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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 31, 2003 Commission File Number 000-30789
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ENTEGRIS, INC.
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(Exact name of registrant as specified in charter)
Minnesota 41-1941551
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(State or other jurisdiction of incorporation) (IRS Employer ID No.)
3500 Lyman Boulevard, Chaska, Minnesota 55318
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(Address of Principal Executive Offices)
Registrant's Telephone Number (952) 556-3131
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES X NO ___
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at June 30, 2003
- -------------------------------- ---------------------------------
Common Stock, $0.01 Par Value 72,037,915
1
ENTEGRIS, INC., INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MAY 31, 2003
Description Page
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PART I
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Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of May 31, 2003
and August 31, 2002 3
Consolidated Statements of Operations for the
Three Months and Nine Months Ended May 31, 2003 and June 1, 2002 4
Consolidated Statements of Cash Flows for
the Nine Months Ended May 31, 2003 and June 1, 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II Other Information
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Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
2
Item 1. Financial Statements
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
May 31, August 31,
2003 2002
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 76,196 $ 74,830
Short-term investments 23,279 44,624
Trade accounts receivable, net of allowance for doubtful
accounts 48,229 35,371
Trade accounts receivable due from affiliates 2,964 4,219
Inventories 45,026 38,859
Deferred tax assets and refundable income taxes 12,646 16,039
Other current assets 2,986 2,793
----------- -----------
Total current assets 211,326 216,735
----------- -----------
Property, plant and equipment, net 98,799 102,104
Other assets
Investments 8,673 7,883
Intangible assets, net of amortization 32,462 30,295
Goodwill 63,805 31,309
Other 2,151 1,934
----------- -----------
Total assets $ 417,216 $ 390,260
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,021 $ 2,144
Short-term borrowings 23,227 9,421
Accounts payable 10,089 7,977
Accrued liabilities 24,218 20,079
Income taxes payable 3,176 -
----------- -----------
Total current liabilities 62,731 39,621
----------- -----------
Long-term debt, less current maturities 10,974 12,691
Deferred tax liabilities 16,327 15,802
Minority interest in subsidiaries - 32
Commitments and contingencies
Shareholders' equity
Common stock, $0.01 par value; 200,000,000 authorized; issued
and outstanding shares: 71,890,578 and 71,160,539, respectively 719 712
Additional paid-in capital 135,447 132,676
Retained earnings 189,895 190,932
Accumulated other comprehensive income (loss) 1,123 (2,206)
----------- -----------
Total shareholders' equity 327,184 322,114
----------- -----------
Total liabilities and shareholders' equity $ 417,216 $ 390,260
=========== ===========
See accompanying notes to consolidated financial statements.
3
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Sales to non-affiliates $ 65,642 $ 50,470 $ 163,681 $ 136,485
Sales to affiliates 4,354 9,239 14,167 19,778
----------- ----------- ----------- -----------
Net sales 69,996 59,709 177,848 156,263
Cost of sales 39,524 31,582 102,943 96,003
----------- ----------- ----------- -----------
Gross profit 30,472 28,127 74,905 60,260
Selling, general and administrative expenses 20,264 19,299 59,019 54,495
Nonrecurring charges (reversals) - (1,640) 1,812 2,361
Engineering, research and development expenses 4,683 4,228 12,989 12,744
----------- ----------- ----------- -----------
Operating income (loss) 5,525 6,240 1,085 (9,340)
Interest income, net (25) (239) (345) (1,055)
Other expense (income), net 349 268 5,144 (1,471)
----------- ----------- ----------- -----------
Income (loss) before income taxes and other 5,201 6,211 (3,714) (6,814)
items below
Income tax expense (benefit) 1,234 998 (2,808) (3,951)
Equity in net loss of affiliate 10 - 132 -
Minority interest in subsidiaries' net loss - (13) - (787)
----------- ----------- ----------- -----------
Net income (loss) $ 3,957 $ 5,226 $ (1,038) $ (2,076)
=========== =========== =========== ===========
Earnings (loss) per common share:
Basic $ 0.06 $ 0.07 $ (0.01) $ (0.03)
Diluted $ 0.05 $ 0.07 $ (0.01) $ (0.03)
Weighted shares outstanding:
Basic 71,762 70,646 71,440 70,121
Diluted 75,640 75,590 71,440 70,121
4
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine months ended
-------------------------------------
May 31, 2003 June 1, 2002
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OPERATING ACTIVITIES
Net loss $ (1,038) $ (2,076)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 20,408 20,795
Impairment of property and equipment 572 1,960
Impairment of investment in Metron Technology N.V. 4,452 -
Provision for doubtful accounts 70 84
Provision for deferred income taxes (2,262) 137
Equity in net loss of affiliates 132 -
Loss on sale of property and equipment 52 601
Minority interest in subsidiaries' net loss - (787)
Changes in operating assets and liabilities, net of effect
of acquisitions:
Trade accounts receivable (11,604) 1,383
Trade accounts receivable due from affiliates 1,255 2,383
Inventories (2,353) 7,990
Accounts payable and accrued liabilities 4,154 (18,383)
Other current assets (182) 2,457
Accrued income taxes and refundable income taxes 7,730 (745)
Other 188 (651)
---------------- ----------------
Net cash provided by operating activities 21,574 15,148
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INVESTING ACTIVITIES
Acquisition of property and equipment (9,359) (17,002)
Acquisition of businesses, net of cash acquired (44,299) (6,883)
Purchases of intangible assets (981) (514)
Proceeds from sales of property and equipment 36 1,427
Purchases of short-term investments (22,809) (63,216)
Maturities of short-term investments 44,154 62,760
Other (1,571) (451)
---------------- ----------------
Net cash used in investing activities (34,829) (23,879)
---------------- ----------------
FINANCING ACTIVITIES
Principal payments on short-term borrowings and long-term debt
(3,581) (4,719)
Proceeds from short-term borrowings and long-term debt 15,315 5,055
Issuance of common stock 2,778 4,546
----------------- -----------------
Net cash provided by financing activities 14,512 4,882
----------------- -----------------
Effect of exchange rate changes on cash and cash equivalents 109 (164)
----------------- -----------------
Increase (decrease) in cash and cash equivalents 1,366 (4,013)
Cash and cash equivalents at beginning of period 74,830 74,451
----------------- -----------------
Cash and cash equivalents at end of period $ 76,196 $ 70,438
================= =================
See accompanying notes to consolidated financial statements.
5
ENTEGRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Summary of Significant Accounting Policies
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly, in conformity with accounting principles generally accepted in
the United States of America, the financial position as of May 31, 2003
and August 31, 2002, the results of operations for the three months and
nine months ended May 31, 2003 and June 1, 2002 and cash flows for the
nine months ended May 31, 2003 and June 1, 2002. Certain prior year
amounts have been reclassified to conform to the current period
presentation.
The financial statements and notes are presented as permitted by Form
10-Q and do not contain certain information included in the Company's
annual consolidated financial statements and notes. The information
included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis and financial statements and notes
thereto included in the Company's Form 10-K for the year ended August
31, 2002. The results of operations for the three months and nine months
ended May 31, 2003 are not necessarily indicative of the results to be
expected for the full year.
The Company's fiscal year is a 52- or 53-week period ending on the last
Saturday of August. The fiscal year ending August 30, 2003 comprises 52
weeks. In fiscal 2003, the Company's interim quarters end on November
30, 2002, March 1, 2003 and May 31, 2003. The previous fiscal year ended
on August 31, 2002 and comprised 53 weeks. Fiscal years are identified
in this report according to the calendar year in which they end. For
example, the fiscal year ended August 30, 2003 is referred to as "fiscal
2003".
Stock-Based Compensation The Company has two stock-based employee
compensation plans. The Company accounts for these plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. The exercise
price of the Company's employee stock options generally equals the
market price of the underlying stock on the date of grant for all
options granted, and thus, under APB 25, no compensation expense is
recognized.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
Three Months Ended Nine Months Ended
------------------ --------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
------- ------- --------- --------
Net income (loss), as reported $ 3,957 $ 5,226 $ (1,038) $ (2,076)
Stock compensation expense - fair value based method (1,672) (1,357) (4,826) (3,764)
------- ------- -------- --------
Pro forma net income (loss) $ 2,285 $ 3,869 $ (5,864) $ (5,840)
Basic net earnings (loss) per share, as reported $ 0.06 $ 0.07 $ (0.01) $ (0.03)
Pro forma basic net earnings (loss) per share $ 0.03 $ 0.05 $ (0.08) $ (0.08)
Diluted net earnings (loss) per share, as reported $ 0.05 $ 0.07 $ (0.01) $ (0.03)
Pro forma diluted net earnings (loss) per share $ 0.03 $ 0.05 $ (0.08) $ (0.08)
------- ------- -------- --------
For employee stock options granted during the first nine months of
fiscal 2003, the Company determined pro forma compensation expense under
the provisions of SFAS No. 123 using the Black-Scholes pricing model and
the following assumptions: 1) an expected dividend yield of -0-%, 2) an
expected stock price volatility of 77%, 3) a risk-free interest rate of
3.75% and 4) an expected
Revenue Recognition The Company sells its products throughout the
world primarily to companies in the microelectronics industry. The
Company's practice is to recognize revenue and the related cost of
sales upon shipment of materials integrity products. For certain
precision cleaning equipment sales, which constituted less than 3% of
sales, with installation and customer acceptance provisions, revenue
is recognized upon fulfillment of such provisions.
6
life of 8 years. The weighted average fair value of options granted
during the first nine months of fiscal 2003 with all exercise prices
equal to the market price at the date of grant was $4.95.
2. Earnings (loss) per share
The following table presents a reconciliation of the denominators used
in the computation of basic and diluted earnings (loss) per share.
Three Months Ended Nine Months Ended
---------------------- ------------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Basic weighted common shares
outstanding 71,762,000 70,646,000 71,440,000 70,121,000
Weighted common shares assumed upon
exercise of stock options 3,878,000 4,944,000 - -
---------- ---------- ---------- ----------
Diluted weighted common shares and
common shares equivalent outstanding 75,640,000 75,590,000 71,440,000 70,121,000
========== ========== ========== ==========
The effect of the inclusion of stock options for the nine-month periods
ended May 31, 2003 and June 1, 2002 is anti-dilutive.
3. Inventories
Inventories consist of the following (in thousands):
May 31, 2003 August 31, 2002
------------ ---------------
Raw materials $10,184 $13,015
Work-in process 2,600 2,163
Finished goods 31,660 23,216
Supplies 582 465
------------ ---------------
Total inventories $45,026 $38,859
============ ===============
4. Comprehensive Income (Loss)
For the three months and nine months ended May 31, 2003 and June 1, 2002
net income (loss), items of other comprehensive income (loss) and
comprehensive income (loss) are as follows (in thousands):
Three months ended Nine months ended
------------------ -----------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
------- ------- ------- -------
Net income (loss) $ 3,957 $ 5,226 $(1,038) $(2,076)
Items of other comprehensive income
(loss)
Foreign currency translation
gain (loss) 551 833 1,201 (628)
Net change in unrealized gain
(loss) on marketable securities 1,102 (27) 215 1,762
Reclassification adjustment for
impairment loss on marketable
securities included in earnings - - 1,913 -
------- ------- ------- -------
Comprehensive income (loss) $ 5,610 $ 6,032 $ 2,291 $ (942)
======= ======= ======= =======
7
5. Nonrecurring Charge
During the first quarter of fiscal 2003, the Company recorded a pre-tax
charge of $1.8 million related to the relocation of its Upland,
California operations and certain workforce reductions. The charge
included $0.9 million in termination costs related to a workforce
reduction of approximately 75 employees, $0.4 million for estimated
losses for asset impairment and $0.5 million for future lease
commitments on the Upland facility. As expected, the Company closed the
Upland plant in the second quarter, with the majority of the facility's
equipment sold, disposed of, or moved to Chaska, Minnesota by the end of
February 2003. As of May 31, 2003, future cash outlays of $0.7 million
remained outstanding in connection with the aforementioned charge, and
are primarily related to severance payments of $0.3 million, which run
through May 2004, and lease commitments of $0.4 million, which run
through July 2005.
6. Impairment of Investment in Metron Technology N.V.
The Company's Results of Operations for the nine months ended May 31,
2003 include other expense of $5.1 million. In the first quarter of
fiscal 2003, the Company recorded an impairment loss of $4.5 million, or
$3.3 million after tax, related to the write-down of the Company's
equity investment in Metron Technology N.V. common stock. The Company, a
founding shareholder of Metron, owns about 1.6 million shares of Metron
common stock. Prior to the impairment charge, the Company's investment
in Metron Technology N.V. common stock had a carrying value of $7.6
million. At November 30, 2002, the fair value of the investment was $3.1
million, based on a price of $2.00 per share, the closing price of
Metron at the end of the first quarter. The decline in fair value was
determined to be other-than-temporary at that time. Accordingly, an
impairment loss of $4.5 million was recorded in the first quarter of
fiscal 2003 and the investment in Metron common stock written down to a
new carrying value of $3.1 million. At May 31, 2003, the Company's
investment in Metron Technology N.V. common stock had a fair value of
$3.8 million.
7. Recently Issued Accounting Pronouncements
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that a liability be recorded in the guarantor's balance sheet upon
issuance of a guarantee. In addition, FIN 45 requires disclosures about
the guarantees that an entity has issued, including a rollforward of the
Company's product warranty liabilities. The Company will apply the
recognition provisions of FIN 45 prospectively to guarantees issued
after December 31, 2002. The Company adopted the disclosure requirements
of FIN 45 beginning in the second quarter of the Company's fiscal year
2003.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation, transition and Disclosure." SFAS No. 148
provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for
stock-based employee compensation be displayed more prominently and in a
tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition and
annual disclosure requirements of SFAS No. 148 are effective for the
Company's fiscal 2003. The interim disclosure requirements were adopted
for the Company's third quarter of fiscal 2003.
8
8. Warranty Guarantees
The Company accrues for warranty costs based on historical trends and
the expected material and labor costs to provide warranty services. The
majority of products sold are generally covered by a warranty for
periods ranging from 90 days to one year. The following table summarizes
the activity related to the product warranty liability during the
nine-month periods ended May 31, 2003 and June 1, 2002 (in thousands):
Nine Months Ended
---------------------------
May 31, 2003 June 1, 2002
---------------------------
Balance at beginning of fiscal year $700 $1,314
Accrual for warranties issued during the period 644 455
Settlements during the period (611) (769)
---------------------------
Balance at end of period $733 $1,000
===========================
9. Acquisitions
During the second quarter of fiscal 2003, Entegris completed two cash
acquisitions totaling $44.3 million. In January 2003, the Company
acquired substantially all of the assets of Electrol Specialties Company
(ESC) in a cash transaction. ESC, an Illinois-based company, provides
stainless steel system designed and fabricated Clean-In-Place (CIP)
technology to customers in the biopharmaceutical industry. Intangible
assets of approximately $2.4 million were recorded in connection with
the transaction. Entegris retained ESC's existing management team and
employees, and continues to manufacture CIP products at ESC's leased
facility in Illinois.
In February 2003, Entegris acquired the wafer and reticle carrier
(WRC) product lines of Asyst Technologies, Inc., a California-based
provider of integrated automation systems that maximize semiconductor
manufacturing productivity. Under terms of the purchase agreement,
Entegris paid $38.75 million for all assets associated with Asyst's
WRC product lines and intellectual property. Entegris hired key Asyst
employees involved with these product lines. Intangible assets of
approximately $34.1 million were recorded in connection with the
transaction. Entegris completed the move of the production of the
purchased WRC product line to its Chaska, Minnesota facilities in the
third quarter of fiscal 2003. The Company is in the process of
completing its analysis of a recently completed third-party valuation
of the tangible and intangible assets acquired in the WRC product line
acquisition. Related thereto, during the quarter ended May 31, 2003,
the Company adjusted its preliminary purchase allocation to reflect
the third-party valuation of the tangible and intangible assets.
Identifiable intangible assets and goodwill totaled $34.1 million, or
$0.3 million over the amount originally estimated.
Each of the above transactions was accounted for by the purchase
method. Accordingly, the Company's consolidated financial statements
include the net assets and results of operations from the dates of
acquisition.
The following table provides Company results as if the acquisitions
occurred at the beginning of fiscal 2003.
(In thousands, except per share data) Three months ended May 31, 2003 Nine months ended May 31, 2003
- ------------------------------------------------------------------------------------------------------------------
As reported Pro forma As reported Pro forma
------------------------------------------------------------------
Net sales $69,996 $69,996 $177,848 $ 194,948
Net income 3,957 3,957 (1,038) 1,017
Basic earnings (loss) per share 0.06 0.06 (0.01) 0.01
Diluted earnings (loss) per share 0.05 0.05 (0.01) 0.01
9
10. Intangible Assets and Goodwill
As of May 31, 2003, goodwill amounted to $63.8 million, which included fiscal
2003 changes of $32.3 million addition associated with the purchase price
allocation of the wafer and reticle product lines of Asyst Technologies, and a
$0.2 million addition related to prior year acquisitions. Other intangible
assets, which include patents and other identifiable intangible assets, net of
amortization, of $32.5 million as of May 31, 2003, are being amortized over
useful lives ranging from 3 to 17 years and are as follows (in thousands):
As of May 31, 2003
---------------------------------------------
Gross carrying Accumulated
Amortized intangible assets: amount amortization
- -------------------------------------------------- ---------------------------------------------
Patents $18,301 $4,904
Unpatented technology 9,844 1,941
Employment and noncompete agreements 5,837 1,401
Other 7,965 1,239
---------------------------------------------
$41,947 $9,485
=============================================
Aggregate amortization expense for the third quarter and first nine months of
fiscal 2003 amounted to $1.2 million and $3.3 million, respectively. Estimated
amortization expense for the fiscal years 2003 to 2007 is $4.6 million, $5.1
million, $4.8 million, $4.6 million and $4.3 million, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Entegris, Inc. is a leading provider of materials integrity management products
and services that protect and transport the critical materials used in key
technology-driven industries. Entegris primarily derives its revenue from the
sale of products to the semiconductor and data storage industries. Cost of sales
includes polymers and purchased components, manufacturing personnel, supplies
and fixed costs related to depreciation and operation of facilities and
equipment. The Company's customers consist primarily of semiconductor
manufacturers, semiconductor equipment and materials suppliers, and hard disk
manufacturers which are served through direct sales efforts, as well as sales
and distribution relationships, in the United States, Asia and Europe.
The Company's fiscal year is a 52- or 53-week period ending on the last Saturday
of August. The current fiscal year will end on August 30, 2003 and includes 52
weeks. The previous fiscal year ended on August 31, 2002 and comprised 53 weeks.
Fiscal years are identified in this report according to the calendar year in
which they end. For example, the fiscal year ended August 30, 2003 is referred
to as "fiscal 2003".
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. The preparation of these 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
accounts receivable, warranty and sales return obligations, inventories,
long-lived assets and income taxes. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The critical accounting
policies affected significantly by estimates, assumptions and judgments used in
the preparation of the Company's consolidated financial statements are discussed
below.
10
Allowance for Doubtful Accounts and Other Accounts Receivable-Related Valuation
Accounts The Company maintains an allowance for doubtful accounts as well as
reserves for sales returns and allowances, and warranty claims. Significant
management judgments and estimates must be made and used in connection with
establishing these valuation accounts. Material differences could result in the
amount and timing of the Company's results of operations for any period if we
made different judgments or utilized different estimates. In addition, actual
results could be different from the Company's current estimates, possibly
resulting in increased future charges to earnings.
The Company provides an allowance for doubtful accounts for all individual
receivables judged to be unlikely for collection. For all other accounts
receivable, the Company records an allowance for doubtful accounts based on a
combination of factors. Specifically, management analyzes the age of receivable
balances, historical bad debts write-off experience, industry and geographic
concentrations of customers, general customer creditworthiness and current
economic trends when determining its allowance for doubtful accounts. At May 31,
2003, the Company's allowance for doubtful accounts was $2.0 million, up $0.2
million from $1.8 million at August 31, 2002.
A reserve for sales returns and allowances is established based on historical
trends and current trends in product returns. The Company's reserve for sales
returns and allowances was $1.0 million at May 31, 2003 compared to $1.2 million
at August 31, 2002.
The Company records a liability for estimated warranty claims. The amount of the
accrual is based on historical claims data by product group and other factors.
Claims could be materially different from actual results for a variety of
reasons, including a change in the Company's warranty policy in response to
industry trends, competition or other external forces, manufacturing changes
that could impact product quality, or as yet unrecognized defects in products
sold. The Company's accrual for estimated future warranty costs was $0.7 million
at May 31, 2003, unchanged from $0.7 million at August 31, 2002.
Inventory Valuation The Company uses certain estimates and judgments to properly
value inventory. In general, the Company's inventories are recorded at the lower
of manufacturing cost or market value. Each quarter, the Company evaluates its
ending inventories for obsolescence and excess quantities. This evaluation
includes analyses of inventory levels, historical loss trends, expected product
lives, sales levels by product and projections of future sales demand.
Inventories that are considered obsolete are written off. In addition, reserves
are established for inventory quantities in excess of forecasted demand.
Inventory reserves were $5.4 million at May 31, 2003, down from $5.8 million at
August 31, 2002.
The Company's inventories comprise materials and products subject to
technological obsolescence and which are sold in a highly competitive industry.
If future demand or market conditions are less favorable than current analyses,
additional inventory write-downs or reserves may be required and would be
reflected in cost of sales in the period the revision is made.
Impairment of Long-Lived Assets The Company routinely considers whether
indicators of impairment of its property and equipment assets, particularly its
molding equipment, are present. If such indicators are present, it is determined
whether the sum of the estimated undiscounted cash flows attributable to the
assets in question is less than their carrying value. If less, an impairment
loss is recognized based on the excess of the carrying amount of the assets over
their respective fair values. Fair value is determined by discounted estimated
future cash flows, appraisals or other methods deemed appropriate. If the assets
determined to be impaired are to be held and used, the Company recognizes an
impairment charge to the extent the present value of anticipated net cash flows
attributable to the asset are less than the asset's carrying value. The fair
value of the asset then becomes the asset's new carrying value, which we
depreciate over the remaining estimated useful life of the asset.
The Company assesses the impairment of intangible assets and related goodwill at
least annually, or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors considered important which could
trigger an impairment review, and potentially an impairment charge, include the
following:
11
.. significant underperformance relative to historical or projected future
operating results;
.. significant changes in the manner of use of the acquired assets or the
Company's overall business strategy;
.. significant negative industry or economic trends; and
.. significant decline in the Company's stock price for a sustained period
changing the Company's market capitalization relative to its net book value.
The Company's marketable equity securities are periodically reviewed to
determine if declines in fair value below cost basis are other-than-temporary,
requiring an impairment loss to be recorded and the investment written down to a
new cost basis. At May 31, 2003, the Company's investment in Metron Technology
N.V. common stock had a carrying value of $3.1 million with a fair value of $3.8
million.
Income Taxes In the preparation of the Company's consolidated financial
statements, management is required to estimate income taxes in each of the
jurisdictions in which the Company operates. This process involves estimating
actual current tax exposures together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included in the Company's consolidated balance sheet.
The Company has significant amounts of deferred tax assets that are reviewed for
recoverability and valued accordingly. Management evaluates the realizability of
the deferred tax assets on a quarterly basis and assesses the need for valuation
allowances. These deferred tax assets are evaluated by considering historical
levels of income, estimates of future taxable income streams and the impact of
tax planning strategies. A valuation allowance is recorded to reduce deferred
tax assets when it is determined that the Company would not be able to realize
all or part of its deferred tax assets. At May 31, 2003, the Company carried a
valuation allowance of $1.1 million against its net deferred tax assets with
respect to certain foreign net operating loss carryforwards. In the event it was
determined that the Company would not be able to realize all or part of its
remaining net deferred tax assets in the future, an adjustment to increase the
deferred tax asset valuation allowance would be charged to income in the period
such determination would be made.
12
Three and Nine Months Ended May 31, 2003 Compared to Three and Nine Months Ended
June 1, 2002
The following table compares quarterly results with year-ago results, as a
percent of sales, for each caption.
Three Months Ended Nine Months Ended
-------------------------------------------------------
May 31, May 31,
2003 June 1, 2002 2003 June 1, 2002
-------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 56.5 52.9 57.9 61.4
-------------------------------------------------------
Gross profit 43.5 47.1 42.1 38.6
Selling, general and administrative expenses 29.0 32.3 33.2 34.9
Nonrecurring charges (reversals) - (2.7) 1.0 1.5
Engineering, research and development
expenses 6.7 7.1 7.3 8.2
-------------------------------------------------------
Operating income (loss) 7.9 10.5 0.6 (6.0)
Interest income, net - (0.4) (0.2) (0.7)
Other expense (income), net 0.5 0.4 2.9 (0.9)
-------------------------------------------------------
Income (loss) before income taxes and other
items below 7.4 10.4 (2.1) (4.4)
Income tax expense (benefit) 1.8 1.7 (1.6) (2.5)
Equity in net loss of affiliate - - 0.1 -
Minority interest in subsidiaries' net loss - - - (0.5)
-------------------------------------------------------
Net income (loss) 5.7% 8.8% (0.6)% (1.3)%
=======================================================
Effective tax rate 23.7% 16.1% (75.6)% (58.0)%
Net sales Net sales increased 17% to $70.0 million in the third quarter of
fiscal 2003, compared to $59.7 million in the third quarter of fiscal 2002. For
the third quarter, the Company estimates that about 60% of total sales was for
unit-driven products and 40% for products associated with capital spending, a
similar breakdown to the fiscal year's first two quarters. Sequentially, third
quarter sales were 29% higher than sales of $54.1 million reported for the
second quarter of fiscal 2003. About 40% of the increase related to sales from
the wafer and reticle carrier product line acquired in the second quarter. Net
sales for the first nine months of fiscal 2003 were $177.8 million, up 14% from
$156.3 million in the comparable year-ago period.
The semiconductor market generated about 76% of the Company's overall sales for
the quarter, with sales up about 7% over the prior year. Sequentially, net sales
for semiconductor market products increased 30% from the previous quarter. As
anticipated, the Company had increased sales from the wafer and reticle carrier
product line, which was acquired in the second quarter. This factor accounted
for about one-half of the sequential increase in semiconductor market sales.
However sales for the Company's entire microenvironment product offering, which
includes 300mm FOUPs, increased. Sales for wafer shippers also were up
significantly from last quarter, particularly in Japan where many customers held
orders last quarter while Entegris completed the transition to direct sales in
Japan. In addition, the Company began to ship its new WafershieldTM wafer
shippers in volume. Sales for fluid handling products were about flat with from
the previous quarter.
The Company's data storage products accounted for about 13% of net sales, up 48%
from the third quarter a year ago. Sequentially, data storage product sales were
20% higher than in the second quarter. These sales levels have not been achieved
since the second quarter of fiscal 2001.
13
The Company believes that most of the form-factor and process changes in the
industry that resulted in increased sales have played out. Therefore, the
Company would expect sales levels for data storage products to return to a more
normalized level in the fourth quarter.
Third quarter service business revenue, which accounted for about 8% of
Entegris' overall sales rose 47% compared to the year-ago quarter and 44%
compared to the second quarter. This increase is primarily due to sales of
equipment used to clean wafer and disk carrier's, and shipping products. In
addition, on- and off-site service sales also improved.
About 3 percent of overall sales for the quarter were generated in the life
science market. Sales increased by 40 percent from the second quarter primarily
due to the inclusion of the clean-in-place acquisition for the entire quarter.
On a geographic basis, Entegris' total sales in North America were 40%, in Asia
Pacific 28%, in Europe 18% and in Japan 14%. Year-over-year third quarter sales
comparisons saw solid sales gains in Europe, Japan and Asia Pacific offset
partly by slightly lower sales in North America. Sequentially, third quarter
sales improved in all regions, particularly in Europe, which recorded strong
sales of microenvironment products.
Overall, semiconductor industry conditions remain difficult. There also
continues to be considerable risks related to geopolitical conditions and the
world economy. Accordingly, the Company's projection for next quarter is subject
to uncertainty. The Company estimates that sales for its fourth quarter will be
similar to third quarter levels.
Gross profit Gross profit in the third quarter of fiscal 2003 improved 8% to
$30.5 million, compared to $28.1 million reported in the third quarter of fiscal
2002. For the first nine months of fiscal 2003, gross profit was $74.9 million,
up 24% from $60.3 million recorded in the first nine months of fiscal 2002. As a
percentage of net sales, gross margins for the third quarter and first nine
months of the fiscal year were 43.5% and 42.1%, respectively, compared to 47.1%
and 38.6%, respectively, in the comparable periods a year ago.
Year-over-year gross margin and gross profit gains were reported by both
domestic and international operations. The improvements in fiscal 2003 figures
were primarily the result of the increased sales levels noted above, which
resulted in higher production levels. In addition, the Company benefited from
cost reduction and manufacturing efficiency actions associated with facility
consolidations initiated over the past two years. The Company also invested in
automation and the creation of manufacturing centers focused on the production
of products with similar requirements in order to maximize the utilization of
the Company's facilities.
With the strong increase in sales from quarter to quarter, the Company typically
would have expected a higher gross margin for the quarter. However, the quarter
included transition costs of approximately $0.7 million related to the
integration of the wafer and reticle carrier product line acquisition. Also
negatively influencing margins were the stronger sales in services and life
sciences, two of the Company's new markets. While products and concepts are in
the development stage, the Company anticipates margins for such products and
services to be below those of the semiconductor and data storage market. Gross
margins for the company may therefore by somewhat more volatile, depending on
sales mix, as the markets for new products and services develop.
As discussed above, management anticipates fourth quarter sales levels to remain
similar with those reported in the third quarter. With the absence of most of
the transition costs recorded in the third quarter related to integrations, the
Company expects gross margins to improve slightly next quarter.
14
Selling, general and administrative expenses Selling, general and administrative
(SG&A) expenses increased 5% to $20.3 million in the third quarter of fiscal
2003 from $19.3 in the third quarter of fiscal 2002. SG&A expenses for the third
quarter were up 2% from the second quarter of fiscal 2003. On a year-to-year
basis, SG&A expenses rose by 8% to $59.0 million compared to $54.5 million a
year earlier. On a year-to-date basis, SG&A costs, as a percent of net sales,
decreased to 33.2% from 34.9% a year ago. This decline reflects the higher SG&A
costs being more than offset by the Company's increase in net sales.
The year-to-year increase in SG&A expenses is primarily due to the higher sales
commissions and incentive compensation accruals. In addition, fiscal 2003's
second and third quarters include amortization and other additional costs
associated with the Company's two recent acquisitions, and the transition to a
direct sales model in Japan for certain products previously sold under a
distribution relationship.
Looking forward, the Company expects that SG&A expenses will generally increase
as sales and profitability improve, and higher sales commissions, profit sharing
and charitable donation accruals are recorded.
Nonrecurring charges (reversals) The Company recorded no nonrecurring charges in
the third quarter of fiscal 2003, compared to a $1.6 million pre-tax benefit in
the third quarter of fiscal 2002 associated with the reversal of earlier
accruals related to the plant closures of some of our facilities. Approximately
$1.0 million of the reversal was associated with the favorable settlement of
future lease commitments, which the Company had previously accrued in full.
During the first quarter of fiscal 2003, the Company recorded a pre-tax charge
of $1.8 million related to the relocation of its Upland, California operations
and certain workforce reductions. The charge included $0.9 million in
termination costs related to a workforce reduction of approximately 75
employees, $0.4 million for estimated losses for asset impairment and $0.5
million for future lease commitments on the Upland facility. As expected, the
Company closed the Upland plant in the second quarter, with the majority of the
facility's equipment sold, disposed of, or moved to Chaska, Minnesota by the end
of February 2003. As of May 31, 2003, future cash outlays of $0.7 million
remained outstanding in connection with the aforementioned charge, and are
primarily related to severance payments of $0.3 million, which run through May
2004, and lease commitments of $0.4 million, which run through July 2005.
In the first quarter of 2002, the Company's results included a nonrecurring
charge of $4.0 million in connection with the closures of the Company's
Chanhassen, Minnesota and one of its Chaska, Minnesota plants. The charge
included $1.5 million in termination costs related to a workforce reduction of
230 employees and $2.3 million for estimated losses for asset impairment. As of
May 31, 2003, future cash outlays of $0.1 million remained outstanding in
connection with the aforementioned charge.
Engineering, research and development expenses (ER&D) ER&D expenses increased
11% to $4.7 million, or 6.7% of net sales, in the third quarter of fiscal 2003
as compared to $4.2 million, or 7.1% of net sales, for the same period in fiscal
2002. ER&D expenses rose 2% to $13.0 million, or 7.3% of net sales, in the first
nine months of fiscal 2003 as compared to $12.7 million, or 8.2% of net sales, a
year-ago period, mainly reflecting higher net sales. The Company's ER&D
activities continue to focus on the support of current product lines, and the
development of new products and manufacturing technologies. Also, the Company's
ER&D expenses will increase by approximately $0.6 million over the last half of
the year due to the addition of employees hired in connection with the Company's
second-quarter acquisition of Asyst Technologies, Inc.'s WRC product lines.
Interest income, net Net interest income was $25,000 in the third quarter of
fiscal 2003 compared to $0.2 million in the third quarter of fiscal 2002. Net
interest income was $0.3 million in the first nine months of fiscal 2003
compared to $1.1 million for the same period in fiscal 2002. The changes mainly
reflect the significantly lower rates of interest currently available on the
Company's investments in short-term debt securities compared to the year-ago
period.
Other expense (income), net Other expense was $0.3 million in the third quarter
of fiscal 2003, essentially unchanged from the year-ago quarter. Other expense
was $5.1 million in the first nine months of fiscal 2003 compared to other
income of $1.5 million in the comparable period a year ago.
15
Other expense in the first quarter of fiscal 2003 included an impairment loss of
$4.5 million, or $3.3 million after tax, related to the write-down of the
Company's equity investment in Metron Technology N.V. common stock. The Company,
a founding shareholder of Metron, owns about 1.6 million shares of Metron common
stock. Prior to the impairment charge, the Company's investment in Metron
Technology N.V. common stock had a carrying value of $7.6 million. At November
30, 2002, the fair value of the investment was $3.1 million, based on a price of
$2.00 per share, the closing price of Metron at the end of the first quarter.
The decline in fair value was determined to be other-than-temporary.
Accordingly, an impairment loss of $4.5 million was recorded and the investment
in Metron common stock written down to a new carrying value of $3.1 million. At
May 31, 2003, the Company's investment in Metron Technology N.V. common stock
had a fair value of $3.8 million.
Other income for the first nine months of fiscal 2002 included $1.3 million of
foreign currency gains, with about $0.7 million associated with the realization
of translation gains from the Company's liquidated Korean entity.
Income tax expense (benefit) The Company recorded income tax expense of $1.2
million for the third quarter of fiscal 2003 compared to income tax expense of
$1.0 million in the third quarter a year ago. For the first nine months of
fiscal 2003, the Company booked an income tax benefit of $2.8 million compared
to an income tax benefit of $4.0 million in the first nine months of fiscal
2002.
The effective year-to-date tax rate was (75.6%) in fiscal 2003, compared to
(58.0%) for the first nine months of fiscal 2002. The difference between (75.6%)
and the U.S. statutory tax rate of 35% is primarily due to lower taxes on
foreign operations, the tax effect from the impairment loss recorded on the
Company's investment in Metron stock, a tax benefit associated with export
activities, and a tax credit associated with R&D activities. Tax calculations at
fairly low profitability levels are complex and sensitive to estimates of annual
levels of profitability. Therefore, it is possible that there will be volatility
in the Company's effective tax rate during the remainder of the fiscal year.
Equity in net loss of affiliates The Company's equity in the net loss of
affiliates was $10,000 and $0.1 million, respectively, in the third quarter and
first nine months of fiscal 2003 and represents the Company's share of losses in
entities accounted for under the equity method of accounting. No equity in the
net earnings of affiliates was recorded in fiscal 2002 as the Company did not
have entities under the equity method of accounting during that period.
Minority interest The Company recorded no minority interest for the three-month
and nine-month periods ended May 31, 2003 as all of its consolidated
subsidiaries are presently 100%-owned. For the third quarter and first nine
months of fiscal 2002, the minority interest in subsidiaries' net loss was
$13,000 and $0.8 million, respectively, reflecting net operating losses of the
Company's formerly 51%-owned Japanese subsidiaries, which became 100%-owned in
February 2002.
Net income (loss) The Company recorded net income of $4.0 million, or $0.05 per
diluted share, in the third quarter of fiscal 2003, compared to net income of
$5.2 million, or $0.07 per diluted share, in the year-ago period. For the first
nine months of fiscal 2003, the Company recorded a net loss of $1.0 million, or
$0.01 per diluted share, compared to a net loss of $2.1 million, or $0.03 per
diluted share, in the comparable period a year earlier.
16
Liquidity and Capital Resources
Operating activities Cash flow provided by operating activities totaled $21.6
million in the first nine months of fiscal 2003, with $4.3 million generated in
the third quarter. The Company's year-to-date net loss of $1.0 million was more
than offset by noncash charges, including depreciation and amortization of $20.4
million and the impairment loss of $4.5 million on the Company's investment in
Metron Technology. In addition, the Company's operating cash flows benefited
from the collection of refundable income taxes of $7.7 million and an increase
in payables and accrued liabilities of $4.2 million. Partially offsetting these
items providing operating cash flow were increases in accounts receivable of
$10.3 million, mainly reflecting higher third quarter sales, and in inventory of
$2.4 million, which relates to the third quarter build-up of inventory in Japan
as the Company transitioned to a direct sales model for products previously sold
under a distribution relationship. Other changes to working capital accounts
were relatively minor for the Company. Working capital at May 31, 2003 stood at
$148.6 million, including $99.5 million in cash, cash equivalents and short-term
investments.
Investing activities. Cash flow used in investing activities totaled $34.8
million in the first nine months of fiscal 2003. Acquisition of property and
equipment totaled $9.4 million, primarily for additions of manufacturing,
computer and laboratory equipment. The Company expects capital expenditures will
be in the range of $12 to $15 million during fiscal 2003, consisting mainly of
spending on manufacturing equipment, tooling and information systems.
During the second quarter of fiscal 2003, the company made two cash acquisitions
totaling $44.3 million. In January 2003, the Company purchased the assets of
Electrol Specialties Company (ESC), a market leader in Clean-In-Place
technology. In February 2003, the Company purchased the Wafer and Reticle
Carrier product lines of Asyst Technologies, Inc. Each of the above transactions
was accounted for by the purchase method. Accordingly, the Company's
consolidated financial statements include the net assets and results of
operations from the dates of acquisition. The Company is in the process of
reviewing and finalizing valuations of the tangible and intangible assets
acquired in these acquisitions.
The Company had maturities, net of purchases, of short-term investments of $21.3
million during the first nine months of fiscal 2003. Short-term investments
stood at $23.3 million at May 31, 2003.
Financing activities Cash provided by financing activities totaled $14.5 million
during the first nine months of fiscal 2003. The company made payments of $3.6
million on borrowings, while proceeds from short-term borrowings were $15.3
million. The Company received $2.8 million in proceeds in connection with common
shares issued under the Company's stock option and stock purchase plans.
As of May 31, 2003, the Company's sources of available funds comprised $99.5
million in cash, cash equivalents, short-term investments plus various credit
facilities. Entegris has unsecured revolving commitments with two commercial
banks with aggregate borrowing capacity of $40 million, with $12.0 million in
borrowings outstanding at May 31, 2003 and lines of credit with seven
international banks that provide for borrowings of currencies for the Company's
overseas subsidiaries, equivalent to an aggregate of approximately $11 million.
Borrowings outstanding on these lines of credit were approximately $8.4 million
at May 31, 2003. In addition, the Company's overseas subsidiaries had other
short-term borrowings under informal arrangements totaling $2.9 million at May
31, 2003.
Under the unsecured revolving credit agreement, the Company is subject to, and
is in compliance with, certain financial covenants including ratios requiring a
fixed charge coverage of not less than 1.10 to 1.00 and a leverage ratio of not
more than 2.25 to 1.00. In addition, the Company must maintain a calculated
consolidated and domestic tangible net worth, which, as of May 31, 2003, are
$203 million and $125 million, respectively, while also maintaining consolidated
and domestic aggregate amounts of cash and short-term investments of not less
than $75 million and $40 million, respectively.
On June 9, 2003, the Company announced that it had filed a shelf registration
statement with the Securities and Exchange Commission. Up to 25,000,000 shares
of the Company's common stock may be offered from time to time under the
registration statement, including 15,500,000 newly issued shares by Entegris and
9,500,000 currently outstanding shares by certain shareholders of the Company.
The common stock may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. The Company stated that it
would use the net proceeds from any sale of new Entegris shares for general
corporate purposes or to finance acquisitions. The Company would not receive any
proceeds from any sale of shares by the selling shareholders.
At May 31, 2003, the Company's shareholders' equity stood at $327.2 million
compared to $322.1 million at the beginning of the fiscal year. The Company's
net loss of $1.0 million for the nine months ended May 31, 2003 was more than
offset by proceeds of $2.8 million from the issuance of common shares under the
17
Company's stock option and stock purchase plans and increases in other
comprehensive income totaling $3.3 million.
The Company believes that its cash and cash equivalents, cash flow from
operations and available credit facilities will be sufficient to meet its
working capital and investment requirements for the next 12 months. However,
future growth, including potential acquisitions, may require additional funding,
and from time to time the Company may need to raise capital through additional
equity or debt financing. There can be no assurance that any such financing
would be available on commercially acceptable terms.
Recently Issued Accounting Pronouncements
In December 2002, the Emerging Issues Task Force issued EITF 00-21, "Revenue
Arrangements with Multiple Deliverables." This issue addresses certain aspects
of the accounting for arrangements under which a company will perform multiple
revenue-generating activities. In some arrangements, the different
revenue-generating activities (deliverables) are sufficiently separable, and
there exists sufficient evidence of their fair values to separately account for
some or all of the deliverables (that is, there are separate units of
accounting). In other arrangements, some or all of the deliverables are not
independently functional, or there is not sufficient evidence of their fair
values to account for them separately. This issue addresses when and, if so, how
an arrangement involving multiple deliverables should be divided into separate
units of accounting. This issue does not change otherwise applicable revenue
recognition criteria. This issue is applicable for the Company for revenue
arrangements entered into in fiscal 2004. The Company does not expect the
adoption of EITF 00-21 to have an impact on current revenue recognition.
Cautionary Statements This report contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements may include forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project,"
"should" and similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forecasts and projections in this document are "forward-looking
statements," and are based on management's current expectations of the Company's
near-term results, based on current information available pertaining to the
Company, including the risk factors identified in the Company's Annual Report on
Form 10-K for the fiscal year ended August 31, 2002. Among these risks and
uncertainties are general economic conditions, the volatile and cyclical nature
of the semiconductor industry, the risks associated with political and global
market instability, including the impact of war, the ability of the Company to
develop and protect its intellectual property, the risks associated with the
acceptance of new products and services and the successful integration of
acquisitions. Other factors could also cause the Company's results to differ
materially from those contained in its forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Entegris's principal market risks are sensitivities to interest rates and
foreign currency exchange rates. The Company's current exposure to interest rate
fluctuations is not significant. Most of its long-term debt debt at May 31, 2003
carries fixed rates of interest. The Company's cash equivalents and short-term
investments are debt instruments with maturities of 12 months or less. A 100
basis point change in interest rates would potentially increase or decrease net
income by approximately $0.5 million annually.
The Company uses derivative financial instruments to manage foreign currency
exchange rate risk associated with the sale of products in currencies other than
the U.S. dollar. At May 31, 2003, the company was party to forward contracts to
deliver Japanese yen with notional value of approximately $25 million. The cash
flows and earnings of foreign-based operations are also subject to fluctuations
in foreign exchange rates. A hypothetical 10% change in the foreign currency
exchange rates would potentially increase or decrease net income by
approximately $1.0 million.
The Company's investment in Metron common stock is accounted for as an
available-for-sale security. The company is exposed to fluctuations in the price
of Metron stock. At May 31, 2003, the Company's
18
investment in Metron Technology N.V. common stock had a carrying value of $3.1
million with a fair value of $3.8 million. A 25% adverse change in Metron's per
share price would result in an approximate $1.0 million decrease in the fair
value of the Company's investment as of May 31, 2003.
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer have
evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rule 13a-14(c) of the Securities
Exchange Act of 1934, as amended, within 90 days of the filing date of this
Quarterly Report on Form 10-Q. Based upon their evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, since the date the controls were evaluated.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In September 2002, Lucent Technologies, Inc. named the Company as a defendant
along with Poly-Flour Engineering Inc., FSI International, Inc. and BOC Capital
Group in an action filed in circuit court in Orange County, Florida for damages
arising from a chemical spill at a customer's facility in January 2000. To date,
Lucent has requested aggregate damages from all defendants in the range of $52
million, and has specifically requested damages of $12 million from Entegris.
While the outcome of this matter cannot be predicted with any certainty, based
on the information to date, the Company believes that it has valid defenses to
the claims and, furthermore, has adequate insurance to cover any damages
assessed against the Company and as such, does not believe that the matter will
have a material adverse effect on its financial position, operating results or
cash flows
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99.4 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
A Current Report on Form 8-K/A was filed on April 25, 2003 to amend the
Registrant's Current Report on Form 8-K, dated February 11, 2003 and filed with
the Securities and Exchange Commission on February 26, 2003, relating to the
purchase by the Registrant of wafer and reticle carrier ("WRC") product lines
from Asyst Technologies, Inc. (Asyst). The Report amended the information
provided under Item 7 - Financials Statements and Exhibits.
19
CONFORMED COPY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTEGRIS, INC.
Date: July 15, 2003 /s/ James E. Dauwalter
----------------------
James E. Dauwalter
President and Chief Executive
Officer
Date: July 15, 2003 /s/ John D. Villas
------------------
John D. Villas
Chief Financial Officer
20