and veteran status.
Health, Safety and Wellness. Our success depends on the well-being of our employees. We maintain a culture focused on safety and strive to identify,
eliminate and control risk in the workplace in an effort to prevent injury and illness. Our employees
have access to a global safety management system and are encouraged to report incidents, near misses or other observations in the system. The system has
been widely adopted in our manufacturing locations across the globe, and management uses the information generated by it to set safety-related policies
and to set goals for future performance. Further, we provide our employees with a comprehensive benefits package that includes health insurance and other
resources that support their physical and mental well-being.
In response to the COVID-19 pandemic, commencing in the first quarter of 2020, we have taken, and we continue to take, proactive, aggressive actions to
protect the health and safety of our employees, customers, partners and suppliers. We enacted rigorous safety measures, including social distancing
protocols, encouraging employees who do not need to be physically present on the manufacturing floor or in a lab to perform their work to work from
home, suspending non-essential travel, implementing temperature checks and other access controls at the entrances to our facilities, extensively and
frequently disinfecting our workspaces and providing masks to employees who are physically present at our facilities. We expect to continue to implement
these measures until the COVID-19 pandemic is adequately contained, and we may take further actions as government authorities require or recommend or
as we determine to be in the best interests of our employees, customers, partners and suppliers.
Talent Development and Training. We are committed to the continued development and training of our employees. We conduct formal evaluations with
each of our employees on an annual basis, and managers provide feedback directly to employees through informal review sessions periodically throughout
the year. Our formal evaluation process requires employees to track whether they met certain development goals that are set at the beginning of the review
period. We seek to provide opportunities for our employees to grow their careers and regularly fill open vacancies with internal candidates. In addition,
management periodically assesses succession planning for certain key positions and reviews our workforce to identify high potential employees for future
growth and development.
We also provide formal and informal training opportunities for our employees covering a variety of professional, technical and leadership topics. Our
training opportunities are designed to promote learning across all levels of our organization, and in 2020 our formal training offerings included courses in
leadership, project management and technical communications.
OUR HISTORY
The Company was incorporated in Delaware on March 17, 2005 in connection with a merger between Entegris, Inc., a Minnesota corporation, and
Mykrolis Corporation, a Delaware corporation. On April 30, 2014, the Company acquired ATMI, based in Danbury, CT. Entegris has been helping its
customers solve their critical materials challenges and enhance their manufacturing yields for over 50 years, tracing its corporate origins back to
Fluoroware, Inc., which began operating in 1966.
AVAILABLE INFORMATION
Our Internet address is www.entegris.com. On this web site, under the “About Us—Investor Relations—Financial Information” section, we post the
following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission
(SEC): our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; our proxy statements; any amendments to those reports or statements, and
Form SD. All such filings are available on our web site free of charge. The SEC also maintains a web site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. The content on our website and any other website as
referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.
12
13
engineered polymer conversion and processing;
advanced membrane modification and cleaning;
chemical distillation, synthesis and purification;
gas delivery systems;
high-purity gas handling and transfilling;
high-purity materials packaging;
membrane casting;
cartridge manufacturing and assembly;
specialty coating capabilities;
solids and powders compounding and handling;
graphite synthesis;
blow molding;
rotational molding;
machining; and
assembly.
We have made significant investments in systems and equipment to create innovative products and tool designs, including metrology and 3D printing
capabilities for rapid analysis and prototype production. In addition, we use contract manufacturers for certain of our products both in the United States and
Asia.
RAW MATERIALS
Our products are made from a wide variety of raw materials that are generally available from multiple sources of supply. While we seek to have several
sources of supply for raw materials, certain materials included in our products, such as certain filtration membranes in our MC segment, petroleum coke
and specialty and commodity chemicals in our SCEM segment and certain polymer resins in our AMH segment, are obtained from a single source or a
limited group of suppliers or from suppliers in a single country. We have entered into multi-year supply agreements with a number of suppliers for the
purchase of raw materials in the interest of supply assurance and to control costs.
GOVERNMENTAL REGULATION
Our operations are subject to federal, state and local regulatory requirements relating to environmental, waste management and health and safety matters,
including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous
substances and wastes, as well as practices and procedures applicable to the construction and operation of our plants. Although some risk of costs and
liabilities related to these matters is inherent in our business, as with many similar businesses, we believe that our business is operated in substantial
compliance with applicable regulations. However, new, modified or more stringent requirements or enforcement policies could be adopted, which could
adversely affect us. While we expect that capital expenditures will be necessary to ensure that any new manufacturing facility is in compliance with
environmental and health and safety laws, we do not expect these expenditures to be material.
HUMAN CAPITAL RESOURCES
We believe that our employees are a critical asset in achieving our mission of helping our customers improve their productivity, performance and
technology by providing solutions for the most advanced manufacturing environments. In order to attract and retain top talent, we are focused on creating a
diverse, inclusive and safe workplace and are committed to providing quality development and training opportunities for our employees.
As of December 31, 2020, we had approximately 5,800 employees, of whom approximately 52%, 17%, 9%, 8%, 6%, 5% and 3% are located in North
America, Taiwan, South Korea, Japan, China, Europe and Southeast Asia, respectively. Given the variability of business cycles in the semiconductor
industry and the quick response time required by our customers, it is critical that we be able to quickly adjust the size of our production staff to maximize
efficiency. Therefore, we use skilled temporary labor as required. None of our employees is represented by a labor union or covered by a collective
bargaining agreement other than statutorily mandated programs in certain international jurisdictions.
Diversity and Inclusion. We believe that maintaining a culture of diversity and inclusion helps enable us to innovate more effectively. To that end, we seek
to promote diverse perspectives throughout our organization and are an equal opportunity employer committed to making employment decisions without
regard to race, religion, national or ethnic origin, sex, sexual orientation, gender identity or expression, age, disability, protected veteran status or other
characteristics protected by law.
Our commitment to diversity and inclusion is evidenced by the creation and support of our Employee Networks, which are networks of our employees who
share a common interest and are designed to advance diversity and inclusion and to promote our workplaces as environments where all individuals are
valued for their talents and empowered to reach their fullest potential. As of December 31, 2020, our Employee Networks included groups focused on
gender identity, sexual orientation, age and veteran status.
Health, Safety and Wellness. Our success depends on the well-being of our employees. We maintain a culture focused on safety and strive to identify,
eliminate and control risk in the workplace in an effort to prevent injury and illness. Our employees
have access to a global safety management system and are encouraged to report incidents, near misses or other observations in the system. The system has
been widely adopted in our manufacturing locations across the globe, and management uses the information generated by it to set safety-related policies
and to set goals for future performance. Further, we provide our employees with a comprehensive benefits package that includes health insurance and other
resources that support their physical and mental well-being.
In response to the COVID-19 pandemic, commencing in the first quarter of 2020, we have taken, and we continue to take, proactive, aggressive actions to
protect the health and safety of our employees, customers, partners and suppliers. We enacted rigorous safety measures, including social distancing
protocols, encouraging employees who do not need to be physically present on the manufacturing floor or in a lab to perform their work to work from
home, suspending non-essential travel, implementing temperature checks and other access controls at the entrances to our facilities, extensively and
frequently disinfecting our workspaces and providing masks to employees who are physically present at our facilities. We expect to continue to implement
these measures until the COVID-19 pandemic is adequately contained, and we may take further actions as government authorities require or recommend or
as we determine to be in the best interests of our employees, customers, partners and suppliers.
Talent Development and Training. We are committed to the continued development and training of our employees. We conduct formal evaluations with
each of our employees on an annual basis, and managers provide feedback directly to employees through informal review sessions periodically throughout
the year. Our formal evaluation process requires employees to track whether they met certain development goals that are set at the beginning of the review
period. We seek to provide opportunities for our employees to grow their careers and regularly fill open vacancies with internal candidates. In addition,
management periodically assesses succession planning for certain key positions and reviews our workforce to identify high potential employees for future
growth and development.
We also provide formal and informal training opportunities for our employees covering a variety of professional, technical and leadership topics. Our
training opportunities are designed to promote learning across all levels of our organization, and in 2020 our formal training offerings included courses in
leadership, project management and technical communications.
OUR HISTORY
The Company was incorporated in Delaware on March 17, 2005 in connection with a merger between Entegris, Inc., a Minnesota corporation, and
Mykrolis Corporation, a Delaware corporation. On April 30, 2014, the Company acquired ATMI, based in Danbury, CT. Entegris has been helping its
customers solve their critical materials challenges and enhance their manufacturing yields for over 50 years, tracing its corporate origins back to
Fluoroware, Inc., which began operating in 1966.
AVAILABLE INFORMATION
Our Internet address is www.entegris.com. On this web site, under the “About Us—Investor Relations—Financial Information” section, we post the
following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission
(SEC): our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; our proxy statements; any amendments to those reports or statements, and
Form SD. All such filings are available on our web site free of charge. The SEC also maintains a web site (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. The content on our website and any other website as
referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.
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13
Item 1A. Risk Factors.
In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating us and our
common stock. Any of the following risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of
operations or cash flows or cause our actual results to differ materially from those projected in any forward-looking statements. We may also face other
risks and uncertainties that are not presently known, are not currently believed to be material or are not identified below because they are common to all
businesses. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results
or trends in future periods. For more information, see “Cautionary Statement” in Item 7 of this Annual Report on Form 10-K.
Risks Related to Our Business and Industry
The COVID-19 pandemic and ensuing governmental responses could materially adversely affect our financial condition and results of operations.
not limited to, the duration and spread of outbreaks, their severity, potential additional waves of infection, the emergence of more virulent or more
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving
measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, limits on gatherings, quarantines,
shelter-in-place orders and business shutdowns. We have important manufacturing operations in the United States, Japan, Korea, China, Malaysia and
Taiwan, all of which have been affected by the outbreak and have taken measures to try to contain it. Measures providing for business shutdowns have
generally excluded certain essential services, and those essential services have commonly included critical infrastructure and the businesses that support
that critical infrastructure. While all of our facilities currently remain operational, these measures have impacted and may further impact our workforce and
operations, as well as those of our customers, suppliers and other third parties with which we do business. For example, in March 2020 the government of
Malaysia issued an order that significantly reduced the number of employees who could be physically present to operate our Malaysian plant, which
temporarily reduced the productivity of that plant. The government of Malaysia issued a similar order restricting movement throughout that country in
January 2021, which has not impacted our operations as of the date of this filing but may do so in the future. In addition to reduced productivity, the
constraints and limits imposed on our operations may slow or diminish our research and development and customer qualification activities. During 2020,
we experienced brief interruptions in operations at our sites in Hangzhou, China, San Luis Obispo, California and Bedford, Massachusetts and so far during
2021, we have experienced minor interruptions in our operations at our site in San Luis Obispo, California and a brief construction delay to an expansion of
our facility in Toronto, Canada. Although many governmental measures have had specific expiration dates, some of those measures have already been
extended more than once, and some governmental re-opening plans have been delayed or reversed due to spikes in the number of infections in the local
area.
In addition, such measures have not effectively reduced the high rate of spread of the virus in certain locations and there may be additional waves of
infection in the future, which could be more contagious than prior waves. For example, in December 2020 a new variant of the coronavirus was discovered
in the United Kingdom that scientists believe is significantly more transmissible than variants previously encountered. As a result, there is considerable
uncertainty regarding the duration, extent and effectiveness of current and future measures to contain the spread of the virus. Restrictions on our
manufacturing, support operations or workforce, or similar limitations for our suppliers, could cause us to increase our safety stock of certain materials,
limit our ability to meet customer demand and could have a material adverse effect on our financial condition and results of operations. Furthermore,
restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, have in
certain instances resulted in higher costs and delays both in obtaining materials and shipping finished goods to customers. Although to date these
restrictions have not had a material adverse impact on our operations, they have placed considerable strain on us, our suppliers and other third parties with
which we do business. There can be no assurance that these restrictions will not materially adversely affect our operations or those of our suppliers or the
other third parties with which we do business in the future. If these restrictions and disruptions continue, they could slow production, impact our R&D
efforts, harm our profitability, make our products less competitive or cause our customers to seek alternative suppliers.
In response to these developments, we have modified our business practices, including restricting employee travel, modifying employee work locations,
implementing social distancing and enhanced sanitary measures in our facilities and cancelling attendance at events and conferences. Many of our suppliers
and service providers have made similar modifications. The resources available to employees working remotely may not enable them to maintain the same
level of productivity and efficiency, and employees may face additional demands on their time, such as increased responsibilities resulting from school
closures or the illness of family members. While we have experienced only limited absenteeism from employees who are required to be on-site to perform
their jobs, absenteeism may increase in the future and may harm our productivity. In addition, we have incurred and may continue to incur incremental
employee compensation related to the COVID-19 pandemic. For example, since April 2020, we have awarded certain of our employees who are required to
physically report to a manufacturing
facility in order to perform their jobs during the COVID-19 crisis with a special appreciation bonus for their efforts in sustaining our production continuity.
Further, the increased reliance on remote access to information systems by us and our customers, suppliers and other third parties with which we do
business increases the risk of exposure of our information and systems to potential cybersecurity breaches. We may take further actions with respect to
COVID-19 as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and
suppliers. There is no certainty that any such measures will be sufficient to mitigate the risks posed by the virus, in which case our employees may become
sick, our ability to perform critical functions could be harmed and we may be unable to respond to the needs of our global business. The resumption of
normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our suppliers, third-party service
providers and/or customers.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but
dangerous strains of the virus, the actions to mitigate the virus and its impact, the development, distribution, efficacy and acceptance of vaccines and how
quickly and to what extent normal economic and operating conditions can resume. The prolonged implementation, or re-implementation, of measures by
governments to try to contain the virus may lead to fatigue in complying with COVID-19 restrictions among the public, which in turn may further
exacerbate its spread. Furthermore, the COVID-19 pandemic makes it more difficult for us to forecast demand and provide guidance for upcoming periods.
Accordingly, any guidance we provide is likely to be less reliable than usual, and actual results are more likely to differ from any such guidance. In light of
the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.
Declines in the semiconductor industry or worldwide economic conditions may cause demand for our products to decrease and may adversely affect
our business.
Declines in industry or worldwide economic conditions may adversely affect our business. Our revenue is primarily dependent upon demand from
semiconductor manufacturers, which is largely driven by the current and anticipated demand for electronic products that utilize semiconductors. Despite
recent increases in demand for semiconductors in applications such as smartphones, 5G wireless technology, cloud computing, the Internet of Things,
machine learning and artificial intelligence, autonomous vehicles and virtual reality, the semiconductor industry has historically been, and is likely to
continue to be, cyclical with periodic significant downturns, resulting in significantly decreased demand for products such as ours. While demand for
semiconductors has remained robust, the COVID-19 pandemic has significantly increased economic and demand uncertainty and contributed to substantial
volatility in global markets, including those in which we participate. We anticipate that the pandemic will continue to contribute to the global economic
slowdown, and it is possible that it could cause a global recession, each of which may adversely affect our business. We have previously experienced
significant revenue deterioration and operating losses due to severe downturns in the semiconductor industry, which often occur suddenly. The
semiconductor industry is also affected by seasonal shifts in demand. We are unable to predict the timing, duration or severity of any future downturns in
the semiconductor industry. As a result, we could underperform the market or our peers.
During downturns and periods of soft demand, our revenue is reduced and we typically experience greater pricing pressure and shifts in product and
customer mix, which often adversely affect our gross margin and net income. Furthermore, to remain competitive, we must maintain a satisfactory level of
engineering, research and development activity, invest in our infrastructure and maintain the ability to respond to any increases in demand and, as a result, a
lower volume of sales can have a large and disproportionate impact on our profitability. Even moderate seasonality can cause our operating results to
fluctuate significantly from one period to the next. Uncertain and volatile economic, political, public health or business conditions in any of our key sales
regions can cause or exacerbate negative trends in business and consumer spending and have historically impacted customer demand for our products.
These conditions can cause material adverse changes in our results of operations and financial condition, including:
a decline in demand for our products, which, given our limited backlog, will have an immediate impact on our revenues;
an increase in reserves for accounts receivable due to our customers’ inability to pay us;
lower utilization of our manufacturing facilities, which could lead to lower margins;
an increase in write-offs for excess or obsolete inventory that we cannot sell;
potential impairment charges relating to goodwill, intangible assets, manufacturing equipment or other long-lived assets, to the extent that any
downturn indicates that the carrying amount of the asset may not be recoverable;
greater challenges in forecasting operating results, making business decisions and identifying and prioritizing business risks; and
•
•
•
•
•
•
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Item 1A. Risk Factors.
In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating us and our
common stock. Any of the following risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of
operations or cash flows or cause our actual results to differ materially from those projected in any forward-looking statements. We may also face other
risks and uncertainties that are not presently known, are not currently believed to be material or are not identified below because they are common to all
businesses. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results
or trends in future periods. For more information, see “Cautionary Statement” in Item 7 of this Annual Report on Form 10-K.
Risks Related to Our Business and Industry
The COVID-19 pandemic and ensuing governmental responses could materially adversely affect our financial condition and results of operations.
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving
measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, limits on gatherings, quarantines,
shelter-in-place orders and business shutdowns. We have important manufacturing operations in the United States, Japan, Korea, China, Malaysia and
Taiwan, all of which have been affected by the outbreak and have taken measures to try to contain it. Measures providing for business shutdowns have
generally excluded certain essential services, and those essential services have commonly included critical infrastructure and the businesses that support
that critical infrastructure. While all of our facilities currently remain operational, these measures have impacted and may further impact our workforce and
operations, as well as those of our customers, suppliers and other third parties with which we do business. For example, in March 2020 the government of
Malaysia issued an order that significantly reduced the number of employees who could be physically present to operate our Malaysian plant, which
temporarily reduced the productivity of that plant. The government of Malaysia issued a similar order restricting movement throughout that country in
January 2021, which has not impacted our operations as of the date of this filing but may do so in the future. In addition to reduced productivity, the
constraints and limits imposed on our operations may slow or diminish our research and development and customer qualification activities. During 2020,
we experienced brief interruptions in operations at our sites in Hangzhou, China, San Luis Obispo, California and Bedford, Massachusetts and so far during
2021, we have experienced minor interruptions in our operations at our site in San Luis Obispo, California and a brief construction delay to an expansion of
our facility in Toronto, Canada. Although many governmental measures have had specific expiration dates, some of those measures have already been
extended more than once, and some governmental re-opening plans have been delayed or reversed due to spikes in the number of infections in the local
area.
In addition, such measures have not effectively reduced the high rate of spread of the virus in certain locations and there may be additional waves of
infection in the future, which could be more contagious than prior waves. For example, in December 2020 a new variant of the coronavirus was discovered
in the United Kingdom that scientists believe is significantly more transmissible than variants previously encountered. As a result, there is considerable
uncertainty regarding the duration, extent and effectiveness of current and future measures to contain the spread of the virus. Restrictions on our
manufacturing, support operations or workforce, or similar limitations for our suppliers, could cause us to increase our safety stock of certain materials,
limit our ability to meet customer demand and could have a material adverse effect on our financial condition and results of operations. Furthermore,
restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, have in
certain instances resulted in higher costs and delays both in obtaining materials and shipping finished goods to customers. Although to date these
restrictions have not had a material adverse impact on our operations, they have placed considerable strain on us, our suppliers and other third parties with
which we do business. There can be no assurance that these restrictions will not materially adversely affect our operations or those of our suppliers or the
other third parties with which we do business in the future. If these restrictions and disruptions continue, they could slow production, impact our R&D
efforts, harm our profitability, make our products less competitive or cause our customers to seek alternative suppliers.
In response to these developments, we have modified our business practices, including restricting employee travel, modifying employee work locations,
implementing social distancing and enhanced sanitary measures in our facilities and cancelling attendance at events and conferences. Many of our suppliers
and service providers have made similar modifications. The resources available to employees working remotely may not enable them to maintain the same
level of productivity and efficiency, and employees may face additional demands on their time, such as increased responsibilities resulting from school
closures or the illness of family members. While we have experienced only limited absenteeism from employees who are required to be on-site to perform
their jobs, absenteeism may increase in the future and may harm our productivity. In addition, we have incurred and may continue to incur incremental
employee compensation related to the COVID-19 pandemic. For example, since April 2020, we have awarded certain of our employees who are required to
physically report to a manufacturing
facility in order to perform their jobs during the COVID-19 crisis with a special appreciation bonus for their efforts in sustaining our production continuity.
Further, the increased reliance on remote access to information systems by us and our customers, suppliers and other third parties with which we do
business increases the risk of exposure of our information and systems to potential cybersecurity breaches. We may take further actions with respect to
COVID-19 as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and
suppliers. There is no certainty that any such measures will be sufficient to mitigate the risks posed by the virus, in which case our employees may become
sick, our ability to perform critical functions could be harmed and we may be unable to respond to the needs of our global business. The resumption of
normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our suppliers, third-party service
providers and/or customers.
The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but
not limited to, the duration and spread of outbreaks, their severity, potential additional waves of infection, the emergence of more virulent or more
dangerous strains of the virus, the actions to mitigate the virus and its impact, the development, distribution, efficacy and acceptance of vaccines and how
quickly and to what extent normal economic and operating conditions can resume. The prolonged implementation, or re-implementation, of measures by
governments to try to contain the virus may lead to fatigue in complying with COVID-19 restrictions among the public, which in turn may further
exacerbate its spread. Furthermore, the COVID-19 pandemic makes it more difficult for us to forecast demand and provide guidance for upcoming periods.
Accordingly, any guidance we provide is likely to be less reliable than usual, and actual results are more likely to differ from any such guidance. In light of
the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.
Declines in the semiconductor industry or worldwide economic conditions may cause demand for our products to decrease and may adversely affect
our business.
Declines in industry or worldwide economic conditions may adversely affect our business. Our revenue is primarily dependent upon demand from
semiconductor manufacturers, which is largely driven by the current and anticipated demand for electronic products that utilize semiconductors. Despite
recent increases in demand for semiconductors in applications such as smartphones, 5G wireless technology, cloud computing, the Internet of Things,
machine learning and artificial intelligence, autonomous vehicles and virtual reality, the semiconductor industry has historically been, and is likely to
continue to be, cyclical with periodic significant downturns, resulting in significantly decreased demand for products such as ours. While demand for
semiconductors has remained robust, the COVID-19 pandemic has significantly increased economic and demand uncertainty and contributed to substantial
volatility in global markets, including those in which we participate. We anticipate that the pandemic will continue to contribute to the global economic
slowdown, and it is possible that it could cause a global recession, each of which may adversely affect our business. We have previously experienced
significant revenue deterioration and operating losses due to severe downturns in the semiconductor industry, which often occur suddenly. The
semiconductor industry is also affected by seasonal shifts in demand. We are unable to predict the timing, duration or severity of any future downturns in
the semiconductor industry. As a result, we could underperform the market or our peers.
During downturns and periods of soft demand, our revenue is reduced and we typically experience greater pricing pressure and shifts in product and
customer mix, which often adversely affect our gross margin and net income. Furthermore, to remain competitive, we must maintain a satisfactory level of
engineering, research and development activity, invest in our infrastructure and maintain the ability to respond to any increases in demand and, as a result, a
lower volume of sales can have a large and disproportionate impact on our profitability. Even moderate seasonality can cause our operating results to
fluctuate significantly from one period to the next. Uncertain and volatile economic, political, public health or business conditions in any of our key sales
regions can cause or exacerbate negative trends in business and consumer spending and have historically impacted customer demand for our products.
These conditions can cause material adverse changes in our results of operations and financial condition, including:
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a decline in demand for our products, which, given our limited backlog, will have an immediate impact on our revenues;
an increase in reserves for accounts receivable due to our customers’ inability to pay us;
lower utilization of our manufacturing facilities, which could lead to lower margins;
an increase in write-offs for excess or obsolete inventory that we cannot sell;
potential impairment charges relating to goodwill, intangible assets, manufacturing equipment or other long-lived assets, to the extent that any
downturn indicates that the carrying amount of the asset may not be recoverable;
greater challenges in forecasting operating results, making business decisions and identifying and prioritizing business risks; and
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additional cost reduction efforts, including additional restructuring activities, which may adversely affect our ability to capitalize on opportunities.
customer cancellations of or delays in shipments, installations or customer acceptances or, alternatively, acceleration of orders from customers to
We anticipate that the COVID-19 pandemic, including potential additional waves of infection, may cause us to experience at least some of these adverse
changes, but we cannot predict the timing or degree to which they will occur, if at all.
The industries we serve are constantly evolving, and any failure to manage our business effectively during periods of rapid change may adversely affect
our business performance and results of operations.
Intense competition in the semiconductor industry often leads to rapid changes in products and technology, and those changes can significantly alter
demand for our products. Changes in demand may arise from factors such as advances in fabrication processes, new and emerging technologies, end-user
demand, customers’ production capacity and customers’ capacity utilization. The amount and mix of spending on different products and solutions can
significantly impact our results of operations.
We regularly reassess our allocation of resources in response to the changing business environment. To meet rapidly changing demand, we must accurately
forecast demand for each of our products and effectively manage our resources and production capacity across our various businesses, and we may incur
unexpected or additional costs to align our operations with demand. If we do not adequately adapt to changes in our business environment, we may lack the
infrastructure and resources to scale up our business to meet customer expectations and compete successfully during a period of growth, or we may expand
our capacity too rapidly, resulting in excess fixed costs. Even with effective allocation of resources and management of costs, during periods of decreasing
demand, our gross margins and earnings will usually be adversely impacted. Especially during transitional periods, resource allocation decisions can have a
significant impact on our future performance, particularly if we have not accurately anticipated the correct mix of industry changes. Our success will
depend, to a significant extent, on our management’s ability to identify and respond to these challenges effectively.
Our ability to increase sales of our products, particularly our capital equipment products, depends in part upon our ability in a very short timeframe to ramp
up our manufacturing capacity and to mobilize our supply chain. If we are unable to expand our manufacturing capacity on a timely basis, manage the
expansion effectively and obtain larger quantities of raw materials, our customers could obtain such products from our competitors, which would reduce
our market share. Additionally, we typically operate our business on a just-in-time shipment basis with a modest level of inventory, ordering supplies and
planning production based on internal demand forecasts. The failure to accurately forecast demand for our products, in terms of both volume and product
type, has in the past led to, and may in the future lead to, delays in product shipments and disappointment of customer expectations, as well as an increased
risk of excess and obsolete inventory.
Our revenues and operating results are variable.
Our revenues and operating results may fluctuate significantly from quarter-to-quarter or year-to-year due to a number of factors, many of which are
outside our control. We manage our expenses based in part on our expectations of future revenues. Because some of our expenses are relatively fixed in the
short term, a change in the timing of revenue or the amount of profit we generate from a small number of transactions can unfavorably affect operating
results in a particular period. Factors that may cause our financial results to fluctuate unpredictably include:
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economic conditions in the semiconductor industry or in the other industries we serve;
the impact of the COVID-19 pandemic on the global economy, the semiconductor industry, the other industries we serve, our manufacturing
capabilities or our supply chain;
the size and timing of customer orders;
consolidation of our customers, which could impact their purchasing decisions and negatively affect our revenues;
we are unable to correspondingly increase the sales price of our products or find other cost savings, our profit margins will decline.
procurement shortages;
the failure of our suppliers or outsource providers to perform their obligations;
• manufacturing difficulties;
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•
additional expenses we would expect to incur in our efforts to respond promptly to any supply shortages, manufacturing difficulties or other
supplier problems;
decisions to increase or accelerate our purchasing of raw materials, components or other supplies in an effort to mitigate supply risk;
procure this critical part from a second, pre-qualified source, we may be unable to find alternative sources of supply for this or other products in the future
customer decisions to decelerate orders in order to draw down their inventory;
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term.
increase their inventory;
our customers’ rate of replacement of our consumable products;
changes in average selling prices, customer mix and product mix;
our competitors’ introduction of new products;
legal or technical challenges to our products or technologies;
our ability to develop, introduce and market new, enhanced and competitive products in a timely manner;
disruptions in transportation, communication, demand, information technology or supply, including strikes, acts of God, wars, terrorist activities
legal, tax, accounting or regulatory changes (including changes in import/export regulations and tariffs) or changes in the interpretation or
and natural or man-made disasters;
enforcement of existing requirements;
changes in our estimated tax rate; and
foreign currency exchange rate fluctuations.
The COVID-19 pandemic is likely to exacerbate the adverse impact of many of these factors on our revenues and results of operations, at least in the short
We depend on single and limited source suppliers, and an interruption in our ordinary sources of supply could affect our ability to manufacture our
products and have an adverse effect on our results of operations.
We rely on single or limited source suppliers for certain raw materials that are critical to the manufacturing of our products, such as plastic polymers,
filtration membranes, petroleum coke and other materials. If we were to lose any one of these sources, it could be difficult for us to find an alternative
supplier and we would need to qualify this new source through our customers’ rigorous qualification processes. Although we seek to reduce our
dependence on single and limited source suppliers, the partial or complete loss of any of these sources could interrupt our manufacturing operations and
result in a material adverse effect on our results of operations.
At times, we have experienced a limited supply of certain raw materials, which has resulted in delays, lost revenue, increased costs and risks associated
with qualifying products that are manufactured using such new raw materials with our customers. Events such as an industry-wide increase in demand for,
or the discontinuation of, raw materials used in our products could harm our ability to acquire sufficient quantities of such raw materials, and our
manufacturing operations may be interrupted. For example, in 2019 we experienced a disruption in the supply of certain ceramic material for use in our
coatings business in our SCEM division when the supplier was unable to produce these materials at the required specifications. In response, we worked
collaboratively with the supplier to determine the root cause and to solve the manufacturing issue, reestablishing the supply of these materials. Although we
were able to timely reestablish our supply of this raw material, we may be unable to do so in the future or with other raw materials, in which case raw
materials shortages may adversely affect our operations. Additionally, our suppliers may not have the capacity to meet increases in our demand for raw
materials, in turn, making it difficult for us to meet demand from our customers. Furthermore, prices for our raw materials can vary widely. While we have
long-term arrangements with certain key suppliers that fix our price for the purchase of certain raw materials, if the cost of our raw materials increases and
Although we have not yet experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic, there is no
assurance that they will not occur in the future. Certain of our suppliers have faced difficulties maintaining operations in light of government-ordered
restrictions, shelter-in-place mandates and outbreaks of infection within their workforces. As the pandemic continues, our suppliers may face challenges in
maintaining their level of supply as a result of these or other factors. If our suppliers or sub-suppliers are unable to maintain their operations or restrictions
become more severe, we may encounter difficulties obtaining raw materials, which may cause us to fail to meet customer demand or require us to pay
higher prices for these materials, either of which could harm our business and profitability. For example, as a result of the COVID-19 pandemic, one of our
critical valve suppliers was shut down and was unable to supply us with valves for our gas purification products. Although in this instance we were able to
and may therefore be adversely affected by supply interruptions resulting from the COVID-19 pandemic. To mitigate the risk of potential supply
interruptions from the COVID-19 pandemic, during 2020 and into 2021, we chose to increase certain inventory levels, causing us to hold more inventory
than we might have otherwise maintained. Additionally, an economic slowdown caused by the COVID-19 pandemic or otherwise could harm the financial
health of our suppliers and sub-suppliers. Although we regularly monitor the
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•
additional cost reduction efforts, including additional restructuring activities, which may adversely affect our ability to capitalize on opportunities.
We anticipate that the COVID-19 pandemic, including potential additional waves of infection, may cause us to experience at least some of these adverse
changes, but we cannot predict the timing or degree to which they will occur, if at all.
The industries we serve are constantly evolving, and any failure to manage our business effectively during periods of rapid change may adversely affect
our business performance and results of operations.
Intense competition in the semiconductor industry often leads to rapid changes in products and technology, and those changes can significantly alter
demand for our products. Changes in demand may arise from factors such as advances in fabrication processes, new and emerging technologies, end-user
demand, customers’ production capacity and customers’ capacity utilization. The amount and mix of spending on different products and solutions can
significantly impact our results of operations.
We regularly reassess our allocation of resources in response to the changing business environment. To meet rapidly changing demand, we must accurately
forecast demand for each of our products and effectively manage our resources and production capacity across our various businesses, and we may incur
unexpected or additional costs to align our operations with demand. If we do not adequately adapt to changes in our business environment, we may lack the
infrastructure and resources to scale up our business to meet customer expectations and compete successfully during a period of growth, or we may expand
our capacity too rapidly, resulting in excess fixed costs. Even with effective allocation of resources and management of costs, during periods of decreasing
demand, our gross margins and earnings will usually be adversely impacted. Especially during transitional periods, resource allocation decisions can have a
significant impact on our future performance, particularly if we have not accurately anticipated the correct mix of industry changes. Our success will
depend, to a significant extent, on our management’s ability to identify and respond to these challenges effectively.
Our ability to increase sales of our products, particularly our capital equipment products, depends in part upon our ability in a very short timeframe to ramp
up our manufacturing capacity and to mobilize our supply chain. If we are unable to expand our manufacturing capacity on a timely basis, manage the
expansion effectively and obtain larger quantities of raw materials, our customers could obtain such products from our competitors, which would reduce
our market share. Additionally, we typically operate our business on a just-in-time shipment basis with a modest level of inventory, ordering supplies and
planning production based on internal demand forecasts. The failure to accurately forecast demand for our products, in terms of both volume and product
type, has in the past led to, and may in the future lead to, delays in product shipments and disappointment of customer expectations, as well as an increased
risk of excess and obsolete inventory.
Our revenues and operating results are variable.
Our revenues and operating results may fluctuate significantly from quarter-to-quarter or year-to-year due to a number of factors, many of which are
outside our control. We manage our expenses based in part on our expectations of future revenues. Because some of our expenses are relatively fixed in the
short term, a change in the timing of revenue or the amount of profit we generate from a small number of transactions can unfavorably affect operating
results in a particular period. Factors that may cause our financial results to fluctuate unpredictably include:
economic conditions in the semiconductor industry or in the other industries we serve;
the impact of the COVID-19 pandemic on the global economy, the semiconductor industry, the other industries we serve, our manufacturing
capabilities or our supply chain;
the size and timing of customer orders;
procurement shortages;
• manufacturing difficulties;
supplier problems;
•
•
•
•
•
•
•
•
•
consolidation of our customers, which could impact their purchasing decisions and negatively affect our revenues;
the failure of our suppliers or outsource providers to perform their obligations;
additional expenses we would expect to incur in our efforts to respond promptly to any supply shortages, manufacturing difficulties or other
decisions to increase or accelerate our purchasing of raw materials, components or other supplies in an effort to mitigate supply risk;
customer decisions to decelerate orders in order to draw down their inventory;
•
•
•
•
•
•
•
•
•
•
customer cancellations of or delays in shipments, installations or customer acceptances or, alternatively, acceleration of orders from customers to
increase their inventory;
our customers’ rate of replacement of our consumable products;
changes in average selling prices, customer mix and product mix;
our ability to develop, introduce and market new, enhanced and competitive products in a timely manner;
our competitors’ introduction of new products;
legal or technical challenges to our products or technologies;
disruptions in transportation, communication, demand, information technology or supply, including strikes, acts of God, wars, terrorist activities
and natural or man-made disasters;
legal, tax, accounting or regulatory changes (including changes in import/export regulations and tariffs) or changes in the interpretation or
enforcement of existing requirements;
changes in our estimated tax rate; and
foreign currency exchange rate fluctuations.
The COVID-19 pandemic is likely to exacerbate the adverse impact of many of these factors on our revenues and results of operations, at least in the short
term.
We depend on single and limited source suppliers, and an interruption in our ordinary sources of supply could affect our ability to manufacture our
products and have an adverse effect on our results of operations.
We rely on single or limited source suppliers for certain raw materials that are critical to the manufacturing of our products, such as plastic polymers,
filtration membranes, petroleum coke and other materials. If we were to lose any one of these sources, it could be difficult for us to find an alternative
supplier and we would need to qualify this new source through our customers’ rigorous qualification processes. Although we seek to reduce our
dependence on single and limited source suppliers, the partial or complete loss of any of these sources could interrupt our manufacturing operations and
result in a material adverse effect on our results of operations.
At times, we have experienced a limited supply of certain raw materials, which has resulted in delays, lost revenue, increased costs and risks associated
with qualifying products that are manufactured using such new raw materials with our customers. Events such as an industry-wide increase in demand for,
or the discontinuation of, raw materials used in our products could harm our ability to acquire sufficient quantities of such raw materials, and our
manufacturing operations may be interrupted. For example, in 2019 we experienced a disruption in the supply of certain ceramic material for use in our
coatings business in our SCEM division when the supplier was unable to produce these materials at the required specifications. In response, we worked
collaboratively with the supplier to determine the root cause and to solve the manufacturing issue, reestablishing the supply of these materials. Although we
were able to timely reestablish our supply of this raw material, we may be unable to do so in the future or with other raw materials, in which case raw
materials shortages may adversely affect our operations. Additionally, our suppliers may not have the capacity to meet increases in our demand for raw
materials, in turn, making it difficult for us to meet demand from our customers. Furthermore, prices for our raw materials can vary widely. While we have
long-term arrangements with certain key suppliers that fix our price for the purchase of certain raw materials, if the cost of our raw materials increases and
we are unable to correspondingly increase the sales price of our products or find other cost savings, our profit margins will decline.
Although we have not yet experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic, there is no
assurance that they will not occur in the future. Certain of our suppliers have faced difficulties maintaining operations in light of government-ordered
restrictions, shelter-in-place mandates and outbreaks of infection within their workforces. As the pandemic continues, our suppliers may face challenges in
maintaining their level of supply as a result of these or other factors. If our suppliers or sub-suppliers are unable to maintain their operations or restrictions
become more severe, we may encounter difficulties obtaining raw materials, which may cause us to fail to meet customer demand or require us to pay
higher prices for these materials, either of which could harm our business and profitability. For example, as a result of the COVID-19 pandemic, one of our
critical valve suppliers was shut down and was unable to supply us with valves for our gas purification products. Although in this instance we were able to
procure this critical part from a second, pre-qualified source, we may be unable to find alternative sources of supply for this or other products in the future
and may therefore be adversely affected by supply interruptions resulting from the COVID-19 pandemic. To mitigate the risk of potential supply
interruptions from the COVID-19 pandemic, during 2020 and into 2021, we chose to increase certain inventory levels, causing us to hold more inventory
than we might have otherwise maintained. Additionally, an economic slowdown caused by the COVID-19 pandemic or otherwise could harm the financial
health of our suppliers and sub-suppliers. Although we regularly monitor the
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financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers could cause a disruption in our ability to obtain raw
materials or components or adversely affect our operations. Further, we may have to increase our safety stocks of raw materials or components or alter our
payment terms with certain suppliers, including prepaying for raw materials, any of which could put downward pressure on our cash flow.
We are exposed to the risks of operating a global business as a significant amount of our sales and manufacturing activity occur outside the United
States.
Sales to customers outside the United States accounted for approximately 75%, 76% and 78% of our net sales in 2020, 2019 and 2018, respectively. We
anticipate that international sales will continue to account for a majority of our net sales. In addition, a number of our key domestic customers derive a
significant portion of their revenues from sales in international markets. We also manufacture a significant portion of our products outside the United States
and are dependent on international suppliers for many of our parts and raw materials. We intend to continue to pursue opportunities in both sales and
manufacturing internationally. Our international operations are subject to a number of risks and potential costs that could adversely affect our revenue and
profitability, including:
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border closures, travel bans, entry limitations or inspections and other restrictions on the international movement of goods, including actions to
limit the export of goods in order to secure a domestic supply in light of actual or anticipated global shortages, as well as the potential exercise of
governmental power to requisition or prioritize the production of specified goods or to commandeer facilities in the public interest, such as in the
effort to combat the COVID-19 pandemic, any of which could adversely affect our ability to obtain supplies and deliver our products to
customers;
the implementation of laws, rules, regulations, policies and other government actions, such as “trade wars,” tariffs, sanctions or other changes in
international trade requirements that affect our business and that of our customers and suppliers, any of which could impose additional costs on
our operations and limit our ability to operate our business;
challenges in hiring and integrating workers in different countries;
challenges in managing a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker
expectations, along with differing employment practices and labor issues;
challenges of maintaining appropriate business processes, procedures and internal controls and complying with legal, environmental, health and
safety, anti-bribery, anti-corruption and other regulatory requirements that vary by jurisdiction, including new and evolving requirements for social
distancing and other measures to minimize the spread of COVID-19;
challenges in developing relationships with local customers, suppliers and governments;
fluctuating pricing and availability of raw materials and supply chain interruptions or slowdowns, including as a result of difficulties, financial or
otherwise, faced by segments of the transportation industry;
public health crises, such as the COVID-19 pandemic;
expense and complexity of complying with U.S. and foreign import and export regulations, including the ability to obtain required import and
export licenses;
fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against foreign currencies
that are important to our business, including the Japanese yen, euro, Taiwanese dollar, Korean won, Chinese renminbi, Singapore dollar,
Malaysian ringgit, Canadian dollar or Israeli shekel, which could cause our sales and profitability to decline;
liability for foreign taxes assessed at rates higher than those applicable to our domestic operations;
customers quickly, if at all.
challenges and costs associated with the protection of our intellectual property throughout the world;
customer or government efforts to encourage operations and sourcing in a particular country, such as Korea or China, including efforts to develop
and grow local competitors, require local manufacturing, and provide special incentives to government-backed local customers to buy from local
competitors; and
political and economic instability and uncertainty, which may result in severely diminished liquidity and credit availability, rating downgrades of
sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in
unemployment rates and uncertainty about economic stability.
In the past, these factors have disrupted our operations and increased our costs, and we expect that these factors will continue to do so in the future.
Tariffs, export controls and other trade laws and restrictions resulting from international trade disputes, strained international relations and changes to
foreign and national security policy, especially as they relate to China, could have an adverse impact on our operations.
Tariffs, additional taxes, trade barriers and other measures, particularly those arising out of relations between the United States and China, may increase
costs of raw materials and our manufacturing costs, decrease margins, reduce the competitiveness of our products or inhibit our ability to sell products or
purchase necessary equipment and supplies, any of which could have a material adverse effect on our business, results of operations or financial condition.
For example, both the United States and China have implemented several rounds of tariffs and retaliations with respect to certain products imported from
the other country, some of which have impacted certain raw materials we use. We have made operational changes in an effort to mitigate the impact of
these tariffs on our products, but our efforts may not be successful.
In addition, we are subject to export control and economic sanctions laws and regulations that restrict the delivery of some of our products and services to
certain end users, countries and nationals of certain countries. In certain circumstances, these restrictions may prohibit the transfer of certain of our
products, services and technologies, and in other circumstances they may require us to obtain a license from the U.S. government before delivering the
controlled item or service. We must also comply with export control and economic sanctions laws and regulations imposed by other countries. Although we
maintain an export and trade control compliance program, it may be ineffective or circumvented, exposing us to legal liabilities. Compliance with these
laws could significantly limit our sales in the future. Changes in, and responses to, U.S. trade controls could reduce the competitiveness of our products and
cause our sales to drop, which could have a material adverse effect on our business, financial condition and results of operations.
In addition to the tariffs mentioned above, over the last several years and accelerating during 2020, the U.S. government has significantly expanded export
controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to
China. For example, effective June 29, 2020, the U.S. Department of Commerce imposed new export controls on the transfer of many U.S. products and
technologies, including many commercial-grade electronics, to “military end users” in China, a term which may include many Chinese commercial
companies that sell products to or do business with the military. Likewise, beginning in May 2019, the U.S. Department of Commerce imposed significant
restrictions on the transfer of any products from the United States, as well as many products produced overseas that incorporate U.S. content or rely on U.S.
software or technology, to Huawei Technologies Co., Ltd. and several of its overseas affiliates, including HiSilicon, and took similar action against
Semiconductor Manufacturing International Corporation in December 2020. The U.S. government also continuously assesses which “emerging and
foundational technologies” warrant new or additional controls, which could subject additional U.S.-origin products and services to more stringent export
restrictions. It is possible that these modified regulations, and any future regulations, could reduce demand for our products. These restrictive measures may
reduce overall global demand for our customers’ products or for other products produced or manufactured in the United States or based on U.S. technology,
in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations. Such
risks may be especially exacerbated as they relate to China, a market that is important to our business, representing approximately 13% of our sales in each
of the last three years.
were to lose one or more of these customers.
A significant portion of our sales is concentrated on a limited number of key customers, and our net sales and profitability may materially decline if we
Sales to a limited number of large customers constitute a significant portion of our overall revenue, shipments, cash flows, collections and profitability. Our
top ten customers accounted for 46%, 43% and 44% of our net sales in 2020, 2019 and 2018, respectively. Our customers could stop using our products in
their manufacturing processes with limited advance notice to us, and we would have limited or no contractual recourse. The cancellation, reduction or
deferral of purchases of our products by any one of these customers could significantly reduce our revenues in any particular quarter. If we were to lose any
of our significant customers, if our products are not specified for our significant customers’ products or if we suffer a material reduction in their purchase
orders, our revenue could decline and our business, financial condition and results of operations could be materially and adversely affected. Due to the long
design and development cycle and lengthy customer product qualification periods required for most of our products, we may be unable to replace these
Furthermore, the semiconductor industry has been undergoing, and is expected to continue to undergo, consolidation. If any of our customers merge or are
acquired, we may experience lower overall sales from the merged or combined companies. In addition, our principal customers also hold considerable
purchasing power and may be able to negotiate sales terms that result in decreased pricing, increased costs, and/or lower margins for us, and limitations on
our ability to share jointly developed technology with others.
If we are unable to anticipate and respond to rapid technological change and customer requirements by continuing to innovate and introduce new and
enhanced products and solutions, our business could be seriously harmed.
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financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers could cause a disruption in our ability to obtain raw
materials or components or adversely affect our operations. Further, we may have to increase our safety stocks of raw materials or components or alter our
payment terms with certain suppliers, including prepaying for raw materials, any of which could put downward pressure on our cash flow.
We are exposed to the risks of operating a global business as a significant amount of our sales and manufacturing activity occur outside the United
States.
Sales to customers outside the United States accounted for approximately 75%, 76% and 78% of our net sales in 2020, 2019 and 2018, respectively. We
anticipate that international sales will continue to account for a majority of our net sales. In addition, a number of our key domestic customers derive a
significant portion of their revenues from sales in international markets. We also manufacture a significant portion of our products outside the United States
and are dependent on international suppliers for many of our parts and raw materials. We intend to continue to pursue opportunities in both sales and
manufacturing internationally. Our international operations are subject to a number of risks and potential costs that could adversely affect our revenue and
profitability, including:
customers;
•
border closures, travel bans, entry limitations or inspections and other restrictions on the international movement of goods, including actions to
limit the export of goods in order to secure a domestic supply in light of actual or anticipated global shortages, as well as the potential exercise of
governmental power to requisition or prioritize the production of specified goods or to commandeer facilities in the public interest, such as in the
effort to combat the COVID-19 pandemic, any of which could adversely affect our ability to obtain supplies and deliver our products to
the implementation of laws, rules, regulations, policies and other government actions, such as “trade wars,” tariffs, sanctions or other changes in
international trade requirements that affect our business and that of our customers and suppliers, any of which could impose additional costs on
our operations and limit our ability to operate our business;
challenges in hiring and integrating workers in different countries;
challenges in managing a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker
expectations, along with differing employment practices and labor issues;
challenges of maintaining appropriate business processes, procedures and internal controls and complying with legal, environmental, health and
safety, anti-bribery, anti-corruption and other regulatory requirements that vary by jurisdiction, including new and evolving requirements for social
distancing and other measures to minimize the spread of COVID-19;
challenges in developing relationships with local customers, suppliers and governments;
fluctuating pricing and availability of raw materials and supply chain interruptions or slowdowns, including as a result of difficulties, financial or
otherwise, faced by segments of the transportation industry;
public health crises, such as the COVID-19 pandemic;
expense and complexity of complying with U.S. and foreign import and export regulations, including the ability to obtain required import and
export licenses;
fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against foreign currencies
that are important to our business, including the Japanese yen, euro, Taiwanese dollar, Korean won, Chinese renminbi, Singapore dollar,
Malaysian ringgit, Canadian dollar or Israeli shekel, which could cause our sales and profitability to decline;
liability for foreign taxes assessed at rates higher than those applicable to our domestic operations;
challenges and costs associated with the protection of our intellectual property throughout the world;
customer or government efforts to encourage operations and sourcing in a particular country, such as Korea or China, including efforts to develop
and grow local competitors, require local manufacturing, and provide special incentives to government-backed local customers to buy from local
competitors; and
political and economic instability and uncertainty, which may result in severely diminished liquidity and credit availability, rating downgrades of
sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in
unemployment rates and uncertainty about economic stability.
In the past, these factors have disrupted our operations and increased our costs, and we expect that these factors will continue to do so in the future.
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Tariffs, export controls and other trade laws and restrictions resulting from international trade disputes, strained international relations and changes to
foreign and national security policy, especially as they relate to China, could have an adverse impact on our operations.
Tariffs, additional taxes, trade barriers and other measures, particularly those arising out of relations between the United States and China, may increase
costs of raw materials and our manufacturing costs, decrease margins, reduce the competitiveness of our products or inhibit our ability to sell products or
purchase necessary equipment and supplies, any of which could have a material adverse effect on our business, results of operations or financial condition.
For example, both the United States and China have implemented several rounds of tariffs and retaliations with respect to certain products imported from
the other country, some of which have impacted certain raw materials we use. We have made operational changes in an effort to mitigate the impact of
these tariffs on our products, but our efforts may not be successful.
In addition, we are subject to export control and economic sanctions laws and regulations that restrict the delivery of some of our products and services to
certain end users, countries and nationals of certain countries. In certain circumstances, these restrictions may prohibit the transfer of certain of our
products, services and technologies, and in other circumstances they may require us to obtain a license from the U.S. government before delivering the
controlled item or service. We must also comply with export control and economic sanctions laws and regulations imposed by other countries. Although we
maintain an export and trade control compliance program, it may be ineffective or circumvented, exposing us to legal liabilities. Compliance with these
laws could significantly limit our sales in the future. Changes in, and responses to, U.S. trade controls could reduce the competitiveness of our products and
cause our sales to drop, which could have a material adverse effect on our business, financial condition and results of operations.
In addition to the tariffs mentioned above, over the last several years and accelerating during 2020, the U.S. government has significantly expanded export
controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to
China. For example, effective June 29, 2020, the U.S. Department of Commerce imposed new export controls on the transfer of many U.S. products and
technologies, including many commercial-grade electronics, to “military end users” in China, a term which may include many Chinese commercial
companies that sell products to or do business with the military. Likewise, beginning in May 2019, the U.S. Department of Commerce imposed significant
restrictions on the transfer of any products from the United States, as well as many products produced overseas that incorporate U.S. content or rely on U.S.
software or technology, to Huawei Technologies Co., Ltd. and several of its overseas affiliates, including HiSilicon, and took similar action against
Semiconductor Manufacturing International Corporation in December 2020. The U.S. government also continuously assesses which “emerging and
foundational technologies” warrant new or additional controls, which could subject additional U.S.-origin products and services to more stringent export
restrictions. It is possible that these modified regulations, and any future regulations, could reduce demand for our products. These restrictive measures may
reduce overall global demand for our customers’ products or for other products produced or manufactured in the United States or based on U.S. technology,
in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations. Such
risks may be especially exacerbated as they relate to China, a market that is important to our business, representing approximately 13% of our sales in each
of the last three years.
A significant portion of our sales is concentrated on a limited number of key customers, and our net sales and profitability may materially decline if we
were to lose one or more of these customers.
Sales to a limited number of large customers constitute a significant portion of our overall revenue, shipments, cash flows, collections and profitability. Our
top ten customers accounted for 46%, 43% and 44% of our net sales in 2020, 2019 and 2018, respectively. Our customers could stop using our products in
their manufacturing processes with limited advance notice to us, and we would have limited or no contractual recourse. The cancellation, reduction or
deferral of purchases of our products by any one of these customers could significantly reduce our revenues in any particular quarter. If we were to lose any
of our significant customers, if our products are not specified for our significant customers’ products or if we suffer a material reduction in their purchase
orders, our revenue could decline and our business, financial condition and results of operations could be materially and adversely affected. Due to the long
design and development cycle and lengthy customer product qualification periods required for most of our products, we may be unable to replace these
customers quickly, if at all.
Furthermore, the semiconductor industry has been undergoing, and is expected to continue to undergo, consolidation. If any of our customers merge or are
acquired, we may experience lower overall sales from the merged or combined companies. In addition, our principal customers also hold considerable
purchasing power and may be able to negotiate sales terms that result in decreased pricing, increased costs, and/or lower margins for us, and limitations on
our ability to share jointly developed technology with others.
If we are unable to anticipate and respond to rapid technological change and customer requirements by continuing to innovate and introduce new and
enhanced products and solutions, our business could be seriously harmed.
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The semiconductor industry is subject to rapid technological change, changing customer requirements and frequent new product introductions. In our
industry, the first company to introduce an innovative product that addresses an identified market need will often have a significant advantage over
competing products. For this reason, we make significant expenditures to research, develop, engineer and market new products and make significant capital
investments in technology and manufacturing capacity in anticipation of future business and without any purchase commitment from our customers. We
incurred $136.1 million, $121.1 million and $118.5 million for engineering, research and development expense in 2020, 2019 and 2018, respectively, to
support new product and technology development. Following development, it may take several years for sales of a new product to reach a substantial level,
if ever. If a product concept does not progress beyond the development stage or only achieves limited acceptance in the marketplace, we may not receive a
direct return on our expenditures, we may lose market share and our revenue and our profitability may decline. For example, in the past, we incurred
significant impairment charges for capital expenditures related to developing the capability to manufacture shippers and FOUPs for 450 mm wafers, which
major semiconductor manufacturers announced that they would not initiate manufacturing in the foreseeable future.
We believe that our future success will depend upon our ability to continue to develop mission-critical solutions to maximize our customers’ manufacturing
yields and enable higher performance semiconductor devices. A failure to successfully anticipate and respond to technological changes by developing,
marketing and manufacturing new products or enhancements to our existing products could harm our business prospects and significantly reduce our sales.
For example, as 3D NAND technology advances to higher densities, the conventional process used to etch critical features no longer works. Recognizing
the need for a new chemistry, we developed a series of prototype formulations for highly selective nitride etch and developed a specialized liquid filter that
removes contaminants while simultaneously maintaining the critical components that make the chemistry function. While we believe we are well
positioned for selection as the process-of-record for these specific etch processes and we are preparing for rapid, high-volume ramp once the final selection
is made, we may not be selected by the customer and may not generate significant revenue from these solutions. We cannot assure you that the new
products and technology we choose to develop and market will be successful. In addition, if new products have reliability or quality problems, we may
experience reduced orders, higher manufacturing costs, delays in acceptance and payment, additional service and warranty expense and damage to our
reputation.
Competition from new or existing companies could harm our financial condition, results of operations and cash flow.
We operate in a highly competitive industry. We face many competitors, some of which have substantially greater manufacturing, financial, research and
development and marketing resources than we do. In addition, some of our competitors may have better-established customer relationships than we do,
which may enable them to have their products specified for use more frequently and more quickly by these customers. We also face competition from
smaller, regional companies, which focus on serving customers in their regions. Further, customers continually evaluate the benefits of internal
manufacturing versus outsourcing, and a customer’s decision to internally manufacture products that we provide may negatively impact us. If we are
unable to maintain our competitive position, we could experience downward pressure on prices, fewer customer orders, reduced margins, the inability to
take advantage of new business opportunities and a loss of market share, any of which could have a material adverse effect on our results of operations.
Further, we expect that existing and new competitors will improve their products and introduce new products with enhanced performance characteristics.
The introduction of new products or more efficient production of existing products by competitors could diminish our market share and increase pricing
pressure on our products.
We may acquire other businesses, form joint ventures or divest businesses, which could negatively affect our financial performance.
operations.
We intend to continue to engage in business combinations, acquisitions, joint ventures, investments or other types of collaborations to address gaps in our
product offerings, adjust our business and product portfolio to meet our ongoing strategic objectives, diversify into complementary markets, increase our
scale or accomplish other strategic objectives. These transactions involve numerous risks to our business, financial condition and operating results,
including but not limited to:
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experiencing difficulty in identifying suitable acquisition candidates and completing transactions at appropriate valuations, in a timely manner, on
a cost-effective basis or at all, due to substantial competition for acquisition targets;
inability to successfully integrate any acquired businesses into our business operations;
failure to realize the anticipated synergies or other benefits of any such transaction;
entering into markets in which we have limited or no prior experience;
finding acquirors and obtaining adequate value for businesses that no longer meet our objectives;
inability to complete proposed transactions due to the failure to obtain regulatory or other approvals;
requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things,
divestitures and restrictions on the conduct of our existing business or the acquired business;
undertaking multiple transactions at the same time in order to take advantage of acquisition opportunities that do arise, which could strain our
ability to effectively execute and integrate such transactions;
diversion of management’s attention from our day-to-day business due to dedication of significant management resources to such transactions;
employee uncertainty and lack of focus during the integration process that may also disrupt our business;
the risk of litigation or claims associated with a proposed or completed transaction;
challenges associated with managing new, more diverse and more widespread operations, projects and people, potentially located in regions where
we have not historically conducted or operated our business;
dependence on unfamiliar or less secure supply chains and inefficient scale of the acquired entity;
increasing costs of performing due diligence to meet the expectations of investors and government regulators;
despite our due diligence, we could assume unknown, underestimated or contingent liabilities, such as potential environmental, health and safety
liabilities, any of which could lead to costly litigation or mitigation actions;
an acquired technology or product may have inadequate or invalid intellectual property protection or may be subject to claims of infringement by a
third party, which may result in claims for damages and lower than anticipated revenue;
• we could experience negative effects on our reported results of operations from dilutive results from operations and/or from future potential
impairment of acquired assets, including goodwill, related to acquisitions;
an acquired company may have inadequate or ineffective internal control over financial reporting, disclosure controls and procedures,
cybersecurity, privacy, environmental, health and safety, anti-bribery, anti-corruption, human resource or other policies or practices, which may
require unexpected or additional integration, mitigation and remediation costs;
reductions in cash or increases in debt to finance transactions, which reduce the cash flow available for general corporate or other purposes,
including share repurchases and dividends; and
difficulties in retaining key employees or customers of an acquired business.
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For example, an inability to realize the full extent of, or any of, the anticipated benefits of the Sinmat and Global Measurement Technologies Inc., or
GMTI, acquisitions we completed in 2020, as well as any delays encountered in the integration processes, could have an adverse effect on our business and
results of operations, which may adversely affect the value of the shares of our common stock.
Manufacturing interruptions or delays, or other disruptions to our operations, could adversely affect our business, financial condition and results of
Our manufacturing processes are complex and require the use of expensive and technologically sophisticated equipment and materials. These processes are
frequently modified to improve manufacturing yields, process stability and product quality. We have, on occasion, experienced manufacturing difficulties,
such as critical equipment breakdowns or the introduction of impurities in the manufacturing process. Any future difficulties could cause lower yields,
make our products unmarketable and/or delay deliveries to customers. In addition, any modification to the manufacturing process of a product could
require that the product be re-qualified by customers, which can increase our costs and delay our ability to sell this product to our customers. These and
other manufacturing difficulties may result in the loss of sales and exposure to warranty and product liability claims.
Some of our products are manufactured at only one or two facilities in different countries, many of which are subject to severe weather and natural
catastrophes, such as typhoons in Taiwan, Malaysia and China, earthquakes in Japan and Taiwan, hurricanes in east Texas and Florida, wildfires in
California and Colorado and flooding in Arkansas. Our suppliers and customers face similar dangers. Although we have continuity plans designed to
mitigate the impact of natural disasters on our operations, those plans may be insufficient, and any catastrophe may disrupt our ability to manufacture and
deliver products to our customers, resulting in an adverse impact on our business and results of operations. A disruption at our manufacturing facilities
could impact sales of the products manufactured at those facilities until another facility could commence or expand production of those products, and
disruptions at our other facilities may similarly adversely affect our operations. In addition to natural disasters, disruptions may be caused by a other
factors, including civil unrest, outbreaks of disease, terrorist actions or other events outside our control. For example, in response to the COVID-19
pandemic, in 2020 the government of Malaysia issued an order that significantly reduced the number of employees who could be physically present to
operate our Malaysian facility, which temporarily reduced the productivity of that plant. We have moved, and we may again move, the manufacture of
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The semiconductor industry is subject to rapid technological change, changing customer requirements and frequent new product introductions. In our
industry, the first company to introduce an innovative product that addresses an identified market need will often have a significant advantage over
competing products. For this reason, we make significant expenditures to research, develop, engineer and market new products and make significant capital
investments in technology and manufacturing capacity in anticipation of future business and without any purchase commitment from our customers. We
incurred $136.1 million, $121.1 million and $118.5 million for engineering, research and development expense in 2020, 2019 and 2018, respectively, to
support new product and technology development. Following development, it may take several years for sales of a new product to reach a substantial level,
if ever. If a product concept does not progress beyond the development stage or only achieves limited acceptance in the marketplace, we may not receive a
direct return on our expenditures, we may lose market share and our revenue and our profitability may decline. For example, in the past, we incurred
significant impairment charges for capital expenditures related to developing the capability to manufacture shippers and FOUPs for 450 mm wafers, which
major semiconductor manufacturers announced that they would not initiate manufacturing in the foreseeable future.
We believe that our future success will depend upon our ability to continue to develop mission-critical solutions to maximize our customers’ manufacturing
yields and enable higher performance semiconductor devices. A failure to successfully anticipate and respond to technological changes by developing,
marketing and manufacturing new products or enhancements to our existing products could harm our business prospects and significantly reduce our sales.
For example, as 3D NAND technology advances to higher densities, the conventional process used to etch critical features no longer works. Recognizing
the need for a new chemistry, we developed a series of prototype formulations for highly selective nitride etch and developed a specialized liquid filter that
removes contaminants while simultaneously maintaining the critical components that make the chemistry function. While we believe we are well
positioned for selection as the process-of-record for these specific etch processes and we are preparing for rapid, high-volume ramp once the final selection
is made, we may not be selected by the customer and may not generate significant revenue from these solutions. We cannot assure you that the new
products and technology we choose to develop and market will be successful. In addition, if new products have reliability or quality problems, we may
experience reduced orders, higher manufacturing costs, delays in acceptance and payment, additional service and warranty expense and damage to our
reputation.
Competition from new or existing companies could harm our financial condition, results of operations and cash flow.
We operate in a highly competitive industry. We face many competitors, some of which have substantially greater manufacturing, financial, research and
development and marketing resources than we do. In addition, some of our competitors may have better-established customer relationships than we do,
which may enable them to have their products specified for use more frequently and more quickly by these customers. We also face competition from
smaller, regional companies, which focus on serving customers in their regions. Further, customers continually evaluate the benefits of internal
manufacturing versus outsourcing, and a customer’s decision to internally manufacture products that we provide may negatively impact us. If we are
unable to maintain our competitive position, we could experience downward pressure on prices, fewer customer orders, reduced margins, the inability to
take advantage of new business opportunities and a loss of market share, any of which could have a material adverse effect on our results of operations.
Further, we expect that existing and new competitors will improve their products and introduce new products with enhanced performance characteristics.
The introduction of new products or more efficient production of existing products by competitors could diminish our market share and increase pricing
pressure on our products.
We may acquire other businesses, form joint ventures or divest businesses, which could negatively affect our financial performance.
We intend to continue to engage in business combinations, acquisitions, joint ventures, investments or other types of collaborations to address gaps in our
product offerings, adjust our business and product portfolio to meet our ongoing strategic objectives, diversify into complementary markets, increase our
scale or accomplish other strategic objectives. These transactions involve numerous risks to our business, financial condition and operating results,
including but not limited to:
experiencing difficulty in identifying suitable acquisition candidates and completing transactions at appropriate valuations, in a timely manner, on
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a cost-effective basis or at all, due to substantial competition for acquisition targets;
inability to successfully integrate any acquired businesses into our business operations;
failure to realize the anticipated synergies or other benefits of any such transaction;
entering into markets in which we have limited or no prior experience;
finding acquirors and obtaining adequate value for businesses that no longer meet our objectives;
inability to complete proposed transactions due to the failure to obtain regulatory or other approvals;
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requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things,
divestitures and restrictions on the conduct of our existing business or the acquired business;
undertaking multiple transactions at the same time in order to take advantage of acquisition opportunities that do arise, which could strain our
ability to effectively execute and integrate such transactions;
diversion of management’s attention from our day-to-day business due to dedication of significant management resources to such transactions;
employee uncertainty and lack of focus during the integration process that may also disrupt our business;
the risk of litigation or claims associated with a proposed or completed transaction;
challenges associated with managing new, more diverse and more widespread operations, projects and people, potentially located in regions where
we have not historically conducted or operated our business;
dependence on unfamiliar or less secure supply chains and inefficient scale of the acquired entity;
increasing costs of performing due diligence to meet the expectations of investors and government regulators;
despite our due diligence, we could assume unknown, underestimated or contingent liabilities, such as potential environmental, health and safety
liabilities, any of which could lead to costly litigation or mitigation actions;
an acquired technology or product may have inadequate or invalid intellectual property protection or may be subject to claims of infringement by a
third party, which may result in claims for damages and lower than anticipated revenue;
• we could experience negative effects on our reported results of operations from dilutive results from operations and/or from future potential
impairment of acquired assets, including goodwill, related to acquisitions;
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an acquired company may have inadequate or ineffective internal control over financial reporting, disclosure controls and procedures,
cybersecurity, privacy, environmental, health and safety, anti-bribery, anti-corruption, human resource or other policies or practices, which may
require unexpected or additional integration, mitigation and remediation costs;
reductions in cash or increases in debt to finance transactions, which reduce the cash flow available for general corporate or other purposes,
including share repurchases and dividends; and
difficulties in retaining key employees or customers of an acquired business.
For example, an inability to realize the full extent of, or any of, the anticipated benefits of the Sinmat and Global Measurement Technologies Inc., or
GMTI, acquisitions we completed in 2020, as well as any delays encountered in the integration processes, could have an adverse effect on our business and
results of operations, which may adversely affect the value of the shares of our common stock.
Manufacturing interruptions or delays, or other disruptions to our operations, could adversely affect our business, financial condition and results of
operations.
Our manufacturing processes are complex and require the use of expensive and technologically sophisticated equipment and materials. These processes are
frequently modified to improve manufacturing yields, process stability and product quality. We have, on occasion, experienced manufacturing difficulties,
such as critical equipment breakdowns or the introduction of impurities in the manufacturing process. Any future difficulties could cause lower yields,
make our products unmarketable and/or delay deliveries to customers. In addition, any modification to the manufacturing process of a product could
require that the product be re-qualified by customers, which can increase our costs and delay our ability to sell this product to our customers. These and
other manufacturing difficulties may result in the loss of sales and exposure to warranty and product liability claims.
Some of our products are manufactured at only one or two facilities in different countries, many of which are subject to severe weather and natural
catastrophes, such as typhoons in Taiwan, Malaysia and China, earthquakes in Japan and Taiwan, hurricanes in east Texas and Florida, wildfires in
California and Colorado and flooding in Arkansas. Our suppliers and customers face similar dangers. Although we have continuity plans designed to
mitigate the impact of natural disasters on our operations, those plans may be insufficient, and any catastrophe may disrupt our ability to manufacture and
deliver products to our customers, resulting in an adverse impact on our business and results of operations. A disruption at our manufacturing facilities
could impact sales of the products manufactured at those facilities until another facility could commence or expand production of those products, and
disruptions at our other facilities may similarly adversely affect our operations. In addition to natural disasters, disruptions may be caused by a other
factors, including civil unrest, outbreaks of disease, terrorist actions or other events outside our control. For example, in response to the COVID-19
pandemic, in 2020 the government of Malaysia issued an order that significantly reduced the number of employees who could be physically present to
operate our Malaysian facility, which temporarily reduced the productivity of that plant. We have moved, and we may again move, the manufacture of
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certain products from one plant to another. If we fail to transfer and re-establish the manufacturing processes in the destination plant efficiently and
effectively, we may not be able to meet customer demand, we may lose credibility with our customers and our business may be harmed. Even if we
successfully move our manufacturing processes, we may not achieve the level of cost savings or efficiencies that we anticipated, if any.
Our operations use hazardous materials that expose us to various risks, including potential liability for personal injury and potential remediation
obligations.
our costs.
such proprietary rights, including making or selling products utilizing such proprietary rights. If we are required to obtain a license, we may be unable to do
so on commercially acceptable terms, or at all.
We may be subject to information technology system failures, network disruptions and breaches in data security, which could damage our reputation
and adversely affect our financial condition, results of operations and cash flows, and new laws and regulations regarding data privacy may increase
Our operations involve, and we are exposed to the risks associated with, the use and manufacture of hazardous materials. In particular, we manufacture
specialty chemicals, which is an inherently hazardous process that may result in accidents, and store and transport hazardous raw materials, products and
waste in, to and from various facilities. Potential risks that may disrupt our operations or expose us to significant losses and liabilities include explosions
and fires, chemical spills and other discharges, releases of toxic or hazardous substances or gases, and pipeline and storage tank leaks and ruptures. These
and other hazards may result in liability for personal injury, death, damage to property and contamination of the environment; suspension of operations; the
imposition of civil or criminal fines, penalties and other sanctions; cleanup costs; claims by governmental entities or third parties; reputational harm;
increases in our insurance costs; and other adverse impacts on our results of operations. Moreover, a failure of one of our products at a customer site could
interrupt the business operations of the customer. For example, while we believe that our SDS and VAC delivery systems are safe to transport, store and
deliver toxic gases, any leakage could cause serious damage, including injury or death, to any person exposed to those toxic gases, potentially creating
significant product liability exposure for us. Our insurance may be inadequate to satisfy any such liabilities, and our financial results or financial condition
could be adversely affected.
Loss of any of our key personnel could harm our business, and our inability to attract and retain new qualified personnel could inhibit our ability to
operate and grow our business successfully.
Many of our key personnel have significant experience in the semiconductor industry and deep technical expertise. The loss of the services of any of our
key employees or an inability to attract, train and retain qualified and skilled employees, particularly research and development and engineering personnel,
could inhibit our ability to operate and grow our business. As the semiconductor industry has grown in recent years, competition for qualified talent,
particularly those with significant industry experience, has intensified. As a result, the difficulty and costs associated with attracting and retaining key
employees has risen and may continue to rise.
We collect and store sensitive data, including our financial information, intellectual property, confidential information, proprietary business information and
personally identifiable information of our employees and others, as well as similar information of our customers, suppliers and business partners. We
maintain this information in our data centers, on our networks and on information technology, or IT, systems owned and maintained by third parties. The
secure processing, maintenance and transmission of this information is critical to our operations. All IT systems are subject to disruption, breach or failure.
Data breaches, including those sponsored by state actors, have become increasingly common in recent years. For example, during 2020 the United States
government was hacked via third-party software applications by hackers suspected of being sponsored by a foreign intelligence agency. While we and our
third-party providers have implemented network security procedures, virus protection software, intrusion prevention systems, access control, emergency
recovery processes and internal control measures, we and they have experienced, and expect to continue to be subject to, cybersecurity threats and incidents
ranging from employee error or misuse, to individual attempts to gain unauthorized access to systems, to sophisticated and targeted measures known as
advanced persistent threats. Despite the precautions undertaken by us and our third-party providers, IT system failures, network disruptions and breaches of
data security could cause disruption in our operations, issues with customer communication and order management, the unauthorized or unintentional
disclosure of sensitive information, disruptions in our transaction processing or undermine the integrity of our disclosure controls and procedures and our
internal control over financial reporting, which could affect our reputation, result in significant liabilities and expenses, adversely affect our ability to report
our financial results in a timely manner and could have a material adverse effect on our financial condition, results of operations and cash flows. These
risks may be further amplified by the increased reliance on remote access to IT systems by us and our customers, suppliers and other third parties with
which we do business as a result of employees working remotely in response to the COVID-19 pandemic.
Moreover, new laws and regulations, such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act, add to
the complexity of our compliance obligations, which increases our compliance costs. Although we have established internal controls and procedures
intended to achieve compliance with such laws and regulations, a failure to fully comply could result in significant penalties.
If we fail to obtain, protect and enforce intellectual property rights, our business and prospects could be harmed.
Risks Related to Government Regulation
Our future success and competitive position depend in part upon our ability to obtain, maintain and enforce intellectual property rights. We rely on patent,
trade secret and trademark laws to protect many of our major product platforms. Although we often file applications for additional patents, our pending
applications may not be approved. Moreover, any patents that we own or obtain may not provide us with any competitive advantage, and these patents may
expire or be challenged, invalidated, circumvented, rendered unenforceable or otherwise compromised by third parties. We may not develop additional
proprietary technology. In addition, any failure to obtain intellectual property protection in the international jurisdictions we serve could expose us to
increased competition, which could limit our growth and future revenue. Although we enter into confidentiality agreements with our employees and certain
third parties to protect our proprietary information and technology, these agreements may be inadequate to protect our interests, and the remedies available
to us for any breach may not adequately mitigate any breach. Furthermore, third parties may be able to replicate or obtain our confidential and proprietary
information and technology through lawful means, and they may also be able to design around our patents. Additionally, we may lose trade secret
protection as a result of the actions or omissions of us, our employees or third parties. Any weakness in our ability to protect our intellectual property could
adversely affect our business, financial condition and results of operations.
Third parties may misappropriate our intellectual property rights, and disputes regarding intellectual property rights may arise. We may bring litigation in
order to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources and could
negatively affect our sales, profitability and prospects regardless of whether our efforts are successful. For example, from 2015 until 2020, we were party to
litigation to enforce our rights against Gudeng Precision Inc., Ltd. for their patent infringement. We settled this dispute in 2020 by licensing certain of our
intellectual property rights to Gudeng. We continue to vigorously defend our patents and rights, which will cause us to incur costs. We may initiate other
costly litigation against our competitors or other third parties in order to protect our intellectual property rights. We cannot predict how any existing or
future litigation will be resolved or what impact it may have on us.
Our commercial success also depends, in part, on our ability to avoid infringing or misappropriating any patents or other proprietary rights of third parties.
If we infringe or misappropriate a third party’s patent or other proprietary rights, we could be required to pay damages, alter our products or processes,
obtain a license to continue use of a proprietary right or cease utilizing
and regulations of various
We are subject to a variety of environmental laws and regulations that could cause us to incur significant liabilities and expenses.
Failure to comply with the wide variety of federal, state, local and non-U.S. regulatory requirements relating to the release, use, storage, treatment,
transportation, discharge, disposal and remediation of, and human exposure to, hazardous chemicals could result in future liabilities or the suspension of
production or shipment. These requirements have tended to become stricter over time. For example, the Frank R. Lautenberg Chemical Safety for the 21st
Century Act modified the Toxic Control Substances Act, or TSCA, by requiring the Environmental Protection Agency, or the EPA, to prioritize and
evaluate the environmental and health risks of existing chemicals and provided the EPA with greater authority to regulate chemicals posing unreasonable
risks. According to this statute, the EPA is required to make an affirmative finding that a new chemical will not pose an unreasonable risk before such
chemical can go into production. As a result, TSCA now operates in a similar fashion to the Registration, Evaluation, and Authorization of Chemicals, or
REACH, legislation in Europe. Regulations similar to REACH have also been enacted in South Korea and Taiwan. These laws and regulations, among
others, increase the complexity and costs of transporting our products from the country in which they are manufactured to our customers. Further changes
to these and similar regulations could restrict our ability to expand, build or acquire new facilities, require us to acquire costly control equipment, cause us
to incur expenses associated with remediation of contamination, cause us to modify our manufacturing or shipping processes or otherwise increase our cost
of doing business and have a negative impact on our financial condition, results of operations and cash flows. In addition, the adoption of new laws, rules
or regulations related to climate change poses risks that could harm our results of operations or affect the way we conduct our businesses. For example,
new or modified regulations could require us to make substantial expenditures to enhance our environmental compliance efforts.
We are exposed to various risks from our regulatory environment.
We are subject to risks related to new, different, inconsistent, or even conflicting laws, rules, and regulations that may be enacted by legislative or executive
bodies and/or regulatory agencies in the countries where we operate; disagreements or disputes related to international trade; and the interpretation and
application of laws, rules, and regulations. As a public company with global operations, we are subject to the laws of multiple jurisdictions and the rules
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such proprietary rights, including making or selling products utilizing such proprietary rights. If we are required to obtain a license, we may be unable to do
so on commercially acceptable terms, or at all.
We may be subject to information technology system failures, network disruptions and breaches in data security, which could damage our reputation
and adversely affect our financial condition, results of operations and cash flows, and new laws and regulations regarding data privacy may increase
our costs.
We collect and store sensitive data, including our financial information, intellectual property, confidential information, proprietary business information and
personally identifiable information of our employees and others, as well as similar information of our customers, suppliers and business partners. We
maintain this information in our data centers, on our networks and on information technology, or IT, systems owned and maintained by third parties. The
secure processing, maintenance and transmission of this information is critical to our operations. All IT systems are subject to disruption, breach or failure.
Data breaches, including those sponsored by state actors, have become increasingly common in recent years. For example, during 2020 the United States
government was hacked via third-party software applications by hackers suspected of being sponsored by a foreign intelligence agency. While we and our
third-party providers have implemented network security procedures, virus protection software, intrusion prevention systems, access control, emergency
recovery processes and internal control measures, we and they have experienced, and expect to continue to be subject to, cybersecurity threats and incidents
ranging from employee error or misuse, to individual attempts to gain unauthorized access to systems, to sophisticated and targeted measures known as
advanced persistent threats. Despite the precautions undertaken by us and our third-party providers, IT system failures, network disruptions and breaches of
data security could cause disruption in our operations, issues with customer communication and order management, the unauthorized or unintentional
disclosure of sensitive information, disruptions in our transaction processing or undermine the integrity of our disclosure controls and procedures and our
internal control over financial reporting, which could affect our reputation, result in significant liabilities and expenses, adversely affect our ability to report
our financial results in a timely manner and could have a material adverse effect on our financial condition, results of operations and cash flows. These
risks may be further amplified by the increased reliance on remote access to IT systems by us and our customers, suppliers and other third parties with
which we do business as a result of employees working remotely in response to the COVID-19 pandemic.
Moreover, new laws and regulations, such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act, add to
the complexity of our compliance obligations, which increases our compliance costs. Although we have established internal controls and procedures
intended to achieve compliance with such laws and regulations, a failure to fully comply could result in significant penalties.
If we fail to obtain, protect and enforce intellectual property rights, our business and prospects could be harmed.
Risks Related to Government Regulation
We are subject to a variety of environmental laws and regulations that could cause us to incur significant liabilities and expenses.
Failure to comply with the wide variety of federal, state, local and non-U.S. regulatory requirements relating to the release, use, storage, treatment,
transportation, discharge, disposal and remediation of, and human exposure to, hazardous chemicals could result in future liabilities or the suspension of
production or shipment. These requirements have tended to become stricter over time. For example, the Frank R. Lautenberg Chemical Safety for the 21st
Century Act modified the Toxic Control Substances Act, or TSCA, by requiring the Environmental Protection Agency, or the EPA, to prioritize and
evaluate the environmental and health risks of existing chemicals and provided the EPA with greater authority to regulate chemicals posing unreasonable
risks. According to this statute, the EPA is required to make an affirmative finding that a new chemical will not pose an unreasonable risk before such
chemical can go into production. As a result, TSCA now operates in a similar fashion to the Registration, Evaluation, and Authorization of Chemicals, or
REACH, legislation in Europe. Regulations similar to REACH have also been enacted in South Korea and Taiwan. These laws and regulations, among
others, increase the complexity and costs of transporting our products from the country in which they are manufactured to our customers. Further changes
to these and similar regulations could restrict our ability to expand, build or acquire new facilities, require us to acquire costly control equipment, cause us
to incur expenses associated with remediation of contamination, cause us to modify our manufacturing or shipping processes or otherwise increase our cost
of doing business and have a negative impact on our financial condition, results of operations and cash flows. In addition, the adoption of new laws, rules
or regulations related to climate change poses risks that could harm our results of operations or affect the way we conduct our businesses. For example,
new or modified regulations could require us to make substantial expenditures to enhance our environmental compliance efforts.
intellectual property rights to Gudeng. We continue to vigorously defend our patents and rights, which will cause us to incur costs. We may initiate other
We are exposed to various risks from our regulatory environment.
We are subject to risks related to new, different, inconsistent, or even conflicting laws, rules, and regulations that may be enacted by legislative or executive
bodies and/or regulatory agencies in the countries where we operate; disagreements or disputes related to international trade; and the interpretation and
application of laws, rules, and regulations. As a public company with global operations, we are subject to the laws of multiple jurisdictions and the rules
and regulations of various
certain products from one plant to another. If we fail to transfer and re-establish the manufacturing processes in the destination plant efficiently and
effectively, we may not be able to meet customer demand, we may lose credibility with our customers and our business may be harmed. Even if we
successfully move our manufacturing processes, we may not achieve the level of cost savings or efficiencies that we anticipated, if any.
Our operations use hazardous materials that expose us to various risks, including potential liability for personal injury and potential remediation
obligations.
Our operations involve, and we are exposed to the risks associated with, the use and manufacture of hazardous materials. In particular, we manufacture
specialty chemicals, which is an inherently hazardous process that may result in accidents, and store and transport hazardous raw materials, products and
waste in, to and from various facilities. Potential risks that may disrupt our operations or expose us to significant losses and liabilities include explosions
and fires, chemical spills and other discharges, releases of toxic or hazardous substances or gases, and pipeline and storage tank leaks and ruptures. These
and other hazards may result in liability for personal injury, death, damage to property and contamination of the environment; suspension of operations; the
imposition of civil or criminal fines, penalties and other sanctions; cleanup costs; claims by governmental entities or third parties; reputational harm;
increases in our insurance costs; and other adverse impacts on our results of operations. Moreover, a failure of one of our products at a customer site could
interrupt the business operations of the customer. For example, while we believe that our SDS and VAC delivery systems are safe to transport, store and
deliver toxic gases, any leakage could cause serious damage, including injury or death, to any person exposed to those toxic gases, potentially creating
significant product liability exposure for us. Our insurance may be inadequate to satisfy any such liabilities, and our financial results or financial condition
could be adversely affected.
operate and grow our business successfully.
Loss of any of our key personnel could harm our business, and our inability to attract and retain new qualified personnel could inhibit our ability to
Many of our key personnel have significant experience in the semiconductor industry and deep technical expertise. The loss of the services of any of our
key employees or an inability to attract, train and retain qualified and skilled employees, particularly research and development and engineering personnel,
could inhibit our ability to operate and grow our business. As the semiconductor industry has grown in recent years, competition for qualified talent,
particularly those with significant industry experience, has intensified. As a result, the difficulty and costs associated with attracting and retaining key
employees has risen and may continue to rise.
Our future success and competitive position depend in part upon our ability to obtain, maintain and enforce intellectual property rights. We rely on patent,
trade secret and trademark laws to protect many of our major product platforms. Although we often file applications for additional patents, our pending
applications may not be approved. Moreover, any patents that we own or obtain may not provide us with any competitive advantage, and these patents may
expire or be challenged, invalidated, circumvented, rendered unenforceable or otherwise compromised by third parties. We may not develop additional
proprietary technology. In addition, any failure to obtain intellectual property protection in the international jurisdictions we serve could expose us to
increased competition, which could limit our growth and future revenue. Although we enter into confidentiality agreements with our employees and certain
third parties to protect our proprietary information and technology, these agreements may be inadequate to protect our interests, and the remedies available
to us for any breach may not adequately mitigate any breach. Furthermore, third parties may be able to replicate or obtain our confidential and proprietary
information and technology through lawful means, and they may also be able to design around our patents. Additionally, we may lose trade secret
protection as a result of the actions or omissions of us, our employees or third parties. Any weakness in our ability to protect our intellectual property could
adversely affect our business, financial condition and results of operations.
Third parties may misappropriate our intellectual property rights, and disputes regarding intellectual property rights may arise. We may bring litigation in
order to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources and could
negatively affect our sales, profitability and prospects regardless of whether our efforts are successful. For example, from 2015 until 2020, we were party to
litigation to enforce our rights against Gudeng Precision Inc., Ltd. for their patent infringement. We settled this dispute in 2020 by licensing certain of our
costly litigation against our competitors or other third parties in order to protect our intellectual property rights. We cannot predict how any existing or
future litigation will be resolved or what impact it may have on us.
Our commercial success also depends, in part, on our ability to avoid infringing or misappropriating any patents or other proprietary rights of third parties.
If we infringe or misappropriate a third party’s patent or other proprietary rights, we could be required to pay damages, alter our products or processes,
obtain a license to continue use of a proprietary right or cease utilizing
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governing bodies, including those related to health and safety, export controls, financial and other disclosures, corporate governance, privacy, anti-
corruption, such as the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials or customers, conflict
minerals or other social responsibility legislation, employment practices, immigration or travel regulations and antitrust regulations, among others. Each of
these laws, rules and regulations imposes costs on our business, including financial costs and potential diversion of our management’s attention, and may
present risks to our business, including potential fines, restrictions on our actions and reputational damage if we do not fully comply. The volume of
changes to such laws, rules and regulations may be especially significant in the United States over the next several quarters as the Biden administration
implements its policies.
To maintain high standards of corporate governance and public disclosure, we intend to invest appropriate resources to comply with evolving standards.
Changes in or ambiguous interpretations of laws, regulations and standards may create uncertainty regarding compliance matters. Efforts to comply with
new and changing regulations have resulted in, and are likely to continue to result in, increased administrative expenses and a diversion of management’s
time and attention from revenue-generating activities to compliance activities. If we are found by a court or regulatory agency not to be in compliance with
laws and regulations, our reputation, business, financial condition and/or results of operations could be adversely affected, we may be disqualified or barred
from participating in certain activities and we may be forced to modify our operations to achieve full compliance.
Changes in taxation or adverse tax rulings could adversely affect our results of operations.
We operate in many foreign countries and are subject to taxation at various rates and audit by multiple taxing authorities. Our results of operations could be
affected by tax audits, changes in tax rates, changes in laws and regulations governing the calculation, location and taxation of earned profit, changes in
laws and regulations affecting our ability to realize deferred tax assets on our balance sheet and changes in laws and regulations relating to the repatriation
of cash into the United States. Each quarter we forecast our tax liability based on our forecast of our performance for the year in each tax jurisdiction. If our
performance forecast changes, our forecasted tax liability would also likely change, perhaps materially.
We have undertaken and expect to continue to undertake a number of complex internal reorganizations of our foreign subsidiaries in order to rationalize
and streamline our foreign operations, focus our management efforts on certain local opportunities and take advantage of favorable business conditions in
certain localities. These or any future reorganizations could result in adverse tax consequences in one or more jurisdictions, which could adversely impact
our profitability from foreign operations and result in a material reduction in our results of operations.
Various other jurisdictions, including members of the Organization for Economic Cooperation and Development, are considering changes to their tax laws,
including provisions intended to address base erosion and profit shifting by taxpayers. Any tax reform adopted in these or other countries may exacerbate
the risks described above.
Risks Related to Our Indebtedness
We have a substantial amount of indebtedness and may in the future incur substantially more debt, each of which could adversely affect our ability to
obtain financing in the future and react to changes in our business.
As of December 31, 2020, we had an aggregate principal amount of $1,095.0 million of indebtedness outstanding, including our 4.625% senior unsecured
notes due April 1, 2026 and our 4.375% senior unsecured notes due April 15, 2028, or collectively the Notes, and our senior secured term loan facility due
2025, or the Term Loan Facility. In addition, we have approximately $300 million of unutilized capacity under our senior secured revolving credit facility
due 2023, or the Revolving Facility. We refer to the Term Loan Facility and the Revolving Facility as the Credit Facilities, and the credit agreement that
governs the Credit Facilities as the Credit Agreement.
Further, we may incur significant additional secured and unsecured indebtedness in the future. Although the indentures governing the Notes, or the
Indentures, and the Credit Agreement restrict our ability to incur additional indebtedness, the restrictions have a number of significant qualifications and
exceptions. For example, the Credit Agreement provides that we can request additional loans and commitments up to the greater of $400 million or 100%
of our EBITDA, as well as additional amounts if our secured net leverage ratio is less than a specified ratio. Further, these restrictions do not prevent us
from incurring monetary obligations that do not constitute indebtedness. If we add new indebtedness and other monetary obligations to our current debt
levels, the related risks that we now face would intensify.
Our debt could have important consequences, including:
•
•
•
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate
purposes;
requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of other purposes;
increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;
exposing us to increased interest expense for borrowings with variable interest rates, including borrowings under the Credit Facilities; and
placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt having more favorable terms.
We may be unable to generate sufficient cash to service our indebtedness and may be forced to take other actions, which may not be successful, to
satisfy our obligations under our indebtedness.
We may be unable to maintain sufficient cash flow from operating activities to permit us to pay the principal of, premium, if any, and interest on our
indebtedness. Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating
performance and the condition of the capital markets, which are subject to prevailing economic, industry and competitive conditions, as well as many
financial, business, legislative, political, regulatory and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our
debt service obligations, we could face substantial liquidity problems, be forced to reduce or delay investments and capital expenditures, dispose of
material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness, any of which could have a material adverse
effect on our business, financial position and results of operations.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our
business operations. We may not be able to implement any refinancing on commercially reasonable terms or at all and, even if successful, a refinancing
may not allow us to meet our scheduled debt service obligations. The agreements governing our indebtedness restrict our ability to dispose of assets and
use the proceeds of such dispositions, and we may be unable to consummate any dispositions or generate proceeds sufficient to meet our debt service
obligations.
If we cannot make scheduled payments on our debt, holders of the Notes and lenders under the Credit Facilities could declare all outstanding principal and
interest to be due and payable, the lenders under the Revolving Facility could terminate their commitments to advance further loans, our secured lenders
could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
The terms of the Credit Agreement may restrict our operations, particularly our ability to respond to changes or raise additional funds.
The Credit Agreement contains restrictive covenants that impose significant operating and financial restrictions that may limit our ability to take actions
that may be in our long-term best interest, including restrictions on our ability to:
incur additional indebtedness and guarantee indebtedness;
pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;
prepay, redeem or repurchase certain debt;
• make investments, loans, advances and acquisitions;
sell or otherwise dispose of assets, including capital stock of our subsidiaries;
enter into transactions with affiliates;
alter the businesses we conduct; and
• merge or sell all or substantially all of our assets or incur a change of control in our capital stock ownership.
In addition, the restrictive covenants may, depending on the amount of revolving borrowings, unreimbursed letter of credit drawings and undrawn letters of
credit, require us to maintain a secured net leverage ratio, which we may be unable to meet. Also, the Indentures contain limited covenants, such as a
covenant restricting our ability and certain of our subsidiaries’ ability to incur certain debt secured by liens. Our failure to comply with these covenants
could result in the acceleration of some or all of our indebtedness, which could lead to bankruptcy, reorganization or insolvency.
Risks Related to Owning our Common Stock
The price of our common stock has been and may remain volatile.
The price of our common stock has been volatile. In 2020, the closing price of our stock on The Nasdaq Global Select Market, or Nasdaq, ranged from a
low of $39.03 to a high of $99.03, and, as in past years, the price of our common stock may show even greater volatility in the future. The trading price of
our common stock is subject to significant volatility in response to numerous factors, many of which are beyond our control or may be unrelated to our
operating results, including the following:
the significant increase in volatility in the stock market in general as a result of the COVID-19 pandemic;
any changes to our financial guidance, as well as potential decreased confidence in any guidance we do provide;
•
•
•
•
•
•
•
•
•
•
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governing bodies, including those related to health and safety, export controls, financial and other disclosures, corporate governance, privacy, anti-
corruption, such as the Foreign Corrupt Practices Act and other local laws prohibiting corrupt payments to governmental officials or customers, conflict
minerals or other social responsibility legislation, employment practices, immigration or travel regulations and antitrust regulations, among others. Each of
these laws, rules and regulations imposes costs on our business, including financial costs and potential diversion of our management’s attention, and may
present risks to our business, including potential fines, restrictions on our actions and reputational damage if we do not fully comply. The volume of
changes to such laws, rules and regulations may be especially significant in the United States over the next several quarters as the Biden administration
implements its policies.
To maintain high standards of corporate governance and public disclosure, we intend to invest appropriate resources to comply with evolving standards.
Changes in or ambiguous interpretations of laws, regulations and standards may create uncertainty regarding compliance matters. Efforts to comply with
new and changing regulations have resulted in, and are likely to continue to result in, increased administrative expenses and a diversion of management’s
time and attention from revenue-generating activities to compliance activities. If we are found by a court or regulatory agency not to be in compliance with
laws and regulations, our reputation, business, financial condition and/or results of operations could be adversely affected, we may be disqualified or barred
from participating in certain activities and we may be forced to modify our operations to achieve full compliance.
Changes in taxation or adverse tax rulings could adversely affect our results of operations.
We operate in many foreign countries and are subject to taxation at various rates and audit by multiple taxing authorities. Our results of operations could be
affected by tax audits, changes in tax rates, changes in laws and regulations governing the calculation, location and taxation of earned profit, changes in
laws and regulations affecting our ability to realize deferred tax assets on our balance sheet and changes in laws and regulations relating to the repatriation
of cash into the United States. Each quarter we forecast our tax liability based on our forecast of our performance for the year in each tax jurisdiction. If our
performance forecast changes, our forecasted tax liability would also likely change, perhaps materially.
We have undertaken and expect to continue to undertake a number of complex internal reorganizations of our foreign subsidiaries in order to rationalize
certain localities. These or any future reorganizations could result in adverse tax consequences in one or more jurisdictions, which could adversely impact
our profitability from foreign operations and result in a material reduction in our results of operations.
Various other jurisdictions, including members of the Organization for Economic Cooperation and Development, are considering changes to their tax laws,
including provisions intended to address base erosion and profit shifting by taxpayers. Any tax reform adopted in these or other countries may exacerbate
the risks described above.
Risks Related to Our Indebtedness
obtain financing in the future and react to changes in our business.
As of December 31, 2020, we had an aggregate principal amount of $1,095.0 million of indebtedness outstanding, including our 4.625% senior unsecured
notes due April 1, 2026 and our 4.375% senior unsecured notes due April 15, 2028, or collectively the Notes, and our senior secured term loan facility due
2025, or the Term Loan Facility. In addition, we have approximately $300 million of unutilized capacity under our senior secured revolving credit facility
due 2023, or the Revolving Facility. We refer to the Term Loan Facility and the Revolving Facility as the Credit Facilities, and the credit agreement that
governs the Credit Facilities as the Credit Agreement.
Further, we may incur significant additional secured and unsecured indebtedness in the future. Although the indentures governing the Notes, or the
Indentures, and the Credit Agreement restrict our ability to incur additional indebtedness, the restrictions have a number of significant qualifications and
exceptions. For example, the Credit Agreement provides that we can request additional loans and commitments up to the greater of $400 million or 100%
of our EBITDA, as well as additional amounts if our secured net leverage ratio is less than a specified ratio. Further, these restrictions do not prevent us
levels, the related risks that we now face would intensify.
Our debt could have important consequences, including:
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate
purposes;
•
•
•
requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of other purposes;
increasing our vulnerability to adverse changes in general economic, industry and competitive conditions;
•
•
exposing us to increased interest expense for borrowings with variable interest rates, including borrowings under the Credit Facilities; and
placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt having more favorable terms.
We may be unable to generate sufficient cash to service our indebtedness and may be forced to take other actions, which may not be successful, to
satisfy our obligations under our indebtedness.
We may be unable to maintain sufficient cash flow from operating activities to permit us to pay the principal of, premium, if any, and interest on our
indebtedness. Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating
performance and the condition of the capital markets, which are subject to prevailing economic, industry and competitive conditions, as well as many
financial, business, legislative, political, regulatory and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our
debt service obligations, we could face substantial liquidity problems, be forced to reduce or delay investments and capital expenditures, dispose of
material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness, any of which could have a material adverse
effect on our business, financial position and results of operations.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our
business operations. We may not be able to implement any refinancing on commercially reasonable terms or at all and, even if successful, a refinancing
may not allow us to meet our scheduled debt service obligations. The agreements governing our indebtedness restrict our ability to dispose of assets and
use the proceeds of such dispositions, and we may be unable to consummate any dispositions or generate proceeds sufficient to meet our debt service
obligations.
If we cannot make scheduled payments on our debt, holders of the Notes and lenders under the Credit Facilities could declare all outstanding principal and
interest to be due and payable, the lenders under the Revolving Facility could terminate their commitments to advance further loans, our secured lenders
could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
and streamline our foreign operations, focus our management efforts on certain local opportunities and take advantage of favorable business conditions in
The terms of the Credit Agreement may restrict our operations, particularly our ability to respond to changes or raise additional funds.
We have a substantial amount of indebtedness and may in the future incur substantially more debt, each of which could adversely affect our ability to
• make investments, loans, advances and acquisitions;
The Credit Agreement contains restrictive covenants that impose significant operating and financial restrictions that may limit our ability to take actions
that may be in our long-term best interest, including restrictions on our ability to:
•
•
•
incur additional indebtedness and guarantee indebtedness;
pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;
prepay, redeem or repurchase certain debt;
•
•
•
sell or otherwise dispose of assets, including capital stock of our subsidiaries;
enter into transactions with affiliates;
alter the businesses we conduct; and
• merge or sell all or substantially all of our assets or incur a change of control in our capital stock ownership.
In addition, the restrictive covenants may, depending on the amount of revolving borrowings, unreimbursed letter of credit drawings and undrawn letters of
credit, require us to maintain a secured net leverage ratio, which we may be unable to meet. Also, the Indentures contain limited covenants, such as a
covenant restricting our ability and certain of our subsidiaries’ ability to incur certain debt secured by liens. Our failure to comply with these covenants
could result in the acceleration of some or all of our indebtedness, which could lead to bankruptcy, reorganization or insolvency.
from incurring monetary obligations that do not constitute indebtedness. If we add new indebtedness and other monetary obligations to our current debt
Risks Related to Owning our Common Stock
The price of our common stock has been and may remain volatile.
The price of our common stock has been volatile. In 2020, the closing price of our stock on The Nasdaq Global Select Market, or Nasdaq, ranged from a
low of $39.03 to a high of $99.03, and, as in past years, the price of our common stock may show even greater volatility in the future. The trading price of
our common stock is subject to significant volatility in response to numerous factors, many of which are beyond our control or may be unrelated to our
operating results, including the following:
•
•
the significant increase in volatility in the stock market in general as a result of the COVID-19 pandemic;
any changes to our financial guidance, as well as potential decreased confidence in any guidance we do provide;
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25
•
•
•
•
•
•
•
•
changes in global economic conditions, including those resulting from trade tensions or the COVID-19 pandemic;
Item 2. Properties.
the failure to meet the expectations of securities analysts, which may vary significantly from our actual results;
Our principal executive offices are located in Billerica, Massachusetts. Information about our principal and certain other facilities is set forth below:
changes in financial estimates by securities analysts;
press releases or announcements by, or changes in market values of, comparable companies;
high volatility in price and volume in the markets for high-technology stocks;
the public perception of equity values of publicly traded companies;
fluctuations in our results of operations; and
the other risks and uncertainties described in this Annual Report on Form 10-K and in our other filings with the SEC.
Fluctuations in our results of operations could cause our stock price to decline significantly. We believe that period-to-period comparisons of our results of
operations may not be meaningful, and you should not rely upon them as indicators of our future performance. Future decreases in our stock price may
adversely impact our ability to raise sufficient additional capital in the future, if needed.
There can be no assurance that we will continue to declare cash dividends or repurchase our shares in any particular amounts or at all.
Future payments of quarterly dividends and repurchases of shares of our common stock are subject to capital availability and periodic determinations by
our board of directors that they are in the best interest of our stockholders and comply with all laws and applicable agreements. Future dividends and share
repurchases may be affected by, among other factors, potential capital requirements in acquisitions and the funding of our research and development
activities; legal risks; changes in federal and state income tax laws or corporate laws; contractual restrictions, such as financial or operating covenants in
our debt arrangements; availability of domestic cash flow; and changes to our business model. Our dividend payments and share repurchases may change
from time to time, and we may decide at any time to reduce, suspend or discontinue the payment of dividends or the repurchase of shares. A reduction,
suspension or discontinuation of our dividend payments or share repurchases could have a negative effect on the price of our common stock.
Provisions in our charter documents and Delaware law may delay or prevent an acquisition of us, which could decrease the value of our shares.
Our certificate of incorporation, our by-laws and Delaware law contain provisions that could make it harder for a third party to acquire us without the
consent of our board of directors. These provisions include limitations on actions by written consent of our stockholders.
Our certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general,
Section 203 prohibits publicly held Delaware corporations from engaging in a “business combination” with an “interested stockholder” for a period of three
years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed
manner. This provision could discourage parties from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in
the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.
Our certificate of incorporation authorizes our board of directors to issue, without further stockholder approval, up to 5,000,000 shares of preferred stock in
one or more series and to fix and designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, redemption rights and liquidation preferences. The holders of any shares of preferred stock could have preferences over the holders of
our common stock with respect to dividends and liquidation rights. Any issuance of preferred stock may have the effect of delaying, deterring or preventing
a change in control. Any issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common
stock and could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have
the effect of decreasing the market price of our common stock.
Item 1B. Unresolved Staff Comments.
Not Applicable.
Location
Principal Function
Bedford, Massachusetts
Research & Manufacturing
Billerica, Massachusetts
(1)
Executive Offices, Research & Manufacturing
Burnet, Texas
Chaska, Minnesota
Research & Manufacturing
Executive Offices, Research & Manufacturing
Colorado Springs, Colorado
Manufacturing
Danbury, Connecticut
Decatur, Texas
Hsin-chu, Taiwan
JangAn, South Korea
Kulim, Malaysia
San Luis Obispo, California
San Luis Obispo, California
Suwon, South Korea
Yonezawa, Japan
Research & Manufacturing
Manufacturing
Executive Offices, Sales Research & Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Executive Offices & Research
Manufacturing
Approximate
Square Feet
80,000
175,000
86,000
186,000
82,000
73,000
359,000
146,330
127,000
195,000
37,000
34,000
42,000
185,000
Leased/
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Owned
Reporting Segment
MC & SCEM
MC & SCEM
SCEM
AMH
AMH
SCEM
SCEM
MC, SCEM & AMH
SCEM & AMH
SCEM & AMH
MC
MC
MC & SCEM
MC & AMH
(1)
This lease has been extended through September 30, 2026 and is subject to one five-year renewal option.
In addition, we own and lease space for manufacturing, distribution, technical support, sales, service, repair, and general administrative purposes in the
United States, Canada, China, Germany, France, Israel, Japan, Malaysia, Singapore, South Korea and Taiwan. Leases for our facilities expire through
September 2026. We currently expect to be able to extend the terms of expiring leases or to find suitable replacement facilities on reasonable terms. We
believe that our facilities are well-maintained and suitable for their respective operations. We regularly assess the size, capability and location of our global
infrastructure and periodically make adjustments based on these assessments.
As of December 31, 2020, we were not involved in any legal proceedings that we believe will have a material impact on our consolidated financial
position, results of operations or cash flows. From time to time the Company may be a party to litigation involving claims against the Company arising in
the ordinary course of our business. We are not aware of any material potential litigation or claims against us which would have a material adverse effect
For purposes of this disclosure, we have determined that legal proceedings that involve governmental authorities and that relate to environmental matters
are not material to our business or financial condition in circumstances where we reasonably believe that such proceedings will result in either no monetary
sanctions or potential monetary sanctions of less than $1.0 million, exclusive of interest and costs.
Item 3. Legal Proceedings.
upon our financial statements.
Item 4. Mine Safety Disclosures.
Not applicable.
26
27
•
•
•
•
•
•
•
•
changes in financial estimates by securities analysts;
press releases or announcements by, or changes in market values of, comparable companies;
high volatility in price and volume in the markets for high-technology stocks;
the public perception of equity values of publicly traded companies;
fluctuations in our results of operations; and
the other risks and uncertainties described in this Annual Report on Form 10-K and in our other filings with the SEC.
Fluctuations in our results of operations could cause our stock price to decline significantly. We believe that period-to-period comparisons of our results of
operations may not be meaningful, and you should not rely upon them as indicators of our future performance. Future decreases in our stock price may
adversely impact our ability to raise sufficient additional capital in the future, if needed.
There can be no assurance that we will continue to declare cash dividends or repurchase our shares in any particular amounts or at all.
Future payments of quarterly dividends and repurchases of shares of our common stock are subject to capital availability and periodic determinations by
our board of directors that they are in the best interest of our stockholders and comply with all laws and applicable agreements. Future dividends and share
repurchases may be affected by, among other factors, potential capital requirements in acquisitions and the funding of our research and development
activities; legal risks; changes in federal and state income tax laws or corporate laws; contractual restrictions, such as financial or operating covenants in
our debt arrangements; availability of domestic cash flow; and changes to our business model. Our dividend payments and share repurchases may change
from time to time, and we may decide at any time to reduce, suspend or discontinue the payment of dividends or the repurchase of shares. A reduction,
suspension or discontinuation of our dividend payments or share repurchases could have a negative effect on the price of our common stock.
Provisions in our charter documents and Delaware law may delay or prevent an acquisition of us, which could decrease the value of our shares.
Our certificate of incorporation, our by-laws and Delaware law contain provisions that could make it harder for a third party to acquire us without the
consent of our board of directors. These provisions include limitations on actions by written consent of our stockholders.
Our certificate of incorporation makes us subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general,
years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed
manner. This provision could discourage parties from bidding for our shares of common stock and could, as a result, reduce the likelihood of an increase in
the price of our common stock that would otherwise occur if a bidder sought to buy our common stock.
Our certificate of incorporation authorizes our board of directors to issue, without further stockholder approval, up to 5,000,000 shares of preferred stock in
one or more series and to fix and designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, redemption rights and liquidation preferences. The holders of any shares of preferred stock could have preferences over the holders of
our common stock with respect to dividends and liquidation rights. Any issuance of preferred stock may have the effect of delaying, deterring or preventing
a change in control. Any issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common
changes in global economic conditions, including those resulting from trade tensions or the COVID-19 pandemic;
Item 2. Properties.
the failure to meet the expectations of securities analysts, which may vary significantly from our actual results;
Our principal executive offices are located in Billerica, Massachusetts. Information about our principal and certain other facilities is set forth below:
Location
Bedford, Massachusetts
Billerica, Massachusetts
(1)
Burnet, Texas
Chaska, Minnesota
Principal Function
Research & Manufacturing
Executive Offices, Research & Manufacturing
Research & Manufacturing
Executive Offices, Research & Manufacturing
Colorado Springs, Colorado
Manufacturing
Danbury, Connecticut
Decatur, Texas
Hsin-chu, Taiwan
JangAn, South Korea
Kulim, Malaysia
San Luis Obispo, California
San Luis Obispo, California
Suwon, South Korea
Yonezawa, Japan
Research & Manufacturing
Manufacturing
Executive Offices, Sales Research & Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Executive Offices & Research
Manufacturing
Approximate
Square Feet
80,000
175,000
86,000
186,000
82,000
73,000
359,000
146,330
127,000
195,000
37,000
34,000
42,000
185,000
Leased/
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Owned
Reporting Segment
MC & SCEM
MC & SCEM
SCEM
AMH
AMH
SCEM
SCEM
MC, SCEM & AMH
SCEM & AMH
SCEM & AMH
MC
MC
MC & SCEM
MC & AMH
(1)
This lease has been extended through September 30, 2026 and is subject to one five-year renewal option.
In addition, we own and lease space for manufacturing, distribution, technical support, sales, service, repair, and general administrative purposes in the
United States, Canada, China, Germany, France, Israel, Japan, Malaysia, Singapore, South Korea and Taiwan. Leases for our facilities expire through
September 2026. We currently expect to be able to extend the terms of expiring leases or to find suitable replacement facilities on reasonable terms. We
believe that our facilities are well-maintained and suitable for their respective operations. We regularly assess the size, capability and location of our global
infrastructure and periodically make adjustments based on these assessments.
Section 203 prohibits publicly held Delaware corporations from engaging in a “business combination” with an “interested stockholder” for a period of three
Item 3. Legal Proceedings.
As of December 31, 2020, we were not involved in any legal proceedings that we believe will have a material impact on our consolidated financial
position, results of operations or cash flows. From time to time the Company may be a party to litigation involving claims against the Company arising in
the ordinary course of our business. We are not aware of any material potential litigation or claims against us which would have a material adverse effect
upon our financial statements.
For purposes of this disclosure, we have determined that legal proceedings that involve governmental authorities and that relate to environmental matters
are not material to our business or financial condition in circumstances where we reasonably believe that such proceedings will result in either no monetary
sanctions or potential monetary sanctions of less than $1.0 million, exclusive of interest and costs.
stock and could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have
Item 4. Mine Safety Disclosures.
Not applicable.
the effect of decreasing the market price of our common stock.
Item 1B. Unresolved Staff Comments.
Not Applicable.
26
27
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following is a list of our Executive Officers, their ages and their offices, as of the date of this Annual Report on Form 10-K.
Name
Bertrand Loy
Gregory B. Graves
Todd Edlund
Sue Rice
Corey Rucci
Jim O’Neill
Joe Colella
Stuart Tison
Clint Haris
William Shaner
Bruce W. Beckman
Michael D. Sauer
Office
Age
55 President & Chief Executive Officer
60 Executive Vice President, Chief Financial Officer & Treasurer
58 Executive Vice President & Chief Operating Officer
Senior Vice President, Global Human Resources
62
Senior Vice President, Business Development
61
Senior Vice President, Chief Technology Officer
56
Senior Vice President, General Counsel & Secretary
39
Senior Vice President & General Manager, Specialty Chemicals and Engineered Materials
57
Senior Vice President & General Manager, Microcontamination Control
48
Senior Vice President & General Manager, Advanced Materials Handling
53
53
Senior Vice President, Finance
55 Vice President, Controller & Chief Accounting Officer
Bertrand Loy has been our Chief Executive Officer, President and a director since November 2012. From July 2008 to November 2012, he served as our
Executive Vice President and Chief Operating Officer. From August 2005 until July 2008, he served as our Executive Vice President in charge of our
information technology, global supply chain and manufacturing operations. He served as the Vice President and Chief Financial Officer of Mykrolis, a
company spun out of Millipore Corporation, a life science products company, from January 2001 until August 2005. Prior to that, Mr. Loy served as the
Chief Information Officer of Millipore Corporation during 1999 and 2000, and previously served in various strategic planning, global supply chain and
financial roles with Millipore and Sandoz Pharmaceuticals (now Novartis), a pharmaceutical company. He has served on the board of directors of Harvard
Bioscience, Inc. (scientific equipment) since November 2014 and is now its lead independent director. Since July 2013, Mr. Loy has also been on the board
of directors of SEMI, the global industry association representing the electronics manufacturing supply chain, and currently acts as the chairman of the
association.
Gregory B. Graves has served as our Executive Vice President and Chief Financial Officer since July 2008. Prior to that, he served as Senior Vice President
and Chief Financial Officer since April 2007. Prior to April 2007, he served as Senior Vice President, Strategic Planning & Business Development since
the effectiveness of the merger with Mykrolis in August 2005. Mr. Graves served as the Chief Business Development Officer of Entegris Minnesota
starting in September 2002 and from September 2003 until August 2004 he also served as Senior Vice President of Finance. Prior to joining Entegris
Minnesota in September 2002, Mr. Graves held positions in investment banking and corporate development, including at U.S. Bancorp Piper Jaffray from
June 1998 to August 2002 and at Dain Rauscher from October 1996 to May 1998. Mr. Graves has served as a director of Laird Superfood, Inc. (a plant-
based food company) since September 2018, and was a member of the board of directors of Plug Power Inc. (an energy solutions provider) from May 2017
to June 2019.
Todd Edlund has been our Executive Vice President and Chief Operating Officer since July 2016. Prior to that, he was our Senior Vice President and Chief
Operating Officer since November 2014. After the merger with ATMI in April 2014, Mr. Edlund served as Senior Vice President and General Manager of
our Critical Materials Handling business and prior to that merger, he was the Vice President and General Manager of our Contamination Control Solutions
division since December 2007. He served as the Vice President and General Manager of our Liquid Systems business unit from 2005 to 2007, and prior to
that, as Entegris Minnesota’s Vice President of Sales for semiconductor markets from 2003 to 2005. Prior to 2003, Mr. Edlund held a variety of positions
with our predecessor companies since 1995.
Sue Rice has been our Senior Vice President of Global Human Resources since September 2017. Prior to that, Ms. Rice served as Senior Vice President and
Chief Human Resources Officer for Thermo Fisher Scientific, a scientific equipment company, from 2013 to 2017, Region Vice President HR Asia Pacific
& Emerging Markets from 2009 to 2013 and Group Vice President, HR Analytical Technologies Group from 2006 to 2009. Prior to that, Ms. Rice held
senior human resource positions with Fidelity Human Resources Services Company and Sherbrooke Associates.
Corey Rucci has served as our Senior Vice President, Business Development since January 2018, having served as Vice President, Business Development
since February 2014. Prior to that, he served as Vice President and General Manager of our Specialty Materials Division since 2011 and as General
Manager of Poco Graphite, Inc. (POCO) since 2008 when we acquired POCO. Prior to joining Entegris, Mr. Rucci served POCO as the President and Chief
Operating Officer since 2007, Chief
Operating Officer since 2005, Chief Financial Officer since 2001 and Vice President of Business Development since 1998. Prior to that, he worked at
UNOCAL Corp. for 17 years in a variety of accounting, marketing and business development roles.
Jim O’Neill has been our Senior Vice President, Chief Technology Officer since September 2019, having previously served as our Vice President, Chief
Technology Officer since April 2014 when he joined Entegris as part of our acquisition of ATMI. At ATMI, Dr. O’Neill was Senior Vice President of
Electronic Materials from January 2012 to April 2014. Prior to that, he held numerous technical and leadership roles in semiconductor research and
development with over 23 years at IBM.
Joe Colella has been our Senior Vice President, General Counsel and Secretary since April 2020. Previously, Mr. Colella served as our Vice President,
Deputy General Counsel from December 2018 until April 2020, Assistant General Counsel from April 2018 until December 2018 and Senior Corporate
Counsel from December 2013 until April 2018. Prior to joining Entegris, Mr. Colella served as an associate at an international law firm from 2007 until
Stuart Tison has been our Senior Vice President, Specialty Chemicals and Engineered Materials since July 2016. Prior to that, Mr. Tison served as Vice
President, Specialty Gas Solutions since February 2015, as Vice President, Business Development since January 2010 and as Vice President, Corporate
Development since July 2007. Prior to that, he served Celerity, Inc. as Vice President, Engineering and served Entegris predecessor companies Mykrolis
and Millipore in a variety of sales, marketing, business development and engineering roles.
Clint Haris has been our Senior Vice President, Microcontamination Control since July 2016. Prior to that, Mr. Haris served as our Vice President, Liquid
Microcontamination Control since August 2014. Prior to joining Entegris, Mr. Haris served in a variety of executive roles at Brooks Automation Inc.
including Senior Vice President, Life Science Systems from 2010 to 2014 and Senior Vice President and General Manager, Systems Solutions from 2009 to
2013.
2010.
William Shaner has been our Senior Vice President, Advanced Materials Handling since July 2016. Prior to that, Mr. Shaner served as our Senior Vice
President, Global Operations since February 2014 and, prior to that, as our Vice President and General Manager, Microenvironments division since 2007.
He has served in a variety of sales, marketing, business development and engineering roles since joining Entegris in 1995.
Bruce W. Beckman has been our Senior Vice President, Finance since February 2018. Prior to that, Mr. Beckman served as Vice President, Finance since
joining Entegris in April 2015. From 1990 to 2015, Mr. Beckman worked in numerous capacities for General Mills, Inc., including Vice President, Finance,
Meals Division from July 2012 to January 2015, Director of Corporate Planning & Analysis from July 2008 to July 2012 and Director of Internal Controls
Michael D. Sauer has been our Vice President, Controller and Chief Accounting Officer since June 2012. Prior to that, he served as the Corporate
Controller since 2008. From the time of the merger with Mykrolis in August 2005 until April 2008, Mr. Sauer served as Director of Treasury and Risk
Management. Mr. Sauer joined Fluoroware, Inc., a predecessor to Entegris Minnesota in 1988 and held a variety of finance and accounting positions until
2001 when he became the Director of Business Development for Entegris Minnesota, the successor to Fluoroware, serving in that position until the merger
from 2003 to 2005.
with Mykrolis.
28
29
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following is a list of our Executive Officers, their ages and their offices, as of the date of this Annual Report on Form 10-K.
Gregory B. Graves
60 Executive Vice President, Chief Financial Officer & Treasurer
55 President & Chief Executive Officer
Office
Name
Bertrand Loy
Todd Edlund
Sue Rice
Corey Rucci
Jim O’Neill
Joe Colella
Stuart Tison
Clint Haris
William Shaner
Bruce W. Beckman
Michael D. Sauer
Age
62
61
56
39
57
48
53
53
58 Executive Vice President & Chief Operating Officer
Senior Vice President, Global Human Resources
Senior Vice President, Business Development
Senior Vice President, Chief Technology Officer
Senior Vice President, General Counsel & Secretary
Senior Vice President & General Manager, Specialty Chemicals and Engineered Materials
Senior Vice President & General Manager, Microcontamination Control
Senior Vice President & General Manager, Advanced Materials Handling
Senior Vice President, Finance
55 Vice President, Controller & Chief Accounting Officer
Bertrand Loy has been our Chief Executive Officer, President and a director since November 2012. From July 2008 to November 2012, he served as our
Executive Vice President and Chief Operating Officer. From August 2005 until July 2008, he served as our Executive Vice President in charge of our
information technology, global supply chain and manufacturing operations. He served as the Vice President and Chief Financial Officer of Mykrolis, a
company spun out of Millipore Corporation, a life science products company, from January 2001 until August 2005. Prior to that, Mr. Loy served as the
Chief Information Officer of Millipore Corporation during 1999 and 2000, and previously served in various strategic planning, global supply chain and
financial roles with Millipore and Sandoz Pharmaceuticals (now Novartis), a pharmaceutical company. He has served on the board of directors of Harvard
Bioscience, Inc. (scientific equipment) since November 2014 and is now its lead independent director. Since July 2013, Mr. Loy has also been on the board
of directors of SEMI, the global industry association representing the electronics manufacturing supply chain, and currently acts as the chairman of the
Gregory B. Graves has served as our Executive Vice President and Chief Financial Officer since July 2008. Prior to that, he served as Senior Vice President
and Chief Financial Officer since April 2007. Prior to April 2007, he served as Senior Vice President, Strategic Planning & Business Development since
the effectiveness of the merger with Mykrolis in August 2005. Mr. Graves served as the Chief Business Development Officer of Entegris Minnesota
starting in September 2002 and from September 2003 until August 2004 he also served as Senior Vice President of Finance. Prior to joining Entegris
Minnesota in September 2002, Mr. Graves held positions in investment banking and corporate development, including at U.S. Bancorp Piper Jaffray from
June 1998 to August 2002 and at Dain Rauscher from October 1996 to May 1998. Mr. Graves has served as a director of Laird Superfood, Inc. (a plant-
based food company) since September 2018, and was a member of the board of directors of Plug Power Inc. (an energy solutions provider) from May 2017
association.
to June 2019.
Todd Edlund has been our Executive Vice President and Chief Operating Officer since July 2016. Prior to that, he was our Senior Vice President and Chief
Operating Officer since November 2014. After the merger with ATMI in April 2014, Mr. Edlund served as Senior Vice President and General Manager of
our Critical Materials Handling business and prior to that merger, he was the Vice President and General Manager of our Contamination Control Solutions
division since December 2007. He served as the Vice President and General Manager of our Liquid Systems business unit from 2005 to 2007, and prior to
that, as Entegris Minnesota’s Vice President of Sales for semiconductor markets from 2003 to 2005. Prior to 2003, Mr. Edlund held a variety of positions
with our predecessor companies since 1995.
Sue Rice has been our Senior Vice President of Global Human Resources since September 2017. Prior to that, Ms. Rice served as Senior Vice President and
Chief Human Resources Officer for Thermo Fisher Scientific, a scientific equipment company, from 2013 to 2017, Region Vice President HR Asia Pacific
& Emerging Markets from 2009 to 2013 and Group Vice President, HR Analytical Technologies Group from 2006 to 2009. Prior to that, Ms. Rice held
senior human resource positions with Fidelity Human Resources Services Company and Sherbrooke Associates.
Corey Rucci has served as our Senior Vice President, Business Development since January 2018, having served as Vice President, Business Development
since February 2014. Prior to that, he served as Vice President and General Manager of our Specialty Materials Division since 2011 and as General
Manager of Poco Graphite, Inc. (POCO) since 2008 when we acquired POCO. Prior to joining Entegris, Mr. Rucci served POCO as the President and Chief
Operating Officer since 2007, Chief
Operating Officer since 2005, Chief Financial Officer since 2001 and Vice President of Business Development since 1998. Prior to that, he worked at
UNOCAL Corp. for 17 years in a variety of accounting, marketing and business development roles.
Jim O’Neill has been our Senior Vice President, Chief Technology Officer since September 2019, having previously served as our Vice President, Chief
Technology Officer since April 2014 when he joined Entegris as part of our acquisition of ATMI. At ATMI, Dr. O’Neill was Senior Vice President of
Electronic Materials from January 2012 to April 2014. Prior to that, he held numerous technical and leadership roles in semiconductor research and
development with over 23 years at IBM.
Joe Colella has been our Senior Vice President, General Counsel and Secretary since April 2020. Previously, Mr. Colella served as our Vice President,
Deputy General Counsel from December 2018 until April 2020, Assistant General Counsel from April 2018 until December 2018 and Senior Corporate
Counsel from December 2013 until April 2018. Prior to joining Entegris, Mr. Colella served as an associate at an international law firm from 2007 until
2013.
Stuart Tison has been our Senior Vice President, Specialty Chemicals and Engineered Materials since July 2016. Prior to that, Mr. Tison served as Vice
President, Specialty Gas Solutions since February 2015, as Vice President, Business Development since January 2010 and as Vice President, Corporate
Development since July 2007. Prior to that, he served Celerity, Inc. as Vice President, Engineering and served Entegris predecessor companies Mykrolis
and Millipore in a variety of sales, marketing, business development and engineering roles.
Clint Haris has been our Senior Vice President, Microcontamination Control since July 2016. Prior to that, Mr. Haris served as our Vice President, Liquid
Microcontamination Control since August 2014. Prior to joining Entegris, Mr. Haris served in a variety of executive roles at Brooks Automation Inc.
including Senior Vice President, Life Science Systems from 2010 to 2014 and Senior Vice President and General Manager, Systems Solutions from 2009 to
2010.
William Shaner has been our Senior Vice President, Advanced Materials Handling since July 2016. Prior to that, Mr. Shaner served as our Senior Vice
President, Global Operations since February 2014 and, prior to that, as our Vice President and General Manager, Microenvironments division since 2007.
He has served in a variety of sales, marketing, business development and engineering roles since joining Entegris in 1995.
Bruce W. Beckman has been our Senior Vice President, Finance since February 2018. Prior to that, Mr. Beckman served as Vice President, Finance since
joining Entegris in April 2015. From 1990 to 2015, Mr. Beckman worked in numerous capacities for General Mills, Inc., including Vice President, Finance,
Meals Division from July 2012 to January 2015, Director of Corporate Planning & Analysis from July 2008 to July 2012 and Director of Internal Controls
from 2003 to 2005.
Michael D. Sauer has been our Vice President, Controller and Chief Accounting Officer since June 2012. Prior to that, he served as the Corporate
Controller since 2008. From the time of the merger with Mykrolis in August 2005 until April 2008, Mr. Sauer served as Director of Treasury and Risk
Management. Mr. Sauer joined Fluoroware, Inc., a predecessor to Entegris Minnesota in 1988 and held a variety of finance and accounting positions until
2001 when he became the Director of Business Development for Entegris Minnesota, the successor to Fluoroware, serving in that position until the merger
with Mykrolis.
28
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders
Entegris’ common stock, $0.01 par value, trades on the Nasdaq Global Select Market under the symbol “ENTG”. As of January 29, 2021, there were 942
shareholders of record.
Issuer Purchases of Equity Securities
Dividend Policy
Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s Board of Directors. The
Company’s board of directors declared a cash dividend of $0.08 per share during the first, second, third and fourth quarters of 2020, which totaled $43.5
million.
On January 13, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.08 per share to be paid on February 17, 2021 to
shareholders of record as of January 27, 2021.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our board of
directors. Furthermore, the credit agreement governing the Credit Facilities contains restrictions that may limit our ability to pay dividends.
December 31, 2020:
On December 14, 2020, the Company’s board of directors authorized a repurchase program, effective February 16, 2021, covering the repurchase of up to
an aggregate of $125 million of the Company’s common stock during a period of twelve months, in open market transactions and in accordance with one or
more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. This repurchase program will replace the existing repurchase program, which was originally approved in February 2020, and which will
expire pursuant to its terms on February 15, 2021. The existing program has substantially the same terms.
The following table provides information concerning shares of the Company’s common stock, $0.01 par value, purchased during the three months ended
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
Entegris, Inc.
Nasdaq Composite
Philadelphia Semiconductor Index
$100.00
100.00
100.00
$134.89
108.87
129.32
$229.96
141.14
181.76
$212.54
137.13
170.77
$384.41
187.45
278.80
$741.34
271.64
428.42
Issuer Sales of Unregistered Securities During the Past Three Years
None.
Comparative Stock Performance
The following graph compares the cumulative total shareholder return on the common stock of Entegris, Inc. from December 31, 2015 through
December 31, 2020 with the cumulative total return of (1) The Nasdaq Composite Index, and (2) The Philadelphia Semiconductor Index, assuming $100
was invested at the close of trading on December 31, 2015 in Entegris, Inc. common stock, the Nasdaq Composite Index and the Philadelphia
Semiconductor Index and that all dividends are reinvested.
Total Number of Shares
Average Price Paid per
Publicly Announced Plans
Period
September 27, 2020 - October 31,
November 1, 2020 - November 28,
November 29, 2020 - December 31,
2020
2020
2020
Total
(a)
Purchased
73,500
49,000
52,010
174,510
(b)
Share
$78.83
$86.59
$95.42
$85.95
(c)
Total Number of Shares
Purchased as Part of
or Programs
(d)
Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs
73,500
$98,090,543
49,000
$93,847,721
52,010
174,510
$88,884,889
$88,884,889
The Company issues common stock awards under its equity incentive plans. In the consolidated financial statements, the Company treats shares of
common stock withheld for tax purposes on behalf of its employees in connection with the vesting or exercise of 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.
30
31
PART II
Market Information and Holders
shareholders of record.
Dividend Policy
million.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Entegris’ common stock, $0.01 par value, trades on the Nasdaq Global Select Market under the symbol “ENTG”. As of January 29, 2021, there were 942
Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s Board of Directors. The
Company’s board of directors declared a cash dividend of $0.08 per share during the first, second, third and fourth quarters of 2020, which totaled $43.5
On January 13, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.08 per share to be paid on February 17, 2021 to
shareholders of record as of January 27, 2021.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our board of
directors. Furthermore, the credit agreement governing the Credit Facilities contains restrictions that may limit our ability to pay dividends.
Issuer Sales of Unregistered Securities During the Past Three Years
None.
Comparative Stock Performance
The following graph compares the cumulative total shareholder return on the common stock of Entegris, Inc. from December 31, 2015 through
December 31, 2020 with the cumulative total return of (1) The Nasdaq Composite Index, and (2) The Philadelphia Semiconductor Index, assuming $100
was invested at the close of trading on December 31, 2015 in Entegris, Inc. common stock, the Nasdaq Composite Index and the Philadelphia
Semiconductor Index and that all dividends are reinvested.
Entegris, Inc.
Nasdaq Composite
Philadelphia Semiconductor Index
December 31, 2015
$100.00
100.00
100.00
December 31, 2016
$134.89
108.87
129.32
December 31, 2017
$229.96
141.14
181.76
December 31, 2018
$212.54
137.13
170.77
December 31, 2019
$384.41
187.45
278.80
December 31, 2020
$741.34
271.64
428.42
Issuer Purchases of Equity Securities
On December 14, 2020, the Company’s board of directors authorized a repurchase program, effective February 16, 2021, covering the repurchase of up to
an aggregate of $125 million of the Company’s common stock during a period of twelve months, in open market transactions and in accordance with one or
more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or the
Exchange Act. This repurchase program will replace the existing repurchase program, which was originally approved in February 2020, and which will
expire pursuant to its terms on February 15, 2021. The existing program has substantially the same terms.
The following table provides information concerning shares of the Company’s common stock, $0.01 par value, purchased during the three months ended
December 31, 2020:
Period
September 27, 2020 - October 31,
2020
November 1, 2020 - November 28,
2020
November 29, 2020 - December 31,
2020
Total
(a)
Total Number of Shares
Purchased
(b)
Average Price Paid per
Share
(c)
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
(d)
Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs
73,500
49,000
52,010
174,510
$78.83
$86.59
$95.42
$85.95
73,500
$98,090,543
49,000
$93,847,721
52,010
174,510
$88,884,889
$88,884,889
The Company issues common stock awards under its equity incentive plans. In the consolidated financial statements, the Company treats shares of
common stock withheld for tax purposes on behalf of its employees in connection with the vesting or exercise of 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.
30
31
1
2
3
4
5
6
7
8
9
In 2020, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028. The Company repaid
$251.0 million of outstanding borrowings under the Term Loan Facility during 2020. See note 8 to the Company’s consolidated financial statements for
Global Measurement Technologies, Inc. and Sinmat have been included in our consolidated results of operations starting on the acquisition dates of July
Reflects the adoption of the new accounting standard in fiscal year 2019 related to leases. See note 10 to the Company’s consolidated financial statements
Hangzhou Anow Microfiltration Co., Ltd., MPD Chemicals and Digital Specialty Chemicals Limited have been included in our consolidated results of
operations starting on the acquisition dates of September 17, 2019, July 15, 2019 and March 8, 2019, respectively.
In 2019, the Company received net proceeds of $122.0 million resulting from the termination of the merger agreement with Versum Materials, Inc., or
Versum. See note 9 to the Company’s consolidated financial statements for further information
In 2018, the Company obtained a new $700.0 million senior secured credit facility. The Company used a portion of the proceeds to repay and terminate its
previous credit facilities. See note 8 to the Company’s consolidated financial statements for further information.
Reflects the adoption of the new accounting standard in fiscal year 2018 related to revenue.
The SAES Pure Gas business and Particle Sizing Systems, LLC have been included in our consolidated results of operations starting on the acquisition
dates of June 25, 2018 and January 22, 2018, respectively.
In 2018, our effective tax rate benefited from the reduction of the U.S. statutory federal tax rate and other provisions of the Tax Cuts and Jobs Act of 2017.
In 2017, the Company’s effective tax rate increased due to the recognition of the one-time mandatory repatriation transition tax on the net accumulated
earnings and profits of the Company’s foreign subsidiaries.
Item 6. Selected Financial Data.
The table that follows presents selected financial data from the Company’s consolidated financial statements for each of the last five years and should be
read in conjunction with the Company’s consolidated financial statements and the related notes thereto and with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The selected financial data set forth below as
of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 are derived from our audited financial statements included in
this Annual Report on Form 10-K. All other selected financial data set forth below are derived from our audited financial statements not included in this
Annual Report on Form 10-K. Our historical results are not necessarily indicative of our results of operations to be expected in the future.
further information.
10, 2020 and January 10, 2020, respectively.
for further information.
(In thousands, except per share amounts)
Operating Results
Net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Income before income taxes and equity in net loss of affiliate
Income tax expense
Net income
Per Share Data
Diluted earnings per share
Cash dividends per share
Weighted average shares outstanding – diluted
Operating Ratios – % of net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Income before income taxes and equity in net loss of affiliate
Effective tax rate
Net income
Cash Flow Statement Data
Depreciation and amortization
Capital expenditures
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Balance Sheet and Other Data
Current assets
Current liabilities
Working capital
Current ratio
Long-term debt, including current maturities
Shareholders’ equity
Total assets
Return on average shareholders’ equity – %
Shares outstanding at end of year
Year ended December
31, 2020
(1) (2)
Year ended December
31, 2019
(3) (4) (5)
Year ended December
(6) (7) (8) (9)
31, 2018
Year ended December
31, 2017
Year ended December
31, 2016
$
$
$
$
$
$
$
$
$
$
1,859,313
849,722
265,128
136,057
53,092
395,445
354,287
59,318
294,969
2.16
0.32
136,266
45.7 %
14.3
7.3
2.9
21.3
19.1
16.7
15.9
136,522
131,752
446,674
(243,326)
22,149
1,234,257
302,626
931,631
4.08
1,085,783
1,379,494
2,917,696
$
$
$
$
$
1,591,006
711,653
284,807
121,140
66,428
239,278
318,049
63,189
254,860
1.87
0.30
136,568
44.7 %
17.9
7.6
4.2
15.0
20.0
19.9
16.0
141,403
112,355
382,298
(385,840)
(126,820)
932,397
264,433
667,964
3.53
936,484
1,165,889
2,516,086
$
$
$
$
$
1,550,497
719,831
246,534
118,456
62,152
292,689
254,432
13,677
240,755
1.69
0.28
142,610
46.4 %
15.9
7.6
4.0
18.9
16.4
5.4
15.5
127,268
110,153
312,576
(485,944)
34,411
1,029,338
269,668
759,670
3.82
938,863
1,012,025
2,317,641
$
$
$
$
$
1,342,532
608,985
216,194
106,951
44,023
241,817
184,731
99,665
85,066
0.59
0.07
143,518
45.4 %
16.1
8.0
3.3
18.0
13.8
54.0
6.3
102,231
93,597
293,373
(112,455)
27,251
1,057,608
290,971
766,637
3.63
674,380
993,018
1,976,172
23.2 %
134,946
23.4 %
134,728
24.0 %
135,977
9.0 %
141,283
1,175,270
508,691
201,901
106,991
44,263
155,536
119,999
22,852
97,147
0.68
—
142,050
43.3 %
17.2
9.1
3.8
13.2
10.2
19.0
8.3
99,886
65,260
207,555
(66,686)
(81,747)
800,131
261,571
538,560
3.06
584,677
899,218
1,699,532
11.4 %
141,320
32
33
5
1
In 2020, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028. The Company repaid
$251.0 million of outstanding borrowings under the Term Loan Facility during 2020. See note 8 to the Company’s consolidated financial statements for
further information.
2
Global Measurement Technologies, Inc. and Sinmat have been included in our consolidated results of operations starting on the acquisition dates of July
10, 2020 and January 10, 2020, respectively.
3
Reflects the adoption of the new accounting standard in fiscal year 2019 related to leases. See note 10 to the Company’s consolidated financial statements
for further information.
4
Hangzhou Anow Microfiltration Co., Ltd., MPD Chemicals and Digital Specialty Chemicals Limited have been included in our consolidated results of
operations starting on the acquisition dates of September 17, 2019, July 15, 2019 and March 8, 2019, respectively.
In 2019, the Company received net proceeds of $122.0 million resulting from the termination of the merger agreement with Versum Materials, Inc., or
Versum. See note 9 to the Company’s consolidated financial statements for further information
6
In 2018, the Company obtained a new $700.0 million senior secured credit facility. The Company used a portion of the proceeds to repay and terminate its
previous credit facilities. See note 8 to the Company’s consolidated financial statements for further information.
7
Reflects the adoption of the new accounting standard in fiscal year 2018 related to revenue.
8
The SAES Pure Gas business and Particle Sizing Systems, LLC have been included in our consolidated results of operations starting on the acquisition
dates of June 25, 2018 and January 22, 2018, respectively.
9
In 2018, our effective tax rate benefited from the reduction of the U.S. statutory federal tax rate and other provisions of the Tax Cuts and Jobs Act of 2017.
In 2017, the Company’s effective tax rate increased due to the recognition of the one-time mandatory repatriation transition tax on the net accumulated
earnings and profits of the Company’s foreign subsidiaries.
Item 6. Selected Financial Data.
The table that follows presents selected financial data from the Company’s consolidated financial statements for each of the last five years and should be
read in conjunction with the Company’s consolidated financial statements and the related notes thereto and with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The selected financial data set forth below as
of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 are derived from our audited financial statements included in
this Annual Report on Form 10-K. All other selected financial data set forth below are derived from our audited financial statements not included in this
Annual Report on Form 10-K. Our historical results are not necessarily indicative of our results of operations to be expected in the future.
(In thousands, except per share amounts)
Year ended December
31, 2020
(1) (2)
Year ended December
31, 2019
(3) (4) (5)
Year ended December
(6) (7) (8) (9)
31, 2018
Year ended December
Year ended December
31, 2017
31, 2016
$
1,859,313
$
1,591,006
$
1,550,497
$
1,342,532
$
1,175,270
Operating Results
Net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Income before income taxes and equity in net loss of affiliate
Income tax expense
Net income
Per Share Data
Diluted earnings per share
Cash dividends per share
Weighted average shares outstanding – diluted
Operating Ratios – % of net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Income before income taxes and equity in net loss of affiliate
Effective tax rate
Net income
Cash Flow Statement Data
Depreciation and amortization
Capital expenditures
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Balance Sheet and Other Data
Current assets
Current liabilities
Working capital
Current ratio
Shareholders’ equity
Total assets
Long-term debt, including current maturities
Return on average shareholders’ equity – %
Shares outstanding at end of year
$
$
$
$
2.16
0.32
$
$
1.87
0.30
$
$
1.69
0.28
$
$
0.59
0.07
$
$
136,266
136,568
142,610
143,518
45.7 %
44.7 %
46.4 %
45.4 %
43.3 %
849,722
265,128
136,057
53,092
395,445
354,287
59,318
294,969
14.3
7.3
2.9
21.3
19.1
16.7
15.9
711,653
284,807
121,140
66,428
239,278
318,049
63,189
254,860
17.9
7.6
4.2
15.0
20.0
19.9
16.0
$
136,522
131,752
446,674
(243,326)
22,149
1,234,257
$
302,626
931,631
4.08
1,085,783
1,379,494
2,917,696
23.2 %
134,946
$
$
141,403
112,355
382,298
(385,840)
(126,820)
932,397
264,433
667,964
3.53
936,484
1,165,889
2,516,086
23.4 %
134,728
719,831
246,534
118,456
62,152
292,689
254,432
13,677
240,755
15.9
7.6
4.0
18.9
16.4
5.4
15.5
127,268
110,153
312,576
(485,944)
34,411
269,668
759,670
3.82
938,863
1,012,025
2,317,641
24.0 %
135,977
608,985
216,194
106,951
44,023
241,817
184,731
99,665
85,066
16.1
8.0
3.3
18.0
13.8
54.0
6.3
102,231
93,597
293,373
(112,455)
27,251
290,971
766,637
3.63
674,380
993,018
1,976,172
9.0 %
141,283
$
$
1,029,338
$
1,057,608
$
508,691
201,901
106,991
44,263
155,536
119,999
22,852
97,147
0.68
—
142,050
17.2
9.1
3.8
13.2
10.2
19.0
8.3
99,886
65,260
207,555
(66,686)
(81,747)
800,131
261,571
538,560
3.06
584,677
899,218
1,699,532
11.4 %
141,320
32
33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the
consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the
“Cautionary Statements” section of this Item 7 below. You should review Item 1A “Risk Factors” of this Annual Report on Form 10-K for a discussion of
important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in
the following discussion and analysis.
Cautionary Statements
This Annual Report on Form 10-K and the portions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form
10-K contain “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,”
“will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements
may include statements about the impact of the COVID-19 pandemic on the Company’s operations and markets; future period guidance or projections; the
Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers
of any growth trends and the impact of the COVID-19 pandemic on such trends; the development of new products and the success of their introductions;
the focus of the Company’s engineering, research and development projects; the Company’s ability to execute on its business strategies, including with
respect to the Company’s expansion of its manufacturing presence in Taiwan; the Company’s capital allocation strategy, which may be modified at any
time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has
made and commercial relationships the Company has established; future capital and other expenditures, including estimates thereof; the Company’s
expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative
disclosures about market risk; and other matters. These forward-looking statements are based on current management expectations and assumptions only as
of the date of this Annual Report on Form 10-K, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to
predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks
and uncertainties include, but are not limited to, the risk factors and additional information described in this Annual Report on Form 10-K under the caption
“Risk Factors,” elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings. Except as required under the federal securities
laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information
contained herein, which speak as of their respective dates.
Overview
This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended
merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the
detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of
operations.
The Company is a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology industries. Our mission is
to help our customers improve their productivity, performance and technology by providing solutions for the most advanced manufacturing environments.
We leverage our unique breadth of capabilities to create mission-critical microcontamination control products, specialty chemicals and advanced materials
handling solutions that maximize manufacturing yields, reduce manufacturing costs and enable higher device performance for our customers.
Our customized materials solutions enable the highest levels of performance essential to the manufacture of semiconductors. As our customers introduce
more complex architectures and search for new materials with better electrical and structural properties to improve the performance of their devices, they
rely on Entegris as a trusted partner to address these challenges. We understand these challenges and have solutions to address them, such as our advanced
deposition materials, implant gases, formulated cleaning chemistries and selective etch chemistries. Our customers also require greater end-to-end materials
purity and integrity in their manufacturing process that, when combined with smaller dimensions and more complex architectures, can be challenging to
achieve. To enable the use of new metals and the further miniaturization of chips, and to maximize yield and increase long-term device reliability, we
provide products such as our advanced liquid and gas filtration and purification products that help to selectively remove new classes of contaminants
throughout the semiconductor supply chain. In addition, to ensure purity levels are maintained across the entire supply chain, from bulk manufacturing, to
transportation to and delivery through a fab, to application onto the wafer, we provide high-purity packaging and materials handling products.
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, life sciences 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. With the technology, capabilities and
complementary product portfolios from these three segments, we are uniquely positioned to collaborate across divisions to create new, co-optimized and
increasingly integrated solutions for our customers. For example, our SCEM segment offers a highly selective nitride etch chemistry, our MC segment
provides a liquid filter that is specifically matched to that formulation and our AMH segment ensures the integrity of the product as it is moved to and
through the fab environment.
Key operating factors Key factors which management believes have the largest impact on the overall results of operations of the Company include:
•
Level of sales Since a significant portion of the Company’s product costs (except for raw materials, purchased components and direct labor) are
largely fixed in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also,
increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions, which are highly
variable in nature. The Company’s sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing
pressures and foreign currency 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.
Impact of COVID-19 on our Business
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving
measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, limits on gatherings, quarantines,
shelter-in-place orders and business shutdowns. In some cases, governmental re-opening plans have been delayed or reversed due to spikes in the number
of infections in the local area. We continue to monitor the situation regarding the COVID-19 pandemic, which remains fluid and uncertain, and to
proactively manage and adapt our responses in collaboration with our employees, customers and suppliers. However, we are unable to accurately predict
the full impact that COVID-19 may have on our business, results of operations, financial condition, liquidity and cash flows, which will depend on future
developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, the duration and continued spread of the
outbreak, its severity, potential additional waves of infection, the actions to mitigate the virus or its impact, the development, distribution, efficacy and
acceptance of vaccines and how quickly and to what extent normal economic and operating conditions can resume.
Health and Safety
Commencing in the first quarter of 2020, we have taken, and continue to take, proactive, aggressive action to protect the health and safety of our
employees, customers, partners and suppliers. We enacted rigorous safety measures, including social distancing protocols, encouraging employees who do
not need to be physically present on the manufacturing floor or in a lab to perform their work to work from home, suspending non-essential travel,
implementing temperature checks and other access controls at the entrances to our facilities, extensively and frequently disinfecting our workspaces and
providing masks to employees who are physically present at our facilities. We expect to continue to implement these measures until the COVID-19
pandemic is adequately contained, and we may take further actions as government authorities require or recommend or as we determine to be in the best
interests of our employees, customers, partners and suppliers. We expect that the pandemic may abate at different times in different regions, and
accordingly our health and safety protocols may vary across regions.
Operations
34
35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the
consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the
“Cautionary Statements” section of this Item 7 below. You should review Item 1A “Risk Factors” of this Annual Report on Form 10-K for a discussion of
important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in
the following discussion and analysis.
Cautionary Statements
This Annual Report on Form 10-K and the portions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form
10-K contain “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,”
“will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements
may include statements about the impact of the COVID-19 pandemic on the Company’s operations and markets; future period guidance or projections; the
Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers
of any growth trends and the impact of the COVID-19 pandemic on such trends; the development of new products and the success of their introductions;
the focus of the Company’s engineering, research and development projects; the Company’s ability to execute on its business strategies, including with
respect to the Company’s expansion of its manufacturing presence in Taiwan; the Company’s capital allocation strategy, which may be modified at any
time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has
made and commercial relationships the Company has established; future capital and other expenditures, including estimates thereof; the Company’s
expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative
disclosures about market risk; and other matters. These forward-looking statements are based on current management expectations and assumptions only as
of the date of this Annual Report on Form 10-K, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to
predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks
and uncertainties include, but are not limited to, the risk factors and additional information described in this Annual Report on Form 10-K under the caption
“Risk Factors,” elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings. Except as required under the federal securities
laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information
contained herein, which speak as of their respective dates.
Overview
operations.
This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended
merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the
detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of
The Company is a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology industries. Our mission is
to help our customers improve their productivity, performance and technology by providing solutions for the most advanced manufacturing environments.
We leverage our unique breadth of capabilities to create mission-critical microcontamination control products, specialty chemicals and advanced materials
handling solutions that maximize manufacturing yields, reduce manufacturing costs and enable higher device performance for our customers.
Our customized materials solutions enable the highest levels of performance essential to the manufacture of semiconductors. As our customers introduce
more complex architectures and search for new materials with better electrical and structural properties to improve the performance of their devices, they
rely on Entegris as a trusted partner to address these challenges. We understand these challenges and have solutions to address them, such as our advanced
deposition materials, implant gases, formulated cleaning chemistries and selective etch chemistries. Our customers also require greater end-to-end materials
purity and integrity in their manufacturing process that, when combined with smaller dimensions and more complex architectures, can be challenging to
achieve. To enable the use of new metals and the further miniaturization of chips, and to maximize yield and increase long-term device reliability, we
provide products such as our advanced liquid and gas filtration and purification products that help to selectively remove new classes of contaminants
throughout the semiconductor supply chain. In addition, to ensure purity levels are maintained across the entire supply chain, from bulk manufacturing, to
transportation to and delivery through a fab, to application onto the wafer, we provide high-purity packaging and materials handling products.
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, life sciences 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. With the technology, capabilities and
complementary product portfolios from these three segments, we are uniquely positioned to collaborate across divisions to create new, co-optimized and
increasingly integrated solutions for our customers. For example, our SCEM segment offers a highly selective nitride etch chemistry, our MC segment
provides a liquid filter that is specifically matched to that formulation and our AMH segment ensures the integrity of the product as it is moved to and
through the fab environment.
Key operating factors Key factors which management believes have the largest impact on the overall results of operations of the Company include:
•
•
•
Level of sales Since a significant portion of the Company’s product costs (except for raw materials, purchased components and direct labor) are
largely fixed in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also,
increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions, which are highly
variable in nature. The Company’s sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing
pressures and foreign currency 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.
Impact of COVID-19 on our Business
As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and constantly evolving
measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, limits on gatherings, quarantines,
shelter-in-place orders and business shutdowns. In some cases, governmental re-opening plans have been delayed or reversed due to spikes in the number
of infections in the local area. We continue to monitor the situation regarding the COVID-19 pandemic, which remains fluid and uncertain, and to
proactively manage and adapt our responses in collaboration with our employees, customers and suppliers. However, we are unable to accurately predict
the full impact that COVID-19 may have on our business, results of operations, financial condition, liquidity and cash flows, which will depend on future
developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, the duration and continued spread of the
outbreak, its severity, potential additional waves of infection, the actions to mitigate the virus or its impact, the development, distribution, efficacy and
acceptance of vaccines and how quickly and to what extent normal economic and operating conditions can resume.
Health and Safety
Commencing in the first quarter of 2020, we have taken, and continue to take, proactive, aggressive action to protect the health and safety of our
employees, customers, partners and suppliers. We enacted rigorous safety measures, including social distancing protocols, encouraging employees who do
not need to be physically present on the manufacturing floor or in a lab to perform their work to work from home, suspending non-essential travel,
implementing temperature checks and other access controls at the entrances to our facilities, extensively and frequently disinfecting our workspaces and
providing masks to employees who are physically present at our facilities. We expect to continue to implement these measures until the COVID-19
pandemic is adequately contained, and we may take further actions as government authorities require or recommend or as we determine to be in the best
interests of our employees, customers, partners and suppliers. We expect that the pandemic may abate at different times in different regions, and
accordingly our health and safety protocols may vary across regions.
Operations
34
35
We have important manufacturing operations in the United States, Japan, Korea, China, Malaysia, and Taiwan, all of which have been affected by the
outbreak and have taken measures to try to contain it. Measures providing for business shutdowns have generally excluded certain essential services, and
those essential services have commonly included critical infrastructure and the businesses that support that critical infrastructure. While all of our facilities
currently remain operational, these measures have impacted and may further impact our workforce and operations, as well as those of our customers,
suppliers and other third parties with which we do business. For example, in March 2020 the government of Malaysia issued an order that significantly
reduced the number of employees who could be physically present to operate our Malaysian plant, which temporarily reduced the productivity of that plant.
The government of Malaysia issued a similar order restricting movement throughout that country in January 2021, which has not impacted our operations
as of the date of this filing but may do so in the future. Our Malaysian plant is operating at full capacity as of the date of this filing. In addition to reduced
productivity, constraints and limits imposed on our operations may slow or diminish our research and development and customer qualification activities.
During 2020, we experienced brief interruptions in operations at our sites in Hangzhou, China, San Luis Obispo, California and Bedford, Massachusetts
and so far during 2021 we have experienced minor interruptions in operations at our site in San Luis Obispo, California and a brief construction delay to an
expansion of our facility in Toronto, Canada. While governmental measures may be modified, extended or reimposed, we expect that, absent a significant
surge in infections in the relevant local area or within our workforce or those of our suppliers, our manufacturing and research and development facilities
will remain operational, largely at or near full capacity. In connection with the COVID-19 pandemic, we have experienced limited absenteeism from
employees who are required to be on-site to perform their jobs. We do not currently expect that our operations will be materially adversely affected by
significant absenteeism. In addition, we have incurred incremental employee compensation related to the COVID-19 pandemic. For example, since April
2020, we have awarded certain of our employees who are required to physically report to a manufacturing facility in order to perform their jobs during the
COVID-19 crisis with a special appreciation bonus for their efforts in sustaining our production continuity.
Supply
We have not yet experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. However, certain of our
suppliers have faced difficulties maintaining operations in light of government-ordered restrictions, shelter-in-place mandates and outbreaks of infection
within their workforces. As the pandemic continues, our suppliers may face challenges in maintaining their level of supply as a result of these or other
factors. For example, as a result of the COVID-19 pandemic, during the first half of 2020, one of our critical valve suppliers was shut down and was unable
to supply us with valves for certain of our gas purification products. In this instance we were able to procure this critical part from a second, pre-qualified
source. Although we regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers caused by
the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and thus
require us to increase our safety stocks of certain raw materials or components, adversely affecting our operations. To mitigate the risk of potential supply
interruptions from the COVID-19 pandemic, during 2020 and into 2021, we chose to increase certain inventory levels, causing us to hold more inventory
than we might have otherwise maintained. We may decide to take similar actions going forward, which may result in increased charges for excess or
obsolete inventory, which would have the effect of reducing our profitability. Additionally, restrictions or disruptions of transportation, such as reduced
availability of air transport, port closures and increased border controls or closures, have resulted, in certain instances, in higher costs and delays, both on
obtaining materials and shipping finished goods to customers. If these restrictions and disruptions continue, they could harm our profitability, make our
products less competitive or cause our customers to seek alternative suppliers.
Demand
statements.
The COVID-19 pandemic has significantly increased economic and demand uncertainty. During 2020, we saw strong demand from leading-edge customers
associated with end-uses in servers and other data center applications. We believe that a portion of the orders that we received in 2020 may have been a
result of customers increasing their inventory to reduce their exposure to risks of future supply disruptions, which could offset demand for our products in
the future. We anticipate that the pandemic will continue to contribute to the current global economic slowdown, and it is possible that it could cause a
global recession. In the event of a recession, demand for our products would decline and our business would be adversely affected.
Critical Accounting Policies
Liquidity
Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe our business model, our current
cash reserves and our balance sheet leave us well-positioned to manage our business through this crisis as we expect it to unfold. We have taken recent
steps to strengthen our balance sheet. On April 30, 2020, we issued $400 million aggregate principal amount of 4.375% senior unsecured notes due April
15, 2028. We used a portion of the net proceeds of the offering to repay approximately $142 million of borrowings under our senior secured revolving
facility due 2023, or the Revolving Facility, representing the entire aggregate principal amount outstanding thereunder. We also used a portion of the net
proceeds of the offering to repay approximately $251 million of outstanding borrowings under our senior secured term loan facility, or the Term Loan
Facility.
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these
consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including,
but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangible assets), goodwill, income taxes and business
combinations. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under
the circumstances. If management made different judgments or utilized different estimates, this could result in material differences in the amount and
timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly
resulting in increased future charges to earnings.
We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on the global economy and the semiconductor industry. Based
on our analysis, we believe our existing balances of domestic cash and cash equivalents, which totaled $268.1 million as of December 31, 2020, and our
currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.
We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public
health authorities, and may take additional actions based on their recommendations and requirements or as we otherwise see fit to protect the health and
safety of our employees, customers, partners and suppliers. In these circumstances, there may be developments outside our control requiring us to adjust
our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts that COVID-19 may have on our
financial condition, results of operations or cash flows in the future. See Item 1A, “Risk Factors,” for additional information regarding risks associated with
the COVID-19 pandemic, including under the caption “The COVID-19 pandemic and ensuing governmental responses could materially adversely affect
our financial condition and results of operations.”
Overall Summary of Financial Results for the Year Ended December 31, 2020
Total net sales for 2020 were $1,859.3 million up $268.2 million, or 17%, from sales of $1,591.1 million for 2019.
Total net sales increased primarily as a result of an increase in overall demand for the Company’s products from semiconductor industry customers,
particularly in the sale of liquid filtration, advanced deposition materials and other areas of increasing importance to our customers. Total net sales also
reflected net sales associated with acquisitions of $43.1 million and favorable foreign currency translation effects of $8.0 million.
The Company’s gross profit increased by $138.1 million for 2020 to $849.7 million, up from $711.7 million for the year ended December 31, 2019.
Accordingly, the Company reported a 45.7% gross margin rate compared to 44.7% in 2019. The increases in gross profit and gross margin reflect higher
factory utilization associated with stronger sales levels and a favorable sales mix.
The Company’s selling, general and administrative, or SG&A, expenses decreased in 2020 by $19.7 million, mainly reflecting lower deal costs and costs of
integration activities, partially offset by higher employee costs.
The Company’s engineering, research and development, or ER&D, expenses increased in 2020 by $14.9 million, mainly reflecting higher employee costs.
As a result of the aforementioned and other factors discussed below, net income for 2020 was $295.0 million, or $2.16 per diluted share, compared to net
income of $254.9 million, or $1.87 per diluted share, in 2019.
On January 10, 2020, the Company acquired Sinmat, a chemical mechanical planarization slurry manufacturer. Sinmat reports into the Specialty Chemicals
and Engineered Materials segment of the Company. The total purchase price of the acquisition was $75.6 million, net of cash acquired. The transaction is
described in further detail in note 3 to the Company’s consolidated financial statements.
On July 10, 2020, the Company acquired Global Measurement Technologies Inc., an analytical instrument provider for critical processes in semiconductor
production, and its manufacturing partner Clean Room Plastics, Inc. (together, GMTI), for a purchase price of $36.3 million in cash. GMTI will report into
the Advanced Materials Handling segment of the Company. The transaction is described in further detail in note 3 to the Company’s consolidated financial
During 2020, the Company’s operating activities provided cash flow of $446.7 million. Cash, cash equivalents and short-term investments were $580.9
million at December 31, 2020 compared with $351.9 million at December 31, 2019. The Company had long-term borrowings, including current maturities,
of $1,085.8 million at December 31, 2020 compared with $936.5 million at December 31, 2019.
36
37
We have important manufacturing operations in the United States, Japan, Korea, China, Malaysia, and Taiwan, all of which have been affected by the
outbreak and have taken measures to try to contain it. Measures providing for business shutdowns have generally excluded certain essential services, and
those essential services have commonly included critical infrastructure and the businesses that support that critical infrastructure. While all of our facilities
currently remain operational, these measures have impacted and may further impact our workforce and operations, as well as those of our customers,
suppliers and other third parties with which we do business. For example, in March 2020 the government of Malaysia issued an order that significantly
reduced the number of employees who could be physically present to operate our Malaysian plant, which temporarily reduced the productivity of that plant.
The government of Malaysia issued a similar order restricting movement throughout that country in January 2021, which has not impacted our operations
as of the date of this filing but may do so in the future. Our Malaysian plant is operating at full capacity as of the date of this filing. In addition to reduced
productivity, constraints and limits imposed on our operations may slow or diminish our research and development and customer qualification activities.
During 2020, we experienced brief interruptions in operations at our sites in Hangzhou, China, San Luis Obispo, California and Bedford, Massachusetts
and so far during 2021 we have experienced minor interruptions in operations at our site in San Luis Obispo, California and a brief construction delay to an
expansion of our facility in Toronto, Canada. While governmental measures may be modified, extended or reimposed, we expect that, absent a significant
surge in infections in the relevant local area or within our workforce or those of our suppliers, our manufacturing and research and development facilities
employees who are required to be on-site to perform their jobs. We do not currently expect that our operations will be materially adversely affected by
significant absenteeism. In addition, we have incurred incremental employee compensation related to the COVID-19 pandemic. For example, since April
2020, we have awarded certain of our employees who are required to physically report to a manufacturing facility in order to perform their jobs during the
COVID-19 crisis with a special appreciation bonus for their efforts in sustaining our production continuity.
We have not yet experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. However, certain of our
suppliers have faced difficulties maintaining operations in light of government-ordered restrictions, shelter-in-place mandates and outbreaks of infection
within their workforces. As the pandemic continues, our suppliers may face challenges in maintaining their level of supply as a result of these or other
factors. For example, as a result of the COVID-19 pandemic, during the first half of 2020, one of our critical valve suppliers was shut down and was unable
source. Although we regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers caused by
the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products and thus
require us to increase our safety stocks of certain raw materials or components, adversely affecting our operations. To mitigate the risk of potential supply
interruptions from the COVID-19 pandemic, during 2020 and into 2021, we chose to increase certain inventory levels, causing us to hold more inventory
than we might have otherwise maintained. We may decide to take similar actions going forward, which may result in increased charges for excess or
obsolete inventory, which would have the effect of reducing our profitability. Additionally, restrictions or disruptions of transportation, such as reduced
availability of air transport, port closures and increased border controls or closures, have resulted, in certain instances, in higher costs and delays, both on
obtaining materials and shipping finished goods to customers. If these restrictions and disruptions continue, they could harm our profitability, make our
products less competitive or cause our customers to seek alternative suppliers.
The COVID-19 pandemic has significantly increased economic and demand uncertainty. During 2020, we saw strong demand from leading-edge customers
associated with end-uses in servers and other data center applications. We believe that a portion of the orders that we received in 2020 may have been a
result of customers increasing their inventory to reduce their exposure to risks of future supply disruptions, which could offset demand for our products in
the future. We anticipate that the pandemic will continue to contribute to the current global economic slowdown, and it is possible that it could cause a
global recession. In the event of a recession, demand for our products would decline and our business would be adversely affected.
Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe our business model, our current
cash reserves and our balance sheet leave us well-positioned to manage our business through this crisis as we expect it to unfold. We have taken recent
steps to strengthen our balance sheet. On April 30, 2020, we issued $400 million aggregate principal amount of 4.375% senior unsecured notes due April
15, 2028. We used a portion of the net proceeds of the offering to repay approximately $142 million of borrowings under our senior secured revolving
facility due 2023, or the Revolving Facility, representing the entire aggregate principal amount outstanding thereunder. We also used a portion of the net
proceeds of the offering to repay approximately $251 million of outstanding borrowings under our senior secured term loan facility, or the Term Loan
Supply
Demand
Liquidity
Facility.
We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on the global economy and the semiconductor industry. Based
on our analysis, we believe our existing balances of domestic cash and cash equivalents, which totaled $268.1 million as of December 31, 2020, and our
currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.
We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public
health authorities, and may take additional actions based on their recommendations and requirements or as we otherwise see fit to protect the health and
safety of our employees, customers, partners and suppliers. In these circumstances, there may be developments outside our control requiring us to adjust
our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts that COVID-19 may have on our
financial condition, results of operations or cash flows in the future. See Item 1A, “Risk Factors,” for additional information regarding risks associated with
the COVID-19 pandemic, including under the caption “The COVID-19 pandemic and ensuing governmental responses could materially adversely affect
our financial condition and results of operations.”
Overall Summary of Financial Results for the Year Ended December 31, 2020
will remain operational, largely at or near full capacity. In connection with the COVID-19 pandemic, we have experienced limited absenteeism from
Total net sales for 2020 were $1,859.3 million up $268.2 million, or 17%, from sales of $1,591.1 million for 2019.
to supply us with valves for certain of our gas purification products. In this instance we were able to procure this critical part from a second, pre-qualified
The Company’s engineering, research and development, or ER&D, expenses increased in 2020 by $14.9 million, mainly reflecting higher employee costs.
Total net sales increased primarily as a result of an increase in overall demand for the Company’s products from semiconductor industry customers,
particularly in the sale of liquid filtration, advanced deposition materials and other areas of increasing importance to our customers. Total net sales also
reflected net sales associated with acquisitions of $43.1 million and favorable foreign currency translation effects of $8.0 million.
The Company’s gross profit increased by $138.1 million for 2020 to $849.7 million, up from $711.7 million for the year ended December 31, 2019.
Accordingly, the Company reported a 45.7% gross margin rate compared to 44.7% in 2019. The increases in gross profit and gross margin reflect higher
factory utilization associated with stronger sales levels and a favorable sales mix.
The Company’s selling, general and administrative, or SG&A, expenses decreased in 2020 by $19.7 million, mainly reflecting lower deal costs and costs of
integration activities, partially offset by higher employee costs.
As a result of the aforementioned and other factors discussed below, net income for 2020 was $295.0 million, or $2.16 per diluted share, compared to net
income of $254.9 million, or $1.87 per diluted share, in 2019.
On January 10, 2020, the Company acquired Sinmat, a chemical mechanical planarization slurry manufacturer. Sinmat reports into the Specialty Chemicals
and Engineered Materials segment of the Company. The total purchase price of the acquisition was $75.6 million, net of cash acquired. The transaction is
described in further detail in note 3 to the Company’s consolidated financial statements.
On July 10, 2020, the Company acquired Global Measurement Technologies Inc., an analytical instrument provider for critical processes in semiconductor
production, and its manufacturing partner Clean Room Plastics, Inc. (together, GMTI), for a purchase price of $36.3 million in cash. GMTI will report into
the Advanced Materials Handling segment of the Company. The transaction is described in further detail in note 3 to the Company’s consolidated financial
statements.
During 2020, the Company’s operating activities provided cash flow of $446.7 million. Cash, cash equivalents and short-term investments were $580.9
million at December 31, 2020 compared with $351.9 million at December 31, 2019. The Company had long-term borrowings, including current maturities,
of $1,085.8 million at December 31, 2020 compared with $936.5 million at December 31, 2019.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these
consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including,
but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangible assets), goodwill, income taxes and business
combinations. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under
the circumstances. If management made different judgments or utilized different estimates, this could result in material differences in the amount and
timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly
resulting in increased future charges to earnings.
36
37
The critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company’s
consolidated financial statements are discussed below.
Business Acquisitions
The Company accounts for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities
assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned
to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Accordingly, for significant items
the Company typically obtains assistance from a third-party valuation firm.
There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For
intangible assets, the Company normally utilizes the “income method.” This method starts with a forecast of all of the expected future net cash
flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that
reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the
following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expense, (4) royalty rates, and (5)
discount rates.
Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives,
influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite
useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net
income.
Results of Operations
Year ended December 31, 2020 compared to year ended December 31, 2019
The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for
2020 and 2019.
(Dollars in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Interest expense
Interest income
Other income, net
Income before income taxes
Income tax expense
Net income
2020
2019
% of net sales
% of net sales
$
$
1,859,313
1,009,591
849,722
265,128
136,057
53,092
395,445
48,600
(786)
(6,656)
354,287
59,318
294,969
100.0 % $
54.3
45.7
14.3
7.3
2.9
21.3
2.6
—
(0.4)
19.1
3.2
15.9
$
1,591,066
879,413
711,653
284,807
121,140
66,428
239,278
46,962
(4,652)
(121,081)
318,049
63,189
254,860
100.0 %
55.3
44.7
17.9
7.6
4.2
15.0
3.0
(0.3)
(7.6)
20.0
4.0
16.0
The Company’s net sales reflected an increase in overall demand for the Company’s products from semiconductor industry customers, particularly in the
sale of liquid filtration, advanced deposition materials and other areas of increasing importance to our customers. Total net sales also reflected net sales
associated with acquisitions of $43.1 million favorable foreign currency translation effects of $8.0 million, mainly due to the strengthening of the Japanese
yen and Taiwanese dollar relative to the U.S. dollar.
Sales percentage on a geographic basis for 2020 and 2019 and the percentage increase (decrease) in sales for 2020 compared to sales for 2019 were as
follows:
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
December 31, 2020
December 31, 2019
in sales
Percentage increase (decrease)
Year ended
25 %
20 %
15 %
13 %
13 %
8 %
5 %
24 %
19 %
15 %
13 %
13 %
8 %
7 %
22 %
20 %
12 %
18 %
15 %
17 %
(1)%
The increase in sales for North America and Taiwan was primarily driven by a general increase in demand for products in all three of the Company’s
segments. The increase in sales from South Korea relates to higher sales of Advanced Materials Handling products of 10% and Specialty Chemicals and
Engineered Materials products of 5%. The increase in sales from Japan relates to higher sales of Microcontamination Control products of 10% and
Specialty Chemicals and Engineered Materials products of 8%. The increase in sales for China was primarily driven by a general increase in demand for
products in all three of the Company’s segments and additional sales attributable to the acquisition of Anow in the third quarter of 2019. The increase in
sales from Europe primarily relates to higher sales of Microcontamination Control products.
Demand drivers for the Company’s business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for
new or upgraded semiconductor fabrication equipment and facilities (capital-driven). The Company analyzes sales of its products by these two key drivers.
Sales of unit-driven products represented 70% of total sales and sales of capital-driven products represented 30% of total sales in both 2020 and 2019.
Gross profit Gross profit for 2020 increased by $138.1 million to $849.7 million, an increase of 19% from $711.7 million for 2019. The gross margin rate
for 2020 was 45.7% versus 44.7% for 2019. The increases in gross profit and gross margin reflect higher factory utilization associated with stronger sales
levels and a favorable sales mix. The gross profit and gross margin figures include an incremental cost of sales charge of $0.6 million and $7.5 million,
associated with the sale of inventory acquired in recent business acquisitions for 2020 and 2019, respectively.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees
(including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2020 decreased $19.7 million, or 7%,
to $265.1 million from $284.8 million in 2019. SG&A expenses, as a percent of net sales, decreased to 14.3% from 17.9% a year earlier, reflecting
primarily the decrease in deal and integration costs.
An analysis of the factors underlying the decrease in SG&A is presented in the following table:
Net sales For 2020, net sales were $1,859.3 million, up $268.2 million, or 17%, from sales for 2019. An analysis of the factors underlying the increase in
net sales is presented in the following table:
Selling, general and administrative expenses in 2019
(In thousands)
Net sales in 2019
Increase associated with volume, pricing and mix
Increase associated with acquired businesses
Increase associated with effect of foreign currency translation
Net sales in 2020
$
$
1,591,066
217,106
43,092
8,049
1,859,313
(In thousands)
Deal costs
Integration costs
Employee costs
Donation costs
Other decreases, net
Selling, general and administrative expenses in 2020
$
$
284,807
(23,588)
(5,412)
8,530
1,990
(1,199)
265,128
38
39
The critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company’s
consolidated financial statements are discussed below.
Business Acquisitions
The Company accounts for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities
assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned
to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Accordingly, for significant items
the Company typically obtains assistance from a third-party valuation firm.
There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For
intangible assets, the Company normally utilizes the “income method.” This method starts with a forecast of all of the expected future net cash
flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that
reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the
following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expense, (4) royalty rates, and (5)
Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives,
influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite
useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net
Year ended December 31, 2020 compared to year ended December 31, 2019
The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for
discount rates.
income.
Results of Operations
2020 and 2019.
(Dollars in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Interest expense
Interest income
Other income, net
Income before income taxes
Income tax expense
Net income
net sales is presented in the following table:
(In thousands)
Net sales in 2019
Net sales in 2020
Increase associated with volume, pricing and mix
Increase associated with acquired businesses
Increase associated with effect of foreign currency translation
Net sales For 2020, net sales were $1,859.3 million, up $268.2 million, or 17%, from sales for 2019. An analysis of the factors underlying the increase in
The Company’s net sales reflected an increase in overall demand for the Company’s products from semiconductor industry customers, particularly in the
sale of liquid filtration, advanced deposition materials and other areas of increasing importance to our customers. Total net sales also reflected net sales
associated with acquisitions of $43.1 million favorable foreign currency translation effects of $8.0 million, mainly due to the strengthening of the Japanese
yen and Taiwanese dollar relative to the U.S. dollar.
Sales percentage on a geographic basis for 2020 and 2019 and the percentage increase (decrease) in sales for 2020 compared to sales for 2019 were as
follows:
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
Year ended
December 31, 2020
December 31, 2019
Percentage increase (decrease)
in sales
25 %
20 %
15 %
13 %
13 %
8 %
5 %
24 %
19 %
15 %
13 %
13 %
8 %
7 %
22 %
20 %
12 %
18 %
15 %
17 %
(1)%
$
1,859,313
1,009,591
849,722
265,128
136,057
53,092
395,445
48,600
(786)
(6,656)
354,287
59,318
294,969
54.3
45.7
14.3
7.3
2.9
21.3
2.6
—
(0.4)
19.1
3.2
15.9
879,413
711,653
284,807
121,140
66,428
239,278
46,962
(4,652)
(121,081)
318,049
63,189
254,860
55.3
44.7
17.9
7.6
4.2
15.0
3.0
(0.3)
(7.6)
20.0
4.0
16.0
$
$
The increase in sales for North America and Taiwan was primarily driven by a general increase in demand for products in all three of the Company’s
segments. The increase in sales from South Korea relates to higher sales of Advanced Materials Handling products of 10% and Specialty Chemicals and
Engineered Materials products of 5%. The increase in sales from Japan relates to higher sales of Microcontamination Control products of 10% and
Specialty Chemicals and Engineered Materials products of 8%. The increase in sales for China was primarily driven by a general increase in demand for
products in all three of the Company’s segments and additional sales attributable to the acquisition of Anow in the third quarter of 2019. The increase in
sales from Europe primarily relates to higher sales of Microcontamination Control products.
2020
2019
% of net sales
% of net sales
100.0 % $
1,591,066
100.0 %
Demand drivers for the Company’s business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for
new or upgraded semiconductor fabrication equipment and facilities (capital-driven). The Company analyzes sales of its products by these two key drivers.
Sales of unit-driven products represented 70% of total sales and sales of capital-driven products represented 30% of total sales in both 2020 and 2019.
Gross profit Gross profit for 2020 increased by $138.1 million to $849.7 million, an increase of 19% from $711.7 million for 2019. The gross margin rate
for 2020 was 45.7% versus 44.7% for 2019. The increases in gross profit and gross margin reflect higher factory utilization associated with stronger sales
levels and a favorable sales mix. The gross profit and gross margin figures include an incremental cost of sales charge of $0.6 million and $7.5 million,
associated with the sale of inventory acquired in recent business acquisitions for 2020 and 2019, respectively.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees
(including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2020 decreased $19.7 million, or 7%,
to $265.1 million from $284.8 million in 2019. SG&A expenses, as a percent of net sales, decreased to 14.3% from 17.9% a year earlier, reflecting
primarily the decrease in deal and integration costs.
An analysis of the factors underlying the decrease in SG&A is presented in the following table:
(In thousands)
Selling, general and administrative expenses in 2019
Deal costs
Integration costs
Employee costs
Donation costs
Other decreases, net
Selling, general and administrative expenses in 2020
$
$
1,591,066
217,106
43,092
8,049
1,859,313
$
$
284,807
(23,588)
(5,412)
8,530
1,990
(1,199)
265,128
38
39
Deal and transaction costs were $23.6 million lower in 2020 compared to the prior year, mainly due to the deal costs associated with the terminated Versum
transaction.
Net income Net income was $295.0 million, or $2.16 per diluted share, in 2020 compared to net income of $254.9 million, or $1.87 per diluted share, in
2019. The increase reflects the Company’s aforementioned operating results described in greater detail above.
Engineering, research and development expenses
Engineering, research and development expenses consist of expenses for the support of current product lines and the development of new products and
manufacturing technologies. These expenses were $136.1 million in 2020 and $121.1 million in 2019. ER&D expenses as a percent of net sales decreased
to 7.3% from 7.6% a year earlier, reflecting the increase in sales, partially offset by higher employee costs.
An analysis of the factors underlying the increase ER&D is presented in the following table:
(In thousands)
Engineering, research and development expense in 2019
Employee costs
Project related costs
Depreciation
Other decreases, net
Engineering, research and development expense in 2020
$
$
121,140
11,135
2,387
1,861
(466)
136,057
profit.
Segment Analysis
Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided
in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP
Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly
comparable GAAP measures.
non-GAAP earnings per share, or EPS.
The Company’s non-GAAP financial measures include adjusted EBITDA and adjusted operating income, together with related percentage changes, and
Adjusted EBITDA increased to $542.5 million in 2020, compared to $436.8 million in 2019. Adjusted EBITDA as a percent of net sales was 29.2% in
2020 compared to 27.5% in 2019. Adjusted operating income increased 27% to $459.0 million in 2020, compared to $361.8 million in 2019. Adjusted
operating income as a percent of net sales was 24.7% in 2020 compared to 22.7% in 2019. Non-GAAP EPS increased 32% to $2.54 in 2020, compared to
$1.93 in 2019. The increases in the adjusted EBITDA and adjusted operating income as a percentage of net sales reflects the increase in sales and gross
The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced
processing applications and identifying and developing products for new applications, and the Company often works directly with its customers to address
their particular needs. The Company expects ER&D costs to stay relatively stable as a percentage of net sales.
Amortization of intangible assets Amortization of intangible assets was $53.1 million in 2020 compared to $66.4 million for 2019. The decrease
primarily reflects the elimination of amortization expense of $21.1 million for identifiable intangible assets acquired in acquisitions that became fully
amortized in previous periods, partially offset by additional amortization expense of $8.2 million associated with recent acquisitions as discussed in note 3
to the consolidated financial statements.
and 2019.
(In thousands)
Specialty Chemicals and Engineered Materials
The Company reports its financial performance based on three reporting segments. See note 16 to the consolidated financial statements for additional
information on the Company’s three segments.
The following table and discussion concern the results of operations of the Company’s three reportable segments for the years ended December 31, 2020
Interest expense Interest expense was $48.6 million in 2020 and $47.0 million in 2019. Interest expense includes interest associated with debt outstanding
and the amortization of debt issuance costs associated with such borrowings. The increase primarily reflects higher average debt levels in 2020, partially
offset by the absence of a $1.6 million charge in 2019 related to the adjustment of the fair value of the fixed deferred payment owed to the sellers with
respect to the Company’s acquisition of DSC, for which the Company entered into a settlement agreement in 2019 to accelerate a fixed deferred payment of
$16.1 million. The Company adjusted the fair value of the fixed deferred payment from its fair value to the stated value resulting in the additional
aforementioned charge.
Interest income Interest income was $0.8 million in 2020 and $4.7 million in 2019. The decrease reflects lower average interest rates.
Advanced Materials Handling
Other income, net Other income, net, was $6.7 million in 2020 compared to other income, net, of $121.1 million in 2019.
In 2020, other income, net consisted mainly of foreign currency transaction gains of $9.8 million, partially offset by loss on debt extinguishment costs of
$2.4 million associated with payments on the Term Loan Facility.
In 2019, other income, net consisted mainly of net proceeds received of $122.0 million resulting from the termination of the merger agreement with Versum
(see note 9 to the Company’s consolidated financial statements).
Income tax expense The Company recorded income tax expense of $59.3 million in 2020 compared to income tax expense of $63.2 million in 2019. The
Company’s effective tax rate was 16.7% in 2020 compared to an effective tax rate of 19.9% in 2019.
The decrease in the effective tax rate in 2020 from 2019 is primarily due to an increase in discrete benefits related to share-based compensation of $8.8
million and lower accrued withholding taxes on foreign earnings. Additionally, the benefit related to the federal R&D tax credit increased by $1.5 million.
These decreases were partially offset by a valuation allowance on federal foreign tax credit carryforwards of $6.2 million. The 2019 tax rate included a
discrete tax charge of $9.4 million related to the reversal of the dividend received deduction benefit recorded in 2018. This discrete charge was recorded
based on the issuance of final regulations during the second quarter of 2019 and did not recur in 2020. The discrete charge was partially offset by a benefit
of $5.3 million recorded in the third quarter of 2019 based on the filing of the federal tax return. Additionally, in the second quarter of 2019, the Company
received a termination fee from Versum based on the termination of the merger agreement between the Company and Versum. As a result of the
termination fee, the Company released a valuation allowance on federal capital loss carryforwards and recorded a discrete benefit of $2.9 million, which
did not recur in 2020.
Microcontamination Control
Net sales
Segment profit
Net sales
Segment profit
Net sales
Segment profit
2020
2019
609,532 $
127,969
742,186 $
248,910
538,682 $
111,028
526,519
98,327
633,664
194,398
458,290
75,173
39,370 $
62,192
$
$
$
$
Unallocated general and administrative expenses
Specialty Chemicals and Engineered Materials (SCEM)
For 2020, SCEM net sales increased to $609.5 million, up 16% from $526.5 million in 2019. The sales increase was due to increased sales of advanced
deposition materials, cleaning chemistries and advanced coatings, as well as additional sales of $25.6 million attributable to the acquisitions of Digital
Specialty Chemicals Limited in the first quarter of 2019, MPD in the third quarter of 2019 and Sinmat in the first quarter of 2020.
SCEM reported a segment profit of $128.0 million for 2020, up 30% compared to a $98.3 million segment profit in 2019. The increase in the SCEM’s
profit in 2020 was primarily due to higher sales levels and a $4.6 million reduction in cost of sales charges associated with the sale of inventory acquired in
recent business acquisitions, partially offset by higher operating expenses by 6% mainly due to recent acquisitions and higher employee costs.
Microcontamination Control (MC)
For 2020, MC net sales increased to $742.2 million, up 17% from $633.7 million in 2019. The sales increase was due to improved sales of liquid filtration
and gas filtration products, as well as additional sales of $11.0 million attributable to the acquisition of Anow in the third quarter of 2019, partially offset by
decreased sales from bulk gas purification products.
MC reported a segment profit of $248.9 million for 2020, up 28% compared to a $194.4 million segment profit in 2019. The increase in MC’s profit in
2020 was primarily due to higher gross profit related to the increased sales volume and favorable product mix and a $2.6 million reduction in cost of sales
charges associated with the sale of inventory acquired in recent
40
41
Deal and transaction costs were $23.6 million lower in 2020 compared to the prior year, mainly due to the deal costs associated with the terminated Versum
transaction.
Engineering, research and development expenses
Engineering, research and development expenses consist of expenses for the support of current product lines and the development of new products and
manufacturing technologies. These expenses were $136.1 million in 2020 and $121.1 million in 2019. ER&D expenses as a percent of net sales decreased
to 7.3% from 7.6% a year earlier, reflecting the increase in sales, partially offset by higher employee costs.
An analysis of the factors underlying the increase ER&D is presented in the following table:
Engineering, research and development expense in 2019
(In thousands)
Employee costs
Project related costs
Depreciation
Other decreases, net
Engineering, research and development expense in 2020
$
$
121,140
11,135
2,387
1,861
(466)
136,057
The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced
processing applications and identifying and developing products for new applications, and the Company often works directly with its customers to address
their particular needs. The Company expects ER&D costs to stay relatively stable as a percentage of net sales.
Amortization of intangible assets Amortization of intangible assets was $53.1 million in 2020 compared to $66.4 million for 2019. The decrease
primarily reflects the elimination of amortization expense of $21.1 million for identifiable intangible assets acquired in acquisitions that became fully
amortized in previous periods, partially offset by additional amortization expense of $8.2 million associated with recent acquisitions as discussed in note 3
to the consolidated financial statements.
Interest expense Interest expense was $48.6 million in 2020 and $47.0 million in 2019. Interest expense includes interest associated with debt outstanding
and the amortization of debt issuance costs associated with such borrowings. The increase primarily reflects higher average debt levels in 2020, partially
offset by the absence of a $1.6 million charge in 2019 related to the adjustment of the fair value of the fixed deferred payment owed to the sellers with
respect to the Company’s acquisition of DSC, for which the Company entered into a settlement agreement in 2019 to accelerate a fixed deferred payment of
$16.1 million. The Company adjusted the fair value of the fixed deferred payment from its fair value to the stated value resulting in the additional
aforementioned charge.
Interest income Interest income was $0.8 million in 2020 and $4.7 million in 2019. The decrease reflects lower average interest rates.
Other income, net Other income, net, was $6.7 million in 2020 compared to other income, net, of $121.1 million in 2019.
In 2020, other income, net consisted mainly of foreign currency transaction gains of $9.8 million, partially offset by loss on debt extinguishment costs of
$2.4 million associated with payments on the Term Loan Facility.
In 2019, other income, net consisted mainly of net proceeds received of $122.0 million resulting from the termination of the merger agreement with Versum
(see note 9 to the Company’s consolidated financial statements).
Income tax expense The Company recorded income tax expense of $59.3 million in 2020 compared to income tax expense of $63.2 million in 2019. The
Company’s effective tax rate was 16.7% in 2020 compared to an effective tax rate of 19.9% in 2019.
The decrease in the effective tax rate in 2020 from 2019 is primarily due to an increase in discrete benefits related to share-based compensation of $8.8
million and lower accrued withholding taxes on foreign earnings. Additionally, the benefit related to the federal R&D tax credit increased by $1.5 million.
These decreases were partially offset by a valuation allowance on federal foreign tax credit carryforwards of $6.2 million. The 2019 tax rate included a
discrete tax charge of $9.4 million related to the reversal of the dividend received deduction benefit recorded in 2018. This discrete charge was recorded
based on the issuance of final regulations during the second quarter of 2019 and did not recur in 2020. The discrete charge was partially offset by a benefit
of $5.3 million recorded in the third quarter of 2019 based on the filing of the federal tax return. Additionally, in the second quarter of 2019, the Company
received a termination fee from Versum based on the termination of the merger agreement between the Company and Versum. As a result of the
termination fee, the Company released a valuation allowance on federal capital loss carryforwards and recorded a discrete benefit of $2.9 million, which
did not recur in 2020.
Net income Net income was $295.0 million, or $2.16 per diluted share, in 2020 compared to net income of $254.9 million, or $1.87 per diluted share, in
2019. The increase reflects the Company’s aforementioned operating results described in greater detail above.
Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided
in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP
Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly
comparable GAAP measures.
The Company’s non-GAAP financial measures include adjusted EBITDA and adjusted operating income, together with related percentage changes, and
non-GAAP earnings per share, or EPS.
Adjusted EBITDA increased to $542.5 million in 2020, compared to $436.8 million in 2019. Adjusted EBITDA as a percent of net sales was 29.2% in
2020 compared to 27.5% in 2019. Adjusted operating income increased 27% to $459.0 million in 2020, compared to $361.8 million in 2019. Adjusted
operating income as a percent of net sales was 24.7% in 2020 compared to 22.7% in 2019. Non-GAAP EPS increased 32% to $2.54 in 2020, compared to
$1.93 in 2019. The increases in the adjusted EBITDA and adjusted operating income as a percentage of net sales reflects the increase in sales and gross
profit.
Segment Analysis
The Company reports its financial performance based on three reporting segments. See note 16 to the consolidated financial statements for additional
information on the Company’s three segments.
The following table and discussion concern the results of operations of the Company’s three reportable segments for the years ended December 31, 2020
and 2019.
(In thousands)
Specialty Chemicals and Engineered Materials
Net sales
Segment profit
Microcontamination Control
Net sales
Segment profit
Advanced Materials Handling
Net sales
Segment profit
Unallocated general and administrative expenses
Specialty Chemicals and Engineered Materials (SCEM)
2020
2019
609,532 $
127,969
742,186 $
248,910
538,682 $
111,028
526,519
98,327
633,664
194,398
458,290
75,173
39,370 $
62,192
$
$
$
$
For 2020, SCEM net sales increased to $609.5 million, up 16% from $526.5 million in 2019. The sales increase was due to increased sales of advanced
deposition materials, cleaning chemistries and advanced coatings, as well as additional sales of $25.6 million attributable to the acquisitions of Digital
Specialty Chemicals Limited in the first quarter of 2019, MPD in the third quarter of 2019 and Sinmat in the first quarter of 2020.
SCEM reported a segment profit of $128.0 million for 2020, up 30% compared to a $98.3 million segment profit in 2019. The increase in the SCEM’s
profit in 2020 was primarily due to higher sales levels and a $4.6 million reduction in cost of sales charges associated with the sale of inventory acquired in
recent business acquisitions, partially offset by higher operating expenses by 6% mainly due to recent acquisitions and higher employee costs.
Microcontamination Control (MC)
For 2020, MC net sales increased to $742.2 million, up 17% from $633.7 million in 2019. The sales increase was due to improved sales of liquid filtration
and gas filtration products, as well as additional sales of $11.0 million attributable to the acquisition of Anow in the third quarter of 2019, partially offset by
decreased sales from bulk gas purification products.
MC reported a segment profit of $248.9 million for 2020, up 28% compared to a $194.4 million segment profit in 2019. The increase in MC’s profit in
2020 was primarily due to higher gross profit related to the increased sales volume and favorable product mix and a $2.6 million reduction in cost of sales
charges associated with the sale of inventory acquired in recent
40
41
business acquisitions, partially offset by higher operating expenses of 10%, primarily due to higher compensations costs and the recent acquisition of
Anow.
translation effects of $4.5 million, mainly due to the weakening of the Korean won, Euro and Taiwanese dollar relative to the U.S. dollar.
Sales percentage on a geographic basis for 2019 and 2018 and the percentage increase (decrease) in sales for 2019 compared to the sales for 2018 were as
Advanced Materials Handling (AMH)
For 2020, AMH net sales increased 18% to $538.7 million from $458.3 million in 2019. This increase was mainly due to increased sales of high purity
liquid containers, wafer handling products, fluid handling products and sensing and control products, as well as additional sales of $6.5 million attributable
to the acquisition of GMTI in the third quarter of 2020.
AMH reported a segment profit of $111.0 million for 2020, up 48% compared to a $75.2 million segment profit in 2019. The increase in AMH’s profit in
2020 was primarily due to higher sales volume, favorable product mix and a 2% decrease in operating expenses, primarily due to lower spending and
restructuring initiatives from the previous year.
Unallocated general and administrative expenses
Unallocated general and administrative expenses for 2020 totaled $39.4 million compared to $62.2 million for 2019. The $22.8 million decrease mainly
reflects the decrease in deal and integration costs of $29.0 million noted in the discussion of SG&A above, offset partially by increased employee costs of
$2.5 million, professional fees of $1.7 million and donation costs of $2.0 million.
Results of Operations
Year ended December 31, 2019 compared to year ended December 31, 2018
The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for
December 31, 2019 and 2018.
(Dollars in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Interest expense
Interest income
Other (income) expense, net
Income before income taxes
Income tax expense
Net income
2019
2018
% of net sales
% of net sales
$
$
1,591,066
879,413
711,653
284,807
121,140
66,428
239,278
46,962
(4,652)
(121,081)
318,049
63,189
254,860
100.0 % $
55.3
44.7
17.9
7.6
4.2
15.0
3.0
(0.3)
(7.6)
20.0
4.0
16.0
$
1,550,497
830,666
719,831
246,534
118,456
62,152
292,689
34,094
(3,839)
8,002
254,432
13,677
240,755
100.0 %
53.6
46.4
15.9
7.6
4.0
18.9
2.2
(0.2)
0.5
16.4
0.9
15.5
Net sales For 2019, net sales were $1,591.1 million, up $40.6 million, or 3%, from sales for 2018. An analysis of the factors underlying the increase in net
sales is presented in the following table:
Severance and restructuring costs
(In thousands)
Net sales in 2018
Increase, net associated with acquired businesses and divestiture
Decrease associated with volume and pricing
Decrease associated with divestiture
Decrease associated with effect of foreign currency translation
Net sales in 2019
$
$
1,550,497
95,003
(42,574)
(7,377)
(4,483)
1,591,066
Selling, general and administrative expenses in 2019
Engineering, research and development expenses
The Company’s sales increase was primarily due to sales associated with the Company’s recent acquisitions of $95.0 million, offset primarily by the
absence of sales associated with a divestiture of an entity in 2018 and net unfavorable foreign currency
follows:
Taiwan
North America
South Korea
Japan
China
Europe
Southeast Asia
December 31, 2019
December 31, 2018
in sales
Percentage increase (decrease)
Year ended
19 %
24 %
15 %
13 %
13 %
8 %
7 %
19 %
22 %
16 %
14 %
13 %
9 %
8 %
7 %
10 %
1 %
(2)%
5 %
(4)%
(12)%
The increase in sales for North America and China was primarily driven by sales from acquisitions. The increase in sales from Taiwan was primarily driven
from strong recovery from a major customer in 2019 compared to 2018. The decrease in sales from Europe relates to the absence of sales from the
divestiture of a business in the fourth quarter of 2018. The decrease in sales from Southeast Asia relates to lower sales of specialty materials products.
Demand drivers for the Company’s business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for
new or upgraded semiconductor fabrication equipment and facilities (capital-driven). The Company analyzes sales of its products by these two key drivers.
Sales of unit-driven products represented 70% of total sales and sales of capital-driven products represented 30% of total sales in both 2019 and 2018.
Gross profit Gross profit for 2019 decreased by $8.2 million, to $711.7 million, a decrease of 1% from $719.8 million for 2018. The gross margin rate for
2019 was 44.7% versus 46.4% for 2018. The gross profit and gross margin decrease reflects lower factory utilization associated with weaker sales levels
and an unfavorable sales mix. The gross profit and gross margin figures include an incremental cost of sales charge of $7.5 million and $6.9 million,
respectively, associated with the sale of inventory acquired in recent business acquisitions for 2019 and 2018 and $1.3 million and $0.5 million of
restructuring charges for 2019 and 2018, respectively. Excluding those charges, the Company’s gross profit and gross margin for 2019 and 2018 were
$720.5 million and $727.2 million, respectively, and 45.3% and 46.9%, respectively.
Selling, general and administrative expenses
Selling, general and administrative expense (SG&A) consists primarily of payroll and related expenses for the sales and administrative staff, professional
fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2019 increased $38.3 million, or
16%, to $284.8 million from $246.5 million in 2018. SG&A expenses, as a percent of net sales, increased to 17.9% from 15.9% a year earlier, reflecting
primarily from the increase in deal and integration costs.
An analysis of the factors underlying the increase in SG&A is presented in the following table:
Selling, general and administrative expenses in 2018
(In thousands)
Deal costs
Integration costs
Professional fees
Travel costs
Other increases, net
$
$
246,534
21,043
9,193
6,695
2,715
(2,192)
819
284,807
42
43
business acquisitions, partially offset by higher operating expenses of 10%, primarily due to higher compensations costs and the recent acquisition of
Anow.
Advanced Materials Handling (AMH)
For 2020, AMH net sales increased 18% to $538.7 million from $458.3 million in 2019. This increase was mainly due to increased sales of high purity
liquid containers, wafer handling products, fluid handling products and sensing and control products, as well as additional sales of $6.5 million attributable
to the acquisition of GMTI in the third quarter of 2020.
AMH reported a segment profit of $111.0 million for 2020, up 48% compared to a $75.2 million segment profit in 2019. The increase in AMH’s profit in
2020 was primarily due to higher sales volume, favorable product mix and a 2% decrease in operating expenses, primarily due to lower spending and
restructuring initiatives from the previous year.
Unallocated general and administrative expenses
Unallocated general and administrative expenses for 2020 totaled $39.4 million compared to $62.2 million for 2019. The $22.8 million decrease mainly
reflects the decrease in deal and integration costs of $29.0 million noted in the discussion of SG&A above, offset partially by increased employee costs of
$2.5 million, professional fees of $1.7 million and donation costs of $2.0 million.
Results of Operations
Year ended December 31, 2019 compared to year ended December 31, 2018
The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
December 31, 2019 and 2018.
(Dollars in thousands)
Net sales
Cost of sales
Gross profit
Operating income
Interest expense
Interest income
Other (income) expense, net
Income before income taxes
Income tax expense
Net income
2019
2018
% of net sales
% of net sales
$
1,591,066
100.0 % $
1,550,497
100.0 %
879,413
711,653
284,807
121,140
66,428
239,278
46,962
(4,652)
(121,081)
318,049
63,189
254,860
55.3
44.7
17.9
7.6
4.2
15.0
3.0
(0.3)
(7.6)
20.0
4.0
16.0
830,666
719,831
246,534
118,456
62,152
292,689
34,094
(3,839)
8,002
254,432
13,677
240,755
$
$
53.6
46.4
15.9
7.6
4.0
18.9
2.2
(0.2)
0.5
16.4
0.9
15.5
Net sales For 2019, net sales were $1,591.1 million, up $40.6 million, or 3%, from sales for 2018. An analysis of the factors underlying the increase in net
sales is presented in the following table:
(In thousands)
Net sales in 2018
Increase, net associated with acquired businesses and divestiture
Decrease associated with volume and pricing
Decrease associated with divestiture
Decrease associated with effect of foreign currency translation
Net sales in 2019
The Company’s sales increase was primarily due to sales associated with the Company’s recent acquisitions of $95.0 million, offset primarily by the
absence of sales associated with a divestiture of an entity in 2018 and net unfavorable foreign currency
translation effects of $4.5 million, mainly due to the weakening of the Korean won, Euro and Taiwanese dollar relative to the U.S. dollar.
Sales percentage on a geographic basis for 2019 and 2018 and the percentage increase (decrease) in sales for 2019 compared to the sales for 2018 were as
follows:
Taiwan
North America
South Korea
Japan
China
Europe
Southeast Asia
Year ended
December 31, 2019
December 31, 2018
Percentage increase (decrease)
in sales
19 %
24 %
15 %
13 %
13 %
8 %
7 %
19 %
22 %
16 %
14 %
13 %
9 %
8 %
7 %
10 %
1 %
(2)%
5 %
(4)%
(12)%
The increase in sales for North America and China was primarily driven by sales from acquisitions. The increase in sales from Taiwan was primarily driven
from strong recovery from a major customer in 2019 compared to 2018. The decrease in sales from Europe relates to the absence of sales from the
divestiture of a business in the fourth quarter of 2018. The decrease in sales from Southeast Asia relates to lower sales of specialty materials products.
Demand drivers for the Company’s business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for
new or upgraded semiconductor fabrication equipment and facilities (capital-driven). The Company analyzes sales of its products by these two key drivers.
Sales of unit-driven products represented 70% of total sales and sales of capital-driven products represented 30% of total sales in both 2019 and 2018.
Gross profit Gross profit for 2019 decreased by $8.2 million, to $711.7 million, a decrease of 1% from $719.8 million for 2018. The gross margin rate for
2019 was 44.7% versus 46.4% for 2018. The gross profit and gross margin decrease reflects lower factory utilization associated with weaker sales levels
and an unfavorable sales mix. The gross profit and gross margin figures include an incremental cost of sales charge of $7.5 million and $6.9 million,
respectively, associated with the sale of inventory acquired in recent business acquisitions for 2019 and 2018 and $1.3 million and $0.5 million of
restructuring charges for 2019 and 2018, respectively. Excluding those charges, the Company’s gross profit and gross margin for 2019 and 2018 were
$720.5 million and $727.2 million, respectively, and 45.3% and 46.9%, respectively.
Selling, general and administrative expenses
Selling, general and administrative expense (SG&A) consists primarily of payroll and related expenses for the sales and administrative staff, professional
fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2019 increased $38.3 million, or
16%, to $284.8 million from $246.5 million in 2018. SG&A expenses, as a percent of net sales, increased to 17.9% from 15.9% a year earlier, reflecting
primarily from the increase in deal and integration costs.
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 2018
Deal costs
Severance and restructuring costs
Integration costs
Professional fees
Travel costs
Other increases, net
Selling, general and administrative expenses in 2019
Engineering, research and development expenses
$
$
1,550,497
95,003
(42,574)
(7,377)
(4,483)
1,591,066
$
$
246,534
21,043
9,193
6,695
2,715
(2,192)
819
284,807
42
43
Engineering, research and development (ER&D) expenses consist of expenses for the support of current product lines and the development of new products
and manufacturing technologies. These expenses were $121.1 million and $118.5 million in 2019 and 2018, respectively. ER&D expenses as a percent of
net sales were 7.6% in both 2019 and 2018.
An analysis of the factors underlying the increase ER&D is presented in the following table:
Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States (GAAP). The Company also utilizes certain non-GAAP financial measures as a complement to financial measures
provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP
Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly
(In thousands)
Engineering, research and development expense in 2018
Employee costs
Severance and restructuring costs
Project related costs
Other increases, net
Engineering, research and development expense in 2019
$
$
118,456
3,769
1,965
(5,698)
2,648
121,140
The Company’s non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related percentage changes, and non-
Adjusted EBITDA was flat at $436.8 million in 2019, compared to $436.1 million in 2018. Adjusted EBITDA, as a percent of net sales, was 27.5% in 2019
compared to 28.1% in 2018. Adjusted Operating Income decreased 2% to $361.8 million in 2019, compared to $371.0 million in 2018. Adjusted Operating
Income, as a percent of net sales, was 22.7% in 2019 compared to 23.9% in 2018. Non-GAAP Earnings Per Share increased 2% to $1.93 in 2019,
compared to $1.89 in 2018. The decline in the Adjusted EBITDA and Adjusted Operating Income as a percentage of net sales reflects the decrease in gross
profit. In addition, Non-GAAP Earnings Per Share was positively affected by lower diluted weighted average shares outstanding from the stock
The Company’s overall ER&D efforts will continue to focus on the support or extension of current product lines, the development of its technologies to
create differentiated and high-value products for the most advanced and demanding semiconductor applications and leveraging its unique and diverse
technology portfolio to develop innovative, integrated solutions for unmet customer needs. The Company expects ER&D costs to stay relatively stable as a
percentage of net sales.
Amortization of intangible assets Amortization of intangible assets was $66.4 million in 2019 compared to $62.2 million for 2018. The increase reflects
the additional amortization expense of $6.6 million associated with the Company’s recent 2019 and 2018 acquisitions as discussed in note 3 to the
consolidated financial statements, offset primarily by the elimination of amortization expense of $2.0 million for identifiable developed technology and
customer relationship assets acquired in the Poco acquisition.
Interest expense Interest expense was $47.0 million and $34.1 million in 2019 and 2018, respectively. Interest expense includes interest associated with
debt outstanding and the amortization of debt issuance costs associated with such borrowings. The increase primarily reflects higher average debt levels in
2019 and a $1.6 million charge related the adjustment of the fair value of the fixed deferred payment owed to the sellers of its DSC acquisition. The
Company entered into a settlement agreement to accelerate a fixed deferred payment of $16.1 million to no later than March 8, 2020. The Company
adjusted the fair value of the fixed deferred payment from its fair value to the stated value resulting in the additional aforementioned charge.
Interest income Interest income was $4.7 million and $3.8 million in 2019 and 2018, respectively. The increase reflects higher average U.S. cash levels
earning a higher rate of interest.
Other (income) expense, net Other income, net, was $121.1 million in 2019 compared to other expense, net, of $8.0 million in 2018.
In 2019, other income, net consisted mainly of net proceeds received of $122.0 million resulting from the termination of the merger agreement with Versum
(see note 9 to the Company’s consolidated financial statements).
In 2018, other expense, net, included foreign currency transaction losses of $4.4 million, a loss of extinguishment of debt of $2.3 million associated with
the redemption of the Company’s senior secured term loan facility due 2021 and asset-based revolving credit facility (see note 8 to the Company’s
consolidated financial statements) and penalty charges of $1.1 million.
Income tax expense The Company recorded income tax expense of $63.2 million in 2019 compared to income tax expense of $13.7 million in 2018. The
Company’s effective tax expense rate was 19.9% in 2019, compared to an effective tax rate of 5.4% in 2018.
The increase in the effective tax rate in 2019 from 2018 reflects several factors. The increase in the effective tax rate is primarily due to a $25.1 million
benefit related to foreign tax credit generation and a $9.4 million benefit related to a dividends received deduction based on restructuring to simplify the
legal entity structure in 2018 which did not recur in 2019. Additionally, the tax rate in 2019 includes a discrete tax charge of $9.4 million related to the
reversal of the dividend received deduction benefit recorded in 2018. This discrete charge was recorded based on the issuance of final regulations during
the second quarter of 2019. The discrete charge was partially offset by a benefit of $5.3 million recorded in the third quarter of 2019 based on the filing of
the federal tax return. Additionally, in the second quarter 2019, the Company received a termination fee from Versum based on the termination of the
Versum Merger Agreement. As a result of the termination fee, the Company released a valuation allowance on federal capital loss carryforwards and
recorded a discrete benefit of $2.9 million.
Net income Net income was $254.9 million, or $1.87 per diluted share, in 2019 compared to net income of $240.8 million, or $1.69 per diluted share, in
2018. The increase reflects the Company’s aforementioned operating results described in greater detail above.
comparable GAAP measures.
GAAP Earnings Per Share (EPS).
repurchases during 2019.
Segment Analysis
and 2018.
(In thousands)
Specialty Chemicals and Engineered Materials
Microcontamination Control
Advanced Materials Handling
Net sales
Segment profit
Net sales
Segment profit
Net sales
Segment profit
The Company reports its financial performance based on three reporting segments. In the first quarter of 2019, the Company changed its definition of
segment profit to include inter-segment sales. Prior quarter information has been recast to reflect the change in the Company’s definition of segment profit.
See note 16 to the consolidated financial statements for additional information on the Company’s three segments.
The following table and discussion concern the results of operations of the Company’s three reportable segments for the years ended December 31, 2019
2019
2018
$
$
$
526,519 $
98,327
633,664 $
194,398
458,290 $
75,173
530,241
127,080
553,838
166,852
493,404
92,327
Specialty Chemicals and Engineered Materials (SCEM)
For 2019, SCEM net sales decreased to $526.5 million, down 1%, from $530.2 million in the comparable period last year. The sales decrease was mainly
due to decreased sales of specialty materials, specialty gases and surface prep and integration products, partially offset by $10.9 million of sales from the
acquisition of DSC in 2019, $16.7 million sales from the acquisition of MPD in the third quarter of 2019 and improved sales from advanced deposition
SCEM reported a segment profit of $98.3 million for 2019, down 23%, compared to a $127.1 million segment profit in the year-ago period. The decrease in
the SCEM’s profit in 2019 was primarily due to decreased sales, an incremental cost of sales charge of $6.9 million associated with the sale of inventory
acquired in recent business acquisitions, unfavorable product mix and higher operating expenses of 3% mainly due to higher employee costs and R&D
products.
spending.
Microcontamination Control (MC)
For 2019, MC net sales increased to $633.7 million, up 14%, from $553.8 million in the comparable period last year. The sales increase was due to the
acquisition of SPG in the second quarter of 2018, which contributed an additional $61.3 million of sales, $5.1 million of sales from the acquisition of Anow
in the third quarter of 2019, and improved sales from liquid chemistry filters for wet, etch and clean applications and photolithography products, partially
offset by weakened sales from gas microcontamination products.
MC reported a segment profit of $194.4 million for 2019, up 17%, compared to a $166.9 million segment profit in the year-ago period. The increase in
MC’s profit in 2019 reflects increased sales, partially offset by higher operating expenses of 8%, primarily due to higher employee costs, increased R&D
spending and SPG operating infrastructure.
44
45
Engineering, research and development (ER&D) expenses consist of expenses for the support of current product lines and the development of new products
and manufacturing technologies. These expenses were $121.1 million and $118.5 million in 2019 and 2018, respectively. ER&D expenses as a percent of
net sales were 7.6% in both 2019 and 2018.
An analysis of the factors underlying the increase ER&D is presented in the following table:
(In thousands)
Engineering, research and development expense in 2018
Employee costs
Severance and restructuring costs
Project related costs
Other increases, net
Engineering, research and development expense in 2019
$
$
118,456
3,769
1,965
(5,698)
2,648
121,140
The Company’s overall ER&D efforts will continue to focus on the support or extension of current product lines, the development of its technologies to
create differentiated and high-value products for the most advanced and demanding semiconductor applications and leveraging its unique and diverse
technology portfolio to develop innovative, integrated solutions for unmet customer needs. The Company expects ER&D costs to stay relatively stable as a
percentage of net sales.
Amortization of intangible assets Amortization of intangible assets was $66.4 million in 2019 compared to $62.2 million for 2018. The increase reflects
the additional amortization expense of $6.6 million associated with the Company’s recent 2019 and 2018 acquisitions as discussed in note 3 to the
consolidated financial statements, offset primarily by the elimination of amortization expense of $2.0 million for identifiable developed technology and
customer relationship assets acquired in the Poco acquisition.
Interest expense Interest expense was $47.0 million and $34.1 million in 2019 and 2018, respectively. Interest expense includes interest associated with
debt outstanding and the amortization of debt issuance costs associated with such borrowings. The increase primarily reflects higher average debt levels in
2019 and a $1.6 million charge related the adjustment of the fair value of the fixed deferred payment owed to the sellers of its DSC acquisition. The
Company entered into a settlement agreement to accelerate a fixed deferred payment of $16.1 million to no later than March 8, 2020. The Company
adjusted the fair value of the fixed deferred payment from its fair value to the stated value resulting in the additional aforementioned charge.
Interest income Interest income was $4.7 million and $3.8 million in 2019 and 2018, respectively. The increase reflects higher average U.S. cash levels
earning a higher rate of interest.
Other (income) expense, net Other income, net, was $121.1 million in 2019 compared to other expense, net, of $8.0 million in 2018.
In 2019, other income, net consisted mainly of net proceeds received of $122.0 million resulting from the termination of the merger agreement with Versum
(see note 9 to the Company’s consolidated financial statements).
In 2018, other expense, net, included foreign currency transaction losses of $4.4 million, a loss of extinguishment of debt of $2.3 million associated with
the redemption of the Company’s senior secured term loan facility due 2021 and asset-based revolving credit facility (see note 8 to the Company’s
consolidated financial statements) and penalty charges of $1.1 million.
Income tax expense The Company recorded income tax expense of $63.2 million in 2019 compared to income tax expense of $13.7 million in 2018. The
Company’s effective tax expense rate was 19.9% in 2019, compared to an effective tax rate of 5.4% in 2018.
The increase in the effective tax rate in 2019 from 2018 reflects several factors. The increase in the effective tax rate is primarily due to a $25.1 million
benefit related to foreign tax credit generation and a $9.4 million benefit related to a dividends received deduction based on restructuring to simplify the
legal entity structure in 2018 which did not recur in 2019. Additionally, the tax rate in 2019 includes a discrete tax charge of $9.4 million related to the
reversal of the dividend received deduction benefit recorded in 2018. This discrete charge was recorded based on the issuance of final regulations during
the second quarter of 2019. The discrete charge was partially offset by a benefit of $5.3 million recorded in the third quarter of 2019 based on the filing of
the federal tax return. Additionally, in the second quarter 2019, the Company received a termination fee from Versum based on the termination of the
Versum Merger Agreement. As a result of the termination fee, the Company released a valuation allowance on federal capital loss carryforwards and
recorded a discrete benefit of $2.9 million.
Net income Net income was $254.9 million, or $1.87 per diluted share, in 2019 compared to net income of $240.8 million, or $1.69 per diluted share, in
2018. The increase reflects the Company’s aforementioned operating results described in greater detail above.
Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States (GAAP). The Company also utilizes certain non-GAAP financial measures as a complement to financial measures
provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP
Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly
comparable GAAP measures.
The Company’s non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related percentage changes, and non-
GAAP Earnings Per Share (EPS).
Adjusted EBITDA was flat at $436.8 million in 2019, compared to $436.1 million in 2018. Adjusted EBITDA, as a percent of net sales, was 27.5% in 2019
compared to 28.1% in 2018. Adjusted Operating Income decreased 2% to $361.8 million in 2019, compared to $371.0 million in 2018. Adjusted Operating
Income, as a percent of net sales, was 22.7% in 2019 compared to 23.9% in 2018. Non-GAAP Earnings Per Share increased 2% to $1.93 in 2019,
compared to $1.89 in 2018. The decline in the Adjusted EBITDA and Adjusted Operating Income as a percentage of net sales reflects the decrease in gross
profit. In addition, Non-GAAP Earnings Per Share was positively affected by lower diluted weighted average shares outstanding from the stock
repurchases during 2019.
Segment Analysis
The Company reports its financial performance based on three reporting segments. In the first quarter of 2019, the Company changed its definition of
segment profit to include inter-segment sales. Prior quarter information has been recast to reflect the change in the Company’s definition of segment profit.
See note 16 to the consolidated financial statements for additional information on the Company’s three segments.
The following table and discussion concern the results of operations of the Company’s three reportable segments for the years ended December 31, 2019
and 2018.
(In thousands)
Specialty Chemicals and Engineered Materials
Net sales
Segment profit
Microcontamination Control
Net sales
Segment profit
Advanced Materials Handling
Net sales
Segment profit
2019
2018
$
$
$
526,519 $
98,327
633,664 $
194,398
458,290 $
75,173
530,241
127,080
553,838
166,852
493,404
92,327
Specialty Chemicals and Engineered Materials (SCEM)
For 2019, SCEM net sales decreased to $526.5 million, down 1%, from $530.2 million in the comparable period last year. The sales decrease was mainly
due to decreased sales of specialty materials, specialty gases and surface prep and integration products, partially offset by $10.9 million of sales from the
acquisition of DSC in 2019, $16.7 million sales from the acquisition of MPD in the third quarter of 2019 and improved sales from advanced deposition
products.
SCEM reported a segment profit of $98.3 million for 2019, down 23%, compared to a $127.1 million segment profit in the year-ago period. The decrease in
the SCEM’s profit in 2019 was primarily due to decreased sales, an incremental cost of sales charge of $6.9 million associated with the sale of inventory
acquired in recent business acquisitions, unfavorable product mix and higher operating expenses of 3% mainly due to higher employee costs and R&D
spending.
Microcontamination Control (MC)
For 2019, MC net sales increased to $633.7 million, up 14%, from $553.8 million in the comparable period last year. The sales increase was due to the
acquisition of SPG in the second quarter of 2018, which contributed an additional $61.3 million of sales, $5.1 million of sales from the acquisition of Anow
in the third quarter of 2019, and improved sales from liquid chemistry filters for wet, etch and clean applications and photolithography products, partially
offset by weakened sales from gas microcontamination products.
MC reported a segment profit of $194.4 million for 2019, up 17%, compared to a $166.9 million segment profit in the year-ago period. The increase in
MC’s profit in 2019 reflects increased sales, partially offset by higher operating expenses of 8%, primarily due to higher employee costs, increased R&D
spending and SPG operating infrastructure.
44
45
Advanced Materials Handling (AMH)
Quarterly Results of Operations
For 2019, AMH net sales decreased 7% to $458.3 million, from $493.4 million in 2018. This decrease was mainly due to decreased sales of fluid handling
products, liquid packaging and dispense products, wafer and reticle handling products and wafer shipping products.
AMH reported a segment profit of $75.2 million for 2019, down 19% compared to a $92.3 million segment profit in the year-ago period. The decrease in
the AMH’s profit in 2019 was primarily due to lower sales.
presented.
The following table presents selected data from the Company’s consolidated statements of operations for the eight quarters ended December 31, 2020. This
unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this Annual Report on
Form 10-K. All adjustments that management considers necessary for the fair presentation of the unaudited information have been included in the quarters
Unallocated general and administrative expenses
QUARTERLY STATEMENTS OF OPERATIONS DATA
Unallocated general and administrative expenses for 2019 totaled $62.2 million compared to $31.4 million for 2018. The $30.8 million increase mainly
reflects the deal and integration costs of $27.7 million in the discussion of SG&A above.
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2019
2020
$
$
391,047
177,393
82,254
$
394,147
170,350
71,232
$
426,998
197,636
67,171
$
412,327
185,478
58,891
$
448,405
207,372
66,872
$
$
(In thousands)
Net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development
expenses
Amortization of intangible assets
Operating income
Net income
(Percent of net sales)
Net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development
expenses
Amortization of intangible assets
Operating income
Net income
378,874
166,274
64,150
30,624
16,591
54,909
123,997
43.9
16.9
8.1
4.4
14.5
32.7
28,991
18,657
47,491
32,658
45.4
21.0
7.4
4.8
12.1
8.4
31,173
15,152
52,793
40,767
30,352
16,028
84,085
57,438
29,632
16,211
80,744
61,006
32,572
13,216
94,712
68,036
43.2
18.1
7.9
3.8
13.4
10.3
46.3
15.7
7.1
3.8
19.7
13.5
45.0
14.3
7.2
3.9
19.6
14.8
46.2
14.9
7.3
2.9
21.1
15.2
480,987
226,000
71,195
36,295
11,749
106,761
79,303
47.0
14.8
7.5
2.4
22.2
16.5
517,594
230,872
68,170
37,558
11,916
113,228
86,624
44.6
13.2
7.3
2.3
21.9
16.7
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
The Company’s quarterly results of operations have been, and will likely continue to be, subject to significant fluctuations due to a myriad of factors, many
of which are beyond the Company’s control. The variability in sales and its corresponding effect on gross profit are generally the most important factors
underlying the changes in the Company’s operating income and net income over the past eight quarters.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
In thousands
Cash and cash equivalents
Working capital
Total debt
December 31, 2020
December 31, 2019
$
580,893 $
931,631
1,085,783
351,911
667,964
936,484
The Company has historically financed its operations and capital requirements through cash flow from its operating activities,
long-term loans, lease financing and borrowings under domestic and international short-term lines of credit. Although there is
uncertainty related to the anticipated impact of the COVID-19 pandemic on the Company’s future results, we believe our
business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet, such as our
issuance of $400 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028 and related
repayments under the Revolving Facility and Term Loan Facility will help us to manage our business through the pandemic as we expect it to unfold. We
have reviewed numerous potential scenarios in connection with the impact of COVID-19 on the global economy and the semiconductor industry. Based on
our analysis, we believe our existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to
meet our cash needs arising in the ordinary course of business for the next twelve months. As the opportunity arises, we may seek to take advantage of
opportunities to raise additional capital through additional debt financing or through public or private sales of securities. If in the future our available
liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative
arrangements through additional equity or debt financing in order to meet
46
47
the AMH’s profit in 2019 was primarily due to lower sales.
Unallocated general and administrative expenses
Unallocated general and administrative expenses for 2019 totaled $62.2 million compared to $31.4 million for 2018. The $30.8 million increase mainly
reflects the deal and integration costs of $27.7 million in the discussion of SG&A above.
Advanced Materials Handling (AMH)
Quarterly Results of Operations
For 2019, AMH net sales decreased 7% to $458.3 million, from $493.4 million in 2018. This decrease was mainly due to decreased sales of fluid handling
products, liquid packaging and dispense products, wafer and reticle handling products and wafer shipping products.
AMH reported a segment profit of $75.2 million for 2019, down 19% compared to a $92.3 million segment profit in the year-ago period. The decrease in
The following table presents selected data from the Company’s consolidated statements of operations for the eight quarters ended December 31, 2020. This
unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this Annual Report on
Form 10-K. All adjustments that management considers necessary for the fair presentation of the unaudited information have been included in the quarters
presented.
QUARTERLY STATEMENTS OF OPERATIONS DATA
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2019
2020
(In thousands)
Net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development
expenses
Amortization of intangible assets
Operating income
Net income
$
$
391,047
177,393
82,254
28,991
18,657
47,491
32,658
378,874
166,274
64,150
30,624
16,591
54,909
123,997
$
394,147
170,350
71,232
$
426,998
197,636
67,171
$
412,327
185,478
58,891
$
448,405
207,372
66,872
$
31,173
15,152
52,793
40,767
30,352
16,028
84,085
57,438
29,632
16,211
80,744
61,006
32,572
13,216
94,712
68,036
480,987
226,000
71,195
36,295
11,749
106,761
79,303
$
517,594
230,872
68,170
37,558
11,916
113,228
86,624
(Percent of net sales)
Net sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development
expenses
Amortization of intangible assets
Operating income
Net income
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
100.0 %
45.4
21.0
7.4
4.8
12.1
8.4
100.0 %
43.9
16.9
8.1
4.4
14.5
32.7
100.0 %
43.2
18.1
7.9
3.8
13.4
10.3
100.0 %
46.3
15.7
7.1
3.8
19.7
13.5
100.0 %
45.0
14.3
7.2
3.9
19.6
14.8
100.0 %
46.2
14.9
7.3
2.9
21.1
15.2
100.0 %
47.0
14.8
7.5
2.4
22.2
16.5
100.0 %
44.6
13.2
7.3
2.3
21.9
16.7
The Company’s quarterly results of operations have been, and will likely continue to be, subject to significant fluctuations due to a myriad of factors, many
of which are beyond the Company’s control. The variability in sales and its corresponding effect on gross profit are generally the most important factors
underlying the changes in the Company’s operating income and net income over the past eight quarters.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
In thousands
Cash and cash equivalents
Working capital
Total debt
December 31, 2020
December 31, 2019
$
580,893 $
931,631
1,085,783
351,911
667,964
936,484
The Company has historically financed its operations and capital requirements through cash flow from its operating activities,
long-term loans, lease financing and borrowings under domestic and international short-term lines of credit. Although there is
uncertainty related to the anticipated impact of the COVID-19 pandemic on the Company’s future results, we believe our
business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet, such as our
issuance of $400 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028 and related
repayments under the Revolving Facility and Term Loan Facility will help us to manage our business through the pandemic as we expect it to unfold. We
have reviewed numerous potential scenarios in connection with the impact of COVID-19 on the global economy and the semiconductor industry. Based on
our analysis, we believe our existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to
meet our cash needs arising in the ordinary course of business for the next twelve months. As the opportunity arises, we may seek to take advantage of
opportunities to raise additional capital through additional debt financing or through public or private sales of securities. If in the future our available
liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative
arrangements through additional equity or debt financing in order to meet
46
47
the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. In
recent quarters, we have not experienced difficulty accessing the capital and credit markets;
however, future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect
our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be
limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance
maturing debt and/or react to changing economic and business conditions.
In summary, our cash flows for each period were as follows:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Operating activities
Year ended December
31, 2020
Year ended December
31, 2019
Year ended December
31, 2018
$
$
446,674 $
(243,326)
22,149
228,982 $
382,298 $
(385,840)
(126,820)
(130,151) $
312,576
(485,944)
34,411
(143,346)
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
Compared to 2019, the $64.4 million increase in cash provided by operating activities in 2020 was primarily due to higher net income and changes in
working capital. Changes in working capital for 2020 were driven by higher trade accounts receivables and notes receivable and inventory, offset by higher
accounts payable and other accrued liabilities and income taxes. The change for trade accounts receivables and notes receivable was primarily due to
increased sales activity compared to the prior year. The change for inventory is due to an increase in raw material purchases to mitigate potential supply
chain issues related to COVID-19 and increased business activity. The change in accounts payable and accrued liabilities is primarily due to higher accrued
bonuses in 2020 compared to 2019. The change for taxes was primarily driven by lower tax payments compared to the prior year.
Compared to 2018, the $69.7 million increase in cash provided by operating activities in 2019 was primarily due to higher net income, depreciation and
changes in working capital. Depreciation expense increased due to higher levels of capital spending in prior years. Changes in working capital for 2019
were driven by income taxes and inventories, offset by accounts payable and other accrued liabilities. The change for taxes was primarily the result in 2018
tax credits that were utilized against a one time toll charge accrual recorded in 2017. The change for inventory is due to lower production activity in 2019
compared to 2018. The decrease in accounts payable and accrued liabilities is due to lower accrued bonuses in 2019 and lower payables due to timing of
payments.
Investing activities
Investing cash flows consist primarily of capital expenditures, cash used for acquisitions and proceeds from sales of property and equipment.
As of December 31, 2020, we also had $550 million aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026 outstanding.
The decrease in cash used in investing activities in 2020 compared to 2019 was primarily due to lower cash paid for acquisitions. This was partially offset
by increased acquisitions of property, plant and equipment.
The decrease in cash used in investing activities in 2019 compared to 2018 was primarily due to lower cash paid on acquisitions. This was partially offset
by increased acquisitions of property, plant and equipment and lower proceeds from sales of property, plant and equipment.
Acquisition of property and equipment totaled $131.8 million in 2020, which primarily reflected investments in equipment and tooling, compared to $112.4
million in 2019, which primarily reflected investments in equipment and tooling. Capital expenditures in 2020 generally reflected more normalized capital
spending levels. The Company expects its capital expenditures in 2021 to be approximately $200.0 million for growth capacity investments. Of this amount
approximately $40.0 million will be spent for the first stage of a three to five year, $200.0 million investment in our new facility in Taiwan. This new
facility will ultimately support all three of our divisions.
In 2020, the Company acquired Sinmat and GMTI. The cash used to acquire Sinmat and GMTI was $111.9 million, net of cash acquired. The transactions
are described in further detail in note 3 to the Company’s consolidated financial statements.
In 2019, the Company acquired DSC, MPD and Anow. The cash used to acquire DSC, MPD and Anow was $277.4 million, net of cash acquired. The
transactions are described in further detail in note 3 to the Company’s consolidated financial statements.
Financing activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and
long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
In 2020, there was $22.1 million of cash provided by financing activities compared to $126.8 million cash used in financing activities in 2019. The
change was primarily due to net long-term debt activity, which was a source of cash of $149.0 million in 2020 compared to a use of cash of $4.0 million in
2019, and a $35.8 million decrease of repurchases of the Company’s common stock, partially offset by a $16.1 million deferred acquisition payment related
to our DSC acquisition, a $16.1 million increase in cash used to pay taxes for net share settlements of equity awards and a $4.0 million increase in
payments for debt issuance costs. During 2020, we repurchased $44.6 million of common stock under our authorized common stock repurchase program,
compared to $80.3 million in 2019. Our total dividend payments were $43.2 million in 2020 compared to $40.6 million in 2019. We have paid a cash
dividend in each of the past 13 quarters. On January 13, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.08 per share of
common stock, payable on February 17, 2021 to stockholders of record on January 27, 2021.
In 2019, there was $126.8 million of cash used in financing activities compared to $34.4 million cash provided by financing
activities in 2018. The change was primarily due to net long-term debt activity, which was a use of cash of $4.0 million in 2019
compared to a source of cash of $266.2 million in 2018, primarily offset by decreased repurchases of common stock.
During 2019, we repurchased $80.3 million of our common stock under our authorized common stock repurchase program,
compared to $173.8 million in 2018. Our total dividend payments were $40.6 million in 2019 compared to $39.6
million in 2018.
Other Liquidity and Capital Resources Considerations
On April 30, 2020, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028. The Company
paid debt issuance costs of $4.0 million in connection with the issuance of the notes during 2020. The transaction is described in further detail in note 8 to
the Company’s consolidated financial statements.
The Company’s Term Loan Facility matures on November 6, 2025 and bears an interest rate of 2.15% at December 31, 2020. During 2020, the Company
made payments of $251.0 million on the Term Loan Facility and had losses on debt extinguishment of $2.4 million. As of December 31, 2020, the
aggregate principal amount outstanding under the Term Loan Facility was $145.0 million.
The Company’s Revolving Facility provides for lending commitments in an aggregate principal amount of up to $300.0 million
maturing on November 6, 2023. The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option,
either a base rate (such as prime rate) or LIBOR plus, in each case, an applicable margin. At December 31, 2020, there was no
balance outstanding under the Revolving Facility and we had undrawn outstanding letters of credit of $0.2 million.
Through December 31, 2020, the Company was in compliance with all applicable financial covenants included in the terms of its credit facilities.
The Company also has lines of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an
aggregate of approximately $9.7 million. There were no outstanding borrowings under these lines of credit at December 31, 2020.
As of December 31, 2020, the Company’s sources of available funds were its cash and cash equivalents of $580.9 million, funds available under the
Revolving Facility and international credit facilities and cash flows generated from operations. As of December 31, 2020, the amount of cash and cash
equivalents held in certain of our foreign operations totaled approximately $312.8 million. We have accrued taxes on any earnings that are not indefinitely
reinvested. We estimate that no material withholding taxes would be incurred if any indefinitely reinvested earnings were distributed.
As of December 31, 2020, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital
Off-Balance Sheet Arrangements
resources.
New Accounting Pronouncements
Recently adopted accounting pronouncements Refer to note 1 to the Company’s consolidated financial statements for a discussion of accounting
pronouncements implemented in 2020. Other than the adoption of ASU 2016-13, Financial
48
49
recent quarters, we have not experienced difficulty accessing the capital and credit markets;
however, future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect
our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be
limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance
maturing debt and/or react to changing economic and business conditions.
In summary, our cash flows for each period were as follows:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Operating activities
Year ended December
Year ended December
Year ended December
31, 2020
31, 2019
31, 2018
$
$
446,674 $
(243,326)
22,149
228,982 $
382,298 $
(385,840)
(126,820)
(130,151) $
312,576
(485,944)
34,411
(143,346)
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
Compared to 2019, the $64.4 million increase in cash provided by operating activities in 2020 was primarily due to higher net income and changes in
working capital. Changes in working capital for 2020 were driven by higher trade accounts receivables and notes receivable and inventory, offset by higher
accounts payable and other accrued liabilities and income taxes. The change for trade accounts receivables and notes receivable was primarily due to
increased sales activity compared to the prior year. The change for inventory is due to an increase in raw material purchases to mitigate potential supply
chain issues related to COVID-19 and increased business activity. The change in accounts payable and accrued liabilities is primarily due to higher accrued
bonuses in 2020 compared to 2019. The change for taxes was primarily driven by lower tax payments compared to the prior year.
Compared to 2018, the $69.7 million increase in cash provided by operating activities in 2019 was primarily due to higher net income, depreciation and
changes in working capital. Depreciation expense increased due to higher levels of capital spending in prior years. Changes in working capital for 2019
were driven by income taxes and inventories, offset by accounts payable and other accrued liabilities. The change for taxes was primarily the result in 2018
tax credits that were utilized against a one time toll charge accrual recorded in 2017. The change for inventory is due to lower production activity in 2019
compared to 2018. The decrease in accounts payable and accrued liabilities is due to lower accrued bonuses in 2019 and lower payables due to timing of
payments.
Investing activities
by increased acquisitions of property, plant and equipment.
The decrease in cash used in investing activities in 2019 compared to 2018 was primarily due to lower cash paid on acquisitions. This was partially offset
by increased acquisitions of property, plant and equipment and lower proceeds from sales of property, plant and equipment.
Acquisition of property and equipment totaled $131.8 million in 2020, which primarily reflected investments in equipment and tooling, compared to $112.4
million in 2019, which primarily reflected investments in equipment and tooling. Capital expenditures in 2020 generally reflected more normalized capital
spending levels. The Company expects its capital expenditures in 2021 to be approximately $200.0 million for growth capacity investments. Of this amount
approximately $40.0 million will be spent for the first stage of a three to five year, $200.0 million investment in our new facility in Taiwan. This new
facility will ultimately support all three of our divisions.
In 2020, the Company acquired Sinmat and GMTI. The cash used to acquire Sinmat and GMTI was $111.9 million, net of cash acquired. The transactions
are described in further detail in note 3 to the Company’s consolidated financial statements.
the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. In
Financing activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and
long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
In 2020, there was $22.1 million of cash provided by financing activities compared to $126.8 million cash used in financing activities in 2019. The
change was primarily due to net long-term debt activity, which was a source of cash of $149.0 million in 2020 compared to a use of cash of $4.0 million in
2019, and a $35.8 million decrease of repurchases of the Company’s common stock, partially offset by a $16.1 million deferred acquisition payment related
to our DSC acquisition, a $16.1 million increase in cash used to pay taxes for net share settlements of equity awards and a $4.0 million increase in
payments for debt issuance costs. During 2020, we repurchased $44.6 million of common stock under our authorized common stock repurchase program,
compared to $80.3 million in 2019. Our total dividend payments were $43.2 million in 2020 compared to $40.6 million in 2019. We have paid a cash
dividend in each of the past 13 quarters. On January 13, 2021, the Company’s board of directors declared a quarterly cash dividend of $0.08 per share of
common stock, payable on February 17, 2021 to stockholders of record on January 27, 2021.
In 2019, there was $126.8 million of cash used in financing activities compared to $34.4 million cash provided by financing
activities in 2018. The change was primarily due to net long-term debt activity, which was a use of cash of $4.0 million in 2019
compared to a source of cash of $266.2 million in 2018, primarily offset by decreased repurchases of common stock.
During 2019, we repurchased $80.3 million of our common stock under our authorized common stock repurchase program,
compared to $173.8 million in 2018. Our total dividend payments were $40.6 million in 2019 compared to $39.6
million in 2018.
Other Liquidity and Capital Resources Considerations
On April 30, 2020, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028. The Company
paid debt issuance costs of $4.0 million in connection with the issuance of the notes during 2020. The transaction is described in further detail in note 8 to
the Company’s consolidated financial statements.
The Company’s Term Loan Facility matures on November 6, 2025 and bears an interest rate of 2.15% at December 31, 2020. During 2020, the Company
made payments of $251.0 million on the Term Loan Facility and had losses on debt extinguishment of $2.4 million. As of December 31, 2020, the
aggregate principal amount outstanding under the Term Loan Facility was $145.0 million.
The Company’s Revolving Facility provides for lending commitments in an aggregate principal amount of up to $300.0 million
maturing on November 6, 2023. The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option,
either a base rate (such as prime rate) or LIBOR plus, in each case, an applicable margin. At December 31, 2020, there was no
balance outstanding under the Revolving Facility and we had undrawn outstanding letters of credit of $0.2 million.
Investing cash flows consist primarily of capital expenditures, cash used for acquisitions and proceeds from sales of property and equipment.
As of December 31, 2020, we also had $550 million aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026 outstanding.
The decrease in cash used in investing activities in 2020 compared to 2019 was primarily due to lower cash paid for acquisitions. This was partially offset
Through December 31, 2020, the Company was in compliance with all applicable financial covenants included in the terms of its credit facilities.
In 2019, the Company acquired DSC, MPD and Anow. The cash used to acquire DSC, MPD and Anow was $277.4 million, net of cash acquired. The
transactions are described in further detail in note 3 to the Company’s consolidated financial statements.
New Accounting Pronouncements
Recently adopted accounting pronouncements Refer to note 1 to the Company’s consolidated financial statements for a discussion of accounting
pronouncements implemented in 2020. Other than the adoption of ASU 2016-13, Financial
The Company also has lines of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an
aggregate of approximately $9.7 million. There were no outstanding borrowings under these lines of credit at December 31, 2020.
As of December 31, 2020, the Company’s sources of available funds were its cash and cash equivalents of $580.9 million, funds available under the
Revolving Facility and international credit facilities and cash flows generated from operations. As of December 31, 2020, the amount of cash and cash
equivalents held in certain of our foreign operations totaled approximately $312.8 million. We have accrued taxes on any earnings that are not indefinitely
reinvested. We estimate that no material withholding taxes would be incurred if any indefinitely reinvested earnings were distributed.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital
resources.
48
49
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ASU 2018-14, Compensation - Retirement Benefits -
Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, there were no
recently issued accounting pronouncements adopted in 2020.
Recently issued accounting pronouncements Refer to note 1 of the Company’s consolidated financial statements for a discussion of accounting
pronouncements recently issued but not yet adopted.
Contractual Obligations
The following table summarizes the maturities of the Company’s significant financial obligations as of December 31, 2020:
(1)
(In thousands)
Long-term debt
(2)
Interest
Pension obligations
Capital purchase obligations
Supply purchase obligations
Operating leases
Total
(3)
(4)
Total
2021
2022
2023
2024
$
$
1,095,000 $
273,651
6,236
45,242
15,079
62,157
1,497,365 $
— $
46,050
41
45,242
9,706
12,365
113,404 $
— $
46,050
121
—
2,973
8,571
57,715 $
— $
46,050
214
—
800
6,851
53,915 $
— $
46,050
356
—
800
5,752
52,958 $
2025
145,000 $
45,791
350
—
800
4,876
196,817 $
Thereafter
950,000
43,660
5,154
—
—
23,742
1,022,556
Unrecognized tax benefits
(5)
1
2
Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets.
Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2020 and do not include $9.2
million for net unamortized discounts and debt issuance costs.
3
Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as
liabilities on the Company’s consolidated balance sheet as of December 31, 2020, as the Company had not yet received the related goods or taken title to
the property.
4
Supply purchase obligations represent commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above.
The Company had $17.4 million of total gross unrecognized tax benefits at December 31, 2020. The timing of any payments associated with these
unrecognized tax benefits will depend on a number of factors. Accordingly, the Company cannot make reasonably reliable estimates of the amount and
period of potential cash settlements, if any, with taxing authorities and are not included in the table above.
5
50
51
Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with 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. These non-GAAP financial measures include adjusted EBITDA
and adjusted operating income, together with related measures thereof, and non-GAAP earnings per share, as well as certain other supplemental non-GAAP
financial measures included in the discussion of the Company’s financial results.
Adjusted EBITDA, a non-GAAP financial measure, is defined by the Company as net income before (1) income tax expense, (2) interest expense, (3)
interest income, (4) other (income) expense, net, (5) charge for fair value write-up of acquired inventory sold, (6) deal costs, (7) integration costs, (8)
severance and restructuring costs, (9) loss on sale of subsidiary, (10) amortization of intangible assets and (11) depreciation. Adjusted operating income,
another non-GAAP financial measure, is defined by the Company as adjusted EBITDA exclusive of the depreciation addback noted above. The Company
also utilizes non-GAAP financial measures whereby adjusted EBITDA and adjusted operating income are each divided by the Company’s net sales to
derive adjusted EBITDA margin and adjusted operating margin, respectively.
Non-GAAP EPS, a non-GAAP financial measure, is defined by the Company as net income before (1) charge for fair value write-up of acquired inventory
sold, (2) deal costs, (3) integration costs, (4) severance and restructuring costs, (5) loss on debt extinguishment and modification, (6) Versum termination
fee, net, (7) loss on sale of subsidiary, (8) amortization of intangible assets, (9) the tax effect of those adjustments to net income and discrete tax items, (10)
the tax effect of legal entity restructuring and (11) the tax effect of the Tax Cuts and Jobs Act, divided by diluted weighted average shares outstanding.
The Company provides supplemental non-GAAP financial measures to better understand and manage its business and believes these measures provide
investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-
GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.
Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges
that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more
consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s
results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management
plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides greater
consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis
for comparisons to prior periods.
Management uses adjusted EBITDA and adjusted operating income to assist it in evaluations of the Company’s operating performance by excluding items
that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for
planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating
the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its
business.
In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s board of directors
uses non-GAAP financial measures in the evaluation process to determine management compensation.
The Company believes that certain analysts and investors use adjusted EBITDA, adjusted operating income and non-GAAP EPS as supplemental measures
to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use adjusted EBITDA measures
to evaluate the Company’s creditworthiness.
The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or
information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s 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.
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ASU 2018-14, Compensation - Retirement Benefits -
Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with GAAP.
Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, there were no
recently issued accounting pronouncements adopted in 2020.
Recently issued accounting pronouncements Refer to note 1 of the Company’s consolidated financial statements for a discussion of accounting
pronouncements recently issued but not yet adopted.
Contractual Obligations
The following table summarizes the maturities of the Company’s significant financial obligations as of December 31, 2020:
Total
2021
2022
2023
2024
2025
Thereafter
$
1,095,000 $
— $
— $
— $
— $
145,000 $
950,000
273,651
6,236
45,242
15,079
62,157
46,050
41
45,242
9,706
12,365
46,050
121
—
2,973
8,571
46,050
214
—
800
6,851
46,050
356
—
800
5,752
45,791
350
—
800
4,876
43,660
5,154
—
—
23,742
$
1,497,365 $
113,404 $
57,715 $
53,915 $
52,958 $
196,817 $
1,022,556
Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets.
Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2020 and do not include $9.2
million for net unamortized discounts and debt issuance costs.
Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as
liabilities on the Company’s consolidated balance sheet as of December 31, 2020, as the Company had not yet received the related goods or taken title to
Supply purchase obligations represent commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above.
The Company had $17.4 million of total gross unrecognized tax benefits at December 31, 2020. The timing of any payments associated with these
unrecognized tax benefits will depend on a number of factors. Accordingly, the Company cannot make reasonably reliable estimates of the amount and
period of potential cash settlements, if any, with taxing authorities and are not included in the table above.
(In thousands)
Long-term debt
(1)
Interest
(2)
Pension obligations
Capital purchase obligations
Supply purchase obligations
(3)
(4)
Operating leases
Total
Unrecognized tax benefits
(5)
1
2
3
4
5
the property.
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. These non-GAAP financial measures include adjusted EBITDA
and adjusted operating income, together with related measures thereof, and non-GAAP earnings per share, as well as certain other supplemental non-GAAP
financial measures included in the discussion of the Company’s financial results.
Adjusted EBITDA, a non-GAAP financial measure, is defined by the Company as net income before (1) income tax expense, (2) interest expense, (3)
interest income, (4) other (income) expense, net, (5) charge for fair value write-up of acquired inventory sold, (6) deal costs, (7) integration costs, (8)
severance and restructuring costs, (9) loss on sale of subsidiary, (10) amortization of intangible assets and (11) depreciation. Adjusted operating income,
another non-GAAP financial measure, is defined by the Company as adjusted EBITDA exclusive of the depreciation addback noted above. The Company
also utilizes non-GAAP financial measures whereby adjusted EBITDA and adjusted operating income are each divided by the Company’s net sales to
derive adjusted EBITDA margin and adjusted operating margin, respectively.
Non-GAAP EPS, a non-GAAP financial measure, is defined by the Company as net income before (1) charge for fair value write-up of acquired inventory
sold, (2) deal costs, (3) integration costs, (4) severance and restructuring costs, (5) loss on debt extinguishment and modification, (6) Versum termination
fee, net, (7) loss on sale of subsidiary, (8) amortization of intangible assets, (9) the tax effect of those adjustments to net income and discrete tax items, (10)
the tax effect of legal entity restructuring and (11) the tax effect of the Tax Cuts and Jobs Act, divided by diluted weighted average shares outstanding.
The Company provides supplemental non-GAAP financial measures to better understand and manage its business and believes these measures provide
investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-
GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.
Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges
that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more
consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s
results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management
plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides greater
consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis
for comparisons to prior periods.
Management uses adjusted EBITDA and adjusted operating income to assist it in evaluations of the Company’s operating performance by excluding items
that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for
planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating
the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its
business.
In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s board of directors
uses non-GAAP financial measures in the evaluation process to determine management compensation.
The Company believes that certain analysts and investors use adjusted EBITDA, adjusted operating income and non-GAAP EPS as supplemental measures
to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use adjusted EBITDA measures
to evaluate the Company’s creditworthiness.
The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or
information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s 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.
50
51
Third, there is no assurance the Company will not have future restructuring activities, gains or losses on sale of equity investments, contingent
consideration fair value adjustments 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.
The reconciliation of GAAP measures to adjusted operating income and adjusted EBITDA for the years ended December 31, 2020, 2019 and 2018 are
presented below:
In thousands
Net sales
Net income
Net income - as a % of net sales
Adjustments to net income
Income tax expense
Interest expense
Interest income
Other (income) expense, net
GAAP – Operating income
Operating margin - as a % of net sales
Charge for fair value write-up of acquired inventory sold
Deal costs
Integration costs
Severance and restructuring costs
Loss on sale of subsidiary
Amortization of intangible assets
Adjusted operating income
Adjusted operating margin
Depreciation
Adjusted EBITDA
Adjusted EBITDA – as a % of net sales
2020
1,859,313
294,969
$
$
2019
1,591,066
254,860
$
$
2018
1,550,497
240,755
$
$
15.9 %
16.0 %
15.5 %
59,318
48,600
(786)
(6,656)
395,445
21.3 %
590
2,576
2,963
4,364
—
53,092
459,030
24.7 %
83,430
542,460
29.2 %
$
63,189
46,962
(4,652)
(121,081)
239,278
15.0 %
7,544
26,164
9,932
12,494
—
66,428
361,840
22.7 %
74,975
436,815
27.5 %
$
13,677
34,094
(3,839)
8,002
292,689
18.9 %
6,868
5,121
3,237
460
466
62,152
370,993
23.9 %
65,116
436,109
28.1 %
$
The reconciliation of GAAP measures to non-GAAP earnings per share for the years ended December 31, 2020, 2019 and 2018 are presented below:
In thousands, except per share data
Net income
Adjustments to net income:
Deal costs
Integration costs
Charge for fair value write-up of acquired inventory sold
Severance and restructuring costs
Loss on debt extinguishment and modification
Versum termination fee, net
Loss on sale of subsidiary
Amortization of intangible assets
Tax effect of adjustments to net income and discrete tax items
(1)
Tax effect of legal entity restructuring
Tax effect of Tax Cuts and Jobs Act
Non-GAAP net income
Diluted earnings per common share
Effect of adjustments to net income
Diluted non-GAAP earnings per common share
2020
2019
2018
$
294,969 $
254,860 $
240,755
590
2,576
2,963
4,364
2,378
—
—
53,092
(15,197)
—
—
(122,000)
7,544
26,575
9,932
12,494
1,980
—
66,428
(3,124)
9,398
—
$
$
$
$
345,735 $
264,087 $
2.16 $
0.37 $
2.54 $
1.87 $
0.07 $
1.93 $
6,868
5,121
3,237
460
2,319
—
466
62,152
(17,812)
(34,478)
683
269,771
1.69
0.20
1.89
1
The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.
Item 7A. Quantitative and Qualitative Disclosure About Market Risks.
Entegris’ principal financial market risks are sensitivities to interest rates and foreign currency exchange rates. The Company’s interest-bearing cash and
cash equivalents and variable rate debt are subject to interest rate fluctuations. The Company’s cash and cash equivalents include cash on hand and highly
liquid debt securities with original maturities of three months or less 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 $3.4 million and $0.3 million annually for the years ended
December 31, 2020 and 2019, respectively.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign currency exchange rates.
Approximately 23.6% and 22.6% of the Company’s sales during 2020 and 2019 were denominated in the South Korean Won, New Taiwan Dollar, Chinese
Renmibi, Canadian Dollar, Malaysian Ringgit, Singapore Dollar, Euro, Israeli Shekel and the Japanese Yen. Financial results therefore will be affected by
changes in currency exchange rates. If all foreign currencies were to see a 10% reduction versus the U.S. dollar during the years ended December 31,
2020 and 2019 revenue would be negatively impacted by approximately $43.8 million and $36.0 million, respectively.
The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based
operations. At December 31, 2020 and 2019, the Company had no net exposure to any foreign currency forward contracts.
The information called for by this item is set forth in the Consolidated Financial Statements covered by the Report of Independent Registered Public
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 8. Financial Statements and Supplementary Data.
Accounting Firm at the end of this report.
This item is not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
52
53
Third, there is no assurance the Company will not have future restructuring activities, gains or losses on sale of equity investments, contingent
consideration fair value adjustments 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.
The reconciliation of GAAP measures to adjusted operating income and adjusted EBITDA for the years ended December 31, 2020, 2019 and 2018 are
presented below:
In thousands
Net sales
Net income
Net income - as a % of net sales
Adjustments to net income
Income tax expense
Interest expense
Interest income
Other (income) expense, net
GAAP – Operating income
Operating margin - as a % of net sales
Deal costs
Integration costs
Severance and restructuring costs
Loss on sale of subsidiary
Amortization of intangible assets
Adjusted operating income
Adjusted operating margin
Depreciation
Adjusted EBITDA
Adjusted EBITDA – as a % of net sales
2020
1,859,313
294,969
$
$
2019
1,591,066
254,860
$
$
2018
1,550,497
240,755
$
$
15.9 %
16.0 %
15.5 %
59,318
48,600
(786)
(6,656)
395,445
21.3 %
590
2,576
2,963
4,364
—
53,092
459,030
24.7 %
83,430
63,189
46,962
(4,652)
(121,081)
239,278
15.0 %
7,544
26,164
9,932
12,494
—
66,428
361,840
22.7 %
74,975
$
542,460
$
436,815
$
29.2 %
27.5 %
13,677
34,094
(3,839)
8,002
292,689
18.9 %
6,868
5,121
3,237
460
466
62,152
370,993
23.9 %
65,116
436,109
28.1 %
The reconciliation of GAAP measures to non-GAAP earnings per share for the years ended December 31, 2020, 2019 and 2018 are presented below:
In thousands, except per share data
Net income
Adjustments to net income:
Charge for fair value write-up of acquired inventory sold
Deal costs
Integration costs
Severance and restructuring costs
Loss on debt extinguishment and modification
Versum termination fee, net
Loss on sale of subsidiary
Amortization of intangible assets
Tax effect of adjustments to net income and discrete tax items
Tax effect of legal entity restructuring
Tax effect of Tax Cuts and Jobs Act
(1)
Non-GAAP net income
Diluted earnings per common share
Effect of adjustments to net income
Diluted non-GAAP earnings per common share
2020
294,969 $
$
2019
2018
254,860 $
240,755
590
2,576
2,963
4,364
2,378
—
—
53,092
(15,197)
—
—
345,735 $
2.16 $
0.37 $
2.54 $
7,544
26,575
9,932
12,494
1,980
(122,000)
—
66,428
(3,124)
9,398
—
264,087 $
1.87 $
0.07 $
1.93 $
6,868
5,121
3,237
460
2,319
—
466
62,152
(17,812)
(34,478)
683
269,771
1.69
0.20
1.89
$
$
$
$
Charge for fair value write-up of acquired inventory sold
Item 7A. Quantitative and Qualitative Disclosure About Market Risks.
1
The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.
Entegris’ principal financial market risks are sensitivities to interest rates and foreign currency exchange rates. The Company’s interest-bearing cash and
cash equivalents and variable rate debt are subject to interest rate fluctuations. The Company’s cash and cash equivalents include cash on hand and highly
liquid debt securities with original maturities of three months or less 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 $3.4 million and $0.3 million annually for the years ended
December 31, 2020 and 2019, respectively.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign currency exchange rates.
Approximately 23.6% and 22.6% of the Company’s sales during 2020 and 2019 were denominated in the South Korean Won, New Taiwan Dollar, Chinese
Renmibi, Canadian Dollar, Malaysian Ringgit, Singapore Dollar, Euro, Israeli Shekel and the Japanese Yen. Financial results therefore will be affected by
changes in currency exchange rates. If all foreign currencies were to see a 10% reduction versus the U.S. dollar during the years ended December 31,
2020 and 2019 revenue would be negatively impacted by approximately $43.8 million and $36.0 million, respectively.
The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based
operations. At December 31, 2020 and 2019, the Company had no net exposure to any foreign currency forward contracts.
Item 8. Financial Statements and Supplementary Data.
The information called for by this item is set forth in the Consolidated Financial Statements covered by the Report of Independent Registered Public
Accounting Firm at the end of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
This item is not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
52
53
Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period
covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), are effective to provide reasonable assurance that information required to be disclosed by us in
reports that we file or submit under the Exchange 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 our principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
The Company acquired Sinmat and GMTI on January 10, 2020 and July 10, 2020, respectively. Neither of Sinmat or GMTI is significant to the Company’s
financial statements. Management’s evaluation of disclosure controls and procedures excluded consideration of those disclosure controls and procedures
subsumed within internal control over financial reporting for Sinmat and GMTI. Sinmat and GMTI had total assets of approximately $163 million at
December 31, 2020 and net sales of approximately $15 million in 2020.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with GAAP.
Management assessed our internal control over financial reporting as of December 31, 2020. Management based its assessment on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control environment.
Basis for Opinion
The Company acquired Sinmat and GMTI on January 10, 2020 and July 10, 2020, respectively. The Company is continuing to integrate Sinmat and GMTI
into its internal control over financial reporting, and management’s evaluation of the effectiveness of the Company’s internal control over financial
reporting excluded Sinmat and GMTI.
the PCAOB.
Based on its assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting
purposes in accordance with GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
KPMG LLP, the independent registered public accounting firm which audited the consolidated financial statements included in this annual report, has
issued an attestation report on our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or
our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, have been detected.
statements.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Entegris, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Entegris, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and
cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial
statements), and our report dated February 5, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Sinmat and Global Measurement Technologies, Inc. during 2020, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, Sinmat’s and Global Measurement Technologies, Inc.’s
internal control over financial reporting associated with total assets of $163 million and total revenues of $15 million included in the consolidated financial
statements of the Company as of and for the year ended December 31, 2020. Our audit of internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial reporting of Sinmat and Global Measurement Technologies, Inc.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting appearing under
Item 9A of the Company’s December 31, 2020 Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
54
55
Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period
covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), are effective to provide reasonable assurance that information required to be disclosed by us in
reports that we file or submit under the Exchange 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 our principal executive officer and principal financial officer, as appropriate, to
To the Stockholders and Board of Directors
Report of Independent Registered Public Accounting Firm
allow timely decisions regarding required disclosure.
The Company acquired Sinmat and GMTI on January 10, 2020 and July 10, 2020, respectively. Neither of Sinmat or GMTI is significant to the Company’s
financial statements. Management’s evaluation of disclosure controls and procedures excluded consideration of those disclosure controls and procedures
subsumed within internal control over financial reporting for Sinmat and GMTI. Sinmat and GMTI had total assets of approximately $163 million at
December 31, 2020 and net sales of approximately $15 million in 2020.
Changes in Internal Control Over Financial Reporting
reporting.
Management Report on Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with GAAP.
Management assessed our internal control over financial reporting as of December 31, 2020. Management based its assessment on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control environment.
The Company acquired Sinmat and GMTI on January 10, 2020 and July 10, 2020, respectively. The Company is continuing to integrate Sinmat and GMTI
into its internal control over financial reporting, and management’s evaluation of the effectiveness of the Company’s internal control over financial
reporting excluded Sinmat and GMTI.
Based on its assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting
purposes in accordance with GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
KPMG LLP, the independent registered public accounting firm which audited the consolidated financial statements included in this annual report, has
issued an attestation report on our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or
our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, have been detected.
Entegris, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Entegris, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and
cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial
statements), and our report dated February 5, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Sinmat and Global Measurement Technologies, Inc. during 2020, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, Sinmat’s and Global Measurement Technologies, Inc.’s
internal control over financial reporting associated with total assets of $163 million and total revenues of $15 million included in the consolidated financial
statements of the Company as of and for the year ended December 31, 2020. Our audit of internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial reporting of Sinmat and Global Measurement Technologies, Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting appearing under
Item 9A of the Company’s December 31, 2020 Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
54
55
(2) These shares are available for future issuance under the 2020 Stock Plan in the form of stock options, restricted stock units, performance shares and
other stock awards in accordance with the terms of the 2020 Stock Plan.
(3) Includes 1,549,534 shares remaining available for future issuance as of December 31, 2020 under the Company’s Employee Stock Purchase Plan.
The other information required by this Item 12 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
/s/ KPMG LLP
Minneapolis, Minnesota
February 5, 2021
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Except as set forth below, the information required by this Item 10 has been omitted from this report, and is incorporated by reference to our Definitive
Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders, which is currently scheduled to be held on April 29, 2021, and to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 2020 fiscal year.
Information called for by this item with respect our executive officers is set forth under “Information About Our Executive Officers” in Part I of this report.
In 2005, our Board of Directors adopted a code of business ethics, The Entegris, Inc. Code of Business Ethics, applicable to all of our executives, directors
and employees, as well as a set of corporate governance guidelines, which have been updated from time to time. The Entegris, Inc. Code of Business
Ethics, the Corporate Governance Guidelines and the charters for our Audit & Finance Committee, Governance & Nominating Committee and our
Management Development & Compensation Committee all appear on our website at http://www.Entegris.com under “Investor Relations - Corporate
Governance”. The Entegris, Inc. Code of Business Ethics, Corporate Governance Guidelines and committee charters are also available in print to any
shareholder that requests a copy. Copies may be obtained by contacting our Assistant Secretary through our corporate headquarters. The Company intends
to comply with the requirements of Item 5.05 of Form 8-K with respect to any amendment to or waiver of the provisions of the Entegris, Inc. Code of
Business Ethics applicable to the registrant’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or Controller by posting notice of
any such amendment or waiver at the same location on our website.
Item 11. Executive Compensation.
The information required by this Item 11 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans:
As of December 31, 2020, our equity compensation plan information is as follows:
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights (1)
(b)
2,504,344 $
—
2,504,344 $
33.39
—
33.39
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a)) (2) (3)
(c)
10,540,662
—
10,540,662
(1) The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units, which have no
exercise price.
56
57
/s/ KPMG LLP
Minneapolis, Minnesota
February 5, 2021
Item 9B. Other Information.
None.
(2) These shares are available for future issuance under the 2020 Stock Plan in the form of stock options, restricted stock units, performance shares and
other stock awards in accordance with the terms of the 2020 Stock Plan.
(3) Includes 1,549,534 shares remaining available for future issuance as of December 31, 2020 under the Company’s Employee Stock Purchase Plan.
The other information required by this Item 12 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
PART III
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
Item 10. Directors, Executive Officers and Corporate Governance.
Except as set forth below, the information required by this Item 10 has been omitted from this report, and is incorporated by reference to our Definitive
Proxy Statement for the Entegris, Inc. Annual Meeting of Stockholders, which is currently scheduled to be held on April 29, 2021, and to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our 2020 fiscal year.
Information called for by this item with respect our executive officers is set forth under “Information About Our Executive Officers” in Part I of this report.
In 2005, our Board of Directors adopted a code of business ethics, The Entegris, Inc. Code of Business Ethics, applicable to all of our executives, directors
and employees, as well as a set of corporate governance guidelines, which have been updated from time to time. The Entegris, Inc. Code of Business
Ethics, the Corporate Governance Guidelines and the charters for our Audit & Finance Committee, Governance & Nominating Committee and our
Management Development & Compensation Committee all appear on our website at http://www.Entegris.com under “Investor Relations - Corporate
Governance”. The Entegris, Inc. Code of Business Ethics, Corporate Governance Guidelines and committee charters are also available in print to any
shareholder that requests a copy. Copies may be obtained by contacting our Assistant Secretary through our corporate headquarters. The Company intends
to comply with the requirements of Item 5.05 of Form 8-K with respect to any amendment to or waiver of the provisions of the Entegris, Inc. Code of
Business Ethics applicable to the registrant’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or Controller by posting notice of
any such amendment or waiver at the same location on our website.
Item 11. Executive Compensation.
The information required by this Item 11 has been omitted from this report, and is incorporated by reference to our Definitive Proxy Statement for the
Entegris, Inc. Annual Meeting of Stockholders to be held on April 29, 2021, and to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the end of our 2020 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans:
As of December 31, 2020, our equity compensation plan information is as follows:
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights (1)
(b)
2,504,344 $
—
2,504,344 $
33.39
—
33.39
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a)) (2) (3)
(c)
10,540,662
—
10,540,662
(1) The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock units, which have no
exercise price.
56
57
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as a part of this report:
PART IV
1. Financial Statements. The Consolidated Financial Statements listed under Item 8 of this report and in the Index to Consolidated Financial
Statements on page F-1 of this report are incorporated by reference herein.
2. Exhibits.
Reg. S-K
Item 601(b)
Reference
(3)
(3)
(4)
(4)
(4)
(4)
(10)
(10)
(10)
(10)
(10)
(10)
a. The following exhibits are incorporated by reference:
Document Incorporated
Amended and Restated Certificate of Incorporation of Entegris, Inc., as amended
By-Laws of Entegris, Inc., as amended December 17, 2008
Form of certificate representing shares of Common Stock, $.01 par value per share
Indenture, dated as of November 10, 2017, by and among the Company, certain of
subsidiaries of the Company and Wells Fargo Bank, National Association Bank, as
trustee, including the form of note representing the 2026 Notes
Indenture, dated as of April 30, 2020, by and among the Company, certain subsidiaries
of the Company and Wells Fargo Bank, National Association, as trustee, including the
form of note representing the 2028 Notes
Description of Capital Stock
Credit and Guaranty Agreement dated as of November 6, 2018, among Entegris, Inc.,
as borrower, certain subsidiaries of Entegris, Inc., as guarantors, the lenders party
thereto and Goldman Sachs Bank USA, as administrative agent and collateral agent
Amendment No. 1 to Credit and Guaranty Agreement, dated as of February 8, 2019,
among Entegris, Inc., as borrower, each lender party thereto, and Goldman Sachs
Bank USA, as administrative agent and collateral agent
Amendment No. 2 to Credit and Guaranty Agreement, dated as of October 31, 2019,
among Entegris, Inc., as borrower, the other credit parties party thereto, the lenders
party thereto, the issuing banks party thereto, Goldman Sachs Bank USA, as the
predecessor agent, and Morgan Stanley Senior Funding, Inc., as the successor agent.
Amendment No. 3 to Credit and Guaranty Agreement, dated as of May 20, 2020,
among Entegris, Inc., as borrower, the lenders party thereto and Morgan Stanley
Senior Funding, Inc., as administrative agent
Pledge and Security Agreement dated as of November 6, 2018, among Entegris, Inc.,
as borrower, the guarantors party thereto and Goldman Sachs Bank USA, as collateral
agent
Amendment No. 1 to Pledge and Security Agreement, dated as of October 31, 2019,
among Entegris, Inc., as borrower, the other credit parties party thereto, Goldman
Sachs Bank USA, as the predecessor agent, and Morgan Stanley Senior Funding, Inc.,
as the successor agent
Referenced
Document on file
with the
Commission
Exhibit 3.1 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
2011
Exhibit 3 to Entegris, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2008
Exhibit 4.1 to Form S-4 Registration Statement of
Entegris, Inc. and Eagle DE, Inc. (No. 333-
124719)
Exhibit 4.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 13, 2017
Exhibit 4.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on April 30, 2020
Exhibit 4.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 6, 2018
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on February 8, 2019
Exhibit 10.5 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended June 27, 2020
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 6, 2018
Exhibit 10.6 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
Entegris, Inc. – 2010 Stock Plan, as amended*
Entegris, Inc. 2020 Stock Plan*
Entegris, Inc. Outside Directors’ Stock Option Plan*
Entegris, Inc. Amended and Restated Employee Stock Purchase Plan*
Second Amended and Restated Entegris Incentive Plan*
Entegris, Inc. 2007 Deferred Compensation Plan*
Amended and Restated Supplemental Executive Retirement Plan for Key Salaried
Employees*
Amendment to Amended and Restated SERP*
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended July 3, 2010
Annex 1 to the Entegris, Inc. Schedule 14A proxy
statement for its 2020 Annual Meeting of
Stockholders (No. 001-32598), as filed with the
Securities and Exchange Commission on March
18, 2020
Exhibit 10.2 to Entegris, Inc. Registration
Statement on Form S-1 (No. 333-33668)
Exhibit 4.1 to Entegris, Inc. Registration
Statement on Form S-8 (No. 333-211444)
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on May 24, 2017
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form10-Q for the fiscal period ended June 30,
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
Exhibit 10.15 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
Lease Agreement, dated April 1, 2002 between Nortel Networks HPOCS Inc. and
Mykrolis Corporation, relating to Executive office, R&D and manufacturing facility
Exhibit 10.1.3 to Mykrolis Corporation’s
Quarterly Report on Form 10-Q for the quarter
located at 129 Concord Road Billerica, MA
Amendment of Lease between Entegris, Inc. and KBS Rivertech, LLC dated April 1,
Second Amendment of Lease, dated March 8, 2016, between Entegris, Inc. and KBS
2012
Rivertech, LLC
Fluoropolymer Purchase and Sale Agreement, by and between E.I. Du Pont De
Nemours and Company and the Registrant, dated January 1, 2011, as amended
Form of Indemnification Agreement between Entegris, Inc. and each of its executive
officers and Directors
ended March 31, 2002
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended June 30, 2012
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on March 11, 2016
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form 10-Q for the quarter ended April 2, 2011
Exhibit 10.30 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended August 27,
Form of Executive Change of Control Termination Agreement between Entegris, Inc.
and certain of its executive officers*
Exhibit 10.31 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended August 27,
Form of Revised Executive Change of Control Termination Agreement between
Entegris, Inc. and certain of its executive officers executed in 2015 (other than those
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
executive officers who executed the form previously filed)*
Entegris, Inc. 2014 Stock Option Grant Agreement*
Entegris, Inc. 2015 Stock Option Grant Agreement*
Commission on February 29, 2016
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 26, 2015
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 29, 2016
2007
2008
2009
2005
2005
58
59
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as a part of this report:
PART IV
1. Financial Statements. The Consolidated Financial Statements listed under Item 8 of this report and in the Index to Consolidated Financial
Statements on page F-1 of this report are incorporated by reference herein.
2. Exhibits.
a. The following exhibits are incorporated by reference:
Document Incorporated
Reg. S-K
Item 601(b)
Reference
Amended and Restated Certificate of Incorporation of Entegris, Inc., as amended
By-Laws of Entegris, Inc., as amended December 17, 2008
Form of certificate representing shares of Common Stock, $.01 par value per share
Referenced
Document on file
with the
Commission
Exhibit 3.1 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
2011
124719)
Exhibit 3 to Entegris, Inc. Annual Report on Form
10-K for the fiscal year ended December 31, 2008
Exhibit 4.1 to Form S-4 Registration Statement of
Entegris, Inc. and Eagle DE, Inc. (No. 333-
Indenture, dated as of November 10, 2017, by and among the Company, certain of
subsidiaries of the Company and Wells Fargo Bank, National Association Bank, as
Exhibit 4.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
trustee, including the form of note representing the 2026 Notes
Commission on November 13, 2017
Indenture, dated as of April 30, 2020, by and among the Company, certain subsidiaries
of the Company and Wells Fargo Bank, National Association, as trustee, including the
Exhibit 4.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
form of note representing the 2028 Notes
Description of Capital Stock
Commission on April 30, 2020
Exhibit 4.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Credit and Guaranty Agreement dated as of November 6, 2018, among Entegris, Inc.,
as borrower, certain subsidiaries of Entegris, Inc., as guarantors, the lenders party
thereto and Goldman Sachs Bank USA, as administrative agent and collateral agent
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 6, 2018
Amendment No. 1 to Credit and Guaranty Agreement, dated as of February 8, 2019,
among Entegris, Inc., as borrower, each lender party thereto, and Goldman Sachs
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Bank USA, as administrative agent and collateral agent
Amendment No. 2 to Credit and Guaranty Agreement, dated as of October 31, 2019,
among Entegris, Inc., as borrower, the other credit parties party thereto, the lenders
party thereto, the issuing banks party thereto, Goldman Sachs Bank USA, as the
predecessor agent, and Morgan Stanley Senior Funding, Inc., as the successor agent.
Commission on February 8, 2019
Exhibit 10.5 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Amendment No. 3 to Credit and Guaranty Agreement, dated as of May 20, 2020,
among Entegris, Inc., as borrower, the lenders party thereto and Morgan Stanley
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended June 27, 2020
Senior Funding, Inc., as administrative agent
Pledge and Security Agreement dated as of November 6, 2018, among Entegris, Inc.,
as borrower, the guarantors party thereto and Goldman Sachs Bank USA, as collateral
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
agent
Commission on November 6, 2018
Amendment No. 1 to Pledge and Security Agreement, dated as of October 31, 2019,
among Entegris, Inc., as borrower, the other credit parties party thereto, Goldman
Sachs Bank USA, as the predecessor agent, and Morgan Stanley Senior Funding, Inc.,
Exhibit 10.6 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
as the successor agent
(3)
(3)
(4)
(4)
(4)
(4)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
Entegris, Inc. – 2010 Stock Plan, as amended*
Entegris, Inc. 2020 Stock Plan*
Entegris, Inc. Outside Directors’ Stock Option Plan*
Entegris, Inc. Amended and Restated Employee Stock Purchase Plan*
Second Amended and Restated Entegris Incentive Plan*
Entegris, Inc. 2007 Deferred Compensation Plan*
Amended and Restated Supplemental Executive Retirement Plan for Key Salaried
Employees*
Amendment to Amended and Restated SERP*
Lease Agreement, dated April 1, 2002 between Nortel Networks HPOCS Inc. and
Mykrolis Corporation, relating to Executive office, R&D and manufacturing facility
located at 129 Concord Road Billerica, MA
Amendment of Lease between Entegris, Inc. and KBS Rivertech, LLC dated April 1,
2012
Second Amendment of Lease, dated March 8, 2016, between Entegris, Inc. and KBS
Rivertech, LLC
Fluoropolymer Purchase and Sale Agreement, by and between E.I. Du Pont De
Nemours and Company and the Registrant, dated January 1, 2011, as amended
Form of Indemnification Agreement between Entegris, Inc. and each of its executive
officers and Directors
Form of Executive Change of Control Termination Agreement between Entegris, Inc.
and certain of its executive officers*
Form of Revised Executive Change of Control Termination Agreement between
Entegris, Inc. and certain of its executive officers executed in 2015 (other than those
executive officers who executed the form previously filed)*
Entegris, Inc. 2014 Stock Option Grant Agreement*
Entegris, Inc. 2015 Stock Option Grant Agreement*
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended July 3, 2010
Annex 1 to the Entegris, Inc. Schedule 14A proxy
statement for its 2020 Annual Meeting of
Stockholders (No. 001-32598), as filed with the
Securities and Exchange Commission on March
18, 2020
Exhibit 10.2 to Entegris, Inc. Registration
Statement on Form S-1 (No. 333-33668)
Exhibit 4.1 to Entegris, Inc. Registration
Statement on Form S-8 (No. 333-211444)
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on May 24, 2017
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form10-Q for the fiscal period ended June 30,
2007
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
2008
Exhibit 10.15 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
2009
Exhibit 10.1.3 to Mykrolis Corporation’s
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended June 30, 2012
Exhibit 10.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on March 11, 2016
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form 10-Q for the quarter ended April 2, 2011
Exhibit 10.30 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended August 27,
2005
Exhibit 10.31 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended August 27,
2005
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 29, 2016
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 26, 2015
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 29, 2016
58
59
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
Entegris, Inc. 2016 Stock Option Grant Agreement*
Entegris, Inc. 2017 RSU Award Agreement*
Entegris, Inc. 2017 Stock Option Grant Agreement*
Entegris, Inc. 2018 Performance Share Award Agreement*
Entegris, Inc. 2018 RSU Award Agreement*
Entegris, Inc. 2018 Stock Option Grant Agreement*
Entegris, Inc. 2019 Performance Share Award Agreement*
Entegris, Inc. 2019 RSU Award Agreement*
Entegris, Inc. 2019 Stock Option Grant Agreement*
Entegris, Inc. 2020 Performance Share Award Agreement (under 2010 Stock Plan)*
Entegris, Inc. 2020 RSU Award Agreement (under 2010 Stock Plan)*
Entegris, Inc. 2020 Stock Option Grant Agreement (under 2010 Stock Plan)*
Executive Employment Agreement, effective November 28, 2012, between the
Registrant and Bertrand Loy*
Amendment No. 1, dated April 26, 2013, to Executive Change in Control Termination
Agreement, between Entegris, Inc. and Bertrand Loy*
Amendment No. 2, dated February 5, 2020, to Executive Change in Control
Termination Agreement, between Entegris, Inc. and Bertrand Loy*
Severance Protection Agreement, dated May 13, 2011 between Entegris, Inc. and
Gregory B. Graves*
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 17, 2017
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 15, 2018
Exhibit 10.3 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 15, 2018
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 11, 2019
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 11, 2019
Exhibit 10.3 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 11, 2019
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.3 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended March 28, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended March 28, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended March 28, 2020
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
2012
Exhibit 99.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on April 26, 2013
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended July 2, 2011
(10)
(10)
Amendment No. 1, dated as of February 23, 2016, to the Severance Protection
Agreement by and between Entegris, Inc, and Gregory B. Graves*
Separation Agreement and Release, dated as of August 27, 2019, by and between the
Company and Gregory Marshall*
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form 10-Q filed with the Securities and Exchange
Commission on April 28, 2016
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q filed with the Securities and Exchange
Commission on October 24, 2019
* A “management contract or compensatory plan”
B. The Company hereby files as exhibits to this Annual Report on Form 10-K the following documents:
10.1
10.2
10.3
10.4
21
23
24
31.1
31.2
32.1
32.2
Reg. S-K
Item 601(b)
(10)
(10)
(10)
(10)
(21)
(23)
(24)
(31)
(31)
(32)
(32)
(101)
(101)
(101)
(101)
(101)
(101)
(104)
Reference
Exhibit No.
Documents Filed Herewith
Entegris, Inc. 2020 RSU Award Agreement (under 2020 Stock Plan)*
Entegris, Inc. 2021 Performance Share Award Agreement*
Entegris, Inc. 2021 RSU Award Agreement*
Entegris, Inc. 2021 Stock Option Grant Agreement*
Subsidiaries of Entegris, Inc.
Consent of Independent Registered Public Accounting Firm
Power of Attorney by the Directors of Entegris, Inc.
Certification required by Rule 13a-14(a) in accordance with Section 302 of the Sarbanes—Oxley Act of 2002.
Certification required by Rule 13a-14(a) in accordance with Section 302 of the Sarbanes—Oxley Act of 2002.
Certification required by Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Certification required by Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Sarbanes-Oxley Act of 2002.
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
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* A “management contract or compensatory plan”
Item 16. Form 10-K Summary.
None.
60
61
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
(10)
Entegris, Inc. 2016 Stock Option Grant Agreement*
Entegris, Inc. 2017 RSU Award Agreement*
Entegris, Inc. 2017 Stock Option Grant Agreement*
Entegris, Inc. 2018 Performance Share Award Agreement*
Entegris, Inc. 2018 RSU Award Agreement*
Entegris, Inc. 2018 Stock Option Grant Agreement*
Entegris, Inc. 2019 Performance Share Award Agreement*
Entegris, Inc. 2019 RSU Award Agreement*
Entegris, Inc. 2019 Stock Option Grant Agreement*
Entegris, Inc. 2020 Performance Share Award Agreement (under 2010 Stock Plan)*
Entegris, Inc. 2020 RSU Award Agreement (under 2010 Stock Plan)*
Entegris, Inc. 2020 Stock Option Grant Agreement (under 2010 Stock Plan)*
Executive Employment Agreement, effective November 28, 2012, between the
Registrant and Bertrand Loy*
Amendment No. 1, dated April 26, 2013, to Executive Change in Control Termination
Agreement, between Entegris, Inc. and Bertrand Loy*
Amendment No. 2, dated February 5, 2020, to Executive Change in Control
Termination Agreement, between Entegris, Inc. and Bertrand Loy*
Severance Protection Agreement, dated May 13, 2011 between Entegris, Inc. and
Gregory B. Graves*
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 17, 2017
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 15, 2018
Exhibit 10.3 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 15, 2018
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 11, 2019
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 11, 2019
Exhibit 10.3 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 11, 2019
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.2 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.3 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended March 28, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended March 28, 2020
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended March 28, 2020
Exhibit 10.1 to Entegris, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31,
2012
Exhibit 99.1 to Entegris, Inc. Current Report on
Form 8-K filed with the Securities and Exchange
Commission on April 26, 2013
Exhibit 10.4 to Entegris, Inc. Annual Report on
Form 10-K filed with the Securities and Exchange
Commission on February 7, 2020
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form 10-Q for the period ended July 2, 2011
(10)
(10)
Amendment No. 1, dated as of February 23, 2016, to the Severance Protection
Agreement by and between Entegris, Inc, and Gregory B. Graves*
Separation Agreement and Release, dated as of August 27, 2019, by and between the
Company and Gregory Marshall*
Exhibit 10.2 to Entegris, Inc. Quarterly Report on
Form 10-Q filed with the Securities and Exchange
Commission on April 28, 2016
Exhibit 10.1 to Entegris, Inc. Quarterly Report on
Form 10-Q filed with the Securities and Exchange
Commission on October 24, 2019
* A “management contract or compensatory plan”
B. The Company hereby files as exhibits to this Annual Report on Form 10-K the following documents:
Reg. S-K
Item 601(b)
Reference
(10)
(10)
(10)
(10)
(21)
(23)
(24)
(31)
(31)
(32)
(32)
(101)
(101)
(101)
(101)
(101)
(101)
(104)
Exhibit No.
10.1
10.2
10.3
10.4
21
23
24
31.1
31.2
32.1
32.2
Documents Filed Herewith
Entegris, Inc. 2020 RSU Award Agreement (under 2020 Stock Plan)*
Entegris, Inc. 2021 Performance Share Award Agreement*
Entegris, Inc. 2021 RSU Award Agreement*
Entegris, Inc. 2021 Stock Option Grant Agreement*
Subsidiaries of Entegris, Inc.
Consent of Independent Registered Public Accounting Firm
Power of Attorney by the Directors of Entegris, Inc.
Certification required by Rule 13a-14(a) in accordance with Section 302 of the Sarbanes—Oxley Act of 2002.
Certification required by Rule 13a-14(a) in accordance with Section 302 of the Sarbanes—Oxley Act of 2002.
Certification required by Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification required by Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* A “management contract or compensatory plan”
Item 16. Form 10-K Summary.
None.
60
61
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SIGNATURES
Date: February 5, 2021
ENTEGRIS, INC.
By
/s/ BERTRAND LOY
Bertrand Loy
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
ENTEGRIS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-10
SIGNATURE
/s/ BERTRAND LOY
Bertrand Loy
/s/ GREGORY B. GRAVES
Gregory B. Graves
/s/ MICHAEL D. SAUER
Michael D. Sauer
PAUL L.H. OLSON*
Paul L.H. Olson
MICHAEL A. BRADLEY*
Michael A. Bradley
R. NICHOLAS BURNS*
R. Nicholas Burns
JAMES F. GENTILCORE*
James F. Gentilcore
JAMES P. LEDERER*
James P. Lederer
AZITA SALEKI-GERHARDT*
Azita Saleki-Gerhardt
BRIAN F. SULLIVAN*
Brian F. Sullivan
TITLE
President, Chief Executive Officer and Director
(Principal executive officer)
DATE
February 5, 2021
Executive Vice President, Chief Financial Officer & Treasurer (Principal financial
officer)
February 5, 2021
Vice President, Controller & Chief Accounting Officer (Principal accounting
officer)
Director, Chairman of the Board
Director
Director
Director
Director
Director
Director
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
*By
Gregory B. Graves, Attorney-in-fact
/s/ Gregory B. Graves
62
F-1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SIGNATURES
ENTEGRIS, INC.
By
/s/ BERTRAND LOY
Bertrand Loy
President & Chief Executive Officer
ENTEGRIS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-10
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date: February 5, 2021
SIGNATURE
/s/ BERTRAND LOY
Bertrand Loy
/s/ GREGORY B. GRAVES
Gregory B. Graves
/s/ MICHAEL D. SAUER
Michael D. Sauer
PAUL L.H. OLSON*
Paul L.H. Olson
MICHAEL A. BRADLEY*
Michael A. Bradley
R. NICHOLAS BURNS*
R. Nicholas Burns
JAMES F. GENTILCORE*
James F. Gentilcore
JAMES P. LEDERER*
James P. Lederer
Azita Saleki-Gerhardt
BRIAN F. SULLIVAN*
Brian F. Sullivan
TITLE
officer)
officer)
Director
Director
Director
Director
Director
AZITA SALEKI-GERHARDT*
Director
*By
/s/ Gregory B. Graves
Gregory B. Graves, Attorney-in-fact
President, Chief Executive Officer and Director
(Principal executive officer)
Executive Vice President, Chief Financial Officer & Treasurer (Principal financial
February 5, 2021
Vice President, Controller & Chief Accounting Officer (Principal accounting
February 5, 2021
Director, Chairman of the Board
DATE
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
February 5, 2021
62
F-1
Report of Independent Registered Public Accounting Firm
Critical Audit Matter
To the Stockholders and Board of Directors
Entegris, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Entegris, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the
related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December
31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 5, 2021 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 10 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption
of FASB Accounting Standard Codification (Topic 842) Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of acquired customer relationships
As discussed in Note 3 to the consolidated financial statements, the Company accounts for acquired businesses using the acquisition method of
accounting by recording assets and liabilities acquired at their respective fair values. During 2020, the Company acquired Sinmat for a total purchase
price of $75.6 million, net of cash acquired, and the Company recorded an intangible asset for customer relationships of $33.9 million.
We identified the assessment of the fair value of acquired customer relationships as a critical audit matter. The key assumptions included: (1) future
revenue growth rate, (2) future operating margin, and (3) discount rate. Testing the key assumptions underlying the estimate of the fair value of the
customer relationships acquired involved a high degree of subjectivity.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Company’s acquisition process. This included controls over the development of the key assumptions.
We evaluated the reasonableness of the Company’s selected future revenue growth rate and future operating margin by comparing those assumptions to
the historical results of Sinmat and analyst reports about the Company, its peer companies, and the industry. We involved valuation specialists with
specialized skills and knowledge who assisted in evaluating the Company’s discount rate by comparing the Company’s inputs to the discount rate to
publicly available data for comparable entities and assessing the resulting discount rate. We performed sensitivity analyses over the key assumptions to
assess the impact of change in those assumptions on the Company’s determination of fair value.
We or our predecessor firms have served as the Company’s auditor since 1966.
/s/ KPMG LLP
Minneapolis, Minnesota
February 5, 2021
F-2
F-3
Report of Independent Registered Public Accounting Firm
Critical Audit Matter
To the Stockholders and Board of Directors
Entegris, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Entegris, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the
related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December
31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 5, 2021 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
As discussed in Note 10 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption
Change in Accounting Principle
of FASB Accounting Standard Codification (Topic 842) Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of acquired customer relationships
As discussed in Note 3 to the consolidated financial statements, the Company accounts for acquired businesses using the acquisition method of
accounting by recording assets and liabilities acquired at their respective fair values. During 2020, the Company acquired Sinmat for a total purchase
price of $75.6 million, net of cash acquired, and the Company recorded an intangible asset for customer relationships of $33.9 million.
We identified the assessment of the fair value of acquired customer relationships as a critical audit matter. The key assumptions included: (1) future
revenue growth rate, (2) future operating margin, and (3) discount rate. Testing the key assumptions underlying the estimate of the fair value of the
customer relationships acquired involved a high degree of subjectivity.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Company’s acquisition process. This included controls over the development of the key assumptions.
We evaluated the reasonableness of the Company’s selected future revenue growth rate and future operating margin by comparing those assumptions to
the historical results of Sinmat and analyst reports about the Company, its peer companies, and the industry. We involved valuation specialists with
specialized skills and knowledge who assisted in evaluating the Company’s discount rate by comparing the Company’s inputs to the discount rate to
publicly available data for comparable entities and assessing the resulting discount rate. We performed sensitivity analyses over the key assumptions to
assess the impact of change in those assumptions on the Company’s determination of fair value.
/s/ KPMG LLP
We or our predecessor firms have served as the Company’s auditor since 1966.
Minneapolis, Minnesota
February 5, 2021
F-2
F-3
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Trade accounts and notes receivable, net
Inventories, net
Deferred tax charges and refundable income taxes
Other current assets
Total current assets
Property, plant and equipment, net
Other assets:
Right-of-use assets
Goodwill
Intangible assets, net
Deferred tax assets and other noncurrent tax assets
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Long-term debt, current maturities
Accounts payable
Accrued payroll and related benefits
Other accrued liabilities
Income taxes payable
Total current liabilities
Long-term debt, excluding current maturities
Pension benefit obligations and other liabilities
Deferred tax liabilities and other noncurrent tax liabilities
Long-term lease liabilities
Commitments and contingent liabilities
Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of
December 31, 2020 and December 31, 2019
Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of
December 31, 2020: 135,148,774 and 134,946,374, respectively; issued and outstanding shares as of
December 31, 2019: 134,929,768 and 134,727,368, respectively
Treasury stock, common, at cost: 202,400 shares held as of December 31, 2020 and December 31,
2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
December 31, 2020
December 31, 2019
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Interest expense
Interest income
Other (income) expense, net
Income before income tax expense
Income tax expense
Net income
Basic net income per common share
Diluted net income per common share
Weighted average shares outstanding
Basic
Diluted
$
$
$
$
Year ended December
Year ended December
Year ended December
31, 2020
31, 2019
31, 2018
1,591,066 $
1,550,497
1,859,313 $
1,009,591
849,722
265,128
136,057
53,092
395,445
48,600
(786)
(6,656)
354,287
59,318
879,413
711,653
284,807
121,140
66,428
239,278
46,962
(4,652)
(121,081)
318,049
63,189
294,969 $
254,860 $
2.19 $
2.16 $
1.89 $
1.87 $
134,837
136,266
135,137
136,568
830,666
719,831
246,534
118,456
62,152
292,689
34,094
(3,839)
8,002
254,432
13,677
240,755
1.71
1.69
141,026
142,610
$
$
$
$
580,893 $
264,392
323,944
21,136
43,892
1,234,257
525,367
45,924
748,037
337,632
14,519
11,960
2,917,696 $
— $
81,618
94,364
82,648
43,996
302,626
1,085,783
36,457
73,606
39,730
—
—
1,351
(7,112)
844,850
577,833
(37,428)
1,379,494
2,917,696 $
351,911
234,409
287,098
24,552
34,427
932,397
479,544
50,160
695,044
333,952
11,245
13,744
2,516,086
4,000
84,207
62,340
87,778
26,108
264,433
932,484
37,867
71,586
43,827
—
—
1,349
(7,112)
842,784
366,127
(37,259)
1,165,889
2,516,086
See the accompanying notes to consolidated financial statements.
See the accompanying notes to consolidated financial statements.
F-4
F-5
(In thousands, except share and per share data)
December 31, 2020
December 31, 2019
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Engineering, research and development expenses
Amortization of intangible assets
Operating income
Interest expense
Interest income
Other (income) expense, net
Income before income tax expense
Income tax expense
Net income
Basic net income per common share
Diluted net income per common share
Weighted average shares outstanding
Basic
Diluted
Year ended December
31, 2020
Year ended December
31, 2019
Year ended December
31, 2018
$
$
$
$
1,859,313 $
1,009,591
849,722
265,128
136,057
53,092
395,445
48,600
(786)
(6,656)
354,287
59,318
294,969 $
1,591,066 $
879,413
711,653
284,807
121,140
66,428
239,278
46,962
(4,652)
(121,081)
318,049
63,189
254,860 $
1,550,497
830,666
719,831
246,534
118,456
62,152
292,689
34,094
(3,839)
8,002
254,432
13,677
240,755
2.19 $
2.16 $
1.89 $
1.87 $
1.71
1.69
134,837
136,266
135,137
136,568
141,026
142,610
ASSETS
Current assets:
Cash and cash equivalents
Trade accounts and notes receivable, net
Inventories, net
Deferred tax charges and refundable income taxes
Deferred tax assets and other noncurrent tax assets
Other current assets
Total current assets
Property, plant and equipment, net
Other assets:
Right-of-use assets
Goodwill
Intangible assets, net
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Long-term debt, current maturities
Accounts payable
Accrued payroll and related benefits
Other accrued liabilities
Income taxes payable
Total current liabilities
Long-term debt, excluding current maturities
Pension benefit obligations and other liabilities
Deferred tax liabilities and other noncurrent tax liabilities
Long-term lease liabilities
Commitments and contingent liabilities
Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued and outstanding as of
December 31, 2020 and December 31, 2019
Common stock, par value $.01; 400,000,000 shares authorized; issued and outstanding shares as of
December 31, 2020: 135,148,774 and 134,946,374, respectively; issued and outstanding shares as of
December 31, 2019: 134,929,768 and 134,727,368, respectively
Treasury stock, common, at cost: 202,400 shares held as of December 31, 2020 and December 31,
2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
See the accompanying notes to consolidated financial statements.
$
1,379,494
2,917,696 $
2,917,696 $
2,516,086
$
$
— $
$
580,893 $
264,392
323,944
21,136
43,892
1,234,257
525,367
45,924
748,037
337,632
14,519
11,960
81,618
94,364
82,648
43,996
302,626
1,085,783
36,457
73,606
39,730
—
—
1,351
(7,112)
844,850
577,833
(37,428)
351,911
234,409
287,098
24,552
34,427
932,397
479,544
50,160
695,044
333,952
11,245
13,744
4,000
84,207
62,340
87,778
26,108
264,433
932,484
37,867
71,586
43,827
—
—
1,349
(7,112)
842,784
366,127
(37,259)
1,165,889
2,516,086
See the accompanying notes to consolidated financial statements.
F-4
F-5
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive loss, net of tax
Foreign currency translation adjustments
Pension liability adjustments, net
Other comprehensive loss
Comprehensive income
Year ended December 31,
2020
Year ended December 31,
2019
Year ended December 31,
2018
$
$
294,969 $
254,860 $
240,755
(120)
(49)
(169)
294,800 $
(3,692)
69
(3,623)
251,237 $
(10,183)
59
(10,124)
230,631
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Common
shares
outstanding
Common
stock
Treasury
shares
Treasury
stock
Additional
paid-in
capital
Retained
earnings
Foreign
currency
translation
adjustments
Defined
benefit
pension
adjustments
Total
141,283 $
1,413
— $
— $
867,699 $
147,418 $
(22,593) $
(919) $
993,018
136,179
1,362
202
(7,112)
(32,776)
(860)
1,012,025
1,120
—
(6,224)
—
—
—
—
—
—
—
—
—
877
—
(2,126)
997
—
(778)
—
—
—
—
11
—
(62)
—
—
—
—
—
9
—
(22)
—
—
—
—
10
—
(8)
—
—
—
—
—
—
202
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7,112)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9,120)
17,112
(38,066)
33
—
—
—
—
21
—
—
—
38
—
—
—
837,658
(1,440)
19,629
(13,084)
842,784
(16,072)
22,920
(4,820)
(134,075)
(39,755)
—
—
—
—
—
—
—
—
—
—
—
—
(590)
240,755
213,753
(61,681)
(40,805)
254,860
366,127
(39,735)
(43,528)
294,969
(10,183)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(120)
—
(3,692)
—
—
—
59
—
—
—
—
—
—
69
—
—
—
—
—
(49)
—
—
(9,109)
17,112
(179,315)
(39,722)
59
(10,183)
(590)
240,755
(1,431)
19,629
(74,787)
(40,784)
69
(3,692)
254,860
(16,062)
22,920
(44,563)
(43,490)
(49)
(120)
294,969
134,930
1,349
202
(7,112)
(36,468)
(791)
1,165,889
135,149 $
1,351
202 $
(7,112) $
844,850 $
577,833 $
(36,588) $
(840) $
1,379,494
(In thousands)
Balance at December 31, 2017
Shares issued under stock plans
Share-based compensation expense
Repurchase and retirement of common stock
Dividends declared ($0.28 per share)
Pension liability adjustment
Foreign currency translation
Cumulative effect of change in accounting
principle
Net income
Balance at December 31, 2018
Shares issued under stock plans
Share-based compensation expense
Repurchase and retirement of common stock
Dividends declared ($0.30 per share)
Pension liability adjustment
Foreign currency translation
Net income
Balance at December 31, 2019
Shares issued under stock plans
Share-based compensation expense
Repurchase and retirement of common stock
Dividends declared ($0.32 per share)
Pension liability adjustment
Foreign currency translation
Net income
Balance at December 31, 2020
See the accompanying notes to consolidated financial statements.
See the accompanying notes to consolidated financial statements.
F-6
F-7
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive loss, net of tax
Foreign currency translation adjustments
Pension liability adjustments, net
Other comprehensive loss
Comprehensive income
Year ended December 31,
Year ended December 31,
Year ended December 31,
2020
2019
2018
294,969 $
254,860 $
240,755
(120)
(49)
(169)
(3,692)
69
(3,623)
294,800 $
251,237 $
(10,183)
59
(10,124)
230,631
$
$
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Common
shares
outstanding
Common
stock
Treasury
shares
Treasury
stock
Additional
paid-in
capital
Retained
earnings
Foreign
currency
translation
adjustments
Defined
benefit
pension
adjustments
141,283 $
1,120
—
(6,224)
—
—
—
—
—
136,179
877
—
(2,126)
—
—
—
—
134,930
997
—
(778)
—
—
—
—
135,149 $
1,413
11
—
(62)
—
—
—
—
—
1,362
9
—
(22)
—
—
—
—
1,349
10
—
(8)
—
—
—
—
1,351
— $
—
—
202
—
—
—
—
—
202
—
—
—
—
—
—
—
202
—
—
—
—
—
—
—
202 $
— $
—
—
(7,112)
—
—
—
—
—
(7,112)
—
—
—
—
—
—
—
(7,112)
—
—
—
—
—
—
—
(7,112) $
867,699 $
(9,120)
17,112
(38,066)
33
—
—
—
—
837,658
(1,440)
19,629
(13,084)
21
—
—
—
842,784
(16,072)
22,920
(4,820)
38
—
—
—
844,850 $
147,418 $
—
—
(134,075)
(39,755)
—
—
(590)
240,755
213,753
—
—
(61,681)
(40,805)
—
—
254,860
366,127
—
—
(39,735)
(43,528)
—
—
294,969
577,833 $
(22,593) $
—
—
(919) $
—
—
—
—
(10,183)
—
—
(32,776)
—
—
—
—
(3,692)
—
(36,468)
—
—
—
—
—
(120)
—
(36,588) $
—
59
—
—
—
(860)
—
—
—
69
—
—
(791)
—
—
—
(49)
—
—
(840) $
Total
993,018
(9,109)
17,112
(179,315)
(39,722)
59
(10,183)
(590)
240,755
1,012,025
(1,431)
19,629
(74,787)
(40,784)
69
(3,692)
254,860
1,165,889
(16,062)
22,920
(44,563)
(43,490)
(49)
(120)
294,969
1,379,494
(In thousands)
Balance at December 31, 2017
Shares issued under stock plans
Share-based compensation expense
Repurchase and retirement of common stock
Dividends declared ($0.28 per share)
Pension liability adjustment
Foreign currency translation
Cumulative effect of change in accounting
principle
Net income
Balance at December 31, 2018
Shares issued under stock plans
Share-based compensation expense
Repurchase and retirement of common stock
Dividends declared ($0.30 per share)
Pension liability adjustment
Foreign currency translation
Net income
Balance at December 31, 2019
Shares issued under stock plans
Share-based compensation expense
Repurchase and retirement of common stock
Dividends declared ($0.32 per share)
Pension liability adjustment
Foreign currency translation
Net income
Balance at December 31, 2020
See the accompanying notes to consolidated financial statements.
See the accompanying notes to consolidated financial statements.
F-6
F-7
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Non-cash transactions:
Contingent consideration obligation
Deferred acquisition payments, net
Equipment purchases in accounts payable
Repurchase and retirement of common stock to be settled
Changes in dividends payable
Schedule of interest and income taxes paid:
Interest paid
Income taxes, net of refunds received
Year ended December 31,
Year ended December 31,
Year ended December 31,
2020
2019
2018
$
$
— $
686 $
1,482
11,921
—
245
19,848
11,285
—
349
42,575 $
37,228
41,711 $
77,970
—
—
17,624
5,534
131
26,248
54,415
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization
Share-based compensation expense
Provision for deferred income taxes
Charge for excess and obsolete inventory
Amortization of debt issuance costs
Loss on extinguishment of debt
Other
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade accounts receivable and notes receivable
Inventories
Accounts payable and other accrued liabilities
Other current assets
Income taxes payable, refundable income taxes and noncurrent taxes payable
Other
Net cash provided by operating activities
Investing activities:
Acquisition of property and equipment
Acquisition of business, net of cash acquired
Other
Net cash used in investing activities
Financing activities:
Proceeds from short-term borrowings
Payments of short-term borrowings
Proceeds from long-term debt
Payments of long-term debt
Payments for debt issuance costs
Payments for dividends
Issuance of common stock from employee stock plans
Taxes paid related to net share settlement of equity awards
Repurchase and retirement of common stock
Deferred acquisition payment
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended December 31,
2020
Year ended December 31,
2019
Year ended December 31,
2018
$
294,969 $
254,860 $
240,755
Supplemental Cash Flow Information
83,430
53,092
22,920
(7,250)
15,387
2,191
2,378
(1,101)
(27,461)
(50,772)
40,162
(11,952)
28,490
2,191
446,674
(131,752)
(111,912)
338
(243,326)
217,000
(217,000)
400,000
(251,000)
(3,964)
(43,245)
8,738
(24,800)
(44,563)
(16,125)
(2,892)
22,149
3,485
228,982
351,911
580,893 $
74,975
66,428
19,629
(14,008)
11,433
2,330
—
9,788
(3,164)
(21,354)
(22,647)
7,784
(3,494)
(262)
382,298
(112,355)
(277,369)
3,884
(385,840)
—
—
—
(4,000)
—
(40,566)
7,291
(8,722)
(80,321)
—
(502)
(126,820)
211
(130,151)
482,062
351,911 $
65,116
62,152
17,112
(11,876)
4,496
1,834
2,429
9,948
(17,473)
(38,100)
19,950
(13,677)
(30,381)
291
312,576
(110,153)
(380,694)
4,903
(485,944)
—
—
402,000
(135,850)
(7,400)
(39,591)
5,577
(14,686)
(173,781)
—
(1,858)
34,411
(4,389)
(143,346)
625,408
482,062
$
See the accompanying notes to consolidated financial statements
See the accompanying notes to consolidated financial statements
F-8
F-9
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Year ended December 31,
Year ended December 31,
2020
2019
2018
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Adjustments to reconcile net income to net cash provided by operating activities:
$
294,969 $
254,860 $
240,755
Supplemental Cash Flow Information
(In thousands)
Non-cash transactions:
Contingent consideration obligation
Deferred acquisition payments, net
Equipment purchases in accounts payable
Repurchase and retirement of common stock to be settled
Changes in dividends payable
Schedule of interest and income taxes paid:
Interest paid
Income taxes, net of refunds received
Year ended December 31,
2020
Year ended December 31,
2019
Year ended December 31,
2018
$
$
— $
686 $
1,482
11,921
—
245
19,848
11,285
—
349
42,575 $
37,228
41,711 $
77,970
—
—
17,624
5,534
131
26,248
54,415
(In thousands)
Operating activities:
Net income
Depreciation
Amortization
Share-based compensation expense
Provision for deferred income taxes
Charge for excess and obsolete inventory
Amortization of debt issuance costs
Loss on extinguishment of debt
Other
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade accounts receivable and notes receivable
Inventories
Accounts payable and other accrued liabilities
Other current assets
Income taxes payable, refundable income taxes and noncurrent taxes payable
Other
Net cash provided by operating activities
Investing activities:
Acquisition of property and equipment
Acquisition of business, net of cash acquired
Other
Net cash used in investing activities
Financing activities:
Proceeds from short-term borrowings
Payments of short-term borrowings
Proceeds from long-term debt
Payments of long-term debt
Payments for debt issuance costs
Payments for dividends
Issuance of common stock from employee stock plans
Taxes paid related to net share settlement of equity awards
Repurchase and retirement of common stock
Deferred acquisition payment
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
83,430
53,092
22,920
(7,250)
15,387
2,191
2,378
(1,101)
(27,461)
(50,772)
40,162
(11,952)
28,490
2,191
446,674
(131,752)
(111,912)
338
(243,326)
217,000
(217,000)
400,000
(251,000)
(3,964)
(43,245)
8,738
(24,800)
(44,563)
(16,125)
(2,892)
22,149
3,485
228,982
351,911
74,975
66,428
19,629
(14,008)
11,433
2,330
—
9,788
(3,164)
(21,354)
(22,647)
7,784
(3,494)
(262)
382,298
(112,355)
(277,369)
3,884
(385,840)
—
—
—
—
(4,000)
(40,566)
7,291
(8,722)
(80,321)
—
(502)
(126,820)
211
(130,151)
482,062
65,116
62,152
17,112
(11,876)
4,496
1,834
2,429
9,948
(17,473)
(38,100)
19,950
(13,677)
(30,381)
291
312,576
(110,153)
(380,694)
4,903
(485,944)
—
—
402,000
(135,850)
(7,400)
(39,591)
5,577
(14,686)
(173,781)
—
(1,858)
34,411
(4,389)
(143,346)
625,408
482,062
$
580,893 $
351,911 $
See the accompanying notes to consolidated financial statements
See the accompanying notes to consolidated financial statements
F-8
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unit substantially exceeded its carrying value.
ENTEGRIS, INC.
Based on its annual analysis, the Company determined there was no indication of impairment of goodwill and the estimated fair value of each reporting
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 2020
Nature of Operations Entegris, Inc. (Entegris or the Company) is a leading supplier of advanced materials and process solutions for the semiconductor
and other high-technology industries.
Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries.
Intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates and Basis of Presentation The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. On an ongoing basis, Entegris evaluates its estimates, including those related to receivables, inventories,
property, plant and equipment, goodwill, intangible assets, accrued liabilities, income taxes and share-based compensation, among others. Actual results
could differ from those estimates.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or
less, which are valued at cost and approximate fair value.
Allowance for Doubtful Accounts An allowance for uncollectible trade receivables is estimated based on a combination of write-off history, aging
analysis and any specific, known troubled accounts. The Company maintains an allowance for doubtful accounts that management believes is adequate to
cover expected losses on trade receivables.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out (FIFO) method.
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 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.
Property, Plant and Equipment Property, plant and equipment are carried at cost and are depreciated on the straight-line method over the estimated useful
lives of the assets. When assets are retired or disposed of, the cost and related accumulated depreciation are removed from the accounts, and gains or losses
are recognized in the same period. Maintenance and repairs are expensed as incurred, while significant additions and improvements are capitalized. Long-
lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset or group of assets may not be recoverable based on estimated future undiscounted cash flows. The amount of impairment, if any, is
measured as the difference between the net book value and the estimated fair value of the asset(s).
Fair Value of Financial Instruments The carrying value of cash equivalents, accounts receivable, accounts payable, accrued payroll and related benefits,
and other accrued liabilities approximates fair value due to the short maturity of those instruments.
The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $1,126.6
million at December 31, 2020 compared to the carrying amount of long-term debt, including current maturities, of $1,085.8 million at December 31, 2020.
Goodwill and Intangible Assets Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill
is not subject to amortization, but is tested for impairment annually at August 31, the Company’s annual testing date, and whenever events or changes in
circumstances indicate that impairment may have occurred. The Company compares the carrying value of its reporting units, including goodwill, to their
fair value. For reporting units in which the assessment indicates that it is more likely than not that the fair value is more than its carrying value, goodwill is
not considered impaired. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.
Amortizable intangible assets include, among other items, patented, unpatented and other developed technology and customer-based intangibles, and are
amortized using the straight-line method over their respective estimated useful lives. The Company reviews intangible assets and other long-lived assets for
impairment if changes in circumstances or the occurrence of events suggest the remaining value may not be recoverable.
Derivative Financial Instruments The Company records derivatives as assets or liabilities on the balance sheet and measures such instruments at fair
value. Changes in fair value of derivatives are recorded each period in the Company’s consolidated statements of operations.
The Company periodically enters into forward foreign currency contracts to reduce exposures relating to rate changes in certain foreign currencies. Certain
exposures to credit losses related to counterparty nonperformance exist. However, the Company does not anticipate nonperformance by the counterparties
since they are large, well-established financial institutions. None of these derivatives is accounted for as a hedge transaction. Accordingly, changes in the
fair value of forward foreign currency contracts are recorded as other expense (income), net, in the Company’s consolidated statements of operations. The
fair values of the Company’s derivative financial instruments are based on prices quoted by financial institutions for these instruments.
Foreign Currency Translation Assets and liabilities of certain foreign subsidiaries are translated from foreign currencies into U.S. dollars at period-end
exchange rates, and the resulting gains and losses arising from translation of net assets located outside the U.S. are recorded as a cumulative translation
adjustment, a component of accumulated other comprehensive loss in the consolidated balance sheets. Income statement amounts are translated at the
weighted average exchange rates for the year. Translation adjustments are not adjusted for income taxes, as substantially all translation adjustments relate to
permanent investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in other expense (income), net,
in the Company’s consolidated statements of operations.
Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts
collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or
service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by
the Company from a customer, are excluded from revenue.
Shipping and handling costs incurred are recorded in cost of sales in the Company’s consolidated statements of operations.
Engineering, Research and Development Expenses Engineering, research and development expenses are expensed as incurred.
Share-based Compensation The Company measures the cost of employee services received in exchange for the award of equity instruments based on the
fair value of the award at the date of grant. Share-based compensation expense is recognized using the straight-line attribution method to recognize share-
based compensation over the service period of the award, with adjustments recorded for forfeitures as they occur.
Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and
liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income tax expense in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. A valuation allowance is
recorded to reduce deferred tax assets when it is more likely than not that the Company would not be able to realize all or part of its deferred tax assets. In
making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary
differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to
realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset
valuation allowance, which would reduce the provision for income taxes.
The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of
income before taxes. Penalties and interest to be paid or received are recorded in other expense (income), net, in the statement of operations.
Comprehensive Income (Loss) Comprehensive income (loss) represents the change in equity resulting from items other than shareholder investments and
distributions. The Company’s foreign currency translation adjustments, unrealized gains and losses
F-10
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENTEGRIS, INC.
DECEMBER 31, 2020
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations Entegris, Inc. (Entegris or the Company) is a leading supplier of advanced materials and process solutions for the semiconductor
and other high-technology industries.
Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries.
Intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates and Basis of Presentation The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. On an ongoing basis, Entegris evaluates its estimates, including those related to receivables, inventories,
property, plant and equipment, goodwill, intangible assets, accrued liabilities, income taxes and share-based compensation, among others. Actual results
could differ from those estimates.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or
less, which are valued at cost and approximate fair value.
Allowance for Doubtful Accounts An allowance for uncollectible trade receivables is estimated based on a combination of write-off history, aging
analysis and any specific, known troubled accounts. The Company maintains an allowance for doubtful accounts that management believes is adequate to
cover expected losses on trade receivables.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out (FIFO) method.
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 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.
Property, Plant and Equipment Property, plant and equipment are carried at cost and are depreciated on the straight-line method over the estimated useful
lives of the assets. When assets are retired or disposed of, the cost and related accumulated depreciation are removed from the accounts, and gains or losses
are recognized in the same period. Maintenance and repairs are expensed as incurred, while significant additions and improvements are capitalized. Long-
lived assets, including property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset or group of assets may not be recoverable based on estimated future undiscounted cash flows. The amount of impairment, if any, is
measured as the difference between the net book value and the estimated fair value of the asset(s).
Fair Value of Financial Instruments The carrying value of cash equivalents, accounts receivable, accounts payable, accrued payroll and related benefits,
and other accrued liabilities approximates fair value due to the short maturity of those instruments.
The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $1,126.6
million at December 31, 2020 compared to the carrying amount of long-term debt, including current maturities, of $1,085.8 million at December 31, 2020.
Goodwill and Intangible Assets Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill
is not subject to amortization, but is tested for impairment annually at August 31, the Company’s annual testing date, and whenever events or changes in
circumstances indicate that impairment may have occurred. The Company compares the carrying value of its reporting units, including goodwill, to their
fair value. For reporting units in which the assessment indicates that it is more likely than not that the fair value is more than its carrying value, goodwill is
not considered impaired. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.
Based on its annual analysis, the Company determined there was no indication of impairment of goodwill and the estimated fair value of each reporting
unit substantially exceeded its carrying value.
Amortizable intangible assets include, among other items, patented, unpatented and other developed technology and customer-based intangibles, and are
amortized using the straight-line method over their respective estimated useful lives. The Company reviews intangible assets and other long-lived assets for
impairment if changes in circumstances or the occurrence of events suggest the remaining value may not be recoverable.
Derivative Financial Instruments The Company records derivatives as assets or liabilities on the balance sheet and measures such instruments at fair
value. Changes in fair value of derivatives are recorded each period in the Company’s consolidated statements of operations.
The Company periodically enters into forward foreign currency contracts to reduce exposures relating to rate changes in certain foreign currencies. Certain
exposures to credit losses related to counterparty nonperformance exist. However, the Company does not anticipate nonperformance by the counterparties
since they are large, well-established financial institutions. None of these derivatives is accounted for as a hedge transaction. Accordingly, changes in the
fair value of forward foreign currency contracts are recorded as other expense (income), net, in the Company’s consolidated statements of operations. The
fair values of the Company’s derivative financial instruments are based on prices quoted by financial institutions for these instruments.
Foreign Currency Translation Assets and liabilities of certain foreign subsidiaries are translated from foreign currencies into U.S. dollars at period-end
exchange rates, and the resulting gains and losses arising from translation of net assets located outside the U.S. are recorded as a cumulative translation
adjustment, a component of accumulated other comprehensive loss in the consolidated balance sheets. Income statement amounts are translated at the
weighted average exchange rates for the year. Translation adjustments are not adjusted for income taxes, as substantially all translation adjustments relate to
permanent investments in non-U.S. subsidiaries. Gains and losses resulting from foreign currency transactions are included in other expense (income), net,
in the Company’s consolidated statements of operations.
Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts
collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or
service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by
the Company from a customer, are excluded from revenue.
Shipping and handling costs incurred are recorded in cost of sales in the Company’s consolidated statements of operations.
Engineering, Research and Development Expenses Engineering, research and development expenses are expensed as incurred.
Share-based Compensation The Company measures the cost of employee services received in exchange for the award of equity instruments based on the
fair value of the award at the date of grant. Share-based compensation expense is recognized using the straight-line attribution method to recognize share-
based compensation over the service period of the award, with adjustments recorded for forfeitures as they occur.
Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and
liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income tax expense in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. A valuation allowance is
recorded to reduce deferred tax assets when it is more likely than not that the Company would not be able to realize all or part of its deferred tax assets. In
making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary
differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to
realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset
valuation allowance, which would reduce the provision for income taxes.
The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of
income before taxes. Penalties and interest to be paid or received are recorded in other expense (income), net, in the statement of operations.
Comprehensive Income (Loss) Comprehensive income (loss) represents the change in equity resulting from items other than shareholder investments and
distributions. The Company’s foreign currency translation adjustments, unrealized gains and losses
F-10
F-11
on available-for-sale investments, and minimum pension liability adjustments are included in accumulated other comprehensive loss. Comprehensive
income (loss) and the components of accumulated other comprehensive loss are presented in the accompanying consolidated statements of comprehensive
income (loss) and consolidated statements of equity.
revenues accordingly.
Recent Accounting Pronouncements Adopted in 2020 In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13
changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities,
loans and other instruments, entities are required to use a new forward-looking “expected loss” model that replaced the current “incurred loss” model and
generally will result in the earlier recognition of allowances for losses. The Company adopted this new guidance in the first quarter of fiscal 2020. The
adoption of ASU 2016-13 did not impact the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure
Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 amends ASC 715 to add, remove and clarify disclosure
requirements related to defined benefit pension and other postretirement plans. The Company adopted this guidance in 2020. The adoption of ASU 2018-14
did not impact the consolidated financial statements.
Recent Accounting Pronouncements Yet to be Adopted
The Company currently has no material recent accounting pronouncements yet to be adopted.
prepay are represented by the contract liabilities below until the performance obligations are satisfied.
(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 sales.
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 with respect to deferred revenue
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 16 to the consolidated financial statements. For each of the
three reportable segments, the recognition of revenue regarding the nature of goods and services provided by the segments are similar and described below.
The Company recognizes revenue for product sales 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 when the Company has satisfied the performance obligation. The payment terms and
revenue recognized is based on time and materials.
deductible for income tax purposes.
The Company also enters into arrangements to license its intellectual property. These arrangements typically permit the customer to use a specialized
manufacturing process and in return the Company receives a royalty fee. The Company recognizes revenue for a sales-based or usage-based royalty
promised in exchange for a license of intellectual property when the subsequent sale or usage occurs.
the acquisition:
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
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 recorded as deferred revenue on the
balance sheet and is recognized as revenue when the free product is redeemed or when the likelihood of redemption is remote. The Company has deemed
that the amount is immaterial for disclosure.
The Company provides for the estimated costs of fulfilling its obligations under product warranties at the time the related revenue is recognized. The
Company estimates the costs based on historical failure rates, projected repair costs, and 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 adjusts the amounts as necessary.
The Company’s contracts are generally short-term in nature. Most contracts do not exceed twelve months. Payment terms vary by the type and location of
the Company’s customers and the products or services offered. The term between invoicing and when payment is due is not significant. For certain
products or services and customer types, the Company requires payment before the products or services are delivered to the customer. Those customers that
The following table provides information about contract liabilities from contracts with customers. The contract liabilities are included in other accrued
liabilities balance in the consolidated balance sheet.
(In thousands)
Contract liabilities - current
(In thousands)
Significant changes in the contract liabilities balances during the period are as follows:
Revenue recognized that was included in the contract liability balance at the beginning of the period
$
Increases due to cash received, excluding amounts recognized as revenue during the period
2020
(11,018)
11,848
December 31, 2020
December 31, 2019
$
13,852 $
13,022
(3) ACQUISITIONS
Global Measurement Technologies, Inc.
On July 10, 2020, the Company acquired Global Measurement Technologies, Inc. (“GMTI”), an analytical instrument provider for critical processes in
semiconductor production, and its manufacturing partner Clean Room Plastics, Inc. GMTI reports into the Advanced Materials Handling segment of the
Company. The acquisition was accounted for under the acquisition method of accounting, and GMTI’s results of operations are included in the Company’s
consolidated financial statements as of and since July 10, 2020. Costs associated with the acquisition of GMTI were $1.0 million for the year ended
December 31, 2020 and were expensed as incurred. These costs are included in the selling, general and administrative expenses in the Company’s
consolidated statement of operations. The acquisition does not constitute a material business combination.
The purchase price for GMTI includes cash consideration of $36.3 million, net of cash acquired, which was funded from the Company’s existing cash on
hand.
The purchase price of GMTI exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $16.1 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 non-
During the quarter ended September 26, 2020, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The
following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of
F-12
F-13
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 recorded as deferred revenue on the
balance sheet and is recognized as revenue when the free product is redeemed or when the likelihood of redemption is remote. The Company has deemed
that the amount is immaterial for disclosure.
The Company provides for the estimated costs of fulfilling its obligations under product warranties at the time the related revenue is recognized. The
Company estimates the costs based on historical failure rates, projected repair costs, and 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 adjusts the amounts as necessary.
The Company’s contracts are generally short-term in nature. Most contracts do not exceed twelve months. Payment terms vary by the type and location of
the Company’s customers and the products or services offered. The term between invoicing and when payment is due is not significant. For certain
products or services and customer types, the Company 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 consolidated balance sheet.
(In thousands)
Contract liabilities - current
December 31, 2020
December 31, 2019
$
13,852 $
13,022
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by
Significant changes in the contract liabilities balances during the period are as follows:
(In thousands)
Revenue recognized that was included in the contract liability balance at the beginning of the period
Increases due to cash received, excluding amounts recognized as revenue during the period
$
2020
(11,018)
11,848
(3) ACQUISITIONS
Global Measurement Technologies, Inc.
On July 10, 2020, the Company acquired Global Measurement Technologies, Inc. (“GMTI”), an analytical instrument provider for critical processes in
semiconductor production, and its manufacturing partner Clean Room Plastics, Inc. GMTI reports into the Advanced Materials Handling segment of the
Company. The acquisition was accounted for under the acquisition method of accounting, and GMTI’s results of operations are included in the Company’s
consolidated financial statements as of and since July 10, 2020. Costs associated with the acquisition of GMTI were $1.0 million for the year ended
December 31, 2020 and were expensed as incurred. These costs are included in the selling, general and administrative expenses in the Company’s
consolidated statement of operations. The acquisition does not constitute a material business combination.
The purchase price for GMTI includes cash consideration of $36.3 million, net of cash acquired, which was funded from the Company’s existing cash on
hand.
The purchase price of GMTI exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $16.1 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 non-
deductible for income tax purposes.
During the quarter ended September 26, 2020, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The
following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of
the acquisition:
on available-for-sale investments, and minimum pension liability adjustments are included in accumulated other comprehensive loss. Comprehensive
income (loss) and the components of accumulated other comprehensive loss are presented in the accompanying consolidated statements of comprehensive
income (loss) and consolidated statements of equity.
Recent Accounting Pronouncements Adopted in 2020 In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13
changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities,
loans and other instruments, entities are required to use a new forward-looking “expected loss” model that replaced the current “incurred loss” model and
generally will result in the earlier recognition of allowances for losses. The Company adopted this new guidance in the first quarter of fiscal 2020. The
adoption of ASU 2016-13 did not impact the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure
Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 amends ASC 715 to add, remove and clarify disclosure
requirements related to defined benefit pension and other postretirement plans. The Company adopted this guidance in 2020. The adoption of ASU 2018-14
did not impact the consolidated financial statements.
Recent Accounting Pronouncements Yet to be Adopted
The Company currently has no material recent accounting pronouncements yet to be adopted.
(2) REVENUES
service to a customer.
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
the Company from a customer, are excluded from revenue.
cost and are included in cost of sales.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment
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 with respect to deferred revenue
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 16 to the consolidated financial statements. For each of the
three reportable segments, the recognition of revenue regarding the nature of goods and services provided by the segments are similar and described below.
The Company recognizes revenue for product sales 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.
revenue recognized is based on time and materials.
The Company generally recognizes revenue for sales of services when the Company has satisfied the performance obligation. The payment terms and
The Company also enters into arrangements to license its intellectual property. These arrangements typically permit the customer to use a specialized
manufacturing process and in return the Company receives a royalty fee. The Company recognizes revenue for a sales-based or usage-based royalty
promised in exchange for a license of intellectual property when the subsequent sale or usage occurs.
The Company offers certain customers cash discounts and 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
F-12
F-13
(In thousands):
Trade accounts and note receivable, net
Inventories, net
Identifiable intangible assets
Right-of-use assets
Accounts payable and accrued liabilities
Short-term lease liability
Long-term lease liability
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
The Company recognized the following finite-lived intangible assets as part of the acquisition of GMTI:
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Sinmat
July 10, 2020
(In thousands):
As of January 10, 2020
As of June 27, 2020
$
$
937
1,079
18,180
337
(28)
(150)
(187)
20,168
16,099
36,267
Amount
3,570
1,010
13,600
18,180
$
$
Weighted
average life in
years
6.5
11.5
15.5
13.5
On January 10, 2020, the Company acquired Sinmat, Inc. (“Sinmat”), a chemical mechanical polishing slurry manufacturer. Sinmat reports into the
Specialty Chemicals and Engineered Materials segment of the Company. The acquisition was accounted for under the acquisition method of accounting
and Sinmat’s results of operations are included in the Company’s consolidated financial statements as of and since January 10, 2020. Costs associated with
the acquisition of Sinmat were $0.7 million for year ended December 31, 2020 and were expensed as incurred. These costs are included in the selling,
general and administrative expenses in the Company’s consolidated statement of operations. The acquisition does not constitute a material business
combination.
The purchase price for Sinmat includes cash consideration of $76.2 million, or $75.6 million net of cash acquired, which was funded from the Company’s
existing cash on hand.
The purchase price of Sinmat exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by
$31.7 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 non-deductible for income tax purposes.
During the quarter ended June 27, 2020, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The following
table summarizes the provisional and final allocations of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the
date of the acquisition date and as adjusted as of June 27, 2020, respectively:
Trade accounts and note receivable, net
Inventories, net
Other current assets
Property, plant and equipment
Identifiable intangible assets
Right-of-use assets
Deferred tax asset
Short-term lease liability
Long-term lease liability
Net assets acquired
Goodwill
Accounts payable and accrued liabilities
Total purchase price, net of cash acquired
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Hangzhou Anow Microfiltration Co., Ltd.
$
$
1,189 $
1,010
8
63
41,680
1,712
—
(58)
(150)
(1,562)
43,892
31,751
75,643 $
1,189
1,010
8
63
41,680
1,712
102
(58)
(150)
(1,562)
43,994
31,651
75,645
Amount
7,650
130
33,900
41,680
$
$
Weighted
average life in
years
7.0
1.3
15.0
13.5
The Company recognized the following finite-lived intangible assets as part of the acquisition of Sinmat:
On September 17, 2019, the Company acquired Hangzhou Anow Microfiltration Co., Ltd. (“Anow”), a filtration company for diverse industries including
semiconductor, pharmaceutical, and medical. Anow reports into the Microcontamination Control segment of the Company. The acquisition was accounted
for under the acquisition method of accounting and the results of Anow are included in the Company’s consolidated financial statements as of and since
September 17, 2019. Costs associated with the acquisition of Anow were $2.5 million for the year ended December 31, 2019 and were expensed as
incurred. These costs are included in selling, general and administrative expenses in the Company’s consolidated statement of operations. The acquisition
does not constitute a material business combination.
The purchase price for Anow is $72.8 million, net of cash acquired. The purchase price includes (1) cash consideration of $73.0 million, or $69.3 million
net of cash acquired, which was funded from the Company’s existing cash on hand and (2) a $3.5 million deferred payment due to the seller upon the
exercise of either the Company’s option to purchase the remaining shares of Anow or the seller’s option to require the Company to purchase such
remaining shares.
The purchase price of Anow exceeds the net of the acquisition-date fair value of the identifiable assets acquired and the liabilities assumed by $49.5
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 non-deductible for income tax purposes.
During the quarter ended September 26, 2020, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The
following table summarizes the provisional and final allocations of the purchase price to the fair values assigned to the assets acquired and liabilities
assumed at the date of the acquisition date and as adjusted as of September 26, 2020, respectively.
F-14
F-15
The Company recognized the following finite-lived intangible assets as part of the acquisition of GMTI:
(In thousands):
Trade accounts and note receivable, net
Inventories, net
Identifiable intangible assets
Right-of-use assets
Accounts payable and accrued liabilities
Short-term lease liability
Long-term lease liability
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Sinmat
combination.
existing cash on hand.
$
$
July 10, 2020
937
1,079
18,180
337
(28)
(150)
(187)
20,168
16,099
36,267
Amount
3,570
1,010
13,600
18,180
$
$
Weighted
average life in
years
6.5
11.5
15.5
13.5
(In thousands):
Trade accounts and note receivable, net
Inventories, net
Other current assets
Property, plant and equipment
Identifiable intangible assets
Right-of-use assets
Deferred tax asset
Accounts payable and accrued liabilities
Short-term lease liability
Long-term lease liability
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
As of January 10, 2020
As of June 27, 2020
$
$
1,189 $
1,010
8
63
41,680
1,712
—
(58)
(150)
(1,562)
43,892
31,751
75,643 $
1,189
1,010
8
63
41,680
1,712
102
(58)
(150)
(1,562)
43,994
31,651
75,645
On January 10, 2020, the Company acquired Sinmat, Inc. (“Sinmat”), a chemical mechanical polishing slurry manufacturer. Sinmat reports into the
Specialty Chemicals and Engineered Materials segment of the Company. The acquisition was accounted for under the acquisition method of accounting
and Sinmat’s results of operations are included in the Company’s consolidated financial statements as of and since January 10, 2020. Costs associated with
Hangzhou Anow Microfiltration Co., Ltd.
The Company recognized the following finite-lived intangible assets as part of the acquisition of Sinmat:
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Amount
7,650
130
33,900
41,680
$
$
Weighted
average life in
years
7.0
1.3
15.0
13.5
the acquisition of Sinmat were $0.7 million for year ended December 31, 2020 and were expensed as incurred. These costs are included in the selling,
general and administrative expenses in the Company’s consolidated statement of operations. The acquisition does not constitute a material business
The purchase price for Sinmat includes cash consideration of $76.2 million, or $75.6 million net of cash acquired, which was funded from the Company’s
The purchase price of Sinmat exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by
$31.7 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 non-deductible for income tax purposes.
During the quarter ended June 27, 2020, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The following
table summarizes the provisional and final allocations of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the
date of the acquisition date and as adjusted as of June 27, 2020, respectively:
On September 17, 2019, the Company acquired Hangzhou Anow Microfiltration Co., Ltd. (“Anow”), a filtration company for diverse industries including
semiconductor, pharmaceutical, and medical. Anow reports into the Microcontamination Control segment of the Company. The acquisition was accounted
for under the acquisition method of accounting and the results of Anow are included in the Company’s consolidated financial statements as of and since
September 17, 2019. Costs associated with the acquisition of Anow were $2.5 million for the year ended December 31, 2019 and were expensed as
incurred. These costs are included in selling, general and administrative expenses in the Company’s consolidated statement of operations. The acquisition
does not constitute a material business combination.
The purchase price for Anow is $72.8 million, net of cash acquired. The purchase price includes (1) cash consideration of $73.0 million, or $69.3 million
net of cash acquired, which was funded from the Company’s existing cash on hand and (2) a $3.5 million deferred payment due to the seller upon the
exercise of either the Company’s option to purchase the remaining shares of Anow or the seller’s option to require the Company to purchase such
remaining shares.
The purchase price of Anow exceeds the net of the acquisition-date fair value of the identifiable assets acquired and the liabilities assumed by $49.5
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 non-deductible for income tax purposes.
During the quarter ended September 26, 2020, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The
following table summarizes the provisional and final allocations of the purchase price to the fair values assigned to the assets acquired and liabilities
assumed at the date of the acquisition date and as adjusted as of September 26, 2020, respectively.
F-14
F-15
(In thousands):
Trade accounts and note receivable, net
Inventories, net
Other current assets
Property, plant and equipment
Identifiable intangible assets
Right-of-use assets
Other noncurrent assets
Accounts payable and accrued liabilities
Short-term lease liability
Long-term lease liability
Deferred tax liabilities
Other noncurrent liabilities
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
As of September 17, 2019
As of September 26, 2020
As of July 15, 2019
As of June 27, 2020
$
$
3,455 $
4,242
202
8,863
42,179
—
1,565
(1,814)
—
—
(10,890)
—
47,802
25,212
73,014 $
3,455
4,459
739
8,257
16,439
2,328
74
(5,217)
(88)
(107)
(3,751)
(3,270)
23,318
49,480
72,798
The change in the allocation of the purchase price is due to the acquisition occurring near the quarter end date of September 29, 2019, which required an
estimated allocation of values.
The Company recognized the following finite-lived intangible assets as part of the acquisition of Anow:
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
MPD Chemicals
Amount
6,764
2,019
7,656
16,439
$
$
Weighted
average life in
years
6.8
7.3
14.3
10.3
(4) TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable from customers at December 31, 2020 and 2019 consist of the following:
On July 15, 2019, the Company acquired MPD Chemicals (“MPD”), a provider of advanced materials to the specialty chemical, technology, and life
sciences industries. MPD reports into the Specialty Chemicals and Engineered Material segment of the Company. The acquisition was accounted for under
the acquisition method of accounting and MPD’s results of operations are included in the Company’s consolidated financial statements as of and since July
15, 2019. Costs associated with the acquisition of MPD were $4.0 million for the year ended December 31, 2019 and were expensed as incurred. The
acquisition does not constitute a material business combination.
The purchase price for MPD is $162.9 million, net of cash acquired. The purchase price includes (1) cash consideration of $158.4 million, which was
funded from the Company’s existing cash on hand, and (2) a fixed deferred payment of $5.0 million that is due on January 15, 2022, recorded at
$4.5 million, which represents the fair value of this fixed deferred payment as of the acquisition date.
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 a discount
factor. The fixed deferred payment is reflected in pension benefit obligations and other liabilities in the Company’s consolidated balance sheets.
The purchase price of MPD exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $63.2 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. This additional investment value resulted in goodwill, which is expected to be deductible
for income tax purposes.
During the quarter ended June 27, 2020, the Company finalized its fair value determination of the assets acquired and liabilities assumed. The following
table summarizes the provisional and final allocations of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the
date of the acquisition date and adjusted as of June 27, 2020, respectively:
The Company recognized the following finite-lived intangible assets as part of the acquisition of MPD:
(In thousands):
Trade accounts and note receivable, net
Accounts payable and accrued liabilities
Inventories, net
Other current assets
Property, plant and equipment
Identifiable intangible assets
Right-of-use assets
Short-term lease liabilities
Long-term lease liabilities
Other noncurrent liabilities
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
(In thousands)
Accounts receivable
Notes receivable
Total trade accounts and notes receivable
Less allowance for doubtful accounts
Trade accounts and notes receivable, net
(5) INVENTORIES
(In thousands)
Raw materials
Work-in-process
Finished goods
(a)
Inventories, net
Inventories at December 31, 2020 and 2019 consist of the following:
$
$
3,575 $
21,899
318
14,571
74,900
3,677
(2,440)
(144)
(4,016)
(1,416)
110,924
51,457
162,381 $
3,575
8,689
313
11,465
79,390
3,621
(1,874)
(88)
(4,016)
(1,416)
99,659
63,246
162,905
Amount
12,750
620
66,020
79,390
$
$
Weighted
average life in
years
11.0
2.0
17.0
16.0
2020
2019
264,771 $
2,005
266,776
2,384
264,392 $
233,274
2,280
235,554
1,145
234,409
2020
2019
97,319 $
32,316
194,309
323,944 $
92,849
30,856
163,393
287,098
$
$
$
$
(a)
Includes consignment inventories held by customers of $13.0 million and $13.6 million at December 31, 2020 and 2019, respectively.
F-16
F-17
(In thousands):
Trade accounts and note receivable, net
Accounts payable and accrued liabilities
Inventories, net
Other current assets
Property, plant and equipment
Identifiable intangible assets
Right-of-use assets
Other noncurrent assets
Short-term lease liability
Long-term lease liability
Deferred tax liabilities
Other noncurrent liabilities
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
estimated allocation of values.
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
MPD Chemicals
Amount
6,764
2,019
7,656
16,439
$
$
Weighted
average life in
years
6.8
7.3
14.3
10.3
On July 15, 2019, the Company acquired MPD Chemicals (“MPD”), a provider of advanced materials to the specialty chemical, technology, and life
sciences industries. MPD reports into the Specialty Chemicals and Engineered Material segment of the Company. The acquisition was accounted for under
the acquisition method of accounting and MPD’s results of operations are included in the Company’s consolidated financial statements as of and since July
15, 2019. Costs associated with the acquisition of MPD were $4.0 million for the year ended December 31, 2019 and were expensed as incurred. The
acquisition does not constitute a material business combination.
The purchase price for MPD is $162.9 million, net of cash acquired. The purchase price includes (1) cash consideration of $158.4 million, which was
funded from the Company’s existing cash on hand, and (2) a fixed deferred payment of $5.0 million that is due on January 15, 2022, recorded at
$4.5 million, which represents the fair value of this fixed deferred payment as of the acquisition date.
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 a discount
factor. The fixed deferred payment is reflected in pension benefit obligations and other liabilities in the Company’s consolidated balance sheets.
The purchase price of MPD exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $63.2 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. This additional investment value resulted in goodwill, which is expected to be deductible
for income tax purposes.
During the quarter ended June 27, 2020, the Company finalized its fair value determination of the assets acquired and liabilities assumed. The following
table summarizes the provisional and final allocations of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the
date of the acquisition date and adjusted as of June 27, 2020, respectively:
As of September 17, 2019
As of September 26, 2020
$
$
3,455 $
4,242
202
8,863
42,179
—
1,565
(1,814)
—
—
—
(10,890)
47,802
25,212
73,014 $
3,455
4,459
739
8,257
16,439
2,328
74
(5,217)
(88)
(107)
(3,751)
(3,270)
23,318
49,480
72,798
(In thousands):
Trade accounts and note receivable, net
Inventories, net
Other current assets
Property, plant and equipment
Identifiable intangible assets
Right-of-use assets
Accounts payable and accrued liabilities
Short-term lease liabilities
Long-term lease liabilities
Other noncurrent liabilities
Net assets acquired
Goodwill
Total purchase price, net of cash acquired
As of July 15, 2019
As of June 27, 2020
$
$
3,575 $
21,899
318
14,571
74,900
3,677
(2,440)
(144)
(4,016)
(1,416)
110,924
51,457
162,381 $
3,575
8,689
313
11,465
79,390
3,621
(1,874)
(88)
(4,016)
(1,416)
99,659
63,246
162,905
The Company recognized the following finite-lived intangible assets as part of the acquisition of MPD:
The change in the allocation of the purchase price is due to the acquisition occurring near the quarter end date of September 29, 2019, which required an
The Company recognized the following finite-lived intangible assets as part of the acquisition of Anow:
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
(4) TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable from customers at December 31, 2020 and 2019 consist of the following:
(In thousands)
Accounts receivable
Notes receivable
Total trade accounts and notes receivable
Less allowance for doubtful accounts
Trade accounts and notes receivable, net
(5) INVENTORIES
Inventories at December 31, 2020 and 2019 consist of the following:
(In thousands)
Raw materials
Work-in-process
(a)
Finished goods
Inventories, net
Amount
12,750
620
66,020
79,390
$
$
Weighted
average life in
years
11.0
2.0
17.0
16.0
2020
2019
264,771 $
2,005
266,776
2,384
264,392 $
233,274
2,280
235,554
1,145
234,409
2020
2019
97,319 $
32,316
194,309
323,944 $
92,849
30,856
163,393
287,098
$
$
$
$
(a)
Includes consignment inventories held by customers of $13.0 million and $13.6 million at December 31, 2020 and 2019, respectively.
F-16
F-17
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2020 and 2019 consists of the following:
(In thousands)
Land
Buildings and improvements
Manufacturing equipment
Canisters and cylinders
Molds
Office furniture and equipment
Construction in progress
Total property, plant and equipment
Less accumulated depreciation
Property, plant and equipment, net
Estimated
useful lives in
years
5-35
5-10
3-12
3-5
3-8
2020
2019
$
$
23,901 $
238,586
365,511
120,113
76,283
165,950
109,280
1,099,624
574,257
525,367 $
27,184
220,563
350,664
107,108
75,482
157,770
63,197
1,001,968
522,424
479,544
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Other
(In thousands)
Amortization expense
The table below sets forth the depreciation expense for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Depreciation expense
2020
$
83,430 $
2019
2018
74,975 $
65,116
(7) GOODWILL AND INTANGIBLE ASSETS
Goodwill activity for each of the Company’s reportable segments that carry goodwill, Specialty Chemicals and Engineered Materials (“SCEM”),
Microcontamination Control (“MC”) and Advanced Materials Handling (“AMH”), for the years ended December 31, 2020 and 2019 is shown below:
(In thousands)
December 31, 2018
Addition due to acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2019
Addition due to acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2020
SCEM
MC
AMH
Total
$
$
301,423 $
98,410
—
(1,881)
397,952
31,751
1,276
(3,266)
427,713 $
191,708 $
47,711
451
151
240,021
—
1,769
5,364
247,154 $
57,071 $
—
—
—
57,071
16,099
—
—
73,170 $
550,202
146,121
451
(1,730)
695,044
47,850
3,045
2,098
748,037
As of December 31, 2020, goodwill amounted to approximately $748.0 million, an increase of $53.0 million from the balance at December 31, 2019. The
increase in goodwill in 2020 reflects the acquisition of GMTI and Sinmat described in note 3 with additional increases as a result of purchase accounting
adjustments related to Anow and foreign currency translation. The increase in goodwill in 2019 reflects the acquisition of Digital Specialty Chemicals
Limited, MPD, and Anow described in note 3 partially offset by the decrease resulting from foreign currency translation.
Identifiable intangible assets at December 31, 2020 and 2019 consist of the following:
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Other
2020
Gross carrying
amount
Accumulated
amortization
Net carrying
value
$
$
283,272 $
30,100
449,659
20,396
783,427 $
221,651 $
18,374
193,313
12,457
445,795 $
61,621
11,726
256,346
7,939
337,632
Weighted
average life in
years
7.1
10.1
12.2
6.6
10.1
F-18
F-19
2019
$
$
Gross carrying
amount
Accumulated
amortization
Net carrying
value
272,334 $
204,689 $
29,106
405,537
36,303
16,326
161,551
26,762
743,280 $
409,328 $
67,645
12,780
243,986
9,541
333,952
Weighted
average life in
years
7.1
10.1
11.8
4.1
9.7
2018
2020
2019
$
53,092 $
66,428 $
62,152
The table below sets forth the amortization expense for the years ended December 31, 2020, 2019, and 2018:
The amortization expense for each of the five succeeding years and thereafter relating to intangible assets currently recorded in the Company’s consolidated
balance sheets is estimated to be the following at December 31, 2020:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Future amortization expense
$
48,535
47,724
47,035
33,933
31,335
129,070 $
337,632
Long-term debt at December 31, 2020 and 2019 consists of the following:
(8) DEBT
(In thousands)
Senior unsecured notes due 2028
Senior secured term loan facility due 2025
Senior unsecured notes due 2026
Unamortized discount and debt issuance costs
Total long-term debt
Less current maturities of long-term debt
Long-term debt less current maturities
2020
2019
$
$
400,000 $
145,000
550,000
1,095,000
9,217
1,085,783
—
1,085,783 $
—
396,000
550,000
946,000
9,516
936,484
4,000
932,484
Annual maturities of long-term debt, excluding unamortized discount and issuance costs, due as of December 31, 2020 are as follows:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Contractual debt obligation maturities*
$
—
—
—
—
145,000
950,000 $
1,095,000
*Subject to Excess Cash Flow payments to the lenders, see discussion below.
2028 Senior Unsecured Notes
On April 30, 2020, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028 (the “2028
Notes”). The 2028 Notes were issued under an indenture dated as of April 30, 2020 (the “2028 Notes Indenture”) by and among the Company, certain
subsidiaries of the Company and Wells Fargo Bank, National Association, as trustee (the “2028 Notes Trustee”). Interest on the 2028 Notes is payable
semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2020. The Company incurred debt issuance costs of
$4.0 million in connection with the 2028 Notes. These costs are reported in the consolidated balance sheet as a direct deduction from the face amount of the
2028 Notes.
The 2028 Notes are guaranteed, jointly and severally, fully and unconditionally, on a senior unsecured basis, by the Company’s existing and future
domestic subsidiaries, other than certain excluded subsidiaries, to the extent that such entities guarantee indebtedness under the Company’s senior secured
term loan facility due 2025 and senior secured revolving credit facility due 2023 (together, the “Senior Secured Credit Facilities”) or the Company’s
4.625% senior unsecured notes due 2026 (the “2026 Notes”) and any other subsidiary of the Company to the extent it incurs certain additional indebtedness
(collectively, the “Guarantors”).
The 2028 Notes and the guarantees thereof are the Company’s and the Guarantors’ senior unsecured obligations, respectively, and will (i) rank equally in
right of payment with all of the Company’s and the Guarantors’ existing and future senior
$
2020
53,092 $
2019
2018
66,428 $
62,152
The table below sets forth the amortization expense for the years ended December 31, 2020, 2019, and 2018:
(In thousands)
Amortization expense
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2020 and 2019 consists of the following:
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Other
2019
Gross carrying
amount
Accumulated
amortization
Net carrying
value
$
$
272,334 $
29,106
405,537
36,303
743,280 $
204,689 $
16,326
161,551
26,762
409,328 $
67,645
12,780
243,986
9,541
333,952
Weighted
average life in
years
7.1
10.1
11.8
4.1
9.7
The table below sets forth the depreciation expense for the years ended December 31, 2020, 2019 and 2018:
(7) GOODWILL AND INTANGIBLE ASSETS
Goodwill activity for each of the Company’s reportable segments that carry goodwill, Specialty Chemicals and Engineered Materials (“SCEM”),
Microcontamination Control (“MC”) and Advanced Materials Handling (“AMH”), for the years ended December 31, 2020 and 2019 is shown below:
(In thousands)
Land
Buildings and improvements
Manufacturing equipment
Canisters and cylinders
Molds
Office furniture and equipment
Construction in progress
Total property, plant and equipment
Less accumulated depreciation
Property, plant and equipment, net
(In thousands)
Depreciation expense
(In thousands)
December 31, 2018
Addition due to acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2019
Addition due to acquisitions
Purchase accounting adjustments
Foreign currency translation
December 31, 2020
(In thousands)
Developed technology
Trademarks and trade names
Customer relationships
Other
Estimated
useful lives in
years
5-35
5-10
3-12
3-5
3-8
2020
2019
$
23,901 $
238,586
365,511
120,113
76,283
165,950
109,280
1,099,624
574,257
525,367 $
27,184
220,563
350,664
107,108
75,482
157,770
63,197
1,001,968
522,424
479,544
$
$
2020
2019
2018
83,430 $
74,975 $
65,116
SCEM
MC
AMH
Total
$
301,423 $
57,071 $
98,410
—
(1,881)
397,952
31,751
1,276
(3,266)
191,708 $
47,711
451
151
240,021
—
1,769
5,364
—
—
—
—
—
57,071
16,099
$
427,713 $
247,154 $
73,170 $
550,202
146,121
451
(1,730)
695,044
47,850
3,045
2,098
748,037
2020
$
$
Gross carrying
amount
Accumulated
amortization
Net carrying
value
283,272 $
221,651 $
30,100
449,659
20,396
18,374
193,313
12,457
783,427 $
445,795 $
Weighted
average life in
years
7.1
10.1
12.2
6.6
10.1
61,621
11,726
256,346
7,939
337,632
As of December 31, 2020, goodwill amounted to approximately $748.0 million, an increase of $53.0 million from the balance at December 31, 2019. The
increase in goodwill in 2020 reflects the acquisition of GMTI and Sinmat described in note 3 with additional increases as a result of purchase accounting
adjustments related to Anow and foreign currency translation. The increase in goodwill in 2019 reflects the acquisition of Digital Specialty Chemicals
Limited, MPD, and Anow described in note 3 partially offset by the decrease resulting from foreign currency translation.
Identifiable intangible assets at December 31, 2020 and 2019 consist of the following:
The amortization expense for each of the five succeeding years and thereafter relating to intangible assets currently recorded in the Company’s consolidated
balance sheets is estimated to be the following at December 31, 2020:
(In thousands)
Future amortization expense
2021
2022
2023
2024
2025
Thereafter
$
48,535
47,724
47,035
33,933
31,335
129,070 $
Total
337,632
(8) DEBT
Long-term debt at December 31, 2020 and 2019 consists of the following:
(In thousands)
Senior unsecured notes due 2028
Senior secured term loan facility due 2025
Senior unsecured notes due 2026
Unamortized discount and debt issuance costs
Total long-term debt
Less current maturities of long-term debt
Long-term debt less current maturities
2020
2019
$
$
400,000 $
145,000
550,000
1,095,000
9,217
1,085,783
—
1,085,783 $
—
396,000
550,000
946,000
9,516
936,484
4,000
932,484
Annual maturities of long-term debt, excluding unamortized discount and issuance costs, due as of December 31, 2020 are as follows:
(In thousands)
Contractual debt obligation maturities*
2021
2022
2023
2024
$
—
—
—
—
2025
145,000
Thereafter
950,000 $
Total
1,095,000
*Subject to Excess Cash Flow payments to the lenders, see discussion below.
2028 Senior Unsecured Notes
On April 30, 2020, the Company issued $400.0 million aggregate principal amount of 4.375% senior unsecured notes due April 15, 2028 (the “2028
Notes”). The 2028 Notes were issued under an indenture dated as of April 30, 2020 (the “2028 Notes Indenture”) by and among the Company, certain
subsidiaries of the Company and Wells Fargo Bank, National Association, as trustee (the “2028 Notes Trustee”). Interest on the 2028 Notes is payable
semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2020. The Company incurred debt issuance costs of
$4.0 million in connection with the 2028 Notes. These costs are reported in the consolidated balance sheet as a direct deduction from the face amount of the
2028 Notes.
The 2028 Notes are guaranteed, jointly and severally, fully and unconditionally, on a senior unsecured basis, by the Company’s existing and future
domestic subsidiaries, other than certain excluded subsidiaries, to the extent that such entities guarantee indebtedness under the Company’s senior secured
term loan facility due 2025 and senior secured revolving credit facility due 2023 (together, the “Senior Secured Credit Facilities”) or the Company’s
4.625% senior unsecured notes due 2026 (the “2026 Notes”) and any other subsidiary of the Company to the extent it incurs certain additional indebtedness
(collectively, the “Guarantors”).
The 2028 Notes and the guarantees thereof are the Company’s and the Guarantors’ senior unsecured obligations, respectively, and will (i) rank equally in
right of payment with all of the Company’s and the Guarantors’ existing and future senior
F-18
F-19
indebtedness (including the 2026 Notes); (ii) rank senior to any subordinated indebtedness that the Company or the Guarantors may incur; (iii) be
effectively subordinated to all of the Company’s or the Guarantors’ existing and future secured indebtedness (including the Senior Secured Credit
Facilities), in each case, to the extent of the value of the assets securing such indebtedness; and (iv) be structurally subordinated in right of payment to all
existing and future obligations of the Company’s subsidiaries that do not guarantee the 2028 Notes.
At any time prior to April 15, 2023, the Company may, at its option, on any one or more occasions, redeem up to 40% of the aggregate principal amount of
the 2028 Notes, at a redemption price equal to 104.375% of the principal amount of the 2028 Notes redeemed, plus accrued and unpaid interest, if any, to,
but not including, the date of redemption, with an amount of cash equal to the net cash proceeds of an equity offering, as defined in the 2028 Notes
Indenture, by the Company; provided that (1) at least 60% of the aggregate principal amount of 2028 Notes issued under the 2028 Notes Indenture remains
outstanding immediately after the occurrence of each such redemption; and (2) the redemption occurs within 120 days of the date of the closing of such
equity offering.
Additionally, at any time prior to April 15, 2023, the 2028 Notes may be redeemed, in whole or in part, at the option of the Company, at a redemption price
equal to 100% of the principal amount of the 2028 Notes redeemed, plus a “make whole” premium, plus accrued and unpaid interest to, but not including,
the applicable redemption date.
On or after April 15, 2023, the Company may on any one or more occasions redeem all or a part of the 2028 Notes, at its option, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the 2028 Notes redeemed, to, but not including,
the applicable date of redemption, if redeemed during the 12-month period beginning on April 15 of the years indicated below:
Year
2023
2024
2025 and thereafter
Percentage
102.188 %
101.094 %
100.000 %
Upon the occurrence of certain change of control events accompanied by certain ratings events, the Company will be required to offer to repurchase all of
the outstanding 2028 Notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the
date of repurchase.
The 2028 Notes Indenture that governs the 2028 Notes contains covenants that, among other things, limit the Company’s ability and/or the ability of the
Company’s subsidiaries to incur liens, engage in sale and leaseback transactions and consolidate, merge with or convey, transfer or lease all or substantially
all of the Company’s and its subsidiaries’ assets to another person. The 2028 Notes Indenture also, subject to certain exceptions, limits the ability of any
non-Guarantor subsidiary of the Company to incur indebtedness. These covenants are subject to a number of other limitations and exceptions as set forth in
the 2028 Notes Indenture. The Company is in compliance with all of the above covenants at December 31, 2020.
The 2028 Notes Indenture provides for events of default which, if certain of them occur, would permit the 2028 Notes Trustee or the holders of at least 25%
in aggregate principal amount of the then outstanding 2028 Notes to declare the principal of, and interest or premium, if any, and any other monetary
obligations on, all the then-outstanding 2028 Notes to be due and payable immediately.
2026 Senior Unsecured Notes
On November 10, 2017, the Company issued $550 million aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026 (“the 2026
Notes”). The 2026 Notes were issued under an indenture dated as of November 10, 2017 (the “2026 Notes Indenture”) by and among the Company and
Wells Fargo Bank, National Association, as trustee. Interest on the 2026 Notes is payable semi-annually in arrears on February 15 and August 15, which
commenced on February 15, 2018.
The 2026 Notes are guaranteed, jointly and severally, fully and unconditionally, on a senior unsecured basis, by, subject to certain exclusions, each of the
Company’s domestic subsidiaries that guarantee indebtedness under the New Credit Facilities.
As provided in the 2026 Notes Indenture, the Company may at its option on one or more occasions redeem all or a part of the 2026 Notes at a redemption
price equal to (a) 100% of the principal amount of the 2026 Notes redeemed plus a make-whole premium if redeemed prior to November 10, 2020, or (b)
100% of the principal amount of the 2026 Notes redeemed plus a percentage of principal amount between 100% and 103.469% of the aggregate principal
amount of the 2026 Notes to be redeemed, depending on the period of redemption, if redeemed on or after November 10, 2020, plus, in each case, accrued
and unpaid interest on the amount of 2026 Notes being redeemed.
Upon a change in control accompanied by certain rating events, the Company is required to offer to repurchase all of the 2026 Notes at a price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
The 2026 Notes Indenture contains covenants that, among other things and subject to certain exceptions, limit the Company’s ability and the ability of the
Company’s restricted subsidiaries to create liens, enter into sale and leaseback transactions, engage in consolidations or mergers, or sell, transfer or
otherwise dispose of all or substantially all of their assets. The 2026 Notes Indenture also, subject to certain exceptions, limits the ability of any subsidiary
of the Company that is not a guarantor under the 2026 Notes to incur indebtedness. The Company is in compliance with all of the above covenants at
December 31, 2020.
The 2026 Notes Indenture also provides for events of default which, if certain of them occur, would permit the trustee or the holders of at least 25% in
aggregate principal amount of the then outstanding 2026 Notes to declare the principal, premium, if any, interest and any other monetary obligations on all
the then-outstanding 2026 Notes to be due and payable immediately.
Senior Secured Credit Facilities
On November 6, 2018, the Company entered into a credit and guaranty agreement with Goldman Sachs Bank USA, as administrative agent and collateral
agent, and added two additional lenders to the lenders party thereto. The credit agreement was amended in October 2019 (as so amended, the “Credit
Agreement”) to change the administrative agent and collateral agent to Morgan Stanley and add two lenders. The Credit Agreement provides senior secured
financing in an aggregate principal amount of $700 million, consisting initially of (a) term loans in an aggregate principal amount of $400 million (the
“New Term Loan Facility”) and (b) revolving commitments in an aggregate amount of $300 million (the “New Revolving Facility”, and together with the
New Term Loan Facility, the “New Credit Facilities”). Borrowings under the New Credit Facilities bear interest at a rate per annum equal to, at the
Company’s option, a base rate (such as prime rate or LIBOR) plus an applicable margin. The Company’s interest rate on the term loans under the New
Term Loan Facility is 2.15% at December 31, 2020. In addition to paying interest on the outstanding principal under the New Credit Facilities, the
Company will pay (i) with respect to the New Term Loan Facility, customary agency fees, and (ii) with respect to the New Revolving Facility, a
commitment fee in respect of the unutilized commitments thereunder and customary letter of credit fees and agency fees. The initial commitment fee is
0.20% per annum.
Debt issuance costs of $5.1 million for the year ended December 31, 2018 were paid to third parties and are capitalized as debt issuance costs in connection
with the New Credit Facilities. These debt issuance costs are being amortized as interest expense in the Company’s consolidated statements of operations
over the term of the debt instrument using the straight-line method.
The Company may voluntarily prepay outstanding term loans and revolving loans under the New Credit Facilities and may reduce the unutilized portion of
the New Revolving Facility at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.
At present LIBOR is expected to be published only on a limited basis after 2021. The Company’s New Credit Facilities do not specify a particular “hard-
wired” replacement index rate (or related margin) when LIBOR becomes unavailable, but rely on the administrative agent and the Company reaching
agreement on such a replacement rate (and related margin) that gives due consideration to the then prevailing market convention for determining rates of
interest for syndicated loans denominated in US dollars in the United States. The Company expects to amend the New Credit Facilities to provide a market-
based replacement index rate and margin prior to the time when LIBOR is no longer available.
The Credit Agreement also requires the Company to prepay outstanding term loans, subject to certain exceptions, with (a) up to 50% of the Company’s
annual Excess Cash Flow (as defined in the Credit Agreement) and (b) 100% of the net cash proceeds of (i) certain asset sales and casualty and
condemnation events, subject to reinvestment rights and certain other exceptions; and (ii) any incurrence or issuance of certain debt, other than debt
permitted under the New Credit Facilities.
The New Term Loan Facility matures November 6, 2025 and the New Revolving Facility matures November 6, 2023. At December 31, 2020, the only
outstanding amounts under the New Revolving Facility were undrawn outstanding letters of credit of $0.2 million.
All obligations under the New Credit Facilities are unconditionally guaranteed by certain of the Company’s wholly-owned domestic subsidiaries and are
secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Company’s subsidiaries that have guaranteed the
New Credit Facilities.
The New Credit Facilities contain a number of negative covenants that, subject to certain exceptions, restrict the Company’s ability and each of the
Company’s subsidiaries’ ability to incur additional indebtedness; pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its
other indebtedness; make investments, loans and acquisitions, create restrictions on the payment of dividends or other amounts to the Company from the
Company’s restricted subsidiaries; engage in transactions with its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the
business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions. If at any time, commencing with the fiscal quarter
F-20
F-21
indebtedness (including the 2026 Notes); (ii) rank senior to any subordinated indebtedness that the Company or the Guarantors may incur; (iii) be
effectively subordinated to all of the Company’s or the Guarantors’ existing and future secured indebtedness (including the Senior Secured Credit
Facilities), in each case, to the extent of the value of the assets securing such indebtedness; and (iv) be structurally subordinated in right of payment to all
existing and future obligations of the Company’s subsidiaries that do not guarantee the 2028 Notes.
At any time prior to April 15, 2023, the Company may, at its option, on any one or more occasions, redeem up to 40% of the aggregate principal amount of
the 2028 Notes, at a redemption price equal to 104.375% of the principal amount of the 2028 Notes redeemed, plus accrued and unpaid interest, if any, to,
but not including, the date of redemption, with an amount of cash equal to the net cash proceeds of an equity offering, as defined in the 2028 Notes
Indenture, by the Company; provided that (1) at least 60% of the aggregate principal amount of 2028 Notes issued under the 2028 Notes Indenture remains
outstanding immediately after the occurrence of each such redemption; and (2) the redemption occurs within 120 days of the date of the closing of such
Upon a change in control accompanied by certain rating events, the Company is required to offer to repurchase all of the 2026 Notes at a price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
The 2026 Notes Indenture contains covenants that, among other things and subject to certain exceptions, limit the Company’s ability and the ability of the
Company’s restricted subsidiaries to create liens, enter into sale and leaseback transactions, engage in consolidations or mergers, or sell, transfer or
otherwise dispose of all or substantially all of their assets. The 2026 Notes Indenture also, subject to certain exceptions, limits the ability of any subsidiary
of the Company that is not a guarantor under the 2026 Notes to incur indebtedness. The Company is in compliance with all of the above covenants at
December 31, 2020.
The 2026 Notes Indenture also provides for events of default which, if certain of them occur, would permit the trustee or the holders of at least 25% in
aggregate principal amount of the then outstanding 2026 Notes to declare the principal, premium, if any, interest and any other monetary obligations on all
the then-outstanding 2026 Notes to be due and payable immediately.
Additionally, at any time prior to April 15, 2023, the 2028 Notes may be redeemed, in whole or in part, at the option of the Company, at a redemption price
equal to 100% of the principal amount of the 2028 Notes redeemed, plus a “make whole” premium, plus accrued and unpaid interest to, but not including,
Senior Secured Credit Facilities
On November 6, 2018, the Company entered into a credit and guaranty agreement with Goldman Sachs Bank USA, as administrative agent and collateral
agent, and added two additional lenders to the lenders party thereto. The credit agreement was amended in October 2019 (as so amended, the “Credit
Agreement”) to change the administrative agent and collateral agent to Morgan Stanley and add two lenders. The Credit Agreement provides senior secured
financing in an aggregate principal amount of $700 million, consisting initially of (a) term loans in an aggregate principal amount of $400 million (the
“New Term Loan Facility”) and (b) revolving commitments in an aggregate amount of $300 million (the “New Revolving Facility”, and together with the
New Term Loan Facility, the “New Credit Facilities”). Borrowings under the New Credit Facilities bear interest at a rate per annum equal to, at the
Company’s option, a base rate (such as prime rate or LIBOR) plus an applicable margin. The Company’s interest rate on the term loans under the New
Term Loan Facility is 2.15% at December 31, 2020. In addition to paying interest on the outstanding principal under the New Credit Facilities, the
Company will pay (i) with respect to the New Term Loan Facility, customary agency fees, and (ii) with respect to the New Revolving Facility, a
commitment fee in respect of the unutilized commitments thereunder and customary letter of credit fees and agency fees. The initial commitment fee is
0.20% per annum.
Debt issuance costs of $5.1 million for the year ended December 31, 2018 were paid to third parties and are capitalized as debt issuance costs in connection
with the New Credit Facilities. These debt issuance costs are being amortized as interest expense in the Company’s consolidated statements of operations
over the term of the debt instrument using the straight-line method.
The Company may voluntarily prepay outstanding term loans and revolving loans under the New Credit Facilities and may reduce the unutilized portion of
the New Revolving Facility at any time without premium or penalty other than customary “breakage” costs with respect to LIBOR loans.
At present LIBOR is expected to be published only on a limited basis after 2021. The Company’s New Credit Facilities do not specify a particular “hard-
wired” replacement index rate (or related margin) when LIBOR becomes unavailable, but rely on the administrative agent and the Company reaching
agreement on such a replacement rate (and related margin) that gives due consideration to the then prevailing market convention for determining rates of
interest for syndicated loans denominated in US dollars in the United States. The Company expects to amend the New Credit Facilities to provide a market-
based replacement index rate and margin prior to the time when LIBOR is no longer available.
The Credit Agreement also requires the Company to prepay outstanding term loans, subject to certain exceptions, with (a) up to 50% of the Company’s
annual Excess Cash Flow (as defined in the Credit Agreement) and (b) 100% of the net cash proceeds of (i) certain asset sales and casualty and
condemnation events, subject to reinvestment rights and certain other exceptions; and (ii) any incurrence or issuance of certain debt, other than debt
permitted under the New Credit Facilities.
The New Term Loan Facility matures November 6, 2025 and the New Revolving Facility matures November 6, 2023. At December 31, 2020, the only
outstanding amounts under the New Revolving Facility were undrawn outstanding letters of credit of $0.2 million.
All obligations under the New Credit Facilities are unconditionally guaranteed by certain of the Company’s wholly-owned domestic subsidiaries and are
secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Company’s subsidiaries that have guaranteed the
New Credit Facilities.
The New Credit Facilities contain a number of negative covenants that, subject to certain exceptions, restrict the Company’s ability and each of the
Company’s subsidiaries’ ability to incur additional indebtedness; pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its
other indebtedness; make investments, loans and acquisitions, create restrictions on the payment of dividends or other amounts to the Company from the
Company’s restricted subsidiaries; engage in transactions with its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the
business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions. If at any time, commencing with the fiscal quarter
equity offering.
the applicable redemption date.
Year
2023
2024
2025 and thereafter
date of repurchase.
On or after April 15, 2023, the Company may on any one or more occasions redeem all or a part of the 2028 Notes, at its option, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the 2028 Notes redeemed, to, but not including,
the applicable date of redemption, if redeemed during the 12-month period beginning on April 15 of the years indicated below:
Percentage
102.188 %
101.094 %
100.000 %
Upon the occurrence of certain change of control events accompanied by certain ratings events, the Company will be required to offer to repurchase all of
the outstanding 2028 Notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the
The 2028 Notes Indenture that governs the 2028 Notes contains covenants that, among other things, limit the Company’s ability and/or the ability of the
Company’s subsidiaries to incur liens, engage in sale and leaseback transactions and consolidate, merge with or convey, transfer or lease all or substantially
all of the Company’s and its subsidiaries’ assets to another person. The 2028 Notes Indenture also, subject to certain exceptions, limits the ability of any
non-Guarantor subsidiary of the Company to incur indebtedness. These covenants are subject to a number of other limitations and exceptions as set forth in
the 2028 Notes Indenture. The Company is in compliance with all of the above covenants at December 31, 2020.
The 2028 Notes Indenture provides for events of default which, if certain of them occur, would permit the 2028 Notes Trustee or the holders of at least 25%
in aggregate principal amount of the then outstanding 2028 Notes to declare the principal of, and interest or premium, if any, and any other monetary
obligations on, all the then-outstanding 2028 Notes to be due and payable immediately.
2026 Senior Unsecured Notes
On November 10, 2017, the Company issued $550 million aggregate principal amount of 4.625% senior unsecured notes due February 10, 2026 (“the 2026
Notes”). The 2026 Notes were issued under an indenture dated as of November 10, 2017 (the “2026 Notes Indenture”) by and among the Company and
Wells Fargo Bank, National Association, as trustee. Interest on the 2026 Notes is payable semi-annually in arrears on February 15 and August 15, which
commenced on February 15, 2018.
The 2026 Notes are guaranteed, jointly and severally, fully and unconditionally, on a senior unsecured basis, by, subject to certain exclusions, each of the
Company’s domestic subsidiaries that guarantee indebtedness under the New Credit Facilities.
As provided in the 2026 Notes Indenture, the Company may at its option on one or more occasions redeem all or a part of the 2026 Notes at a redemption
price equal to (a) 100% of the principal amount of the 2026 Notes redeemed plus a make-whole premium if redeemed prior to November 10, 2020, or (b)
100% of the principal amount of the 2026 Notes redeemed plus a percentage of principal amount between 100% and 103.469% of the aggregate principal
amount of the 2026 Notes to be redeemed, depending on the period of redemption, if redeemed on or after November 10, 2020, plus, in each case, accrued
and unpaid interest on the amount of 2026 Notes being redeemed.
F-20
F-21
ending March 31, 2019, the Company has revolving borrowings, unreimbursed letter of credit drawings and undrawn letters of credit outstanding in an
amount in excess of 35.0% of the commitment amount under the New Revolving Facility, the Credit Agreement requires the Company to maintain a
secured net leverage ratio of at least 3.25 to 1.0. The Company is in compliance with all of the above covenants at December 31, 2020.
(9) OTHER (INCOME) EXPENSE, NET
The table below sets forth the Other (income) expense, net for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Assets
Right-of-use assets
Liabilities
Short-term lease liability
Long-term lease liability
Total lease liabilities
(In thousands)
Versum termination fee, net
(Gain) loss on foreign currency remeasurement
Loss on extinguishment of debt
Other, net
Other (income) expense, net
2020
2019
2018
Lease Term and Discount Rate
$
$
— $
(9,751)
2,378
717
(6,656) $
(122,000) $
(237)
—
1,156
(121,081) $
—
4,391
2,429
1,182
8,002
Weighted average remaining lease term (years)
Weighted average discount rate
ended December 31, 2020 and 2019 are as follows:
Versum termination fee, net
On January 28, 2019, the Company and 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” as
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.
(10) 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 consolidated balance sheets, but did not have a material impact on our 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
December 31, 2020 and 2019, we do not have any material finance leases.
Leases As of December 31, 2020, 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 14 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 December 31, 2020 and 2019, the Company’s operating lease components with initial or remaining terms in excess of one year were classified on the
consolidated balance sheet as follows, together with certain supplemental balance sheet information:
Classification
2020
2019
Right-of-use assets
Other accrued liabilities
Long-term lease liability
$
$
45,924
$
9,960
39,730
49,690
$
7.9
5.0 %
50,160
10,025
43,827
53,852
8.4
4.9 %
2020
2019
$
13,576 $
12,538
Expense for leases less than 12 months for the year ended December 31, 2020 and 2019 were not material. The components of lease expense for the year
The Company combines the amortization of the right-of-use 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 for the year ended December 31, 2020 and 2019 are as follows:
2020
2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Future minimum lease payments for noncancellable operating leases as of December 31, 2020 and 2019, were as follows:
2020
2019
The Company has asset retirement obligations (“AROs”) related to environmental disposal obligations associated with cylinders used to supply customers
with gas products, and certain restoration obligations associated with its leased facilities.
Changes in the carrying amounts of the Company’s AROs for the years ended December 31, 2020 and 2019 are shown below:
(In thousands)
Operating lease cost
(In thousands)
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Less: Interest
Present value of lease liabilities
(11) ASSET RETIREMENT OBLIGATIONS
(In thousands)
Balance at beginning of year
Liabilities assumed in acquisitions
Liabilities settled
Liabilities incurred
Accretion expense
Revision of estimate
Balance at end of year
$
$
$
$
$
$
$
10,806 $
5,133 $
12,365 $
8,571
6,851
5,752
4,876
23,742
62,157 $
12,467
49,690 $
2020
2019
13,940 $
—
—
218
216
126
14,500 $
11,137
9,077
12,407
10,221
6,909
6,055
5,052
26,904
67,548
13,696
53,852
12,543
1,416
(102)
546
75
(538)
13,940
F-22
F-23
(9) OTHER (INCOME) EXPENSE, NET
(In thousands)
Versum termination fee, net
(Gain) loss on foreign currency remeasurement
Loss on extinguishment of debt
Other, net
Other (income) expense, net
Versum termination fee, net
$
$
— $
(122,000) $
(9,751)
2,378
717
(237)
—
1,156
(6,656) $
(121,081) $
—
4,391
2,429
1,182
8,002
On January 28, 2019, the Company and 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” as
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.
(10) 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 consolidated balance sheets, but did not have a material impact on our 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
December 31, 2020 and 2019, we do not have any material finance leases.
Leases As of December 31, 2020, 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 14 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 December 31, 2020 and 2019, the Company’s operating lease components with initial or remaining terms in excess of one year were classified on the
consolidated balance sheet as follows, together with certain supplemental balance sheet information:
ending March 31, 2019, the Company has revolving borrowings, unreimbursed letter of credit drawings and undrawn letters of credit outstanding in an
amount in excess of 35.0% of the commitment amount under the New Revolving Facility, the Credit Agreement requires the Company to maintain a
secured net leverage ratio of at least 3.25 to 1.0. The Company is in compliance with all of the above covenants at December 31, 2020.
The table below sets forth the Other (income) expense, net for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Assets
Right-of-use assets
Liabilities
Short-term lease liability
Long-term lease liability
Total lease liabilities
2020
2019
2018
Lease Term and Discount Rate
Weighted average remaining lease term (years)
Weighted average discount rate
Classification
2020
2019
Right-of-use assets
Other accrued liabilities
Long-term lease liability
$
$
45,924
$
9,960
39,730
49,690
$
7.9
5.0 %
50,160
10,025
43,827
53,852
8.4
4.9 %
Expense for leases less than 12 months for the year ended December 31, 2020 and 2019 were not material. The components of lease expense for the year
ended December 31, 2020 and 2019 are as follows:
(In thousands)
Operating lease cost
13,576 $
2020
2019
$
12,538
The Company combines the amortization of the right-of-use 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 for the year ended December 31, 2020 and 2019 are as follows:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
2020
2019
Operating cash flows from leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
$
Future minimum lease payments for noncancellable operating leases as of December 31, 2020 and 2019, were as follows:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Less: Interest
Present value of lease liabilities
2020
$
$
$
10,806 $
5,133 $
12,365 $
8,571
6,851
5,752
4,876
23,742
62,157 $
12,467
49,690 $
2019
11,137
9,077
12,407
10,221
6,909
6,055
5,052
26,904
67,548
13,696
53,852
(11) ASSET RETIREMENT OBLIGATIONS
The Company has asset retirement obligations (“AROs”) related to environmental disposal obligations associated with cylinders used to supply customers
with gas products, and certain restoration obligations associated with its leased facilities.
Changes in the carrying amounts of the Company’s AROs for the years ended December 31, 2020 and 2019 are shown below:
(In thousands)
Balance at beginning of year
Liabilities assumed in acquisitions
Liabilities settled
Liabilities incurred
Accretion expense
Revision of estimate
Balance at end of year
2020
2019
$
$
13,940 $
—
—
218
216
126
14,500 $
12,543
1,416
(102)
546
75
(538)
13,940
F-22
F-23
ARO liabilities expected to be settled within twelve months are included in the consolidated balance sheets in other accrued liabilities, while all other ARO
liabilities are included in pension benefit obligations and other liabilities in the consolidated balance sheets.
ending December 31, 2020, 2019 and 2018, respectively. The 2020, 2019 and 2018 effective tax rates include additional benefits of $5.4 million, $3.3
million and $3.6 million, because the corporate tax rate in Singapore is lower than the U.S. rate.
(12) INCOME TAXES
Income before income taxes for the years ended December 31, 2020, 2019 and 2018 was derived from the following sources:
At December 31, 2020, there were approximately $66.6 million of accumulated undistributed earnings of subsidiaries outside of the United States, all of
which are considered to be indefinitely reinvested. Management estimates that no material withholding taxes would be incurred if these undistributed
(In thousands)
Domestic
Foreign
Income before income tax expense
2020
2019
2018
$
$
86,572 $
267,715
354,287 $
145,215 $
172,834
318,049 $
61,545
192,887
254,432
Income tax expense for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
The significant components of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are as follows:
(In thousands)
Current:
Federal
State
Foreign
Deferred (net of valuation allowance):
Federal
State
Foreign
Income tax expense
2020
2019
2018
Accruals not currently deductible for tax purposes
Net operating loss and credit carryforwards
$
$
8,107 $
1,151
57,310
66,568
(592)
(407)
(6,251)
(7,250)
59,318 $
35,497 $
2,625
39,075
77,197
(10,966)
(1,018)
(2,024)
(14,008)
63,189 $
(14,775)
1,605
38,723
25,553
(13,399)
(370)
1,893
(11,876)
13,677
earnings were distributed.
(In thousands)
Deferred tax assets attributable to:
Accounts receivable
Inventory
Equity compensation
Asset impairments
Other, net
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities attributable to:
Purchased intangible assets
Depreciation
Total deferred tax liabilities
Net deferred tax liabilities
2020
2019
$
436 $
4,566
12,828
33,347
3,001
452
6,212
60,842
(29,399)
31,443
(38,083)
(13,276)
(51,359)
$
(19,916) $
87
6,517
7,568
22,316
3,415
452
5,990
46,345
(20,118)
26,227
(44,447)
(6,491)
(50,938)
(24,711)
Income tax expense differs from the expected amounts based upon the statutory federal tax rates for the years ended December 31, 2020, 2019 and 2018 as
follows:
(In thousands)
Expected federal income tax at statutory rate
State income taxes before valuation allowance, net of federal tax effect
Effect of foreign source income
Tax contingencies
Valuation allowance
U.S. federal research credit
Equity compensation
Transition tax
Remeasurement of deferred taxes
Foreign derived intangible income
Legal entity restructuring foreign tax credit
Legal entity restructuring dividends received deduction
Other items, net
Income tax expense
2020
2019
2018
$
$
74,400 $
(1,539)
(7,877)
1,688
9,281
(7,204)
(8,231)
—
—
(1,153)
—
—
(47)
59,318 $
66,790 $
(1,563)
(1,362)
1,785
2,051
(6,514)
(1,411)
—
—
(7,851)
—
9,398
1,866
63,189 $
53,431
605
2,359
468
527
(2,263)
(3,826)
89
619
(4,846)
(25,080)
(9,398)
992
13,677
In 2012, Entegris’ Korean subsidiary made commitments to produce a certain line of products in Korea. In return for this commitment, the Company had a
tax holiday on income earned on sales of these products for five years and a partial holiday for two additional years. The income tax benefit attributable to
this tax holiday was $4 million ($0.03 per diluted share) for the year ended December 31, 2018. The tax holiday benefit ceased during the year ended
December 31, 2018.
The Company has made employment and spending commitments to Singapore. In return for those commitments, the Company has been granted a partial
tax holiday for eight years starting in 2013. During 2017, this agreement was extended to 2027 in exchange for revised employment and spending
commitments. The income tax benefits attributable to the tax status are $9.4 million ($0.07 per diluted share), $5.8 million ($0.04 per diluted share) and
$6.3 million ($0.04 per diluted share) for the years
Deferred tax assets are generally required to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
As of December 31, 2020 and 2019, the Company had net U.S. deferred tax liabilities of $4.7 million and $12.2 million, respectively, which are composed
of temporary differences and various tax credit carryforwards. Management believes that it is more likely than not that the benefit from certain state net
operating loss carryforwards, state credit carryforwards and the federal foreign tax credit carryforward will not be realized. In recognition of this risk,
management has provided valuation allowances of $18.6 million and $10.4 million as of December 31, 2020 and 2019, respectively, on the related deferred
tax assets. If the assumptions change and management determines the assets will be realized, the tax benefits relating to any reversal of the valuation
allowance on deferred tax assets at December 31, 2020 will be recognized as a reduction of income tax expense.
At December 31, 2020, the Company had state operating loss and credit carryforwards of approximately $12.4 million, which begin to expire in 2021, and
foreign operating loss carryforwards of $30.2 million, which begin to expire in 2021.
As of December 31, 2020 and 2019, the Company had net non-U.S. deferred tax assets of $14.1 million and $7.7 million, respectively, for which
management determined based upon the available evidence a valuation allowance of $10.8 million and $9.7 million as of December 31, 2020 and 2019,
respectively, was required against the non-U.S. gross deferred tax assets. For other non-U.S. jurisdictions, management relies upon projections of future
taxable income to utilize deferred tax assets.
Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax positions will be sustained
upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-
than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement. Tax positions that fail to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be
derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The provisions also provide guidance on the
accounting for and disclosure of unrecognized tax benefits, interest and penalties.
Reconciliations of the beginning and ending balances of the total amounts of gross unrecognized tax benefits for the years ended December 31, 2020 and
2019 are as follows:
F-24
F-25
ARO liabilities expected to be settled within twelve months are included in the consolidated balance sheets in other accrued liabilities, while all other ARO
liabilities are included in pension benefit obligations and other liabilities in the consolidated balance sheets.
ending December 31, 2020, 2019 and 2018, respectively. The 2020, 2019 and 2018 effective tax rates include additional benefits of $5.4 million, $3.3
million and $3.6 million, because the corporate tax rate in Singapore is lower than the U.S. rate.
(12) INCOME TAXES
Income before income taxes for the years ended December 31, 2020, 2019 and 2018 was derived from the following sources:
At December 31, 2020, there were approximately $66.6 million of accumulated undistributed earnings of subsidiaries outside of the United States, all of
which are considered to be indefinitely reinvested. Management estimates that no material withholding taxes would be incurred if these undistributed
earnings were distributed.
The significant components of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are as follows:
(In thousands)
Deferred tax assets attributable to:
Accounts receivable
Inventory
Accruals not currently deductible for tax purposes
Net operating loss and credit carryforwards
Equity compensation
Asset impairments
Other, net
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities attributable to:
Purchased intangible assets
Depreciation
Total deferred tax liabilities
Net deferred tax liabilities
2020
2019
$
436 $
4,566
12,828
33,347
3,001
452
6,212
60,842
(29,399)
31,443
(38,083)
(13,276)
(51,359)
(19,916) $
$
87
6,517
7,568
22,316
3,415
452
5,990
46,345
(20,118)
26,227
(44,447)
(6,491)
(50,938)
(24,711)
Deferred tax assets are generally required to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
As of December 31, 2020 and 2019, the Company had net U.S. deferred tax liabilities of $4.7 million and $12.2 million, respectively, which are composed
of temporary differences and various tax credit carryforwards. Management believes that it is more likely than not that the benefit from certain state net
operating loss carryforwards, state credit carryforwards and the federal foreign tax credit carryforward will not be realized. In recognition of this risk,
management has provided valuation allowances of $18.6 million and $10.4 million as of December 31, 2020 and 2019, respectively, on the related deferred
tax assets. If the assumptions change and management determines the assets will be realized, the tax benefits relating to any reversal of the valuation
allowance on deferred tax assets at December 31, 2020 will be recognized as a reduction of income tax expense.
At December 31, 2020, the Company had state operating loss and credit carryforwards of approximately $12.4 million, which begin to expire in 2021, and
foreign operating loss carryforwards of $30.2 million, which begin to expire in 2021.
As of December 31, 2020 and 2019, the Company had net non-U.S. deferred tax assets of $14.1 million and $7.7 million, respectively, for which
management determined based upon the available evidence a valuation allowance of $10.8 million and $9.7 million as of December 31, 2020 and 2019,
respectively, was required against the non-U.S. gross deferred tax assets. For other non-U.S. jurisdictions, management relies upon projections of future
taxable income to utilize deferred tax assets.
Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax positions will be sustained
upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-
than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement. Tax positions that fail to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be
derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The provisions also provide guidance on the
accounting for and disclosure of unrecognized tax benefits, interest and penalties.
Reconciliations of the beginning and ending balances of the total amounts of gross unrecognized tax benefits for the years ended December 31, 2020 and
2019 are as follows:
Income before income tax expense
Income tax expense for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
(In thousands)
Domestic
Foreign
(In thousands)
Current:
Federal
State
Foreign
Federal
State
Foreign
follows:
(In thousands)
Deferred (net of valuation allowance):
Effect of foreign source income
Tax contingencies
Valuation allowance
U.S. federal research credit
Equity compensation
Transition tax
Remeasurement of deferred taxes
Foreign derived intangible income
Legal entity restructuring foreign tax credit
Legal entity restructuring dividends received deduction
Other items, net
Income tax expense
$
$
$
$
$
2020
2019
2018
86,572 $
267,715
354,287 $
145,215 $
172,834
318,049 $
61,545
192,887
254,432
2020
2019
2018
8,107 $
35,497 $
1,151
57,310
66,568
(592)
(407)
(6,251)
(7,250)
(1,539)
(7,877)
1,688
9,281
(7,204)
(8,231)
(1,153)
—
—
—
—
(47)
2,625
39,075
77,197
(10,966)
(1,018)
(2,024)
(14,008)
(1,563)
(1,362)
1,785
2,051
(6,514)
(1,411)
—
—
(7,851)
—
9,398
1,866
(14,775)
1,605
38,723
25,553
(13,399)
(370)
1,893
(11,876)
13,677
53,431
605
2,359
468
527
(2,263)
(3,826)
89
619
(4,846)
(25,080)
(9,398)
992
13,677
Income tax expense
59,318 $
63,189 $
Income tax expense differs from the expected amounts based upon the statutory federal tax rates for the years ended December 31, 2020, 2019 and 2018 as
Expected federal income tax at statutory rate
State income taxes before valuation allowance, net of federal tax effect
2020
2019
2018
74,400 $
66,790 $
$
59,318 $
63,189 $
In 2012, Entegris’ Korean subsidiary made commitments to produce a certain line of products in Korea. In return for this commitment, the Company had a
tax holiday on income earned on sales of these products for five years and a partial holiday for two additional years. The income tax benefit attributable to
this tax holiday was $4 million ($0.03 per diluted share) for the year ended December 31, 2018. The tax holiday benefit ceased during the year ended
December 31, 2018.
The Company has made employment and spending commitments to Singapore. In return for those commitments, the Company has been granted a partial
tax holiday for eight years starting in 2013. During 2017, this agreement was extended to 2027 in exchange for revised employment and spending
commitments. The income tax benefits attributable to the tax status are $9.4 million ($0.07 per diluted share), $5.8 million ($0.04 per diluted share) and
$6.3 million ($0.04 per diluted share) for the years
F-24
F-25
for option awards generally may not be less than the fair market value per share of the underlying common stock on the date granted. The 2020 Stock Plan
provides that after December 31, 2019, any shares subject to stock awards that were awarded from the Company’s expired plans and that are forfeited,
expired or otherwise terminated without issuance of shares will again be available for issuance under the 2020 Stock Plan.
Stock Options
Stock option activity for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
2020
2019
2018
Number of
shares
Weighted
average
exercise
price
Number of
shares
Weighted
average
exercise
price
Number of
shares
Weighted
average
exercise
price
(In thousands)
Gross unrecognized tax benefits at beginning of year
Increase in tax positions from prior years
Decrease in tax positions from prior years
Increases in tax positions for current year
Settlement of tax positions for current year
Lapse in statute of limitations
Gross unrecognized tax benefits at end of year
2020
2019
price, number of shares, rate at which each award is exercisable and whether restrictions are imposed on the shares subject to the awards. The exercise price
$
$
16,194 $
412
(453)
3,463
(532)
(1,689)
17,395 $
12,295
1,786
(54)
3,414
(421)
(826)
16,194
The total amount of net unrecognized tax benefits that, if recognized, would effect the effective tax rate was $12.9 million at December 31, 2020.
Penalties and interest paid or received are recorded in other income, net in the consolidated statements of operations. As of December 31, 2020 and 2019,
the Company had accrued interest and penalties related to unrecognized tax benefits of $4.9 million and $3.9 million, respectively. Expenses of $0.9
million, $0.6 million and $0.8 million were recognized as interest and penalties in the consolidated statements of operations for the years ended
December 31, 2020, 2019 and 2018, respectively.
The Company files income tax returns in the U.S. and in various state, local and foreign jurisdictions. The statutes of limitations related to both the
consolidated federal income tax return and state returns are closed for all years up to and including 2016 and 2016, respectively. With respect to foreign
jurisdictions, the statute of limitations varies from country to country, with the earliest open year for the Company’s major foreign subsidiaries being 2014.
(Shares in thousands)
Options outstanding, beginning of year
Granted
Exercised
Expired or forfeited
Options outstanding, end of year
Options exercisable, end of year
1,575 $
216
(709)
—
1,082 $
426 $
21.39
55.72
13.60
—
33.38
24.99
1,410 $
293
(128)
—
1,575 $
788 $
Due to the expiration of various statutes of limitations and settlement of audits, it is reasonably possible that the Company’s gross unrecognized tax benefit
balance may decrease within the next twelve months by approximately $2.3 million.
Options outstanding for the Company’s stock plans at December 31, 2020 are summarized as follows:
(Shares in thousands)
Options outstanding
Options exercisable
(13) EQUITY
Dividend
Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s Board of Directors. The
Company’s Board of Directors declared a cash dividend of $0.08 per share during the first, second, third and fourth quarters of 2020, payments for which
totaled $43.5 million. The Company’s Board of Directors declared a cash dividend of $0.07 per share during the first and second quarters and $0.08 per
share during the third and fourth quarters of 2019, payments for which totaled $40.8 million. During 2018, the Company’s Board of Directors declared a
cash dividend of $0.07 per share during the first, second, third and fourth quarters of 2018, payments for which totaled $39.7 million.
On January 13, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share to be paid on February 17, 2021 to
shareholders of record as of January 27, 2021.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s
Board of Directors. Furthermore, the credit agreements governing the New Credit Facilities contain restrictions that may limit our ability to pay dividends.
Share Repurchase Program
On December 14, 2020, the Company’s Board of Directors authorized a repurchase program, effective February 16, 2021, covering the repurchase of up to
an aggregate of $125.0 million of the Company’s common stock, during a period of twelve months, in open market transactions and in accordance with one
or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. This
repurchase program replaced the existing repurchase program, which was originally approved in February 2020 and which will expire pursuant to its terms
on February 15, 2021.
The Company repurchased $44.6 million, $74.8 million and $179.3 million of shares for the years ended December 31, 2020, 2019 and 2018, respectively.
The credit agreement governing the New Credit Facilities contains restrictions that may limit the Company’s ability to continue to repurchase shares.
2020 Stock Plan
In 2020, the Company’s Board of Directors and stockholders approved the Entegris, Inc. 2020 Stock Plan (the “2020 Stock Plan”). The 2020 Stock Plan
replaced the Entegris, Inc. 2010 Stock Plan for future stock awards and stock option grants. The 2020 Stock Plan has a term of ten years and provides for
the issuance of stock options and other share-based awards to selected employees, directors, and other individuals or entities that provide services to the
Company or its affiliates. Under the 2020 Stock Plan, the Board of Directors or a committee selected by the Board of Directors will determine for each
award, the term,
Range of exercise prices
$12.20 to $13.49
$21.60 to $21.60
$31.10 to $31.10
$33.33 to $33.33
$55.72 to $55.72
years, respectively.
respectively.
The weighted average remaining contractual term for options outstanding and options exercisable for all plans at December 31, 2020 was 4.4 years and 3.6
For all plans, the Company had shares available for future grants of 9.0 million, 8.2 million, and 8.7 million shares at December 31, 2020, 2019 and 2018,
Under the stock plans, the total pre-tax intrinsic value of stock options exercised during the years ended December 31, 2020 and 2019 was $36.4 million
and $3.2 million, respectively. The aggregate intrinsic value, which represents the total pre-tax intrinsic value based on the Company’s closing stock price
of $96.10 at December 31, 2020, which theoretically could have been received by the option holders had all option holders exercised their options as of that
date, was $67.9 million and $30.3 million for options outstanding and options exercisable, respectively.
Share-based payment awards in the form of stock option awards for 0.2 million, 0.3 million and 0.3 million shares were granted to employees during the
years ended December 31, 2020, 2019 and 2018, respectively. Compensation expense is based on the grant date fair value. The awards vest annually over a
four-year period and have a contractual term of 7 years. The Company estimates the fair value of stock options using the Black-Scholes valuation model.
Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the
Company’s stock, the risk-free rate and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value
ultimately realized by employees who receive equity awards, and subsequent events are not indicative of reasonableness of the original estimates of fair
value made by the Company.
2020, 2019 and 2018:
The fair value of each stock option grant was estimated at the date of grant using a Black-Scholes option pricing model. The following table presents the
weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted for the years ended December 31,
18.22
33.33
13.89
—
21.39
15.75
12.37
21.60
31.10
33.33
55.72
33.38
1,869 $
296
(727)
(28)
1,410 $
562 $
71 $
151
133
71
—
426 $
13.46
31.10
10.89
26.41
18.22
13.68
12.37
21.60
31.10
33.33
—
24.99
Number
outstanding
Weighted
average
remaining life
in years
Weighted-
average
exercise
price
Number
exercisable
Weighted
average
exercise
price
71
230
273
291
217
2.0 years $
3.1 years
4.1 years
5.1 years
6.1 years
1,082
4.4 years $
F-26
F-27
(In thousands)
Gross unrecognized tax benefits at beginning of year
Increase in tax positions from prior years
Decrease in tax positions from prior years
Increases in tax positions for current year
Settlement of tax positions for current year
Lapse in statute of limitations
Gross unrecognized tax benefits at end of year
2020
2019
16,194 $
412
(453)
3,463
(532)
(1,689)
17,395 $
12,295
1,786
(54)
3,414
(421)
(826)
16,194
$
$
price, number of shares, rate at which each award is exercisable and whether restrictions are imposed on the shares subject to the awards. The exercise price
for option awards generally may not be less than the fair market value per share of the underlying common stock on the date granted. The 2020 Stock Plan
provides that after December 31, 2019, any shares subject to stock awards that were awarded from the Company’s expired plans and that are forfeited,
expired or otherwise terminated without issuance of shares will again be available for issuance under the 2020 Stock Plan.
Stock Options
Stock option activity for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
The total amount of net unrecognized tax benefits that, if recognized, would effect the effective tax rate was $12.9 million at December 31, 2020.
Penalties and interest paid or received are recorded in other income, net in the consolidated statements of operations. As of December 31, 2020 and 2019,
the Company had accrued interest and penalties related to unrecognized tax benefits of $4.9 million and $3.9 million, respectively. Expenses of $0.9
million, $0.6 million and $0.8 million were recognized as interest and penalties in the consolidated statements of operations for the years ended
December 31, 2020, 2019 and 2018, respectively.
The Company files income tax returns in the U.S. and in various state, local and foreign jurisdictions. The statutes of limitations related to both the
consolidated federal income tax return and state returns are closed for all years up to and including 2016 and 2016, respectively. With respect to foreign
jurisdictions, the statute of limitations varies from country to country, with the earliest open year for the Company’s major foreign subsidiaries being 2014.
(Shares in thousands)
Options outstanding, beginning of year
Granted
Exercised
Expired or forfeited
Options outstanding, end of year
Options exercisable, end of year
2020
2019
2018
Number of
shares
Weighted
average
exercise
price
Number of
shares
Weighted
average
exercise
price
Number of
shares
Weighted
average
exercise
price
1,575 $
216
(709)
—
1,082 $
426 $
21.39
55.72
13.60
—
33.38
24.99
1,410 $
293
(128)
—
1,575 $
788 $
18.22
33.33
13.89
—
21.39
15.75
1,869 $
296
(727)
(28)
1,410 $
562 $
13.46
31.10
10.89
26.41
18.22
13.68
Options exercisable
Due to the expiration of various statutes of limitations and settlement of audits, it is reasonably possible that the Company’s gross unrecognized tax benefit
balance may decrease within the next twelve months by approximately $2.3 million.
Options outstanding for the Company’s stock plans at December 31, 2020 are summarized as follows:
(Shares in thousands)
Options outstanding
(13) EQUITY
Dividend
Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s Board of Directors. The
Company’s Board of Directors declared a cash dividend of $0.08 per share during the first, second, third and fourth quarters of 2020, payments for which
totaled $43.5 million. The Company’s Board of Directors declared a cash dividend of $0.07 per share during the first and second quarters and $0.08 per
share during the third and fourth quarters of 2019, payments for which totaled $40.8 million. During 2018, the Company’s Board of Directors declared a
cash dividend of $0.07 per share during the first, second, third and fourth quarters of 2018, payments for which totaled $39.7 million.
On January 13, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share to be paid on February 17, 2021 to
shareholders of record as of January 27, 2021.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s
Board of Directors. Furthermore, the credit agreements governing the New Credit Facilities contain restrictions that may limit our ability to pay dividends.
Share Repurchase Program
On December 14, 2020, the Company’s Board of Directors authorized a repurchase program, effective February 16, 2021, covering the repurchase of up to
an aggregate of $125.0 million of the Company’s common stock, during a period of twelve months, in open market transactions and in accordance with one
or more pre-arranged stock trading plans to be established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. This
repurchase program replaced the existing repurchase program, which was originally approved in February 2020 and which will expire pursuant to its terms
The Company repurchased $44.6 million, $74.8 million and $179.3 million of shares for the years ended December 31, 2020, 2019 and 2018, respectively.
The credit agreement governing the New Credit Facilities contains restrictions that may limit the Company’s ability to continue to repurchase shares.
In 2020, the Company’s Board of Directors and stockholders approved the Entegris, Inc. 2020 Stock Plan (the “2020 Stock Plan”). The 2020 Stock Plan
replaced the Entegris, Inc. 2010 Stock Plan for future stock awards and stock option grants. The 2020 Stock Plan has a term of ten years and provides for
the issuance of stock options and other share-based awards to selected employees, directors, and other individuals or entities that provide services to the
Company or its affiliates. Under the 2020 Stock Plan, the Board of Directors or a committee selected by the Board of Directors will determine for each
on February 15, 2021.
2020 Stock Plan
award, the term,
Range of exercise prices
$12.20 to $13.49
$21.60 to $21.60
$31.10 to $31.10
$33.33 to $33.33
$55.72 to $55.72
Number
outstanding
Weighted
average
remaining life
in years
Weighted-
average
exercise
price
Number
exercisable
71
230
273
291
217
1,082
2.0 years $
3.1 years
4.1 years
5.1 years
6.1 years
4.4 years $
12.37
21.60
31.10
33.33
55.72
33.38
71 $
151
133
71
—
426 $
Weighted
average
exercise
price
12.37
21.60
31.10
33.33
—
24.99
The weighted average remaining contractual term for options outstanding and options exercisable for all plans at December 31, 2020 was 4.4 years and 3.6
years, respectively.
For all plans, the Company had shares available for future grants of 9.0 million, 8.2 million, and 8.7 million shares at December 31, 2020, 2019 and 2018,
respectively.
Under the stock plans, the total pre-tax intrinsic value of stock options exercised during the years ended December 31, 2020 and 2019 was $36.4 million
and $3.2 million, respectively. The aggregate intrinsic value, which represents the total pre-tax intrinsic value based on the Company’s closing stock price
of $96.10 at December 31, 2020, which theoretically could have been received by the option holders had all option holders exercised their options as of that
date, was $67.9 million and $30.3 million for options outstanding and options exercisable, respectively.
Share-based payment awards in the form of stock option awards for 0.2 million, 0.3 million and 0.3 million shares were granted to employees during the
years ended December 31, 2020, 2019 and 2018, respectively. Compensation expense is based on the grant date fair value. The awards vest annually over a
four-year period and have a contractual term of 7 years. The Company estimates the fair value of stock options using the Black-Scholes valuation model.
Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the
Company’s stock, the risk-free rate and the Company’s dividend yield. Estimates of fair value are not intended to predict actual future events or the value
ultimately realized by employees who receive equity awards, and subsequent events are not indicative of reasonableness of the original estimates of fair
value made by the Company.
The fair value of each stock option grant was estimated at the date of grant using a Black-Scholes option pricing model. The following table presents the
weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted for the years ended December 31,
2020, 2019 and 2018:
F-26
F-27
Employee stock options:
Volatility
Risk-free interest rate
Dividend yield
Expected life (years)
Weighted average fair value per option
2020
2019
2018
restricted stock awards, performance-based restricted stock awards and grants under the employee stock purchase plan for the years ended December 31,
31.9 %
1.4 %
0.6 %
4.3
$
14.83
$
31.6 %
2.5 %
0.8 %
4.1
8.89
$
28.7 %
2.4 %
0.9 %
3.9
7.35
A historical daily measurement of volatility is determined based on the expected life of the option granted. The risk-free interest rate is determined by
reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by
reference to the Company’s historical experience. The Company determines the dividend yield by dividing the expected annual dividend on the Company’s
stock by the option exercise price.
Employee Stock Purchase Plan
2020
2019
2018
1,463 $
1,180 $
2,359
19,098
22,920
4,129
1,901
16,548
19,629
3,626
18,791 $
16,003 $
1,009
1,689
14,414
17,112
3,421
13,691
$
$
The Company maintains the Entegris, Inc. Amended and Restated Employee Stock Purchase Plan (“ESPP”). The ESPP allows employees to elect, at six-
month intervals, to contribute up to 10% of their compensation, subject to certain limitations, to purchase shares of the Company’s common stock at a
discount of 15% from the fair market value on the first day or last day of each six-month period. The Company treats the ESPP as a compensatory plan. At
December 31, 2020, 1.5 million shares remained available for issuance under the ESPP. Employees purchased 0.2 million, 0.2 million and 0.2 million
shares, at a weighted-average price of $46.58, $28.67, and $24.86 during the years ended December 31, 2020, 2019 and 2018, respectively.
The Company maintains the Entegris, Inc. 401(k) Savings and Profit Sharing Plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Under the Plan, eligible employees may defer a portion of their pre-tax wages, up to the Internal Revenue
Service annual contribution limit. Entegris matches employees’ contributions to a maximum match of 4% of the employee’s eligible wages. The employer
matching contribution expense under the 401(k)Plan was $8.2 million, $7.1 million and $6.1 million in the fiscal years ended December 31, 2020, 2019 and
Restricted Stock Units
Restricted stock units are awards of common stock made under the Stock Plans that are subject to a risk of forfeiture if the awardee terminates employment
with the Company prior to the lapse of the restrictions. The value of such restricted stock units is determined using the market price on the grant date.
Compensation expense for restricted stock units is generally recognized using the straight-line single-option method. A summary of the Company’s
restricted stock unit activity for the years ended December 31, 2020, 2019 and 2018 is presented in the following table:
The employees of the Company’s subsidiaries in Japan, Taiwan and Germany are covered in defined benefit pension plans. The Company uses a
December 31 measurement date for its pension plans.
The tables below set forth the Company’s estimated funded status as of December 31, 2020 and 2019:
(Shares in thousands)
Unvested, beginning of year
Granted
Vested
Forfeited
Unvested, end of year
2020
2019
2018
Number
of
shares
Weighted
average
grant date
fair value
Number
of
shares
Weighted
average
grant date
fair value
Number
of
shares
Weighted
average
grant date
fair value
1,254 $
437
(564)
(44)
1,083
27.48
57.46
23.48
35.86
41.31
1,519 $
514
(679)
(100)
1,254
21.24
34.05
18.89
24.82
27.48
1,857 $
509
(732)
(115)
1,519
15.86
31.40
15.07
18.58
21.24
The weighted average remaining contractual term for unvested restricted shares at December 31, 2020 and 2019 was 1.2 years and 1.1 years, respectively.
During the years ended December 31, 2020, 2019 and 2018, the Company awarded performance-based restricted stock units for up to 0.1 million, 0.1
million and 0.2 million shares of common stock, respectively, to be issued upon the achievement of performance conditions under the Company’s stock
plans to certain officers and other key employees. Compensation expense is based on the grant date fair value. The awards vest on the third anniversary of
the award date. The Company estimates the fair value of the performance shares using a Monte Carlo simulation process.
As of December 31, 2020, the total compensation cost related to unvested stock options, performance-based restricted stock units and restricted stock unit
awards not yet recognized was $3.9 million, $3.4 million and $30.6 million, respectively, and is expected to be recognized over the next 2.5 years on a
weighted-average basis.
Valuation and Expense Information
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on their estimated fair values
on the date of grant. Compensation expense is recognized using the straight-line attribution method to recognize share-based compensation over the service
period of the award, with adjustments recorded for forfeitures as they occur. The following table summarizes the allocation of share-based compensation
expense related to employee stock options,
2020
2019
$
6,946 $
31
37
137
(322)
—
—
449
7,278
910
31
73
(41)
69
1,042
7,308
26
54
471
(636)
(346)
—
69
6,946
835
35
93
(63)
10
910
$
$
2020
2019
(6,236) $
840
(6,036)
791
Plan assets less than benefit obligation - Net amount recognized
(6,236) $
(6,036)
Amounts recognized in the consolidated balance sheets consist of:
(In thousands)
Noncurrent liability
Accumulated other comprehensive loss, net of taxes
Amounts recognized in accumulated other comprehensive loss, (pre-tax):
2020, 2019 and 2018:
(In thousands)
Cost of sales
Engineering, research and development expenses
Selling, general and administrative expenses
Share-based compensation expense
Tax benefit
Share-based compensation expense, net of tax
(14) BENEFIT PLANS
401(k) Plan
2018, respectively.
Defined Benefit Plans
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Actuarial (gain) loss
Service cost
Interest cost
Benefits paid
Curtailment
Other
Foreign exchange impact
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Return on plan assets
Employer contributions
Benefits paid
Foreign exchange impact
Fair value of plan assets at end of year
Funded status:
F-28
F-29
Weighted average fair value per option
$
14.83
$
8.89
$
A historical daily measurement of volatility is determined based on the expected life of the option granted. The risk-free interest rate is determined by
reference to the yield on an outstanding U.S. Treasury note with a term equal to the expected life of the option granted. Expected life is determined by
reference to the Company’s historical experience. The Company determines the dividend yield by dividing the expected annual dividend on the Company’s
2020
2019
2018
31.9 %
1.4 %
0.6 %
4.3
31.6 %
2.5 %
0.8 %
4.1
28.7 %
2.4 %
0.9 %
3.9
7.35
The Company maintains the Entegris, Inc. Amended and Restated Employee Stock Purchase Plan (“ESPP”). The ESPP allows employees to elect, at six-
month intervals, to contribute up to 10% of their compensation, subject to certain limitations, to purchase shares of the Company’s common stock at a
discount of 15% from the fair market value on the first day or last day of each six-month period. The Company treats the ESPP as a compensatory plan. At
December 31, 2020, 1.5 million shares remained available for issuance under the ESPP. Employees purchased 0.2 million, 0.2 million and 0.2 million
shares, at a weighted-average price of $46.58, $28.67, and $24.86 during the years ended December 31, 2020, 2019 and 2018, respectively.
Employee stock options:
Volatility
Risk-free interest rate
Dividend yield
Expected life (years)
stock by the option exercise price.
Employee Stock Purchase Plan
Restricted Stock Units
restricted stock awards, performance-based restricted stock awards and grants under the employee stock purchase plan for the years ended December 31,
2020, 2019 and 2018:
(In thousands)
Cost of sales
Engineering, research and development expenses
Selling, general and administrative expenses
Share-based compensation expense
Tax benefit
Share-based compensation expense, net of tax
1,180 $
1,901
16,548
19,629
3,626
16,003 $
1,463 $
2,359
19,098
22,920
4,129
18,791 $
1,009
1,689
14,414
17,112
3,421
13,691
2019
2020
2018
$
$
(14) BENEFIT PLANS
401(k) Plan
The Company maintains the Entegris, Inc. 401(k) Savings and Profit Sharing Plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Under the Plan, eligible employees may defer a portion of their pre-tax wages, up to the Internal Revenue
Service annual contribution limit. Entegris matches employees’ contributions to a maximum match of 4% of the employee’s eligible wages. The employer
matching contribution expense under the 401(k)Plan was $8.2 million, $7.1 million and $6.1 million in the fiscal years ended December 31, 2020, 2019 and
2018, respectively.
Defined Benefit Plans
Restricted stock units are awards of common stock made under the Stock Plans that are subject to a risk of forfeiture if the awardee terminates employment
with the Company prior to the lapse of the restrictions. The value of such restricted stock units is determined using the market price on the grant date.
Compensation expense for restricted stock units is generally recognized using the straight-line single-option method. A summary of the Company’s
restricted stock unit activity for the years ended December 31, 2020, 2019 and 2018 is presented in the following table:
The employees of the Company’s subsidiaries in Japan, Taiwan and Germany are covered in defined benefit pension plans. The Company uses a
December 31 measurement date for its pension plans.
The tables below set forth the Company’s estimated funded status as of December 31, 2020 and 2019:
(Shares in thousands)
Unvested, beginning of year
Granted
Vested
Forfeited
Unvested, end of year
2020
2019
2018
Number
of
shares
Weighted
average
grant date
fair value
Number
of
shares
Weighted
average
grant date
fair value
Number
of
shares
Weighted
average
grant date
fair value
1,254 $
437
(564)
(44)
1,083
27.48
57.46
23.48
35.86
41.31
1,519 $
514
(679)
(100)
1,254
21.24
34.05
18.89
24.82
27.48
1,857 $
509
(732)
(115)
1,519
15.86
31.40
15.07
18.58
21.24
The weighted average remaining contractual term for unvested restricted shares at December 31, 2020 and 2019 was 1.2 years and 1.1 years, respectively.
During the years ended December 31, 2020, 2019 and 2018, the Company awarded performance-based restricted stock units for up to 0.1 million, 0.1
million and 0.2 million shares of common stock, respectively, to be issued upon the achievement of performance conditions under the Company’s stock
plans to certain officers and other key employees. Compensation expense is based on the grant date fair value. The awards vest on the third anniversary of
the award date. The Company estimates the fair value of the performance shares using a Monte Carlo simulation process.
As of December 31, 2020, the total compensation cost related to unvested stock options, performance-based restricted stock units and restricted stock unit
awards not yet recognized was $3.9 million, $3.4 million and $30.6 million, respectively, and is expected to be recognized over the next 2.5 years on a
weighted-average basis.
Valuation and Expense Information
The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on their estimated fair values
on the date of grant. Compensation expense is recognized using the straight-line attribution method to recognize share-based compensation over the service
period of the award, with adjustments recorded for forfeitures as they occur. The following table summarizes the allocation of share-based compensation
expense related to employee stock options,
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Curtailment
Other
Foreign exchange impact
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Return on plan assets
Employer contributions
Benefits paid
Foreign exchange impact
Fair value of plan assets at end of year
Funded status:
Plan assets less than benefit obligation - Net amount recognized
Amounts recognized in the consolidated balance sheets consist of:
(In thousands)
Noncurrent liability
Accumulated other comprehensive loss, net of taxes
Amounts recognized in accumulated other comprehensive loss, (pre-tax):
2020
2019
6,946 $
31
37
137
(322)
—
—
449
7,278
910
31
73
(41)
69
1,042
7,308
26
54
471
(636)
(346)
—
69
6,946
835
35
93
(63)
10
910
(6,236) $
(6,036)
2020
2019
(6,236) $
840
(6,036)
791
$
$
$
F-28
F-29
2020
2019
(a) This category includes investments in the government of Taiwan’s pension fund. The government of Taiwan is responsible for the strategy and
(In thousands)
Net actuarial loss
Prior service cost
Gross amount recognized
$
$
713 $
454
1,167 $
Information for pension plans with a projected benefit obligation and an accumulated benefit obligation in excess of plan assets:
(In thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2020
2019
$
7,278 $
6,480
1,042
The components of the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 were as follows:
(In thousands)
Pension benefits:
Service cost
Interest cost
Expected return on plan assets
Curtailments
Settlements
Amortization of prior service cost
Amortization of plan loss
Net periodic pension benefit cost
2020
2019
2018
$
$
31 $
37
(15)
—
21
36
38
148 $
26 $
54
(16)
95
—
67
17
243 $
598
460
1,058
6,946
6,030
910
50
62
(18)
—
—
69
20
183
allocation of the investment contributions.
(b) This category includes investments in an insurer’s balanced asset fund. The insurer is responsible for the strategy and allocation of the investment
contributions. The Company selects a pre-packaged portfolio pooled investment fund that is conservative. The majority of the funds are invested
broadly in German mortgage bonds, construction loans and government bonds with good credit ratings.
The fair value measurements of the Company’s pension plan assets at December 31, 2019, by asset category are as follows:
Quoted prices
in active
markets for
identical
assets
(Level 1)
729
181
910
Total
729 $
181
910 $
$
$
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
—
—
—
—
—
—
(a) This category includes investments in the government of Taiwan’s pension fund. The government of Taiwan is responsible for the strategy and
allocation of the investment contributions.
(b) This category includes investments in an insurer’s balanced asset fund. The insurer is responsible for the strategy and allocation of the investment
contributions. The Company selects a pre-packaged portfolio pooled investment fund that is conservative. The majority of the funds are invested
broadly in German mortgage bonds, construction loans and government bonds with good credit ratings.
(In thousands)
Asset category
Taiwan plan assets (a)
Germany plan assets (b)
Cash Flows
(In thousands)
2021
2022
2023
2024
2025
Years 2026-2030
Contributions
Payments
$
74 $
—
—
—
—
—
41
121
214
356
350
1,832
(15) EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. The following
table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
(In thousands)
units
Basic earnings per share—Weighted common shares outstanding
Weighted common shares assumed upon exercise of options and vesting of restricted stock
Diluted earnings per share—Weighted common shares outstanding
2020
2019
2018
134,837
1,429
136,266
135,137
1,431
136,568
141,026
1,584
142,610
The Company excluded the following shares underlying stock-based awards from the calculations of diluted EPS because their inclusion would have been
2020
2019
2018
195
273
267
anti-dilutive for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Shares excluded from calculations of diluted EPS
(16) SEGMENT INFORMATION
The Company’s financial segment reporting reflects an organizational alignment intended to leverage the Company’s unique breadth of capabilities to
create mission-critical microcontamination control products, specialty chemicals and advanced
Assumptions used in determining the benefit obligation and net periodic benefit cost for the Company’s pension plans for the years ended December 31,
2020, 2019 and 2018 are presented in the following table as weighted-averages:
The Company expects to make the following contributions and benefit payments:
Benefit obligations:
Discount rate
Rate of compensation increase
Net periodic benefit cost:
Discount rate
Rate of compensation increase
Expected return on plan assets
2020
2019
2018
0.39 %
2.33 %
0.98 %
2.33 %
1.82 %
0.53 %
2.91 %
1.29 %
3.51 %
1.51 %
0.76 %
3.08 %
1.66 %
3.18 %
1.89 %
The pension plans’ expected return on assets as shown above is based on management’s expectations of long-term average rates of return to be achieved by
the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which
the plans are invested, as well as current economic and capital market conditions. The discount rate primarily used by the Company is based on market
yields at the valuation date on government bonds as well as the estimated maturity of benefit payments.
Plan Assets
At December 31, 2020, the majority of the Company’s pension plan assets are deposited with the Bank of Taiwan in the form of money market funds,
where the Bank of Taiwan is the assigned funding vehicle for the statutory retirement benefit. The remaining portion of the Company’s plan assets is
deposited in a German insurance company’s investment fund.
The fair value measurements of the Company’s pension plan assets at December 31, 2020, by asset category are as follows:
(In thousands)
Asset category
Taiwan plan assets (a)
Germany plan assets (b)
Quoted prices
in active
markets for
identical
assets
(Level 1)
827
215
1,042
Total
827 $
215
1,042 $
$
$
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
—
—
—
—
—
—
F-30
F-31
Information for pension plans with a projected benefit obligation and an accumulated benefit obligation in excess of plan assets:
The components of the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 were as follows:
Assumptions used in determining the benefit obligation and net periodic benefit cost for the Company’s pension plans for the years ended December 31,
2020, 2019 and 2018 are presented in the following table as weighted-averages:
$
$
$
37
(15)
—
21
36
38
713 $
454
1,167 $
7,278 $
6,480
1,042
54
(16)
95
—
67
17
2020
2019
2018
31 $
26 $
$
$
2020
2019
2018
0.39 %
2.33 %
0.98 %
2.33 %
1.82 %
0.53 %
2.91 %
1.29 %
3.51 %
1.51 %
598
460
1,058
6,946
6,030
910
50
62
(18)
—
—
69
20
183
0.76 %
3.08 %
1.66 %
3.18 %
1.89 %
(In thousands)
Net actuarial loss
Prior service cost
Gross amount recognized
(In thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
(In thousands)
Pension benefits:
Service cost
Interest cost
Curtailments
Settlements
Expected return on plan assets
Amortization of prior service cost
Amortization of plan loss
Net periodic pension benefit cost
Benefit obligations:
Discount rate
Rate of compensation increase
Net periodic benefit cost:
Discount rate
Rate of compensation increase
Expected return on plan assets
Plan Assets
(In thousands)
Asset category
Taiwan plan assets (a)
Germany plan assets (b)
2020
2019
(a) This category includes investments in the government of Taiwan’s pension fund. The government of Taiwan is responsible for the strategy and
allocation of the investment contributions.
(b) This category includes investments in an insurer’s balanced asset fund. The insurer is responsible for the strategy and allocation of the investment
contributions. The Company selects a pre-packaged portfolio pooled investment fund that is conservative. The majority of the funds are invested
broadly in German mortgage bonds, construction loans and government bonds with good credit ratings.
2020
2019
The fair value measurements of the Company’s pension plan assets at December 31, 2019, by asset category are as follows:
(In thousands)
Asset category
Taiwan plan assets (a)
Germany plan assets (b)
Quoted prices
in active
markets for
identical
assets
(Level 1)
729
181
910
Total
729 $
181
910 $
$
$
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
—
—
—
—
—
—
(a) This category includes investments in the government of Taiwan’s pension fund. The government of Taiwan is responsible for the strategy and
allocation of the investment contributions.
(b) This category includes investments in an insurer’s balanced asset fund. The insurer is responsible for the strategy and allocation of the investment
contributions. The Company selects a pre-packaged portfolio pooled investment fund that is conservative. The majority of the funds are invested
broadly in German mortgage bonds, construction loans and government bonds with good credit ratings.
148 $
243 $
Cash Flows
The Company expects to make the following contributions and benefit payments:
(In thousands)
2021
2022
2023
2024
2025
Years 2026-2030
$
Contributions
Payments
74 $
—
—
—
—
—
41
121
214
356
350
1,832
The pension plans’ expected return on assets as shown above is based on management’s expectations of long-term average rates of return to be achieved by
the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which
the plans are invested, as well as current economic and capital market conditions. The discount rate primarily used by the Company is based on market
yields at the valuation date on government bonds as well as the estimated maturity of benefit payments.
At December 31, 2020, the majority of the Company’s pension plan assets are deposited with the Bank of Taiwan in the form of money market funds,
where the Bank of Taiwan is the assigned funding vehicle for the statutory retirement benefit. The remaining portion of the Company’s plan assets is
deposited in a German insurance company’s investment fund.
The fair value measurements of the Company’s pension plan assets at December 31, 2020, by asset category are as follows:
Quoted prices
in active
markets for
identical
assets
(Level 1)
827
215
1,042
Total
827 $
215
1,042 $
$
$
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
—
—
—
—
—
—
(15) EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period. The following
table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
(In thousands)
Basic earnings per share—Weighted common shares outstanding
Weighted common shares assumed upon exercise of options and vesting of restricted stock
units
Diluted earnings per share—Weighted common shares outstanding
2020
2019
2018
134,837
1,429
136,266
135,137
1,431
136,568
141,026
1,584
142,610
The Company excluded the following shares underlying stock-based awards from the calculations of diluted EPS because their inclusion would have been
anti-dilutive for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Shares excluded from calculations of diluted EPS
2020
2019
2018
195
273
267
(16) SEGMENT INFORMATION
The Company’s financial segment reporting reflects an organizational alignment intended to leverage the Company’s unique breadth of capabilities to
create mission-critical microcontamination control products, specialty chemicals and advanced
F-30
F-31
materials handing solutions that maximize manufacturing yields, reduce manufacturing costs and enable higher device performance for its customers.
While these segments have separate products and technical know-how, they share a common business systems and processes, technology centers, and
strategic and technology roadmaps. The Company’s business is reported in the following three segments:
(In thousands)
Depreciation and amortization:
•
•
•
Specialty Chemicals and Engineered Materials: 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 offers solutions to filter and purify critical liquid chemistries and gases used in semiconductor
manufacturing processes and other high-technology industries.
Advanced Materials Handling: AMH develops solutions to monitor, protect, transport, and deliver critical liquid chemistries and
substrates for a broad set of applications in the semiconductor industry and other high-technology industries.
(In thousands)
Capital expenditures:
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 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. 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.
Corporate assets consist primarily of cash and cash equivalents, deferred tax assets and deferred tax charges.
Summarized financial information for the Company’s reportable segments is shown in the following tables.
Total depreciation and amortization
136,522 $
141,403 $
Total capital expenditures
131,752 $
112,355 $
(In thousands)
Net sales:
SCEM
MC
AMH
Inter-segment elimination
Total net sales
(In thousands)
Segment profit:
SCEM
MC
AMH
Total segment profit
(In thousands)
Total assets:
SCEM
MC
AMH
Corporate
Total assets
2020
2019
2018
The following table reconciles total segment profit to income before income taxes and equity in net loss of affiliate:
Amortization of intangibles
Unallocated general and administrative expenses
(In thousands)
Total segment profit
Less:
Operating income
Interest expense
Interest income
Other (income) expense, net
Income before income tax expense
$
$
$
$
$
$
609,532 $
742,186
538,682
(31,087)
1,859,313 $
526,519 $
633,664
458,290
(27,407)
1,591,066 $
530,241
553,838
493,404
(26,986)
1,550,497
2020
2019
2018
127,969 $
248,910
111,028
487,907 $
98,327 $
194,398
75,173
367,898 $
127,080
166,852
92,327
386,259
2020
2019
2018
1,022,357 $
819,602
437,322
638,415
2,917,696 $
936,609 $
786,131
372,849
420,497
2,516,086 $
757,381
680,080
359,991
520,189
2,317,641
In the following tables, revenue is disaggregated by country or region based on the ship to location of the customer for the years ended December 31, 2020,
$
354,287 $
2020
2019
2018
71,417 $
75,391 $
2020
2019
2018
54,989 $
57,585 $
41,917
23,911
184
28,549
25,212
1,009
66,428
62,192
239,278
46,962
(4,652)
(121,081)
318,049 $
$
$
$
$
$
39,775
25,231
99
40,656
36,107
—
53,092
39,370
395,445
48,600
(786)
(6,656)
2020
AMH
2020
2019
2018
487,907 $
367,898 $
386,259
70,329
33,590
22,805
544
127,268
44,337
38,331
26,545
940
110,153
62,152
31,418
292,689
34,094
(3,839)
8,002
254,432
466,513
372,205
273,200
242,896
247,863
154,438
102,198
SCEM
MC
Inter-segment
Total
144,015 $
164,576 $
(31,087) $
$
189,009 $
106,665
88,580
73,366
77,817
35,027
39,068
171,201
91,997
124,321
108,588
67,090
34,974
94,339
92,623
45,209
61,458
52,321
28,156
—
—
—
—
—
—
$
609,532 $
742,186 $
538,682 $
(31,087) $
1,859,313
SCEM
MC
AMH
Corporate
SCEM
MC
AMH
Corporate
2019 and 2018:
(In thousands)
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
F-32
F-33
materials handing solutions that maximize manufacturing yields, reduce manufacturing costs and enable higher device performance for its customers.
While these segments have separate products and technical know-how, they share a common business systems and processes, technology centers, and
strategic and technology roadmaps. The Company’s business is reported in the following three segments:
•
•
•
Specialty Chemicals and Engineered Materials: 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 offers solutions to filter and purify critical liquid chemistries and gases used in semiconductor
manufacturing processes and other high-technology industries.
Advanced Materials Handling: AMH develops solutions to monitor, protect, transport, and deliver critical liquid chemistries and
substrates for a broad set of applications in the semiconductor industry and other high-technology industries.
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 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. 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.
Corporate assets consist primarily of cash and cash equivalents, deferred tax assets and deferred tax charges.
Summarized financial information for the Company’s reportable segments is shown in the following tables.
(In thousands)
Depreciation and amortization:
SCEM
MC
AMH
Corporate
Total depreciation and amortization
(In thousands)
Capital expenditures:
SCEM
MC
AMH
Corporate
Total capital expenditures
2020
2019
2018
71,417 $
39,775
25,231
99
136,522 $
75,391 $
41,917
23,911
184
141,403 $
70,329
33,590
22,805
544
127,268
2020
2019
2018
54,989 $
40,656
36,107
—
131,752 $
57,585 $
28,549
25,212
1,009
112,355 $
44,337
38,331
26,545
940
110,153
$
$
$
$
Inter-segment elimination
Total net sales
Total segment profit
(In thousands)
Net sales:
SCEM
MC
AMH
(In thousands)
Segment profit:
SCEM
MC
AMH
(In thousands)
Total assets:
SCEM
MC
AMH
Corporate
Total assets
2020
2019
2018
The following table reconciles total segment profit to income before income taxes and equity in net loss of affiliate:
$
$
$
$
$
$
609,532 $
526,519 $
742,186
538,682
(31,087)
633,664
458,290
(27,407)
1,859,313 $
1,591,066 $
1,550,497
2020
2019
2018
127,969 $
98,327 $
248,910
111,028
194,398
75,173
487,907 $
367,898 $
2020
2019
2018
1,022,357 $
936,609 $
819,602
437,322
638,415
786,131
372,849
420,497
2,917,696 $
2,516,086 $
2,317,641
530,241
553,838
493,404
(26,986)
127,080
166,852
92,327
386,259
757,381
680,080
359,991
520,189
(In thousands)
Total segment profit
Less:
Amortization of intangibles
Unallocated general and administrative expenses
Operating income
Interest expense
Interest income
Other (income) expense, net
Income before income tax expense
2020
2019
2018
$
487,907 $
367,898 $
386,259
53,092
39,370
395,445
48,600
(786)
(6,656)
354,287 $
66,428
62,192
239,278
46,962
(4,652)
(121,081)
318,049 $
62,152
31,418
292,689
34,094
(3,839)
8,002
254,432
$
In the following tables, revenue is disaggregated by country or region based on the ship to location of the customer for the years ended December 31, 2020,
2019 and 2018:
(In thousands)
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
SCEM
MC
2020
AMH
Inter-segment
Total
$
$
189,009 $
106,665
88,580
73,366
77,817
35,027
39,068
609,532 $
144,015 $
171,201
91,997
124,321
108,588
67,090
34,974
742,186 $
164,576 $
94,339
92,623
45,209
61,458
52,321
28,156
538,682 $
(31,087) $
—
—
—
—
—
—
(31,087) $
466,513
372,205
273,200
242,896
247,863
154,438
102,198
1,859,313
F-32
F-33
(18) QUARTERLY INFORMATION-UNAUDITED
(In thousands, except per share data)
March 28, 2020
June 27, 2020
September 26, 2020
December 31, 2020
$
412,327 $
448,405 $
480,987 $
Basic net income per common share
Diluted net income per common share
Net sales
Gross profit
Net income
Net sales
Gross profit
Net income
Basic net income per common share
Diluted net income per common share
Fiscal quarter ended
207,372
68,036
0.51
0.50
166,274
123,997
0.92
0.91
Fiscal quarter ended
226,000
79,303
0.59
0.58
170,350
40,767
0.30
0.30
185,478
61,006
0.45
0.45
391,047 $
177,393
32,658
0.24
0.24
517,594
230,872
86,624
0.64
0.63
426,998
197,636
57,438
0.43
0.42
(In thousands, except per share data)
March 30, 2019
June 29, 2019
September 28, 2019
December 31, 2019
$
378,874 $
394,147 $
(In thousands)
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
(In thousands)
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
SCEM
MC
2019
AMH
Inter-segment
Total
149,570 $
94,561
76,447
57,456
67,877
33,147
47,461
526,519 $
113,551 $
144,404
98,568
104,202
98,693
45,454
28,792
633,664 $
145,150 $
70,864
69,352
43,832
48,170
53,622
27,300
458,290 $
(27,407) $
—
—
—
—
—
—
(27,407) $
380,864
309,829
244,367
205,490
214,740
132,223
103,553
1,591,066
SCEM
MC
2018
AMH
Inter-segment
Total
133,834 $
104,707
82,890
52,731
68,365
32,088
55,626
530,241 $
95,421 $
118,208
74,623
110,997
84,652
40,635
29,302
553,838 $
144,763 $
66,948
84,883
47,027
51,368
65,352
33,063
493,404 $
(26,986) $
—
—
—
—
—
—
(26,986) $
347,032
289,863
242,396
210,755
204,385
138,075
117,991
1,550,497
$
$
$
$
The following table summarizes property, plant and equipment, net, attributed to significant countries for the years ended December 31, 2020, 2019 and
2018:
(In thousands)
Property, plant and equipment:
North America
South Korea
Japan
Malaysia
China
Taiwan
Other
2020
2019
2018
$
$
348,363 $
55,404
41,044
32,727
29,528
17,050
1,251
525,367 $
329,323 $
43,540
37,851
34,339
16,473
16,264
1,754
479,544 $
289,049
41,698
34,276
31,138
3,941
18,804
623
419,529
The Company reported net sales of 10 percent or more of total net sales for Taiwan Semiconductor Manufacturing Company Limited in the amount of
$208.3 million, $187.0 million and $153.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, all of which include sales from all
the Company’s segments. In addition, the Company reported net sales of 10 percent or more of total net sales for Samsung Electronics Co. in the amount of
$164.3 million for the year ended December 31, 2018, which includes sales from all of the Company’s segments.
(17) COMMITMENTS AND CONTINGENT LIABILITIES
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 consolidated financial statements. The Company expenses legal costs as incurred.
F-34
F-35
(18) QUARTERLY INFORMATION-UNAUDITED
(In thousands, except per share data)
Net sales
Gross profit
Net income
Basic net income per common share
Diluted net income per common share
(In thousands, except per share data)
Net sales
Gross profit
Net income
Basic net income per common share
Diluted net income per common share
$
$
March 28, 2020
June 27, 2020
September 26, 2020
December 31, 2020
Fiscal quarter ended
412,327 $
185,478
61,006
0.45
0.45
448,405 $
207,372
68,036
0.51
0.50
480,987 $
226,000
79,303
0.59
0.58
517,594
230,872
86,624
0.64
0.63
March 30, 2019
June 29, 2019
September 28, 2019
December 31, 2019
Fiscal quarter ended
391,047 $
177,393
32,658
0.24
0.24
378,874 $
166,274
123,997
0.92
0.91
394,147 $
170,350
40,767
0.30
0.30
426,998
197,636
57,438
0.43
0.42
(In thousands)
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
(In thousands)
North America
Taiwan
South Korea
Japan
China
Europe
Southeast Asia
2018:
(In thousands)
Property, plant and equipment:
North America
South Korea
Japan
Malaysia
China
Taiwan
Other
SCEM
MC
Inter-segment
Total
$
149,570 $
113,551 $
145,150 $
(27,407) $
$
$
94,561
76,447
57,456
67,877
33,147
47,461
133,834 $
104,707
82,890
52,731
68,365
32,088
55,626
144,404
98,568
104,202
98,693
45,454
28,792
118,208
74,623
110,997
84,652
40,635
29,302
2019
AMH
2018
AMH
70,864
69,352
43,832
48,170
53,622
27,300
66,948
84,883
47,027
51,368
65,352
33,063
526,519 $
633,664 $
458,290 $
(27,407) $
1,591,066
SCEM
MC
Inter-segment
Total
95,421 $
144,763 $
(26,986) $
—
—
—
—
—
—
—
—
—
—
—
—
2020
2019
2018
$
348,363 $
329,323 $
289,049
55,404
41,044
32,727
29,528
17,050
1,251
43,540
37,851
34,339
16,473
16,264
1,754
$
525,367 $
479,544 $
419,529
380,864
309,829
244,367
205,490
214,740
132,223
103,553
347,032
289,863
242,396
210,755
204,385
138,075
117,991
41,698
34,276
31,138
3,941
18,804
623
The following table summarizes property, plant and equipment, net, attributed to significant countries for the years ended December 31, 2020, 2019 and
$
530,241 $
553,838 $
493,404 $
(26,986) $
1,550,497
The Company reported net sales of 10 percent or more of total net sales for Taiwan Semiconductor Manufacturing Company Limited in the amount of
$208.3 million, $187.0 million and $153.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, all of which include sales from all
the Company’s segments. In addition, the Company reported net sales of 10 percent or more of total net sales for Samsung Electronics Co. in the amount of
$164.3 million for the year ended December 31, 2018, which includes sales from all of the Company’s segments.
(17) COMMITMENTS AND CONTINGENT LIABILITIES
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 consolidated financial statements. The Company expenses legal costs as incurred.
F-34
F-35
129 Concord Road
Billerica, Massachusetts 01821
http://www.Entegris.com