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Acquisition | Jul. 06, 2022
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Business Combinations [Abstract] |
Business Combination Disclosure | ACQUISITION CMC Materials On July 6, 2022 (the “Closing Date”), the Company completed its acquisition of CMC Materials for approximately $6.0 billion in cash and stock (the “Acquisition”) pursuant to an Agreement and Plan of Acquisition dated as of December 14, 2021 (the “Acquisition Agreement”). As a result of the Acquisition, CMC Materials became a wholly owned subsidiary of the Company. The Acquisition was accounted for under the acquisition method of accounting and the results of operations of CMC Materials are included in the Company's condensed consolidated financial statements as of and since July 6, 2022. CMC Materials reports into the Advanced Planarization Solutions and Specialty Chemicals and Engineered Materials segments of the Company. Direct costs of $39.3 million associated with the acquisition of CMC Materials, consisting primarily of professional and consulting fees, were expensed as incurred in fiscal year 2022. These costs are classified as selling, general and administrative expense in the Company's condensed consolidated statement of operations. CMC Materials is a global supplier of consumable materials, primarily to semiconductor manufacturers. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The acquisition broadened the Company’s solutions set and enables the Company to bring to market a broader array of innovative and high-value solutions, at a faster pace, to help customers improve productivity, performance and total cost of ownership. The purchase price of CMC Materials consisted of the following:
(In thousands): |
Cash paid to CMC Materials’ shareholders | $ | 3,836,983 |
Stock paid to CMC Materials’ shareholders | 1,265,690 |
Repayment of CMC Materials’ indebtedness | 918,578 |
Total purchase price | 6,021,251 |
Less cash and cash equivalents acquired | 280,636 |
Total purchase price, net of cash acquired | $ | 5,740,615 |
Under the terms of the Acquisition Agreement, the Company paid $133.00 per share for all outstanding shares of CMC Materials (excluding treasury shares). In addition, the Company settled all outstanding share-based compensation awards held by CMC Materials’ employees at the same per share price except for certain unvested performance units that were replaced by the Company’s restricted share units. The acquisition method of accounting requires the Company to include the amount associated with pre-combination service as purchase price for the acquisition, reflected in the table immediately above. The Acquisition was funded with existing cash balances as well as funds raised by the Company through the issuance of debt in the form of a new term loan facility in the aggregate principal amount of $2,495.0 million, senior secured notes due 2029 in an aggregate principal amount of $1,600.0 million, senior unsecured notes due 2030 in an aggregate principal amount of $895.0 million, and a 364-Day Bridge Credit Facility in the aggregate principal amount of $275.0 million (collectively “CMC Materials Acquisition Financing”). The following table summarizes the allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the Acquisition:
(In thousands): | July 6, 2022 |
Cash and cash equivalents | $ | 280,636 |  |
Accounts receivable and other current assets | 204,589 |  |
Inventory | 256,598 |  |
Property, plant and equipment | 537,387 |  |
Identifiable intangible assets | 1,736,219 |  |
Other noncurrent assets | 39,741 |  |
Current liabilities | (211,417) |  |
Deferred tax liabilities and other noncurrent liabilities | (444,936) |  |
Net assets acquired | 2,398,817 |  |
Goodwill | 3,622,434 |  |
Total purchase price | $ | 6,021,251 |  |
The fair value of acquired inventories was $256.6 million and was valued at the estimated selling price less the cost of disposal and reasonable profit for the selling effort. The fair value write-up of acquired finished goods inventory was $61.9 million. This amount was recorded as an incremental cost of sales charge, amortized over the expected turn of the acquired inventory, during the year ended December 31, 2022. The fair value of acquired property, plant and equipment of $537.4 million is valued at its fair value assuming held and used, unless market data was available supporting the fair value. The Company recognized the following provisional intangible assets as part of the acquisition of CMC Materials and finite lived assets are amortized on a straight-line basis:
(In thousands) | Amount |  | Weighted average life in years
Developed technology | $ | 1,043,000 |  |  | 7.3
Trademarks and trade names | 236,600 |  |  | 14.9
Customer relationships | 414,300 |  |  | 18.3
In-process research and development (1) | 31,400 |  |  |
Other | 10,919 |  |  | 1.0
| $ | 1,736,219 |  |  | 11.0
(1) In-process research and development assets are treated as indefinite-lived until the completion or abandonment of the associated research and development project, at which time the appropriate useful lives would be determined. The fair value of acquired identifiable finite intangible assets was determined using an income method, which utilizes discounted cash flows to identify the fair value each of the identifiable intangible assets. The Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy. The purchase price of CMC Materials exceeded the fair value of the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $3,622.4 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. The purchase price also included the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value in addition to a going-concern element that represents the Company's ability to earn a higher rate of return on the group of assets than would be expected on the separate assets as determined during the valuation process. This additional investment value resulted in goodwill. No amount of goodwill is expected to be deductible for tax purposes. The final valuation of assets acquired and liabilities assumed is expected to be completed as soon as possible, but no later than one year from the acquisition date. Given the size and complexity of the acquisition, the valuation of certain assets and liabilities is still being finalized. In addition to identifiable intangible assets, for the reasons noted above, the Company's valuation of the CMC Materials’ tax accounts is provisional pending the completion of and the Company's review of CMC Materials’ tax returns to be filed for periods up to the acquisition date. To the extent that the Company's estimates require adjustment, the Company will modify the value. Pro Forma Results (Unaudited) The following unaudited pro forma financial information presents the combined results of operations of the Company as if the acquisition of CMC Materials had occurred January 1, 2021. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The pro forma information does not include any potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition.
|  | Three months ended |  |
(In thousands, except share data) |  |  | April 2, 2022 |  |  |  |
Net sales |  |  | $ | 969,091 |  |  |  |  |
Net income |  |  | $ | 100,264 |  |  |  |  |
Per share amounts: |  |  |  |  |  |  |
Net income per common share - basic |  |  | $ | 0.67 |  |  |  |  |
Net income per common share - diluted |  |  | $ | 0.66 |  |  |  |  |
The unaudited pro forma financial information above gives effect to the following: •The elimination of transactions between Entegris and CMC Materials, which upon completion of the Acquisition would be considered intercompany. This reflects the elimination of intercompany sales and associated intercompany accounts. •Incremental amortization and depreciation expense related to the estimated fair value of identifiable intangible assets and property, plant and equipment from the purchase price allocation. •Interest expense on the new debt raised to fund in part the consideration paid to effect the Acquisition using the effective interest rates. •The elimination of interest expense associated with the repayment of the $145.0 million senior secured term loan facility due 2025. •The amortization of deferred financing costs and original issue discount associated with the aggregate new debt facilities. •Transaction and integration costs directly attributable to the Acquisition were reclassed as of the beginning of the comparable prior annual reporting period. •The income tax effect of the transaction accounting adjustments related to the Acquisition calculated using a blended statutory income tax rate of 22.5%.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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