第三修訂規定，除其他事項，根據現有信貸協議，就本公司未償還高級擔保定期貸款 b 的適用利率降低。在實施第三修訂後，該等未償還的定期貸款 b 須按年利率相等於 (i) 期間的 SOFRR 加上適用保證金額為 1.75百分比或 (ii) 基本利率加上適用保證金為 0.75百分比。除了本文所述（並在第三修訂中更詳細描述）外，修訂的信貸協議的條款與現有信貸協議的條款主要相似。與第三修訂有關，本公司提前支付 $354.5定期貸款的百萬元 b.
在2024年9月28日结束的三個月和九個月內，公司總共償還了$0.0 百萬美元。 15.1473.8百萬的長期貸款 b 欠款。有關我們的長期貸款 b 還款情況的更多信息，請參見附錄14。後續事件。由於這些還款以及簽訂第三修正條款，公司在2024年9月28日結束的三個月和九個月內因除去和修改債務而產生的稅前虧損為$0.0 百萬美元。 15.112.3百萬和$，分別包括在綜合獲利中的其他（收入）費用中。
ER&D expenses were at $234.7 million in the nine months ended September 28, 2024 compared to $209.7 million in the year-ago period. The factors underlying ER&D expenses are presented in the following table:
(In thousands)
Engineering, research and development expenses in the nine months ended September 30, 2023
$
209,746
Employee costs
8,325
Project related expenses
8,417
Depreciation expense
5,704
Other increases, net
2,472
Engineering, research and development expenses in the nine months ended September 28, 2024
$
234,664
Amortization expenses Amortization of intangible assets was $46.2 million in the three months ended September 28, 2024, compared to $51.2 million for the three months ended September 30, 2023. The decrease primarily reflects the absence of amortization for certain identifiable intangible assets acquired in previous acquisitions that became fully amortized.
Amortization of intangible assets was $143.9 million in the nine months ended September 28, 2024, compared to $163.5 million for the nine months ended September 30, 2023. The decrease primarily reflects the absence of amortization for certain identifiable intangible assets acquired in previous acquisitions that became fully amortized and the intangible assets disposed of as part of the EC disposition.
Goodwill impairment The Company recorded a goodwill impairment charge of $15.9 million and $104.8 million in the three and nine months ended September 30, 2023, respectively. See Note 3 to our condensed consolidated financial statements for further discussion.
Gain on termination of alliance agreement On June 5, 2023, the Company announced the termination of an alliance agreement between the Company and MacDermid Enthone. The Company recognized a pre-tax gain, net of $154.8 million in the nine months ended September 30, 2023.
Interest expense Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs and original issuance discounts associated with such borrowings. Interest expense was $51.7 million in the three months ended September 28, 2024, compared to $77.8 million in the three months ended September 30, 2023. The decrease primarily reflects lower interest expense related to lower average debt balances for the period due to repayments on the Company’s outstanding debt.
Interest expense was $162.7 million in the nine months ended September 28, 2024, compared to $244.9 million in the nine months ended September 30, 2023. The decrease primarily reflects lower interest expense related to lower average debt balances for the period due to repayments on the Company’s outstanding debt.
Other (income) expense, net Other income, net was $0.2 million in the three months ended September 28, 2024 and consisted mainly of foreign currency transaction gains of $2.1 million, partially offset by other expenses of $1.9 million. Other expense, net was $10.2 million in the three months ended September 30, 2023 and consisted mainly of a loss of extinguishment of debt of $4.5 million associated with the repayments on the senior secured term loan facility and foreign currency transaction losses of $4.9 million.
Other expense, net was $17.1 million in the nine months ended September 28, 2024 and consisted mainly of a loss of extinguishment and modification of debt of $12.3 million associated with debt prepayments and the Third Amendment (see Note 7 to the Company’s condensed consolidated financial statements), foreign currency transaction losses of $2.2 million and other expenses of $2.5 million. Other expense, net was $13.3 million in the nine months ended September 30, 2023 and consisted mainly of loss of extinguishment and modification of debt of $12.9 million associated with the repayments on the Company’s bridge credit facility and senior secured term loan facility and the amendment of the Company’s Existing Credit Agreement and foreign currency transaction losses of $11.2 million, partially offset by net proceeds received of $10.9 million resulting from the termination of the definitive agreement with Infineum.
Income tax expense Income tax expense was $8.2 million and $18.3 million in the three and nine months ended September 28, 2024, respectively, compared to income tax (benefit) expense of $(2.1) million and $2.9 million in the three and nine months ended September 30, 2023, respectively. The Company’s effective income tax rate was 9.5% and 8.7% for the three and nine months ended September 28, 2024, respectively, compared to (6.8)% and 2.0% for the three and nine months ended September 30, 2023, respectively.
The changes in the effective tax rate for the three and nine months ended September 28, 2024 compared to the prior year primarily relate to discrete divestiture activity recorded during the three and nine months ended September 30, 2023 and the integration of the CMC Materials acquisition.
Net income Due to the factors noted above, the Company recorded net income of $77.6 million, or $0.51 per diluted share, in the three months ended September 28, 2024, compared to net income of $33.2 million, or $0.22 per diluted share, in the three months ended September 30, 2023.
In the nine months ended September 28, 2024, the Company recorded net income of $190.5 million, or $1.26 per diluted share, compared to net income of $142.7 million, or $0.95 per diluted share, in the nine months ended September 30, 2023.
Non-GAAP Financial Measures The Company’s condensed 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 the section entitled “Non-GAAP Information” below for additional detail, including the definition of certain non-GAAP financial measures and the reconciliation of these non-GAAP measures to the Company’s GAAP measures.
The Company’s principal non-GAAP financial measures are Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and non-GAAP earnings per share (“Non-GAAP EPS”).
The following table compares non-GAAP financial measures for the three and nine months ended September 28, 2024 and September 30, 2023, both in dollars and as a percentage of net sales, for each caption.
The decrease in Adjusted Operating Income and Adjusted EBITDA for the three months ended September 28, 2024 compared to the year-ago period is generally attributable to higher ER&D expenses. The decrease in Adjusted Operating Income and Adjusted EBITDA for the nine months ended September 28, 2024 compared to the year-ago period is generally attributable to the decreases in sales and higher ER&D expenses, partially offset by lower SG&A expenses. The increase in Non-GAAP EPS for the three months ended September 28, 2024 compared to the year-ago period is primarily attributable to lower interest expense, partially offset by higher ER&D expenses. The increase in Non-GAAP EPS for the nine months ended September 28, 2024 compared to the year-ago period is primarily attributable to lower interest expense and SG&A expenses, partially offset by a decrease in sales and higher ER&D expenses.
Segment Analysis
The Company currently reports its financial performance based on three reporting segments. The following is a discussion of the results of operations of these three business segments. See Note 13 to the condensed consolidated financial statements for additional information on the Company’s three segments.
The following table presents selected net sales and segment profit data for the Company’s three reportable segments, along with unallocated general and administrative expenses, for the three and nine months ended September 28, 2024 and September 30, 2023.
Three months ended
Nine months ended
(In thousands)
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Materials Solutions
Net sales
$
346,634
$
435,538
1,039,003
1,324,502
Segment profit
71,706
56,955
209,098
243,171
Microcontamination Control
Net sales
$
286,995
$
286,217
$
848,628
$
839,128
Segment profit
96,704
101,132
276,968
297,790
Advanced Materials Handling
Net sales
$
182,177
$
180,248
$
533,256
$
589,457
Segment profit
30,611
31,642
84,197
115,637
Unallocated general and administrative expenses
$
16,554
$
21,429
$
42,426
$
94,964
Materials Solutions (MS)
For the third quarter of 2024, MS net sales decreased to $346.6 million, down 20% compared to $435.5 million in the comparable period last year. The sales decrease was driven primarily by the absence of $132.3 million in sales associated with divested businesses included in the prior year sales, partially offset by increased sales from polishing solution products. MS reported a segment profit of $71.7 million in the third quarter of 2024, up 26% from $57.0 million segment profit in the year-ago period. The segment profit increase was primarily associated with the absence of a goodwill impairment charge of $15.9 million related to the EC reporting unit in the year-ago period (see Note 3 to our condensed consolidated financial statements for further discussion).
For the nine months ended September 28, 2024, MS net sales decreased to $1,039.0 million, down 22% compared to $1,324.5 million in the comparable period last year. The sales decrease was driven primarily by the absence of $387.4 million in sales associated with divested businesses included in the prior year sales, partially offset by increased sales from polishing solution products. MS reported a segment profit of $209.1 million for the nine months ended September 28, 2024, a decrease of 14.0% from $243.2 million segment profit in the year-ago period. The segment profit decrease was primarily associated with (1) the absence of a $154.8 million gain resulting from the termination of the alliance agreement with MacDermid Enthone in the year-ago period and (2) a $13.0 million long-lived asset impairment charge in the first quarter of 2024 related to the long-lived assets of a small, industrial specialty chemicals business, partially offset with (3) the absence of a goodwill impairment charge of $104.8 million related to the EC reporting unit in the year-ago period, (4) the absence of $28.6 million loss on sale of business and held-for-sale in the year-ago period, (5) the absence of $7.6 million related to restructuring charges, (6) $4.3 million gain associated with sale of the PIM business, and (7) improved plant performance and volume leverage.
Microcontamination Control (MC)
For the third quarter of 2024, MC net sales increased to $287.0 million compared to $286.2 million in the comparable period last year. The sales increase was mainly due to increased sales primarily from gas purification products, partially offset by
lower sales of our liquid filtration products. MC reported a segment profit of $96.7 million in the third quarter of 2024, down 4% from $101.1 million in the year-ago period. The segment profit decrease was primarily due to higher ER&D costs and increased costs associated with the ramp up of our new facility in Taiwan.
For the nine months ended September 28, 2024, MC net sales increased to $848.6 million, up 1% compared to $839.1 million in the comparable period last year. The sales increase was mainly due to increased sales primarily from gas purification products, partially offset by lower sales of our liquid filtration and gas filtration products. MC reported a segment profit of $277.0 million in the nine months ended September 28, 2024, down 7% from $297.8 million in the year-ago period. The segment profit decrease was primarily due to higher ER&D costs and increased costs associated with the ramp up of our new facility in Taiwan.
Advanced Materials Handling (AMH)
For the third quarter of 2024, AMH net sales increased to $182.2 million, up 1% compared to $180.2 million in the comparable period last year. The sales increase was due to higher sales of our microenvironment solution products, partially offset by lower sales of our fluid handling products. AMH reported a segment profit of $30.6 million in the third quarter of 2024, down 3% from $31.6 million in the year-ago period. The segment profit decrease was primarily due to higher employee costs.
For the nine months ended September 28, 2024, AMH net sales decreased to $533.3 million, down 10% compared to $589.5 million in the comparable period last year. The sales decrease was due to lower sales across most product lines related to lower semiconductor market demand. AMH reported a segment profit of $84.2 million in the nine months ended September 28, 2024, down 27% from $115.6 million in the year-ago period. The segment profit decrease was primarily due to lower sales volume and increased costs associated with the ramp up of our new facility in Taiwan.
Unallocated general and administrative expenses
Unallocated general and administrative expenses totaled $16.6 million in the third quarter of 2024, compared to $21.4 million in the comparable period last year. The $4.9 million decrease is primarily due to a $9.9 million decrease in integration, deal and transaction costs related to the acquisition of CMC Materials, partially offset by a $2.6 million increase in employee costs, primarily due to the timing of the annual equity award grant and $3.0 million increase in non-income tax expense.
Unallocated general and administrative expenses totaled $42.4 million in the nine months ended September 28, 2024, compared to $95.0 million in the comparable period last year. The $52.5 million decrease is primarily due to a $45.3 million decrease in integration, deal and transaction costs related to the acquisition of CMC Materials and a decrease of $6.7 million in employee costs, primarily due to the timing of the annual equity award grant.
Liquidity and Capital Resources
We consider the following when assessing our liquidity and capital resources:
In thousands
September 28, 2024
December 31, 2023
Cash and cash equivalents
$
432,072
$
456,929
Working capital
1,128,398
1,463,332
Total debt, net of unamortized discount and debt issuance costs
4,125,690
4,577,141
The Company has historically financed its operations and capital requirements through cash flow from its operating activities, long-term debt, lease financing, revolving credit facility and borrowings under domestic and international short-term lines of credit.
Based on our analysis, we believe our existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months and for the longer term.
We may seek to take advantage of opportunities to raise additional capital through debt financing or through public or private sales of securities. If in the future our 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, or at all. To date, in fiscal year 2024, we have not experienced difficulty accessing capital and credit markets, but future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions.
In summary, our cash flows for each period were as follows:
Nine months ended
(in thousands)
September 28, 2024
September 30, 2023
Net cash provided by operating activities
455,625
486,371
Net cash provided by (used in) investing activities
40,832
(22,726)
Net cash used in financing activities
(523,596)
(417,467)
(Decrease) increase in cash, cash equivalents and restricted cash
(24,857)
30,581
Operating activities Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities totaled $455.6 million in the nine months ended September 28, 2024, compared to $486.4 million in the nine months ended September 30, 2023. This decrease was driven by a $123.5 million change in operating assets and liabilities, partially offset by a $92.8 million increase of net income adjusted for non-cash reconciling items.
Changes in operating assets and liabilities for the nine months ended September 28, 2024 were driven by changes in trade accounts receivable, inventories, and accounts payable and accrued liabilities. The change in trade accounts receivables was mainly due to increased sales at the end of the period. The change in inventories was mainly due to an increase in business activity. The change in accounts payable and accrued liabilities was primarily driven by timing of payments to vendors.
Investing activities Cash flows provided by investing activities totaled $40.8 million in the nine months ended September 28, 2024, compared to cash flows used in investing activities of $22.7 million in the nine months ended September 30, 2023. The increase resulted primarily from an increase in proceeds from divestitures of $116.5 million and a reduction of cash paid for acquisition of property, plant and equipment of $120.1 million, partially offset by the absence of net proceeds from termination of the alliance agreement with MacDermid Enthone of $169.3 million.
Financing activities Cash used in financing activities totaled $523.6 million during the nine months ended September 28, 2024, compared to cash used in financing activities of $417.5 million during the nine months ended September 30, 2023. The increase was primarily due to the net debt activity, which was a use of cash of $473.8 million during the nine months ended September 28, 2024 compared to $390.0 million during the nine months ended September 30, 2023 and lower proceeds from the issuance of common stock of $16.6 million compared to the previous period.
Our total dividend payments were $45.5 million in the nine months ended September 28, 2024 compared to $45.2 million in the nine months ended September 30, 2023. We have paid a cash dividend in each quarter since the fourth quarter of 2017. On October 16, 2024, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on November 20, 2024 to shareholders of record on the close of business on October 30, 2024.
Other Liquidity and Capital Resources Considerations
Debt
(In thousands)
September 28, 2024
December 31, 2023
Senior secured term loans B due 2029 at 4.71%
$
900,000
$
1,373,774
Senior secured notes due 2029 at 4.75%
1,600,000
1,600,000
Senior unsecured notes due 2030 at 5.95%
895,000
895,000
Senior unsecured notes due 2029 at 3.625%
400,000
400,000
Senior unsecured notes due 2028 at 4.375%
400,000
400,000
Revolving Facility due 2027 at 7.08%
—
—
Total debt (par value)
$
4,195,000
$
4,668,774
On March 28, 2024, the Company amended its Existing Credit Agreement. The Third Amendment provides for, among other things, the refinancing of the Company’s outstanding term loans B under the Term Loan Facility in an aggregate principal amount of $955.0 million with a new tranche of term loans B in an aggregate principal amount of $955.0 million. The amended loans bear interest at a rate per annum equal to, at the Company’s option, either (i) the SOFR plus an applicable margin of 1.75%, which is a reduction from the applicable margin of 2.50% prior to the amendment, or (ii) a base rate plus an applicable margin of 0.75%, which is a reduction from the applicable margin of 1.50% prior to the amendment. In connection with the Third Amendment, the Company made a payment of $354.5 million on the term loans B. See Note 7 to our condensed consolidated financial statements for further discussion.
During the nine months ended September 28, 2024, the Company repaid $473.8 million, net of borrowings under the term loans B under the Term Loan Facility.
Through September 28, 2024, the Company was in compliance with the financial covenants under its debt arrangements.
The Company has commitments under our senior secured revolving credit facility due 2027 (the “Revolving Facility”) of $575.0 million. The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the nine months ended September 28, 2024, the Company borrowed and repaid $30.0 million under this Revolving Facility and no balance was outstanding at September 28, 2024.
The Company also has a line of credit with one bank that provides for borrowings in Japanese yen for the Company’s Japanese subsidiaries, equivalent to an aggregate of approximately $7.0 million. During the nine months ended September 28, 2024, there were no borrowings under this line of credit and no balance was outstanding at September 28, 2024.
Cash and cash equivalents and cash requirements
(In thousands)
September 28, 2024
December 31, 2023
U.S.
$
163,422
$
154,015
Non-U.S.
268,650
302,914
Cash and cash equivalents
432,072
456,929
Our cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. We have accrued taxes on any earnings that are not indefinitely reinvested.
Cash requirements
We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements, but in the event that additional liquidity is required we may also borrow under our Revolving Facility.
There were no material changes to the cash requirements from our Annual Report that were outside the ordinary course of business, except for the principal repayments of $473.8 million made on the Term Loan Facility as discussed above.
Recently adopted accounting pronouncements Refer to Note 1 to the Company’s condensed consolidated financial statements for a discussion of recently adopted accounting pronouncements.
Recently issued accounting pronouncements Refer to Note 1 to the Company’s condensed consolidated financial statements for a discussion of recently issued but not yet adopted accounting pronouncements.
Non-GAAP Information The Company’s condensed consolidated financial statements are prepared in conformity with GAAP.
The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. These non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and Non-GAAP EPS, as well as certain other supplemental non-GAAP financial measures included in the discussion of the Company’s financial results.
Adjusted EBITDA is defined by the Company as net income before, as applicable, (1) equity in net loss of affiliate, (2) income tax expense, (3) interest expense, (4) interest income, (5) other (income) expense, net, (6) goodwill impairment, (7) deal and transaction costs, (8) integration costs, (9) restructuring costs, (10) acquired tax equalization asset reduction, (11) (gain) loss on sale of certain businesses and held-for-sale, net, (12) gain on termination of alliance agreement, (13) impairment of long-lived assets, (14) amortization of intangible assets and (15) depreciation. Adjusted Operating Income is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes non-GAAP financial measures whereby Adjusted EBITDA and Adjusted Operating Income are each divided by the Company’s net sales to derive Adjusted EBITDA Margin and Adjusted Operating Margin, respectively.
Non-GAAP Net Income is defined by the Company as net income before, as applicable, (1) goodwill impairment, (2) deal and transaction costs, (3) integration costs, (4) restructuring costs, (5) acquired tax equalization asset reduction, (6) loss on extinguishment of debt and modification, (7) (gain) loss on sale of certain businesses and held-for-sale, net, (8) gain on termination of alliance agreement, (9) Infineum termination fee, net, (10) impairment of long-lived assets, (11) amortization of
intangible assets, and (12) the tax effect of the foregoing adjustments to net income. Non-GAAP EPS is defined as our Non-GAAP Net Income divided by our diluted weighted-average shares outstanding.
The Company provides supplemental non-GAAP financial measures to help management and investors to better understand our business and believes these measures provide investors and analysts additional 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 the Company’s business segments and to make operating decisions.
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 greater consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.
Management 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 our business.
In addition, and as a consequence of the importance of these non-GAAP financial measures in managing our 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 condensed consolidated financial statements in their entirety and to not rely on any single financial measure.
Management notes that the use of non-GAAP measures has limitations, including but not limited to:
First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures may differ notably from the methodology used by other companies and may not be directly comparable to non-GAAP measures 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 that the Company will not have future charges for goodwill impairment, restructuring activities, deal costs, integration 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 in 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, Non-GAAP Net 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.
Reconciliation of GAAP Net Income to Adjusted Operating Income and Adjusted EBITDA
Three months ended
Nine months ended
(In thousands)
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Net sales
$
807,694
$
888,239
$2,391,371
$
2,711,635
Net income
$
77,582
$
33,212
$190,544
$
142,692
Net income - as a % of net sales
9.6
%
3.7
%
8.0
%
5.3
%
Adjustments to net income:
Equity in net loss of affiliates
262
139
685
269
Income tax expense (benefit)
8,190
(2,127)
18,335
2,851
Interest expense
51,666
77,820
162,726
244,874
Interest income
(1,247)
(2,226)
(5,401)
(5,854)
Other (income) expense, net
(212)
10,243
17,050
13,309
GAAP – Operating income
136,241
117,061
383,939
398,141
Operating margin - as a % of net sales
16.9
%
13.2
%
16.1
%
14.7
%
Goodwill impairment 1
—
15,913
—
104,785
Deal and transaction costs 2
—
—
—
3,001
Integration costs:
Professional fees 3
287
6,756
2,574
32,068
Severance costs 4
139
(454)
794
1,873
Retention costs 5
—
45
—
1,687
Other costs 6
—
3,953
—
10,087
Restructuring costs 7
—
1,202
—
12,444
Acquired tax equalization asset reduction 8
2,959
—
2,959
—
(Gain) loss on sale of businesses and held-for-sale assets, net9
—
—
(4,311)
28,579
Gain on termination of alliance agreement 10
—
—
—
(154,754)
Impairment of long-lived assets 11
—
—
12,967
—
Amortization of intangible assets 12
46,226
51,239
143,898
163,493
Adjusted Operating Income
185,852
195,715
542,820
601,404
Adjusted operating margin - as a % of net sales
23.0
%
22.0
%
22.7
%
22.2
%
Depreciation
47,098
39,631
139,848
130,125
Adjusted EBITDA
$
232,950
$
235,346
$
682,668
$
731,529
Adjusted EBITDA – as a % of net sales
28.8
%
26.5
%
28.5
%
27.0
%
1 Non-cash impairment charges associated with goodwill.
2 Deal and transaction costs associated with the CMC Materials acquisition and completed divestitures.
3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations.
4 Represents severance charges related to the integration of the CMC Materials acquisition.
5 Represents retention charges related directly to the CMC Materials acquisition and completed divestitures, and are not part of our normal, recurring cash operating expenses.
6 Represents other employee-related costs and other costs incurred relating to the CMC Materials acquisition and the completed divestitures. These costs arise outside of the ordinary course of our continuing operations.
7 Restructuring charges resulting from cost saving initiatives.
8 Represents an asset reduction of an acquired tax equalization asset from the CMC Materials acquisition.
9 (Gain) loss from the sale of certain businesses and held-for-sale assets, net.
10 Gain on termination of the alliance agreement with MacDermid Enthone.
11 Impairment of long-lived assets.
12 Non-cash amortization expense associated with intangibles acquired in acquisitions.
Reconciliation of GAAP Net Income and Earnings per Share to Non-GAAP Net Income and EPS
Three months ended
Nine months ended
(In thousands, except per share data)
September 28, 2024
September 30, 2023
September 28, 2024
September 30, 2023
Net income
$
77,582
$
33,212
$
190,544
$
142,692
Adjustments to net income:
Goodwill impairment 1
—
15,913
—
104,785
Deal and transaction costs 2
—
—
—
3,001
Integration costs:
Professional fees 3
287
6,756
2,574
32,068
Severance costs 4
139
(454)
794
1,873
Retention costs 5
—
45
—
1,687
Other costs 6
—
3,953
—
10,087
Restructuring costs 7
—
1,202
—
12,444
Acquired tax equalization asset reduction 8
2,959
—
2,959
—
Loss on extinguishment of debt and modification 9
—
4,532
12,347
12,893
(Gain) loss on sale of businesses and held-for-sale assets, net 10
—
—
(4,311)
28,579
Gain on termination of alliance agreement 11
—
—
—
(154,754)
Infineum termination fee, net 12
—
—
—
(10,877)
Impairment of long-lived assets 13
—
—
12,967
—
Amortization of intangible assets 14
46,226
51,239
143,898
163,493
Tax effect of adjustments to net income and discrete tax items 15
(9,611)
(12,810)
(33,309)
(46,996)
Non-GAAP Net Income
$
117,582
$
103,588
$
328,463
$
300,975
Diluted earnings per common share
$
0.51
$
0.22
$
1.26
$
0.95
Effect of adjustments to net income
0.26
0.46
0.91
1.05
Diluted Non-GAAP EPS
$
0.77
$
0.68
$
2.16
$
2.00
Diluted weighted averages shares outstanding
151,924
151,229
151,820
150,816
1 Non-cash impairment charges associated with goodwill.
2 Deal and transaction costs associated with the CMC Materials acquisition and completed divestitures.
3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations.
4 Represents severance charges related to the integration of the CMC Materials acquisition.
5 Represents retention charges related directly to the CMC Materials acquisition and completed divestitures, and are not part of our normal, recurring cash operating expenses.
6 Represents other employee related costs and other costs incurred relating to the CMC Materials acquisition and the completed divestitures. These costs arise outside of the ordinary course of our continuing operations.
7 Restructuring charges resulting from cost saving initiatives.
8 Represents an asset reduction of an acquired tax equalization asset from the CMC Materials acquisition.
9 Non-recurring loss on extinguishment of debt and modification of our Existing Credit Agreement.
10 (Gain) loss from the sale of certain businesses and held-for-sale assets, net.
11 Gain on termination of the alliance agreement with MacDermid Enthone.
12 Non-recurring gain from Infineum termination fee.
13 Impairment of long-lived assets.
14 Non-cash amortization expense associated with intangibles acquired in acquisitions.
15 The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including fluctuations in interest rate and foreign currency exchange rates. For information about our exposure to market risks, see Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report. There have been no material changes to the market risk disclosures contained therein.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company’s management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, or the Exchange Act) as of September 28, 2024. The term “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on management’s evaluation (with the participation of the Company’s CEO and CFO), as of September 28, 2024, the Company’s CEO and CFO have concluded that the disclosure controls and procedures used by the Company were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting.
There have been no significant changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the foregoing evaluation of disclosure controls and procedures that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
We are, from time to time, involved in various claims, proceedings and lawsuits relating to our business, employees, intellectual property and other matters arising in the ordinary course of business. The Company believes the final outcome of these matters will not have a material adverse effect on its condensed consolidated financial statements. The Company expenses legal costs as incurred.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described in Part I, Item 1A. “Risk Factors” in our Annual Report, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results. There have been no material changes in the risk factors described in our Annual Report.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
The Company did not repurchase any of its common stock during the quarter ended September 28, 2024 under a board-authorized common stock repurchase plan.
The Company issues common stock awards under its equity incentive plans. In the condensed consolidated financial statements, the Company treats shares of common stock withheld for tax purposes on behalf of its employees in connection with the vesting or exercise of the awards as common stock repurchases because they reduce the number of shares that would have been issued upon vesting or exercise. These withheld shares of common stock are not considered common stock repurchases pursuant to a board-authorized common stock repurchase plan.
Item 5. Other Information
Rule 10b5-1 Trading Plan Arrangements
During the quarter ended September 28, 2024, no director or officer, as defined in Rule 16a-1 under the Exchange Act, adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
