ENTEGRIS INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of the Company's consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes to the consolidated financial information included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in the "Cautionary Statements" sections of this Item 7 below. The Company's actual results may differ materially from those contained in any forward-looking statements. You should review the section entitled "Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Cautionary Statements This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations, except for the historical information, contains forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intend," "estimate," "forecast," "project," "may," will," "would," "could," "should" and similar expressions are intended to identify these "forward-looking statements." You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other "forward-looking" information. All forecasts and projections in this report are "forward-looking statements," and are based on management's current expectations of the Company's near-term results, based on current information available pertaining to the Company. The important factors listed below, as well as any cautionary language elsewhere in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. The risks which could cause actual results to differ from those contained in such "forward looking statements" include, without limitation, the risks described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 under the headings "Risks Relating to our Business and Industry," "Manufacturing Risks," "International Risks" and "Risks Related to Owning Our Securities" as well as in the Company's quarterly reports on Form 10-Q and current reports on Form 8-K as filed with the Securities and Exchange Commission. Any forward-looking statements in this Annual Report on Form 10-K are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, possibly materially. We disclaim any duty to update any forward-looking statements.

Overview This overview is not a complete discussion of the Company's financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows and must be read in its entirety in order to fully understand the Company's financial condition and results of operations.

Entegris, Inc. is a leading provider of a wide range of products and services for purifying, protecting and transporting the critical materials used in processing and manufacturing in the microelectronics and other high-technology industries. Entegris derives most of its revenue from the sale of products and services to the semiconductor and related industries. The Company's customers consist primarily of semiconductor manufacturers, semiconductor equipment and materials suppliers as well as thin film transistor-liquid crystal display (TFT-LCD) and hard disk manufacturers, which are served through direct sales efforts, as well as sales and distribution relationships, in the United States, Asia, Europe and the Middle East.

37-------------------------------------------------------------------------------- Table of Contents The Company offers a diverse product portfolio which includes more than 17,000 standard and customized products that it believes provide the most comprehensive offering of contamination control solutions and microenvironment products and services to maintain the purity and integrity of critical materials used by the semiconductor and other high-technology industries. Certain of these products are unit-driven and consumable products that rely on the level of semiconductor manufacturing activity to drive growth, while others are capital-expenditure driven and rely on expansion of manufacturing capacity to drive growth. The Company's unit-driven and consumable products includes membrane-based liquid filters and housings, metal-based gas filters, resin-based gas purifiers, wafer shippers, disk-shipping containers and test assembly and packaging products and consumable graphite and silicon carbide components used in plasma etch, ion implant and chemical vapor deposition processes in semiconductor manufacturing.

The Company's capital expense-driven products include components, systems and subsystems that use electro-mechanical, pressure differential and related technologies to permit semiconductor and other electronics manufacturers to monitor and control the flow and condition of process liquids used in these manufacturing processes, and process carriers that protect the integrity of in-process wafers.

Key operating factors Key factors, which management believes have the largest impact on the overall results of operations of Entegris, Inc., include: • Level of sales Since a significant portion of the Company's product costs (except for raw materials, purchased components and direct labor) are largely fixed in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also, increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions, which are highly variable in nature. The Company's sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing pressures and foreign currency fluctuation.

• Variable margin on sales The Company's variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials. This is affected by a number of factors, which include the Company's sales mix, purchase prices of raw material (especially polymers, stainless steel and purchased components), competition, both domestic and international, direct labor costs, and the efficiency of the Company's production operations, among others.

• Fixed cost structure. The Company's operations include a number of large fixed or semi-fixed cost components, which include salaries, indirect labor and benefits, facility costs, lease expense, and depreciation and amortization. It is not possible to vary these costs easily in the short-term as volumes fluctuate. Accordingly, increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components, resulting in a large impact on the Company's profitability.

Overall Summary of Financial Results for the Year Ended December 31, 2012 The Company's financial results for 2012 reflected the lower capital spending levels and sluggish production rates in the semiconductor industry that began in the latter half of 2011. Total net sales for the year ended December 31, 2012 were $715.9 million, down $33.4 million, or 4%, from sales of $749.3 million for the year ended December 31, 2011. Sales in 2012 showed modest quarterly growth from late 2011 levels before declining in the latter half of the year.

The sales decrease in 2012 included unfavorable foreign currency translation effects of $8.5 million related to the year-over-year weakening of most international currencies versus the U.S. dollar, most notably the Euro.

Excluding this factor, net sales fell approximately 3% in 2012 when compared to 2011.

The year-over-year sales decrease, along with a slightly unfavorable sales mix, accounted for lower gross profits in 2012. These factors, along with lower levels of factory utilization, underlie the gross margin rate for 2012 of 42.9% compared to 43.5% a year ago.

38-------------------------------------------------------------------------------- Table of Contents Operating costs, consisting of selling, general and administrative (SG&A) and engineering, research and development (ER&D) costs, increased 5% for the year ended December 31, 2012 when compared to the year-ago period. Included in SG&A for the year ended December 31, 2012 was a $3.9 million charge associated with a CEO succession and transition plan.

The Company's effective tax rate was 31.0% in 2012 compared to 3.3% in 2011. Tax expense in 2011 included a $41.0 million benefit associated with a decrease in the Company's U.S. deferred tax asset valuation allowance, primarily accounting for the year-to-year increase in the effective tax rate.

As a result of the aforementioned factors, net income attributable to the Company for 2012 was $68.8 million, or $0.50 per diluted share, compared to net income attributable to the Company of $123.8 million, or $0.91 per diluted share, in 2011.

During 2012, the Company's operating activities provided cash flow of $115.2 million. Cash, cash equivalents and short-term investments were $350.4 million at December 31, 2012 compared with $273.6 million at December 31, 2011. The Company had no outstanding short-term bank borrowings or long-term debt at December 31, 2012.

Critical Accounting Policies 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. The preparation of these consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including, but not limited to, those related to accounts receivable, sales return obligations, inventories, long-lived assets, income taxes and shared-based compensation. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. If management made different judgments or utilized different estimates, this 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.

The critical accounting policies affected most significantly by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements are discussed below.

Accounts Receivable-Related Valuation Accounts The Company maintains allowances for doubtful accounts and for sales returns and allowances. Significant management judgments and estimates must be made and used in connection with establishing these valuation accounts.

The Company provides an allowance for doubtful accounts for all individual receivables judged to be unlikely for collection. In addition, for all other accounts receivable, the Company records an allowance for doubtful accounts based on a combination of factors. Specifically, management considers the age of receivable balances, historical bad debt write-off experience and current economic circumstances. The Company's allowance for doubtful accounts was $2.3 million and $1.0 million at December 31, 2012 and 2011, respectively. The increase in 2012 primarily reflects the recording of allowances for specific individual receivables.

An allowance for sales returns and allowances is established based on historical and current trends in both sales and product returns. At December 31, 2012 and 2011, the Company's reserve for sales returns and allowances was $1.2 million and $0.7 million, respectively. The increase in 2012 primarily reflects changes in the underlying variables of the Company's determination of its sales return allowances.

39 -------------------------------------------------------------------------------- Table of Contents Inventory Valuation The Company uses certain estimates and judgments to properly value its inventory. In general, the Company's inventories are recorded at the lower of cost or market. The Company evaluates its ending inventories for obsolescence and excess quantities each quarter. This evaluation includes analyses of inventory levels, historical write-off trends, expected product lives, and historical and projected sales levels by product. Inventories that are considered obsolete are written off or a full allowance is recorded. In addition, allowances are established for inventory quantities in excess of forecasted demand. Inventory allowances were $5.7 million at both December 31, 2012 and 2011.

The Company's inventories include materials and products subject to technological obsolescence, which are sold in highly competitive industries. If future demand or market conditions are less favorable than current conditions or the Company's projected outlook for sales, inventory write-downs or additional allowances may be required and would be reflected in cost of sales in the period the revision is made.

Impairment of Long-Lived Assets As of December 31, 2012, the Company had $157.0 million of net property, plant and equipment and $47.2 million of net intangible assets. The Company routinely considers whether indicators of impairment of the value of its long-lived assets, particularly its manufacturing equipment, and its intangible assets, are present. A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances (triggering events) indicate that its carrying amount may not be recoverable.

The following are examples of such events or changes in circumstances: a. A significant decrease in the market price of a long-lived asset (asset group) b. A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition c. A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator d. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group) e. A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group) f. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

If such indicators are present, it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value. If less, an impairment loss is recognized based on the excess of the carrying amount of the asset group over its respective fair value. Fair value is determined by discounting estimated future cash flows, appraisals or other methods deemed appropriate. If the asset groups determined to be impaired are to be held and used, the Company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets' carrying value. The fair value of the assets then becomes the assets' new carrying value, which is depreciated or amortized over the remaining estimated useful life of the assets.

The Company's long-lived assets are grouped with other assets and liabilities at the lowest level (asset groups) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company has four significant asset groups, identified by assessing the Company's identifiable cash flows and the interdependence of such cash flows: Contamination Control Solutions (CCS), Microenvironments (ME), Poco Graphite (POCO) and Entegris Specialty Coatings (ESC).

As described above, the evaluation of the recoverability of long-lived assets requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the identification of the asset group at the lowest level of independent cash flows, the primary asset of the group 40-------------------------------------------------------------------------------- Table of Contents and long-range forecasts of revenue and costs, reflecting management's assessment of general economic and industry conditions, operating income, depreciation and amortization and working capital requirements.

Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in the underlying assumptions would have a significant impact on the conclusion that an asset group's carrying value is recoverable, or the determination of any impairment charge if it was determined that the asset values were indeed impaired.

Based on current general economic conditions and trends within the semiconductor industry and the absence of any other triggering events, the Company has not been required to perform impairment testing for any of its asset groups since 2009. The Company will continue to monitor circumstances and events to determine whether asset impairment testing is warranted. It is possible that in the future the Company may no longer be able to conclude that there is no impairment of its long-lived assets, nor can the Company provide assurance that material impairment charges of long-lived assets will not occur in future periods.

Income Taxes In the preparation of the Company's financial statements, the income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company's ability to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operations and incorporates assumptions about the amount of future state, federal and foreign pretax operating income adjusted for items that do not have tax consequences.

The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates management is using to manage the underlying business. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income (loss).

The Company has deferred tax assets related to certain federal and state credit carryforwards, and certain state and foreign net operating loss carryforwards of $5.8 million and $14.5 million as of December 31, 2012 and December, 31 2011, respectively. Management believes it is more likely than not that the benefit from a portion of these carryforwards will not be realized. In recognition of this risk, the Company provided a valuation allowance of $5.0 million and $4.6 million as of December 31, 2012 and December 31, 2011, respectively, relating to these carryforwards. If the Company's assumptions change and it determines it will be able to realize these carryforwards, the tax benefits relating to any reversal of the valuation allowance on the deferred tax assets will be recognized as a reduction of income tax expense.

The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. Resolution of these uncertainties in a manner inconsistent with management's expectations could have a material impact on the Company's financial condition and operating results.

Share-Based Compensation U.S generally accepted accounting principles require the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values.

The Company estimates the value of stock option and restricted stock awards on the date of grant.

41 -------------------------------------------------------------------------------- Table of Contents The fair value of restricted stock and restricted stock unit awards is valued based on the Company's stock price on the date of grant. The fair value of stock option awards is estimated on the date of grant using an option-pricing model affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected stock price volatility over the expected term of the awards, risk-free interest rate and dividend yield assumptions, and actual and projected employee stock option exercise behaviors and forfeitures. Because share-based compensation expense recognized in the consolidated statement of operations is based on awards ultimately expected to vest, it is recorded net of estimated forfeitures.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Forfeitures are estimated based on historical experience and current expectations.

If the above factors change, and the Company uses different assumptions in future periods, the share-based compensation expense recorded may differ significantly from what was recorded in the current period.

Results of Operations Year ended December 31, 2012 compared to year ended December 31, 2011 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 the years ended December 31, 2012 and 2011. The Company's historical financial data was derived from its consolidated financial statements and related notes included elsewhere in this annual report.

2012 2011 (Dollars in thousands) % of net sales % of net sales Net sales $ 715,903 100.0 % $ 749,259 100.0 % Cost of sales 408,520 57.1 423,329 56.5 Gross profit 307,383 42.9 325,930 43.5 Selling, general and administrative expenses 147,405 20.6 140,847 18.8 Engineering, research and development expenses 50,940 7.1 47,980 6.4 Amortization of intangible assets 9,594 1.3 10,225 1.4 Operating income 99,444 13.9 126,878 16.9 Interest (income) expense, net (10 ) (0.0 ) 659 0.1 Other income, net (249 ) (0.0 ) (1,745 ) (0.2 ) Income before income taxes and equity in net loss of affiliates 99,703 13.9 127,964 17.1 Income tax expense 30,881 4.3 4,217 0.6 Equity in net income of affiliates (3 ) (0.0 ) (499 ) (0.1 ) Net income $ 68,825 9.6 $ 124,246 16.6 Net sales For the year ended December 31, 2012, net sales were $715.9 million, down $33.4 million, or 4%, from sales for the year ended December 31, 2011. The Company's net sales for 2012 reflected the lower capital spending levels and sluggish production rates in the semiconductor industry that began in the latter half of 2011. Sales in 2012 showed modest quarterly growth from late 2011 levels before declining in the third and fourth quarters. The Company's operating segments experienced mixed sales results. See the "Segment analysis" included below in this section for additional detail.

The sales decrease in 2012 included unfavorable foreign currency translation effects of $8.5 million related to the year-over-year weakening of most international currencies versus the U.S. dollar, most notably the Euro.

Excluding this factor, net sales fell approximately 3% in 2012 when compared to 2011.

42 -------------------------------------------------------------------------------- Table of Contents On a geographic basis, total sales to North America were 31%, Asia Pacific 38%, Europe 12% and Japan 19% in 2012. Total sales to North America were 29%, Asia Pacific 38%, Europe 14% and Japan 19% in 2011. When comparing 2012 to 2011, all regions experienced year-over-year sales decreases except North America. Net sales to customers in Asia, Europe, and Japan decreased 3%, 19%, and 6%, respectively, and North America increased 2% from 2011 to 2012. Net sales for Asia and Europe were affected by unfavorable foreign currency translation effects of $7.0 million and $1.5 million, respectively. Net of those effects, sales decreased 3% and 12% for Asia and Europe, respectively.

Demand drivers for the Company's business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for new or upgraded semiconductor fabrication equipment and facilities (capital-driven).

The Company analyzes sales of its products by these two key drivers. Sales of unit-driven products represented 66% of total sales and sales of capital-driven products represented 34% of total sales in 2012. This compares to a unit-driven to capital-driven ratio of 63:37 for 2011. This shift in relative demand for capital-driven products reflects lower capital spending since mid-2011 by semiconductor customers for capacity-related products.

Sales of unit-driven products increased 1% in 2012. Unit-driven products generally have average lives of less than 18 months or need to be replaced based on usage levels. These products include liquid filters used in the photolithography, CMP and wet etch and clean processes, specialized graphite components, and wafer shippers used to ship raw wafers, particularly at wafer sizes of 200mm and below.

Year-over-year sales of capital-driven products decreased 14% in 2012.

Capital-driven products include wafer process carriers, gas microcontamination control systems used in the deployment of advanced photolithography processes, fluid handling systems, including dispense pumps used in the photolithography process, and integrated liquid flow controllers used in various processes around the fab.

The Company believes the sales decreases noted above are primarily volume driven. Based on the information available, the Company believes it improved or maintained market share for its products and that the effect of selling price erosion was nominal. Additionally, given that no single customer accounts for more than 10% of the Company's annual revenue, the decrease in sales has not been driven by any one particular customer or group of customers, but rather by the decline in semiconductor and other high-technology sectors as a whole.

Gross profit Gross profit for 2012 decreased by $18.5 million, to $307.4 million, a decrease of 6% from $325.9 million for 2011. The gross margin rate for 2012 was 42.9% versus 43.5% for 2011.

The year-over-year sales decrease accounted for the Company's lower gross profit in 2012. The reduction in gross profit related to a slightly unfavorable sales mix was offset by improved levels of factory utilization, primarily at the Company's Microenvironments segment, and higher royalty revenue.

Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses for 2012 increased $6.6 million, or 5%, to $147.4 million from $140.8 million in 2011. SG&A expenses, as a percent of net sales, increased to 20.6% from 18.8% a year earlier, reflecting both the decrease in net sales and increase in SG&A expenditure levels.

The increase in SG&A expenses includes a $3.9 million charge associated with compensation to which the Company's former chief executive officer was entitled in connection with a succession and transition plan, a $1.4 million increase in consultants' fees, and a $1.3 million increase in the provision for bad debts.

Other employee costs, which make up about two-thirds of SG&A expenses, were flat as lower accruals for incentive compensation were offset by increases in other employee cost categories, most notably benefit costs. The increase in SG&A costs was partially offset by favorable foreign currency translation effects of $1.4 million.

Included in the twelve-month period ended December 31, 2011 was a $0.7 million gain associated with the pension curtailment of the Company's Japan defined benefit pension plan. Refer to Note 13 to the Company's consolidated financial statements for further discussion.

43-------------------------------------------------------------------------------- Table of Contents Engineering, research and development expenses Engineering, research and development (ER&D) expenses related to the support of current product lines and the development of new products and manufacturing technologies increased by $3.0 million, or 6%, to $50.9 million in 2012 compared to $48.0 million in 2011. ER&D expenses as a percent of net sales were 7.1% compared to 6.4% a year ago, reflecting both the increase in ER&D expenditure levels and decrease in net sales.

The increase in ER&D expense mainly reflects higher employee costs ($0.6 million) and a general increase in overall ER&D expense levels related to the support of current product lines and the development of new products and manufacturing technologies.

Moving into 2013, the Company intends to invest in its core membrane and coatings technologies to continue to create differentiated and high-value, unit-driven products for the most advanced and demanding semiconductor applications. In addition, the Company is committed to the ER&D spending and capital investment needed to sustain its initiative in 450 mm wafer handling as that technology is adopted over the next several years.

Amortization of intangible assets Amortization of intangible assets was $9.6 million in 2012 compared to $10.2 million for 2011. The decline reflects the absence of amortization expense for certain acquired developed technology and trade name assets that became fully amortized in 2011 or 2012.

Other income, net Other income was $0.2 million in 2012 compared to other income of $1.7 million in 2011. In 2012, other income includes a $1.5 million gain recorded in the second quarter related to the remeasurement of the previously held 50% equity investment in a Taiwan joint venture entity in which the Company acquired a 100% interest in April 2012. The other income was partially offset by $1.4 million of foreign currency transaction losses related to the remeasurement of yen-denominated assets and liabilities held by the Company. In 2011, other income primarily relates to a $1.5 million gain recorded in connection with the sale of an equity investment.

Income tax expense The Company recorded income tax expense of $30.9 million in 2012 compared to an income tax expense of $4.2 million in 2011. The Company's effective tax rate was 31.0% in 2012, compared to 3.3% in 2011.

In 2012, the Company's effective tax rate was lower than the U.S. statutory rate of 35% primarily due to lower rates in various foreign jurisdictions compared to the U.S. statutory rate.

In 2011, the Company's effective tax rate was lower than the U.S. statutory rate of 35% due mainly to the $41.0 million reduction of tax expense related to the decrease in the Company's deferred tax asset valuation allowance. Management concluded it is more likely than not that the Company would realize the U.S. net deferred tax assets and thereby released the valuation allowance on most of its U.S. deferred tax assets. The $41.0 million of benefit to tax expense comprises $19.8 million from the U.S. utilization of deferred tax assets during the year, $0.2 million from the utilization of foreign deferred tax assets and $21.0 million attributed to the release of the valuation allowance at December 31, 2011.

Equity in net income of affiliates The Company recorded equity in the net income of affiliates of $3 thousand in 2012 compared to equity in the net income of affiliates of $0.5 million in 2011. During 2012, the Company acquired the remaining 50% of Entegris Precision Technologies Corporation (EPT) in Taiwan, an entity in which it had previously owned a 50% equity interest accounted for under the equity method.

Net income attributable to Entegris, Inc. Net income attributable to the Company was $68.8 million, or $0.50 per diluted share, in 2012 compared to net income attributable to the Company of $123.8 million, or $0.91 per diluted share, in 2011. The decrease mainly reflects the Company's lower net sales and related gross profit decrease, slightly increased operating expenses and higher income tax expense, each described in greater detail above.

44-------------------------------------------------------------------------------- Table of Contents Non-GAAP Measures Information The Company's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (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. See "Non-GAAP Information" included below in this section for additional detail, including the reconciliation of GAAP measures to the Company's non-GAAP measures.

The Company's non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and non-GAAP Earnings Per Share (EPS).

Adjusted EBITDA decreased 14% to $141.0 million in 2012, compared to $163.2 million in 2011. Adjusted EBITDA, as a percent of net sales, decreased to 19.7% from 21.8% a year earlier. Adjusted Operating Income decreased 17% to $113.0 million in 2012, compared to $136.4 million in 2011. Adjusted Operating Income, as a percent of net sales, decreased to 15.8% from 18.2% a year earlier.

Non-GAAP Earnings Per Share decreased 30% to $0.55 in 2012, compared to $0.79 in 2011. The decline in the Adjusted EBITDA and Adjusted Operating Income measures reflect the reduction in net sales and related decrease in gross profit. In addition, Non-GAAP Earnings Per Share was adversely affected by a higher effective tax rate.

Segment Analysis The following table and discussion concern the results of operations of the Company's three business segments for the years ended December 31, 2012 and 2011. See Note 16 "Segment Reporting" to the consolidated financial statements for additional information on the Company's three segments.

(In thousands) 2012 2011 Contamination Control Solutions: Net sales $ 461,838 $ 483,958 Segment profit 116,356 140,313 Microenvironments: Net sales $ 182,375 $ 182,150 Segment profit 37,223 29,959 Specialty Materials: Net sales $ 71,690 $ 83,151 Segment profit 12,230 18,255 Contamination Control Solutions (CCS) For the year ended December 31, 2012, CCS net sales decreased 5%, to $461.8 million, from $484.0 million in the comparable period last year. Net of unfavorable foreign currency effects of $4.6 million, CCS net sales fell 4%. CCS sales decreased due to lower sales of products tied to semiconductor industry capital spending, which experienced a sharp drop in the second half of 2012.

Sales of both fluid components and systems products, and gas filtration products fell in 2012. Sales of liquid filtration products, which are less affected by capital spending levels, improved due to strong initial acceptance and demand for new products supporting advanced semiconductor manufacturing processes.

CCS reported a segment profit of $116.4 million for the year ended December 31, 2012 compared to $140.3 million in the comparable period last year, a decrease of $24.0 million, or 17%. The decrease in sales volume directly led to the decline in gross profit of $18.2 million. Operating expenses increased 7%, with selling and marketing expenses, and engineering, research and development costs related to the support of current product lines and the development of new and high-value, unit-driven products for the most advanced and demanding semiconductor applications increasing by $3.6 million and $3.2 million, respectively. Those factors account for the year-over-year change in the CCS's profitability.

Microenvironments (ME) For the year ended December 31, 2012, ME net sales remained flat at $182.4 million, versus $182.2 million in the comparable period last year. Net of unfavorable foreign currency effects of $3.0 million, ME net sales increased 2%.

Net sales reflected higher sales of 300mm process products related to the industry's migration to 45 -------------------------------------------------------------------------------- Table of Contents smaller advanced node processes and a $3.3 million increase in royalty revenue, offset by lower sales of 200mm process and wafer shipper products.

ME reported a segment profit of $37.2 million for the year ended December 31, 2012 compared to $30.0 million in the comparable period last year, an increase of 24%. An increase in gross profit accounts for three-quarters of the improvement in segment profit, reflecting the $3.3 million increase in royalty revenue and improved factory utilization. In addition, ME sales and marketing expenses fell by $1.9 million in 2012.

Specialty Materials (SMD) For the year ended December 31, 2012, SMD net sales decreased 14%, to $71.7 million, down from $83.2 million in the year ended December 31, 2011. The decrease reflected lower sales for both SMD's graphite-based components and specialty coated products, due to a weak semiconductor equipment market for SMD products as well as continued weakness in the solar market.

SMD reported a segment profit of $12.2 million in 2012 compared to $18.3 million in 2011, a decrease of 33%. The change in segment profit primarily reflected the decrease in gross profit associated with the lower sales in 2012 and the related reduction in factory utilization, particularly for SMD's specialized graphite manufacturing operation. The segment's operating expenses were essentially flat with a year ago.

Unallocated general and administrative expenses Unallocated general and administrative expenses totaled $56.8 million for the year ended December 31, 2012 compared to $51.4 million for the year ended December 31, 2011. For the year ended December 31, 2012, unallocated general and administrative expenses included a $3.9 million charge associated with compensation to which the Company's former chief executive officer was entitled in connection with the succession and transition plan as noted above. In addition, information technology expenses increased by $1.2 million in 2012.

Year ended December 31, 2011 compared to year ended December 31, 2010 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 the years ended December 31, 2011 and 2010. The Company's historical financial data was derived from its consolidated financial statements and related notes included elsewhere in this annual report.

2011 2010 (Dollars in thousands) % of net sales % of net sales Net sales $ 749,259 100.0 % $ 688,416 100.0 % Cost of sales 423,329 56.5 377,773 54.9 Gross profit 325,930 43.5 310,643 45.1 Selling, general and administrative expenses 140,847 18.8 147,051 21.4 Engineering, research and development expenses 47,980 6.4 43,934 6.4 Amortization of intangible assets 10,225 1.4 13,231 1.9 Operating income 126,878 16.9 106,427 15.5 Interest expense, net 659 0.1 3,516 0.5 Other (income) expense, net (1,745 ) (0.2 ) 1,430 0.2 Income before income taxes and equity in net loss of affiliates 127,964 17.1 101,481 14.7 Income tax expense 4,217 0.6 15,006 2.2 Equity in net (income) loss of affiliates (499 ) (0.1 ) 1,353 0.2 Net income $ 124,246 16.6 $ 85,122 12.4 Net sales For the year ended December 31, 2011, net sales were $749.3 million, up $60.9 million, or 9%, from sales for the year ended December 31, 2010. Sales growth in 2011 reflected generally positive trends in the Company's core semiconductor markets, although the Company experienced lower net sales in the latter half of 2011 due to a slowdown in industry capital spending and sluggish production rates. The Company's three operating segments experienced mixed sales results. See the "Segment analysis" included below in this section for additional detail.

46 -------------------------------------------------------------------------------- Table of Contents The sales increase in 2011 included favorable foreign currency translation effects of $34.6 million related to the year-over-year strengthening of most international currencies versus the U.S. dollar, most notably the Japanese yen, Korean won, Singaporean dollar, Euro and Taiwanese dollar. Excluding these factors, net sales rose approximately 4% in 2011 when compared to 2010.

On a geographic basis, total sales to North America were 29%, Asia Pacific 38%, Europe 14% and Japan 19% in 2011. Total sales to North America were 29%, Asia Pacific 39%, Europe 14% and Japan 18% in 2010. When comparing 2011 to 2010, all regions experienced year-over-year sales increases. Net sales to customers in North America, Asia, Europe, and Japan increased 10%, 5%, 12%, and 12%, respectively, from 2010 to 2011. A portion of the Asia, Europe, and Japan increases related to favorable foreign currency translation effects. Net of favorable currency translation effects, sales increased 0%, 7%, and 2% for Asia, Europe, and Japan, respectively.

Demand drivers for the Company's business primarily consist of semiconductor fab utilization and production (unit-driven) as well as capital spending for new or upgraded semiconductor fabrication equipment and facilities (capital-driven).

The Company analyzes sales of its products by these two key drivers. Sales of unit-driven products increased 9%, while sales of capital-driven products increased 8%, in 2011 as compared with 2010. Sales of unit-driven products represented 63% of sales and sales of capital-driven products represented 37% of total sales in 2011. This compares to a unit-driven to capital-driven ratio of 63:37 for 2010.

The Company believes the sales increases noted above were primarily volume driven. Based on the information available, the Company believes it improved or maintained market share for its products in 2011 and that the effect of selling price erosion was nominal. Additionally, given that no single customer accounts for more than 10% of the Company's annual revenue, the increase in sales has not been driven by any one particular customer or group of customers, but rather by trends in the semiconductor and other high-technology sectors as a whole.

Gross profit Gross profit for 2011 increased by $15.3 million, to $325.9 million, an increase of 5% from $310.6 million for 2010. The gross margin rate for 2011 was 43.5% versus 45.1% for 2010.

The year-over-year sales increase, along with a slight improvement in sales mix, accounted for the Company's higher gross profit in 2011. These factors were offset by reduced levels of factory utilization, underlying the lower comparative gross margin rate in 2011 when compared to 2010.

Selling, general and administrative expenses Selling, general and administrative (SG&A) expenses for 2011 decreased $6.2 million, or 4%, to $140.8 million from $147.1 million in 2010. SG&A expenses, as a percent of net sales, decreased to 18.8% from 21.4% a year earlier, reflecting the increase in net sales and decrease in SG&A expenditure levels.

The decrease in SG&A expenses was due to lower employee costs of $3.1 million, mainly reflecting decreases in incentive compensation in 2011, as well as decreases in professional fees of $2.1 million and lower sales commission expense of $1.5 million. In addition, the decrease in SG&A costs is partially offset by unfavorable foreign currency translation effects of $5.3 million.

A $0.7 million gain associated with the pension curtailment of the Company's Japan defined benefit pension plan was included in the twelve-month period ended December 31, 2011. Refer to Note 13 to the Company's consolidated financial statements for further discussion.

Engineering, research and development expenses Engineering, research and development (ER&D) expenses related to the support of current product lines and the development of new products and manufacturing technologies increased by $4.0 million, or 9%, to $48.0 million in 2011 compared to $43.9 million in 2010. ER&D expenses as a percent of net sales were 6.4% compared to 6.4% a year ago, with the increase in ER&D expenditure levels offset by the effect of increased net sales.

47 -------------------------------------------------------------------------------- Table of Contents The increase in ER&D expense mainly reflected higher employee costs and increases in overall ER&D expense levels related to the support of current product lines and the development of new products and manufacturing technologies. In addition, the increase in ER&D costs reflected unfavorable foreign currency translation effects of $0.8 million.

Amortization of intangible assets Amortization of intangible assets was $10.2 million in 2011 compared to $13.2 million for 2010. The decline reflected the absence of amortization expense for certain acquired developed technology and trade name assets that became fully amortized in either 2010 or 2011.

Interest expense Interest expense was $0.9 million in 2011 compared to net interest expense of $3.6 million in 2010. The variance was mainly due to absence of outstanding debt in 2011. Interest expense in 2011 included a charge of $0.3 million for the accelerated write-off of previously capitalized debt issuance costs associated with the replacement of the Company's existing revolving credit facility with a new agreement. Interest expense for 2010 also included a charge for the accelerated write-off of previously capitalized debt issuance costs in the amount of $0.9 million Interest income Interest income was $0.2 million in 2011 compared to interest income of $0.1 million in 2010. The increase was due to a considerably higher average invested cash balance in 2011.

Other (income) expense, net Other income was $1.7 million in 2011 compared to other expense of $1.4 million in 2010. In 2011, other income primarily related to a $1.5 million gain recorded in connection with the sale of an equity investment.

In 2010, other expense reflected foreign currency transaction losses of $2.3 million, primarily related to the remeasurement of yen-denominated assets and liabilities held by the Company's U.S. entity, offset in part by gains of $0.9 million on the sale of the Company's interest in two equity investments.

Income tax expense The Company recorded income tax expense of $4.2 million in 2011 compared to an income tax expense of $15.0 million in 2010. The Company's year-to-date effective tax rate was 3.3% in 2011, compared to 14.8% in 2010.

In 2011, the Company's effective tax rate was lower than the U.S. statutory rate of 35% due mainly to the $41.0 million benefit to tax expense from the reduction of the Company's deferred tax asset valuation allowance. Management concluded it was more likely than not that the Company would realize the U.S. net deferred tax assets and thus released the valuation allowance on most of its U.S.

deferred tax assets. The $41.0 million of benefit to tax expense comprised $19.8 million from the U.S. utilization of deferred tax assets during the year, $0.2 million from the utilization of foreign deferred tax assets, and $21.0 million is attributed to the release of the valuation allowance at December 31, 2011.

In 2010, the Company's effective tax rate was lower than U.S. statutory rates mainly due to the $13.7 million decrease in the Company's U.S. deferred tax asset valuation allowance. Management concluded the Company would realize certain deferred tax assets related to current taxes payable and thus released the allowance for a portion of its U.S. deferred tax assets. The effective tax rate also benefitted from the Company's tax holiday in Malaysia whereby, as a result of employment commitments, research and development expenditures and capital investments made by the Company, income from certain manufacturing activities in Malaysia is exempt from income taxes. The effective tax rate was also affected by lower tax rates in certain of the Company's taxable jurisdictions.

Equity in net (income) loss of affiliates The Company recorded equity in the net income of affiliates of $0.5 million in 2011 compared to equity in the net loss of affiliates of $1.4 million in 2010. Results in 2010 included an impairment loss of $2.2 million as the Company determined that one of its investments accounted under the equity method was partially impaired.

48-------------------------------------------------------------------------------- Table of Contents Net income attributable to Entegris, Inc. Net income attributable to the Company was $123.8 million, or $0.91 per diluted share, in 2011 compared to net income attributable to the Company of $84.4 million, or $0.63 per diluted share, in 2010. The improvement mainly reflects the Company's higher net sales and related gross profit increase, slightly reduced operating expenses and lower income tax expense, each described in greater detail above.

Non-GAAP Measures Information The Company's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (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. See "Non-GAAP Information" included below in this section for additional detail, including the reconciliation of GAAP measures to the Company's non-GAAP measures.

The Company's non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income together with related measures thereof, and non-GAAP Earnings Per Share (EPS).

Adjusted EBITDA increased 11% to $163.2 million in 2011, compared to $147.6 million in 2010. Adjusted EBITDA, as a percent of net sales, increased to 21.8% from 21.4% a year earlier. Adjusted Operating Income increased 14% to $136.4 million in 2011, compared to $119.7 million in 2010. Adjusted Operating Income, as a percent of net sales, increased to 18.2% from 17.4% a year earlier.

Non-GAAP Earnings Per Share increased 11% to $0.79 in 2011, compared to $0.71 in 2010.

Segment Analysis The following table and discussion concern the results of operations of the Company's three business segments for the years ended December 31, 2011 and 2010. See Note 16 "Segment Reporting" to the consolidated financial statements for additional information on the Company's three segments.

(In thousands) 2011 2010 Contamination Control Solutions: Net sales $ 483,958 $ 435,858 Segment profit 140,313 122,891 Microenvironments: Net sales $ 182,150 $ 182,485 Segment profit 29,959 38,930 Specialty Materials: Net sales $ 83,151 $ 70,073 Segment profit 18,255 11,080 Contamination Control Solutions (CCS) For the year ended December 31, 2011, CCS net sales increased 11%, to $484.0 million, from $435.9 million in the comparable period last year. CCS reported a segment profit of $140.3 million for the year ended December 31, 2011 compared to $122.9 million in the comparable period last year, an increase of 14%.

CCS sales improved, particularly in the first half of the year, for all product groups, most notably for fluid handling components and systems, and liquid filtration products.

The increase in sales volume and the resulting improvement in gross profit primarily accounted for the year-over-year change in the segment's profitability. CCS operating expenses decreased 2%, mainly due to lower selling and engineering, research and development costs.

49-------------------------------------------------------------------------------- Table of Contents Microenvironments (ME) For the year ended December 31, 2011, ME net sales remained relatively flat to $182.2 million, from $182.5 million in the comparable period last year. ME reported a segment profit of $30.0 million for the year ended December 31, 2011 compared to $38.9 million in the comparable period last year, a decrease of 23%.

The change in net sales reflected lower sales of data storage and 200mm wafer products, offset partly by higher sales of 300mm process and shipper products.

A decline in gross profit, reflecting an unfavorable sales mix and higher manufacturing expenses, and engineering, development and research costs on new products, accounted for the year-over-year decline in the segment's segment profit. ME operating expenses in 2011 were flat when compared to the year-ago amounts.

Specialty Materials (SMD) For the year ended December 31, 2011, SMD net sales increased 19%, to $83.2 million, up from $70.1 million in the year ended December 31, 2010. SMD reported a segment profit of $18.3 million in 2011 compared to $11.1 million in 2010, an increase of 65%.

The sales increase and related improvement in profitability reflected higher demand for both SMD's specialty coated and graphite-based products used in semiconductor manufacturing and in other industrial markets. The increase in gross profit reflected the sharp increase in sales as well as improved factory utilization. In addition, SMD's operating expenses decreased 5% in 2011 compared to 2010, mainly reflecting lower selling and engineering, research and development costs.

Unallocated general and administrative expenses Unallocated general and administrative expenses totaled $51.4 million for the year ended December 31, 2011 compared to $53.2 million for the year ended December 31, 2010.

Quarterly Results of Operations The following table presents selected data from the Company's consolidated statements of operations for the eight quarters ended December 31, 2012. This unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this annual report. All adjustments that management considers necessary for the fair presentation of the unaudited information have been included in the quarters presented.

50-------------------------------------------------------------------------------- Table of Contents QUARTERLY STATEMENTS OF OPERATIONS DATA (UNAUDITED) 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (In thousands) Net sales $ 203,125 $ 209,198 $ 173,014 $ 163,922 $ 175,403 $ 188,233 $ 184,449 $ 167,818 Gross profit 88,345 95,143 74,828 67,614 76,244 82,746 81,932 66,461 Selling, general and administrative expenses 35,790 39,126 33,533 32,398 35,048 35,989 39,095 37,273 Engineering, research and development expenses 12,532 12,462 11,957 11,029 11,989 12,726 13,314 12,911 Amortization of intangible assets 2,689 2,569 2,505 2,462 2,450 2,420 2,389 2,335 Operating profit 37,334 40,986 26,833 21,725 26,757 31,611 27,134 13,942 Net income attributable to Entegris, Inc. 29,175 32,522 21,988 40,161 17,859 21,673 18,037 11,256 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (Percent of net sales) Net sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Gross profit 43.5 45.5 43.2 41.2 43.5 44.0 44.4 39.6 Selling, general and administrative expenses 17.6 18.7 19.4 19.8 20.0 19.1 21.2 22.2 Engineering, research and development expenses 6.2 6.0 6.9 6.7 6.8 6.8 7.2 7.7 Amortization of intangibles 1.3 1.2 1.4 1.5 1.5 1.3 1.3 1.4 Operating profit 18.4 19.6 15.5 13.3 15.3 16.8 14.7 8.3 Net income attributable to Entegris, Inc. 14.4 15.5 12.7 24.5 10.2 11.5 9.8 6.7 The Company's quarterly results of operations have been, and will likely continue to be, subject to significant fluctuations due to myriad factors, many of which are beyond the Company's control. The variability in sales, and its corresponding effect on gross profit, is the single most important factor underlying the changes in the Company's operating income over the past eight quarters. The fourth quarter of 2011 included a tax benefit of $21.0 million attributable to the release of the valuation allowance on certain deferred tax assets.

The Company's financial results for the two-year period ended December 31, 2012 reflected the improvement in both the capital and unit-driven segments of the semiconductor industry that began during the second half of 2009. Quarterly sales of the Company's products and services reached their peak in the second quarter of 2011, before declining over the latter half of 2011 due to a slowdown in semiconductor industry capital spending and sluggish production rates. 2012, which continued to be characterized by sluggish semiconductor production rates and industry capital spending, saw slowly increasing quarterly sales levels from late 2011 levels before declining in the fourth quarter of 2012.

Liquidity and Capital Resources 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. In fiscal 2000 and 2009, the Company raised capital via public offerings of its common stock.

Operating activities Net cash flow provided by operating activities totaled $115.2 million for the year ended December 31, 2012. Cash generated by the Company's operations included net income of $68.8 million, as adjusted for the impact of various non-cash charges, primarily depreciation and amortization of $37.6 million and share-based 51 -------------------------------------------------------------------------------- Table of Contents compensation expense of $9.9 million. The net impact on cash flow from operations from changes in operating assets reduced cash otherwise generated by the Company's operations.

Working capital was $486.1 million at December 31, 2012, which included $350.4 million in cash and cash equivalents and short-term investments, an increase from $410.4 million as of December 31, 2011, which included $273.6 million in cash and cash equivalents.

Accounts receivable decreased by $13.2 million during 2012, or $10.6 million net of foreign currency translation adjustments. This decrease reflects the year-over-year decline sales of the Company's products and an improvement in the Company's collections as reflected in its days sales outstanding measure (DSO).

The Company's DSO was 51 days at December 31, 2012 compared to 60 days at the beginning of the year.

Inventories at December 31, 2012 increased by $5.2 million from a year earlier, or $6.1 million after taking into account the impact of foreign currency translation adjustments and the provision for excess and obsolete inventory. The increase mainly reflects higher levels of finished goods.

Accounts payable and accrued expenses were $9.2 million higher than a year ago, or $6.3 million net of foreign currency translation adjustments. The Company made income tax payments, net of refunds, of $29.7 million in 2012.

Investing activities Cash flow used in investing activities totaled $72.5 million in 2012. Acquisition of property and equipment totaled $49.9 million, which primarily reflected significant investments in equipment and tooling to manufacture 450mm wafer handling products and to establish an advanced membrane manufacturing and development center for critical filtration applications.

As of December 31, 2012, the Company expects its capital expenditures in 2013 to be approximately $60 million to $70 million, including approximately $40 million to complete the Company's 450mm technology center and advanced membrane and coatings facility. Under the terms of its revolving credit facility, the Company is restricted from making capital expenditures in excess of $85 million during any fiscal year. The Company does not anticipate that this limit on capital expenditures will have an adverse effect on the Company's operations.

The Company had net purchases of $20.0 million less proceeds from maturities of commercial paper classified as short-term investments. Net of cash acquired, the Company expended $3.0 million to acquire the remaining 50% of an equity method investee in which it had previously owned a 50% equity interest.

Financing activities Cash provided by financing activities totaled $10.9 million during 2012. The Company received proceeds of $7.4 million in connection with common shares issued under the Company's stock plans. Cash provided by financing activities also included $3.9 million related to excess tax benefits from employee stock plans, partially offset by the purchase of shares of the Company's common stock at a total cost of $0.4 million under the stock repurchase program authorized by the Company's Board of Directors in 2011.

The Company has a revolving credit facility maturing June 9, 2014, with a revolving credit commitment of $30.0 million. As of December 31, 2012, the Company had no outstanding borrowings and $0.2 million undrawn on outstanding letters of credit under the revolving credit facility. Through December 31, 2012, the Company was in compliance with all applicable financial covenants included in the terms of the revolving credit facility.

The Company also has a line of credit with two banks that provide for borrowings of Japanese yen for the Company's Japanese subsidiary equivalent to an aggregate of approximately $14.0 million. There were no outstanding borrowings under these lines of credit at December 31, 2012.

On October 26, 2011, the Company announced that its Board of Directors had authorized the repurchase of up to an aggregate of $50.0 million of the Company's common stock in open market transactions and in accordance with a pre-arranged stock trading plan established on November 22, 2011 for the purpose of repurchasing up to $50 million of the registrant's common stock in accordance with Rule 10b5-1 under the Securities Exchange Act 52-------------------------------------------------------------------------------- Table of Contents of 1934, as amended (the "Plan"). The Plan commenced on November 28, 2011 and the expiration date of the Plan was extended until February 8, 2013. There have been no repurchases of the Company's common stock under the Plan during the quarter ended December 31, 2012.

On December 12, 2012, the Board of Directors authorized a repurchase program for 2013 covering up to an aggregate of $50.0 million of the Company's common stock in open market transactions and in accordance with one or more pre-arranged stock trading plans established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The repurchase program for 2013 will expire in December 2013 unless it is terminated or extended. The initial pre-arranged stock trading plan was established on February 19, 2013 and will expire August 19, 2013 and will cover the repurchase of up to $30 million of the registrant's common stock.

At December 31, 2012, the Company's shareholders' equity stood at $694.8 million, up 14% from $608.2 million at the beginning of the year. The increase reflected net income attributable to the Company of $68.8 million, additional paid-in capital of $9.9 million associated with the Company's share-based compensation expense, $7.4 million received in connection with common shares issued under the Company's stock option and employee stock purchase plans, and a tax benefit associated with stock plans of $3.9 million, partially offset by the repurchase and retirement of its common stock of $0.4 million and foreign currency translation effects of $2.5 million.

As of December 31, 2012, the Company's sources of available funds were its cash and cash equivalents of $330.4 million, short-term investments of $20.0 million, funds available under its revolving credit facility and international credit facilities and cash flow generated from operations.

The Company believes that its cash and cash equivalents, short-term investments, funds available under its revolving credit facility and international credit facilities and cash flow generated from operations will be sufficient to meet its working capital and investment requirements for at least the next twelve months. If available liquidity is not sufficient to meet the Company's operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company's cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms.

The Company considers the undistributed earnings of its foreign subsidiaries as of December 31, 2012 to be indefinitely reinvested. As of December 31, 2012, the amount of cash and cash equivalents associated with indefinitely reinvested foreign earnings was $113.0 million. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the United States.

The Company does not anticipate the need to repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business and believes its existing balances of domestic cash and cash equivalents, and short-term investments and operating cash flows will be sufficient to meet the Company's domestic cash needs for the next twelve months.

New Accounting Pronouncements The Company does not anticipate that recently issued accounting guidance that has not yet been adopted will have a material impact on its consolidated financial statements. Refer to Note 1 to the Company's consolidated financial statements for a discussion of accounting pronouncements implemented in 2012.

53 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations The following table summarizes the maturities of the Company's significant financial obligations as of December 31, 2012: (In thousands) Total 2013 2014 2015 2016 2017 Thereafter Pension obligations $ 12,225 $ 25 $ 285 $ 320 $ 219 $ 311 $ 11,065 Capital purchase obligations1 36,330 36,330 - - - - Operating leases 25,813 8,288 4,361 4,073 3,221 2,566 3,304 Total $ 74,368 $ 44,643 $ 4,646 $ 4,393 $ 3,440 $ 2,877 $ 14,369 Unrecognized tax benefits2 1 Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on the Company's consolidated balance sheet as of December 31, 2011, as the Company had not yet received the related goods or taken title to the property.

2 The Company had $5.4 million of total gross unrecognized tax benefits at December 31, 2012. The timing of any payments associated with these unrecognized tax benefits will depend on a number of factors. Accordingly, the Company cannot make reasonably reliable estimates of the amount and period of potential cash settlements, if any, with taxing authorities and are not included in the table above.

Non-GAAP Information The Company's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP).

The Company also provides 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.

Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other regulations under the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. The Company provides non-GAAP financial measures of Adjusted EBITDA and Adjusted Operating Income together with related measures thereof, and non-GAAP Earnings Per Share (EPS).

Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income attributable to Entegris, Inc. before (1) net income attributable to noncontrolling interest, (2) equity in net income of affiliates, (3) income tax expense (4) other income, net, (5) interest (income) expense, net, (6) gain associated with pension curtailment, (7) charge associated with CEO succession and transition plan, (8) amortization of intangible assets and (9) depreciation.

Adjusted Operating Income, another non-GAAP term, is defined by the Company as its Adjusted EBITDA less depreciation. The Company also utilizes non-GAAP 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.

Non-GAAP EPS, a non-GAAP term, is defined by the Company as net income attributable to Entegris, Inc. before (1) amortization of intangible assets, (2) accelerated write-off of debt issuance costs, (3) gain associated with equity investments, (4) gain associated with pension curtailment, (5) charge associated with CEO succession and transition plan, (6) the tax effect of the aforementioned adjustments to net income attributable to Entegris, Inc. and (7) reversal of deferred tax valuation allowance divided by weighted common shares outstanding.

The Company provides supplemental non-GAAP financial measures to better understand and manage its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company's ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.

54 -------------------------------------------------------------------------------- Table of Contents Management believes the Company's non-GAAP measures help indicate the Company's baseline performance before certain gains, losses or other charges that may not be indicative of the Company's business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors' overall understanding of the Company's results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company's business performance. Management believes that the inclusion of non-GAAP measures provides 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 uses Adjusted EBITDA and Adjusted Operating Income to assist it in evaluations of the Company's operating performance by excluding items that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company's capacity to fund capital expenditures, secure financing and expand its business.

In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company's Board of Directors uses non-GAAP financial measures in the evaluation process to determine management compensation.

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.

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.

Management notes that the use of non-GAAP measures has limitations: 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. 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. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, a significant recurring expense with an impact upon the Company's results of operations, notwithstanding the lack of immediate impact upon cash flows.

Third, there is no assurance the Company will not have future restructuring activities, gains or losses on sale of equity investments, accelerated write-offs of debt-issuance costs or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon. The exclusion of these items from the Company's non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring.

Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of Adjusted EBITDA, Adjusted operating income, and non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents are presented below in the accompanying tables.

55-------------------------------------------------------------------------------- Table of Contents The reconciliation of GAAP measures to Adjusted Operating Income and Adjusted EBITDA for the years ended December 31, 2012 and 2011 are presented below: (Dollars in thousands) 2012 2011 Net sales $ 715,903 $ 749,259 Net income attributable to Entegris, Inc. $ 68,825 $ 123,846 Adjustments to net income attributable to Entegris, Inc.

Net income attributable to noncontrolling interest - 400 Equity in net income of affiliates (3 ) (499 ) Income tax expense 30,881 4,217 Other income, net (249 ) (1,745 ) Interest (income) expense, net (10 ) 659 GAAP - Operating income 99,444 126,878 Gain associated with pension curtailment - (726 ) Charge associated with CEO succession and transition plan 3,928 - Amortization of intangible assets 9,594 10,225 Adjusted operating income 112,966 136,377 Depreciation 28,013 26,839 Adjusted EBITDA 140,979 163,216 Adjusted operating margin 15.8 % 18.2 % Adjusted EBITDA - as a % of net sales 19.7 % 21.8 % The reconciliation of GAAP measures to Non-GAAP Earnings per Share for the years ended December 31, 2012 and 2011 are presented below: (Dollars in thousands) 2012 2011 GAAP net income attributable to Entegris, Inc. $ 68,825 $ 123,846 Adjustments to net income attributable to Entegris, Inc.: Amortization of intangible assets 9,594 10,225 Accelerated write-off of debt issuance costs - 282 Gain on sale of equity investment (1,522 ) (1,523 ) Gain associated with pension curtailment - (726 ) Charge associated with CEO succession and transition plan 3,928 - Tax effect of adjustments to net income attributable to Entegris, Inc.

(4,643 ) (3,355 ) Reversal of deferred tax valuation allowance(1) - (20,999 ) Non-GAAP net income attributable to Entegris, Inc. $ 76,182 $ 107,750 Diluted earnings per common share attributable to Entegris, Inc. $ 0.50 $ 0.91 Effect of adjustments to net income attributable to Entegris, Inc.

$ 0.05 $ (0.12 ) Diluted non-GAAP earnings per common share attributable to Entegris, Inc.: $ 0.55 $ 0.79 (1) This amount represents the reversal of the remaining valuation allowance on certain of the Company's deferred tax assets. The amount excludes the reversal of the valuation allowance on those deferred tax assets realized in 2011 based on earnings in those years.

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