ACQUISITION

SAES Pure Gas

On June 25, 2018, the Company acquired the SAES Pure Gas business (SPG), from SAES Getters S.p.A. for approximately $352.7 million in cash, or $341.5 million net of cash acquired, subject to revision for customary working capital adjustments, funded from the Company’s existing cash on hand. The acquisition was accounted for under the acquisition method of accounting and the results of operations of SPG are included in the Company’s consolidated financial statements as of and since June 25, 2018. Direct costs of $4.8 million associated with the acquisition of SPG, consisting mainly of professional and consulting fees, were expensed as incurred for the year ended December 31, 2018. These costs are included in selling, general and administrative expense in the Company’s consolidated statements of operations. Since the date of acquisition through December 31, 2018, SPG reported net sales and net loss of $62.2 million and $2.6 million , respectively, which are included in the Company’s consolidated income statement.

SPG, based in San Luis Obispo, California, is a leading provider of high-capacity gas purification systems used in semiconductor manufacturing and adjacent markets, and reports into the Microcontamination Control division of the Company. This acquisition expands the gas purification solutions portfolio in our Microcontamination Control Division with high-capacity products suited for bulk chemical purification applications.

The following table summarizes the provisional allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of the SPG acquisition:



(In thousands):	As of June 30, 2018			As of December 31, 2018
Trade accounts and notes receivable, net	$	15,805		$	19,173
Inventories, net	46,073			42,758
Other current assets	424			1,322
Property, plant and equipment, net	7,345			6,653
Identifiable intangible assets	178,220			150,430
Deferred tax asset	—			831
Other noncurrent assets	398			12
Current liabilities	(26,196		)	(26,473		)
Deferred tax liabilities	(42,110		)	(35,533		)
Other noncurrent liabilities	(1,006		)	(1,412		)
Net assets acquired	178,953			157,761
Goodwill	162,251			183,729
Total purchase price, net of cash acquired	$	341,204		$	341,490

The fair value of acquired inventories of $42.8 million is valued at the estimated selling price less the cost of disposal and reasonable profit for the selling effort. The fair value write-up of acquired work-in-process and finished goods inventory was $8.9 million, the amount of which will be amortized over the expected turn of the acquired inventory. Accordingly, a $6.9 million incremental cost of sales charge associated with the fair value write-up of inventory acquired in the acquisition of SPG was recorded for the year ended December 31, 2018.

The fair value of acquired property, plant and equipment of $6.7 million is valued at its value-in-use.

The Company recognized the following finite-lived intangible assets as part of the acquisition of SPG:



(In thousands)	Amount		Weighted average life in years
Developed technology	$	20,070	8.0
Trademarks and trade names	6,670		12.0
Customer relationships	107,790		12.0
Other	15,900		0.9
	$	150,430	10.0

The acquired identifiable intangible assets are being amortized on a straight-line basis. The fair value of acquired identifiable intangible assets was determined using the “income approach”. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations, discount rate and operating cost estimates. 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 SPG exceeded the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $183.7 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 income 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 completed, and is subject to final review. The Company's valuation of SPG's tax accounts is provisional pending the completion of and the Company's final review of SPG's tax accounts . To the extent that the Company's estimates require adjustment, the Company will modify the values.

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 SPG had occurred as of the beginning of the years presented. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations 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.



(In thousands, except per share data) (Unaudited)	Year ended December 31, 2018		Year ended December 31, 2017
Net sales	$	1,604,194	$	1,437,357
Net income	273,625		67,009
Per share amounts:
Net income per common share - basic	$	1.94	$	0.47
Net income per common share - diluted	$	1.92	$	0.47

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

a. The elimination of transactions between Entegris and SPG, which upon completion of the acquisition would be considered intercompany. This reflects the elimination of intercompany sales and associated intercompany accounts.

b. 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.

The unaudited pro forma financial information above for the year ended December 31, 2018 excludes the incremental charge of $8.9 million reported in cost of sales for the sale of acquired inventory that was written-up to fair value, respectively.

The pro forma data does not include data for Particle Sizing Systems, LLC and Flex Concepts, Inc. for the period prior to their acquisitions due to the immaterial impact on the pro forma financial information for the year ended December 31, 2018.

Particle Sizing Systems

On January 22, 2018, the Company acquired Particle Sizing Systems, LLC (PSS), which provides particle sizing instrumentation for liquid applications to the semiconductor and life science industries. The acquired assets and assumed liabilities became part of the Company’s Advanced Materials Handling (AMH) segment. The transaction was accounted for under the acquisition method of accounting and the results of operations of PSS are included in the Company’s consolidated financial statements since January 22, 2018. The acquisition does not constitute a material business combination.

The purchase price for PSS was cash consideration of $37.3 million, funded from the Company’s existing cash on hand. Costs associated with the acquisition of the product line were not significant and were expensed as incurred.

The purchase price of PSS exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $8.8 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. This additional investment value resulted in goodwill, which is expected to be deductible for income tax purposes.

The following table summarizes the final allocation of the purchase price to the fair values assigned to the assets acquired and liabilities assumed at the date of acquisition:



(In thousands):	As of March 31, 2018			As of December 31, 2018
Trade accounts and notes receivable, net	$	3,616		$	3,898
Inventories, net	1,889			1,827
Other current assets	14			23
Property, plant and equipment, net	—			103
Identifiable intangible assets	20,000			25,600
Other noncurrent assets	21			3
Accounts payables	(438		)	(294		)
Other accrued liabilities	(2,799		)	(2,667		)
Net assets acquired	22,303			28,493
Goodwill	15,353			8,804
Total purchase price	$	37,656		$	37,297

As of December 31, 2018, the Company has finalized its fair value determinations of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed was 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.

Intangible assets, consisting mostly of technology-related intellectual property, generally will be amortized on a straight-line basis over an expected useful life currently estimated at approximately 9.4 years. In performing the valuation of intangible assets, the Company used independent appraisals, discounted cash flows and other factors, as the best evidence of fair value. The key underlying assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. There are inherent uncertainties and management judgment required in these determinations. No assurance can be given that the underlying assumptions will occur as projected. The fair value measurement of the assets acquired and liabilities assumed were based on valuation involving significant unobservable inputs, or Level 3 in the fair value hierarchy.

Flex Concepts

On June 26, 2018, the Company acquired Flex Concepts, Inc. (Flex), a technology company focused on single-use fluid handling bags, tubing manifolds and hardware for the life sciences industry. The purchase price of Flex was for cash consideration of $1.9 million. The transaction was accounted for under the acquisition method of accounting and the results of operations of Flex are included in the Company’s consolidated financial statements since June 26, 2018. The acquisition does not constitute a material business combination.

During the year ended December 31, 2018, the Company finalized its fair value determinations of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed was 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.

Water and Chemical Filtration Product Line

On April 24, 2017, the Company acquired the microelectronic water and chemical filtration product line of W.L. Gore & Associates, Inc. (Gore). The acquired assets became part of the Company’s Microcontamination Control (MC) segment. The transaction was accounted for under the acquisition method of accounting and the results of operations of the product line are included in the Company’s consolidated financial statements as of and since April 24, 2017. The acquisition of the product line’s assets and liabilities does not constitute a material business combination.

The purchase price for the product line was cash consideration of $20.0 million, funded from the Company’s existing cash on hand. Costs associated with the acquisition of the product line were not significant and were expensed as incurred.

The purchase price of the product line exceeds the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed by $8.0 million. Cash flows used to determine the purchase price included strategic and synergistic benefits (investment value) specific to the Company, which resulted in a purchase price in excess of the fair value of identifiable net assets. This additional investment value resulted in goodwill, which was deductible for income tax purposes.

The following table summarizes the final allocation of the purchase price to the fair values assigned to the assets and liabilities assumed at the date of acquisition:



(In thousands)	Amount
Other current assets	$	726
Property, plant and equipment, net	2,447
Identifiable intangible assets	8,820
Net assets acquired	11,993
Goodwill	8,007
Total purchase price	$	20,000

Intangible assets, consisting mostly of technology-related intellectual property, generally will be amortized on a straight-line basis over an estimated useful life of approximately 7 years.

As part of the accounting for this transaction, the Company allocated the purchase price of the acquired product line based on the fair value of all the assets acquired. The valuation of the assets acquired was 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.

In performing these valuations, the Company used independent appraisals, discounted cash flows and other factors, as the best evidence of fair value. The key underlying assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. There are inherent uncertainties and management judgment required in these determinations. No assurance can be given that the underlying assumptions will occur as projected. The fair value measurement of the assets acquired and liabilities assumed was based on valuation involving significant unobservable inputs, or Level 3 in the fair value hierarchy.