10q10k10q10k.net

What changed in ENTEGRIS INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of ENTEGRIS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+440 added−457 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-23)

Top changes in ENTEGRIS INC's 2023 10-K

440 paragraphs added · 457 removed · 329 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

127 edited+32 added−29 removed63 unchanged
Biggest changeOur business is organized and operated in four operating segments, which align with the key elements of the advanced semiconductor manufacturing ecosystem. • The Specialty Chemicals and Engineered Materials segment, or SCEM, provides high-performance and high-purity process chemistries, gases and materials, and safe and efficient materials delivery systems to support semiconductor and other advanced manufacturing processes. • The Advanced Planarization Solutions segment, or APS, provides complementary chemical mechanical planarization solutions, advanced materials and high-purity wet chemicals; including chemical mechanical planarization (“CMP”) slurries, pads, formulated cleans and other electronic chemicals. • The Microcontamination Control segment, or MC, offers solutions to filter and purify critical liquid and gaseous chemistries used in semiconductor manufacturing processes and other high-technology industries. • The Advanced Materials Handling segment, or AMH, develops solutions to monitor, protect, transport and deliver critical liquid chemistries, wafers and other substrates for a broad set of applications in the semiconductor industry, life sciences and other high-technology industries.
Biggest changeThe current annual and succeeding annual periods will disclose the reportable segments with prior periods recast to reflect the change. • The Materials Solutions segment, or MS, provides materials-based solutions, such as chemical mechanical planarization (“CMP”) slurries and pads, deposition materials, process chemistries and gases, formulated cleans, etchants and other specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership. • The Microcontamination Control segment, or MC, offers advanced solutions that improve customers’ yield, device reliability and cost by filtering and purifying critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. • The Advanced Materials Handling segment, or AMH, develops solutions that improve customers’ yields by protecting critical materials during manufacturing, transportation, and storage, including products that monitor, protect, transport and deliver critical liquid chemistries, wafers, and other substrates for a broad set of applications in the semiconductor, life sciences and other high-technology industries.
Photolithography . Photolithography, a process repeated during semiconductor fabrication, is used to print complex circuit patterns onto the wafer. During this process, the wafer is coated with a thin film of light-sensitive material, called photoresist. Light is projected to expose the photoresist, which is then developed to create a pattern.
Photolithography, a process repeated during semiconductor fabrication, is used to print complex circuit patterns onto the wafer. During this process, the wafer is coated with a thin film of light-sensitive material, called photoresist. Light is projected to expose the photoresist, which is then developed to create a pattern.
We believe that demand for our materials and consumable products will benefit from the increase in process steps in lithography, deposition, CMP and etch and clean required to manufacture leading-edge semiconductors. Advanced Materials . New advanced materials have played a significant role in enabling improved device performance, and we expect this trend to continue.
We believe that demand for our materials and consumable products will benefit from the increase in process steps in lithography, deposition, CMP and etch and clean required to manufacture leading-edge semiconductors. New and Advanced Materials . New and advanced materials have played a significant role in enabling improved device performance, and we expect this trend to continue.
These products are designed to minimize potential leaks during transportation and use and allow more gas to be stored in the cylinder, features which provide significant safety, environmental and productivity benefits over traditional high-pressure cylinders. We also offer VAC, a complementary technology to SDS, where select implant gases and gas mixtures are stored under high pressure but are delivered sub-atmospherically.
These products are designed to minimize potential leaks during transportation and use and allow more gas to be stored in the cylinder. These features provide significant safety, environmental and productivity benefits over traditional high-pressure cylinders. We also offer VAC, a complementary technology to SDS, where select implant gases and gas mixtures are stored under high pressure but are delivered sub-atmospherically.
In response, semiconductor architectures are changing, with transistor design increasing in complexity, the use of multilayered patterning (for example, extreme ultraviolet lithography), structures such as FinFET, 3D NAND and gate-all-around, and shrinking dimensions. These advanced architectures require more process steps, new, innovative materials and more sophisticated contamination control.
In response, semiconductor architectures are changing, with transistor design increasing in complexity, the use of multilayered patterning (for example, extreme ultraviolet lithography), structures such as FinFET, 3D NAND and gate-all-around, and shrinking dimensions. These advanced architectures require more process steps, new and innovative materials and more sophisticated contamination control solutions.
Recognizing our unique opportunity as a science-based company to effect positive change, the Entegris Foundation was established in 2020 to expand access to STEM (science, technology, engineering and math) education in underrepresented communities. The Entegris Foundation provides scholarship opportunities to underrepresented students pursuing a STEM major in colleges across the U.S. and in Korea, Taiwan and Japan.
Recognizing our unique opportunity as a science-based company to effect positive change, the Entegris Foundation was established in 2020 to expand access to science, technology, engineering and math (“STEM”) education in underrepresented communities. The Entegris Foundation provides scholarship opportunities to underrepresented students pursuing a STEM major in colleges across the U.S. and in Korea, Taiwan and Japan.
An example of our commitment to fostering diversity and inclusion at Entegris is our Employee Network groups, which are designed to advance diversity and inclusion and to promote our workplace as an environment where all individuals are valued for their talents and feel empowered to reach their fullest potential.
An example of our commitment to fostering and promoting diversity and inclusion at Entegris is our Employee Network groups, which are designed to advance diversity and inclusion and to promote our workplace as an environment where all individuals are valued for their talents and feel empowered to reach their fullest potential.
These investments are intended to better support our customers regionally and to be even more responsive to our customers’ future growth. Operational Excellence . Our customers are increasingly focused on the effectiveness, dependability and consistency of their supply chains.
These investments are intended to better support our customers regionally and to be even more responsive to our customers’ future growth and innovation. Operational Excellence . Our customers are increasingly focused on the effectiveness, dependability and consistency of their supply chains.
Several of our products are utilized during and after the etch process, including: • Selective etch chemistries to enable high aspect ratio structures, such as 3D-NAND; • Formulated cleaning solutions and high-purity wet chemicals to remove photoresists and post-etch residues; • Filters and purifiers, which help to ensure the purity of formulated cleaning chemistries and to achieve desired yields in the etch processing steps; and • Precision-engineered coatings to provide barriers to corrosive chemistries in the etch environment, protect surfaces of equipment components from erosion and minimize particle generation.
Several of our products are utilized during and after the etch process, including: • Selective etch chemistries to enable high aspect ratio structures, such as 3D-NAND; • Formulated cleaning solutions to remove photoresists and post-etch residues; • Filters and purifiers, which help to ensure the purity of formulated cleaning chemistries and to achieve desired yields in the etch processing steps; and • Precision-engineered coatings to provide barriers to corrosive chemistries in the etch environment, protect surfaces of equipment components from erosion and minimize particle generation.
Our high-performance specialty coatings, such as our Pegasus™ and Cearus™ coatings, provide erosion resistance, minimize particle generation and prevent contamination on critical components in semiconductor environments and other high-technology manufacturing operations.
Specialty Materials . Our high-performance specialty coatings, such as our Pegasus™ and Cearus™ coatings, provide erosion resistance, minimize particle generation and prevent contamination on critical components in semiconductor environments and other high-technology manufacturing operations.
Further, as the semiconductor industry looks to new interconnect metals like molybdenum, our portfolio of deposition precursors, CMP slurries and pads, post-CMP cleans, selective etch formulations, combined with our filtration, sensing, and delivery products will enable us to create end-to-end solutions and position our customers to enhance their device performance and yield. Corporate Social Responsibility .
Further, as the semiconductor industry looks to new interconnect metals like molybdenum, our portfolio of deposition precursors, CMP slurries and pads, post-CMP cleans, selective etch formulations, combined with our filtration, sensing, and delivery products will enable us to create end-to-end solutions and position our customers to enhance their device performance and optimize time to yield. Corporate Social Responsibility .
For example, in only a few years, we brought to market our Aramus high-purity bag assemblies that are used in the production of biologics, including COVID-19 vaccines. We plan to expand the use of these solutions into non-COVID biologics, to provide ancillary solutions around our Aramus bags, and to expand our filter offerings for bioprocessing applications.
For example, in only a few years, we brought to market our Aramus high-purity bag assemblies which are used in the production of biologics, including COVID-19 vaccines. We plan to expand the use of these solutions into non-COVID-19 biologics, provide ancillary solutions around our Aramus bags, and expand our filter offerings for bioprocessing applications.
We offer a variety of products that control contaminants in our customers’ wet processes both in the fab environment and upstream at the chemical manufacturers. For example, our Torrento® series of filters is used for the filtration of aggressive acid and base chemistries for both semiconductor fabs as well as specialty chemical manufacturers, including our SCEM segment.
We offer a variety of products that control contaminants in our customers’ wet processes both in the fab environment and upstream at the chemical manufacturers. For example, our Torrento® series of filters is used for the filtration of aggressive acid and base chemistries for both semiconductor fabs as well as specialty chemical manufacturers, including our MS segment.
We acquired all of the issued and outstanding common shares of CMC Materials for $133.00 in cash and 0.4506 shares of our common stock per share, representing a total purchase price (inclusive of debt retired and cash assumed) of $6.0 billion (based on our closing price on June 30, 2022), including $3.8 billion in cash paid to CMC Materials’ shareholders, the issuance of 12.9 million shares of our common stock (excluding unvested CMC stock options and unvested CMC restricted stock units, restricted shares and performance share units equity awards assumed), $0.9 billion of debt retired and approximately $0.3 billion of acquired cash.
We acquired all of the issued and outstanding common shares of CMC Materials for $133.00 in cash and 0.4506 shares of our common stock per share, representing a total purchase price (inclusive of debt retired and cash assumed) of $6.0 billion (based on our closing price on June 30, 2022), including $3.8 billion in cash paid to CMC Materials’ shareholders, the issuance of 12.9 million shares of our common stock (excluding unvested CMC stock options and unvested CMC Materials restricted stock units, restricted shares and performance share units equity awards assumed), $0.9 billion of debt 1 Table of Contents retired and approximately $0.3 billion of acquired cash.
As a result, our revenue is generally more impacted by overall global semiconductor demand and global GDP growth, rather than the sales of semiconductor capital equipment, which has historically been more cyclical. • Our solutions are increasingly specified and tailored to meet our customers’ unique process conditions.
As a result, our revenue is generally more impacted by overall global semiconductor demand and global GDP growth, rather than the sales of semiconductor capital equipment, which has historically been more cyclical. • Our solutions are increasingly specified and tailored to meet our customers’ unique process conditions and technical roadmaps.
We leverage the expertise that we have gained from serving the semiconductor industry, our core capabilities in material science and material purity to develop products for other industries that employ technologies and production processes that require materials integrity management, high-purity fluids and integrated dispense systems.
We leverage the expertise that we have gained from serving the semiconductor industry, as well as our core capabilities in material science and material purity, to develop products for other industries that employ technologies and production processes that require materials integrity management, high-purity fluids and integrated dispense systems.
Wafer and Package Testing . In our ITS business, which was added to our platform as part of the CMC Materials acquisition, we develop and manufacture high-performance consumable products for cleaning advanced probe cards and test sockets at semiconductor manufacturing facilities. We also design innovative polymer products for semiconductor fabs that improve front-end tool uptime and reduce operating costs.
Wafer and Package Testing . In our Advanced Cleaning Materials business, which was added as part of the CMC Materials acquisition, we develop and manufacture high-performance consumable products for cleaning advanced probe cards and test sockets at semiconductor manufacturing facilities. We also design innovative polymer products for semiconductor fabs that improve front-end tool uptime and reduce operating costs.
Our ability to meet our customers’ expectations, combined with our substantial investments in worldwide manufacturing capacity and comprehensive supply chain strategy, position us well to respond to the increasing demands from our customers for yield-enhancing materials and solutions.
Our ability to meet our customers’ expectations, combined with our substantial investments in worldwide manufacturing capacity and comprehensive supply chain strategy, positions us well to respond to the increasing demands from our customers for yield-enhancing materials and solutions.
While we seek to have several sources of supply for raw materials, certain materials included in our products, such as certain filtration membranes in our MC segment, petroleum coke and specialty and commodity chemicals in our SCEM segment, certain polymer resins in our AMH segment, and certain engineered abrasive particles in our APS segment, are obtained from a single source or a limited group of suppliers or from suppliers in a single country.
While we seek to have several sources of supply for raw materials, certain materials included in our products, such as certain filtration membranes in our MC segment, certain engineered abrasive particles, specialty and commodity chemicals and petroleum coke in our MS segment, and certain polymer resins in our AMH segment, are obtained from a single source, a limited group of suppliers or from suppliers in a single country.
Chemical Mechanical Planarization . Chemical mechanical planarization, or CMP, is a polishing process used by semiconductor manufacturers to planarize, or flatten, many of the layers of material that have been deposited on silicon wafers. 2 Table of Contents We expanded our offerings used during and immediately following the CMP process with the acquisition of CMC Materials.
Chemical Mechanical Planarization . CMP is a polishing process used by semiconductor manufacturers to planarize, or flatten, many of the layers of material that have been deposited on silicon wafers. With the acquisition of CMC Materials, we expanded our offerings used during and immediately following the CMP process.
Our POCO® premium graphite is used to make precision consumable electrodes for electrical discharge machining, hot glass contact materials for glass product manufacturing and forming and other consumable products for various industrial applications, including aerospace, optical, medical devices, air bearings and printing.
AMM includes our POCO® premium graphite products, used to make precision consumable electrodes for electrical discharge machining, hot glass contact materials for glass product manufacturing and forming and other consumable products for various industrial applications, including aerospace, optical, medical devices, air bearings and printing.
These systems and products improve our customers’ yields by protecting wafers from abrasion, degradation and contamination during manufacturing and transportation and by assuring the consistent, clean and safe delivery of advanced chemicals from the chemical manufacturer to the point-of-use in the semiconductor fab.
These systems and products improve our customers’ yields by protecting wafers from abrasion, degradation and contamination during 9 Table of Contents manufacturing and transportation and by assuring the consistent, clean and safe delivery of advanced chemicals from the chemical manufacturer to the point-of-use in the semiconductor fab.
For additional information on these important initiatives, see our annual corporate social responsibility report on our website at http://www.Entegris.com under “About Us - Corporate Social Responsibility.” 13 Table of Contents OUR HISTORY The Company was incorporated in Delaware on March 17, 2005 in connection with a merger between Entegris, Inc., a Minnesota corporation, and Mykrolis Corporation, a Delaware corporation.
For additional information on these important initiatives, see our annual corporate social responsibility report on our website at http://www.Entegris.com under “About Us - Corporate Social Responsibility.” OUR HISTORY The Company was incorporated in Delaware on March 17, 2005 in connection with a merger between Entegris, Inc., a Minnesota corporation, and Mykrolis Corporation, a Delaware corporation.
We maintain a network of service centers, applications laboratories and technology centers located in key markets internationally and in the United States to support our products and our customers with their advanced development needs, provide local technical service, application support and help ensure fast turnaround time. COMPETITION The market for our products is highly competitive.
We maintain a network of service centers, applications laboratories and technology centers located in key markets internationally and in the U.S. to support our products and our customers with their advanced development needs, provide local technical service, application support and help ensure fast turnaround time. COMPETITION The market for our products is highly competitive.
Protection of processed wafers is essential to our customers because wafer processing involves hundreds of steps, can take several weeks and therefore scrapping damaged wafers is costly. Our extreme ultraviolet (EUV) reticle pod is designed to provide defect-free protection of EUV reticles during shipping, storage, handling, and vacuum-transferring operations. Chemical Handling .
Protection of processed wafers is essential to our customers because wafer processing involves hundreds of steps and can take several weeks, making the scrapping of damaged wafers costly. Our extreme ultraviolet (“EUV”) reticle pod is designed to provide defect-free protection of EUV reticles during shipping, storage, handling, and vacuum-transferring operations. Chemical Handling .
Our strategy is to continue to develop our broad supply chain and manufacturing capabilities into a competitive advantage by driving operational excellence and operating in a manner that ensures the safety of our employees and the quality of our products.
Our strategy is to continue to develop and improve our extensive supply chain and manufacturing capabilities into a competitive advantage by driving operational excellence and operating in a manner that ensures the safety of our employees and the quality of our products.
Existing applications in data processing, wireless communications, broadband infrastructure, personal computers, handheld electronic devices and other consumer electronics are also expected to drive demand for semiconductors, and in turn, demand for our products. Manufacturing Complexity and Architecture . Emerging applications require more powerful, faster and more energy-efficient semiconductors.
Existing applications in data processing, wireless communications, broadband infrastructure, personal computers, handheld 3 Table of Contents electronic devices and other consumer electronics are also expected to drive demand for semiconductors, and in turn, demand for our products. Manufacturing Complexity and Architecture . Emerging applications require more powerful, faster and more energy-efficient semiconductors.
We utilize expertise from the AMH segment in polymer science, from the SCEM segment in formulated cleaning chemistries and APS segment in slurry formulation to develop differentiated filtration and purification solutions for our customers. Liquid Microcontamination Control Products .
We utilize expertise from the AMH segment in polymer science and from the MS segment in formulated cleaning chemistries and in slurry formulation to develop differentiated filtration and purification solutions for our customers. Liquid Microcontamination Control Products .
Our high-volume line of Ultrapak® products for wafers ranging from 100 to 200 millimeter ensure the clean and secure transport of wafers from the wafer manufacturers to the semiconductor fabs. We also offer a front-opening shipping box, or FOSB, for the transportation and automated interface of 300 millimeter wafers.
Our high-volume line of Ultrapak® products for wafers ranging from 100 to 200 millimeters ensure the clean and secure transport of wafers from the wafer manufacturers to the semiconductor fabs. We also offer a front-opening shipping box (“FOSB”) for the transportation and automated interface of 300 millimeter wafers.
Specialty Gas Products . Our specialty gas solutions provide advanced safety and process capabilities to semiconductor, display and solar panel manufacturers. Our SDS cylinders store and deliver hazardous gases, such as arsine, phosphine, germanium tetrafluoride and boron trifluoride, at sub-atmospheric pressure through the use of our proprietary carbon-based adsorbent materials.
We offer the following Dry Process Solutions products: Specialty Gases . Our specialty gas solutions provide advanced safety and process capabilities to semiconductor, display and solar panel manufacturers. Our SDS cylinders safely store and deliver hazardous gases, such as arsine, phosphine, germanium tetrafluoride and boron trifluoride, at sub-atmospheric pressure through the use of our proprietary carbon-based adsorbent materials.
Additionally, we owned about 2,000 pending patent applications globally. In addition, we license certain patents owned by third parties. We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights. We seek to refresh our intellectual property on an ongoing basis through continued innovation.
Additionally, we owned about 2,200 pending patent applications globally. We also license certain patents owned by third parties. We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights. We seek to refresh our intellectual property on an ongoing basis through continued innovation.
For example, we have introduced sub-5 nanometer filtration products, advanced deposition materials for next generation transistor and interconnect technologies, polishing slurry and pad solutions with post-cleaning formulations to meet the needs of advanced memory applications, advanced reticle pods for extreme ultra-violet, or EUV, photolithography applications, advanced 300 millimeter wafer carriers and advanced coatings to meet the rigorous defectivity specifications for the manufacturing of advanced technology nodes.
For example, we have introduced sub-5 nanometer filtration products, advanced deposition materials for 5 Table of Contents next generation transistor and interconnect technologies, polishing slurry and pad solutions with post-cleaning formulations to meet the needs of advanced memory applications, advanced reticle pods for EUV photolithography applications, advanced 300 millimeter wafer carriers and advanced coatings to meet the rigorous defectivity specifications for the manufacturing of advanced technology nodes.
Our product offerings that can be used throughout the photolithography process, include: • Liquid filtration, high-purity packaging and high-precision dispense systems designed to ensure the pure, accurate and uniform dispense of contamination-free photoresists onto the wafer, enabling manufacturers to achieve acceptable yields in the manufacturing process; and • Gas microcontamination control solutions designed to eliminate airborne contaminants that often disrupt effective photolithography processes.
Our product offerings that are used throughout the photolithography process include: • Liquid filtration, high-purity packaging and high-precision dispense systems designed to ensure the pure, accurate and uniform distribution of contamination-free photoresists onto the wafer, enabling manufacturers to achieve optimum yields in the manufacturing process; and • Gas microcontamination control solutions designed to eliminate airborne contaminants that often disrupt effective photolithography processes.
ENGINEERING, RESEARCH AND DEVELOPMENT We believe that technology is important to the success of our businesses, and we plan to continue to devote significant resources to engineering, research and development, or ER&D, balancing efforts between shorter-term market needs and longer-term investments. As of December 31, 2022, we had approximately 1,392 employees in ER&D.
ENGINEERING, RESEARCH AND DEVELOPMENT We believe that technology is important to the success of our businesses. We plan to continue to devote significant resources to ER&D, balancing efforts between shorter-term market needs and longer-term investments. As of December 31, 2023, we had approximately 1,361 employees in ER&D.
For example, certain of our formulated cleaning chemistry products are developed and manufactured by our SCEM segment, with collaboration from our MC segment, packaged with our ultra-clean container and connector system made by our AMH segment, and delivered to the process tools through fluid handling systems also made by our AMH segment.
For example, certain of our formulated cleaning chemistry products are developed and manufactured by our MS segment, with collaboration from our filtration expertise in our MC segment, packaged with our ultra-clean container and connector system made by our AMH segment, and delivered to the process tools through fluid handling systems also made by our AMH segment.
During 2022, these topics included commitment to Entegris’ core values, safety and general employee satisfaction. Management uses the 12 Table of Contents information gathered from these surveys to inform its decision making with respect to employee matters, aiming to continue to be an employer of choice. Diversity and Inclusion .
During 2023, these topics included commitment to Entegris’ core values, safety and general employee satisfaction. Management uses the information gathered from these surveys to inform its decision making with respect to employee matters, aiming to continue to be an employer of choice. Diversity and Inclusion .
Our broad portfolio of packaging and container products, from low-volume containers to transport high-value photoresist chemistries, such as our NOWPak® products, to large intermediate bulk containers, such as our FluoroPure® products, ensure the purity of the chemistries they contain.
Fluid Management Products . Our broad portfolio of packaging and container products, from low-volume containers to transport high-value photoresist chemistries, such as our NOWPak® products, to large intermediate bulk containers, such as our FluoroPure® products, ensures the purity of the chemistries they contain.
These agreements generally have a term of one to three years, but typically do not contain any long-term purchase commitments. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. However, customers may cancel their orders, change production quantities from forecasted volumes or delay production for reasons beyond our control.
These agreements typically do not contain any long-term purchase commitments. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. However, customers may cancel their orders, change production quantities from forecasted volumes or delay production for reasons beyond our control.
Our offerings include: • CMP slurries for polishing a wide range of materials used in semiconductors, including tungsten, dielectric materials, copper, tantalum (commonly referred to as “barrier”), aluminum, silicon carbide, or SiC, and gallium nitride, or GaN; • CMP polishing pads, which are used in conjunction with slurries in the CMP process, used on a variety of polishing tools and wafers, over a range of technology nodes and applications, including tungsten, copper, and dielectrics; • Formulated cleaning chemistries, which remove residues from wafer surfaces after the CMP process; • Filtration and purification solutions, which are used to remove select particles and contaminants from slurries and cleaning chemistries that can cause defects on a wafer’s surface; • Roller brushes, which are used in conjunction with our formulated cleaning chemistries to clean the wafer after completion of the CMP process in order to prepare the wafer for subsequent operations; • Pad conditioners, which are used to prepare the surface of the CMP polishing pad prior to every polishing cycle; and • Process monitoring and control equipment, that maintain the integrity of the CMP slurries.
Our offerings include: • CMP slurries, used for polishing a wide range of materials used in semiconductors, including tungsten, dielectric materials, copper, tantalum (commonly referred to as “barrier”), aluminum, silicon carbide (“SiC”) and gallium nitride (“GaN”); • CMP polishing pads, which are used in conjunction with slurries in the CMP process on a variety of polishing tools and wafers over a range of technology nodes and applications, including tungsten, copper, and dielectrics; • Formulated cleaning chemistries, which remove residues from wafer surfaces after the CMP process; • Filtration and purification solutions, which are used to remove select particles and contaminants from slurries and cleaning chemistries that can cause defects on a wafer’s surface; • Roller brushes, which are used in conjunction with our formulated cleaning chemistries to clean the wafer after completion of the CMP process in order to prepare the wafer for subsequent steps in the manufacturing process; and • Process monitoring and control equipment, which maintain the integrity of the CMP slurries.
To meet our customers’ needs worldwide, we have established an extensive global manufacturing network with facilities in the United States, Canada, China, France, Italy, Japan, Malaysia, Singapore, South Korea, Taiwan and the United Kingdom. Because we work in an industry where contamination control is paramount, we maintain Class 100 to Class 10,000 cleanrooms for manufacturing and assembly.
To meet our customers’ needs worldwide, we have established an extensive global manufacturing network with facilities in the U.S., Canada, China, Japan, Malaysia, Singapore, South Korea and Taiwan. Because we work in an industry where contamination control is paramount, we maintain Class 100 to Class 10,000 cleanrooms for manufacturing and assembly.
Leveraging Our Collective Expertise . We leverage our expertise across our four segments and across our broad portfolio of advanced materials, materials handling and purification capabilities to create innovative, new and co-optimized solutions to 5 Table of Contents address unmet customer needs.
Leveraging Our Collective Expertise . We leverage our expertise across our three segments and across our broad portfolio of advanced materials, materials handling and purification capabilities to create innovative, new and co-optimized solutions to address unmet customer needs.
Those of our products used during the ion implant process include: • Safe Delivery Source®, or SDS®, and Vacuum Actuated Cylinders, or VAC®, gas delivery systems designed to ensure the safe, effective and efficient delivery of the necessary gases; and • Electrostatic chucks and proprietary low temperature plasma coating processes for core components, which are critical elements of ion implantation equipment.
Our products used during the ion implant process include: • Safe Delivery Source® (“SDS®”) and Vacuum Actuated Cylinders (“VAC®”) gas delivery systems designed to ensure the safe, effective and efficient delivery of the necessary specialty gases; and • Electrostatic chucks and proprietary low temperature plasma coating processes for core components, which are critical elements of ion implantation equipment.
Our capabilities to test and characterize our materials and products are focused on continuously reducing risks and threats to the integrity of the critical materials that our customers use in their manufacturing processes.
We use sophisticated methodologies to research, develop and characterize our materials and products. Our capabilities to test and characterize our materials and products are focused on continuously reducing risks and threats to the integrity of the critical materials that our customers use in their manufacturing processes.
The competitive landscape is varied, ranging from business segments within large multinational companies to small regional or regionally-focused companies. While product quality and technology remain critical, overall, industry trends are indicating a 10 Table of Contents shift to localized, cost-competitive and consolidated supply chains.
The competitive landscape is varied, ranging from business segments within large multinational companies to small regional or regionally-focused companies. While product quality and technology remain critical, overall, industry trends overall indicate a shift to localized, cost-competitive and consolidated supply chains.
Below is a table showing the percentage of our net sales to top customers and the percentage of our net sales that are international during the three most recent fiscal years. 9 Table of Contents 2022 2021 2020 Percentage of net sales to top customers: TSMC 12 % 12 % 11 % Remaining top ten customers 31 % 31 % 35 % Total top ten customers 43 % 43 % 46 % Percentage of net sales by market: Domestic/US 24 % 23 % 25 % Foreign/International 76 % 77 % 75 % We may enter into supply agreements with our customers.
Below is a table showing the percentage of our net sales to top customers and the percentage of our net sales that are international during the three most recent fiscal years. 2023 2022 2021 Percentage of net sales to top customers: TSMC 11 % 12 % 12 % Remaining top ten customers 32 % 31 % 31 % Total top ten customers 43 % 43 % 43 % Percentage of net sales by market: Domestic/U.S. 25 % 24 % 23 % Foreign/International 75 % 76 % 77 % We may enter into supply agreements with our customers.
The AMH segment collaborates closely with our SCEM and APS segments in developing products that are compatible with advanced chemistries to enhance yields and integrates liquid filtration technology from our MC segment to deliver consistent and pure chemistry. Microenvironment Solutions .
The AMH segment collaborates closely with our MS segment in developing products that are compatible with advanced chemistries to enhance yields and integrates liquid filtration technology to deliver consistent and pure chemistry. Microenvironment Solutions .
We are focused on the following priorities that we believe enable us to perform at the high level that our customers expect. • Investing in and using manufacturing equipment and facilities incorporating leading-edge process technology, including advanced cleanroom and cleaning procedures. • Implementing automated manufacturing, statistical process controls, quality and supply chain management systems. • Maintaining a highly-skilled and agile organization, capable of rapid design, prototyping and ramping to high volume manufacturing while promptly responding to new customer requirements and feedback.
Our significant investments in our new KSP facility in Taiwan and our facility in Colorado Springs, Colorado are intended to enhance our operational excellence as we focus on the following priorities that we believe enable us to perform at the high level that our customers expect. • Investing in and using manufacturing equipment and facilities incorporating leading-edge process technology, including advanced cleanroom and cleaning procedures; • Implementing automated manufacturing, statistical process controls, quality and supply chain management systems; and • Maintaining a highly-skilled and agile organization, capable of rapid design, prototyping and ramping to high volume manufacturing while promptly responding to new customer requirements and feedback.
Our total rewards program is designed to be attractive and competitive and to enable our employees to reach their highest potential by directly impacting their financial security, career growth opportunities and the health and well-being of them and their families. Talent Development and Training . We are committed to the continued development and training of our employees.
Our total rewards program is designed to be attractive and competitive and to enable our employees to reach their highest potential by directly impacting their financial security, career growth opportunities, and the health and well-being of them and their families.
After we integrate CMC Materials and achieve our debt reduction targets, we will continue to pursue strategic acquisitions and business partnerships that enable us to address gaps in our product offerings, secure new customers, diversify into complementary product markets, broaden our technological capabilities and product offerings, access local or regional markets and achieve benefits of increased scale.
As we continue making progress toward achieving our debt reduction targets, we will continue to pursue strategic acquisitions and business partnerships that enable us to address gaps in our product offerings, secure new customers, diversify into complementary product markets, broaden our technological capabilities and product offerings, access local or regional markets and achieve benefits of increased scale.
In addition, our fluid handling products, such as tubing, valve, fittings and drum products, are used to safely store, transport and dispense volatile and dangerous chemistries, protecting those who work with them. Total Rewards . We are focused on enhancing our high-performance organization.
In addition, our fluid-handling products, such as tubing, valve, fittings and drum products, are used to safely store, transport and dispense volatile and dangerous chemistries, protecting those who work with them. Total Rewards .
In addition, we use contract manufacturers for certain of our products both in the United States and Asia. RAW MATERIALS Our products are made from a wide variety of raw materials that are generally available from multiple sources of supply.
In addition, we use contract manufacturers for certain of our products both in the U.S. and Asia. 12 Table of Contents RAW MATERIALS Our products are made from a wide variety of raw materials that are generally available from multiple sources of supply.
Products and emerging applications such as smartphones, 5G wireless technology, cloud computing, the Internet of Things, machine learning, artificial intelligence, high performance computing, smart transportation, smart healthcare, gaming and virtual reality will require faster, more powerful and more energy efficient semiconductors. We believe these new trends, combined with existing applications, will drive long-term secular growth for semiconductors.
Products and emerging applications such as smartphones, wearable technology, self-driving vehicles, artificial intelligence, the Internet of Things, gaming and virtual reality, high-performance and cloud computing, and smart healthcare will require faster, more powerful, more compact and more energy efficient semiconductors. We believe these trends, combined with existing applications, will drive long-term secular growth for semiconductors.
While price is an important factor, we compete primarily on the basis of the following factors: technical expertise; time to solution; product quality and performance; supply chain resiliency; advanced manufacturing capabilities; breadth of geographic presence; total cost of ownership; customer collaboration, service and support; and historical customer relationships; after-sales service. breadth of product line; We believe that we compete favorably with respect to the factors listed above.
While price is an important factor, we compete primarily on the basis of the following factors: technical expertise; time to solution; product quality and performance; complementary solutions; advanced manufacturing capabilities; supply chain resiliency; total cost of ownership; breadth of geographic presence; historical customer relationships; customer collaboration, service and support; and breadth of product offerings; after-sales service.
We believe that smartphones, 5G wireless technology, cloud computing, the Internet of Things, machine learning, artificial intelligence, high performance computing, smart transportation, smart healthcare, gaming and virtual reality will drive growth in the demand for semiconductors, drive wafer starts and create significant opportunities for our products.
We believe that smartphones, wearable technology, self-driving vehicles, artificial intelligence, the Internet of Things, gaming and virtual reality, high performance and cloud computing, and smart healthcare will drive growth in the demand for semiconductors, drive wafer starts and create significant opportunities for our products.
These include regular updates and discussion related to human capital management efforts and other initiatives impacting the workforce, health and safety matters, employee survey results, hiring and retention, employee demographics, labor relations, compensation and benefits, succession planning and employee training initiatives.
These include receiving regular updates from our Senior Vice President, Global Human Resources, and facilitating discussion related to human capital management efforts and other initiatives impacting the workforce, health and safety matters, employee survey results, hiring and retention, employee demographics, labor relations, compensation and benefits, succession planning and employee training initiatives.
SALES, MARKETING AND SUPPORT We sell our products worldwide, primarily through our direct sales force and strategic independent distributors located in all major semiconductor markets. Independent distributors are also used in other market territories and for specific market segments. As of December 31, 2022, our sales and marketing force consisted of approximately 788 employees worldwide.
SALES, MARKETING AND SUPPORT 10 Table of Contents We sell our products worldwide, primarily through our direct sales force and strategic independent distributors located in all major semiconductor markets. We also use independent distributors in other market territories and for specific market segments. As of December 31, 2023, our sales and marketing force consisted of approximately 783 employees worldwide.
We have been proactive in light of these trends by developing a manufacturing strategy to better serve our customers as they build new fabs in various countries. Recent examples of this strategy include new facility located in Kaohsiung Science Park (“KSP”) in Taiwan and the recent announcement of our new facility in Colorado Springs, CO.
We have been proactive in light of these trends by developing a manufacturing strategy to better serve our customers as they build new fabs in various countries and seek local reliable supply chain partners. Recent examples of this strategy include our new facilities located in Kaohsiung Science Park (“KSP”) in Taiwan and in Colorado Springs, Colorado.
As of December 31, 2022, our six Employee Networks included groups focused on gender identity, sexual orientation, age and veteran status. Health and Safety . Our success depends on the well-being of our employees.
As of December 31, 2023, our six Employee Networks included groups focused on gender identity, people of color, sexual orientation, age, sustainability and veteran status. 13 Table of Contents Health and Safety . Our success depends on the well-being of our employees.
The system has been widely adopted in our manufacturing locations across the globe, and management uses the information generated by it to set safety-related policies and to set goals for future performance. We also design our products with the safety of the people who are using them in mind.
Management uses the information generated by the system to set safety-related policies and to set goals for future performance. We also design our products with the safety of the people who are using them in mind.
AVAILABLE INFORMATION Our Internet address is www.entegris.com. On this website, under the “About Us-Investor Relations-Financial Information” section, we post the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S.
On this website, under the “About Us-Investor Relations-Financial Information” section, we post the following filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S.
We undertake this work to extend the reach of our internal R&D and to gain access to leadership ideas and concepts beyond the time horizon of our internal development activities. PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS As of December 31, 2022, we owned approximately 4,400 active patents worldwide, of which about 850 were United States patents.
We undertake this work to extend the reach of our internal ER&D and to gain access to leading ideas and concepts beyond the time horizon of our internal development activities. PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS As of December 31, 2023, we owned approximately 4,400 active patents worldwide, of which about 815 were U.S. patents.
With the addition of CMC Materials, we will seek to develop co-optimized, end-to-end solutions and bring them to market more quickly, such as polishing solutions for new deposition materials and optimized filtration solutions for new abrasive materials.
With the addition of CMC Materials and through the creation of our MS segment, we are working to develop co-optimized, end-to-end solutions and bring them to market more quickly, such as polishing solutions for new deposition materials and optimized filtration solutions for new abrasive materials.
In addition, we collaborate with leading universities and industry consortia, such as the University of California, Yale University, Pennsylvania State University, University of Illinois (Champaign Urbana), SUNY Albany, the Interuniversity Microelectronics Center (imec®) and CEA-LETI.
In addition, we collaborate with leading universities and industry consortia, such as Stanford University, Yale University, the Massachusetts Institute of Technology (MIT), University of Illinois (Champaign Urbana), SUNY Albany, the Fraunhofer Institute, the Interuniversity Microelectronics Center (imec®) and CEA-LETI.
We believe that our worldwide advanced manufacturing capabilities are important competitive 11 Table of Contents advantages.
We believe that our worldwide advanced manufacturing capabilities are important competitive advantages.
HUMAN CAPITAL RESOURCES We believe that our employees are a critical asset in achieving our mission of helping our customers improve their productivity, performance and technology by providing enhanced materials and process solutions for the most advanced manufacturing environments.
HUMAN CAPITAL RESOURCES We believe that our employees are a critical asset in achieving our mission of helping our customers improve their productivity, performance and technology by providing enhanced materials and process solutions for the most advanced manufacturing environments. In order to attract and retain top talent, we are focused on creating a diverse, inclusive and safe workplace.
Deposition . Deposition is a process during which certain materials are transferred to the surface of a wafer. Deposition processes include physical vapor deposition, or PVD, chemical vapor deposition, or CVD, atomic-layer deposition, or ALD, and electro-plating.
Deposition . Deposition is a process during which certain materials are transferred to the surface of a wafer. Deposition processes include physical vapor deposition, or PVD, chemical vapor deposition, or CVD, atomic-layer deposition, or ALD, and electro-plating. We provide products that are used during these deposition processes and that are critical to enabling new device architectures.
We have seen, and expect to continue to see, governments have an interest in fostering the development of a domestic or local semiconductor ecosystem. Examples include the CHIPS Act, EU CHIPS Act and similar initiatives in Japan and Korea.
We have seen, and expect to continue to see, governments have an interest in fostering the development of a domestic or local semiconductor ecosystem. Examples include the United States (“U.S.”) and European Union (“EU”) CHIPS Acts and similar initiatives in Japan and Korea.
In addition, as CMP slurries and cleans require advanced filtration both in manufacturing and at the point of use in the semiconductor manufacturing environment, the APS segment partners with our MC segment to optimize its products and processes in order to achieve industry-leading purity levels. CMP Slurries .
In addition, as products such as CMP slurries and cleans require advanced filtration both in manufacturing and at the point of use in the semiconductor manufacturing environment, the MS segment collaborates with our MC segment to optimize its products and processes in order to achieve industry-leading purity levels and maximize yield. 7 Table of Contents Deposition and Etch Solutions .
Our KSP site will soon become our largest facility and will enhance our ability to serve our customers efficiently and effectively in Taiwan and other Asia-pacific locations.
Our KSP site, which opened in May 2023, will be our largest manufacturing facility and will enhance our ability to serve our customers efficiently and effectively in Taiwan and other Asia-pacific locations.
Further, we will reevaluate our existing businesses from time to time and may decide to sell, restructure or replace one or more businesses , such as the pending sale of our QED business .
Further, we will reevaluate our existing businesses from time to time and may decide to sell, restructure or replace one or more businesses.
Advanced Deposition Materials Products . Our advanced deposition materials include advanced liquid, gaseous and solid precursors, including organometallic precursors for the deposition of tungsten, titanium, cobalt, aluminum, molybdenum and ruthenium containing films and organosilane precursors for the deposition of silicon oxide and silicon nitride films.
We offer the following Deposition and Etch Solutions products: Advanced Deposition Materials Products . Our advanced deposition materials include advanced liquid, gaseous and solid precursors, including organometallic precursors for the deposition of tungsten, titanium, cobalt, aluminum, molybdenum and other emerging metal films and organosilane precursors for the deposition of silicon oxide, silicon nitride and advanced dielectric materials films.
The Colorado Springs site is intended to increase our service levels to new fabs expected to be built in the United States and provide us with greater manufacturing resiliency in the form of enhanced business continuity plans. Reliance on Trusted Suppliers .
Additionally, we recently began constructing our new state-of-the-art Colorado Springs manufacturing facility, which is intended to increase our service levels to new fabs expected to be built in the U.S. and provide us with greater manufacturing resiliency in the form of enhanced business continuity plans. Reliance on Trusted Suppliers .
Our recent corporate social responsibility accomplishments included achieving a “Silver” level from EcoVadis, an “A” rating from MSCI and receiving the ESG Supplier Award from Applied Materials, a major equipment customer. The annual corporate social responsibility report is published on our website at http://www.Entegris.com under “About Us - Corporate Social Responsibility.” Adjacent Markets .
Our recent corporate social responsibility accomplishments included achieving a “Gold” rating from EcoVadis, with a ranking in the 97th percentile, and an “A” rating from MSCI. The annual corporate social responsibility report is published on our website at http://www.Entegris.com under “About Us - Corporate Social Responsibility.” Adjacent Markets .
Our CMP Pads, such as our NexPlanar™, Medea™ and Ultra pad products are designed to provide the exact hardness, pore sizes, compressibility, and groove patterns needed to meet and exceed the requirements of various CMP applications. Our Epic Power™ CMP Pads are designed for SiC wafers and offer a balance of best-in-class performance, quality, and cost of ownership.
Our CMP Pads, such as our NexPlanar™, Medea™ and Ultra pad products are designed to provide the exact hardness, pore sizes, compressibility, and groove patterns needed to meet and exceed the requirements of various CMP applications.
Furthermore, we believe that the greater scale we achieved from the acquisition of CMC Materials will allow us to better serve our customers, invest more in ER&D and bring complementary, co-optimized solutions to market faster than ever before. Continued Consolidation . Our customer base within the semiconductor industry has consolidated in recent years through mergers and acquisitions.
Furthermore, we believe that the greater scale we achieved from the acquisition of CMC Materials will allow us to better serve our customers, invest more in engineering, research and development (“ER&D”) and bring complementary, co-optimized solutions to market faster than ever before. Continued Consolidation .
Our specialty materials provide customized solutions for applications challenged with unique temperature, corrosive, chemical or process environments, such as electrostatic chucks used to hold wafers during processing, plasma etch chamber components, aircraft bearings and ultrasonic transducers. Specialty Chemicals .
Our specialty materials provide customized solutions for applications challenged with unique temperature, corrosive, chemical or process environments, such as electrostatic chucks used to hold wafers during processing. Integrated Circuits (“IC”) Polishing Solutions .
While we expect that capital expenditures will be necessary to ensure that any new manufacturing facility is in compliance with environmental and health and safety laws, we do not expect these expenditures to be material.
While we expect that capital expenditures will be necessary to ensure that any new manufacturing facility is in compliance with environmental and health and safety laws, we do not expect these expenditures to be material. See “Item 1A. Risk Factors” for a more detailed description of the regulatory risks we face.
We plan to continue to identify and selectively develop derivative products that address needs in adjacent markets, and in doing so, we expect to increase the total available market for our products and increase our return on R&D investments. Strategic Acquisitions, Partnerships and Related Transactions .
In doing so, we expect to increase the total available market for our products and increase our return on ER&D investments. Strategic Acquisitions, Partnerships and Related Transactions .
We provide products that can be used during most of these deposition processes that are critical to enabling new device architectures, which are deigned to ensure device performance and achieve the targeted manufacturing yields of semiconductor manufacturers, including: • Advanced precursor materials, such as AlCl3, MoO2Cl2, HfCl4, and ZrCl4, which are utilized to meet the semiconductor industry’s composition, uniformity and thickness requirements of deposited films; and • Filtration and purification products, which are used to remove contaminants during the deposition process, consequently reducing defects on wafers.
These products, which are designed to ensure device performance and achieve the targeted manufacturing yields of semiconductor manufacturers, include: • Advanced precursor materials, which are utilized to meet the semiconductor industry’s composition, uniformity and thickness requirements of deposited films; and 2 Table of Contents • Filtration and purification products, which are used to remove contaminants during the deposition process, consequently reducing defects on wafers.
These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers. For example, after the acquisition of CMC Materials, Inc.
These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers, which should translate into improved device performance, lower cost of ownership and faster time to market.

… 108 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

102 edited+33 added−41 removed59 unchanged
Biggest changeOur international operations are subject to a number of risks and potential costs that could adversely affect our revenue and profitability, including: • global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, and international trade disputes, including new and changing export regulations for certain exports to China, where we have significant business, and any retaliatory measures, which could impose additional costs on our operations and limit our ability to operate our business and which could adversely impact us, our customers or our suppliers; • positions taken by governmental agencies regarding possible national, commercial and/or security issues posed by the development, sale or export of certain products and technologies; • geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine or increasing tensions with China, political and economic instability and uncertainty, which may result in severely diminished liquidity and credit availability, rating downgrades of sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in unemployment rates and uncertainty about economic stability; • challenges in hiring and integrating workers in different countries; • challenges in managing a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, along with differing employment practices and labor issues; • challenges of maintaining appropriate business processes, procedures and internal controls and complying with legal, environmental, health and safety, anti-bribery, anti-corruption and other regulatory requirements that vary by jurisdiction; • challenges in developing relationships with local customers, suppliers and governments; • fluctuating pricing and availability of raw materials and supply chain interruptions or slowdowns, including as a result of difficulties, financial or otherwise, faced by segments of the transportation industry; 18 Table of Contents • public health crises, such as the COVID-19 pandemic, and related implications thereof; • expense and complexity of complying with U.S. and foreign import and export regulations, including the ability to obtain required import and export licenses; • fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against foreign currencies that are important to our business, including the Japanese yen, euro, Taiwanese dollar, Korean won, Chinese renminbi, Singapore dollar, Malaysian ringgit, Canadian dollar or Israeli shekel, which could cause our sales and profitability to decline; • liability for foreign taxes assessed at rates higher than those applicable to our domestic operations; • challenges and costs associated with the protection of our intellectual property throughout the world; and • customer or government efforts to encourage operations and sourcing in a particular country, such as Korea or China, including efforts to develop and grow local competitors, require local manufacturing, and provide special incentives to government-backed local customers to buy from local competitors.
Biggest changeOur international operations are subject to a number of risks and potential costs that could adversely affect our revenue and profitability, including: • changes and uncertainties with respect to trade and export regulations (including new and changing regulations for exports of certain technologies to China), trade policies and sanctions, tariffs, international trade disputes and any retaliatory measures, which impact countries in which we conduct significant business could (1) impose additional costs on our operations, (2) limit our ability to operate our business and (3) adversely impact us, our customers or our suppliers; • positions taken by governmental agencies regarding possible national, commercial and/or security issues posed by the development, sale or export of certain raw materials, products and technologies; • geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, the war between Israel and Hamas, the current conflict in the Red Sea and increasing tensions with China, and other political and economic instability and uncertainty, which may result in severely diminished liquidity and credit availability, rating downgrades of sovereign debt, declining valuation of certain investments, declines in consumer confidence, declines in economic growth, volatility in unemployment rates, increased logistics costs and delays and uncertainty about economic stability; • challenges in hiring and integrating workers in different countries; • challenges in managing a diverse workforce with different experience levels, languages, cultures, customs, business practices and worker expectations, along with differing employment practices and labor issues; • challenges of maintaining appropriate business processes, procedures and internal controls and complying with legal, environmental, health and safety, anti-bribery, anti-corruption, data privacy, cybersecurity and other regulatory requirements that vary by jurisdiction; • challenges in developing relationships with local customers, suppliers and governments; • fluctuating pricing and availability of raw materials and supply chain interruptions or slowdowns, including as a result of difficulties, financial or otherwise, faced by segments of the transportation industry; • public health crises, such as the COVID-19 pandemic, and related implications thereof; 18 Table of Contents • expense and complexity of complying with U.S. and foreign import and export regulations, including the ability to obtain and renew required import and export licenses; • fluctuations in interest rates and currency exchange rates, including the relative strength or weakness of the U.S. dollar against foreign currencies that are important to our business, including the Japanese yen, euro, Taiwanese dollar, Korean won, Chinese renminbi, Singapore dollar, Malaysian ringgit, Canadian dollar or Israeli shekel, which could cause our sales and profitability to decline; • liability for foreign taxes assessed at rates higher than those applicable to our domestic operations; • imposition of a global minimum tax rate, including by the Organization of Economic Co-operation and Development (“OECD”); • challenges and costs associated with the protection of our intellectual property throughout the world; • challenges associated with managing global and regional third-party service providers, including certain engineering, software development, manufacturing, IT and other functions; and • customer or government efforts to encourage operations and sourcing in a particular country, such as Korea or China, including efforts to develop and grow local competitors, require local manufacturing, and provide special incentives to government-backed local customers to buy from local competitors.
If a product concept does not progress beyond the development stage or only achieves limited acceptance in the marketplace, we may not receive a direct return on our expenditures, we may lose market share and our revenue and our profitability may decline.
If a product concept does not progress beyond the development stage or only achieves limited acceptance in the marketplace, we may not receive a direct return on our expenditures, we may lose market share and our revenue, and profitability may decline.
The confidentiality agreements we enter into with our employees and certain third parties to protect our proprietary information and technology may be inadequate to protect our interests, and the remedies available to us for any breach may not adequately mitigate any breach or our confidential and proprietary information and technology may be replicated or obtained through lawful means.
The confidentiality agreements we enter into with our employees and certain third parties to protect our proprietary information and technology may be inadequate to protect our interests, and the remedies available to us for any breach may not adequately mitigate any breach. Our confidential and proprietary information and technology may be replicated or obtained through lawful means.
We and our third-party suppliers have experienced, and expect to continue to be subject to, cybersecurity threats and incidents ranging from employee error or misuse, to individual attempts to gain unauthorized access to systems, to sophisticated and targeted measures known as advanced persistent threats.
We and our third-party suppliers have experienced, and expect to continue to be subject to, cybersecurity threats and incidents ranging from employee or contractor error or misuse, to individual attempts to gain unauthorized access to systems, to sophisticated and targeted measures known as advanced persistent threats.
In addition, standards and processes for measuring and reporting carbon emissions and other sustainability metrics may change over time, and may result in inconsistent data, or could result in significant revisions to our strategies, commitments and targets, or our ability to achieve them.
In addition, standards and processes for measuring and reporting carbon emissions and other sustainability metrics may change over time and result in inconsistent data or significant revisions to our strategies, commitments and targets, and our ability to achieve them.
This can adversely affect our business with China, Japan, Korea, and/or Taiwan and perhaps the entire Asia Pacific region or global economy. A significant trade dispute, impact and/or disruption in any area where we do business could have a materially adverse impact on our future revenue and profits.
This can adversely affect our business with China, Japan, Korea, and/or Taiwan and potentially the entire Asia Pacific region or global economy. A significant trade dispute, impact and/or disruption in any area where we do business could have a materially adverse impact on our future revenue and profits.
If these efforts are successful, are widespread amongst our customers and expand to our products and solutions broadly, overall global demand for our customers’ products or for other products produced or manufactured in the United States or based on U.S. technology may 19 Table of Contents be reduced, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
If these efforts are successful, are widespread amongst our customers and expand to our products and solutions broadly, overall global demand for our customers’ products or for other products produced or manufactured in the United States or based on U.S. technology may be reduced, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
Any failure to meet these sustainability requirements or targets could adversely impact the demand for our products and subject us to significant costs and liabilities and reputational risks that could adversely affect our business, financial condition and results of operations.
Any failure or perceived failure to timely meet these sustainability requirements or targets could adversely impact the demand for our products and subject us to significant costs and liabilities and reputational risks that could adversely affect our business, financial condition and results of operations.
Such litigation could result in substantial costs, diversion of resources, require us to pay damages or royalties, require us to alter our products or processes, or require us to obtain a license, which we may be unable to do on commercially acceptable terms, or at all, to continue selling the impacted product, and could negatively affect our sales, profitability and prospects.
Such litigation could (1) result in substantial costs and the diversion of resources, (2) require us to pay damages or royalties, alter our products or processes, or obtain a license to continue selling the impacted product, which we may be unable to do on commercially acceptable terms, or at all and (3) negatively affect our sales, profitability and prospects.
Changes in, and responses to, U.S. trade controls could reduce the competitiveness of our products and cause our sales to drop, which could have a material adverse effect on our business, financial condition and results of operations.
Changes in, and responses to, U.S. trade controls could reduce the competitiveness of our products and cause our sales to decline, which could have a material adverse effect on our business, financial condition and results of operations.
The trading price of our common stock is subject to significant volatility in response to numerous factors, many of which are beyond our control or may be unrelated to our operating results, including the following: • the significant increase in volatility in the stock market as a result of the COVID-19 pandemic; • any changes to our financial guidance, as well as potential decreased confidence in any guidance we do provide; • changes in global economic conditions, including those resulting from trade tensions, rising inflation, and fluctuations in foreign currency exchange and interest rates; • the failure to meet the expectations of securities analysts, which may vary significantly from our actual results; • changes in financial estimates by securities analysts; • press releases or announcements by, or changes in market values of, comparable companies; • high volatility in price and volume in the markets for high-technology stocks; • the public perception of equity values of publicly traded companies; • fluctuations in our results of operations; and • the other risks and uncertainties described in this Annual Report on Form 10-K and in our other filings with the SEC.
The trading price of our common stock is subject to significant volatility in response to numerous factors, many of which are beyond our control or may be unrelated to our operating results, including the following: • changes to our financial guidance, as well as potential decreased confidence in any guidance we do provide; • changes in global economic and geopolitical conditions, including those resulting from trade tensions, rising inflation, and fluctuations in foreign currency exchange and interest rates; • failure to meet the expectations of securities analysts, which may vary significantly from our actual results; • changes in financial estimates by securities analysts; • press releases or announcements by, or changes in market values of, comparable companies; • high volatility in price and volume in the markets for high-technology stocks; • public perception of equity values of publicly traded companies; • fluctuations in our results of operations; and • other risks and uncertainties described in this Annual Report on Form 10-K and in our other filings with the SEC.
If we are found by a court or regulatory agency not to be in compliance with laws and regulations, our reputation, business, financial condition and/or results of operations could be adversely affected, we may 25 Table of Contents be disqualified or barred from participating in certain activities and we may be forced to modify our operations to achieve full compliance.
If we are found by a court or regulatory agency not to be in compliance with laws and regulations, our reputation, business, financial condition and/or results of operations could be adversely affected, we may be disqualified or barred from participating in certain activities and we may be forced to modify our operations to achieve full compliance.
Tariffs, additional taxes, trade barriers and other measures, particularly those arising out of relations between the United States and China, may increase costs of raw materials and our manufacturing costs, decrease margins, reduce the competitiveness of our products or inhibit our ability to sell products or purchase necessary equipment and supplies, any of which could have a material adverse effect on our business, results of operations or financial condition.
Tariffs, additional taxes, trade barriers and other measures, particularly those arising out of relations between the U.S. and China, may increase costs of raw materials and our manufacturing costs, decrease margins, reduce the competitiveness of our products or inhibit our ability to sell products or purchase necessary equipment and supplies, any of which could have a material adverse effect on our business, results of operations or financial condition.
We may be unable to generate sufficient cash to service our indebtedness and may be forced to take other actions, which may not be successful, to satisfy our obligations under our indebtedness. 26 Table of Contents We may be unable to maintain sufficient cash flow from operating activities to permit us to pay the principal of, premium, if any, and interest on our indebtedness.
We may be unable to generate sufficient cash to service our indebtedness and may be forced to take other actions, which may not be successful, to satisfy our obligations under our indebtedness. We may be unable to maintain sufficient cash flow from operating activities to permit us to pay the principal of, premium, if any, and interest on our indebtedness.
For example, in the past, we incurred significant impairment charges for capital expenditures related to developing the capability to manufacture shippers and FOUPs for 450 mm wafers, which major semiconductor manufacturers announced that they would not initiate manufacturing for in the foreseeable future.
In the past, we incurred significant impairment charges for capital expenditures related to developing the capability to manufacture shippers and FOUPs for 450 millimeter wafers, which major semiconductor manufacturers announced that they would not initiate manufacturing for in the foreseeable future.
Our failure to comply with these covenants could result in the acceleration of some or all of our indebtedness, which could lead to bankruptcy, reorganization or insolvency. Risks Related to Owning our Common Stock The price of our common stock has been and may remain volatile. 27 Table of Contents The price of our common stock has been volatile.
Our failure to comply with these covenants could result in the acceleration of some or all of our indebtedness, which could lead to bankruptcy, reorganization or insolvency. Risks Related to Owning our Common Stock The price of our common stock has been and may remain volatile. The price of our common stock has been volatile.
In certain circumstances, these restrictions may prohibit the transfer of certain of our products, services and technologies, and in other circumstances they may require us to obtain a license from the U.S. government before delivering the controlled item or service.
These restrictions may prohibit the transfer of certain of our products, services and technologies, and they may require us to obtain a license from the U.S. government before delivering the controlled item or service.
The semiconductor industry may continue to undergo consolidation, and if any of our customers merge or are acquired, we may experience lower overall sales to the merged or combined companies. Our customer base is also geographically concentrated, particularly in Taiwan, Korea, Japan, China and the United States.
The semiconductor industry may continue to undergo consolidation, and if any of our customers merge or are acquired, we may experience lower overall sales to the merged or combined companies. Our customer base is also geographically concentrated, particularly in Taiwan, Korea, Japan, China and the U.S.
Furthermore, there is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the United States, that political, diplomatic and national security influences could lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry.
Furthermore, there is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the U.S., that political, diplomatic and national security influences could lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry.
In addition, we are subject to export control and economic sanctions laws and regulations that restrict the delivery of some of our products and services to certain end users, countries and nationals of certain countries.
In addition, we are subject to export control and economic sanctions laws and regulations that restrict the delivery of some of our products and services to certain countries (and nationals thereof), to certain end users, and for certain end uses.
We may be subject to information technology system failures, network disruptions and breaches in data security, which could damage our reputation and adversely affect our financial condition, results of operations and cash flows, and new laws and regulations regarding data privacy may increase our costs.
We may be subject to IT system failures, network disruptions and breaches in data security, which could damage our reputation and adversely affect our financial condition, results of operations and cash flows. New laws and regulations regarding data privacy may also increase our costs.
We collect and store sensitive data, including our financial information, intellectual property, confidential information, proprietary business information and personally identifiable information of our employees and others, as well as similar information of our customers, suppliers and business partners.
In conducting our business, we use, collect and store sensitive data, including our financial information, intellectual property, confidential information, proprietary business information and personally identifiable information of our employees and others, as well as similar information of our customers, suppliers and business partners.
The amounts of our dividend payments may change from time to time, and we may decide at any time to reduce, suspend or discontinue the payment of dividends or the repurchase of shares.
The amounts of our 26 Table of Contents dividend payments may change from time to time, and we may decide at any time to reduce, suspend or discontinue the payment of dividends or the repurchase of shares.
We also manufacture a significant portion of our products outside the United States and depend on international suppliers for many of our parts and raw materials. We intend to continue to pursue opportunities in both sales and manufacturing internationally.
We also manufacture a significant portion of our products outside the U.S. and depend on international suppliers for many of our parts and raw materials. We intend to continue to pursue opportunities in both sales and manufacturing internationally.
The Amended Credit Agreement contains restrictive covenants that impose significant operating and financial restrictions that may limit our and our restricted subsidiaries’ ability to take actions that may be in our long-term best interest, including restrictions on our and our restricted subsidiaries’ ability to: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock; • prepay, redeem or repurchase certain debt; • make investments, loans, advances and acquisitions; • engage in sale-leaseback or hedging transactions; • create liens on, sell or otherwise dispose of assets, including capital stock of our subsidiaries; • enter into transactions with affiliates; • enter into agreements that restrict the ability to create liens, pay dividends or make loan repayments; • alter the businesses we conduct; and • merge or sell all or substantially all of our assets or incur a change of control in our capital stock ownership.
The terms of the Amended Credit Agreement and the Indentures may restrict our operations, particularly our ability to respond to changes or raise additional funds. 25 Table of Contents The Amended Credit Agreement contains restrictive covenants that impose significant operating and financial restrictions that may limit our and our restricted subsidiaries’ ability to take actions that may be in our long-term best interest, including restrictions on our and our restricted subsidiaries’ ability to: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock; • prepay, redeem or repurchase certain debt; • make investments, loans, advances and acquisitions; • engage in sale-leaseback or hedging transactions; • create liens on, sell or otherwise dispose of assets, including capital stock of our subsidiaries; • enter into transactions with affiliates; • enter into agreements that restrict the ability to create liens, pay dividends or make loan repayments; • alter the businesses we conduct; and • merge or sell all or substantially all of our assets or incur a change of control in our capital stock ownership.
Our ability to increase sales of our products, particularly our capital equipment products, depends in part upon our ability, in a very short timeframe, to ramp up our manufacturing capacity and to mobilize our supply chain.
Our ability to increase sales of our products depends in part upon our ability, in a very short timeframe, to ramp up our manufacturing capacity and to mobilize our supply chain.
Global climate change is resulting in, and may continue to result, in certain natural disasters and adverse weather events, such as drought, wildfires, storms, sea-level rise and flooding, occurring more frequently or with greater intensity, which could cause business disruptions and impact employees’ abilities to commute or to work from home effectively.
Global climate change is resulting in, and may continue to result, in certain natural disasters and adverse weather events, such as drought, wildfires, storms, sea-level rise and flooding, occurring more frequently or with greater intensity, which could cause business disruptions and impact employees’ abilities to commute or to work from home effectively. 28 Table of Contents Item 1B.
In addition, our principal customers hold considerable purchasing power and may be able to negotiate sales terms that result in decreased pricing, increased costs, and/or lower margins for us, and limitations on our ability to share jointly developed technology with others.
In addition, our principal customers hold considerable purchasing power and may be able to negotiate sales terms that result in decreased pricing, increased costs, lower margins and/or limit our ability to share jointly-developed technology with others.
Also, the Indentures and the credit agreement governing our Bridge Credit Facility contain limited covenants, such as a covenant restricting our ability and certain of our subsidiaries’ ability to incur certain debt secured by liens, engage in sale-leaseback and incur additional indebtedness by any restricted subsidiary.
Also, the Indentures contain limited covenants, such as a covenant restricting our ability and certain of our subsidiaries’ ability to incur certain debt secured by liens, engage in sale-leaseback and incur additional indebtedness by any restricted subsidiary.
We intend to continue to engage in business combinations, acquisitions, joint ventures, investments, divestitures or other types of collaborations to address gaps in our product offerings, adjust our business and product portfolio to meet our ongoing strategic objectives, diversify into complementary markets, increase our scale or accomplish other strategic objectives.
We intend to continue to engage in business combinations, acquisitions, joint ventures, investments, divestitures or other types of collaborations to (1) address gaps in our product offerings, (2) adjust our business and product portfolio to meet our ongoing strategic objectives, (3) diversify into new and complementary markets, (4) increase our scale or (5) accomplish other strategic objectives.
Such risks may be especially exacerbated as they relate to China, a market that is important to our business, representing approximately 15% of our sales in 2022.
Such risks may be especially exacerbated as they relate to China, a market that is important to our business, representing approximately 16% of our sales in 2023.
These transactions involve numerous risks to our business, financial condition and operating results, including but not limited to: • experiencing difficulty in identifying suitable acquisition candidates and completing transactions at appropriate valuations, in a timely manner, on a cost-effective basis or at all, due to substantial competition for acquisition targets; • inability to successfully integrate any acquired businesses into our business operations; • failure to realize the anticipated synergies or other benefits of any such transaction; • entering into markets in which we have limited or no prior experience; • finding acquirors and obtaining adequate value for businesses that no longer meet our objectives; • inability to complete proposed or pending transactions due to factors such as the failure or inability to obtain regulatory or other approvals; • requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things, divestitures and restrictions on the conduct of our existing business or the acquired business; • undertaking multiple transactions at the same time in order to take advantage of acquisition or divestiture opportunities that do arise, which could strain our ability to effectively execute and integrate such transactions; • diversion of management’s attention from our day-to-day business due to dedication of significant management resources to such transactions; • employee uncertainty and lack of focus during the integration process that may also disrupt our business; • the risk of litigation or claims associated with a proposed or completed transaction; • challenges associated with managing new, more diverse and more widespread operations, projects and people, potentially located in regions where we have not historically conducted or operated our business; • dependence on unfamiliar or less secure supply chains and inefficient scale of the acquired entity; • increasing costs of performing due diligence to meet the expectations of investors and government regulators; • despite our due diligence, we could assume unknown, underestimated or contingent liabilities, such as potential environmental, health and safety liabilities, any of which could lead to costly litigation or mitigation actions; • an acquired technology or product may have inadequate or invalid intellectual property protection or may be subject to claims of infringement by a third party, which may result in claims for damages and lower than anticipated revenue; • we could experience negative effects on our reported results of operations from dilutive results from operations and/or from future potential impairment of acquired assets, including goodwill, related to acquisitions; • an acquired company may have inadequate or ineffective internal controls over financial reporting, disclosure controls and procedures, cybersecurity, privacy, environmental, health and safety, anti-bribery, anti-corruption, human resource or other policies or practices, which may require unexpected or additional integration, mitigation and remediation costs; 21 Table of Contents • reductions in cash or increases in debt to finance transactions, which reduce the cash flow available for general corporate or other purposes, including share repurchases and dividends; and • difficulties in retaining key employees or customers of an acquired business.
These transactions involve numerous risks to our business, financial condition and operating results, including but not limited to: • difficulty in identifying suitable acquisition candidates and completing transactions at appropriate valuations, in a timely manner, on a cost-effective basis or at all, due to substantial competition for acquisition targets; • inability to successfully integrate any acquired businesses into our business operations; • failure to realize the anticipated synergies or other benefits of any such transaction; • entry into markets in which we have limited or no prior experience; • finding acquirors and obtaining adequate value for businesses that no longer meet our strategic objectives; • difficulties surrounding the disentanglement of a divested business, including the diversion of resources away from our business operations to address such matters; • inability to complete proposed or pending transactions due to factors such as the failure or inability to obtain regulatory or other approvals, which may be exacerbated by the recent, more aggressive regulatory approaches to merger control globally, such as the July 19, 2023 joint statement of antitrust policy by the Department of Justice and Federal Trade Commission and the April 15, 2023 Provisions on the Review of Concentrations of Undertakings issued by China’s State Administration for Market Regulation, among others; • requirements imposed by government regulators in connection with their review of a transaction, which may include, among other things, divestitures and restrictions on the conduct of our existing business or the acquired business; • undertaking multiple transactions at the same time in order to take advantage of acquisition or divestiture opportunities that do arise, which could strain our ability to effectively execute and integrate such transactions; • diversion of management’s attention from our day-to-day business due to dedication of significant management resources to such transactions; • employee uncertainty and lack of focus during the integration process that may also disrupt our business; • risk of litigation or claims associated with a proposed or completed transaction; • challenges associated with managing new, more diverse and more widespread operations, projects and people, potentially located in regions where we have not historically conducted or operated our business; • dependence on unfamiliar or less secure supply chains and inefficient scale of the acquired entity; • increasing costs of performing due diligence to meet the expectations of investors and government regulators; • despite our due diligence, we could assume unknown, underestimated or contingent liabilities, such as potential environmental, health and safety liabilities, any of which could lead to costly litigation or mitigation actions; • an acquired technology or product may have inadequate or invalid intellectual property protection or may be subject to claims of infringement by a third party, which may result in claims for damages and lower than anticipated revenue; • negative effects on our reported results of operations from dilutive results from operations and/or from future potential impairment of acquired assets, including goodwill, related to acquisitions; • an acquired company may have inadequate or ineffective internal controls over financial reporting, disclosure controls and procedures, cybersecurity, privacy, environmental, health and safety, anti-bribery, anti-corruption, human resource or other policies or practices, which may require unexpected or additional integration, mitigation and remediation costs; • reductions in cash or increases in debt to finance transactions, which reduce the cash flow available for general corporate or other purposes, including share repurchases and dividends; and • difficulties in retaining key employees or customers of an acquired business.
If we were to lose any one of these or other critical sources, or there is as an industry-wide increase in demand for, or the discontinuation of, raw materials used in our products, it could be difficult for us, or we may be unable, to find an alternative supplier or raw material, in which case our operations could be adversely affected.
If we were to lose any one of these or other critical sources, or there is as an industry-wide increase in demand for, or the discontinuation of, raw materials or other 17 Table of Contents components used in our products, it could be difficult for us, or we may be unable, to find an alternative supplier to provide certain raw materials and components, in which case our operations could be adversely affected.
These and other hazards may result in liability for personal injury, death, damage to property and contamination of the environment; suspension of operations; the imposition of civil or criminal fines, penalties and other sanctions; cleanup costs; claims by governmental entities or third parties; reputational harm; increases in our insurance costs; and other adverse impacts on our results of operations.
These and other hazards may result in (1) liability for personal injury, death, damage to property and contamination of the environment; (2) suspension of operations; (3) the imposition of civil or criminal fines, penalties and other sanctions; (4) cleanup costs; (5) claims by governmental entities or third parties; (6) reputational harm; (7) increases in our insurance costs; and (8) other adverse impacts on our results of operations.
Further changes to these and similar regulations could restrict our ability to expand, build or acquire new facilities, require us to acquire costly control equipment, cause us to incur expenses associated with remediation of contamination, cause us to modify our manufacturing or shipping processes or otherwise increase our cost of doing business and have a negative impact on our financial condition, results of operations and cash flows.
Further changes to or our failure to comply with these and similar regulations could (1) restrict our ability to expand, build or acquire new facilities, (2) require us to acquire costly control equipment, (3) cause us to incur expenses associated with remediation of contamination, (4) cause us to modify our manufacturing or shipping processes or (5) otherwise increase our cost of doing business, which may have a negative impact on our financial condition, results of operations and cash flows.
During 2022, we experienced, and may in the future continue to experience, an increasingly competitive and constrained labor market, which may limit our ability to add headcount required to meet our customers’ demand, decrease our productivity due to an influx of inexperienced workers and cause our labor costs to increase and our 22 Table of Contents profitability to decline.
We have experienced in the past, and may in the future continue to experience, an increasingly competitive and constrained labor market, which may limit our ability to add headcount required to meet our customers’ demand, decrease our productivity due to an influx of inexperienced workers and cause our labor costs to increase and our profitability to decline.
Despite the precautions we and our third-party providers undertake, IT system failures, network disruptions and breaches of data security could cause disruption in our operations, issues with customer communication and order management, the unauthorized or unintentional disclosure of sensitive information, disruptions in our transaction processing or undermine the integrity of our disclosure controls and procedures and our internal control over financial reporting, which could affect our reputation, result in significant liabilities and expenses, adversely affect our ability to report our financial results in a timely manner and could have a material adverse effect on our financial condition, results of operations and cash flows.
IT system failures, network disruptions and breaches of data security could (1) cause disruption in our operations, issues with customer communication and order management, the unauthorized or unintentional disclosure of sensitive information, or disruptions in our transaction processing or (2) undermine the integrity of our disclosure controls and procedures and our 22 Table of Contents internal control over financial reporting, which could affect our reputation, result in significant liabilities and expenses, adversely affect our ability to report our financial results in a timely manner and could have a material adverse effect on our financial condition, results of operations and cash flows.
Over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. For example, on October 7, 2022, the U.S.
Over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. On October 17, 2023, the U.S.
Our top ten customers accounted for 43%, 43% and 46% of our net sales in 2022, 2021 and 2020, respectively. Our customers could stop using our products in their manufacturing processes with limited advance notice to us, and we would have limited or no contractual recourse.
Our top ten customers accounted for 43%, 43% and 43% of our net sales in 2023, 2022 and 2021, respectively. We would have no or limited contractual recourse if our customers decided to stop buying and using our products in their manufacturing processes with limited advance notice to us.
Because some of our expenses are relatively fixed in the short term, a change in the timing of revenue or the amount of profit we generate from a small number of transactions can unfavorably affect operating results in a particular period.
We manage our expenses based in part on our expectations of future revenues. Because some of our expenses are relatively fixed in the short term, a change in the timing of revenue or the amount of profit we generate from a small number of transactions can unfavorably affect operating results in a particular period.
These conditions can cause material adverse changes in our results of operations and financial condition, including: • a decline in demand for our products, which would have an immediate impact on our revenues; • an increase in reserves for accounts receivable due to our customers’ inability to pay us; • lower utilization of our manufacturing facilities, which could lead to lower margins; • an increase in write-offs for excess or obsolete inventory that we cannot sell; • potential impairment charges relating to goodwill, intangible assets, manufacturing equipment or other long-lived assets, to the extent that any downturn indicates that the carrying amount of the asset may not be recoverable; • greater challenges in forecasting operating results, making business decisions and identifying and prioritizing business risks; and • additional cost reduction efforts, including additional restructuring activities, which may adversely affect our ability to capitalize on opportunities.
These conditions can cause material adverse changes in our results of operations and financial condition, including: • a decline in demand for our products, which would have an immediate negative impact on our revenues; • an increase in reserves for accounts receivable due to our customers’ inability to pay us; • lower utilization of our manufacturing facilities, which could lead to lower margins; • an increase in write-offs for excess or obsolete inventory that we cannot sell; • potential impairment charges relating to goodwill, intangible assets, manufacturing equipment or other long-lived assets, to the extent that any downturn indicates that the carrying amount of the asset may not be recoverable; • limiting our suppliers’ ability to deliver parts and raw materials, which would negatively affect our ability to manage operations, manage our costs and sell our products; • consolidation or strategic alliances among other suppliers to semiconductor manufacturers, which could adversely affect our ability to compete effectively; 16 Table of Contents • greater challenges in forecasting operating results, making business decisions and identifying and prioritizing business risks; and • additional cost reduction efforts, including additional restructuring activities, which may adversely affect our ability to capitalize on opportunities.
Such shortages, delays and unpredictability have adversely impacted, and may continue to adversely impact, our suppliers’ ability to meet our demand requirements, have adversely impacted, and may continue to adversely impact, our manufacturing operations and our ability to meet customer demand and have impacted in the past, and may impact in the future, our gross margins and our other operating results.
Such shortages, delays and unpredictability have adversely impacted, and may continue to adversely impact or impact in the future (1) our suppliers’ ability to meet our demand requirements, (2) our manufacturing operations, (3) our ability to meet customer demand, (4) our gross margins and (5) our other operating results.
Any issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock and could adversely affect the rights and powers, including voting rights, of the holders of common stock.
Any issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock and could adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance of preferred stock could have the effect of decreasing the market price of our common stock.
Obtaining export licenses may be difficult, costly and time-consuming, and there is no assurance that we will be issued licenses that we apply for on a timely basis or at all. We must also comply with export control and economic sanctions laws and regulations imposed by other countries.
Obtaining export licenses may be difficult, costly and time-consuming, and we may fail to receive licenses that we apply for on a timely basis or at all. We must also comply with export control and economic sanctions laws and regulations imposed by other countries.
Factors that may cause our financial results to fluctuate unpredictably include: • economic conditions in the semiconductor industry or in the other industries we serve; • the size and timing of customer orders; • consolidation of our customers, which could impact their purchasing decisions and negatively affect our revenues; • procurement shortages, increased prices, the failure of suppliers to perform their obligations and additional expenses to respond promptly to any supply shortages or other supplier problems; • decisions to increase or accelerate our purchasing of raw materials, components or other supplies in an effort to mitigate supply risk; • changes in our capital expenditure requirements, such as our KSP facility in Taiwan and our newly announced planned facility in Colorado Springs, and the schedule and timing, including potential delays, thereof; • manufacturing difficulties; • customer decisions to decelerate orders in order to draw down their inventory; • customer cancellations of or delays in shipments, installations or customer acceptances or, alternatively, acceleration of orders from customers to increase their inventory; • our customers’ rate of replacement of our consumable products or decision to delay expansion projects; • changes in average selling prices, customer mix and product mix; • our ability to develop, introduce and market new, enhanced and competitive products in a timely manner; • our competitors’ introduction of new products; 16 Table of Contents • disruptions in transportation, communication, demand, information technology or supply, including strikes, acts of God, wars, terrorist activities and natural or man-made disasters; • legal, tax, accounting or regulatory changes (including changes in import/export regulations and tariffs) or changes in the interpretation or enforcement of existing requirements; • changes in our estimated tax rate; and • foreign currency exchange rate fluctuations.
Factors that may cause our financial results to fluctuate unpredictably include: • legal, tax, accounting or regulatory changes (including changes in import/export regulations and tariffs, such as regulations imposed by the U.S. government restricting exports to China) or changes in the interpretation or enforcement of existing requirements; • trends in the semiconductor industry, macroeconomic and market conditions and geopolitical uncertainty, including impacts caused by the Russian invasion of Ukraine, the war between Israel and Hamas, the current conflict in the Red Sea or bank failures; • the size and timing of customer orders; • consolidation of our customers, which could impact their purchasing decisions and negatively affect our revenues; • procurement shortages, increased prices, the failure of suppliers to perform their obligations and additional expenses to respond promptly to any supply shortages or other supplier problems; • decisions to increase or accelerate our purchasing of raw materials, components or other supplies in an effort to mitigate supply risk; • changes in our capital expenditure requirements, such as our new facilities in Taiwan and Colorado, and the schedule and timing, including potential delays, thereof; • manufacturing difficulties; • customer decisions to decelerate orders in order to draw down their inventory; • customer cancellations of or delays in shipments, installations or customer acceptances or, alternatively, acceleration of orders from customers to increase their inventory; • our customers’ rate of replacement of our consumable products or decision to delay expansion projects; • changes in average selling prices, customer mix and product mix; • our ability to develop, introduce and market new, enhanced and competitive products in a timely manner; • our competitors’ introduction of new products; • disruptions in transportation, communication, demand, information technology (“IT”) or supply, including strikes, acts of God, wars, terrorist activities and natural or man-made disasters; • changes in our estimated tax rate; and • foreign currency exchange rate fluctuations.
Failure to comply with the wide variety of federal, state, local and non-U.S. regulatory requirements relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of, and human exposure to, hazardous chemicals could result in future liabilities or the suspension of production or shipment. These requirements have become stricter over time.
The wide variety of federal, state, local and non-U.S. regulatory requirements relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of, and human exposure to, hazardous chemicals could result in future 23 Table of Contents liabilities, remediation efforts or the suspension of production or shipment. These requirements are dynamic and have become more strict over time.
We maintain this information in our data centers, on our networks and on information technology, or IT, systems owned and maintained by third parties. The secure processing, maintenance and transmission of this information is critical to our operations. All IT systems are subject to disruption, breach or failure.
We maintain this information in our data centers, on our networks and on IT systems owned and maintained by third parties. The secure processing, maintenance and transmission of this information is critical to our operations. All IT systems are subject to disruptions, security breaches, outages and failures.
If we are not able to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer to realize than expected.
If we are not able to successfully achieve our objectives, the benefits of the acquisition may not be fully realized or may take longer to achieve than expected.
We may initiate other costly litigation against our competitors or other third parties in order to protect our intellectual property rights. We cannot predict how any existing or future litigation will be resolved or what impact it may have on us.
W e continue to vigorously defend and enforce our patents and rights, which will cause us to incur costs. We may initiate other costly litigation against our competitors or other third parties in order to protect our intellectual property rights. We cannot predict how any existing or future litigation will be resolved or what impact it may have on us.
We are exposed to the risks of operating a global business, as a significant amount of our sales and manufacturing activity occur outside the United States. Sales to customers outside the United States accounted for approximately 76%, 77% and 75% of our net sales in 2022, 2021 and 2020, respectively.
Because a significant amount of our sales and manufacturing activity occurs outside the U.S., we are exposed to risks inherent in operating a global business. Sales to customers outside the U.S. accounted for approximately 75%, 76% and 77% of our net sales in 2023, 2022 and 2021, respectively.
If we fail to transfer and re-establish the manufacturing processes in the destination plant efficiently and effectively, we may not be able to meet customer demand, we may lose credibility with our customers and our business may be harmed.
We have moved, and we may again move, the manufacture of certain products from one plant to another. If we fail to transfer and re-establish the manufacturing processes in the destination plant efficiently and effectively, we may not be able to meet customer demand, we may lose credibility with our customers and our business may be harmed.
Moreover, any patents that we own or obtain may not provide us with any competitive advantage, may be designed around and these patents may expire or be challenged, invalidated, circumvented, rendered unenforceable or otherwise compromised by third parties.
Although we often file new applications for patents, our pending applications may not be approved. Moreover, any patents that we own or obtain may not provide us with any competitive advantage or may be designed around. These patents may also expire or be challenged, invalidated, circumvented, rendered unenforceable or otherwise compromised by third parties.
Changes in or ambiguous interpretations of laws, regulations and standards may create uncertainty regarding compliance matters. Efforts to comply with new and changing regulations have resulted in, and are likely to continue to result in, increased administrative expenses and diversion of management’s time and attention from revenue-generating activities to compliance activities.
Efforts to comply with new and changing regulations have resulted in, and are likely to continue to result in, increased administrative expenses and diversion of management’s time and attention from revenue-generating activities to compliance activities.
It is possible that the integration process could result in the loss of customers, the disruption of either company’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall integration process that take longer than originally anticipated.
It is possible that the ongoing integration process could result in (1) the loss of customers, (2) the disruption of ongoing businesses, (3) inconsistencies in standards, controls, procedures and policies, (4) unexpected integration issues, (5) higher than expected integration costs and (6) an overall integration process that takes longer than originally anticipated.
Our operations involve, and we are exposed to the risks associated with, the use and manufacture of hazardous materials. In particular, we manufacture specialty chemicals, which is an inherently hazardous process that may result in accidents, and store and transport hazardous raw materials, products and waste in, to and from various facilities.
In particular, we manufacture specialty chemicals, which is an inherently hazardous process that may result in accidents, and store and transport hazardous raw materials, products and waste in, to and from various facilities.
Our supply chain is critical to the supply of our products and solutions to meet the quality, demand and technology requirements our customers. We rely on the timely delivery of parts, materials and services, including components and subassemblies, from our suppliers and contract manufacturers.
Ensuring a robust and resilient supply chain is critical in order for us to meet the demand, quality and technological requirements of our customers. We rely on the timely delivery of parts, materials and services, including components and subassemblies, from our suppliers and contract manufacturers.
In 2022, the closing price of our stock on The Nasdaq Global Select Market, or Nasdaq, ranged from a low of $62.71 to a high of $140.83, and, as in past years, the price of our common stock may show even greater volatility in the future.
In 2023, the closing price of our stock on The Nasdaq Global Select Market (“Nasdaq”) ranged from a low of $64.13 to a high of $121.60, and, as in past years, the price of our common stock may show even greater volatility in the future.
Any scrutiny of our carbon emissions or other sustainability disclosures or our failure to achieve related strategies, commitments and targets could negatively impact our reputation or performance.
Any scrutiny of our carbon emissions or other sustainability disclosures or our failure to achieve related strategies, commitments and targets, or our failure to disclose our sustainability measures consistent with applicable laws and regulations or to the satisfaction of our stakeholders, could negatively impact our reputation or performance.
In addition, if new products have reliability or quality problems, we may experience reduced orders, higher manufacturing costs, delays in acceptance and payment, additional service and warranty expense and damage to our reputation. 20 Table of Contents Competition from new or existing companies could harm our financial condition, results of operations and cash flow.
In addition, if new products have reliability or quality problems, we may experience reduced orders, higher manufacturing costs, delays in acceptance and payment, additional service and warranty expense and damage to our reputation. Manufacturing interruptions or delays, or other disruptions to our operations, could adversely affect our business, financial condition and results of operations.
Our suppliers and customers face similar dangers. Our continuity plans designed to mitigate the impact of natural disasters on our operations may be insufficient, and any catastrophe may disrupt our ability to manufacture and deliver products to our customers, resulting in an adverse impact on our business and results of operations.
Our continuity plans designed to mitigate the impact of disruptions to our operations may be insufficient, and any prolonged disruption may impede our ability to manufacture and deliver products to our customers, resulting in an adverse impact on our business and results of operations.
Many of our key personnel have significant experience in the semiconductor industry and deep technical expertise. The loss of the services of any of our key employees or an inability to attract, train and retain qualified and skilled employees, particularly research and development and engineering personnel, could inhibit our ability to operate and grow our business.
Loss of any of our key personnel could harm our business, and our inability to attract and retain new qualified personnel could inhibit our ability to operate and grow our business successfully. Many of our key personnel have significant experience in the semiconductor industry and deep technical expertise.
Further, these restrictions do not prevent us from incurring monetary obligations that do not constitute indebtedness. If we add new indebtedness and other monetary obligations to our current debt levels, the related risks that we now face would intensify.
If we add new indebtedness and other monetary obligations to our current debt levels, the related risks that we now face would intensify.
If we do not adequately anticipate changes in our business environment, we may lack the infrastructure, manufacturing capacity and resources to scale up our business to meet customer expectations and compete successfully during a period of growth, or we may expand our capacity too rapidly, resulting in excess fixed costs.
Additionally, we may incur unexpected or additional costs to align our operations with demand. If we do not, or are unable to, adequately anticipate changes in our business environment, we may lack the infrastructure, manufacturing capacity and resources to scale up our business to meet customer expectations and compete successfully during a period of growth.
For example, the credit agreement governing our Senior Secured Credit Facilities, or the Amended Credit Agreement, provides that we can request additional loans and commitments up to the greater of $1,100 million or 100% of our EBITDA, as well as additional amounts if our secured net leverage ratio is less than a specified ratio.
For example, the Amended Credit Agreement provides that we can request additional loans and commitments up to the greater of $1.1 billion or 100% of our EBITDA, as well as additional amounts if our secured net leverage ratio is less than a specified ratio. Further, these restrictions do not prevent us from incurring monetary obligations that do not constitute indebtedness.
These strategies, commitments and targets reflect our current plans and aspirations, and we may be unable to achieve them. Changing customer sustainability requirements, as well as our sustainability targets, could cause us from time to time to alter our manufacturing, operations or products, and incur substantial additional expense to meet such requirements and targets.
Changing customer sustainability requirements, as well as our sustainability targets, could cause us from time to time to alter our manufacturing, operations or products, and incur substantial additional expense to meet such requirements and targets.
In our industry, the first company to introduce an innovative product that addresses an identified market need will often have a significant advantage over competing products.
The semiconductor industry is subject to rapid technological change, changing customer requirements and frequent new product introductions. In our industry, the first company to introduce an innovative product that addresses an identified market need will often have a significant advantage over competing products.
Although the indentures governing the Notes, or the Indentures, and the Credit Agreements restrict our ability to incur additional indebtedness, the restrictions have a number of significant qualifications and exceptions.
Further, we may incur significant additional secured and unsecured indebtedness in the future. Although the indentures governing the Notes (the “Indentures”), and the Amended Credit Agreement restrict our ability to incur additional indebtedness, the restrictions have a number of significant qualifications and exceptions.
In addition, any modification to the manufacturing process of a product could require that the product be re-qualified by customers, which can increase our costs and delay our ability to sell this product to our customers. These and other manufacturing difficulties may result in the loss of sales and exposure to warranty and product liability claims.
Any future difficulties could cause lower yields, make our products unmarketable and/or delay deliveries to customers. In addition, any modification to the manufacturing process of a product could require that the product be re-qualified by customers, which can increase our costs and delay our ability to sell this product to our customers.
These and other regulations have reduced our ability to sell our products to customers in China and it is possible future regulation could further reduce demand for our products. As a result of these restrictive measures, certain of our customers have made efforts to source products domestically in order to mitigate perceived risks to their supply chain.
As a result of these restrictive measures, certain of our customers have made efforts to source products domestically in order to mitigate perceived risks to their supply chain.
Our revenues and operating results are variable. Our revenues and operating results may fluctuate significantly from quarter-to-quarter or year-to-year due to a number of factors, many of which are outside our control. We manage our expenses based in part on our expectations of future revenues.
Our revenues and operating results have fluctuated in the past and may do so in the future, which could impact our stock price. Our revenues and operating results may fluctuate significantly from quarter-to-quarter or year-to-year due to a number of factors, many of which are outside our control.
Any actual or anticipated changes or downgrades in such credit rating may have a negative impact on our liquidity, capital position or access to capital markets. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Failure to adjust our inventory to more normalized levels may lead to an increased risk of excess and obsolete inventory and harm our cash flow. Interruptions in our supply chain, including our single and limited source suppliers, could affect our ability to manufacture our products, meet demand, increase costs and have an adverse effect on our revenue results of operations.
Interruptions in our supply chain, including those from our single and limited source suppliers, could affect our ability to manufacture our products and meet demand, which, in turn, could have an adverse effect on our revenue and results of operations.
In addition, the potential adoption of new laws, rules or regulations related to climate change poses risks that could harm our results of operations or affect the way we conduct our businesses. For example, new or modified regulations could require us to make substantial expenditures to enhance our environmental compliance efforts.
In addition, the potential adoption of new laws, rules or regulations related to climate change and the use or sale of PFAS-containing products poses risks, including subjecting us to future costs and liabilities, that could harm our results of operations or affect the way we conduct our businesses.
Alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business are not feasible in all circumstances.
While we seek to limit instances where we rely on sole or limited source suppliers and utiliz e alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business, these strategies are not feasible or practical solution in all circumstances.
We operate in a highly competitive industry. We face many competitors, some of which have substantially greater manufacturing, financial, research and development and marketing resources than we do.
General Risks Competition from new or existing companies could harm our financial condition, results of operations and cash flow. We operate in a highly competitive, global industry. We face many domestic and international competitors, some of which have substantially greater manufacturing, financial, research and development and marketing resources than we do.
Even moderate seasonality can cause our operating results to fluctuate significantly from one period to the next. Uncertain and volatile economic, political, public health or business conditions in any of our key sales regions can cause or exacerbate negative trends in business and consumer spending and have historically impacted customer demand for our products.
Such uncertain and volatile conditions in any of our key sales or manufacturing regions can cause or exacerbate negative trends in business and consumer spending and have historically impacted customer demand for our products and costs of manufacturing and delivering our products.
Our environmental, social and governance commitments could result in additional costs, and our inability to achieve them could have an adverse impact on our reputation and performance. From time to time we communicate our strategies, commitments and targets related to sustainability, carbon emissions, diversity and inclusion, human rights, and other environmental, social and governance matters.
From time to time we communicate our strategies, commitments and targets related to sustainability, carbon emissions, diversity and inclusion, human rights, and other environmental, social and governance matters. These strategies, commitments and targets reflect our current plans and aspirations, and we may be unable to achieve them.
For example, both the United States and China have implemented several rounds of tariffs and retaliations with respect to certain products imported from the other country, some of which have impacted certain raw materials we use. Our operational changes in an effort to mitigate the impact of these tariffs on our products may not be successful.
Both the U.S. and China have implemented several rounds of tariffs and countermeasures with respect to certain products imported from the other country, some of which have impacted certain raw materials we use.
The volume of changes to such laws, rules and regulations may increase in the United States over the next several quarters as the Biden administration continues to implement its policies. To maintain high standards of corporate governance and public disclosure, we intend to invest in appropriate resources to comply with evolving standards.
The volume of changes to such laws, rules and regulations may increase in the countries where we operate. To maintain high standards of corporate governance and public disclosure, we intend to invest in appropriate resources to comply with evolving standards. Changes in or ambiguous interpretations of laws, regulations and standards may create uncertainty regarding compliance matters.
As of December 31, 2022, we had an aggregate principal amount of $5.9 billion of indebtedness outstanding, including the $2,495 million from our senior secured term loan facility due 2029, or the Term Loan Facility, $1.6 billion aggregate principal amount of the 4.75% senior secured notes due April 15, 2029, $895 million aggregate principal amount of the 5.95% senior unsecured notes due June 15, 2030, our 4.375% senior unsecured notes due April 15, 2028, our 3.625% senior unsecured notes due May 1, 2029, or collectively the Notes, and our bridge credit facility due 2023, or the Bridge Credit Facility.
Risks R elated to Our Indebtedness We have a substantial amount of indebtedness and may in the future incur substantially more debt, each of which could adversely affect our ability to obtain financing in the future and react to changes in our business. 24 Table of Contents As of December 31, 2023, we had an aggregate principal amount of $4.7 billion of indebtedness outstanding, including the $1.4 billion from our senior secured term loan facility due 2029 (the “Term Loan Facility”), $1.6 billion aggregate principal amount of the 4.75% senior secured notes due April 15, 2029, $1.7 billion aggregate principal amount of the 5.95% senior unsecured notes due June 15, 2030, our 4.375% senior unsecured notes due April 15, 2028, and our 3.625% senior unsecured notes due May 1, 2029 (collectively, the “Notes”).

… 96 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Biggest changeInformation about our principal and certain other facilities is set forth below: Location Principal Function Approximate Square Feet Leased/ Owned Reporting Segment Bedford, Massachusetts Research & Manufacturing 80,000 Owned MC & SCEM Billerica, Massachusetts (1) Executive Offices, Research & Manufacturing 175,000 Leased MC, SCEM & AMH Burnet, Texas Research & Manufacturing 86,000 Owned SCEM Decatur, Texas Manufacturing 359,000 Owned SCEM Waller, Texas Manufacturing 210,000 Owned APS Chaska, Minnesota Executive Offices, Research & Manufacturing 186,000 Owned AMH Colorado Springs, Colorado Manufacturing 82,000 Owned AMH Pueblo, Colorado Manufacturing 250,000 Owned APS Danbury, Connecticut Research & Manufacturing 73,000 Leased SCEM San Luis Obispo, California Manufacturing 57,867 Owned MC San Luis Obispo, California Manufacturing 59,124 Leased MC Hollister, California Manufacturing 49,139 Owned APS Aurora, Illinois Manufacturing 414,000 Owned APS Hillsboro, Oregon Manufacturing 112,344 Leased APS Saint Fromond, France Manufacturing 182,296 Owned APS San Giuliano Milanese, Italy Manufacturing 138,840 Owned APS Riddings, UK Manufacturing 82,779 Leased APS Hsin-chu, Taiwan Executive Offices, Sales Research & Manufacturing 146,330 Leased MC, SCEM & AMH Kaohsiung City,Taiwan Manufacturing 105,874 Owned APS JangAn, South Korea Manufacturing 127,000 Owned MC, SCEM & AMH Oseong, South Korea Manufacturing 108,355 Owned APS Suwon, South Korea Executive Offices & Research 42,000 Leased MC & SCEM Kulim, Malaysia Manufacturing 195,000 Owned SCEM & AMH Yonezawa, Japan Manufacturing 185,000 Owned MC & AMH Tsu, Mie, Japan Manufacturing 160,259 Owned APS Singapore Manufacturing 215,235 Owned APS (1) This lease has been extended through September 30, 2026 and is subject to one five-year renewal option.
Biggest changeInformation about our principal and certain other facilities is set forth below: Location Principal Function Approximate Square Feet Leased/ Owned Reporting Segment Bedford, Massachusetts Research & Manufacturing 80,000 Owned MC & MS Billerica, Massachusetts (1) Executive Offices, Research & Manufacturing 175,000 Leased MC, MS & AMH Burnet, Texas Research & Manufacturing 86,000 Owned MS Decatur, Texas Manufacturing 359,000 Owned MS Waller, Texas Manufacturing 210,000 Owned MS Chaska, Minnesota Executive Offices, Research & Manufacturing 186,000 Owned AMH Colorado Springs, Colorado Manufacturing 82,000 Owned AMH Danbury, Connecticut Research & Manufacturing 73,000 Leased MS San Luis Obispo, California Manufacturing 57,867 Owned MC San Luis Obispo, California Manufacturing 59,124 Leased MC Aurora, Illinois Manufacturing 414,000 Owned MS Hillsboro, Oregon Manufacturing 112,344 Leased MS Hsin-chu, Taiwan Executive Offices, Sales Research & Manufacturing 146,330 Leased MC, MS & AMH Kaohsiung City,Taiwan (North) Manufacturing 105,874 Owned MS Kaohsiung City,Taiwan (South) Manufacturing 573,696 Owned MC, MS & AMH JangAn, South Korea Manufacturing 127,000 Owned MC, MS & AMH Oseong, South Korea Manufacturing 108,355 Owned MS Suwon, South Korea Executive Offices & Research 42,000 Leased MC & MS Kulim, Malaysia Manufacturing 195,000 Owned MS & AMH Yonezawa, Japan Manufacturing 185,000 Owned MC & AMH Tsu, Mie, Japan Manufacturing 160,259 Owned MS Singapore Manufacturing 215,235 Owned MS (1) This lease has been extended through September 30, 2026 and is subject to one five-year renewal option.
In addition, we own and lease space for manufacturing, distribution, technical support, sales, service, repair, and general administrative purposes in the United States, Canada, China, Germany, France, Israel, Japan, Malaysia, Singapore, South Korea and Taiwan. Leases for our facilities expire through October 2031.
In addition, we own and lease space for manufacturing, distribution, technical support, sales, service, repair, and general administrative purposes in the U.S., Canada, China, Germany, France, Israel, Japan, Malaysia, Singapore, South Korea and Taiwan. Leases for our facilities expire through October 2031.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+1 added−1 removed0 unchanged
Biggest changeWe record a liability for these legal actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.
Biggest changeIf the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. There is judgment required in the determination of the likelihood of outcome, and if necessary determination of the estimate or range of potential outcomes.
There is judgment required in the determination of the likelihood of outcome, and if necessary determination of the estimate or range of potential outcomes. Based on the current information, the Company does not believe any known matters have a reasonable possibility of a material amount for litigation or other contingencies related to legal proceedings. 30 Table of Contents Item 4.
Based on the current information, the Company does not believe any known matters have a reasonable possibility of a material amount for litigation or other contingencies related to legal proceedings. Item 4. Mine Safety Disclosures. Not applicable. 31 Table of Contents PART II
Item 3. Legal Proceedings. We are involved in certain legal actions. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, that could require significant expenditures or result in lost revenues.
Item 3. Legal Proceedings. We are, from time-to-time, involved in various claims, proceedings and lawsuits relating to our business, employees, intellectual property and other matters. The outcomes of these matters are not within our complete control and may not be known for prolonged periods of time.
Removed
Mine Safety Disclosures. Not applicable. 31 Table of Contents PART II
Added
In some actions, the claimants seek damages, as well as other relief, that could require significant expenditures or result in lost revenues. We record a liability for these matters when a loss is known or considered probable and the amount can be reasonably estimated.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. Reserved 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 47 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. Reserved 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−0 removed4 unchanged
Biggest changeAll rights reserved. 32 Table of Contents December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Entegris, Inc. $100.00 $92.41 $167.12 $322.26 $465.93 $221.34 Nasdaq Composite 100.00 97.16 132.81 192.47 235.15 158.64 Philadelphia Semiconductor Index 100.00 93.95 153.38 235.69 336.68 219.25 Issuer Purchases of Equity Securities The Company repurchased none of its common stock in 2022 under an authorized common stock repurchase plan.
Biggest changeAll rights reserved. 32 Table of Contents December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Entegris, Inc. $100.00 $180.85 $348.72 $504.19 $239.52 $439.54 Nasdaq Composite 100.00 136.69 198.09 242.03 163.27 236.15 Philadelphia Semiconductor Index 100.00 163.26 250.87 358.36 233.36 389.73 Issuer Purchases of Equity Securities The Company did not repurchase any of its common stock in 2023 under a Board-authorized common stock repurchase plan.
Comparative Stock Performance The following graph compares the cumulative total shareholder return on the common stock of Entegris, Inc. from December 31, 2017 through December 31, 2022 with the cumulative total return of (1) The Nasdaq Composite Index, and (2) The Philadelphia Semiconductor Index, assuming $100 was invested at the close of trading on December 31, 2017 in Entegris, Inc. common stock, the Nasdaq Composite Index and the Philadelphia Semiconductor Index and that all dividends are reinvested.
Comparative Stock Performance The following graph compares the cumulative total shareholder return on the common stock of Entegris, Inc. from December 31, 2018 through December 31, 2023 with the cumulative total return on (1) The Nasdaq Composite Index, and (2) The Philadelphia Semiconductor Index, assuming $100 was invested at the close of trading on December 31, 2018 in Entegris, Inc. common stock, the Nasdaq Composite Index and the Philadelphia Semiconductor Index and that all dividends are reinvested.
Dividend Policy Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s board of directors. The Company’s board of directors declared cash dividends of $0.10 per share during each of the first, second, third and fourth quarters of 2022, which totaled $57.3 million.
Dividend Policy Holders of the Company’s common stock are entitled to receive dividends when and if they are declared by the Company’s Board of Directors. The Company’s Board of Directors declared cash dividends of $0.10 per share during each of the first, second, third and fourth quarters of 2023, which totaled $60.3 million.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information and Holders Entegris’ common stock, $0.01 par value per share, trades on the Nasdaq Global Select Market under the symbol “ENTG”. As of February 13, 2023, there were 1,080 shareholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information and Holders Entegris’ common stock, $0.01 par value per share, trades on the Nasdaq Global Select Market under the symbol “ENTG”. As of February 12, 2024, there were 1,030 shareholders of record.
On January 18, 2023, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on February 22, 2023 to shareholders of record as of February 1, 2023.
On January 17, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share to be paid on February 21, 2024 to shareholders of record as of January 31, 2024.
These withheld shares of common stock are not considered common stock repurchases under the Company’s authorized common stock repurchase plan.
These withheld shares of common stock are not considered common stock repurchases pursuant to a Board-authorized common stock repurchase plan.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

83 edited+45 added−57 removed30 unchanged
Biggest changeThe reconciliation of GAAP measures to adjusted operating income and adjusted EBITDA for the years ended December 31, 2022 and 2021 are presented below: (In thousands) 2022 2021 Net sales $ 3,282,033 $ 2,298,893 Net income $ 208,920 $ 409,126 Net income - as a % of net sales 6.4 % 17.8 % Adjustments to net income Income tax expense 38,160 69,950 Interest expense 212,669 41,240 Interest income (3,694) (243) Other expense, net 23,926 31,695 GAAP – Operating income 479,981 551,768 Operating margin - as a % of net sales 14.6 % 24.0 % Charge for fair value write-up of acquired inventory sold 61,932 428 Deal and transaction costs 39,543 4,744 Integration costs 50,731 3,780 Contractual and non-cash integration costs 61,964 — Severance and restructuring costs — 529 Gain on sale of subsidiary (254) — Amortization of intangible assets 143,953 47,856 Adjusted operating income 837,850 609,105 Adjusted operating margin 25.5 % 26.5 % Depreciation 135,371 90,311 Adjusted EBITDA $ 973,221 $ 699,416 Adjusted EBITDA – as a % of net sales 29.7 % 30.4 % 46 Table of Contents The reconciliation of GAAP measures to non-GAAP earnings per share for the years ended December 31, 2022 and 2021 are presented below: (In thousands, except per share data) 2022 2021 Net income $ 208,920 $ 409,126 Adjustments to net income: Charge for fair value write-up of acquired inventory sold 61,932 428 Deal and transaction costs 39,543 4,744 Integration costs 50,731 3,780 Contractual and non-cash integration costs 61,964 — Severance and restructuring costs — 529 Loss on debt extinguishment and modification 3,287 23,338 Interest expense, net 29,822 — Gain on sale of subsidiary (254) — Amortization of intangible assets 143,953 47,856 Tax effect of adjustments to net income and discrete tax items (1) (65,728) (20,411) Non-GAAP net income $ 534,170 $ 469,390 Diluted earnings per common share $ 1.46 $ 3.00 Effect of adjustments to net income $ 2.27 $ 0.44 Diluted non-GAAP earnings per common share $ 3.73 $ 3.44 Diluted weighted average shares outstanding 143,146 136,574 1 The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.
Biggest changeThe reconciliation of GAAP measures to adjusted operating income and Adjusted EBITDA for the years ended December 31, 2023 and 2022 are presented below: (In thousands) 2023 2022 Net sales $ 3,523,926 $ 3,282,033 Net income $ 180,669 $ 208,920 Net income - as a % of net sales 5.1 % 6.4 % Adjustments to net income Equity in net loss of affiliates 414 — Income tax (benefit) expense (8,413) 38,160 Interest expense 312,378 212,669 Interest income (11,257) (3,694) Other expense, net 25,367 23,926 GAAP – Operating income 499,158 479,981 Operating margin - as a % of net sales 14.2 % 14.6 % Goodwill impairment 1 115,217 — Deal and transaction costs 2 3,001 39,543 Integration costs: Professional fees 3 36,650 35,422 Severance costs 4 1,478 6,269 Retention costs 5 1,687 1,987 Other costs 6 13,710 7,053 Contractual and non-cash integration costs: CMC Materials retention costs 7 — 18,030 Stock-based compensation alignment 8 — 21,584 Change in control costs 9 — 22,350 Restructuring costs 10 14,745 — Loss (gain) on sale of businesses 11 23,839 (254) Charge for fair value write-up of acquired inventory sold 12 — 61,932 Gain on termination of Alliance Agreement 13 (184,754) — Impairment of long-lived assets 14 30,464 — Amortization of intangible assets 15 214,477 143,953 Adjusted Operating Income 769,672 837,850 Adjusted Operating Margin 21.8 % 25.5 % Depreciation 172,683 135,371 Adjusted EBITDA $ 942,355 $ 973,221 Adjusted EBITDA – as a % of net sales 26.7 % 29.7 % 47 Table of Contents 1 Non-cash impairment charges associated with goodwill. 2 Deal and transaction costs associated with CMC Materials acquisition and completed and announced divestitures. 3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations.
These forward-looking statements are based on current management expectations and assumptions only as of the date of this Quarterly Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
We have contractual obligations for principal and interest payments on our long-term debt. See Note 10 of the consolidated financials for additional information. Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets.
We have contractual obligations for principal and interest payments on our long-term debt. See Note 11 of the consolidated financials for additional information. Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets.
Management believes that the inclusion of non-GAAP measures provides greater consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.
Management believes that the inclusion of non-GAAP measures provides greater consistency in its financial reporting from period-to-period and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.
There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. In 2022, we did not experience difficulty accessing capital and credit markets, but future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect our ability to access those markets.
There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. During 2023, we did not experience difficulty accessing capital and credit markets, but future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect our ability to access those markets.
The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products. 40 Table of Contents MC reported a segment profit of $411.5 million for 2022, up 28% compared to $321.3 million in 2021.
The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products. MC reported a segment profit of $411.5 million for 2022, up 28% compared to $321.3 million in 2021.
On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount is scheduled to decrease quarterly and will expire on December 30, 2025.
On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount of the swap is $1.4 billion at December 31, 2023 and is scheduled to decrease quarterly and will expire on December 30, 2025.
Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.
Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes 34 Table of Contents no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.
Information pertaining to fiscal year 2020 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2021 and 2020 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 4, 2022.
Information pertaining to fiscal year 2021 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2022 and 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 23, 2023.
Critical Accounting Policies and Estimates Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP.
Critical Accounting Policies and Estimates Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. Our restricted cash represents cash held in a “Rabbi” trust and is not available for general corporate purposes. See Note 5 to the consolidated financial statements for additional information.
We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. Our restricted cash represented cash held in a “Rabbi” trust and is not available for general corporate purposes. See Note 6 to the consolidated financial statements for additional information.
Third, there is no assurance that the Company will not have future charges for fair value write-up of acquired inventory, restructuring activities, deal and transaction costs, integration costs, loss on extinguishment of debt or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon.
Third, there is no assurance that the Company will not have future charges for fair value write-up of acquired inventory, restructuring activities, deal and transaction costs, integration costs, asset or goodwill impairments, loss on extinguishment of debt or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the 46 Table of Contents tax effects thereon.
The Company believes that certain analysts and investors use adjusted EBITDA, adjusted operating income and non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry.
The Company believes that certain analysts and investors use Adjusted EBITDA, Adjusted Operating Income and Non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use Adjusted EBITDA measures to evaluate the Company’s creditworthiness.
Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2022 and do not include $140.1 million for net unamortized discounts and debt issuance costs.
Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2023 and do not include $91.6 million for net unamortized discounts and debt issuance costs.
The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations.
Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with GAAP. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations.
These forward-looking statements may include statements about the ongoing impacts of the COVID-19 pandemic and the conflict in Ukraine on the Company’s operations and markets, including supply chain issues and inflationary pressures related thereto; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of the Company’s engineering, research and development projects; the Company’s ability to execute on our business strategies, including with respect to Company’s expansion of its manufacturing presence in Taiwan and in Colorado Springs; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials; the closing of any announced divestitures, including the timing thereof; trends relating to the fluctuation of currency exchange rates; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; and other matters.
These forward-looking statements may include statements about supply chain matters; inflationary pressures; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of the Company’s ER&D projects; the Company’s ability to execute on our business strategies, including with respect to the Company’s expansion of its manufacturing presence in Taiwan and in Colorado Springs; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions and divestitures the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials (now known as CMC Materials LLC) (“CMC Materials”); trends relating to the fluctuation of currency exchange rates; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; and other matters.
Capital expenditures in 2022 generally reflected more spending related to growth capacity investments and the investment in our previously announced investment in our new facility in Taiwan. In 2022, the Company acquired CMC Materials. The cash used to acquire these assets was $4,474.9 million, net of cash acquired.
Capital expenditures in 2023 generally reflected more spending related to growth capacity, including our previously announced investment in our KSP site and new facility in Colorado Springs, Colorado. In 2022, the Company acquired CMC Materials. The cash used to acquire these assets was $4,474.9 million, net of cash acquired.
The transactions are described in further detail in Note 3 to the Company’s consolidated financial statements. 42 Table of Contents Financing activities Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
The transaction is described in further detail in Note 4 to the Company’s consolidated financial statements. Financing activities Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.
The sales increase was mainly due to improved sales from wafer handling and fluid handling. AMH reported a segment profit of $183.7 million for 2022, up 15% compared to $160.0 million in 2021.
For 2022, AMH net sales increased 20% to $846.5 million from $704.9 million in 2021. The sales increase was mainly due to improved sales from wafer handling and fluid handling. AMH reported a segment profit of $183.7 million for 2022, up 15% compared to $160.0 million in 2021.
However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to a tax audit settlement or some other unforeseeable event. See Note 16 of the consolidated financials for additional information.
However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to an unforeseeable event (such as a tax audit settlement). See Note 17 of the consolidated financials for additional information.
Non-GAAP Net Income is defined by the Company as net income before, as applicable, (1) charge for fair value write-up of acquired inventory sold, (2) deal and transaction costs, (3) integration costs, (4) contractual and non-cash integration costs (5) severance and restructuring costs, (6) loss on extinguishment of debt and modification, (7) interest expense, net (8) gain on sale of business, (9) amortization of intangible assets and (10) the tax effect of the foregoing adjustments to net income, stated on a per share basis, divided by diluted weighted average shares outstanding.
Non-GAAP Net Income is defined by the Company as net income before, as applicable, (1) goodwill impairment, (2) deal and transaction costs, (3) integration costs, (4) contractual costs and non-cash integration costs, (5) restructuring costs, (6) loss on extinguishment of debt and modification, (7) loss (gain) on sale of businesses, (8) gain on termination of the Alliance Agreement, (9) Infineum termination fee, net, (10) charge for fair value write-up of sale of acquired inventory, (11) interest expense, net, (12) impairment of long-lived assets, (13) amortization of intangible assets, (14) the tax effect of the foregoing adjustments to net income, stated on a per share basis, divided by diluted weighted average shares outstanding.
These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; risks related to the COVID-19 pandemic and the conflict in Ukraine on the global economy and financial markets, as well as on the Company, its customers and suppliers, which may impact its sales, gross margin, customer demand and its ability to supply its products to its customers; raw material shortages, supply and labor constraints and price increases; pricing and inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations; the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements; substantial competition; the Company’s concentrated customer base; the Company’s ability to identify, complete and integrate acquisitions, joint ventures , divestitures or other similar transactions; the Company’s ability to consummate pending transactions on a timely basis or at all and the satisfaction of the conditions precedent to consummation of such pending transactions, including the satisfaction of regulatory conditions on the terms expected, at all or in a timely manner; the Company’s ability to effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the increasing complexity of certain manufacturing processes; changes in government regulations of the countries in which the Company operates, including the imposition of tariffs, export controls and other trade laws and restrictions and changes to national security and international trade policy, especially as they relate to China; fluctuation of currency exchange rates; fluctuations in the market price of the Company’s stock; and other matters.
These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; raw material shortages, supply and labor constraints, price increases, inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations; the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements; substantial competition; the Company’s concentrated customer base; the Company’s ability to identify, complete and integrate acquisitions, joint ventures, divestitures or other similar transactions; the Company’s ability to effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the impact of regional and global instabilities, hostilities and geopolitical uncertainty, including, but not limited to, the ongoing conflicts between Ukraine and Russia, between Israel and Hamas and the current conflict in the Red Sea, as well as the global responses thereto; the increasing complexity of certain manufacturing processes; changes in government regulations of the countries in which the Company operates, including the imposition of tariffs, export controls and other trade laws and restrictions and changes to national security and international trade policy, especially as they relate to China; fluctuation of currency exchange rates; fluctuations in the market price of the Company’s stock; and other matters.
Liquidity and Capital Resources We consider the following when assessing our liquidity and capital resources: In thousands December 31, 2022 December 31, 2021 Cash, cash equivalents and restricted cash $ 563,439 $ 402,565 Working capital 1,573,254 934,369 Total debt 5,784,893 937,027 The Company has historically financed its operations and capital requirements through cash flow from its operating activities, long-term loans, lease financing and borrowings under domestic and international short-term lines of credit.
Liquidity and Capital Resources We consider the following when assessing our liquidity and capital resources: In thousands December 31, 2023 December 31, 2022 Cash, cash equivalents and restricted cash $ 456,929 $ 563,439 Working capital 1,463,332 1,573,254 Total debt 4,577,141 5,784,893 The Company has historically financed its operations and capital requirements through cash flow from its operating activities, long-term loans, lease financing and borrowings under domestic and international short-term lines of credit.
Cash and cash requirements (In thousands) December 31, 2022 December 31, 2021 Cash and cash equivalents $ 561,559 $ 402,565 U.S. 136,262 107,814 Non-U.S. 425,297 294,751 Restricted cash - U.S. 1,880 — Cash, cash equivalents and restricted cash $ 563,439 $ 402,565 Our cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value.
Cash and cash requirements (In thousands) December 31, 2023 December 31, 2022 Cash and cash equivalents $ 456,929 $ 561,559 U.S. 154,015 136,262 Non-U.S. 302,914 425,297 Restricted cash - U.S. — 1,880 Cash, cash equivalents and restricted cash $ 456,929 $ 563,439 Our cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value.
Acquisition of property and equipment totaled $466.2 million in 2022, which primarily reflected investments in facilities, equipment and tooling, compared to $210.6 million in 2021, which also primarily reflected investments in equipment and tooling.
Acquisition of property and equipment totaled $456.8 million in 2023, which primarily reflected investments in facilities, equipment and tooling, compared to $466.2 million in 2022, which also primarily reflected investments in equipment and tooling.
Adjusted operating income is defined by the Company as adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes non-GAAP financial measures whereby adjusted EBITDA and adjusted operating income are each divided by the Company’s net sales to derive adjusted EBITDA margin and adjusted operating margin, respectively.
Adjusted Operating Income is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes ratios of non-GAAP financial measures such as Adjusted EBITDA to Company net sales and Adjusted Operating Income (referred to as Adjusted EBITDA Margin and Adjusted Operating Margin, respectively).
The increase in MC’s profit in 2021 was primarily due to higher gross profit related to the increased sales volume, partially offset by higher operating expenses of 13%, primarily due to higher compensation costs. Advanced Materials Handling (AMH) For 2022, AMH net sales increased 20% to $846.5 million from $704.9 million in 2021.
The increase in MC’s profit in 2022 was primarily due to higher gross profit related to the increased sales volume, partially offset by higher operating expenses of 17%, primarily due to higher compensation costs. Advanced Materials Handling (AMH) For 2023, AMH net sales decreased 10% to $758.6 million from $846.5 million in 2022.
The following table and discussion concern the results of operations of the Company’s four reportable segments for the years ended December 31, 2022, 2021 and 2020.
The following table and discussion reflects the results of operations of the Company’s three reportable segments for the years ended December 31, 2023, 2022 and 2021.
Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, significant recurring expenses with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.
Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, significant recurring expenses with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.
Selling, general and administrative expenses Selling, general and administrative expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2022 increased $251.1 million, or 86%, to $543.5 million from $292.4 million in 2021.
Selling, general and administrative expenses Selling, general and administrative (“SG&A”) expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2023 increased $32.7 million, or 6%, to $576.2 million from $543.5 million in 2022.
These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers.
These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers, which should translate into improved device performance, lower cost of ownership and faster time to market.
Recently issued accounting pronouncements Refer to Note 1 of the Company’s consolidated financial statements for a discussion of accounting pronouncements recently issued but not yet adopted. Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with GAAP.
New Accounting Pronouncements Recently adopted accounting pronouncements Refer to Note 1 to the Company’s consolidated financial statements for a discussion of accounting pronouncements implemented in 2023. Recently issued accounting pronouncements Refer to Note 1 of the Company’s consolidated financial statements for a discussion of accounting pronouncements recently issued but not yet adopted.
Accordingly, our segment information was restated retroactively in the third quarter of fiscal 2022. The segment realignment had no impact on the Microcontamination Control or Advanced Materials Handling segments. See Note 20 to the consolidated financial statements for additional information on the Company’s four segments. The following is a discussion of the results of operations of these four business segments.
Accordingly, our segment information was restated retroactively in the third quarter of fiscal year 2023. The segment realignment had no impact on the Microcontamination Control or Advanced Materials Handling segment financial reporting. See Note 21 to the consolidated financial statements for additional information on the Company’s three segments.
Cash requirements We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations.
The Company had no restricted cash as of December 31, 2023. Cash requirements 44 Table of Contents We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations.
The Company is a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology industries. We help our customers maximize manufacturing yields, reduce manufacturing costs and enable higher device performance by leveraging our unique breadth of capabilities to provide mission critical enhanced materials and process solutions for the most advanced manufacturing environments.
The Company is a leading supplier of mission-critical advanced materials and process solutions for the semiconductor and other high-technology industries. We leverage our unique breadth of capabilities to help our customers improve their productivity, performance and technology in the most advanced manufacturing environments.
See Note 1 to the Company’s consolidated financial statements for additional information about the Company’s other significant accounting policies. Business Acquisitions The Company accounts for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.
Business Acquisitions The Company accounts for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.
See Note 14 of the consolidated financials for additional information. 44 Table of Contents Income tax liabilities . Of the tax liabilities included in the table above, $53.5 million relates to uncertain tax positions. We are unable to accurately predict when these amounts will be realized or released.
Commitments under operating and financing leases primarily relate to leasehold properties. See Note 15 of the consolidated financials for additional information. Income tax liabilities . Of the tax liabilities included in the table above, $67.7 million relates to uncertain tax positions. We are unable to accurately predict when these amounts will be realized or released.
Compared to 2021, the $48.2 million decrease in cash provided by operating activities in 2022 was primarily driven by a $41.6 million of changes in operating assets and liabilities and a $6.5 million decrease of net income adjusted for non-cash reconciling items.
Compared to 2022, the $277.3 million increase in cash provided by operating activities in 2023 was primarily driven by $288.9 million of changes in operating assets and liabilities, offset by a $11.7 million decrease of net income adjusted for non-cash reconciling items.
Management’s utilization of different judgments or estimates could result in material differences in the amount and timing of the Company’s results of operations for any period.
Management’s utilization of different judgments or estimates could result in material differences in the amount and timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings.
These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report on Form 10-K, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking 34 Table of Contents statements.
They are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.
The increase in APS’s profit in 2022 was primarily due to higher sales volume. Unallocated general and administrative expenses Unallocated general and administrative expenses for 2022 totaled $190.5 million compared to $49.5 million for 2021.
The increase in AMH’s profit in 2022 was primarily due to higher sales volume, partially offset by a 16% increase in operating expenses, primarily due to higher compensation costs. Unallocated general and administrative expenses Unallocated general and administrative expenses for 2023 totaled $114.2 million compared to $190.5 million for 2022.
Effective February 10, 2023, the Company terminated the definitive agreement in accordance with its terms. At the time of the termination, the transaction had not received clearance under the HSR Act.
At the time of the termination, the transaction had not received clearance under the HSR Act. In accordance with the terms of the definitive agreement, the Company received a $12.0 million termination fee from Infineum in the first quarter of 2023.
Results of Operations Year ended December 31, 2022 compared to year ended December 31, 2021 The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for 2022 and 2021.
All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net income. 37 Table of Contents Results of Operations Year ended December 31, 2023 compared to year ended December 31, 2022 The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for 2023 and 2022.
The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the year, the Company borrowed and repaid $201.0 million under the Revolving Facility.
The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the twelve months ended December 31, 2023, there were no borrowings under this Revolving Facility and no balance was outstanding at December 31, 2023.
Adjusted EBITDA is defined by the Company as net income before (1) income tax expense, (2) interest expense, (3) interest income, (4) other expense (income), net, (5) charge for fair value write-up of acquired inventory sold, (6) deal and transaction costs, (7) integration costs, (8) contractual and non-cash integration costs (9) severance and restructuring costs, (10) gain on sale of subsidiary, (11) amortization of intangible assets and (12) depreciation.
These non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and Non-GAAP EPS, as well as certain other supplemental non-GAAP financial measures included in the discussion of the Company’s financial results. 45 Table of Contents Adjusted EBITDA is defined by the Company as net income before, as applicable, (1) income tax (benefit) expense, (2) interest expense, (3) interest income, (4) other expense, net, (5) goodwill impairment, (6) deal and transaction costs, (7) integration costs, (8) contractual costs and non-cash integration costs, (9) restructuring costs, (10) loss (gain) on sale of businesses, (11) charge for fair value write-up of acquired inventory sold, (12) gain on termination of the Alliance Agreement, (13) impairment of long-lived assets, (14) amortization of intangible assets and (15) depreciation.
Investing activities I nvesting cash flows consist primarily of capital expenditures, cash used for acquisitions and proceeds from sales of property and equipment. The increase in cash used in investing activities in 2022 compared to 2021 was primarily due to higher cash paid for acquisitions of property, plant and equipment and for acquisitions.
Investing activities I nvesting cash flows consist primarily of capital expenditures, cash used for acquisitions, proceeds from sales of businesses and proceeds from sales of property and equipment. In 2023, there was $553.1 million of cash provided by investing activities compared to $4,945.7 million cash used in investing activities in 2022.
See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measures. The Company’s non-GAAP financial measures include adjusted EBITDA and adjusted operating income, together with related percentage changes, and non-GAAP earnings per share, or EPS.
See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measures.
Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies. For example, the Company’s non-GAAP measure of adjusted EBITDA may not be directly comparable to EBITDA or an adjusted EBITDA measure reported by other companies.
For example, the Company’s non-GAAP measure of Adjusted EBITDA may not be directly comparable to EBITDA or an Adjusted EBITDA measure reported by other companies. Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring.
Revenue relating to products manufactured from raw materials sourced from this region does not constitute a material portion of our business and historically, we have not received significant revenue from this region. The ultimate impact of the conflict on the global economy, supply chains, logistics, fuel prices, raw material pricing and our business remains uncertain.
Revenue relating to products manufactured from raw materials or components sourced from or through this region does not constitute a material portion of our business and historically we have not had significant revenue in this region.
The change for accounts payable and accrued liabilities was driven by timing of payments. The change for taxes was primarily driven by higher tax provision compared to the prior year. The change for trade accounts receivables and notes receivables was primarily due a lower increase in sales compared to that of the comparable previous period.
The change for accounts payable and accrued liabilities was driven by lower vendor purchases and timing of payments. The change for income taxes payable and refundable income taxes was due to larger tax payments compared to the previous year.
The Company’s total dividend payments were $57.3 million in 2022 compared to $43.5 million in 2021. The Company has paid a cash dividend in each quarter since the fourth quarter of 2017.
See Note 11 to the Company’s consolidated financial statements for further discussion of the debt financing that occurred during the year. The Company’s total dividend payments were $60.2 million in 2023 compared to $57.3 million in 2022. The Company has paid a cash dividend in each quarter since the fourth quarter of 2017.
They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2022, as the Company had not yet received the related goods or taken title to the property.
Supply purchase obligations . We have non-cancelable commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2023, as the Company had not yet received the related goods or taken title to the property. Operating and financing lease commitments .
In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings. 36 Table of Contents Our critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below.
Our critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below. See Note 1 to the Company’s consolidated financial statements for additional information about the Company’s other significant accounting policies.
An analysis of the factors underlying the increase in ER&D expenses is presented in the following table: (In thousands) Engineering, research and development expense in 2021 $ 167,632 ER&D expense recorded by CMC Materials and included in Company’s financial statements after the date of the acquisition 25,993 Employee costs, exclusive of CMC Materials 18,419 Project related costs, exclusive of CMC Materials 10,734 Other increases, net 6,216 Engineering, research and development expense in 2022 $ 228,994 The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications, and the Company often works directly with its customers to address their particular needs.
These expenses were $277.3 million in 2023 and $229.0 million in 2022. 39 Table of Contents An analysis of the factors underlying the increase in ER&D expenses is presented in the following table: (In thousands) Engineering, research and development expense in 2022 $ 228,994 Employee costs, mainly driven by the inclusion of CMC Materials 27,434 Depreciation expense, mainly driven by the inclusion of CMC Materials 11,983 Project related costs, mainly driven by the inclusion of CMC Materials 4,902 Other increases, net 4,000 Engineering, research and development expense in 2023 $ 277,313 The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications.
Through December 31, 2022, the Company was in compliance with all applicable financial covenants included in the terms of its debt arrangements. 43 Table of Contents The Company also has a line of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $7.6 million.
The Company also has a line of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $7.1 million. There were no outstanding borrowings under this line of credit and no balance was outstanding at December 31, 2023.
The segment profit increase was primarily due to the segment profit attributed to the CMC Materials acquisition, partially offset by a $56.8 million charge for a fair value write-up of acquired CMC Materials inventory sold. For 2021, APS net sales increased 8% to $85.6 million from $79.5 million in 2020.
The increase in MS’s profit in 2022 was primarily due to the segment profit attributed to the CMC Materials acquisition, partially offset by unfavorable product mix and a $61.9 million charge for a fair value write-up resulting from the sale of acquired CMC Materials inventory. 41 Table of Contents Microcontamination Control (MC) For 2023, MC net sales increased to $1,127.6 million, up 2% from $1,106.0 million in 2022.
Gross margin The following table sets forth gross margin as a percentage of net revenues: 2022 2021 Percentage point change Gross margin as a percentage of net revenues: 42.5 % 46.1 % -3.6 Gross margin decreased by 3.6 percentage points for 2022 compared to 2021, primarily due to a $61.9 million charge or 1.9 percentage point change for fair value write-up of acquired CMC Materials inventory sold during the three-month period subsequent to the CMC Materials acquisition, and the inclusion of CMC Materials’ products, which have aggregate lower gross margins.
Gross margin The following table sets forth gross margin as a percentage of net sales: 2023 2022 Percentage point change Gross margin as a percentage of net sales: 42.5 % 42.5 % — Gross margin was unchanged for 2023 compared to 2022, which was primarily due to the absence of a $61.9 million charge for fair value write-up of acquired CMC Materials inventory sold during the year ended December 31, 2022, partially offsetting the effect of lower plant utilization in 2023.
Additionally, lenders or potential lenders use adjusted EBITDA measures to evaluate the Company’s creditworthiness. 45 Table of Contents The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP.
The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.
(Dollars in thousands) 2022 2021 % of net sales % of net sales Net sales $ 3,282,033 100.0 % $ 2,298,893 100.0 % Cost of sales 1,885,620 57.5 1,239,229 53.9 Gross profit 1,396,413 42.5 1,059,664 46.1 Selling, general and administrative expenses 543,485 16.6 292,408 12.7 Engineering, research and development expenses 228,994 7.0 167,632 7.3 Amortization of intangible assets 143,953 4.4 47,856 2.1 Operating income 479,981 14.6 551,768 24.0 Interest expense 212,669 6.5 41,240 1.8 Interest income (3,694) (0.1) (243) — Other expense, net 23,926 0.7 31,695 1.4 Income before income taxes 247,080 7.5 479,076 20.8 Income tax expense 38,160 1.2 69,950 3.0 Net income $ 208,920 6.4 $ 409,126 17.8 Net sales For 2022, net sales were $3,282.0 million, up $983.1 million, or 43%, from 2021.
(Dollars in thousands) 2023 2022 % of net sales % of net sales Net sales $ 3,523,926 100.0 % $ 3,282,033 100.0 % Cost of sales 2,026,321 57.5 1,885,620 57.5 Gross profit 1,497,605 42.5 1,396,413 42.5 Selling, general and administrative expenses 576,194 16.4 543,485 16.6 Engineering, research and development expenses 277,313 7.9 228,994 7.0 Amortization of intangible assets 214,477 6.1 143,953 4.4 Goodwill impairment 115,217 3.3 — — Gain on termination of Alliance Agreement (184,754) (5.2) — — Operating income 499,158 14.2 479,981 14.6 Interest expense 312,378 8.9 212,669 6.5 Interest income (11,257) (0.3) (3,694) (0.1) Other expense, net 25,367 0.7 23,926 0.7 Income before income taxes 172,670 4.9 247,080 7.5 Income tax (benefit) expense (8,413) (0.2) 38,160 1.2 Equity in net loss of affiliates 414 — — — Net income $ 180,669 5.1 $ 208,920 6.4 Net sales For 2023, net sales were $3,523.9 million, increased by $241.9 million, or 7%, from 2022.
Sales percentage on a geographic basis for 2022 and 2021 and the percentage increase in sales for 2022 compared to sales for 2021 were as follows: Year ended December 31, 2022 December 31, 2021 Percentage increase in sales North America 24 % 23 % 51 % Taiwan 20 % 20 % 45 % China 15 % 16 % 38 % South Korea 13 % 14 % 31 % Japan 11 % 13 % 16 % Europe 10 % 9 % 55 % Southeast Asia 7 % 5 % 88 % The increase in sales for all geographic areas was primarily driven by the inclusion of sales from the CMC Materials acquisition and a general increase in demand for products.
Total net sales also reflected unfavorable foreign currency translation effects of $33.2 million, mainly due to the significant weakening of the Japanese yen relative to the U.S. dollar, and decreased demand from customers in the semiconductor market, resulting in a decrease of $146.5 million compared to the year ago period ended December 31, 2022. 38 Table of Contents Sales percentage on a geographic basis for 2023 and 2022 and the percentage increase (decrease) in sales for 2023 compared to sales for 2022 were as follows: Year ended December 31, 2023 December 31, 2022 Percentage increase (decrease) in sales North America 25 % 24 % 12 % Taiwan 17 % 20 % (11) % China 16 % 15 % 13 % South Korea 13 % 13 % 7 % Japan 10 % 11 % 5 % Europe 11 % 10 % 24 % Southeast Asia 7 % 7 % 12 % The increase in sales to customers for all countries and regions, except Taiwan, in the table above was principally driven by the inclusion of sales from the acquisition of CMC Materials.
The increase in SCEM’s profit in 2022 was primarily due to higher sales and a gain on a sale of non-core intangibles. Microcontamination Control (MC) For 2022, MC net sales increased to $1,106.0 million, up 20% from $919.4 million in 2021.
The decrease in MC’s profit in 2023 was primarily due to increased costs associated with the ramp up of our new manufacturing facility in Taiwan and increased investment in research and development. For 2022, MC net sales increased to $1,106.0 million, up 20% from $919.4 million in 2021.
Other Liquidity and Capital Resources Considerations Debt at par value outstanding (In thousands) December 31, 2022 December 31, 2021 Senior secured term loan facility due 2029 $ 2,495,000 $ — Senior secured notes due 2029 at 4.75% 1,600,000 — Senior unsecured notes due 2030 at 5.95% 895,000 — Senior unsecured notes due 2029 at 3.625% 400,000 400,000 Senior unsecured notes due 2028 at 4.375% 400,000 400,000 Bridge credit facility due 2023 135,000 — Senior secured term loan facility due 2025 at 2.457% — 145,000 Revolving facility due 2026 — — Total debt (par value) $ 5,925,000 $ 945,000 In connection with the acquisition of CMC Materials, the Company obtained the following financing: On the Closing Date, the Company entered into a Term Loan B Facility of $2.495 billion with a pricing at SOFR plus 3.00%.
On January 17, 2024, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on February 21, 2024 to shareholders of record as of January 31, 2024. 43 Table of Contents Other Liquidity and Capital Resources Considerations Debt at par value outstanding (In thousands) December 31, 2023 December 31, 2022 Senior secured term loan due 2029 $ 1,373,774 $ 2,495,000 Senior secured notes due 2029 at 4.75% 1,600,000 1,600,000 Senior unsecured notes due 2030 at 5.95% 895,000 895,000 Senior unsecured notes due 2029 at 3.625% 400,000 400,000 Senior unsecured notes due 2028 at 4.375% 400,000 400,000 Bridge credit facility due 2023 — 135,000 Revolving facility due 2027 — — Total debt (par value) $ 4,668,774 $ 5,925,000 On March 10, 2023, and September 11, 2023, the Company amended its Existing Credit Agreement.
Interest expense Interest expense was $212.7 million in 2022 and $41.2 million in 2021. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. The increase primarily reflects higher interest expense related to the debt financing of the CMC Materials acquisition.
See Note 5 to the Company’s consolidated financial statements for further discussion. Interest expense Interest expense was $312.4 million in 2023 and $212.7 million in 2022. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings.
Impact of New Export Control Regulations On October 7, 2022, the U.S Department of Commerce, Bureau of Industry and Security (“BIS”) announced new export control regulations that restrict the sale of certain products and services to some companies and domestic fabs in China.
Impact of New Export Control Regulations On October 17, 2023, the U.S Department of Commerce, Bureau of Industry and Security (“BIS”) announced updates to export control regulations, originally issued on October 7, 2022, regarding the sale of certain products and services related to advanced computing items, semiconductor manufacturing equipment, and items that can support end uses related to the development and production of advanced-node integrated circuits and semiconductor manufacturing equipment, among others.
Interest income Interest income was $3.7 million in 2022 and $0.2 million in 2021. The increase reflects rising average interest rates and cash balances. Other expense, net Other expense, net, was $23.9 million in 2022 compared to $31.7 million in 2021. In 2022, other expense, net consisted mainly of consisted mainly of foreign currency transaction losses of $23.0 million.
In 2022, other expense, net consisted mainly of consisted mainly of foreign currency transaction losses of $23.0 million. Income tax expense The Company recorded income tax benefit of $8.4 million in 2023 compared to income tax expense of $38.2 million in 2022.
SCEM reported a segment profit of $122.3 million for 2022, down 11% compared to $137.4 million in 2021.
MS reported a segment profit of $296.4 million for 2023, up 35% compared to $219.2 million in 2022.
For example, after the acquisition of CMC Materials, we now offer an end-to-end offering for our customers consisting of advanced deposition materials from our SCEM segment, CMP slurries, pads and post-CMP cleaning chemistries from our APS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.
For example, we can now develop and provide complementary offerings solving customers’ complex manufacturing challenges across the deposition, CMP process and post-CMP modules with co-optimized products from each of our divisions, such as advanced deposition materials, CMP slurries, pads and post-CMP cleaning chemistries from our MS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.
The change was primarily due to the net debt activity, which was a source of cash of $4.8 billion in 2022 compared to a use of cash of $174.1 million, and the absence of $67.1 million of repurchase and retirement of common stock.
In 2023, there was $1,282.6 million of cash used in financing activities compared to $4,766.2 million cash provided by in financing activities in 2022. The change was primarily due to the net debt activity, which was a use of cash of $1,259.7 million in 2023 compared to a source of cash of $4,831.3 million.
The sales increase primarily reflects the inclusion of sales of $90.1 million from inclusion of certain product lines from the acquisition of CMC Materials, while the remainder reflects modestly improved sales of advanced deposition materials, formulated cleans, selective etch and specialty coatings products.
For 2022, MS net sales increased to $1,380.2 million, up 94% from $711.3 million in 2021. The sales increase primarily reflects the inclusion of sales of $594.4 million attributed to acquisitions, primarily of CMC Materials, and also reflects modestly improved sales of advanced deposition materials, formulated cleans, selective etch and specialty coating products.
Adjusted operating income as a percent of net sales was 25.5% in 2022 compared to 26.5% in 2021. Non-GAAP EPS increased 8.4% to $3.73 in 2022, compared to $3.44 in 2021. The decreases in adjusted EBITDA and adjusted operating income as a percentage net sales reflects lower gross margin.
Adjusted Operating Income decreased by 8.1% to $769.7 million in 2023, compared to $837.9 million in 2022. Adjusted Operating Income as a percent of net sales was 21.8% in 2023 compared to 25.5% in 2022. Non-GAAP EPS decreased 29.2% to $2.64 in 2023, compared to $3.73 in 2022.
As a percentage of revenue, the Company expects to increase ER&D expenses in the coming years. Amortization of intangible assets Amortization of intangible assets was $144.0 million in 2022 compared to $47.9 million for 2021. The increase primarily reflects additional amortization expense associated with the recent acquisition of CMC Materials.
The Company often works directly with its customers to address their particular needs. Amortization of intangible assets Amortization of intangible assets was $214.5 million in 2023 compared to $144.0 million for 2022. The increase primarily reflects the full-year of amortization expense associated with the intangible assets acquired in the CMC Materials acquisition.
Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure. Management notes that the use of non-GAAP measures has limitations, including but not limited to: First, non-GAAP financial measures are not standardized.
Management notes that the use of non-GAAP measures has limitations, including but not limited to: First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies.
The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products. MC reported a segment profit of $321.3 million for 2021, up 29% compared to $248.9 million in 2020.
The sales increase was primarily due to improved sales from liquid filtration products. MC reported a segment profit of $395.3 million for 2023, down 4% compared to $411.5 million in 2022.
In summary, our cash flows for each period were as follows: (in thousands) Year ended December 31, 2022 Year ended December 31, 2021 Net cash provided by operating activities $ 352,283 $ 400,454 Net cash used in investing activities (4,945,709) (298,118) Net cash provided by (used in) financing activities 4,766,203 (276,497) Increase (decrease) in cash and cash equivalents 160,874 (178,328) Operating activities Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
In addition, it is possible that our ability to access the capital and credit markets could be limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions. 42 Table of Contents In summary, our cash flows for each period were as follows: (in thousands) Year ended December 31, 2023 Year ended December 31, 2022 Net cash provided by operating activities $ 629,562 $ 352,283 Net cash provided by (used in) investing activities 553,071 (4,945,709) Net cash (used in) provided by financing activities (1,282,629) 4,766,203 (Decrease) increase in cash and cash equivalents (106,510) 160,874 Operating activities Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.
Our business is organized and operated in four operating segments, which align with the key elements of the advanced semiconductor manufacturing ecosystem. • The Specialty Chemicals and Engineered Materials segment, or SCEM, provides high-performance and high-purity process chemistries, gases and materials, and safe and efficient materials delivery systems to support semiconductor and other advanced manufacturing processes. • The Advanced Planarization Solutions segment, or APS, provides complementary chemical mechanical planarization solutions, advanced materials and high-purity wet chemicals; including CMP slurries, pads, formulated cleans and other electronic chemicals. • The Microcontamination Control segment, or MC, offers solutions to filter and purify critical liquid and gaseous chemistries used in semiconductor manufacturing processes and other high-technology industries. • The Advanced Materials Handling segment, or AMH, develops solutions to monitor, protect, transport and deliver critical liquid chemistries, wafers and other substrates for a broad set of applications in the semiconductor industry, life sciences and other high-technology industries.
The current annual and succeeding annual periods will disclose the reportable segments with prior periods recast to reflect the change. • The Materials Solutions segment, or MS, provides materials-based solutions, such as chemical mechanical planarization (“CMP”) slurries and pads, deposition materials, process chemistries and gases, formulated cleans, etchants and other specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership. ▪ The Microcontamination Control segment, or MC, offers advanced solutions that improve customers’ yield, device reliability and cost by filtering and purifying critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. ▪ The Advanced Materials Handling segment, or AMH, develops solutions that improve customers’ yields by protecting critical materials during manufacturing, transportation, and storage, including products that monitor, protect, transport and deliver critical liquid chemistries, wafers, and other substrates for a broad set of applications in the semiconductor, life sciences and other high-technology industries.
They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2022, as the Company had not yet received the related goods or taken title to the property. Operating lease commitments . Commitments under operating leases primarily relate to leasehold properties.
They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2023, as the Company had not yet received the related goods or taken title to the property. We expect capital expenditure spending to be approximately $350.0 million in 2024 for growth capacity investments and the construction of our new manufacturing facility in Colorado.
An analysis of the factors underlying the increase in SG&A expenses is presented in the following table: (In thousands) Selling, general and administrative expenses in 2021 $ 292,408 SG&A expense recorded by CMC Materials and included in Company’s financial statements after the date of the acquisition 68,249 Employee costs, exclusive of CMC Materials 12,533 Deal and transaction costs 34,799 Integration costs 46,951 Contractual and non-cash integration costs 61,964 Professional costs, exclusive of CMC Materials 7,734 Travel costs, exclusive of CMC Materials 4,029 Other increases, net 14,818 Selling, general and administrative expenses in 2022 $ 543,485 Engineering, research and development expenses 38 Table of Contents Engineering, research and development expenses consist of expenses for the support of current product lines and the development of new products and manufacturing technologies.
An analysis of the factors underlying the increase in SG&A expenses is presented in the following table: (In thousands) Selling, general and administrative expenses in 2022 $ 543,485 Employee costs, mainly driven by the inclusion of CMC Materials 35,671 Impairment on long-lived assets, see Note 3 to the Company’s Consolidated Financial Statements 30,464 Loss on sale of businesses, see Note 5 to the Company’s Consolidated Financial Statements 23,822 Professional costs, mainly driven by the inclusion of CMC Materials 14,321 Computer supplies expense, mainly driven by the inclusion of CMC Materials 6,367 Project related expense, mainly driven by the inclusion of CMC Materials 3,995 Integration, deal and transaction costs, mainly due to CMC Materials acquisition in prior year (95,712) Other increases, net 13,781 Selling, general and administrative expenses in 2023 $ 576,194 Engineering, research and development expenses ER&D expenses consist of expenses for the support of current product lines and the development of new products and manufacturing technologies.
An analysis of the factors underlying the increase in net sales is presented in the following table: (In thousands) Net sales in 2021 $ 2,298,893 Increase mainly associated with volume exclusive of acquired businesses 594,407 Increase associated with acquired businesses 495,591 Decrease associated with effect of foreign currency translation (106,858) Net sales in 2022 $ 3,282,033 37 Table of Contents Total net sales increased primarily driven by the inclusion of sales from the acquisition of CMC Materials for the six-month period subsequent to the Closing Date.
An analysis of the factors underlying the increase in net sales is presented in the following table: (In thousands) Net sales in 2022 $ 3,282,033 Increase associated with CMC Materials acquisition 537,837 Decrease associated with divestitures (116,211) Decrease mainly associated with volume exclusive of CMC Materials (146,503) Decrease associated with effect of foreign currency translation (33,230) Net sales in 2023 $ 3,523,926 The sales increase was attributable, in part, to a total of $537.8 million of sales of new products resulting from the acquisition of CMC Materials.
Income tax expense The Company recorded income tax expense of $38.2 million in 2022 compared to income tax expense of $70.0 million in 2021. The Company’s effective tax rate was 15.4% in 2022 compared to an effective tax rate of 14.6% in 2021.
The Company’s effective tax rate was (4.9)% in 2023 compared to an effective tax rate of 15.4% in 2022. The decrease in the effective tax rate from 2022 to 2023 relates to a tax benefit of $17.4 million recorded in 2023 related to divestiture and impairment activity.
Adjusted EBITDA increased to $973.2 million in 2022, compared to $699.4 million in 2021. Adjusted EBITDA as a percent of net sales was 29.7% in 2022 compared to 30.4% in 2021. Adjusted operating income increased 37.6% to $837.9 million in 39 Table of Contents 2022, compared to $609.1 million in 2021.
The Company’s non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related percentage changes, and Non-GAAP Earnings Per Share, or EPS. 40 Table of Contents Adjusted EBITDA decreased to $942.4 million in 2023, compared to $973.2 million in 2022. Adjusted EBITDA as a percent of net sales was 26.7% in 2023 compared to 29.7% in 2022.

… 105 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−0 removed1 unchanged
Biggest changeOn July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount is scheduled to decrease quarterly and will expire on December 30, 2025.
Biggest changeOn July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount of the swap is $1.4 billion at December 31, 2023 and is scheduled to decrease quarterly and will expire on December 30, 2025.
The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based operations. However, we are unlikely to be able to hedge these exposures completely. We do not enter into forward contracts or other derivative instruments for speculative or trading purposes. See Note 12 of the consolidated financials for additional information.
The Company occasionally uses derivative financial instruments to manage the foreign currency exchange rate risks associated with its foreign-based operations. However, we are unlikely to be able to hedge these exposures completely. We do not enter into forward contracts or other derivative instruments for speculative or trading purposes. See Note 13 of the consolidated financials for additional information.
The Company’s cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less. A 100-basis point change in interest rates would potentially increase or decrease annual net income by approximately $15.5 million and $2.6 million annually for the years ended December 31, 2022 and 2021, respectively.
The Company’s cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less. A 100-basis point change in interest rates would potentially increase or decrease annual net income by approximately $3.4 million and $15.5 million annually for the years ended December 31, 2023 and 2022, respectively.
Financial results therefore will be affected by changes in currency exchange rates. If all foreign currencies were to see a 10% reduction versus the U.S. dollar during the years ended December 31, 2022 and 2021, revenue would be negatively impacted by approximately $62.6 million and $52.4 million, respectively.
Financial results therefore will be affected by changes in currency exchange rates. If all foreign currencies were to see a 10% reduction versus the U.S. dollar during the years ended December 31, 2023 and 2022, revenue would be negatively impacted by approximately $76.8 million and $62.6 million, respectively.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign currency exchange rates. Approximately 22.7% and 23.5% of the Company’s sales during 2022 and 2021 were collectively denominated in the South Korean won, New Taiwan dollar, Chinese renmibi, Canadian dollar, Malaysian ringgit, Singapore dollar, euro, Israeli shekel and the Japanese yen.
The cash flows and results of operations of the Company’s foreign-based operations are subject to fluctuations in foreign currency exchange rates. Approximately 22.0% and 22.7% of the Company’s sales during 2023 and 2022 were collectively denominated in the South Korean won, New Taiwan dollar, Chinese renminbi, Canadian dollar, Malaysian ringgit, Singapore dollar, euro, Israeli shekel and the Japanese yen.

Other ENTG 10-K year-over-year comparisons