10-QPeriod: Q3 FY2005

ENTEGRIS INC Quarterly Report for Q3 Ended Dec 31, 2005

Filed February 9, 2006For Securities:ENTG

Summary

Entegris, Inc. (ENTG) reported a net loss of $18.3 million, or $0.14 per diluted share, for the four months ended December 31, 2005. This contrasts with a net income of $6.6 million, or $0.09 per diluted share, in the same period last year. The loss was primarily driven by significant integration costs and restructuring charges related to the merger with Mykrolis Corporation, which closed in August 2005. Despite the reported loss, the company experienced a substantial increase in net sales, up 72% to $202.3 million, largely due to the inclusion of Mykrolis's revenue. However, gross margins declined from 41.3% to 34.6% due to a $17.8 million inventory write-up related to the acquisition and $4.8 million in restructuring costs. Selling, general, and administrative expenses also increased significantly due to merger-related integration activities. The company is undergoing a fiscal year-end change and is now aligning with the calendar year.

Key Highlights

  • 1Reported a net loss of $18.3 million for the four months ended December 31, 2005, compared to a net income of $6.6 million in the prior year period.
  • 2Net sales increased significantly by 72% to $202.3 million, primarily driven by the acquisition of Mykrolis Corporation.
  • 3Gross margin percentage decreased to 34.6% from 41.3% due to merger-related inventory write-ups and restructuring costs.
  • 4Selling, general, and administrative (SG&A) expenses rose substantially due to integration costs associated with the Mykrolis merger.
  • 5The company is divesting certain product lines (gas delivery, life science, and tape and reel), with two of these divestitures completed in December 2005 and the third in February 2006.
  • 6Adopted SFAS 123(R) for share-based compensation expense, resulting in $11.1 million in expense for the period.
  • 7The company changed its fiscal year-end to December 31st, and this report covers a transition period from August 28, 2005, to December 31, 2005.

Frequently Asked Questions

The net loss of $18.3 million was primarily due to significant one-time charges and expenses related to the integration of the Mykrolis acquisition. These included a $17.8 million inventory write-up from the acquisition, $4.8 million in restructuring costs for plant consolidations, and increased selling, general, and administrative expenses for merger-related integration activities. These factors outweighed the revenue increase.

The merger significantly boosted net sales by $89.6 million, leading to a 72% year-over-year increase. However, it also introduced considerable costs, including a $17.8 million inventory fair value adjustment, increased SG&A expenses for integration ($31.0 million attributed to Mykrolis infrastructure and $11.3 million for integration activities), and higher amortization of intangibles. The merger also led to a substantial increase in goodwill on the balance sheet.

The company expects SG&A costs to remain elevated through mid-calendar 2006 due to ongoing integration activities and related severance costs (estimated at $8 million). While the company anticipates annual cost savings of approximately $20 million from the merger, expected to be fully realized by mid-2006, it also expects a full year of Mykrolis's operating expenses. Savings are projected to materialize in the latter half of calendar 2006 as corporate functions are combined.

The company announced the divestiture of its gas delivery, life science, and tape and reel product lines. The life science and tape and reel product lines were sold in December 2005 for a combined $1.8 million. The gas delivery product line sale was completed in February 2006 for approximately $15 million. These divested businesses are reported as discontinued operations.