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 26, 2001 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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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, 2001
- ---------------------------------- ------------------------------------
Common Stock, $0.01 Par Value 68,209,832
ENTEGRIS, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MAY 26, 2001
Description Page
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PART I
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Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of May 26, 2001
and August 26, 2000 3
Consolidated Statements of Operations for the Three Months and
Nine Months Ended May 26, 2001 and May 27, 2000 4
Consolidated Statements of Cash Flows for the
Nine Months Ended May 26, 2001 and May 27, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II Other Information
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Item 6. Exhibits and Reports on Form 8-K 13
2
Item 1. Financial Statements
- -----------------------------
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
August 26,
2000 - As
adjusted - See
May 26, 2001 Note 5
--------------- ----------------
ASSETS
Current assets
Cash and cash equivalents $ 129,837 $ 102,973
Trade accounts receivable, net of allowance for doubtful accounts 42,201 41,325
Trade accounts receivable due from affiliates 19,567 22,803
Inventories 48,715 41,976
Deferred tax assets and refundable income taxes 11,629 7,996
Other current assets 6,567 4,341
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Total current assets 258,516 221,414
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Property, plant and equipment, net 104,046 107,733
Other assets
Investments in affiliates 12,980 14,452
Intangible assets 16,302 7,162
Investment in marketable securities 795 1,288
Other 2,035 1,319
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Total assets $ 394,674 $ 353,368
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,415 $ 1,828
Short-term borrowings 7,361 8,311
Accounts payable 19,224 21,849
Accrued liabilities 33,600 30,556
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Total current liabilities 61,600 62,544
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Long-term debt, less current maturities 9,983 10,822
Deferred tax liabilities 8,183 9,146
Minority interest in subsidiaries 5,393 4,012
Commitments and contingencies -- --
Shareholders' equity
Common stock, $0.01 par value; 200,000,000 authorized; issued
and outstanding shares: 69,081,280 and 68,317,183, respectively 691 683
Additional paid-in capital 115,914 114,003
Retained earnings 189,863 152,091
Accumulated other comprehensive income 3,047 67
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Total shareholders' equity 309,515 266,844
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Total liabilities and shareholders' equity $ 394,674 $ 353,368
=============== ================
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 27, May 27,
2000-As 2000-As
May 26, adjusted -See May 26, adjusted -See
2001 Note 5 2001 Note 5
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Sales to non-affiliates $55,920 $ 66,688 $195,037 $176,801
Sales to affiliates 25,426 24,303 94,660 70,852
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Net sales 81,346 90,991 289,697 247,653
Cost of sales 43,456 47,310 145,654 134,133
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Gross profit 37,890 43,681 144,043 113,520
Selling, general and administrative expenses 18,761 19,913 59,723 53,578
Non-recurring charges 4,934 - 13,144 -
Engineering, research and development expenses 4,697 3,468 12,265 10,613
-------------------------------- --------------------------------
Operating profit 9,498 20,300 58,911 49,329
Interest (income) expense, net (1,038) 758 (3,905) 2,778
Other expense (income), net (971) (249) 43 (6,531)
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Income before income taxes and other items
below 11,507 19,791 62,773 53,082
Income tax expense 2,801 7,924 22,284 19,065
Equity in net income of affiliates - (532) (1,488) (1,114)
Minority interest in subsidiaries' net income 278 385 1,653 733
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Net income 8,428 12,014 40,324 34,398
Market value adjustment to redeemable common
stock - 16,987 - (48,602)
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Net income (loss) applicable to nonredeemable
common shareholders $ 8,428 $ 29,001 $ 40,324 $(14,204)
================================ ================================
Earnings (loss) per nonredeemable common share:
Basic $ 0.12 $ 0.79 $ 0.59 $ (0.38)
Diluted $ 0.12 $ 0.19 $ 0.55 $ (0.38)
Weighted shares outstanding:
Basic 68,735 36,739 68,541 37,037
Diluted 72,788 64,134 72,726 37,037
4
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine months ended
--------------------------------
May 27,
2000-As
May 26, adjusted -See
2001 Note 5
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OPERATING ACTIVITIES
Net income $ 40,324 $ 34,398
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,925 20,211
Asset impairment 3,526 4,890
Provision for doubtful accounts 600 725
Provision for deferred income taxes (2,369) 2,445
Stock option compensation expense (150) 150
Equity in net income of affiliates (1,488) (1,114)
Loss on sale of property and equipment 1,202 612
Gain on sale of investment in affiliate - (5,468)
Minority interest in subsidiaries' net income 1,653 733
Changes in operating assets and liabilities:
Trade accounts receivable (1,131) (5,752)
Trade accounts receivable due from affiliates 3,236 (11,093)
Inventories (6,552) 2,262
Accounts payable and accrued liabilities 70 8,909
Other current assets (2,225) (2,050)
Accrued income taxes (2,227) (3,771)
Other (468) (289)
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Net cash provided by operating activities 51,926 45,798
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INVESTING ACTIVITIES
Acquisition of property and equipment (19,607) (16,384)
Purchases of intangible assets (10,494) (2,212)
Proceeds from sales of property and equipment 583 350
Proceeds from sale of investment in affiliate 3,941 7,399
Decrease in investment in affiliate 1,437 (1,036)
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Net cash used in investing activities (24,140) (11,882)
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FINANCING ACTIVITIES
Principal payments on short-term borrowings and long-term debt (2,545) (9,852)
Proceeds from issuance of debt - 3,157
Issuance of common stock 2,545 157
Repurchase of common stock (722) (10,446)
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Net cash used in financing activities (722) (16,984)
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Effect of exchange rate changes on cash and cash equivalents (200) (96)
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Increase in cash and cash equivalents 26,864 16,836
Cash and cash equivalents at beginning of period 102,973 16,411
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Cash and cash equivalents at end of period $129,837 $ 33,247
================================
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 (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of May 26, 2001 and August 26, 2000, the results of operations for the
three months and nine months ended May 26, 2001 and May 27, 2000 and cash
flows for the nine months ended May 26, 2001 and May 27, 2000. 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 26, 2000. The results of
operations for the three months and nine months ended May 26, 2001 and May
27, 2000 are not necessarily indicative of the results to be expected for
the full year.
The Company's fiscal year ends on the last Saturday of August. Each interim
quarter ends on the last Saturday of the months of November, February and
May.
2. Earnings per share
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The following table presents a reconciliation of the denominators used in
the computation of basic and diluted earnings per share.
Three Months Ended Nine Months Ended
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May 26, May 27, May 26, May 27,
2001 2000 2001 2000
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Basic earnings per share-weighted
common shares outstanding 68,735,000 36,739,000 68,541,000 37,037,000
Weighted common shares
assumed upon exercise of stock
options 4,053,000 27,395,000 4,185,000 -
------------------------------ ------------------------------
Diluted earnings per share-
weighted common shares and
common shares equivalent
outstanding 72,788,000 64,134,000 72,726,000 37,037,000
============================== ==============================
3. Inventories
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Inventories consist of the following:
May 26, 2001 August 26, 2000
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Raw materials $14,885 $12,677
Work-in process 1,466 3,280
Finished goods 31,766 25,794
Supplies 598 225
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Total inventories $48,715 $41,976
====================== =====================
6
4. Comprehensive Income
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For the three months and nine months ended May 26, 2001 and May 27, 2000 net
income, items of other comprehensive income and comprehensive income are as
follows:
Three months ended Nine months ended
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May 27, May 27,
2000-As 2000-As
May 26, adjusted- May 26, adjusted-
2001 See Note 5 2001 See Note 5
------------------------------ ------------------------------
Net income $ 8,428 $12,014 $40,324 $34,398
Items of other comprehensive income (loss)
Foreign currency translation 1,408 62 516 (76)
Unrealized gain in marketable securities 1,554 81 1,125 57
------------------------------ ------------------------------
Comprehensive income $11,390 $12,157 $41,965 $34,379
============================== ==============================
5. Change in Method of Accounting for Inventories
----------------------------------------------
Effective August 27, 2000, the Company changed its method of accounting for its
domestic inventories from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method. Management believes that the accounting change is
preferable in the circumstances because the accounting change provides a better
matching of costs and revenues in periods when the cost of goods and services
are declining. In accordance with accounting principles generally accepted in
the United States of America, the financial statements of prior periods have
been restated to apply the new method retroactively. Accordingly, retained
earnings at August 26, 2000 on the accompanying balance sheet has been adjusted
for the effect (net of income taxes) of applying retroactively the new method of
accounting.
The effect of the accounting change on income for the three months and nine
months ended May 26, 2001 and May 27, 2000 is shown below:
Increase (decrease) Three months ended Nine months ended
- ------------------------------------------- ------------------------------ ------------------------------
May 26, May 27, May 26, May 27,
Effect on: 2001 2000 2001 2000
------------------------------ ------------------------------
Net income - $ 305 $ (404) $1,034
Basic earnings per common share - $0.01 $(0.01) $ 0.03
Diluted earnings per common share - $0.01 $(0.01) $ 0.03
6. Non-recurring Charges
---------------------
During the second quarter of fiscal 2001, the Company recorded a one-time charge
of $8.2 million related to the early termination of a distribution agreement for
the Microelectronics Group with its affiliate, Metron Technology N.V. (Metron).
Pursuant to the termination agreement, the Company will assume direct sales
responsibility for Microelectronics Group product sales in Europe and Asia, and
transferred to Metron 1.125 million shares of Metron stock and will make cash
payments totaling $1.75 million. Entegris will also buy back certain
microelectronics product inventory, to be determined at a later date, from
Metron, which will be accounted for if and when such inventory is transferred
from Metron. The Company and Metron also executed a new distribution agreement
for Entegris' Fluid Handling Group products, which now runs through August 31,
2005.
During the third quarter of fiscal 2001, the company recorded a $4.9 million
charge in connection with its decision to close its Castle Rock, Colorado and
Munmak, Korea facilities. The charge included $1.7 million in termination costs
related to a workforce reduction of 170 employees and $1.4 million for estimated
losses for asset disposals after accounting for assets transfers and estimated
proceeds for items expected to be sold. In addition, the charge included $1.8
million for future lease commitments on the
7
Castle Rock facility, the lessor of which is a major shareholder of the Company.
The tax benefit associated with the non-recurring charge totaled $3.5 million,
which included $1.6 million in tax benefits associated with the closure of the
Korea operation, losses of which were previously non-deductible.
A summary of the third quarter charge is as follows:
Amount Accrual
Amount Utilized at May 26,
Charged or Paid 2001
---------- --------- ----------
Severance costs $1,697,000 690,000 1,007,000
Asset disposals 1,427,000 1,427,000 --
Lease commitments 1,810,000 -- 1,810,000
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$4,934,000 2,117,000 $2,817,000
========== ========= ==========
7. Subsequent Event
----------------
On May 31, 2001, the Company announced the completion of its acquisition of NT
International for a cash payment of $27.5 million. NT International, located in
Fridley, Minnesota, designs and manufactures patented ultra-high purity flow and
pressure measurement sensors and controllers.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
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Three Months and Nine Months Ended May 26, 2001 Compared to Three Months and
Nine Months Ended May 27, 2000
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
Three Months Ended Nine Months Ended
-------------------------------------------------------
May 27, May 27,
2000-As 2000-As
May 26, adjusted- May 26, adjusted-
2001 See Note 5 2001 See Note 5
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Net sales 100.0 100.0 100.0 100.0
Cost of sales 53.4 52.0 50.3 54.2
-------------------------------------------------------
Gross profit 46.6 48.0 49.7 45.8
Selling, general and administrative expenses 23.1 21.9 20.6 21.6
Non-recurring charges 6.1 - 4.5 -
Engineering, research and development
expenses 5.8 3.8 4.2 4.3
-------------------------------------------------------
Operating profit 11.7 22.3 20.3 19.9
Interest (income) expense, net (1.3) 0.8 (1.3) 1.1
Other expense (income), net (1.2) (0.3) - (2.6)
-------------------------------------------------------
Income before income taxes and other items 14.1 21.8 21.7 21.4
below
Income taxes 3.4 8.7 7.7 7.7
Equity in net earnings of affiliated companies - (0.6) (0.5) (0.4)
Minority interest in subsidiaries' net income 0.3 0.4 0.6 0.3
-------------------------------------------------------
Net income 10.4 13.2 13.9 13.9
=======================================================
Effective tax rate 24.3% 40.0% 35.5% 35.9%
Net sales Net sales decreased 11% to $81.3 million in the third quarter of
fiscal 2001, compared to $91.0 million in the third quarter of fiscal 2000. The
decline reflects the downturn in the semiconductor industry that began this
year. Revenue increases were recorded in Japan and Europe, while revenues in
North America and the Asia Pacific region declined. International sales
accounted for approximately one half of net sales, essentially unchanged from
fiscal 2000 and six-month fiscal 2001 levels. Sales of fluid handling products,
which made up 33 percent of total sales for the quarter, were flat when compared
to the year-ago period, while microelectronics product sales, 67% of total
sales, fell 16%.
Net sales for the first nine months of fiscal 2001 were $289.7 million, up 17%
from $247.7 million in the comparable year-ago period. Revenue gains were
recorded in North America, Europe and Japan, while sales fell slightly in the
Asia Pacific region. Fluid handling product and microelectronics sales increased
45% and 10%, respectively, compared to first nine months of fiscal 2000.
8
Incoming order rates began to decline late in the second quarter of fiscal 2001,
for both fluid handling products, which are dependent on capital spending levels
in the semiconductor industry, and microelectronics products, reflecting
decreased manufacturing utilization of wafer manufacturers and semiconductor
manufacturers. The decline in order rates continued throughout the third
quarter. As a result, management expects that sales for the fourth quarter of
fiscal 2001 will decline further from the sales levels experienced in the third
quarter of fiscal 2001.
Gross profit Gross profit in the third quarter of fiscal 2001 decreased 13% to
$37.9 million, compared to $43.7 million reported in the third quarter of fiscal
2000. For the first nine months of fiscal 2001, gross profit was $144.0 million,
up 27% from $113.5 million recorded in the first nine months of fiscal 2000. As
a percentage of net sales, gross margins for the third quarter and first nine
months of the fiscal year were 46.6% and 49.7%, respectively, compared to 48.0%
and 45.8%, respectively, in the comparable periods a year ago.
The gross profit and gross margin variances mainly track the utilization of our
production capacity associated with varying sales levels Approximately one half
of our cost of goods sold is variable. Asset impairment charges of $0.1 million
and $3.5 million were recorded in the third quarter and first nine months of
fiscal 2001, respectively, mainly for asset write-offs of molds that were
determined to have no future use. As noted in Note 5 to the accompanying
consolidated financial statements, the Company changed its method of accounting
for inventories from LIFO to FIFO in the first quarter of fiscal 2001.
As discussed above, management expects sales levels to decline in the fourth
quarter. The corresponding reduction in our factory utilization would result in
decreased gross profits with a lower gross margin.
Selling, general and administrative expenses Selling, general and administrative
(SG&A) expenses decreased 6% to $18.8 million in the third quarter of fiscal
2001 from $19.9 million in the third quarter of fiscal 2000. SG&A expenses grew
11% to $59.7 million in the first nine months of fiscal 2001 compared to $53.6
million in the first nine months a year earlier. The year-to-date increases
reflect higher commissions, and personnel and information systems costs. On a
year-to-date basis, SG&A costs, as a percent of net sales, decreased slightly to
20.6% from 21.6% a year ago.
Non-recurring charges During the third quarter, the company recorded a $4.9
million charge in connection with its decision to close its Castle Rock,
Colorado and Munmak, Korea facilities. The charge included $1.7 million in
termination costs related to a workforce reduction of 170 employees and $1.4
million for estimated losses for asset disposals after accounting for assets
transfers and estimated proceeds for items expected to be sold. In addition, the
charge included $1.8 million for future lease commitments on the Castle Rock
facility, the lessor of which is a major shareholder of the Company.
During the second quarter of fiscal 2001, the Company recorded a one-time charge
of $8.2 million related to the early termination of a distribution agreement for
the Microelectronics Group with its affiliate Metron Technology N.V. (Metron).
Pursuant to the termination agreement, the Company will assume direct sales
responsibility for Microelectronics Group product sales in Europe and Asia, and
transferred to Metron 1.125 million shares of Metron stock and will make cash
payments totaling $1.75 million over a 15-month period. Entegris will also buy
back certain microelectronics product inventory, to be determined at a later
date, from Metron, which will be accounted for if and when such inventory is
transferred from Metron. The Company and Metron also executed a new distribution
agreement for Entegris' Fluid Handling Group products, which now runs through
August 31, 2005.
Engineering, research and development expenses Engineering, research and
development (ER&D) expenses increased 35% to $4.7 million, or 5.8% of net sales,
in the third quarter of fiscal 2001 as compared to $3.5 million, or 3.8% of net
sales, for the same period in fiscal 2000. ER&D expenses increased 16% to $12.3
million, or 4.2% of net sales, in the first nine months of fiscal 2001 as
compared to $10.6 million, or 4.3% of net sales, a year-ago period. A major
element of current ER&D expenditures relates to the continued development of
next generation 300mm products.
9
Interest (income) expense Net interest income was $1.0 million in the third
quarter of fiscal 2001 compared to net interest expense of $0.8 million in the
year-ago period. Net interest income was $3.9 million in the first nine months
of fiscal 2001 compared to net interest expense of $2.8 million for the same
period in fiscal 2000. The quarterly and year-to-date variances reflect the
elimination of domestic bank borrowings and capital lease obligations, as well
as the short-term investment of sizable available cash balances. These actions
were due to strong operating earnings and the receipt of net proceeds of $99.0
million from the Company's initial public offering in July 2000, $42 million of
which was used to retire long-term debt and capital lease obligations.
Other expense (income) Other income was $1.0 million in the third quarter of
fiscal 2001 as compared to other income of $0.2 million a year ago. Other
expense was $43 thousand in the first nine months of fiscal 2001 compared to
other income of $6.5 million in the first nine months of fiscal 2000. The main
factor underlying the year-to-year variance is the $5.5 million pre-tax gain
recognized on the sale of approximately 612,000 common shares of the Company's
investment in Metron as part of Metron's initial public offering in November
1999. The recording of translation losses in the fiscal 2001 periods compared to
translation gains in fiscal 2000 also contributed to the change.
Income tax expense Income tax expense of $22.3 million was slightly higher in
the first nine months of fiscal 2001 compared to $19.1 million in income tax
expense reported a year earlier, primarily reflecting higher pre-tax income. The
effective tax rate thus far in fiscal 2001 is 35.5% compared to 35.9% in fiscal
2000. The tax benefit associated with the closure of the Castle Rock, Colorado
and Munmak, Korea facilities described above totaled $3.5 million. $1.6 million
of the tax benefit was associated with the closure of the Korea operation,
losses of which were previously non-deductible, and was the primary factor
explaining the relatively low 24.3% effective tax rate in the third quarter of
fiscal 2001.
Equity in net income of affiliates During March 2001, the Company surrendered
ownership of 1.125 million shares of its investment in Metron in connection with
the charge described above under the caption "Non-recurring Charges". As a
result, the Company's percentage ownership in Metron decreased to approximately
12%. Accordingly, the Company discontinued application of the equity method to
account for its investment in Metron. The Company's remaining investment is
accounted for as an "available-for-sale security" under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115 - Accounting for
Certain Investments in Debt and Equity Securities.
As a result, the Company recorded no equity in the net income of affiliates in
the third quarter of fiscal 2001 compared to $0.5 million in the third quarter a
year earlier. Equity in the net income of affiliates was $1.5 million in the
first nine months of fiscal 2001 compared to $1.1 million for the same period a
year ago.
Minority interest For the three months ended May 26, 2001, minority interest in
subsidiaries' net income declined 28% compared to the year-ago period. For the
nine months ended May 26, 2001, minority interest in subsidiaries' net income
was more than double a year ago. These figures reflect the financial performance
at our 51% owned Japanese subsidiaries.
Net income Net income decreased 30% to $8.4 million in the third quarter of
fiscal 2001, compared to net income of $12.0 million in the year-ago period. Net
income applicable to nonredeemable common shareholders was $8.4 million, or
$0.12 per diluted share, for the quarter, compared to a net income applicable to
nonredeemable common shareholders of $29.0 million, or $0.19 per share diluted,
in the third quarter of fiscal 2000.
Net income increased to $40.3 million in the first nine months of fiscal 2001,
compared to net income of $34.4 million in the comparable year-ago period. Net
income applicable to nonredeemable common shareholders was $40.3 million, or
$0.55 per diluted share, in the first nine months of fiscal 2001. After the
market value adjustment related to redeemable common stock, the net loss
applicable to nonredeemable common shareholders was $14.2 million, or $0.38 per
share diluted, in the first nine months of fiscal 2000. Excluding the effect of
the market value adjustment related to redeemable common stock, pro forma
earnings per diluted share were $0.53 per share in the first half of fiscal
2000.
10
Liquidity and Capital Resources
Operating activities Cash flow provided by operating activities totaled $52.0
million in the first nine months of fiscal 2001. Net income and noncash charges,
such as depreciation and amortization, accounted for the strong cash flow
generated by operations, which was partly offset by working capital
requirements, principally higher inventories ($6.6 million). Working capital at
May 26, 2001 stood at $196.9 million, including $129.8 million in cash and cash
equivalents.
Inventories rose as the Company increased its safety stock of certain critical
resins where the supplier had indicated possible delivery issues and built up
the supply of fluid handling components used in the production of fluid handling
products because of strong customer demand. The company began to decrease its
safety stock inventories and adjusted its raw material requirements based on
projected business levels during the third quarter. Accordingly, inventory
balances were $3.0 million more than at the beginning of the quarter.
Investing activities Cash flow used in investing activities totaled $24.1
million in the first nine months of fiscal 2001. Acquisition of property and
equipment totaled $19.6 million, primarily related to increasing our
manufacturing capabilities for 300mm products, tooling for new products, and
investments in our e-business initiatives. The Company expects capital
expenditures of approximately $25-30 million during fiscal 2001, consisting
mainly of spending on manufacturing equipment and information systems.
In March 2001, the Company acquired the fluid handling component product line of
a Japanese company for $10.4 million. Patents and goodwill of approximately $2.3
million and $8.0 million, respectively, were recorded in connection with the
transaction. The purchase was accounted for by the purchase method. Accordingly,
the Company's consolidated financial statements include the net assets and
results of operations from the date of acquisition.
In the first quarter of fiscal 2000, we received $7.4 million from the sale of
612,000 shares of our investment in Metron Technology N.V. (Metron).
Financing activities Cash provided used in by financing activities totaled $0.7
million during the first nine months of fiscal 2001. Payments on long-term and
short-term borrowings totaled $2.5 million. The Company recorded proceeds of
$2.5 million in connection with common shares issued under the Company's stock
option and stock purchase plans. We repurchased common shares for $0.7 million
in the first nine months of fiscal 2001. These shares were acquired in
connection with the redemption of common stock from the Company's Employee Stock
Ownership Plan and the repurchase of 55,000 common shares as part of the 500,000
shares authorized for repurchase by the Company's Board of Directors in the
first quarter of fiscal 2001.
At May 26, 2001, the Company's shareholders' equity stood at $309.5 million.
Book value per share was $4.48, up from $3.91 per share at the end of fiscal
2000. Net earnings accounted for the increase.
As of May 26, 2001, our sources of available funds comprised $129.8 million in
cash and cash equivalents, and various credit facilities. We have unsecured
revolving commitments with two commercial banks with aggregate borrowing
capacity of $30.0 million, with no borrowings outstanding at May 26, 2001. We
also have lines of credit, equivalent to an aggregate of approximately $12
million with six international banks, which provide for borrowings of German
deutsche marks, Malaysian ringgits and Japanese yen for our overseas
subsidiaries. Borrowings outstanding on these lines of credit were $7.4 million
at May 26, 2001.
The Company believes that its cash and cash equivalents, cash flow from
operations and available credit facilities will be sufficient to meet our
working capital and investment requirements for the next twelve months. However,
future growth, including potential acquisitions, may require additional funding,
and from time to time we may need to raise capital through additional equity or
debt financing.
11
Subsequent Event On May 31, 2001, the Company announced the completion of its
acquisition of NT International for a cash payment of $27.5 million. NT
International, located in Fridley, Minnesota, designs and manufactures patented
ultra-high purity flow and pressure measurement sensors and controllers.
New Accounting Prouncements In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill
and Other Tangible Assets". SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method will be prohibited. SFAS No. 142 changes
the accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of that Statement, which the
Company expects to adopt in the first quarter of fiscal 2002.
Cautionary Statements Certain information in this report does not relate to
historical financial information and may be deemed to constitute
"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. Such statements are subject to
certain risks and uncertainties that could cause the company's actual results in
the future to differ materially from its historical results and those presently
anticipated or projected.
Among these risks and uncertainties are general economic conditions, cyclical
nature of the semiconductor industry, risks associated with the acceptance of
new products and the successful transition to a direct sales model for
Microelectronic Group products. Other factors that could cause the company's
results to differ materially from those contained in its forward looking
statements are included in the Form 10K filed in November 2000 and other
documents filed by the company with the Securities and Exchange Commission.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's principal market risks are sensitivities to interest rates and
foreign currency exchange rates. The exposure to interest rate fluctuations is
not significant as most outstanding debt carries fixed rates of interest. The
Company's short-term investments are debt instruments that mainly mature in
three months or less.
The Company uses derivative financial instruments to manage foreign currency
exchange rate risk associated with the sale of products from the United States
when such sales are denominated in currencies other than the U.S. dollar. The
cash flows and earnings of its foreign-based operations are also subject to
fluctuations in foreign exchange rates. A hypothetical 10% change in certain
foreign currency exchange rates would increase or decrease net income by
approximately $2 million.
As described above under the caption "Non-recurring Charges", the Company
surrendered ownership of 1.125 million shares of Metron in March 2001 in
connection with the charge described above As a result, its percentage ownership
in Metron decreased to approximately 12%. Accordingly, the Company discontinued
application of the equity method to account for its investment in Metron, with
the Company's remaining investment to be accounted for as an "available-for-sale
security" under the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115. Based on the closing stock price of Metron at May 26, 2001, the
fair value of our investment in Metron was approximately $12.5 million.
12
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated January 8, 2001
and filed March 2, 2001, in connection with changes to distribution
agreements between the Company and Metron Technology N.V.
13
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 10, 2001 /s/ James E. Dauwalter
----------------------
James E. Dauwalter
President and Chief Executive Officer
Date: July 10, 2001 /s/ John D. Villas
------------------
John D. Villas
Executive Vice President and
Chief Financial Officer
14