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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended April 2, 2005

OR

For the transition period from              to             

COMMISSION FILE NUMBER 001-16611

Mykrolis Corporation

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

04-3536767

(I.R.S. Employer Identification No.)

129 Concord Road

Billerica, Massachusetts 01821

(Address of principal executive offices)

Registrant’s telephone number, include area code (978) 436-6500

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 and 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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The Company had 41,988,766 shares of common stock outstanding as of April 15, 2005.

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Mykrolis Corporation

INDEX TO FORM 10-Q

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PART I - FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Mykrolis Corporation

Consolidated Statements of Operations

(In thousands except per share data)

(Unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

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Mykrolis Corporation

Consolidated Balance Sheets

(In thousands except share data)

The accompanying notes are an integral part of the consolidated financial statements.

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Mykrolis Corporation

Consolidated Statements of Shareholders’ Equity

and Comprehensive Income (Loss)

(In thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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Mykrolis Corporation

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

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Mykrolis Corporation

Notes to Consolidated Financial Statements

(In thousands except share and per share data)

1. Background and Basis of Presentation

Background

Prior to March 31, 2001, Mykrolis Corporation’s (the “Company”) business was operated as a fully integrated business unit of Millipore Corporation (“Millipore”). The Company became independent through a spin-off by Millipore that was effected in three steps. On March 31, 2001, Millipore transferred to the Company substantially all of the assets and liabilities associated with its microelectronics business (the “Separation”). The Company completed its initial public offering of 7.0 million shares of common stock on August 9, 2001. On February 27, 2002 (the “Distribution Date”), Millipore completed the spin-off of the Company through the distribution to its shareholders of all of the 32.5 million shares of the Company’s common stock owned by Millipore on that date. Effective February 28, 2002 the Company became a fully independent company.

Interim Financial Statements

The accompanying consolidated financial statements have been prepared in accordance with the rules of the Securities and Exchange Commission for interim financial statements and do not include all disclosures required by generally accepted accounting principles in the United States of America. The financial information included herein, other than the consolidated balance sheet at December 31, 2004, has been prepared without audit. The consolidated balance sheet at December 31, 2004 has been derived from, but does not include all the disclosures contained in the audited consolidated financial statements for the year ended December 31, 2004. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s form 10-K/A Amendment No. 1 to Annual Report for the year ended December 31, 2004. The financial information as of April 2, 2005 and for the three months ended April 2, 2005 and April 3, 2004 is unaudited, but includes all adjustments that management considers necessary for a fair statement of the consolidated results of operations, financial position and cash flows of the Company and of its consolidated subsidiaries. All of these adjustments are of a normal recurring nature. Results for the three-month period ended April 2, 2005 are not necessarily indicative of results to be expected for the full fiscal year 2005 or for any other future periods.

Fiscal Year

The Company’s fiscal year is the 365-366 day period that commences on January 1 and ends on December 31. Each fiscal quarter ends on the Saturday nearest the calendar month end and generally contains 13 weeks consisting of 88-94 days. Fiscal year 2005 comprises the 365-day period from January 1 to December 31, 2005 with fiscal quarters ended April 2, July 2, October 1 and December 31. Fiscal year 2004 comprises the 366-day period from January 1 to December 31, 2004 with fiscal quarters ending April 3, July 3, October 2 and December 31.

Reclassifications

Certain items in the prior year’s consolidated financial statements have been reclassified to conform to the current presentation of the financial statements.

2. Stock Plans

Options for the purchase of the Company’s common stock have been granted to officers, directors and key employees under various nonqualified stock option plans and agreements. The Company accounts for these grants under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is recorded as a charge to operations for options granted under those plans and agreements where the exercise price equals or exceeds the market value of the underlying common stock on the date of grant.

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If the recognition provisions of FASB Statement No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123, had been adopted, the effect on net income and basic and diluted net income per share would have been as follows:

The Company has revised the unaudited pro forma disclosures as previously filed in its April 3, 2004 Form 10-Q. During the fourth quarter of 2004, the Company determined that the pro forma compensation expense for certain stock options granted in December 2003 with a vesting period of four years was incorrectly recognized as stock-based compensation over a one-year period for pro forma disclosure purposes only. This error resulted in a $2,101 understatement of pro-forma net income and a $0.05 and $0.04 understatement of basic and diluted pro-forma earnings per share for the three months ended April 3, 2004, respectively.

3. Earnings Per Share

For the three months ended April 2, 2005 and April 3, 2004, basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, restricted stock awards, and performance based restricted stock awards. The weighted average diluted shares outstanding calculation excludes those stock options for which the impact would have been antidilutive. For the three months ended April 2, 2005, 2,622,350 options were antidilutive. For the three months ended April 3, 2004, there were no antidilutive options.

As of April 2, 2005, Mykrolis had outstanding options to purchase an aggregate of 7,378,436 shares of its common stock at a weighted average price of $11.12. Of these options, options to purchase an aggregate of 5,934,334 shares at a weighted average price of $11.44 were fully vested and exercisable.

4. Acquisitions

On March 3, 2005, the Company acquired privately held Extraction Systems, Inc. (“Extraction”). Based in Franklin, Massachusetts, Extraction’s products are used to measure and remove airborne molecular contaminants in the semiconductor manufacturing process and offer the Company synergies in addressing opportunities in the microcontamination measurement and control market. The purchase price was $24,941 including cash held in escrow of $2,481 until certain conditions are satisfied and to secure the seller’s indemnity obligations. The Extraction acquisition was accounted for under the purchase method of accounting and Extraction’s results of operations are included in the Company’s consolidated financial statements since the date of purchase. Pro-forma results are not included as they are immaterial. The aggregate purchase price included transaction costs of $322.

The following table summarizes the preliminary purchase price allocated to the estimated fair values of the assets acquired at the date of acquisition.

The $9,000 of acquired intangible assets included $4,600 of customer relationships (7-year economic consumption life), $1,500 patent completed technologies (5-year economic consumption life), $1,300 of distributor relationships (5-year economic consumption life), $900 of patent core technologies (7-year economic consumption life), $400 of non-compete agreements (5-

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year economic consumption life) and $300 of trade names (5-year economic consumption life). These intangibles assets were valued using the income approach which requires a projection of revenues and expenses specifically attributable to the intangible asset and is generally used for income producing intangible assets, particularly where the intangible asset is not readily replaced or replicated. The $11,450 of goodwill was assigned to the Company’s gas microcontamination reporting unit and primarily relates to synergies the Company expects to realize in the microcontamination control business and by providing sales and marketing channels principally in Asia and Japan and was the only change in goodwill during the quarter. In addition, goodwill associated with this acquisition is not deductible for tax purposes .

5. Other Intangible Assets

Components of the Company’s identifiable other intangible assets are as follows:

The Company recorded amortization expense for its other intangible assets of $783 and $442 for the three months ended April 2, 2005 and April 3, 2004, respectively. The gross carrying amount of other intangibles increased by $9,011 for the three months ended April 2, 2005 mainly due to the acquisition of Extraction Systems, Inc and acquisition of intellectual property from Millipore Ireland. Estimated amortization expense for the fiscal years 2005 to 2009 is $4,353, $4,738, $3,531, $2,276 and $1,430, respectively.

6. Product Warranty Costs

At the time revenue is recognized, the Company provides for estimated cost of product warranties as provided for under contractual arrangements. Warranty obligations are affected by product failure rates and service delivery costs incurred in correcting a product failure. Should such failure rates or costs differ from these estimates, accrued warranty costs would be adjusted in the period that such events or costs become known.

Changes in the warranty reserves during the first quarter of 2005 and 2004 were as follows:

7. Restricted Cash

The Company has provided cash collateral totaling $1,502 on standby letters of credit in connection with the lease for its corporate headquarters, research and development and manufacturing facility in Billerica and other security deposits. At April 2, 2005, this cash collateral was invested in certificates of deposit and money market funds.

8. Other Income, Net

Other income is summarized below:

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9. Inventories

Inventories are summarized as follows:

10. Employee Retirement Plans

The employees of the Company’s subsidiary in Japan (“Nihon Mykrolis”) are covered in a defined benefit pension plan. The table below set forth the estimated net periodic cost of the Nihon Mykrolis Pension Plan.

11. Income Taxes

For the three months ended April 2, 2005, the Company recorded income tax expense of $1,746 on consolidated pre-tax income of $7,277, yielding an effective tax rate of 24% during the quarter. The Company has calculated an annual effective tax rate of 24% which is primarily related to the Company’s foreign operations and results from its overall geographic mix of income, including tax benefits relating to U.S. net operating losses for which no tax benefit had been previously taken. For the three months ended April 3, 2004 the Company recorded income tax expense of $1,590 with respect to certain foreign operations on a consolidated pre-tax income of $8,577, yielding an effective tax rate of 18.5%.

During the first quarter of 2004, Millipore notified the Company that certain of the Company’s U.S. tax attributes were utilized in connection with Millipore’s consolidated tax return filings for periods between the Separation and the Distribution Date. Under the terms of the tax sharing agreement with Millipore in connection with the Separation, the Company is entitled to be paid for tax attributes utilized by Millipore. On March 5, 2004, the Company received a payment with respect to these tax attributes of $1,255 from Millipore. As a result, this payment was recorded as an increase in additional paid-in capital included in shareholders’ equity.

12. Business Segment Information

The Company has one reportable segment that develops, manufactures and sells consumables and capital equipment to semiconductor fabrication companies and other companies using similar manufacturing processes, as well as OEM suppliers to those companies. The Company also provides warranty and repair services to customers in this segment. The Company’s products include consumable products and equipment products that are used in the manufacture of semiconductors and other high precision electronic devices. Consumable products, including service revenue, accounted for 69% of revenues for both quarters ended April 2, 2005 and April 3, 2004 and equipment products accounted for 31% for these same periods. The Company’s products are sold worldwide through a direct sales force and through distributors in selected regions.

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The Company attributes net sales to different geographic areas as presented in the table below.

13. Significant Customers and Concentration of Risk

Historically, the Company has relied on a limited number of customers for a substantial portion of its net sales. During the three months ended April 2, 2005 and the three months ended April 3, 2004, one customer represented 13.3% and 14.3% of revenues, respectively. Accounts receivable for this customer was $7,780 and $8,197 at April 2, 2005 and December 31, 2004, respectively. There were no other customers that accounted for more than 10% of revenues or accounts receivable during these periods.

14. Commitments and Contingencies

On March 3, 2003 the Company filed a lawsuit against Pall Corporation in the United States District Court for the District of Massachusetts alleging infringement of two of the Company’s U.S. patents by a fluid separation device known as the Pall Photo Kleen EZD-2 filter assembly manufactured and sold by the defendant. The Company’s lawsuit also sought a preliminary injunction preventing the defendant from the manufacture, use, sale, offer for sale or importation into the U.S. of the infringing product. On March 24, 2003 defendant filed an answer denying that its fluid separation device infringed the Company’s patents; defendant also filed a counterclaim seeking a dismissal of the Company’s lawsuit, a decree that the Company’s patents are invalid and/or not infringed and costs incurred in conducting the litigation. On April 30, 2004, the Court issued a preliminary injunction against Pall Corporation and ordered Pall to immediately stop making, using, selling, or offering to sell within the U.S., or importing into the U.S., its PhotoKleen EZD-2 Filter Assembly products or “any colorable imitation” of those products. On June 21, 2004, the Company filed a motion with the Court to hold Pall Corporation in contempt of court for failing to comply with the terms of the preliminary injunction. Subsequently, Pall filed a motion to dissolve the preliminary injunction based on two Japanese publications that it alleged raised questions as to the validity of the Company’s patents. On January 18, 2005, the United States District Court of Massachusetts issued an order holding Pall Corporation in contempt of court for the violation of the preliminary injunction and ordering Pall to disgorge all profits earned from the sale of its PhotoKleen EZD-2 Filter Assembly products and colorable imitations thereof from the date the preliminary injunction was issued through January 12, 2005. In addition, Pall was ordered to reimburse Mykrolis for certain of its attorney’s fees associated with the contempt and related proceedings. The Court’s order also dissolved the preliminary injunction, effective January 12, 2005. On February 17, 2005, the Company filed notice of appeal to the U.S. Circuit Court of Appeals for the Federal Circuit appealing the portion of the Court’s order that dissolved the preliminary injunction and Pall filed a notice of appeal to that court with respect to the finding of contempt.

The Company is subject to other claims and legal proceedings which, in the opinion of the Company’s management, are incidental to the Company’s normal business operations. In the opinion of the Company, although final settlement of these suits and claims may impact the Company’s financial statements in a particular period, they will not, in the aggregate, have a material adverse effect on the Company’s financial position, results of operations or cash flows.

During 2004, in conjunction with the employment and relocation of the Vice President of Business Development, the Company entered into a commitment with a third-party employee relocation administrator with respect to the sale of property located in Austin, Texas. As a part of this commitment, the Company agreed to indemnify the third-party relocation administrator against any deterioration in the market value of the property between the officer’s sale of the real property to the third party relocation administrator and resale to a third party at estimated fair market value. In connection with this indemnification commitment and other expenses associated with this relocation, the Company recorded a liability of $384 at December 31, 2004. During the first quarter of 2005, the Company increased this liability by $114 and paid out $149, leaving a liability of $349 at April 2, 2005.

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15. Accrued Restructuring Costs

The Company took several restructuring actions in 2003, 2002 and 2001 to better align its cost structure with prevailing market conditions due to the prolonged industry downturn and to establish separate operations from its former parent. These actions primarily focused on reducing the workforce and consolidating global facilities.

As of April 2, 2005, the Company’s total accrued restructuring costs amount to $986. Of this amount, $13 relates to severance costs for terminated employees which will be paid by the end of April 2005. The facilities-related costs of $973, which primarily relates to the leased office space in Bedford, will be substantially paid by the fourth quarter of 2005.

The activity related to the Company’s restructuring accruals is shown below:

16. Recently Issued Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123 (R) replaces SFAS 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. By its terms SFAS 123(R) was to be effective for interim reporting periods that begin after June 15, 2005; however, effective April 21, 2005, the S.E.C. adopted an amendment to Rule 4-01(a) of Regulation S-X to delay the effective date of SFAS 123(R) until the first interim or annual reporting period of the first fiscal year beginning after June 15, 2005. The Company is currently evaluating the method of adoption and the impact of SFAS 123(R) on the financial position and results of operations. The Company is required to adopt SFAS 123 (R) in the first quarter of 2006. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See Note 3 in the Notes to Consolidated Financial Statements for the pro forma net income and net income per share amounts, as if the Company had used a fair value based method under SFAS 123, which is similar to the methods required under SFAS 123(R) to measure compensation expense for employee stock incentive awards.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of the provisions of SFAS 151 is not expected to have a material impact on the Company’s financial position or results of operations.

In December 2004, the FASB issued two FASB Staff Positions (FSP) that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1, “Application of FASB Statement No. 109, “Accounting for Income Taxes,” to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” states that the manufacturers’ deduction provided for under this legislation should be accounted for as a special deduction instead of a tax rate change. FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” allows a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109, “Accounting for Income Taxes.” These FSP’s may affect how a company accounts for deferred income taxes. These FSP’s are effective December 21, 2004. The Company is currently evaluating the impact from these FSP’s on our results of operations and financial position.

17. Proposed Merger with Entegris, Inc.

On March 21, 2005, the Company entered into an Agreement and Plan of Merger with Entegris, Inc, a Minnesota corporation (“Entegris”) and Eagle DE, Inc., a Delaware corporation and a wholly–owned subsidiary of Entegris. Pursuant to this Agreement,

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Entegris will reincorporate in Delaware by merging into Eagle, DE, Inc, and then immediately thereafter the Company will merge into Eagle DE, Inc., whose name will be changed to Entegris, Inc. The merger is conditioned on, among other things, receiving shareholder and regulatory approvals. Under the terms of the agreement, the Company and Entegris will merge in a stock-for stock exchange, tax-free for the shareholders of both companies. Pending receipt of shareholder and regulatory approvals, the merger will be consummated and the Company’s common stockholders will receive 1.39 shares of Entegris, Inc. common stock for each share that they own. Entegris common stockholders will receive one share of Entegris, Inc. common stock for each share that they own. As a result, current stockholders of Entegris will own approximately 56% of the outstanding common stock of Entegris, Inc. On April 21, 2005 the Federal Trade Commission granted the Company’s request for early termination of the Hart-Scott-Rodino Act waiting period. During the second quarter of 2005, the Company expects to file a joint proxy statement/prospectus with Entegris as part of a registration statement on Form S-4 with the SEC.

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

(In thousands except share and per share data)

You should read the following discussion of the Company’s financial condition and results of operations along with the consolidated financial statements and accompanying notes included herein. This discussion contains forward-looking statements and involves numerous risks and uncertainties, which are described under “Forward Looking Statements Disclaimer” below. The Company’s actual results may differ materially from those contained in any forward-looking statements.

Overview and Financial Condition

We are a worldwide developer, manufacturer and supplier of liquid and gas delivery systems, components and consumables used to precisely measure, deliver, control and purify the process liquids, gases and chemicals that are used in the semiconductor manufacturing process. Prior to March 2001, our business was operated as a fully integrated business unit of Millipore Corporation (“Millipore”). We became an independent company through a spin-off by Millipore, which was completed in February of 2002.

The principal market we serve is the global semiconductor industry, a highly cyclical business which experienced a significant downturn that resulted in deterioration in our net sales and results of operations during the period from 2001 to 2003. This downturn had the greatest impact on our sales of liquid and gas equipment products, as new semiconductor plant construction and upgrades declined. Net sales of our consumable products, which tend to be driven by capacity utilization also declined during this period, although less drastically, and benefited from the recovery of the volume of semiconductor wafers being built in 2003. Commencing during the fourth quarter of 2003 and continuing through the fourth quarter of 2004, we experienced improved business conditions, which had a positive impact on our sales and profitability level. During the third quarter of 2004 this recovery began to soften, as key OEM customers announced order delays and reduced booking rates and there was a pause in the growth of wafer starts. The outlook for 2005 is currently unclear; however, should business conditions signal a downturn, we intend to take appropriate actions to maintain profitability at reduced sales levels.

Net sales during the three months ended April 2, 2005 increased 4.4% over sales for the three month period ended April 3, 2004. Our gross profit as a percentage of net sales was 47.2% for the first quarter of 2005 as compared to 48.3% for the three months ended April 3, 2004 which reflected increased volume across product lines but primarily in our gas and liquid delivery product lines. Selling, general and administrative expenses increased 11.2% for the three months ended April 2, 2005 compared to the three months ended April 3, 2004 while research and development expenses increased by 12.2%. Net cash used in operating activities during the three months ended April 2, 2005 and the three months ended April 3, 2004 was $6,270 and $2,360, respectively.

Proposed Merger with Entegris, Inc.

On March 21, 2005, we entered into an Agreement and Plan of Merger with Entegris, Inc, a Minnesota corporation (“Entegris”) and Eagle DE, Inc., a Delaware corporation and a wholly –owned subsidiary of Entegris. Pursuant to this Agreement, Entegris will reincorporate in Delaware by merging into Eagle, DE, Inc, and then immediately thereafter we will merge into Eagle DE, Inc., whose name will be changed to Entegris, Inc. The merger is conditioned on, among other things, receiving shareholder and regulatory approvals. Under the terms of the agreement, we will merge with Entegris in a stock-for stock exchange, tax-free for the shareholders of both companies. Pending receipt of shareholder and regulatory approvals, the merger will be consummated and our common stockholders will receive 1.39 shares of Entegris, Inc common stock for each share that they own. Entegris common stockholders will receive one share of Entegris, Inc. common stock for each share that they own. As a result, current stockholders of Entegris will own approximately 56% of the outstanding common stock of Entegris, Inc. On April 21, 2005 the Federal Trade Commission granted the Company’s request for early termination of the Hart-Scott-Rodino Act waiting period.

Following completion of the merger, the new Entegris, Inc. will be headed by Gideon Argov, currently our CEO, as Chief Executive Officer, with James E. Dauwalter, currently CEO of Entegris, serving as non-executive Chairman of the Board of Directors; Jean-Marc Pandraud, currently our President and Chief Operating Officer, serving as Executive Vice President and Chief Operations Officer; Michael W. Wright, currently President and Chief Operating Officer of Entegris, serving as Executive Vice President and Chief Marketing Officer; John Villas, currently CFO of Entegris, serving as Chief Financial Officer; and Bertrand Loy, currently our CFO, serving as Senior Vice President and Chief Integration Officer. The Board of Directors of Entegris, Inc. after the merger will consist of eleven directors, including five from the current Entegris board, five from our board, and one independent director chosen by the new Entegris Board of Directors after the merger. After the merger, Entegris, Inc will be headquartered in Chaska, MN with a continued significant corporate presence in Billerica.

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During the second quarter of 2005, we expect to file a joint proxy statement/prospectus with Entegris as part of a registration statement on Form S-4 with the SEC. You are urged to read the joint proxy statement/prospectus contained in the registration statement, the final joint proxy statement/prospectus and any other relevant documents filed with the SEC because they will contain important information regarding us, Entegris and the proposed merger. You will be able to obtain these documents free of charge at the Securities and Exchange Commission’s website at www.sec.gov. These reports may also be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Critical Accounting Policies and Significant Judgments and Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and significant judgments and estimates, including those related to net sales, accounts receivable, inventories, long-lived assets and goodwill, deferred tax assets, income tax contingencies, warranty obligations, restructuring charges, pension and other post-retirement benefit obligations, and litigation contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements. The Company has reviewed these policies with its Audit and Finance Committee.

Net Sales

Our net sales consist of revenue from sales of products net of trade discounts and allowances. We recognize revenue upon shipment, primarily FOB shipping point, when evidence of an arrangement exists, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured through historical collection results and regular credit evaluations. In most transactions, we have no obligations to our customers after the date products are shipped other than pursuant to warranty obligations. In the event that significant post-shipment obligations or uncertainties exist such as customer acceptance, revenue recognition is deferred as appropriate until we fulfill such obligations or the uncertainties are resolved.

Accounts Receivable

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments based upon specific identification, by customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

We adjust the cost basis of our inventory to reflect its net realizable value, if lower than cost. We provide reserves for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. We fully reserve for inventories deemed obsolete. We perform quarterly reviews of all inventory items to identify excess and obsolete inventories on-hand by comparing on-hand balances to recent historical usage as well as anticipated or forecasted demand, based upon input from sales, R&D and marketing functions. If estimates of future demand or actual market conditions are less favorable than those previously projected, additional inventory write-downs may be required.

Long-Lived Assets and Goodwill

We periodically evaluate the recoverability of long-lived assets whenever events and changes in circumstances indicate that the carrying value of an asset or class of assets may not be fully recoverable and exceeds its fair value. For long-lived assets we intend to hold and use, if the carrying amount of the asset exceeds the sum of undiscounted cash flows expected to result from the use of the asset over its useful life, an impairment loss will be recorded. The amount of the impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Assets held for sale are valued at fair value less costs to sell the asset.

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For goodwill, we assess fair value by measuring discounted cash flows and comparable company analysis for the applicable underlying reporting unit and test for impairment as the difference between the resulting implied fair value of goodwill compared to its recorded carrying value. Goodwill impairment is tested annually or whenever events and changes in circumstances occur. We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 on January 1, 2002; accordingly, goodwill amortization ceased on that date.

The estimates of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside our control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.

Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements, which extend the life of the underlying asset, are capitalized. Assets are depreciated primarily using straight-line methods over estimated useful lives. Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are eliminated and related gains or losses are reflected in income.

Deferred Tax Assets

Our valuation allowance against the U.S. deferred tax assets is based on an assessment of historical pre-tax income (loss) and projected pre-tax income (loss) for early future periods. In addition, there is a valuation allowance against the deferred tax assets in certain foreign subsidiaries based on our assessment of historical pre-tax income and projected pre-tax income for early future periods. We currently expect there will be sufficient pre-tax income during 2005 to realize deferred tax assets in these foreign subsidiaries. We currently forecast pre-tax income in the U.S. and in addition, we have undertaken tax-planning initiatives designed to generate future U.S. taxable income. However due to the uncertainty in future periods a full valuation allowance remains on the U.S. deferred tax assets at April 2, 2005. As we continue to generate taxable income in the U.S. against which these tax assets may be applied, some portion or all of the valuation allowance would be reversed and an increase in net income would consequently be reported in future years.

Income Tax Contingencies

Tax contingencies are recorded for probable exposures involving tax positions taken that could be challenged by taxing authorities. These probable exposures result from the varying application of statutes, rules, regulations and interpretations. Our estimate of the value of our tax contingencies contains assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. It is reasonably likely that the ultimate resolution of these matters may be greater or less than the amount that we have accrued.

Warranty Obligations

At the time revenue is recognized, we provide for the estimated cost of product warranties as provided for under our contractual arrangements. Our warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a product failure. Should such failure rates or costs differ from these estimates, accrued warranty costs would be adjusted in the period that such events or costs become known.

Restructuring Charges

During 2003, 2002 and 2001, we recorded significant charges to operations in connection with our restructuring programs. The related reserves reflect estimates, including those pertaining to severance costs, facility exit costs and asset impairments. We reassess the reserve requirements to complete each restructuring program at the end of each reporting period and record adjustments to reflect changes in prior estimates. Actual experience may be different from these estimates.

Pension and Post-Retirement Benefit Obligations

We have pension costs and credits, which are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates, compensation increases and expected return on plan assets, which are usually updated annually at the beginning of each fiscal year. We consider current market conditions in making these key assumptions. Changes in the related pension costs or credits may occur in the future due to changes in assumptions.

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Litigation contingencies

In March of 2003 we filed a lawsuit against Pall Corporation in the United States District Court for the District of Massachusetts alleging infringement of two of the Company’s U.S. Patents by a fluid separation device known as the Pall Photo Kleen EZD-2 filter assembly manufactured and sold by the defendant. Current developments in this litigation are described in Part I, Item 3, of this report.

We are subject to proceedings, lawsuits and other claims, including proceedings under laws and government regulations related to securities, environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is based on a careful analysis of each individual issue with the assistance of outside legal counsel. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

Operating trends and recent developments

We operate in one reportable business segment that develops, manufactures and sells consumables and capital equipment products to semiconductor fabrication companies and other companies using similar manufacturing processes, as well as OEM suppliers to those companies. The principal market we serve is the global semiconductor industry, a highly cyclical business. From early 2001 until 2003, this industry faced a severe downturn, and as a result, we have experienced significant variations in net sales and results of operations in the periods presented.

Our liquid and gas equipment products were impacted the most by the industry downturn and we have experienced weak demand for these products during 2001, 2002 and a portion of 2003 as new semiconductor fabrication plant constructions and upgrades declined.

Beginning in the fourth quarter of 2003 semiconductor fabrication companies’ increased capacity utilization rates and capacity additions, which significantly improved our business conditions and positively impacted our revenue and profitability levels in 2004. During the third quarter of 2004 our business conditions began to soften as key OEM customers announced order delays and reduced booking rates and key semiconductor manufacturers reported lower wafer starts. The outlook for 2005 is currently unclear; however, should business conditions signal a downturn, we intend to take appropriate actions to maintain profitability at reduced sales levels.

During the first quarter of 2005, we acquired privately held Extraction Systems, Inc. (“Extraction”) for $24,941. Based in Franklin, Massachusetts, Extraction’s products are used to measure and remove airborne molecular contaminants in the semiconductor manufacturing process and offer synergies in addressing opportunities in the microcontamination measurement and control market.

Our results of operations for the quarters ended April 2, 2005 and April 3, 2004 in dollars and as a percentage of total net sales were as follows:

Three months ended April 2, 2005 compared to three months ended April 3, 2004

Net Sales

Net sales were $73,594 for the three months ended April 2, 2005, which represented a 4.4%, or $3,079, increase from the three months ended April 3, 2004. The increase in revenue during the first quarter 2005 versus the first quarter 2004 was primarily attributable to foreign currency exchange rates as both consumable and equipment product lines sales were flat. Our consumable products represented in the aggregate, 69% of our worldwide revenues for both the three months ended April 2, 2005 and April 3, 2004. The impact of foreign exchange rates in Japan, Asia and Europe, increased net sales by approximately $2,508 in the 2005 period compared to the 2004 period.

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Sales by geography are summarized in the table below.