News Column

ENTEGRIS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 5, 2014

The following discussion and analysis of the Company's condensed consolidated financial condition and results of operations should be read along with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. You should review the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013, the risks described in Part II, Item 1A of this report, as well as in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. 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. Entegris, Inc. is a leading provider of a wide range of products and services for purifying, protecting and transporting critical materials used in processing and manufacturing in the microelectronics and other high-technology industries. Entegris derives most of its revenue from the sale of products and services to the semiconductor and related industries. The Company's customers consist primarily of semiconductor manufacturers, semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display (TFT-LCD) and hard disk manufacturers, which are served through direct sales efforts, as well as sales and distribution relationships, in the United States, Asia, Europe and the Middle East. The Company offers a diverse product portfolio which includes more than 18,000 standard and customized products that it believes provide the most comprehensive offering of products and services to maintain the purity and integrity of critical materials used by the semiconductor and other high-technology industries. Certain of these products are unit-driven and consumable products that rely on the level of semiconductor manufacturing activity to drive growth, while others are capital-expenditure driven and rely on expansion of manufacturing capacity to drive growth. The Company's unit-driven and consumable products includes membrane-based liquid filters and housings, metal-based gas filters, resin-based gas purifiers, wafer shippers, disk-shipping containers and test assembly and packaging products and consumable graphite and silicon carbide components used in plasma etch, ion implant and chemical vapor deposition processes in semiconductor manufacturing. The Company's capital expense-driven products include components, systems and subsystems that use electro-mechanical, pressure differential and related technologies to permit semiconductor and other electronics manufacturers to monitor and control the flow and condition of process liquids used in these manufacturing processes, and process carriers that protect the integrity of in-process wafers. The Company's fiscal year is the calendar period ending each December 31. The Company's fiscal quarters consist of 13-week or 14-week periods that end on Saturday. The Company's fiscal quarters in 2014 end March 29, 2014, June 28, 2014, September 27, 2014 and December 31, 2014. Unaudited information for the three and six month periods ended June 28, 2014 and June 29, 2013 and the financial position as of June 28, 2014 and December 31, 2013 are included in this Quarterly Report on Form 10-Q. Forward-Looking Statements The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations, except for the historical information, contains forward-looking statements. These statements are subject to risks and uncertainties and to the cautionary statement set forth above. These forward-looking statements could differ materially from actual results. The Company assumes no obligation to publicly release the results of any revision or updates to these forward-looking statements to reflect future events or unanticipated occurrences. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the related notes thereto, which are included elsewhere in this report. Key operating factors Key factors, which management believes have the largest impact on the overall results of operations of Entegris, Inc., 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 23



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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 also affected by a number of factors, which include the Company's sales mix, purchase prices of raw material (especially polymers, stainless steel and purchased



components),

competition, both domestic and international, 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 expense, and depreciation and amortization. It is not possible to vary these costs easily in the short-term as volumes fluctuate.



Accordingly,

increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components, resulting in a large impact on the Company's profitability.



Overall Summary of Financial Results for the Three Months and Six Months Ended June 28, 2014

On April 30, 2014, the Company acquired ATMI, Inc., a Delaware corporation (ATMI), for approximately $1.1 billion in cash, or $808.9 million net of cash acquired, as described in note 2 to the condensed consolidated financial statements. ATMI is a leading supplier of high-performance materials, materials packaging and materials delivery systems used worldwide in the manufacture of microelectronics devices. The acquisition of ATMI (the Merger) was funded partly with the issuance of $820 million in debt, described in note 5 to the condensed consolidated financial statements. For the three months ended June 28, 2014, net sales increased by $74.0 million, or 42%, to $251.6 million, compared to $177.5 million for the three months ended June 29, 2013. This sales improvement was principally driven by the inclusion of sales of $60.2 million from ATMI for the two-month period subsequent to the date of the merger. Exclusive of the effect of the added ATMI sales and nominal favorable foreign currency translation effects, the Company's sales increased 7%, reflecting strong demand from device makers and improved wafer starts. Although net sales increased significantly year over year, the Company's gross profit rose by only $11.1 million for the three months ended June 28, 2014, to $88.7 million, up from $77.6 million for the three months ended June 29, 2013. Accordingly, the Company experienced a 35.2% gross margin rate compared to 43.7% in the comparable year ago period. The gross profit and gross margin figures reflect a $24.3 million charge for fair value write-up of acquired ATMI inventory sold during the quarter. Excluding that charge, the Company's gross margin for the second quarter was 44.9%. The Company also incurred significantly higher selling, general and administrative (SG&A) expenses for the quarter ended June 28, 2014, mainly due to the inclusion of SG&A expenses for ATMI's operations and the significant merger-related expenses, including direct transaction costs, transaction-related expenses, mainly related to share-based compensation expense associated with the unvested portion of ATMI share-based awards settled in cash on the date of the Merger, severance and termination costs, and the cost of integration activities expensed during the period. The Company incurred interest expense of $12.5 million for the quarter ended June 28, 2014 compared to a nominal amount a year earlier, the increase related to the debt outstanding issued to help fund the ATMI acquisition. The Company also recorded an income tax benefit of $22.4 million for the quarter. As a result, the Company reported a net loss of $14.7 million, or $0.11 loss per diluted share, for the quarter ended June 28, 2014 compared to net income of $19.8 million, or $0.14 per diluted share, a year ago. Net sales for the six months ended June 28, 2014 were $417.4 million, up 22% from $342.6 million in the comparable year-ago period, principally driven by the inclusion of ATMI sales of $60.2 million. Exclusive of the ATMI sales, the Company's sales grew 4%, reflecting the strong demand from device makers and improved wafer starts noted above. Gross profit, operating expenses, interest and tax expense for the six months ended June 28, 2014 were also affected by the ATMI-related items noted above. As a result, the Company reported a net loss of $0.4 million, or $0.00 per diluted share,for the six months ended June 28, 2014 compared to net income of $36.2 million, or $0.26 per diluted share, in the comparable year-ago period. Sales were up 52% on a sequential basis over the first quarter of 2014. Exclusive of the effect of the added ATMI sales and nominal favorable foreign currency translation effects, the Company's sales increased 15%. Sequentially, overall demand from the Company's semiconductor industry customers increased, reflecting improved industry fab utilization rates and higher industry capital spending. 24



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The Company's reportable segments experienced varied net sales and operating results for the three-month and six-month periods as described in greater detail below. During the six-month period ended June 28, 2014, the Company's operating activities provided net cash flow of $23.5 million. Cash used for the ATMI acquisition, net of cash acquired, was $808.9 million, while capital expenditures were $28.9 million for the period. Cash and cash equivalents were $367.0 million at June 28, 2014 compared with cash and cash equivalents of $384.4 million at December 31, 2013. The Company had outstanding long-term debt of $817.7 million at June 28, 2014 and none at December 31, 2013, respectively. Critical Accounting Policies Management's discussion and analysis of financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. The critical accounting policies affected most significantly by estimates, assumptions and judgments used in the preparation of the Company's condensed consolidated financial statements are described in Item 7 of its Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission. On an ongoing basis, the Company evaluates the critical accounting policies used to prepare its consolidated financial statements, including, but not limited to, those related to accounts receivable-related valuation allowances, inventory valuation, impairment of long-lived assets, and income taxes. There have been no material changes in these aforementioned critical accounting policies. In addition, due to the significance of the estimates, assumptions and judgments associated with the acquisition of ATMI. Inc. discussed elsewhere in this Quarterly Report on Form 10-Q, the Company provides the following discussion of its critical accounting policy for business acquisitions. 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 expert. 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 one or more forms of 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. Some of the more significant estimates and assumptions inherent in the income method (or other methods) include the projected future cash flows (including timing) and the discount rate reflecting the risks inherent in the future cash flows. 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. 25



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Three and Six Months Ended June 28, 2014 Compared to Three and Six Months Ended June 29, 2013 and Three Months Ended March 29, 2014 The following table compares operating results for the three and six months ended June 28, 2014 with results for the three and six months ended June 29, 2013 and for the three months ended March 29, 2014, both in dollars and as a percentage of net sales, for each caption. Three months ended Six months ended (Dollars in thousands) June 28, 2014 June 29, 2013 March 29, 2014 June 28, 2014 June 29, 2013 Net sales $ 251,578 100.0 % $ 177,544 100.0 % $ 165,804 100.0 % $ 417,382 100.0 % $ 342,614 100.0 % Cost of sales 162,910 64.8 99,974 56.3 94,452 57.0 257,362 61.7 197,916 57.8 Gross profit 88,668 35.2 77,570 43.7 71,352 43.0 160,020 38.3 144,698 42.2 Selling, general and administrative expenses 82,347 32.7 35,397 19.9 34,787 21.0 117,134 28.1 67,818 19.8 Engineering, research and development expenses 21,581 8.6 13,427 7.6 15,690 9.5 37,271 8.9 25,600 7.5 Amortization of intangible assets 9,390 3.7 2,359 1.3 2,336 1.4 11,726 2.8 4,646 1.4 Contingent consideration fair value adjustment (1,282 ) (0.5 ) - - - - (1,282 ) (0.3 ) - - Operating (loss) income (23,368 ) (9.3 ) 26,387 14.9 18,539 11.2 (4,829 ) (1.2 ) 46,634 13.6 Interest expense 12,537 5.0 40 - 29 - 12,566 3.0 44 - Interest income (192 ) (0.1 ) (54 ) -



(223 ) (0.1 ) (415 ) (0.1 ) (179 ) (0.1 ) Other expense (income), net 1,351 0.5

(896 ) (0.5 ) 178 0.1 1,529 0.4 (2,123 ) (0.6 ) (Loss) income before income taxes and equity in affiliates (37,064 ) (14.7 ) 27,297 15.4 18,555 11.2 (18,509 ) (4.4 ) 48,892 14.3 Income tax (benefit) expense (22,445 ) (8.9 ) 7,516 4.2 4,243 2.6 (18,202 ) (4.4 ) 12,714 3.7

Equity in net loss of affiliates 50 - - - - - 50 - - -



Net (loss) income $ (14,669 ) (5.8 )% $ 19,781 11.1 % $ 14,312 8.6 % $ (357 ) (0.1 )% $ 36,178 10.6 %

Net sales For the three months ended June 28, 2014, net sales increased by $74.0 million to $251.6 million, compared to $177.5 million for the three months ended June 29, 2013. This sales improvement was principally driven by the inclusion of sales of $60.2 million from ATMI for the two-month period subsequent to the date of the merger. Exclusive of the effect of the added ATMI sales and nominal favorable foreign currency translation effects, the Company's sales increased 7%, reflecting strong demand from device makers and improved wafer starts. Net sales for the six months ended June 28, 2014 were $417.4 million, up 22% from $342.6 million in the comparable year-ago period, principally driven by the inclusion of sales from ATMI of $60.2 million. Exclusive of the ATMI sales, the Company's sales grew 4%, reflecting the strong demand from device makers and improved wafer starts noted above. Sales were up 52% on a sequential basis over the first quarter of 2014. Exclusive of the effect of the added ATMI sales and nominal favorable foreign currency translation effects, the Company's sales increased 15%. Sequentially, overall demand from the Company's semiconductor industry customers increased primarily reflecting improved industry fab utilization rates. Foreign currency translation effects on net sales for the three and six months ended June 28, 2014 were nominal with the effect of a weaker Japanese yen versus the U.S. dollar offset by strength in most other currencies versus the U.S. dollar. 26



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The Company's operating segments experienced varied sales results. See "Segment Analysis" included below in this section for additional detail. On a geographic basis, total sales in the second quarter of 2014 to North America were 25%, Asia (excluding Japan) 52%, Europe 12% and Japan 12% compared to prior year second quarter sales to North America of 29%, Asia (excluding Japan) 43%, Europe 12% and Japan 14%. Sales in Asia increased 70%, while sales in North America, Japan and Europe each rose approximately 20% in the second quarter of 2014 compared to a year ago. Other than the foreign currency effects noted above, the Company believes its sales changes are primarily volume driven. Based on the information available, the Company believes it is generally improving or maintaining market share for its products and that the effect of selling price erosion has been nominal. Gross profit Gross profit for the three months ended June 28, 2014 increased to $88.7 million, up from $77.6 million for the three months ended June 29, 2013. The increase in gross profit reflects the improvement in legacy Entegris sales and the inclusion of sales from ATMI. Despite the improvement in gross profit, the Company experienced a 35.2% gross margin rate compared to 43.7% in the comparable year ago period. Gross profit for the six months ended June 28, 2014 increased to $160.0 million, up from $144.7 million for the six months ended June 29, 2013, a $15.3 million increase. The figures reflect a 38.3% gross margin rate for the first half of 2014 compared to 42.2% in the comparable year ago period. The gross margin percentages for the three and six months were below the comparable year-ago figures primarily due to a $24.3 million incremental cost of sales charge associated with the sale of inventory acquired in the merger with ATMI. An inventory write-up of $48.6 million was recorded as part of the purchase price allocation and is being expensed over the expected inventory turn of the acquired finished goods inventory. The inventory write-up is expected to be fully amortized by the end of the third quarter of 2014. Excluding that charge, the Company's gross margin for the three and six months ended June 28, 2014 were 44.9% and 44.2%, respectively. The adjusted gross margin rates exceeded the comparable year-ago figures mainly due to the increase in Company sales levels and, on average, higher margins for ATMI products. On a sequential basis, gross profit increased by $17.3 million to $88.7 million, up from $71.4 million in the first quarter. The sequential gross profit increase reflects an improvement in legacy Entegris sales and the inclusion of sales from ATMI, net of the incremental cost of sales charge associated with the write-up of inventory acquired noted above. Reflecting the Company's higher sales levels, the adjusted gross margin rate of 44.9% for the second quarter of 2014 improved from 43.0% in the first quarter of 2014. Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses were $82.3 million for the three months ended June 28, 2014, up $47.0 million, or 133%, from the comparable three-month period a year earlier. SG&A expenses recorded by ATMI and included in the Company's condensed consolidated financial statements after the date of the Merger amounted to $35.6 million, accounting for approximately 75% of the increase. Included in these expenses were costs of $26.8 million related to the ATMI acquisition, specifically $22.2 million for share-based compensation expense, as well as severance and retention costs of $4.6 million. In addition, the Company incurred expenses of $7.8 million in connection with the completion of the ATMI merger, as well as costs of $3.4 million associated with integration of the two operations. SG&A expenses increased 73% to $117.1 million in the first six months of 2014 compared to $67.8 million in the year-ago period, an increase of $49.3 million, also primarily due to the addition of SG&A expenses incurred by or related to ATMI recorded in the second quarter. On a sequential basis, SG&A expenses increased by $47.6 million in the second quarter of 2014. The sequential SG&A expense increase is also primarily due to the addition of the SG&A expenses incurred by or related to ATMI recorded in the second quarter. In addition to the increase in SG&A costs associated with ATMI's infrastructure, the Company expects SG&A costs to be higher than normal during the remainder of 2014 as integration costs and related severance and retention costs will continue during this period. The Company expects overall SG&A costs will decline on a pro forma basis resulting from the combination of various sales, marketing and other corporate functions during the balance of 2014 and 2015. These savings are expected to be realized in the second half of 2014 and in 2015. Engineering, research and development expenses Engineering, research and development (ER&D) expenses related to the support of current product lines and the development of new products and manufacturing technologies were $21.6 million in the three months ended June 28, 2014 compared to $13.4 million in the year-ago period, an $8.2 million increase. ER&D expenses recorded by ATMI and included in the Company's condensed consolidated financial statements after the date of the Merger amounted to $6.0 million, accounting for approximately three-quarters of the increase. ER&D expenses increased 46% 27



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to $37.3 million in the first six months of 2014 compared to $25.6 million in the year-ago period, also due to the addition of ER&D expenses from ATMI. The remainder of the increase is due to higher employee costs ($1.0 million and 2.2 million for the three and six months ended June 28, 2014, respectively) as well as increased ER&D activity levels, including higher customer samples and supplies of $1.5 million and $2.9 million for the three and six months ended June 28, 2014, respectively). On a sequential basis, ER&D expenses increased by $5.9 million in the second quarter of 2014. The sequential ER&D expense increase is primarily due to the addition of the ER&D expenses incurred by ATMI in the second quarter. The Company expects ER&D costs will increase during the remainder of 2014 due to the addition of ATMI's ER&D infrastructure. However, these costs are expected to stay relatively stable as a percentage of net sales. The Company's overall ER&D efforts will continue to focus on the support or extension of current product lines, and the development of new products and manufacturing technologies. Interest expense Interest expense was $12.5 million in the three-month period ended June 28, 2014. The increase over the nominal interest expense for the three months ended June 29, 2013 reflects the interest associated with the borrowings made by the Company in connection with the acquisition of ATMI as described in notes 2 and 5 to the Company's condensed consolidated financial statements. Interest expense included interest on outstanding borrowings, the amortization of debt issuance costs associated with such borrowings and bridge financing costs of $4.0 million. Other expense (income), net Other expense, net was $1.4 million and $1.5 million in the three-month and six-month periods ended June 28, 2014, respectively, which was mainly due to foreign currency transaction losses. Other income, net was $0.9 million and $2.1 million in the three-month and six-month periods ended June 29, 2013, respectively, which are mainly due to foreign currency transaction gains. Income tax (benefit) expense The Company recorded an income tax benefit of $22.4 million and $18.2 million, respectively, in the three and six months ended June 28, 2014 compared to income tax expense of $7.5 million and $12.7 million, respectively, in the three and six months ended June 29, 2013. The Company's year-to-date effective tax rate was 98.3% in 2014, compared to 26.0% in 2013. This increase reflects changes in the Company's geographic composition of income toward jurisdictions with lower tax rates, nondeductibility of certain acquisition-related expenditures and the benefit of a foreign dividend. The effective tax rate in 2013 included a $1.3 million benefit associated with the reinstatement of the U.S. federal credit for increasing research expenditures, as retroactively signed into law and recorded by the Company in the first quarter of 2013. Net income For the factors noted above, the Company recorded a net loss of $14.7 million, or $0.11 loss per diluted share, in the three-month period ended June 28, 2014 compared to net income of $19.8 million, or $0.14 per diluted share, in the three-month period ended June 29, 2013. For the six months ended June 28, 2014, net loss was $0.4 million, or $0.00 per diluted share, compared to net income of $36.2 million or $0.26 per diluted share, in the comparable period a year ago. The net losses and diluted losses per share for the 2014 periods mainly reflect the effect of the significant costs associated with the ATMI acquisition. Non-GAAP Measures The Company's condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Company also utilizes certain non-GAAP financial measures as a 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 definition of non-GAAP financial measures and the reconciliation of GAAP measures to the Company's non-GAAP measures. The Company's non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and non-GAAP Earnings Per Share. Adjusted EBITDA increased 61% to $58.2 million in the three-month period ended June 28, 2014, compared to $36.1 million in the three-month period ended June 29, 2013. Adjusted EBITDA, as a percent of net sales, increased to 23.1% from 20.3% a year earlier. Adjusted Operating Income increased 64% to $47.2 million in the three-month period ended June 28, 2014, compared to $28.7 million in the three-month period ended June 29, 2013. Adjusted Operating Income, as a percent of net sales, increased to 18.8% from 16.2% a year earlier. Non-GAAP Earnings Per Share increased 33% to $0.20 in the three-month period ended June 28, 2014, compared to $0.15 in the three-month period ended June 29, 2013. Segment Analysis 28



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During the three months ended June 28, 2014, the Company realigned its financial reporting structure reflecting management and organizational changes. Under the new structure, the managers of two primary product groups are accountable for results at the segment profit level and report directly to the Company's Chief Executive Officer, who is responsible for evaluating companywide performance and resource allocation decisions between the product groups. Beginning with this report, the Company will report its financial performance based on two reportable segments: Critical Materials Handling (CMH) and Electronic Materials (EM). See note 11 to the condensed consolidated financial statements for additional information on the Company's two segments. The following table presents selected net sales and segment profit data for the Company's two reportable segments for the three and six months ended June 28, 2014 and June 29, 2013, and the three months ended March 29, 2014. Three months ended Six months ended (In thousands) June 28, 2014 June 29, 2013 March 29, 2014 June 28, 2014 June 29, 2013 Critical Materials Handling Net sales $ 176,820$ 157,269$ 145,569$ 322,389$ 303,933 Segment profit 41,069 35,971 30,526 $ 71,595 65,111 Electronic Materials Net sales $ 74,758$ 20,275 $ 20,235 94,993 $ 38,681 Segment profit 22,708 3,874 3,704 26,412 8,353 Critical Materials Handling (CMH) For the second quarter of 2014, CMH net sales increased 12% to $176.8 million, from $157.3 million in the comparable period last year, due to the inclusion of sales of $8.3 million from ATMI and an increase in 300mm wafer process product sales. CMH reported a segment profit of $41.1 million in the second quarter of 2014, up 14% from $36.0 million in the year-ago period due to higher sales and a slightly favorable sales mix, partly offset by a 7% increase in operating expenses, mainly consisting of higher ER&D expenditures and costs associated with the ATMI infrastructure. For the six months ended June 28, 2014, CMH net sales increased 6% to $322.4 million, from $303.9 million in the comparable period last year, and reflects the inclusion of sales from ATMI and the second quarter increase of 300mm wafer process product sales. CMH reported a segment profit of $71.6 million in the six months ended June 28, 2014, up 10% from $65.1 million in the year-ago period also due to higher sales and a slightly favorable sales mix, partly offset by a 7% increase in operating expenses, mainly consisting of higher ER&D expenditures and costs associated with the ATMI infrastructure. Electronic Materials (EM) For the second quarter of 2014, EM net sales increased 269% to $74.8 million, from $20.3 million in the comparable period last year. The revenue increase primarily reflects the inclusion of sales of $51.9 million from ATMI, while the remainder reflects modestly improved sales of gas microcontamination control systems products. EM reported a segment profit of $22.7 million in the second quarter of 2014 compared to a $3.9 million segment profit in the year-ago period. The increase in the segment's profit is primarily associated with higher sales levels reflecting the sales of ATMI products and improved margins related to a more favorable sales mix, offset partly by costs associated with the ATMI infrastructure. For the six months ended June 28, 2014, EM net sales increased 146% to $95.0 million, from $38.7 million in the comparable period last year. The sales increase also reflects the inclusion of sales of $51.9 million from ATMI, while the remainder reflected improved sales of gas microcontamination control systems products. EM reported a segment profit of $26.4 million in the six months ended June 28, 2014 compared to a $8.4 million segment profit in the year-ago period. The increase in the EM's profit for the six months ended June 28, 2014 reflects the same factors noted for the improvement of the second quarter segment profit. Unallocated general and administrative expenses Unallocated general and administrative expenses totaled $54.7 million in the second quarter of 2014 compared to $11.1 million in the second quarter of 2013. Unallocated general and administrative expenses recorded by ATMI and included in the Company's condensed consolidated financial statements after the date of the Merger amounted to $30.5 million, accounting for approximately 70% of the increase. Included in these expenses were costs of $26.8 million related to the ATMI acquisition, specifically $22.2 million for share-based compensation expense, as well as severance and retention costs of $4.6 million. In addition, the Company incurred expenses of $7.8 million in connection with the completion of the ATMI merger, as well as costs of $3.4 million associated with integration of the two operations. 29



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Unallocated general and administrative expenses for the six months ended June 28, 2014 totaled $68.1 million, up from $22.2 million in the comparable period last year. The inclusion of expenses recorded by ATMI accounted for approximately two-thirds of the increase. In addition, the Company incurred expenses of $9.1 million in connection with the completion of the ATMI merger, as well as the costs of integration incurred in the second quarter. Liquidity and Capital Resources Operating activities Cash flow provided by operating activities totaled $23.5 million in the six months ended June 28, 2014. Cash generated by operating activities in the six months ended June 28, 2014 was primarily the result of a net loss adjusted for non-cash expenses (such as depreciation, amortization, share-based compensation and a charge for the fair value write-up of acquired inventory sold). The net impact of changes in operating assets and liabilities absorbed $14.7 million in operating cash flow, mainly reflecting increases in accounts receivable and inventories, and an increase in accounts payable and accrued liabilities. Accounts receivable increased by $79.7 million during the six months ended June 28, 2014, but increased just $24.3 million after accounting for the effect of the ATMI acquisition and foreign currency translation. This change mainly reflects increased quarterly sales levels as well as the increase in the Company's days sales outstanding (DSO). The Company's DSO was 66 days at June 28, 2014 compared to a historically-low 50 days at the beginning of the year. Inventories at June 28, 2014 increased by $97.2 million during the six months ended June 28, 2014, but increased by only $7.0 million after accounting for the effect of the ATMI acquisition, foreign currency translation and the provision for excess and obsolete inventory. The increase reflects higher levels of work-in-process associated with increased business activity. Accounts payable and accrued liabilities increased $49.6 million during the six months ended June 28, 2014, but were $12.6 million higher after accounting for the effect of the ATMI acquisition and foreign currency translation. In part, the increase reflects an $8.1 million increase in accrued interest payable related to the long-term debt. Working capital at June 28, 2014 was $637.2 million, compared to $514.7 million as of December 31, 2013, and included $367.0 million in cash and cash equivalents, compared to cash and cash equivalents of $384.4 million as of December 31, 2013. Investing activities Cash flow used in investing activities totaled $839.1 million in the six-month period ended June 28, 2014. As noted above and described in note 2 to the Company's condensed consolidated financial statements on April 30, 2014, the Company acquired ATMI, Inc., a Delaware corporation (ATMI), for approximately $1.1 billion in cash pursuant to an Agreement and Plan of Merger with ATMI. The acquisition is reflected in the Company's condensed consolidated statements of cash flows net of cash of $321.1 million acquired from ATMI, or $808.9 million. Acquisition of property and equipment totaled $28.9 million, which primarily reflected investments in equipment and tooling to manufacture 450mm wafer handling products and to establish an advanced membrane manufacturing and development center for critical filtration applications. As of June 28, 2014, the Company had outstanding capital purchase obligations of $9.5 million for the construction or purchase of plant and equipment not yet recorded in the Company's condensed consolidated financial statements as the Company had not yet received the related goods or property. As of June 28, 2014, the Company expects its capital expenditures in 2014 to be approximately $60 million, as capital expenditure plans generally reflect more normalized capital spending levels. Financing activities Cash used in financing activities totaled $796.3 million during the six-month period ended June 28, 2014, primarily reflecting the issuance of debt and related debt issuance costs described below. On April 1, 2014, the Company issued $360 million aggregate principal amount of 6% senior unsecured notes due April 1, 2014. In addition the Company entered into the senior secured term loan facility on April 30, 2014 in an aggregate principal amount of $460 million. The senior secured term loan is due April 30, 2021 and initially bears interest at a rate per annum equal to the sum of 4.25% plus the applicable LIBOR rate then in effect. In addition to the senior term loan, on April 30, 2014 the Company also entered into a senior secured asset-based revolving credit facility that provides financing of $75 million, subject to a borrowing base. The senior secured asset-based revolving credit facility is due April 30, 2019 and bears interest at a rate per annum equal to the sum of 2% plus the applicable LIBOR rate then in effect. Further information concerning these items 30



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can be found in note 5 to the condensed consolidated financial statements. The Company incurred debt issuance costs of $20.7 million in connection with the above debt instruments. As of June 28, 2014, the Company had a $75 million senior secured asset-based revolving credit facility maturing April 30, 2019. As of June 28, 2014, the Company had no outstanding borrowings and $0.2 million undrawn on outstanding letters of credit under the senior secured asset-based revolving credit facility. Through June 28, 2014, the Company was in compliance with all applicable financial covenants included in the terms of the senior secured asset-based revolving credit facility. The Company's prior revolving credit facility was terminated upon consummation of the ATMI acquisition described in note 2 to the condensed consolidated financial statements. The Company also has lines of credit with two banks that provide for borrowings of Japanese yen for the Company's Japanese subsidiary, equivalent to an aggregate of approximately $11.8 million. There were no outstanding borrowings under these lines of credit at June 28, 2014. The Company believes that its cash and cash equivalents, funds available under its senior secured asset-based revolving credit facility and international credit facilities and cash flow generated from operations will be sufficient to meet its working capital and investment requirements for at least the next twelve months. If available liquidity is not sufficient to meet the Company's operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company's cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms. At June 28, 2014, the Company's shareholders' equity was $765.2 million, up 1% from $756.8 million at the beginning of the year. The increase mainly reflected additional paid-in capital of $4.2 million associated with the Company's share-based compensation expense and foreign currency translation effects of $5.8 million, the latter factor of which is mainly associated with the weakening of the the U.S. dollar versus the Japanese yen, Malaysian ringgit and Korean won. Among other factors, these increases were partly offset by the taxes paid related to net settlement of equity awards of $2.0 million. As of June 28, 2014, the Company's sources of available funds were its cash and cash equivalents of $367.0 million, funds available under its $75 million senior secured asset-based revolving credit facility and international credit facilities and cash flow generated from operations. As of June 28, 2014, the amount of cash and cash equivalents associated with indefinitely reinvested foreign earnings was $272.8 million. These amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the United States. The Company does not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business and believes its existing balances of domestic cash and cash equivalents and operating cash flows will be sufficient to meet the Company's domestic cash needs arising in the ordinary course of business for the next twelve months. New Accounting Pronouncements Recently adopted accounting pronouncements There were no recently adopted accounting pronouncement adopted during the six months ended June 28, 2014. Recently issued accounting pronouncements At this time, the Company does not anticipate that recently issued accounting guidance that has not yet been adopted will have a material impact on its condensed consolidated financial statements. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)(ASU 2014-09). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for the quarter ending March 31, 2017. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and disclosures. Other Accounting Standards Updates issued but not effective for the Company until after June 28, 2014 are not expected to have a material effect on the Company's condensed consolidated financial statements. Non-GAAP Information The Company's condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Company also provides certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company's business and results of operations. Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other regulations under the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. The Company 31



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provides non-GAAP financial measures of Adjusted EBITDA and Adjusted Operating Income together with related measures thereof, and non-GAAP Earnings Per Share (EPS). Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income before (1) equity in net loss of affiliates, (2) income tax expense, (3) interest expense (4) interest income (5) other expense (income), net, (6) charge for the fair value write-up of acquired inventory sold, (7) transaction-related costs, (8) deal costs, (9) integration costs, (10) contingent consideration fair value adjustment, (11) amortization of intangible assets and (12) depreciation. Adjusted Operating Income, another non-GAAP term, is defined by the Company as its Adjusted EBITDA less depreciation. The Company also utilizes non-GAAP measures whereby Adjusted EBITDA and Adjusted Operating Income are each divided by the Company's net sales to derive Adjusted EBITDA Margin and Adjusted Operating Margin, respectively. Non-GAAP EPS, a non-GAAP term, is defined by the Company as net (loss) income before (1) charge for fair value write-up of acquired inventory sold, (2) transaction-related costs, (3) deal costs, (4) integration costs, (5) contingent consideration fair value adjustment, (6) amortization of intangible assets and (7) the tax effect of those adjustments to net (loss) income. The charge for fair value write-up of acquired inventory sold, transaction-related costs, deal costs and integration costs adjustments underlying Adjusted EBITDA and Non-GAAP EPS relate specifically to the ATMI acquisition. 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 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. 32



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Third, there is no assurance the Company will not have future restructuring activities, contingent consideration fair value adjustments, translation-related costs, gains or losses on sale of equity investments, or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon. The exclusion of these items from the Company's non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring. Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of Adjusted EBITDA, Adjusted Operating Income, and non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents are presented below in the accompanying tables. Reconciliation of GAAP Net income attributable to Entegris, Inc. to Adjusted Operating Income and Adjusted EBITDA Three months ended Six months ended (In thousands) June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net sales $ 251,578$ 177,544$ 417,382$ 342,614 Net (loss) income $ (14,669 )$ 19,781 $ (357 ) $ 36,178 Adjustments to net income Equity in net loss of affiliates 50 - 50 - Income tax (benefit) expense (22,445 ) 7,516 (18,202 ) 12,714 Interest expense 12,537 40 12,566 44 Interest income (192 ) (54 ) (415 ) (179 ) Other expense (income), net 1,351 (896 ) 1,529 (2,123 ) GAAP - Operating (loss) income (23,368 ) 26,387 (4,829 ) 46,634 Charge for fair value mark-up of acquired inventory sold 24,293 - 24,293 - Transaction-related costs 26,806 - 26,806 - Deal costs 7,844 - 9,125 - Integration costs 3,497 - 3,497 - Contingent consideration fair value adjustment (1,282 ) - (1,282 ) - Amortization of intangible assets 9,390 2,359 11,726 4,646 Adjusted operating income 47,180 28,746 69,336 51,280 Depreciation 11,043 7,311 18,875 14,607 Adjusted EBITDA $ 58,223$ 36,057$ 88,211$ 65,887 Adjusted operating income - as a % of net sales 18.8 % 16.2 % 16.6 % 15.0 % Adjusted EBITDA - as a % of net sales 23.1 % 20.3 % 21.1 % 19.2 %



Reconciliation of GAAP Earnings per Share to Non-GAAP Earnings per Share

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Table of Contents Three months ended Six months ended (In thousands) June 28, 2014 June 29, 2013 June 28, 2014 June 29, 2013 Net (loss) income $ (14,669 )$ 19,781$ (357 )$ 36,178 Adjustments to net (loss) income Charge for fair value mark-up of acquired inventory sold 24,293 - 24,293 - Transaction-related costs 26,806 - 26,806 - Deal costs 12,007 - 13,288 - Integration costs 3,497 - 3,497 - Contingent consideration fair value adjustment (1,282 ) - (1,282 ) - Amortization of intangible assets 9,390 2,359 11,726 4,646 Tax effect of adjustments to net (loss) income (32,610 ) (851 ) (33,889 ) (1,675 ) Non-GAAP net income $ 27,432$ 21,289$ 44,082$ 39,149 Diluted (loss) earnings per common share $ (0.11 )$ 0.14 $ - $ 0.26 Effect of adjustments to net (loss) income 0.30 0.01 0.32 0.02 Diluted non-GAAP (loss) earnings per common share $ 0.20 $ 0.15$ 0.32$ 0.28 34



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