Acquisition

12 Months Ended

Dec. 31, 2022

Business Combinations [Abstract]

Business Combination Disclosure

ACQUISITIONS

CMC Materials, Inc.

On July 6, 2022 (the “Closing Date”), the Company completed its acquisition of CMC Materials, Inc. (“CMC Materials”), a Delaware corporation, for approximately $6.0 billion in cash and stock (the “Merger”) pursuant to an Agreement and Plan of Merger dated as of December 14, 2021 (the “Merger Agreement”). As a result of the Merger, CMC Materials became a wholly owned subsidiary of the Company. The Merger was accounted for under the acquisition method of accounting and the results of

operations of CMC Materials are included in the Company's consolidated financial statements as of and since July 6, 2022. CMC Materials reports into the Advanced Planarization Solutions and Specialty Chemicals and Engineered Materials segments of the Company. Direct costs of $39.5 million associated with the acquisition of CMC Materials, consisting primarily of professional and consulting fees, were expensed as incurred in the twelve months ended December 31, 2022, respectively. These costs are classified as selling, general and administrative expense in the Company's consolidated statement of operations. The amounts of net sales and net loss from CMC Materials since the acquisition date included in the consolidated statement of operations for the twelve months ended December 31, 2022 are $581.0 million and $75.8 million, respectively.

CMC Materials is a global supplier of consumable materials, primarily to semiconductor manufacturers. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The acquisition was executed to expand the Company’s product offering base and technological base, enhance the Company’s materials and process solutions for the most advanced manufacturing environments and help customers improve productivity, performance and total cost of ownership.

The purchase price of CMC Materials consisted of the following:

(In thousands)
Cash paid to CMC Materials’ shareholders	$	3,836,983
Stock paid to CMC Materials’ shareholders	1,265,690
Repayment of CMC Materials’ indebtedness	918,578
Total purchase price	6,021,251
Less cash and cash equivalents acquired	280,636
Total purchase price, net of cash acquired	$	5,740,615

Under the terms of the Merger Agreement, the Company paid $133.00 per share for all outstanding shares of CMC Materials (excluding treasury shares). In addition, the Company settled all outstanding share-based compensation awards held by CMC Materials’ employees at the same per share price except for certain unvested performance units that were replaced by the Company’s restricted share units. The acquisition method of accounting requires the Company to include the amount associated with pre-combination service as purchase price for the acquisition, reflected in the table immediately above.

The Merger was funded with existing cash balances as well as funds raised by the Company through the issuance of debt in the form of a new term loan facility in the aggregate principal amount of $2,495.0 million, senior secured notes due 2029 in an aggregate principal amount of $1,600.0 million, senior unsecured notes due 2030 in an aggregate principal amount of $895.0 million, and a 364-Day Bridge Credit Facility in the aggregate principal amount of $275.0 million (collectively “CMC Materials Acquisition Financing”). For additional information, see Note 10 to the Company’s consolidated financial statements.

The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the Merger as originally reported and as of December 31, 2022:

(In thousands)	As of July 6, 2022		As of December 31, 2022
Cash and cash equivalents	$	280,636	$	280,636
Accounts receivable and other current assets	206,887		205,395
Inventory	256,598		256,598
Property, plant and equipment	534,363		537,386
Identifiable intangible assets	1,727,119		1,729,019
Other noncurrent assets	44,149		39,741
Current liabilities	(213,089)		(211,046)
Deferred tax liabilities and other noncurrent liabilities	(448,550)		(444,935)
Net assets acquired	2,388,113		2,392,794
Goodwill	3,633,138		3,628,457
Total purchase price	$	6,021,251	$	6,021,251

The fair value of acquired inventories was $256.6 million and is valued at the estimated selling price less the cost of disposal and reasonable profit for the selling effort. The fair value write-up of acquired finished goods inventory was $61.9 million. This

amount was recorded as an incremental cost of sales charge, amortized over the expected turn of the acquired inventory, during the year ended December 31, 2022.

The fair value of acquired property, plant and equipment of $537.4 million is valued at its fair value assuming held and used, unless market data was available supporting the fair value.

The Company recognized the following provisional intangible assets as part of the acquisition of CMC Materials and finite lived assets will be amortized on a straight-line basis:

(In thousands)	Amount		Weighted average life in years
Developed technology	$	1,035,600	7.3
Trademarks and trade names	236,600		14.9
Customer relationships	414,800		18.7
In-process research and development(1)	31,100
Other	10,919		1.2
	$	1,729,019	11.1

(1) In-process research and development assets are treated as indefinite-lived until the completion or abandonment of the associated research and development project, at which time the appropriate useful lives would be determined.

The fair value of acquired identifiable finite intangible assets was determined using an income method, which utilizes discounted cash flows to fair value each of the identifiable intangible assets. The Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy.

The purchase price of CMC Materials exceeded the fair value of the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $3,628.5 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company's ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill. No amount of goodwill is expected to be deductible for tax purposes. The assignment of goodwill to the Company's reportable segments will be finalized in connection with the final valuation of assets acquired and liabilities assumed.

The final valuation of assets acquired and liabilities assumed is expected to be completed as soon as possible, but no later than one year from the acquisition date. Given the size and complexity of the acquisition, the valuation of certain assets and liabilities is still being finalized. In addition to identifiable intangible assets, for the reasons noted above, the Company's valuation of the CMC Materials’ tax accounts is provisional pending the completion of and the Company's review of CMC Materials’ tax returns to be filed for periods up to the acquisition date. To the extent that the Company's estimates require adjustment, the Company will modify the value.

Pro Forma Results (Unaudited)

The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisition of CMC Materials had occurred as of the beginning of the years presented. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations would have been had the acquisition occurred at the beginning of each year. In addition, the unaudited pro forma financial information does not attempt

to project the future results of operations of the combined company. The pro forma information does not include any potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition.

	Year Ended
(In thousands)	December 31, 2022		December 31, 2021
Net sales	$	3,920,850	$	3,518,893
Net income (loss)	308,741		(161,756)
Per share amounts:
Net income (loss) per common share - basic	$	2.08	$	(1.09)
Net income (loss) per common share - diluted	$	2.05	$	(1.09)

The unaudited pro forma financial information above gives effect to the following:

•The elimination of transactions between Entegris and CMC Materials, which upon completion of the Merger would be considered intercompany. This reflects the elimination of intercompany sales and associated intercompany accounts.

•Incremental amortization and depreciation expense related to the estimated fair value of identifiable intangible assets and property, plant and equipment from the purchase price allocation.

•Interest expense on the new debt raised to fund in part the consideration paid to effect the Merger using the effective interest rates.

•The elimination of interest expense, net of the gain on the termination of two swap instruments which were terminated on June 24, 2022 associated with the extinguished CMC Materials’ debt outstanding.

•The elimination of interest expense associated with the repayment of the $145.0 million senior secured term loan facility due 2025.

•The amortization of deferred financing costs and original issue discount associated with the aggregate new debt facilities.

•Transaction and integration costs directly attributable to the Merger were reclassed as of the beginning of the comparable prior annual reporting period.

•The incremental pro forma stock-based compensation expense for accelerated vesting upon the change in control for stock options, restricted stock units, restricted stock shares, phantom units, and other deferred restricted stock units.

•The additional cost of goods sold recognized in connection with the write-up of acquired finished goods inventory of $61.9 million. The write-up is recognized in cost of sales as the inventory is sold, which for purposes of these pro forma financial statements is assumed to occur within the first quarter after the Merger.

•The income tax effect of the transaction accounting adjustments related to the Merger calculated using a blended statutory income tax rate of 22.5%.

Precision Microchemicals

On November 30, 2021, the Company completed its acquisition of the Precision Microchemicals business from BASF SE. The Precision Microchemicals business reports into the Specialty Chemicals and Engineered Materials segment of the Company. The acquisition was accounted for under the acquisition method of accounting, and the Precision Microchemicals business results of operations are included in the Company’s consolidated financial statements as of and since November 30, 2021. Costs associated with the acquisition of the Precision Microchemicals business were $0.2 million for the year ended December 31, 2021 and were expensed as incurred. These costs are included in the selling, general and administrative expenses in the Company’s consolidated statement of operations. The acquisition does not constitute a material business combination.

The purchase price for the Precision Microchemical business includes cash consideration of $89.7 million (net of cash acquired), which was funded from the Company’s existing cash on hand.

The purchase price of the Precision Microchemical business exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $42.8 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.

The fair value of acquired identifiable intangible assets was determined using Level 3 inputs for the “income approach” on an individual asset basis. The key assumptions used in the calculation of the discounted cash flows include future revenue growth rates, future gross margin, future selling, general and administrative expense, royalty rates, and discount rates. The valuations

and the underlying assumptions have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations.

During the quarter ended April 2, 2022, the Company finalized its fair value determination of the assets acquired and the liabilities assumed. The following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the acquisition:

(In thousands)	November 30, 2021		As of April 2, 2022
Inventories, net	$	967	$	967
Other current assets	19		19
Identifiable intangible assets	44,910		44,910
Right-of-use assets	1,912		1,912
Property, plant and equipment	1,002		1,002
Other noncurrent assets	18		18
Accounts payable and accrued liabilities	(43)		(30)
Short-term lease liability	(170)		(170)
Long-term lease liability	(1,742)		(1,742)
Net assets acquired	46,873		46,886
Goodwill	42,819		42,824
Total purchase price, net of cash acquired	$	89,692	$	89,710

The Company recognized the following provisional finite-lived intangible assets as part of the acquisition of the Precision Microchemical business:

(In thousands)	Amount		Weighted average life in years
Developed technology	$	9,600	9.0
Trademarks and trade names	3,400		15.0
Customer relationships	31,800		15.5
Other	110
	$	44,910	14.1