10-QPeriod: Q3 FY2005

ENTEGRIS INC Quarterly Report for Q3 Ended Nov 26, 2005

Filed January 10, 2006For Securities:ENTG

Summary

Entegris, Inc. reported a net loss of $16.1 million ($0.12 per share) for the quarter ended November 26, 2005, a significant decline from a net income of $5.7 million ($0.08 per share) in the prior year's comparable quarter. This loss was primarily driven by the inclusion of Mykrolis Corporation's results following their merger in August 2005, which contributed $64.7 million in sales but also resulted in substantial integration costs, higher operating expenses, and a significant charge-off of acquired inventory ($17.8 million). The company is actively divesting non-core product lines, including life science, tape and reel, and gas delivery businesses, which are being classified as discontinued operations. Despite the reported net loss, the company's balance sheet remains solid with $274.8 million in cash, cash equivalents, and short-term investments. However, operational performance was impacted by lower gross margins (32.5% vs. 42.2%) due to the aforementioned inventory write-up and restructuring costs, as well as increased selling, general, and administrative expenses (38.5% of sales vs. 26.8%). The company is undertaking restructuring efforts and expects to realize cost synergies from the Mykrolis merger by mid-calendar 2006, which should improve future profitability.

Key Highlights

  • 1Reported a net loss of $16.1 million for the quarter, compared to a net income of $5.7 million in the prior year.
  • 2Net sales increased 65% year-over-year to $146.8 million, largely due to the acquisition of Mykrolis Corporation.
  • 3Gross margin decreased significantly to 32.5% from 42.2% in the prior year, impacted by a $17.8 million inventory write-up and restructuring costs.
  • 4Selling, general, and administrative expenses increased substantially by 136% due to merger integration costs and Mykrolis's operating expenses.
  • 5The company is divesting three product lines (gas delivery, life science, tape and reel) classified as discontinued operations.
  • 6Cash, cash equivalents, and short-term investments remained strong at $274.8 million.
  • 7Restructuring and integration costs related to the Mykrolis merger are expected to continue through mid-2006, with annualized cost savings anticipated by then.

Frequently Asked Questions

The significant drop in net income was primarily due to the acquisition of Mykrolis Corporation, which resulted in substantial integration costs, higher selling, general, and administrative expenses, and a significant charge-off of acquired inventory ($17.8 million) as part of the purchase accounting. These factors, combined with restructuring costs, led to a net loss despite increased net sales.

The merger with Mykrolis added $64.7 million in sales during the quarter, contributing to a 65% increase in net sales. However, it also brought significant integration and restructuring costs, increased operating expenses, and a large inventory write-down, which collectively led to a net loss for the period. The company anticipates realizing approximately $20 million in annualized cost savings from this merger by mid-calendar 2006.

Entegris announced its intention to divest its gas delivery, life science, and tape and reel product lines. The life science and tape and reel businesses have already been sold, and the gas delivery business is expected to be sold in the first quarter of calendar 2006. These businesses are now classified as discontinued operations in the financial statements.

The company maintains a strong liquidity position with $274.8 million in cash, cash equivalents, and short-term investments as of November 26, 2005. Operating activities generated $2.5 million in cash during the quarter. The company has access to credit facilities and believes its current resources and expected cash flow will be sufficient to meet its working capital and investment needs for the next 12 months.